For years the pensions industry seemed to trundle along with very little major changes to it. However, in the last 5 years, there have been a whole host of initiatives and legislative changes that have seen pensions in the UK revolutionised. But if you think that the changes are over, think again, because come April there will be even more changes for the industry and its customers to cope with. The two fundamental changes so far have been auto enrolment and pension freedoms.
Auto enrolment has seen millions of people already auto enrolled into an occupational pension scheme, and now we are just over halfway through the rollout, we're yet to see even more auto enrol in the next few years. With a generally positive reception, millions more saving towards retirement and just a 10% dropout rate, it looks set to be a big success.
Pension freedoms is the other change that has seen a largely positive welcome. Previously, savers were only allowed to choose an annuity when cashing in their pension pot, but now, savers have an almost free choice of what to do with it. From investing in property to cash ISAs or even simply spending it, savers have warmly welcomed these new found freedoms.
The changes yet to come…
Pension freedoms, although warmly welcomed by most, weren't that popular with those people who had already cashed in their pension and had bought an annuity with it. With many people receiving a poor rate of return from their annuity, many felt let down that the same opportunities to current retirees were not available to them. The Chancellor, George Osborne to address this has announced the formation of a secondary market where people will be able to sell their annuities to insurers for a lump sum, with the price determined by the level of income and how long they think you'll live. The Economic Secretary to the Treasury, Harriett Baldwin said:
"For most people, sticking with an annuity is the right thing to do, but there will be some who would welcome being able to draw on that money as they choose – the same freedom we gave to people approaching retirement."
Unfortunately, it is not all good news this year with pension. From April, the amount of tax relief that can be claimed on the money paid into your pension pot is to be reduced. The Lifetime Allowance, which is the maximum amount of money you can pay into your pension pot is to be reduced from £1.25 million to £1 million. This means that should your pension saving go above the £1 million threshold, any money above this will be taxed at a whopping 55% when withdrawn.
2016, like its last few predecessors looks to be another interesting year in pensions…