The pensions landscape is ever-changing and there are several key 2020 pension trends that we want to bring to your attention. From a welcome boost in State Pension income to the potential impact of Brexit, the rising pensionable age for men and women, and the plans of Boris Johnson’s majority Government – read on to find out what pensions changes you can expect over the course of this year.
Increased State Pension
As of April, millions of pensioners are set to benefit from a 3.9% increase in the State Pension. This modest but welcome increase derives from the triple lock; a protective measure that ties annual State Pension rises in April to either the previous September’s price inflation, earnings growth or 2.5% – whichever is the highest.
This year, average earnings were the highest measure, resulting in one of the biggest pension “pay rises” since 2012. Pensioners who are entitled to the full single-tier State Pension will receive £175.20 a week as of 6 April 2020 (up from £168.60), making them £343.20 wealthier by the end of the 2020-21 tax year.
Rising State Pension age
Now for the bad news. Because one of the more controversial 2020 pension trends is that the State Pension age will rise to 66 for men and women by October. Of course, those hit hardest by this increase are the estimated 3.8 million women born in the 1950s whose retirement plans have been significantly affected.
Alongside the Women Against State Pension Inequality (WASPI) movement, two claimants from the separate Backto60 campaign lost a landmark High Court ruling in 2019 over claims of discrimination. They have applied to appeal the ruling and it remains to be seen what the outcome will be for those affected.
Higher lifetime allowance
This forthcoming April will also see an increase in the Lifetime Allowance (LTA). Much like the rising State Pension, this increase is an annual event. Except the LTA increases by the rate of UK inflation (Consumer Price Index) of the previous September. That figure was 1.7% in 2019, which equates to a marginal increase from £1,055,000 to around £1,075,000 for defined contribution pensions. This is subject to government confirmation – we would have expected this to come in November but of course the General Election interrupted matters.
The LTA is the overall limit of tax privileged pension funds that a member can accrue during their lifetime. Beyond that a Lifetime Allowance tax charge applies. Despite the modest rise, this increase is certainly helpful for planning purposes. Especially given that HM Revenue and Customs’ tax take from the LTA in 2017/18 was a staggering £185 million.
”New” Conservative Government
With Boris Johnson’s Conservative Party re-claiming Parliament with a landslide majority in the December election we can expect more 2020 pension trends emerging from Whitehall this year. The triple lock is set to remain, according to the pre-election manifesto, while a multi-dimensional Pension Schemes Bill that was passing through parliament prior to the general election is likely to gather momentum over the coming months.
The Bill seeks to push ahead with so-called Defined Ambition (DA), or “shared risk”, pension schemes that would spread risk equally between employee and employer to provide greater income certainty for the former and less cost volatility for the latter. Another key facet is to drive forward plans to provide universal pensions dashboards. The idea being that pensioners will be able to access information about all their pensions, who manages them and what they are worth in one place.
We can’t talk politics without mentioning the “B” word – Brexit. The biggest impact Brexit could have is on the investment performance of pension funds. Many pension funds have a significant proportion of assets tied up in the UK economy. If it fails, this could have a detrimental impact. Meanwhile, the Government has pledged to continue uprating state pensions for expats living in the EU after we’ve left the bloc. Although, a no-deal exit would mean reciprocal deals would have to be brokered each one of the 27 individual EU member states.
All in all, it looks like we’re set for some interesting 2020 pension trends, some of which are very positive, during the year ahead! If you’re concerned with any of the issues raised in this article, we recommend speaking to an independent financial adviser to ensure your pension works as hard for you as you have for your pension.
For more information about Pensions, or to arrange a meeting with one of our professional advisers, please contact Acumen today on 0151 520 4353 or [email protected] to arrange a meeting with one of our experienced advisers.