Our pension clocks will need altering again soon
Pensions have seen constant change for as long as most of us can remember. Just as we are about to alter our own domestic clocks at the end of October back to GMT, we encounter the darker nights lasting for longer. There is also about to be yet another period of change for the Pensions market over the coming 6 months.
By Craig Hugo, Taylor Patterson.Kick starting this process of review will be the first Autumn Statement from the new Chancellor Philip Hammond who will want to impose his own style on the fiscal markets and also look to impose his own stamp of legacy on the pension world which will affect all of us at some point in our lifetime.
The Lifetime ISA (LISA) is due to be launched in April 2017 and the relevant legislation is currently making its way through Parliament. People below the age of 40 will be able to take out a LISA and invest up to £4,000 a year. The Government will add in a bonus of up to £1,000 until age 50.People will be able to withdraw funds free of charge, including the bonus element, to buy their first home as long as the value is under £450,000. This must be at any time from 12 months after opening the account. Funds can also be withdrawn free of charge from age 60. If funds are taken out at any other time the bonus element is lost and an additional 5% charge is applied on the total value.
For example, if someone had paid in £50,000 (including the bonus) at the end of a ten year period with investment growth it was worth £64,000, the exit penalty would be £16,000. This means the Government gets back the £10,000 bonus it has added, but also charges another £6,000 which equates to almost half of the growth. Anyone taking out the new LISA needs to be aware of the potential benefits and penalties in equal measure.In April 2017 there will be the introduction of the Pension Advice Allowance. This will allow individuals to withdraw up to £500 tax-free from their pension pot to help pay for advice.
It is good to see that the Chancellor has seen the importance of the needs of people approaching retirement who are now faced with more choices which has also led in general to greater confusion.With this move to allow people to access their pension on their own terms they will no doubt require even more guidance and assistance to ensure a good outcome for themselves. The ability to access advice whilst also being allowed to cover £500 towards the cost of this advice from their pension savings may be invaluable. The key will be what that advice looks like and how big that market will be.
The secondary annuity market is due to start in April 2017 but before that we still await to hear much of the detail with more guidance due from the Government on the framework that will be required when this is implemented. It is expected that those individuals looking to sell their annuity will need to seek expert financial advice before being allowed to complete this transaction.There is a great deal of concern about the impact this market will have on the consumers that will be affected with poor value outcomes for many, but with an equal opportunity for those who are the buyers.
State Pensions are also due a further review early in 2017. State Pension Age is currently increasing to 65 for women by 2018, then gradually increasing to 66 for men and women by 2020. This review is likely to suggest bringing forward dates for future State Pension Age increases to 67, 68 and beyond with the end result being a revised timetable of changes through the 2020s and 2030s. We may have wondered if after all the recent pensions related changes and challenges we have dealt with and in the main overcome, that following on would be a period of reflection and consolidation. It looks like change is here to stay and gathering pace with it.
