Listen to Clare and Jamie as they explore some of the big policy issues for pensions, the possibility of future changes to pensions tax relief and where the pensions dashboard fits into these policies.
RM: Hello and welcome to another podcast brought to you by Royal London's intermediary Development and Technical Team.
CM: My name is Claire Moffat and I'm delighted to be joined by Royal London’s Director of Policy and External Affairs. Jamie's going to be considering an overview of the pensions policy landscape. But before we get into that, Jamie you've been here a few months now. Could you tell us a little bit about what you do?
JJ: Thanks, Claire. Yeah, just over three months with Royal London, but over three decades, I have to confess, in the industry, so pensions has been, you know, most of what I've done certainly in recent years. My job at Royal London is particularly around policy development. So I want to speak to people who are thinking about policy or have ideas about changes they might make to pensions and how we might influence those and help us all prepare for them as they come through.
CM: So Jamie, what are the big policy issues coming down the track for pensions that we know about?
JJ: So a number of things, I think a good way to think about it in terms of the real cluster of activity that we're likely to see, from the pensions minister, he's talking about automatic enrolment 2.0. So this is really an umbrella term for a number of different initiatives, things like consolidations or seeing smaller trust based schemes consolidate particularly into master trusts and possibly see that with defined benefit as well, depending on how that market develops and also consolidation at a personal level.
So people with small pot’s, as they move around different auto enrolment schemes develop a number of small pots. What do we do about that? Is it OK that we just see them all in one place and add them all up? Or should we seek to automatically consolidate them when there's a piece of work to investigate that?
We've got most recently a consolidation on annual statements. So, simplifying them and shortening them to two pages. And I think we'll also see on the back of that statement seasons with the idea of getting everybody to talk about pensions because they received all the statements from different providers at the same time in a given month of the year. And we all go down to the pub and talk about pensions. So, a way of trying to engage people in that.
And lastly, I think importantly, the 2017 automatic enrolment review, which I was involved in chairing came out with some recommendations which are due to implement in the years ahead. Couple of main things. One is the removal of the lower earnings limit to effectively increase contributions going in, particularly for lower earners, but also to lower the age at which people were auto enrolled from 22 to 18.
So that's not an exhaustive list Claire, but I think it gives you an idea of the types of things that are on the list of the current minister.
CM: And where does the dashboard fit into this?
JJ: So, the dashboard is the whole digital journey that we need to go. And, you know, that hopefully underpins all of this really as we move away from paper-based communications and data gathering. And the dashboard is about really first and foremost delivering money and pension service led dashboard for everybody to use where they can go in and search for and find and see together all of their pensions in one place, now over time if we imagine that's delivering in 2023, you can imagine within a year or two of that, we would likely see other providers producing and running their own dashboards with similar functionality.
And then further down the line, developing that functionality so people could actually make changes to their pension online and goodness knows, even do transfers. Wouldn't that be interesting if they were able to instruct DC transfers online rather than through the current processes? Final point on that is just that it needs to fit in with open finance. So of course, we already have open banking, so we need to ensure that as we move through the dashboard initiative, we align that with the future of both banking and pensions being aligned together.
CM: And one area of constant debate is pensions tax relief. Will we see any changes to that any time soon?
JJ: So there's clearly no certainty on that I think what we have seen is a very long series of changes in recent years which have made life very complicated for a number of clients dealing with pensions, trying to figure out how much they can pay in. There was, of course, an attempted, there was was a review of tax relief under George Osborne in a previous government. And I think that would have gone further had it not been for the way that political history unfolded with Brexit.
Of course, he was displaced and didn't move that forward. We may get another review of tax relief of that ilk, if you like. And we could see something even as early as autumn if there's another budget from the current chancellor. It's very difficult to tell whether or not that that will go ahead. What I would say is that there's a very big number attached to the cost of tax relief, by the way, gross 50 billion, and net 35 billion, something of that order.
That's a big number in terms of the country's finances, particularly given the events of the last 12 months. So, time will tell. But I think it'll be interesting to watch what happens over the next budget.
CM: Thanks very much Jamie for being with us today and thank you to those listening as well.
RM: Thank you for listening to this podcast. We'll be back again soon as we continue to discuss a range of industry hot topics.