From moves to encourage more people to save for retirement to the challenge Brexit poses to those seeking an income from their investments, Moneywise speaks to a panel of experts to find out what 2019 has in store for pensions.
Workplace pension contributions to rise - again
From April 2019, the amount of money people pay into workplace pensions will rise as minimum contributions from employees are increased from 3% to 5% under auto-enrolment rules. Employers will also see their contributions go up from 2% to 3%.
This follows increases in April 2018 for employees from 1% to the current level of 3% and 1% to 2% for employers.
Although all eligible employees are automatically signed up to their workplace scheme, they are able to leave the scheme if they so wish. This means that there is always the concern that if employee contributions increase by too much, opt out rates will increase.
Tom Selby, senior analyst at AJ Bell says: “To put it into perspective, someone earning around £27,000 and paying in the auto-enrolment minimum will see their personal contribution rise from about £500 this year to more than £850 in 2019/20.
“While for most people this is still not enough to enjoy a comfortable retirement, we are now getting to the stage where some reluctant savers could start to feel the pinch. Rising average pay during 2018 should help ease the pain, but anyone missing out on a salary hike could well be tempted to prioritise spending today over saving for tomorrow.
He adds: “Anyone thinking of quitting their workplace pension needs to understand that they will be losing out on both tax relief and their employer contribution, which put together double the value of the money they put in. Put another way, opting out of your pension is a bit like taking a voluntary pay cut – so nobody should do it lightly!”
Mr Webb, however, is confident that the scheme will continue to achieve its object of increasing individuals’ private pension savings.
“With a fair wind this should go well,” he says. “New research from the DWP has shown that the April 2018 increase in contributions had virtually no impact on pension opt out rates. Pay packets will also be boosted in April 2019 by the increase in tax-free personal allowances which should also ease the pain of the contribution increase. Unless there is a lot of Brexit-related turmoil in April 2019, the contribution increase should pass off without event.”
More support for the self-employed?
The government and the industry at large have long been looking at ways to encourage self-employed people – who do not have the luxury of a workplace pension – to save for retirement.
According to the latest figures from ONS, just 37% of self- employed people aged between 40 and 60 have a pension, compared to 79% of employees.
At the end of 2018 the government announced a series of pilots and trials to raise awareness of pensions amongst the self-employed community.
Mr Long says: “If you are self-employed or have your own business you can expect to be prodded, cajoled and coerced into pensions in 2019, as the government tests a programme of nudges designed to boost the number of self-employed who are saving for retirement.
He adds: “Of course, you don’t need to wait for this, tax relief on contributions make pensions one of the best ways to save for the long term and with pensions available from as little as £20 per month and with the ability to stop and start contributions whenever you want, flexibility shouldn’t be too much of a problem.”
2019 should also see the launch of the long-awaited pensions dashboard.
Steven Cameron, pensions director at Aegon says: “As we move through 2019, we’ll see the start of pension dashboards becoming available, allowing individuals to get information on all of their pensions including their state pension in one place, online. Initially, there may be some gaps but over time, these should be a huge help for people keeping track of multiple pensions, making it easier to work out if they’re on track for the retirement they hope for.”
Mr Long adds: “We’ll also see the arrival of simpler annual statements and the new single finance guidance body which aims to make it easier for people to take control of their own retirement.
“2019 looks set to be the easiest year yet to put yourself in the driving seat of your own retirement planning.”
State pension rise
The state pension will rise by around £4.25 a week or £220 a year from April.
The full state pension will be worth £168.60 per week, or £8,767.20 after rising from £164.35 a week - above the rate of inflation.
Cold calling ban
Pensions fraud has been rife since the introduction of pension freedoms in April 2015, with the Financial Conduct Authority reporting that in 2017, the average victim lost £91,000 of hard earned savings.
After lots of talk and very little action, it seems like that government’s cold-calling ban, which would prevent scammers in the UK making unrequested calls to savers, will finally see the light of day on January 9.
Mr Cameron says: “Helping to reduce the risk of people being scammed out of their pension savings can’t come soon enough. For that reason we’re anticipating laws to be passed early in the New Year to ban ‘cold calling’ in relation to pensions.”
Tax relief changes
The level of tax relief offered to pension savers has become an increasingly contentious point in recent years. George Osborne consulted widely on the matter during his tenure as Chancellor but while he took the decision not to act, it remains something of a political hot potato.
Mr Webb says: ‘2019 is likely to see the cost of pension tax relief come under renewed scrutiny. In Autumn 2018 the Chancellor said that the cost of tax relief was ‘eye-wateringly expensive’ and it is hard to think that annual limits on pension contributions will not be reduced in a Budget soon.
This would specifically involve reducing the level of tax relief offered to higher-earners, but Mr Cameron hopes the rules will also be changed for the lowest earners.
“We’re seeing an increasing number of people whose earnings are below the income tax threshold being automatically enrolled into pension schemes. Members of some workplace pensions which use the ‘net pay’ approach aren’t receiving the pensions tax relief they’re entitled to and we hope the government will look at changing the rules to make sure everyone gets their full entitlement,” he says.
Brexit, Brexit, Brexit
With the government still in gridlock on how to proceed with Brexit, it’s impossible at this stage to predict what impact it will have on pensions. Nonetheless, it’s not a subject that can be ignored either.
Steve Webb, director of policy at Royal London says: “By far the biggest issue for everyone’s pensions in 2019 will be how the economy responds to Brexit. Good pensions depend fundamentally on a strong economy. If the economy does well there are taxes to pay for state pensions, good wages to pay for employee contributions and good profits to fund employer pension contributions and provide returns to investors. But if the economy grinds to a halt, everything gets more difficult.”
Nathan Long, senior analyst at Hargreaves Lansdown says that investors must be prepared for a degree of stock market turbulence, particularly at the start of the year.
“If you’re invested in your pension but a long way from retirement you can shrug off any share price drops, knowing that a fall in your pension value allows your regular payments to buy in at low prices. If you have cash in the bank, a drop in the stock market may be a great opportunity to top up your pension.
“Those closer to retirement or using drawdown to provide an income have more to lose, as it may not be possible to recover from any falls over a short time horizon. A great way to de-risk ahead of any suspected turbulence is to buy an annuity. However, you don’t need to use all your pension pot in one go, buying smaller tranches of annuity allows you to de-risk your pension investments gradually over time.”
However, while it might be impossible to escape Brexit, Alistair McQueen, head of savings and retirement at Aviva, says savers shouldn’t let it take over their retirement planning.
“Whether you like your Brexit soft or hard boiled, I sometimes find it helpful to remember that there is a world beyond “the B word”. Whatever Brexit brings, our society will still be ageing; our customers will still need to save; and our industry will still have a responsibility to serve. Amidst all the heat, let’s not lose sight of those unchanging truths,” he says.