Most of us will have spent some time over the last quarter planning for 2024 to help us navigate another year of choppy waters. Given the past three years, however, we’ve had to become masters at weathering the storm, whether it is Covid, the cost of living crisis or higher inflation and therefore interest rates.
With interest rates held by the Bank of England for a second time last month, many are now expecting a downward trajectory. But looking ahead, as the Government tries to keep a grip on inflation, this may not happen soon, and predictions are very hard especially given the current uncertainty in the Middle East and its potential impact on energy prices.
Any easing and stability in inflation and interest rates will help to make pensions contributions more affordable. Both rates of interest and inflation will continue to be critical to conversations over the coming year, particularly in supporting retirees with making their savings work harder to provide more comfortable retirements. There is also an education piece here too as many fail to fully appreciate the impact of higher inflation on their retirement plans.
Despite the ongoing uncertainty and challenging headwinds, there are some big events on the horizon, not least a general election. The very latest this can take place is January 2025. Either a Labour or Conservative government will present its own challenges and opportunities for adviser businesses and clients.
While we might assume a Labour government is more likely to penalize those on the higher end of the wealth scale, the flip side is that a change this significant is likely to drive more planning opportunities. The outcome of the election also brings into question what will happen to current activity, such as the Advice Guidance Boundary Review, which is set to shift the rules of engagement for business and consumers. Labour is also talking about a comprehensive review of retirement saving.
In the short term, we expect the Department for Work and Pensions (DWP) will publish the outcome of its consultation on decumulation from workplace pension schemes. This is likely to impact many of your clients who will have savings in workplace pension schemes as well as wealth on platforms, as it may place schemes under a legal obligation to provide decumulation products and services. And we’ve the state pension hike in April taking the new full amount up to £11,501 a year.
The Mansion House Pensions reform is gathering pace behind the scenes. This includes a new framework for comparing value for money in defined contribution (DC) schemes, how to amalgamate small pots and better support for retirees with decumulation of their pension pots. While the rules of the game won’t change immediately, there will be plenty going on in the background and we’re likely to hear more about this and how they will impact advisers and their clients in time.
Regardless of the election outcome, it seems pensions as an issue will retain its prime position in the news. Labour is talking about its own focus on pension policy as well as the Conservative government’s raft of measures being consulted on. Across the board, there seems to be recognition of the need for reform and to be much more prescriptive in how people are supported into retirement. Yes, there’s still support for pension freedoms, but also the need for guaranteed income options and ensuring people don’t draw down too much too soon.
We can’t finish an article about navigating the year ahead without mentioning Consumer Duty. Many of you will have dialed in to the regulator’s much anticipated webinar in early December. The next deadlines are in July for producing Annual Board Reports and assessing closed products to ensure they meet the highest standards of Consumer Duty. Can customers access any support they need when they need it in relation to those products? This is all useful to bear in mind.
But what came through loud and clear is that Consumer Duty is not a ‘once and done’ admin exercise to appease the regulator. Instead, it’s an ongoing commitment to putting clients at the very heart of what we do and that we need to continue monitoring and measuring to ensure we are all on track to reach our chosen destination.
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Credit Risk: There is a risk that an investment will fail to make required payments and this may reduce the income paid to the fund, or its capital value. The creditworthiness of a bond issuer may also affect that bond's value. Bonds that produce a higher level of income usually also carry greater risk as such bond issuers may have difficulty in paying their debts. The value of a bond would be significantly affected if the issuer either refused to pay or was unable to pay; Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss; Liquidity Risk: If underlying funds suspend or defer the payment of redemption proceeds, the Fund's ability to meet redemption requests may also be affected; Interest Rate Risk: Fluctuations in interest rates may affect the value of the Fund and your investment. Bonds are affected by changes in interest rates and their value and the income they generate can rise or fall as a result; Derivatives Risk: Some of the underlying funds may invest in derivatives, which can, in some circumstances, create wider fluctuations in their prices over time; Emerging Markets: The Fund may invest in less economically developed markets (emerging markets) which can involve greater risks than well developed economies; Currency Risk: The Fund invests in overseas markets and the value of the Fund may fall or rise as a result of changes in exchange rates. Index Tracking Risk: The performance of any passive funds used may not exactly track that of their Indices. Any performance shown in respect of the Model Portfolios are periodically restructured and/or rebalanced. Actual returns may vary from the model returns.
The risks detailed above are reflective of the full range of Funds managed by the Multi-Asset Team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.
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