Article Thinking ahead to 2024 part 2: more pension plans and FCA priorities

In this two-part series, Pensions Director, Steven Cameron, discusses his expectations for 2024 and what this could mean for advice opportunities.

Read part 1: Thinking ahead to 2024 part 1: pre-election pension plans.

In part one of my thoughts on the outlook for 2024, I discussed the Government’s current focus linked to the Mansion House agenda. In this second article I’ll cover other pension initiatives from the current Government, as well as a quick look at FCA priorities for 2024.

1. Abolition of the pensions Lifetime Allowance
2. Automatic enrolment legislation changes
3. Pension dashboards
4. Pre-election vote winners – more tax cuts to come?
5. FCA 2024 priorities

As I said in part one, the greater the pace and volume of change, the more opportunities there are to show the value of advice.

1. The pensions Lifetime Allowance

Back in the Spring 2023 Budget, the Chancellor’s ‘rabbit from the hat’ was the abolition of the pensions Lifetime Allowance (LTA). This, alongside other changes in annual allowances, was driven by the aim to reduce economic inactivity amongst the over 50s.

While scrapping the LTA was widely welcomed and might have sounded like a straightforward simplification, it’s proving anything but. HMRC has been working intensively with the industry on disentangling complex strands of legislation. Disappointingly, the Autumn Statement confirmed the implementation date is fixed at April 2024, despite unanimous industry concerns over the feasibility of this. We finally received the detail on 29 November in the Finance Bill leaving just four months to implement.

One piece of good news was the backtracking on levying income tax where death benefit beneficiaries draw an income rather than take a lump sum, where the pension member died before age 75. As the industry absorbs the full breadth and complexity of these changes, providers and advisers will be up against the clock to make sure their clients have the necessary information and support to make the right decisions. Let’s hope chaos can be avoided.

This is one area where the Labour Party may take a different stance, saying if in power, it would reintroduce the LTA in some shape or form. The thought of a complex removal followed by a complex reinstatement is far from pleasant.

2. Automatic enrolment

After lengthy delays, the Government enacted the Pensions (Extension of Automatic Enrolment) Act 2023 which will enable enhancements to auto-enrolment originally put forward in 2017. These include reducing the minimum age from 22 to 18 and removing the salary offset (currently £6,240) so that contributions will be 8% of earnings from the first £ earned.¹ At the time of writing, we’re expecting a consultation on how these will be implemented, with the removal of the offset likely to be on a phased basis over two to three years. Implementation could start as soon as April 2025. While after the General Election, these changes have cross-party support, so a change of Government shouldn’t have any major impact.

This is a very welcome change for members’ retirement outcomes, although it will still not deliver an adequate replacement income in retirement for medium and higher earners. I look forward to a lively debate during 2024 on longer term changes and it will be interesting to see if a solution can be found which achieves cross-party support.

3. Pension Dashboards

I remain a strong supporter of the aims of Pension Dashboards. While I hope we’ll see progress with implementation during 2024, I expect this to be largely ‘behind the scenes’ with little implications for you or your clients until 2026.

4. Pre-Election vote winners?

After a surprise cut in National Insurance in the Autumn Statement, all eyes will be on the Spring Budget, to see if the Conservatives can go further, perhaps cutting income taxes or inheritance tax.  

We now know that the State Pension triple lock is being fully honoured in April 2024.² The big question is if there will be a commitment to retain it post-Election. The political parties continue to play pensions poker here and it’s a question of who will show their hand first.

While talking about Manifesto commitments, I’ve been calling for all parties to be clear on how they’ll deal with the funding of social care. The Conservatives’ deal was delayed from October 2023 for two years, but we’ve not heard if they remain committed to this. Labour have so far been silent, although I’d expect them to have their own preferred approach due to criticisms that the Conservative deal fails to support lower wealth/income households. The ultimate approach could open up a whole new aspect of the retirement advice market.

5. FCA 2024 Priorities

Clearly, for the FCA, 2023 was dominated by introducing the Consumer Duty. I believe the industry generally should congratulate itself on having risen to a significant challenge, and it’s good to see the FCA saying so. But they have also been quick to stress the Consumer Duty isn’t a ‘once and done’ exercise. July 2024 is the deadline for compliance for closed books. It’s also the date by which all firms need to have produced their annual compliance report. Firms must evidence compliance as well as document future steps agreed by the firm’s Board to address any weaknesses.

The FCA has also made clear it wants to be more data led and to intervene sooner when it spots issues. We can expect some sectors or ‘outlier’ firms to come under scrutiny. I do hope the FCA will also highlight success stories – not just through good practice guides for the industry but also more widely with consumers at large.

The joint HMT and FCA Discussion Paper for the advice/guidance boundary review has just been released, and we await the outcome of the FCA's Retirement Income Advice review.  Both could be highly impactful on advisers.

We also expect the FCA to consult on Value for Money for workplace contract-based schemes, mirroring that for trust-based schemes. This is expected to explore new rules enabling providers’ Independent Governance Committees to transfer pension savers in bulk without individual consent, with appropriate safeguards.

Conclusion

In part one of Thinking ahead to 2024, I explained how significant the reforms linked to the Mansion House Compact are. Part two shows that these are far from the only changes we face as we enter 2024. If you have clients affected by the removal of the LTA, helping them make the right decisions will be a particularly challenging task in Q1.

Q1 is also likely to see another Budget, even though the ramifications of Spring 2023 as well as the Autumn Statement are still being felt. With not one but two rounds of auto-enrolment changes under discussion, there’s lots to consider. And that’s before we overlay the FCA’s priorities.

Missed part one of this series? Read it here: Thinking ahead to 2024 part 1: pre-election pension plans.