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The pensions market: a changing landscape

Just before Christmas I wrapped up 2018 with this post, reflecting on a year of change in the pensions market. With the new year now in full effect, what has this meant for 2019 so far and are more changes on the horizon?

Market Consolidation

In 2018, consolidation was a constant in the SIPP market and I predict this trend will continue throughout 2019. I strongly believe bespoke SIPPs still have a place for HNW/sophisticated investors, although we will begin to see fewer, more robust, specialist providers servicing this market segment.

Tax Year Changes

Lifetime Allowance (LTA)

Last year the LTA was increased to £1.03m and in April this year clients can look forward to another increase with LTA rising to £1.055m. This was the only direct pension change signalled in HM Treasury’s October 2018 Budget Announcements - despite speculation about further tweaking to the annual allowance, tapered annual allowance or possibly the tax-free status of the pension commencement lump sum.

Scottish and Welsh Taxes

In April last year the Scottish Parliament used its powers to set different income tax rates and bands for Scottish resident tax payers. In April 2019 the National Assembly for Wales will similarly be able to vary Income tax rates for Welsh resident taxpayers. Whether they will or not remains to be seen. However if they do, while pension administrators will already have a template process to work to from the Scottish Tax system, explaining tax relief on contributions will get that bit more involved.

Speculating on where this may lead in 2019 or beyond, there have been many calls to change and simplify the tax incentive for contributing to a pension scheme. The added complexity of having different income tax rates and bands for each country within the UK may be a strong driver for change. It's possible this may have already occurred, had it not been for the distraction of Brexit.


The minimum contribution increased to 5% last year and in April this year the overall minimum contribution will be further increased to 8%, which will be the biggest test to date regarding opt-out rates. Greater efforts will be needed to educate individuals on the value of an employer’s contribution which has to be at least 3% and promoting the long-term benefits of saving for retirement vs. spending today.

Ultimately a minimum contribution of 8% will, for many, still not be enough to achieve good outcomes in retirement, even when combined with State pension. Although it is a base from which to start. Suggestions are being made regarding enhancing the Lifetime ISA as an alternative, which would undermine the auto-enrolment initiative and should be avoided.

State Pension

In December 2018 the State pension began its phased increase to age 66, which will be followed closely by an increase to 67 over the next two years. Further increases are in the pipeline and the message is clear: if individuals wish to avoid the necessity of continuing to work for longer, they will need to reduce their reliance on the State pension. It is also
worth noting that there is a declared intent to link the current minimum pension age of 55 to the State pension age so that these are always 10 years apart. However this has not been passed into legislation, so it is one to watch for 2019.

Non-Standard Investments

The biggest news story in 2018 was the Berkley Burke case, which prompted the ‘Dear CEO’ letter highlighting the need for firms to meet their financial obligations, followed by FCA visits to discuss these issues.

The Berkley Burke case continues though, as they have been granted permission to appeal the 2018 judicial review with a hearing due in the Court of Appeal this autumn. Therefore, 2019 will no doubt herald further clarity on what a SIPP operator’s responsibilities are with regard to investment due diligence. However, the market has already changed markedly and many SIPP providers are only accepting standard investment for which due diligence is easier to perform. There is still a market for appropriate non-standard investments and those firms still accepting these investments will be ensuring robust due diligence is in place, along with a requirement for regulated advice.

The Authorities

Single Financial Guidance Body

This new government sponsored guidance body formed in October 2018 will start delivering its new functions this year. This should greatly assist in giving individuals access to pension guidance. Furthermore, the Pensions Advisory Service disputes resolution area shifted to the Pensions Ombudsman, centralising the handling of pension complaints and disputes.

Pension Cold Calling Ban

The cold calling ban has now come into full affect. This is a big step forward, but consumers still need to be informed and stay alert this year, as scammers will unfortunately continue to target those who are most vulnerable.

Retirement Outcomes Review

Last year the FCA launched the Retirement Outcomes Review and Consultation Paper CP18/17, and we now have a resultant policy statement issued in January. This includes a shake up to wake up packs at age 50 and at five yearly intervals thereafter, which will require implementation by November alongside revised risk warnings and annuity information. The policy will also require changes in April 2020 to the way drawdown charges are disclosed with the aim of making it easier to compare products and shop around.

However, the FCA has also issued a further consultation paper regarding the implementation of investment pathways which are intended to help non-advised clients avoid making inappropriate investment decisions, including leaving funds in cash. With consultation closing in April with the expectation of a policy statement in July 2019 which will require implementation in 2020, the picture will soon become clearer.

The policies coming from the Retirement Outcomes Review are rightly about putting in place appropriate consumer protections following the somewhat surprising and radical changes brought about by pensions freedoms introduced in 2015. The challenge is how to make regulation as effective as possible across such a wide and diverse pensions landscape. The consultation regarding investment pathways will in particular be of interest to SIPP providers who to date have no investment mandate on the basis, and as the product name indicates, that pension funds are self invested.

Other things to look forward to in 2019...

  • Self-employed Pensions. In the Autumn Budget the Government announced it would consult on how to increase retirement savings for the self-employed. The DWP issued a paper on 18 December setting out its program of trials to engage with the sector during 2019. Auto-enrolment is working positively for the employed but with approximately 5m self-employed people and the growing move to a gig economy it will be interesting to see the potential initiatives put forward.
  • Pensions Dashboard. The Autumn Budget saw the Government commit £5m to the development and implementation of the Pensions Dashboard in 2019/20. This has now become an industry-led initiative, although it may require further Government involvement if participation by all pension providers must be mandated.
  • In-specie Contributions. The week commencing 20 May 2019 has been earmarked for the Upper Tier Tax Tribunal hearing regarding In-Specie Contributions. Since mid-2016 pension providers have refused to facilitate in-specie contributions due to HMRC challenging the validity of what was thought to be an agreed and well-established process - and accordingly raising the prospect of HMRC reclaiming millions of pounds of tax relief. SIPP firm Sippchoice won an appeal against HMRC’s decision at the First Tier Tribunal in March 2018. However, HMRC have not given up, so the industry eagerly awaits the Upper Tier Tribunal in 2019. It is hoped that it will come to the same conclusion as the First Tier Tribunal. The main issue is the granting of tax relief based on assets that are hard to value. A solution could be to pass legislation that only allows readily and accurately valued assets to be used to make contributions, which would be of real value to individuals wishing to switch assets held in say an ISA into a SIPP.

As you can see, we've only touched the tip of the iceberg of change this year, but we'll continue to keep you updated throughout the year.

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