Freezing the pensions lifetime allowance begins to bite
“The freezing of the pensions lifetime allowance at £1,073,100 until 2025/26 was one of a range of stealth taxes announced in the Spring 2021 Budget. Since then, inflation has risen dramatically, meaning the impact of all frozen thresholds will be felt by more individuals.
“Advisers have a key role to play in helping individuals assess the risk of potentially exceeding the lifetime allowance, perhaps because of a combination of defined benefit and defined contribution pensions, and then to decide what if any action they should take as a result. This may involve explaining why exceeding the allowance may be better than sacrificing employer pension contributions.”
Rules on stronger nudges to pensions guidance become effective
“From 1 June 2022, pension providers will need to give a stronger nudge to Pensions Wise when customers ask to access their Defined Contribution pension flexibly. The Government wants thousands more people approaching retirement to access valuable Pension Wise guidance as ‘the norm’. But I really don’t see the point of rules requiring the nudge even to those who have taken advice. Ideally, many people opt to pay for full financial advice, which will offer a tailored recommendation based on personal circumstances. While they may well opt out of Pension Wise guidance, nudging them looks like a waste of time for all concerned.”
Scheme consolidation
“From 2022, trustees of smaller single employer occupational DC pension schemes with funds under £100m will need to carry out annual value for money assessments, and on failing, unless they have a sound and prompt recovery plan, will need to wind up and consolidate.
“Scheme consolidation is a complex exercise and not one to undertake lightly or without professional advice. The Government’s ambition of accelerating scheme consolidation further amongst schemes with funds up to £5bn will create shortages of such advice and bottlenecks in consolidator schemes’ ability to take on new schemes. A tsunami of schemes clambering to consolidate would be highly damaging to the DC market and risks widespread member confusion if significant changes to their retirement funds are not well planned and communicated.”
FCA’s New Consumer Duty
“The FCA is pushing ahead with its new consumer duty, which it describes as a ‘reset’ and ‘fundamental shift in industry mindset’. The aim of making sure firms have good customer outcomes at the heart of all they do is admirable, and the latest consultation adds more detail to FCA expectations.
“The final rules are expected by July 2022, with an implementation period running until April 2023. The draft regulations and guidance set out expectations for both manufacturers and distributors, including many areas where working together will be required to understand aspects such as target markets and new value assessments. All firms including adviser firms should get ready to undertake a substantial gap analysis exercise.”
