What is the outlook in 2025 in terms of government making more changes affecting long-term financial planning?
We had some pretty big changes in the Autumn Budget impacting advice, but it looks like we shouldn’t expect much else this year directly affecting the sector. This means there’s time to get our heads round those changes and move forward with confidence.
Why do I think this?
The indicators are that the government focus is on workplace pensions schemes. Looking at the policies and consultations underway, it is particularly interested in two areas affecting these schemes:
- A desire to encourage pension schemes (basically workplace pension schemes) to invest in productive finance;
- A recognition that people aren’t getting the help they need to make good choices – particularly at the point of retirement.
The Pensions Review got off to a fast start, with phase 1 clearly focused on how to encourage schemes to invest in productive finance. The government appears to be hoping, in part, that it can get pension schemes to help drive the economy (looking, for example, at super-large Canadian schemes investing in UK productive finance).
We can see this through recent (now closed) consultations.
- The DWP consultation ‘Pensions Investment Review: Unlocking the UK pensions market for growth’, looking to drive consolidation through minimum-size requirements in the expectation larger schemes are more likely to be able to invest in productive finance.
- The FCA consultation on ‘The Value for Money Framework’, which looks at measuring performance with a view to forcing consolidation on poorly performing schemes.
On the face of it, these both sound well intentioned. But there are some pretty big consequences and it’s not clear that bigger schemes will lead to more investment in UK productive finance. Nonetheless, it’s a clear demonstration of where the focus lies.
Alongside this are two initiatives focused on helping consumers make better choices at retirement.
- DWP are looking at how trustees of master trusts will support members at the point of retirement to include this in the Pensions Bill due this year. This comes off the back of the consultations on ‘Helping savers understand their pension choices’. We should expect trustees to help guide members but with a default solution if the member can’t decide.
- FCA Consultation on Targeted Support (CP24/27). This is all about helping to close the advice gap – the clear priority is freeing up providers to help non-advised people at retirement with more helpful nudges.
Both have a lot of merit, although we could see another potentially inconsistent approach between trust and contract-based schemes. So, what do these mean for advisers looking after their clients plans? Probably not that much.
Some clients will still be in an employers pension scheme, but neither initiative should stop them from getting advice or using the full flexibilities in pensions freedoms when they get to retirement. This is more about where schemes invest and supporting the non-advised market.
With the government focus on these initiatives, there is not much room for them to look at anything else on long-term financial planning. The upside of this is that financial planners can likely relax on further potential disruption to existing plans.
Yes, we need to see the fine detail following the consultation on IHT on pensions. While that could still take some time, we know the basic facts.
Beyond looking at where the government are actively interested, it is worth looking at where they have specifically said they won’t go in the near future.
- Social care. We saw the deferral of the social care changes pre-Autumn Budget and then the setting up of an independent commission, so it’s clear we won’t see anything here for a while.
- Phase 2 pension review. It looks likely this is paused, presumably while government focuses on the above priorities. Phase 2 was due to cover adequacy, among other things, and this is more focused on workplace anyway.
- IHT rules. There was an opportunity to simplify these, but that seems unlikely given the recent changes to both pensions and Business Property Relief. Given the need to implement these changes, it looks unlikely there will be a wider review now.
Never say never, but it looks like the government has its hands full. Advisers should be able to plan with some confidence that we should see a more stable period of policy on long-term financial planning. One less thing to worry about.
Alastair Black is head of savings policy at abrdn
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