Pension advisers: what does 2022 look like for the sector?

The headline-grabbing news in the UK pension market is that from April 2022, more than 10 million pensioners will receive a rise of 3.1%.

Keeping in line with inflation, this increase will provide up to £288.60 a year extra income by the end of the 2022-23 tax year. Less welcome is the news that the ‘triple lock’ protection has been replaced – at least temporarily – by a ‘double lock’ scheme…    

The rise is higher than the guaranteed minimum of 2.5% applied to 2021-22 payments, and means that those entitled to the latest maximum single-tier state pension will now receive £185.15 per week – that’s up from £179.60. For the year that means a total income of £9,627.80. 

What’s happened to the triple lock? 

The state pension is usually protected by a triple lock guarantee. This means payments go up every year to match CPI inflation for September, average earnings growth or by 2.5% - whichever is highest.  

For 2022-23 the earnings growth element has been removed, making the guarantee a double lock, for now. Why? Because the unexpectedly rapid recovery of wages following the first wave of the pandemic would have given pensioners a 8.3% increase, which was deemed by government to be disproportionate and unfair.

It’s clear that this is an unusual anomaly and the triple lock is expected to be reinstated in the near future.

What about public sector pensions? 

Also keeping in line with that 3.1% CPI inflation figure will be a whole host of public sector pensions. Some will receive an increase over and above CPI too. 

Teachers for example will get an extra 1.6% on top of the CPI increase, while NHS workers are set to receive 1.5% and the police 1.25%. 

Local government and civil service pensions will only benefit from the standard 3.1% CPI increase however.  

What’s the deal with flat fees?  

April 2022 will see the introduction of new rules concerning flat fees on small pension pots. This will save money for many thousands of people across the UK.

Essentially, at the moment, people with £100 or less in workplace pensions are losing money because of fees. Over a working lifetime it’s quite common for people to have several of these auto-enrolled pensions, each with a small sum invested, and if every one is subject to charges, you can see how they can be seriously eroded.

The changes in 2022 should prevent these ‘bits and pieces’ work pensions from being quietly consumed by flat fees. 

Part-time progress  

There will be positive news next April for thousands of part-time workers too. Because the minimum wage for people over 23 is set to rise to £9.50 per hour, many will find their income reaches the point where they’re automatically enrolled in a pension scheme.

You need to earn at least £10,000 to qualify for auto-enrolment, and this rate rise will boost the number of part-time workers in particular who qualify. This move could boost pension contributions by up to £4,800. 

Will there be any new tax relief? 

Next year, details should emerge confirming that low earners making contributions to net pay schemes from 2024-25 will be in line for a top-up.

The idea is that this will align their earnings with savers in relief at source schemes. The government also intends to modernise the whole administration of pensions tax relief – watch out for further news on this in the near future. 

What about the wider pensions landscape? 

Key elements from the Pension Schemes Act 2021 are set to come into force during 2022 and 2023. These include the obligation to communicate Notifiable Events. Basically, this means that the Pensions Regulator and trustees must be informed of any financial decisions that could impact on a pension scheme as early as possible. 

There will also be a new Scheme Funding regime and code of practice, which will see the most radical changes since the current regime was introduced in 2005. 

A little further down the line, a new legislative framework for pensions dashboards will be put in place, so that it will be compulsory for providers to be connected to these online platforms used by investors to view lots of pensions in one place. 

Will climate change be centre stage?  

It’s no surprise to find climate change at the heart of the pensions world in 2022. From 1st October 2022, schemes with £1 billion or more in assets will have to align their governance processes and disclosures with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

Essentially this gives trustees responsibility for ensuring that their investments are aligned with the Paris Agreement goal of pursuing efforts to limit the global average temperature increase to 1.5°C above pre-industrial levels. 

What are the key takeaways in a nutshell? 

Naturally the pensions sector in 2022 will be influenced by fiscal decisions made in 2021 and before – such as the rises in state pension and temporary suspension of the triple lock. It will also be shaped by the gradual introduction of elements set out in the Pension Schemes Act.

Inevitably pension investments will be subject to the same ebb and flow that affects our wider economy – which is looking surprisingly robust for now – but there are important non-financial factors to consider too.

Chief among these is the growing importance of Environmental, Social and Governance (ESG) and in particular, the connection between major investments and climate change. The growing emphasis on accountability, clarity of information and demonstrable ethical practices are shaping the industry from within.  

So, what does 2022 look like? Full of major and systematic change, but hopefully no shock developments or high dramas! Check out some of our latest articles to build a picture of the pensions market in 2022 and follow us on social media for more relevant insights.

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