2024 was a particularly busy year in the pensions and advice arena. The year got off to a good start in February, when the Discussion Paper on the Advice Guidance Boundary Review closed. And, in April, we saw the end of the pensions Lifetime Allowance – at least in theory!
In July, the Labour Party secured a historic victory. Once in power, they moved quickly with the announcement of a Pension Schemes Bill in the King’s Speech, followed by their Pensions Review. As July closed, Consumer Duty went live for closed books, but almost before the dust had settled there, the FCA published a Call for Input on simplifying its 10,000-page rulebook in light of Consumer Duty.
Then, we had the inaugural Budget from Chancellor Rachel Reeves, followed by more pension-related news in her first Mansion House speech. Throughout, it’s clear that advisers have had a hugely important role in navigating an evolving financial landscape.
Many of the events of 2024 will shape the upcoming year, which is set to be just as eventful, meaning advisers remain in high demand. To help advisers stay informed and prepared, I’ve reflected on some of the key regulatory and Government developments of the last 12 months, exploring the potential impact these could have on the advice industry as 2025 unfolds:
Pension Schemes Bill
The Labour Party took to power in July and wasted no time in announcing key pension policy initiatives. Just weeks later, I was pleased to see the inclusion of a Pension Schemes Bill in the King’s Speech, which demonstrated the significance of pensions to the Government. The Bill, which is due to be published in Summer 2025, will cover three key topics:
1. Value for Money Framework
The FCA’s recent Value for Money Framework consultation, which will apply to both contract and trust-based pensions, was particularly detailed and prescriptive. The Framework will be made up of three elements: investment performance, cost and charges, and quality of customer services. The FCA is proposing providers and schemes collate a huge amount of data to assess and compare their default funds to determine value for money.
The aim of ensuring anyone saving in a workplace pension is receiving value for money is admirable, but there’s a real risk that the sheer volume of data will mean trustees and IGCs will lose sight of the wood for the trees.
I do hope 2025 will see the FCA cut back on data requirements and consult again. There’s also a strong need to make sure this Framework is appropriate bearing in mind the more recent Mansion House proposals around massive consolidation in the multi-employer market.
2. Small, deferred pension pots
The Labour Government is continuing where the previous Government left off, proposing to authorise a range of schemes as ‘automatic’ consolidators of small, deferred pots, initially under £1,000. But with scheme consolidation so high on the agenda, I’m strongly in favour of deferring small pot consolidation for the foreseeable future. I’d certainly like to see commercial pension dashboards up and running first so individuals can track what’s happening to their pensions.
It’s also important to make sure the consolidators are offering value for money and will be ‘survivors’ of the Government’s consolidation agenda. Indeed, if we do see dramatic consolidation, the small pots initiative may no longer be needed. So, deprioritising small pot consolidation would make a lot of sense and would also give the industry more bandwidth to deliver on other Government priorities.
3. Guided retirement solutions
Here, the plan is to require trustees to offer ‘Guided Retirement’ solutions to their members. I support trust-based members having access to pension drawdown, either within their scheme or through a partnership with a master trust already offering drawdown. But making trustees create and provide a default ‘retirement product’ for those who simply won’t engage will be challenging.
As our ‘Second 50’ research has demonstrated, everyone’s retirement is different. Maybe trustees could learn from the FCA’s targeted support approach, suggesting courses of action for people with ‘common characteristics’?
The previous Government also wanted trustees to offer access to a decumulation only version of Collective Defined Contribution schemes, but with these still a vague concept, that must be many years away.
Pensions Review
The importance of pensions was reaffirmed a few days after the King’s Speech, when Rachel Reeves put Pensions Minister, Emma Reynolds, in charge of a comprehensive two-tiered review of the UK’s Pension System to ‘unlock growth, boost investment and deliver savings for pensioners’.1
The first stage has been focusing on workplace pension investments with a strong desire to get defined contribution default funds investing more in productive assets and in the UK, to support UK economic growth. After an initial call for evidence, the Government launched a second consultation on ‘Unlocking the UK pensions market for growth’. This proposed a radical reform of the workplace pensions market by the early 2030s, setting a minimum default fund or arrangement size of between £25bn and £50bn, a maximum number of default funds per multi-employer scheme or provider, and the possible regulation of employee benefit consultants. It also included a section exploring how to permit bulk transfers of members of contract-based schemes without individual consent. Together, these proposals could radically change the workplace pensions landscape.
The intention had been to launch Phase 2 of the Pensions Review by the end of 2024, with a focus on further steps to improve pension outcomes, including the evaluation of retirement ‘adequacy’. Unfortunately, it now looks like Phase 2 has been delayed indefinitely. While disappointing, this is not completely surprising. The Autumn Budget hit employers with increased National Insurance Contributions and a higher National Living Wage from April 2025, and it appears the Government has backed off from asking employers to also increase their pension costs.
This leaves us with no indication of if, or when, the Government will implement the 2017 review of auto-enrolment, reducing the minimum age from 22 to 18 and removing the offset from qualifying earnings so that contributions are paid on earnings from the first pound. Alongside this, a proper debate on what are ‘adequate’ auto-enrolment contributions, for different earnings bands, is long overdue.
The Autumn Budget
In October, Rachel Reeves delivered her highly anticipated (and much speculated upon) Budget. During the lead up, the pensions industry was kept firmly on its toes, with widespread rumours about many possible reforms to the pension tax rules. On the day, most of the rumours didn’t transpire. But some who’d taken their tax-free cash lump sums early, for fear of losing out, may have suffered from all the uncertainty.
There was one very significant pension announcement, though. From April 2027, any unused pension funds and death benefits will form part of an individual’s estate and be subject to inheritance tax. This means that advisers will need to reassess the structure of pensions and inheritance arrangements for many of their clients. Read our in-depth analysis on the Autumn Budget 2024.
Advice Guidance Boundary Review
For me one of the most exciting developments of 2024 was the increased support that surrounded the Advice Guidance Boundary Review. It was reassuring to see the Labour Government in favour of the three initial proposals – targeted support, simplified advice and further clarity on the advice guidance boundary.
We’re now in the middle of an important FCA consultation on high-level proposals for targeted support in pensions. For more information on the targeted support consultation, read my article on thinking ahead to targeted support.
Consumer Duty
It may be early days for Consumer Duty, with it only going live for closed books in July 2024. But, in response to a request from the incoming Labour Government, the FCA issued a Call for Input on possible scope for removing or simplifying regulations.
It’s refreshing to see regulatory simplification under discussion and we sent in our suggestions by the October 31st deadline. However, with Consumer Duty still very much in its infancy in regulatory terms, I would have suggested postponing the Call for Input another year or two. This would give us further experience of how the FCA is regulating ‘around’ Consumer Duty.
My recent article on simplifying the FCA rulebook post Consumer Duty delves deeper into this and the potential implications for advisers.
Looking forward to 2025
Pensions and investments have certainly been at the forefront of the new Government’s thinking in 2024. As we enter a new year, this will continue, with advisers playing a key role as always in helping individuals and employers make sense of the changes. Look out for my further updates and thoughts throughout the coming year.
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- Chancellor vows 'big bang on growth' to boost investment and savings - GOV.UK. Data source, GOV.UK, July 2024.