Pension predictions for 2015
Thanks to wide-ranging pension reforms, changes to the property market with the Help to Buy mortgage guarantee and the Mortgage Market Review (MMR), plus rock-bottom savings rates, it's fair to say 2014 was a tricky year for personal finance.
But what will 2015 bring? Moneywise put that very question to three of the personal finance world's leading experts to give us their predictions for the year ahead.
Tom McPhail is head of pensions research at Hargreaves Lansdown
For several reasons, 2015 is likely to be a watershed year. The most critical development will be the introduction of the new access freedoms from 6 April.
We know already that these changes have stimulated a significant upsurge in pension saving. Just in the six months since the Budget, Hargreaves Lansdown has seen a 37% increase in new money being saved into pensions, compared to the same period last year.
What we don't know is how investors will take advantage of the new freedoms. Undoubtedly, some will take all their money out of their pension in one go – in a survey we commissioned, 12% of investors said they plan to do this; however, some would end up paying substantial amounts of tax if they were to do this.
We also know that hundreds of thousands of retiring investors are deferring taking any benefits from their retirement fund, waiting to see what the final rules are and what products and options are available to them.
We don't know for sure what they will do; how many will use annuities, how many will use drawdown, a mix of the two or some new as yet unknown retirement income product. Many pension schemes and providers won't be ready for the new reforms, so one worry we have is that when investors do ring up on the 6 April or shortly afterwards to ask for their money, they may be disappointed.
We may also see some abuse of the new rules, with over-55s still in employment using the new freedoms to wash up to £10,000 a year of salary through their pension to scoop up some free tax relief and to avoid National Insurance. The Treasury is staying tight-lipped about this issue but they must be worried.
Early in the new year we should see the launch of the Treasury-sponsored free retirement guidance service, delivered by The Pensions Advisory Service and the Citizens Advice Bureaux. Details of the service are still being worked on but it will be free and available face to face, over the phone or via the internet.
The General Election is a huge unknown. We've got no idea who will be forming the next government and what they might do to our pensions, in terms of tax breaks, contribution limits and access. It would be optimistic to expect things not to change – we know Labour isn't happy with a lot of the new freedoms, so perhaps a Labour government would impose restrictions.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.