December is usually the season to be jolly and reflect on the past year — though perhaps it doesn’t feel that way as we head to the polls tomorrow.
Nonetheless, as the year comes to a close, let’s look at the big personal finance stories of 2019, which may give us some clues about what’s in store for 2020.
Let’s start with some good news around pensions. Fewer people have opted out of auto-enrolment than expected, with the number of savers using the government scheme exceeding 10m, according to figures from the Pensions Regulator.
The initiative has been gradually rolled out over the years, and in April 2019, we saw it reach its final phase, with contributions now at eight per cent (of which employees pay five per cent of their salaries).
Unfortunately, the pensions industry has also been embroiled in some issues, with the NHS pension crisis topping the list. Experienced high-paid doctors have been scaling back their hours this year due to fears that they will be hit with massive pension tax bills. While the NHS has come up with what has been described as a “sticking plaster” solution by offering to cover these bills, we could see a wider reform of the complicated annual tapered allowance, which could affect private pensions too.
Another worrying sign is the number of people choosing to transfer their defined benefit pensions, which has reached alarming levels. This is partly because transfer values have hit record highs, but savers have also been tempted to take advantage of the pension freedoms only afforded to them through defined contribution schemes.
In July, the Financial Conduct Authority proposed a number of ways to improve financial advice, including a ban on contingent charging, in order to avoid the conflict of interest when recommending transfers. We will see the outcome of that consultation next year.
A year ago, if you had told most investment professionals that Neil Woodford’s empire and reputation would be in tatters in 12 months’ time, they may have laughed in your face. But life is full of surprises.
The scandal around the UK’s most famous fund manager has grabbed headlines this year and really brought to light a number of issues in the asset management industry.
First, it has cast doubt on the usefulness of best buy lists, particularly when execution-only investment platforms like Hargreaves Lansdown bear no responsibility if a recommended fund manager strays from their strategy (or indeed, if they break the rules).
Second, Woodford’s problems began when he piled investors’ money into early-stage companies — when people asked for their money back, he simply couldn’t sell the investments fast enough.
As a result, Woodford inadvertently highlighted the problems when illiquid assets are held in funds that can be traded on a daily basis. The saga (alongside the suspension of the £2.5bn M&G property fund last week) has forced the regulator to look at reforming this industry to make it work better for investors, many of whom have had their trust diminished by Woodford. We could see the introduction of a whole new type of fund next year.
We have also seen some dramatic changes to the peer-to-peer investment sector, after a number of platforms collapsed.
On Monday, the regulator introduced a 10 per cent peer-to-peer cap to prevent investors from piling their life savings into these risky investments.
This means that next year could end up being more challenging for the platforms, though setting this limit could also serve as a saving grace for many investors.
What about property? We have seen the slowest house price growth in seven years, while in London, annual property prices have actually fallen.
For existing homeowners, the good news is that property values can only fall so far, given the short supply of housing stock across the country.
But beyond the general unease in the property market, we have seen one issue come to a head in the past year in the form of the leasehold scandal, where property developers have forced homeowners to pay extortionate ground rents.
Fortunately, the Competition and Markets Authority launched an investigation into the issue to find out the extent of mis-selling, while in June, the government slashed ground rents to zero and banned developers from selling new-builds on a leasehold basis. This doesn’t solve the problem for existing leaseholders, but it’s a step in the right direction, and we’re likely to see further changes in 2020.
Every year, the buy-to-let market has grappled with reforms, and 2019 was no different. Fortunately, there has been a clear move towards a fairer system for tenants. Indeed, one of the biggest changes for landlords this year has been the ban on tenant fees in June, with the deposit now capped at five weeks’ rent. Currently, this only applies to contracts signed after 1 June, but it will encompass all agreements as of June 2020.
Landlords have seen other challenges this year, namely the reduction in the amount that they can offset mortgage interest payments against rental income, which has fallen to just 25 per cent from April this year, down from 75 per cent in 2017-18. These tax breaks will be completely abolished in April 2020.
All the major political parties have pledged to help the growing generation of renters, with most at the very least promising longer tenancy agreements in their manifestos in order to give tenants more security. So regardless of who ends up in power later this week, it’s highly likely that the rules around rental properties will continue to toughen up.
From tackling the housing crisis to introducing a pensions dashboard, it’s clear that there is going to be a shake-up of many personal finance issues next year, whoever moves into Downing Street. Bring on 2020.