2018 has certainly started off with a bang with the introduction of Mifid II.
Advisers will need to double check they are compliant and ready for the new regime which comes into effect today. Couple that with the introduction of the General Data Protection Regulation (GDPR) in May and it looks like an European regulation heavy year.
However, a couple of the key pensions themes from last year look set to continue into 2018.
Retirement income and pension freedoms will probably take centre stage. In the first few months we can expect the Work and Pensions committee report into whether the freedom and choice reforms are achieving their objectives. Then mid-year the FCA should publish the final report from its retirement outcomes review.
We know it will recommend changing wake-up packs, following a successful trial last year. But this seems to have been a long time coming and changes could have been made a lot earlier. The regulator is also set to recommend changes to help the third of individuals who enter drawdown unadvised. This will probably include a requirement that drawdown pension plans offer a default fund, although where there is an adviser I believe this shouldn’t apply.
What will be interesting is whether the FCA also attaches a maximum charge cap to the default fund, similar to the one that applies to automatic enrolment accumulation funds. If it does, then expect some intense discussion over what level to set it at as well as the design of the default fund.
Sharing the limelight will be defined benefit (DB) transfers. Early on in the year, we expect the Department for Work and Pensions to respond to its consultation on the security and sustainability of DB schemes, concentrating on scheme funding. The FCA should also publish a response to its consultation on the advice process for DB transfers, and the new rules should be introduced later in the year. With the increased media focus on DB transfers this should help shape the debate, especially as the demand for transfers doesn’t show any signs of abating soon.
Alongside these themes there are a few other changes to watch out for. The lifetime allowance increases to £1,030,000 in April. Although on paper this is only a small change, it could save someone £16,500 in tax if they have a large excess above the lifetime allowance and delay crystallising until the new tax year. The Spring Statement is set for 13 March, and although this shouldn’t include any new tax proposals that won’t stop the rumours abounding that pension tax relief will be abolished.
Other tax changes include cutting the tax-free dividend allowance from £5,000 to £2,000 from April. Advisers will no doubt be working with their clients in the early part of the year to shield dividends as much as possible by using pensions, Isas, investment bonds, and gifting.
The new single financial guidance body, which is yet to be named, will kick off in October and will replace the Money Advice Service and The Pensions Advisory Service among others.
Auto-enrolment will also start to come of age as contributions increase to 5 per cent in April. The government's auto-enrolment review, published last month, has also recommended a raft of changes, including extending auto-enrolment to those aged 18 and over and scrapping the lower earnings limit when calculating contributions.
So all in all, another busy year.
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