Budget 2014 came to life this week with the publication of HM Treasury’s papers on 21st July. Overall, this is very good news for savers. However – although broadly welcomed – the ‘pension reinvention’ has received a few mentions of apprehension.
You’ll probably be aware of most of the key points, but there are two in particular I want to talk about:
The first point is that the ‘guidance guarantee’ will be delivered – in the main – by the Money Advice Service (MAS) and the Pensions Advisory Service (TPAS), but will complement existing communications from advisers, providers and trustees. The cost of its implementation will be largely met by Government funding, but with levies on regulated businesses for its maintenance thereafter. The FCA has simultaneously launched its consultation on delivering this, with a closing date of 22nd September.
The plan for funding the provision of guidance has led to a lot of negative commentary. It would be brave – probably stupid – to try and defend the decision on a forum for advisers, but it was relatively well trailed that ‘the industry’ would ultimately foot the bill, so it wasn’t a huge surprise.
The comment I saw likening it to ‘car mechanics being asked to fund free MOTs’ was poignant. I get it.
So the question is, if that is the case, then it becomes more important than ever for advisers that this genuinely does lead more people towards regulated advice. Indeed, the funding logic would be flawed (ie. that advisers are indirect beneficiaries) if that didn’t happen. All parties seem supportive of this position, so it is now down to us to convince consumers to seek advice, where appropriate.
But I don’t underestimate the size of this task, and I understand that any additional costs on adviser businesses are wholly unwelcome.
The frequent references in some of the press commentary to ‘advice’ when talking about ‘guidance’ was unhelpful. Advisers were rightly very vocal in pointing this out. And many of the consumer comments conveyed the well known sense of distrust of the industry, its people and its products.
We have a long way to go in getting people positively engaged, but there is much in what was announced that we can build on.
The second point I want to mention is the new £10k annual allowance, which will apply to anyone accessing the new ‘flexibility.’ Or, in other words, anyone drawing benefits beyond their 25% tax free cash allowance.
Someone said to me that it doesn’t stop someone from continuing to pay in £40k pa and just take out the £10k tax free cash. That’s true, and no different from now, really. However, this would require someone putting to one side £30k of annual income, and not being close to or at their lifetime allowance. Few people are in this position, in my experience.
This then leaves you with the possibility that people could still recycle £10k of income each year. Again, true, but clearly more limited. This is more difficult to deal with, and needs us to take some collective responsibility to ensure such practices don’t become mainstream methods of avoiding tax.
You could argue that this is merely a function of advice, i.e. mitigating tax, and that it’s simply a way of doing so by sacrificing salary. However, this isn’t in the spirit of what’s been announced. The £10k limit rightly comes with a caveat that this won’t be exploited. That we won’t facilitate it.
I agree with that; the ‘freedom and choice’ is about pension flexibility, not avoiding tax on income.
There should be little contention over such prevention.