Steven Cameron, Pensions Director at Aegon, discusses what advisers should look out for in 2022.
Cameron (pictured) comments on:
- Rising inflation
- Consumer investment strategy
- National Insurance increase
- Impact of LTA freeze
- Stronger nudges to pension guidance
- Defined Contribution Scheme consolidation
- New Consumer Duty
Macro-economic uncertainty – rising inflation and interest rates
“Advisers are well placed to help their clients navigate through both the challenges and opportunities of the ongoing macro-economic instability. Forecasts suggest inflation will average around 4% in 2022*, peaking around 5% in April and despite Omicron uncertainty, the Bank of England is under increasing pressure to lift the base rate from its historic low of 0.1% to ease inflationary pressures.
“Rising inflation poses a particular risk for those who hold large sums of money in cash and can disproportionately affect retirees living off a fixed income. The higher inflation is, the greater the stealth impact on limits such as the Lifetime Annual Allowance or the Money Purchase Annual Allowance. A rise in interest rates poses its own risks, most notably making it more expensive to borrow money, but it can also carry benefits, such as improved returns on cash savings and potentially higher annuity rates. However, interest rate increases are likely to be more than outweighed by higher inflation.”
*OBR: Overview of the October 2021 Economic and fiscal outlook
Consumer investment strategy
“We expect the FCA to consult on aspects of its Consumer Investment Strategy early in 2022. It believes too many individuals are holding too much in cash and is targeting those with over £10k of investable assets in cash, believing those who can accept the risk could be making their money work harder by investing it. This of course will also support the UK’s post-pandemic economy.
“We expect a consultation on a new form of ‘guided sales’ to help support such individuals invest some of that excess cash. This is the first sign of the FCA considering a more personalised form of guidance with less regulatory burden than full financial advice. Advisers might want to start thinking about how they may wish to build a more personalised form of guidance into their client propositions, perhaps to reach new segments or in workplace situations.”
National Insurance set to rise
“From April 2022 National Insurance contributions (NICs) will increase by 1.25% for employees, employers and the self-employed, to provide additional funds to the NHS as well as funding the government’s share of the new social care deal. From April 2023 this 1.25% increase formally becomes the new Heath and Social Care Levy and will be shown on pay slips. The increase will be extended to those over state pensions age, meaning this group will start paying 1.25% NICs for the first time on earned income. Dividend tax rates outside of ISA and we believe pension wrappers will also rise by 1.25%.
“Advisers will need to be prepared to help their clients understand what the increase in NI means for them. It may be that some will see greater attractions to pay pension contributions by salary sacrifice although the rules here are unclear. While this may be of benefit for as long as the extra 1.25% is within the NI system, it may not be possible from April 2023 when it becomes a separate levy.”
