Jeff Salway: The silly season gets serious

Online-only banks will give high street names a run for their money. Picture: John Devlin
Online-only banks will give high street names a run for their money. Picture: John Devlin
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THE only safe prediction you can make at this time of year is that newspaper columnists, bereft of better ideas, will offer their own forecasts for the year ahead. They don’t call it the silly season for nothing. So here goes:

1) The launch of the new flat rate state pension in April will be distinctly uncomfortable for the government.

The flat rate will replace the current system of a basic state pension supplemented by top-ups and credits. The government gave the impression that it would be simpler, fairer and that most people retiring could expect to receive the full amount (£155.65 a week). In reality, according to the Institute of Fiscal Studies, almost seven in 10 new claimants in the first four years will get less. Of women among the first 1.2 million people to claim the pension, just 80,000 will receive the full amount.

Many of those affected won’t realise until April. The Department for Work and Pensions claims to have stepped up efforts to raise awareness, but it’s been far too little, too late.

Much of their inevitable anger could have been avoided if the government had been clear from the outset as to what would actually happen and who would be affected. It failed, miserably. Was that deliberate, or was it just incompetence? You decide.

2) Further devolution of tax powers to Scotland poses a challenge ahead of the Holyrood elections. The Scottish rate of income tax, left in line with the UK version when it came into play in the recent Scottish Budget, will be superseded in 2017 by expanded powers set out in the Scotland Bill. That has created expectations of an election campaign with tax pledges to the fore. But there’s no fiscal framework in place yet for the devolution of new tax powers, and the House of Lords Economic Affairs Committee says the bill shouldn’t go ahead until that framework has been published and scrutinised.

Scottish tax powers will still feature heavily in the Holyrood campaigns, but not in a way that will be of much value to voters.

3) The pensions system as we know it is on borrowed time. In the Budget in March, George Osborne will set out plans to change the taxation of pensions from the current model, where contributions get tax relief up front, to an Isa model where the contributions are from taxed income. The short-term savings for the Treasury would be massive, which alone makes it a strong possibility. As with pensions freedom and secondary annuities, the Chancellor is prepared to gamble with people’s financial security if it plugs a few gaps and scores him some points.

4) Fund managers still insist they’re not able to tell people how much they’re actually paying for their investments. But they know the mood is changing and the Financial Conduct Authority is finally getting serious on transparency. Will this be the year when a big name fund manager jumps before it’s pushed and decides to come clean?

5) A new online bank, Tandem, was recently given a banking licence and is expected to launch over the coming months, offering branch-free banking services including current accounts, credit cards and savings. Another online service, Atom Bank, was given a licence in the summer and more will follow over the coming months. They won’t threaten the status quo, but they’ll be watched very closely.