Retirement investors have had to navigate choppy and unpredictable waters throughout 2016.

In addition to political changes, we also saw the Government – for now at least – back away from plans to radically overhaul the way pensions are taxed, axe proposals to allow people to swap their annuity for cash and begin to turn the screw on scammers by moving to ban pensions cold calling.

But what are the big issues savers need to watch out for in 2017?

Inflation

Prices have flatlined in recent years, with consumer prices index (CPI) inflation persistently bobbling along just above zero. This has helped preserve the spending power of retirees’ income and also meant the value of money held in cash has not been significantly eroded.

That might be about to change following the Brexit vote. Sterling depreciated in trade-weighted terms by 17.9% in the year to November, according to the Office for National Statistics.

While it’s impossible to say with any certainty how this will translate into the prices consumers pay, a rule often used by economists suggests a 10% fall in sterling could cause a 2% rise in CPI inflation.

While few are expecting a return to the days of double-digit inflation, savers should consider the possibility of rising prices when reviewing their retirement income strategy.

Savings allowances

On the tax front, there are two key changes coming through next year that could affect retirement investors.

The good news is the ISA allowance will be lifted in April 2017, from £15,240 to £20,000. This will be a boost to savers who value flexibility, although still only half the £40,000 annual tax-free savings allowance afforded to pension savers.

As for the bad news, the amount you can pay back into money purchase schemes like SIPPs will drop to £4,000 in April if you’ve accessed the pensions freedoms.

Lifetime ISA launch

Savers will have a new savings option from April 2017 when the Lifetime ISA launches. The product allows you to save up to £4,000 a year and get a 25% Government bonus, up to a maximum of £1,000.

You’ll be able to save into a Lifetime ISA if you’re under 40 years old, and keep making contributions and receiving the bonus until you’re 50.

The money can be taken out penalty-free from age 60, or before if you’re using it for a deposit on your first house or are diagnosed with a terminal illness. However, other early withdrawals will be heavily penalised, potentially meaning you’ll get less back than you put in.

TOM SELBY

Senior analyst, AJ Bell

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