What now for pension policy?Whilst pension freedoms still feel like a recent development for many, they have now been in place for some seventeen months since their introduction in April 2015. That’s beginning to feel like a remarkably long time ago as few further announcements on pension reform have been made for some time.
With the arrival of Theresa May at Number Ten, it doesn’t seem likely that this is going to change any time soon. Whilst the previous two pensions ministers in Baroness Altmann and Steven Webb before her were welcomed as figures who understood the importance of reforming the pensions system, the downgrading of pensions minister to a junior ministerial position means many are now expecting pension reform to be placed on the backburner by the new Prime Minister.
One area which remains under question is the government’s triple lock policy, introduced in 2010 by the coalition government and offering a guarantee that the state pension would increase each year in line with either average earnings, inflation or a minimum of 2.5%, whichever is highest. The reasoning behind the triple lock is to protect income from being eroded by cost of living increases, as well as preventing increases so small that they become meaningless.
The downside of the triple lock is the amount it will cost the government, estimated to be around £45 billion up to 2028. It was for this reason that Baroness Altmann suggested replacing the triple lock with a “double lock”, which would see pensions grow in line with either inflation or earnings, but remove the guarantee of a 2.5% minimum increase.
With the resignation of Baroness Altmann in July as Theresa May became Prime Minister, it looks as though the triple lock is here to stay for the foreseeable future. That’s good news for those paying into pensions and preparing for their retirement years, but puts pressure on the government to come up with a solution to the hole the policy is set to leave in their finances.
Where now for interest rates after Brexit?
Thursday, September 8th, 2016Whilst the Bank of England initially seemed to be holding steady at a rate of 0.5% in the wake of Brexit, the announcement at the start of August that not only was the rate to be cut further to 0.25%, but also that there may well be further cuts in future, wasn’t all that surprising to many in the financial sector. In the wake of the turmoil following the EU referendum, it seems a very long time since anyone was considering interest rates might rise, when in fact it wasn’t all that long ago at all.
The recent drop is just the latest episode in the continuing story of falling interest rates which has been told throughout 2016 and looks set to continue well into the future. Prior to the Brexit result, it had been expected that the base rate might see an increase in 2018. With a new all-time low now set by the Bank of England, it looks as though interest rates aren’t likely to get better for savers any time soon, with a rise back to the previous 0.5% rate not expected until at least 2020.
The knock-on effect of the low base rate is that banks and building societies are removing their most competitive accounts from the market. Moreover, many are also choosing not to replace these withdrawn accounts with alternatives, giving savers less choice within the market as a result.
The best option for savers at the moment is to spread their money in order to get the best of all the deals available. Reward accounts, which pay set bonuses to savers who pay in a certain amount each month, can offer an attractive alternative whilst interest rates offer less attractive percentage-based returns.
Whilst the outlook for those in the market for savings accounts may not be so bright at the moment, in contrast the impact of Brexit upon the financial world may, in fact, be positive. Fixed rate mortgages are likely to be set at lower rates as the base rate comes down, and the indication is that lenders are happy to continue lending at these lower rates for the foreseeable future.
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