Most of us were expecting chancellor George Osborne’s headline Budget announcement last month to involve increasing the personal allowance, not a series of changes that will revolutionise the provision of retirement planning.
As a platform provider, our proposition has always been based on the premise that we help advisers provide a strategy for their clients’ wealth accumulation while they’re working.
We then aim to assist in the strategy for decumulation for post-work living, through maximising tax efficiency from pension arrangements and their savings from funds and Isas.
However, for investors without broad and valuable portfolios, the former has always been more flexible and provided more opportunities than the latter. Indeed, in the main, retirement usually meant only one thing: buying an annuity.
But Mr Osborne has changed that.
In one speech the Budget has created a huge opportunity for financial advisers. The financial planning opportunities that were once the preserve of only the wealthy are now going to be available to investors with more modest holdings. Advisers therefore take centre stage for all retirees.
Some interim measures come into effect immediately, allowing more people to qualify for flexible drawdown and a higher income to be taken from capped drawdown. This is closely followed by the new flexibility for Isas to have both cash and stocks/funds in them. These are also good opportunities for advisers, but the main event – allowing pension funds to be taken in cash minus tax – happens in April 2015.
It’s nothing short of a revolution.
There is clearly a potential benefit for investors to act with caution, but it is also hugely beneficial to advisers given the very clear need for advice.
Some investors like cash ‘to have and to hold’, but its shine – or value – doesn’t usually keep ahead of inflation, meaning it can trickle through their fingers. So is it a balance of fixed return investments – such as annuities – and cash products as core that would work best for investors?
Attitudes to risk vary and change, so how can pension drawdown, Isa balances and funds be managed between cash, cash funds and stocks and shares?
What could large sums of cash do to inheritance and income tax liability? Is this appropriate and, if so, how could it be mitigated?
Is it appropriate to pay the marginal rate of tax to simply put the money in a bank and pay tax again? Can we expect recycling of pension money into Isas again in retirement?
There’s much detail to be worked through, but what a boost for financial planning.
Andy Coleman is director of distribution at Cofunds
