The week started with another surprise pensions announcement from the chancellor and ended with an expected criticism of Conservative party policy from the trade unions.
After Ukip’s leader Nigel Farage finally put some policy meat on his party’s pot-stirring bones (he backtracked on some of it later, of course), and Labour leader Ed Milliband spectacularly failed to mention the economy in his party conference speech, this week was the turn of the Tories.
Monday morning was awash with speculation over chancellor George Osborne’s latest pension reform, and later that day he duly confirmed that the government would abolish the 55 per cent ‘death tax’ on pensions, telling savers “it is your money... [and] you should be able to decide what you want to do with it after you die”.
While rumours had abounded that the rate would be lowered to 40 per cent in the Autumn statement, the abolition caught many off guard.
Tom McPhail, head of pensions research at Hargreaves Lansdown, said that the tax rule changes will be a mixed blessing: boosting demand for income drawdown in retirement while diminishing the relative attraction of annuities.
As you might expect, listed specialist annuity providers Just Retirement and Partnership saw their values drop during trading on Monday. Having thrown a bone to annuities firms in the summer by relaxing rules on guarantees and lifetime income reductions, this was another major blow.
As further details emerged, FTAdviser got confirmation from the Treasury that value protected annuities will be included in new rules, while on Wednesday we also revealed that the new rules will apply, at least in part, to lump sum death payments from defined benefit pension schemes.
By hump day it was also prime minister David Cameron’s turn at the lectern, where he pledged to cut income tax for the lowest paid, whilst increasing the 40 per cent income tax barrier on middle earners to £50,000.
The industry broadly welcomed Mr Cameron’s income tax changes, although questions were raised about how the Treasury will afford to carry them out.
By the end of the week, the Trade Union Congress had worked out that the combined effect of tax and benefit policies announced by the Conservative’s conference would leave Mr Cameron’s example of a family with two children who work 30 hours at the national minimum wage, suffering a net loss of £320.
They pointed out that most families on a single minimum wage will still need to claim in-work benefits, adding that means-testing will therefore reduce the net gain from the income tax cut to just £60 a year instead of £400.
And as for the 40 per cent tax band being increased - well that has led to the predictable accusations from some that the Tories are abandoning their steely deficit reduction resolve in favour of UKIP-inspired vote buying.
Read our editor’s take on it here, and feel free to have your say below.
Mortgage policy update
Of course, life went on outside of a Birmingham convention centre.
In the mortgage market - itself a political football these days - the Bank of England confirmed smaller lenders that advance less than 300 mortgages a year or that engage in mortgage lending worth less than £100m will not have to comply with a new earnings multiple cap.
Lenders must now ensure that higher loan to income multiples of 4.5x do not make up more than 15 per cent of their mortgage book, under recommendations from the Bank’s Financial Policy Committee in June, confirmed by the Prudential Regulation Authority on Wednesday.
BoE governor Mark Carney also ensured that George Osborne was in the headlines again, when a letter to the chancellor stated that the government’s controversial Help to Buy mortgage guarantee scheme does not pose a material risk to financial stability and is not contributing materially to house price growth.
Mr Carney concluded that: “There has been strong house price growth in some regions but, in the committee’s judgement, the scheme does not appear to have been a material driver of that growth.”
Meanwhile, the overwhelming majority of mortgage brokers stated that lenders are now too risk averse as a result of the Mortgage Market Review, in research carried out by EDM Mortgage Support Services.
This tallies with the August BoE Inflation Report, which showed that the MMR had impacted on mortgage approvals.
Conference coverage
Many industry bods found themselves in the bowels of the Hilton Park Lane midweek for another conference, or more accurately the FE Investment Summit.
The morning session saw Mark Polson, principal at consultancy the Lang Cat, tell financial advisers that they need to do more to support the assumptions made when directing clients of different wealth levels into different investment options under post-RDR segmented models.
He also took aim at providers, suggesting they need to do more to make information on investment options easier to access and understand.
In the afternoon Rory Percival, technical specialist at the Financial Conduct Authority, elucidated on new thematic review on due diligence for retail investment advice planned for later this year.
He told delegates: “We are looking at due diligence because when we undertook an exercise a little while ago to look at what are the route causes of unsuitable advice, of all the cases we have looked at over the last four or five years pretty much 100 per cent of unsuitable cases came back with one of three answers; inadequate due diligence was one of those.”
