Review of pension advice allowance to take place
Pensions Minister Guy Opperman MP has told fellow Members of Parliament on the Work and Pensions Select Committee that the Government is reviewing the pension advice allowance – the facility that allows pension savers to withdraw £500 from their pot at any stage of their life in order to help pay for advice costs. This withdrawal can be made up to three times during someone’s working life.
There have been concerns that the size of the allowance is too low, and that take up of the facility has been poor.
A report on the matter is expected to be published prior to the end of the year
UK likely to avoid double dip recession
Despite the continuing coronavirus restrictions, the UK looks set to avoid a ‘double dip’ recession. It’s technically only a recession if a country experiences two consecutive quarters of negative growth, and this mostly certainly happened in 2020.
Most analysts had expected it to happen for a second time in the final quarter of 2020 and the first quarter of 2021, but the indications are that the UK economy did not contract at all in the final three months of 2020. This was in spite of the fact that a national lockdown was in force for four weeks of this period, and other severe restrictions such as pub and restaurant closures continued after the end of the lockdown in Tier 3 areas.
The shock of the first lockdown last spring had a massive impact on the economy, with GDP falling by a staggering 18.8% in April 2020 and by 19.8% across the second quarter. However, as companies find ways of adapting, it appears the economy has become much more resilient. It appears that GDP growth was flat, at 0%, between October and December. Given that a national lockdown is expected to continue for most, if not all, of the first quarter of 2021, it is expected that output will fall by 4% during this period, but economists then predict growth will return in the spring and summer as restrictions are eased and the vaccination programme gains pace. Overall, the UK economy is forecast to grow by 5% over the course of 2021.
Howard Archer, chief economic advisor to the EY ITEM Club, said:
“The UK economy has demonstrated remarkable resilience in recent months and the impact of recent lockdowns has been nowhere near what we saw in April. Over the course of 2020, the economy has become quicker to adapt to new Covid-19 restrictions and while new restrictions may still cause disruption, lessons learned from previous lockdowns are rapidly put into place.
“The prospects for recovery are looking brighter. Once the economy has negotiated what is likely to be a challenging first quarter of this year, it will undoubtedly benefit from the vaccine roll-out helping to boost consumer and business confidence. The combination of vaccines, a UK-EU trade deal and previous lockdown experience means there’s much less uncertainty out there. Excluding the first quarter, the UK is looking at two years of strong growth.”
Bank rules out negative interest rates for next six months
The Bank of England appears to have ruled out introducing negative base interest rates at any time during the next six months. However, at the same time it has put the industry on notice to prepare for the possibility of negative rates at any time after this six-month period, which would mean from August onwards.
The minutes of the latest Monetary Policy Committee meeting say:
“While the Committee was clear that it did not wish to send any signal that it intended to set a negative Bank Rate at some point in the future, on balance, it concluded overall that it would be appropriate to start the preparations to provide the capability to do so if necessary in the future.
“The MPC therefore agreed to request that the PRA should engage with PRA-regulated firms to ensure they commence preparations in order to be ready to implement a negative Bank Rate at any point after six months.”
In the meantime, it seems that the Bank is set to continue with its emergency 0.1% rate, which was introduced shortly after the start of the coronavirus pandemic last year.
One of the main reasons for ruling out negative rates for the time being seems to be that the retail banks’ IT systems might not be able to cope with negative rates, and that this could therefore pose a risk to the safety and soundness of the financial system.
Andrew Bailey, the Bank’s Governor, said:
“We know, sadly, there’s some other well documented and much publicised examples of banks doing changes to their systems are getting themselves into quite difficult situations and having outages that are obviously very damaging to the customer and ultimately to the banks themselves, so we don’t want to cause that to happen.”
The future remains very uncertain, and while it is hoped that lockdown restrictions will be eased in the coming months, and confidence remains high about the pace of the vaccination programme, the most uncertain times could actually come once society has re-opened and case numbers have fallen. The unprecedented levels of Government support for the ailing UK economy cannot continue indefinitely, and the question might be – what happens when these support measures are withdrawn, and might that be the time when the Bank of England needs to take radical action such as reducing rates to negative levels?
Re-possessions moratorium extended to April 1
As lockdown restrictions remain in force, the Financial Conduct Authority has instructed lenders not to re-possess borrowers’ homes until at least April 1, unless there are exceptional circumstances, such as the borrower requesting that re-possession proceedings continue.
Consumer credit providers are, however, now permitted to repossess goods and vehicles once again where it is judged that all other options have been explored. Lenders are expected to consider the likely impact on the customer in question before re-possessing any goods, especially if they are vulnerable as a result of Covid-19 or any other reason.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed by Scott Robert and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article.