At this time of year, it is usual to look back at the developments that occurred during the past year, look forward to what they mean for the coming year, and anticipate developments we can expect in the near future. Based on this analysis we can all make plans for our businesses.
I am writing this at a time when the Prime Minister is trying to sell her Brexit agreement with the EU to the country before Parliament votes on it. Usually in the UK we accept compromises as they include a little of what most are looking for. The centre in British politics, moves to the left, moves to the right, with the party that tends to capture this central ground usually forming the Government.
Extreme views influence the centre ground but there is very little likelihood of either extremes gaining power. Despite appearances to the contrary, the major parties do often listen to each other when formulating legislation, particularly technical legislation which affects most of our businesses.
Brexit, as we know, is a very complicated animal. Whatever solution is proposed it is probable that the majority will be against it because it contains solutions they find difficult to compromise on. This complexity is creating such a drain on Civil Service resources, much of what we expected from Government to form part of our business planning has yet to be delivered. The can keeps being kicked down the road.
In 2018 we were promised Government proposals for Care reform in the summer. We may get something before the end of the year. Rumour has it that this may now be no more than a temporary solution rather than the radical reforms that would last for generations we were originally expecting.
Despite many delays, at the beginning of December, we at last received the Government view on the direction the Pensions Dashboard will take.
For many, the recent Budget was a disappointment due to a lack of tax-reforming measures, particularly affecting pensions.
If the Prime Minister gets her Brexit compromise through Parliament – which currently seems like a big ‘if’ - there will not be a quick reversion to business as usual. Details have to be added to the outline political agreement that has been reached. We all know the devil is in the detail. This will continue to be time-consuming and create many more demands on a stretched Civil Service.
At least we will then be aware of a direction of travel, although some communities will still face uncertainties as to what the final agreement will mean for them.
If she does not succeed in winning a Parliamentary majority for her deal who knows what happens next? A leadership contest? Will the Government fall?
Will there be a General Election or can a new Government be formed within the existing Parliament? Will there be a second referendum through what is now being called a People’s Vote? In the mean time what happens to Article 50? Do we just crash out of the EU with no deal? These are major questions to be answered and 2019 is likely to deliver the answers.
But, what will 2019 bring for those involved with the retirement income market? Despite the uncertainty life will go on. Customers will continue to need financial guidance and advice to help them create wealth whilst working and to spend that wealth during retirement. However, uncertainty creates a drain on confidence. A lack of confidence means people will think twice before spending. So until the uncertainty disappears we will see the economy performing worse than would otherwise be the case.
How much worse depends upon which expert you agree with. Here you have to form your own opinions. Let us look at some possible consequences:
Sterling falls further with a resulting increase in inflation. Many pensioners have annuities with no inflation protection. They will suffer an increasing reduction in real income. This may accelerate the time when they need to use other assets to provide additional income. Will they turn to their housing wealth?
Uncertainty may lead to a reduction in those moving house. This could impact on house prices reducing scope for profits when downsizing. Markets could also get the jitters leading to an increase in long-term interest rates. This will impact on mortgage rates and put even greater pressure on house prices.
A fall in the number of housing transactions may mean conventional mortgage advisers look at the retirement mortgage market to make up for a reduction in their normal business lines, creating more competition in this sector.
On the other hand increasing interest rates should result in a further improvement in annuity rates. Will this make annuities attractive to some who have experienced a bumpy ride with income drawdown in recent times?
Because of the uncertainties, in 2019 business planning will never be more important. Uncertainty is likely to lead to changes in attitudes and behaviour by customers, competitors and potential competitors. What are the key indicators that will affect your business you need to be looking out for?
More importantly how will you judge the impact of those indicators on your business and how will you adapt?
You may identify a need to increase your knowledge of sectors of the retirement income and later life lending market you do not currently participate in.
The Later Life Academy offers many services that may help your business flourish in these uncertain times.