The finer details of pension tax, regulatory expenses and provider approaches to Pension Wise were among the key themes to make the news this week. Here’s our top five.
1. Emergency pension tax warnings.
On Tuesday we got stuck into the issues surrounding the taxman’s rule tweaks around the new pension freedom options available from 6 April - and especially guidance indicating that most savers must initially be hit with an emergency tax bill.
A clarification in response to enquiries made by self-invested pension provider AJ Bell stated that emergency taxes do not need to be applied where a tax code is held for an individual and the provider’s systems can separately report the flexibly accessed element.
This would be good news for affected retirees: a ‘month 1’ rate would multiply any payment and apply tax on the annual equivalent, taking the upfront tax bill on a £20,000 withdrawal from as low as £2,000 to anywhere up to £8,000.
Those for whom the provider has no code will remain out of luck, and as the lively debate which ensued through the afternoon made clear, there could be further complications for those taking a one-off lump sum in reclaiming any overpaid tax.
Claire Trott, head of technical support at Talbot and Muir, and AJ Bell’s technical resources manager Gareth James disagreed on whether someone in this situation would be able to access their refund throughout the year, or would have to wait until the following April.
2. Regulator suggests free text for suitability reports.
Our roving reporter Ruth took a trip to the coast on Wednesday to cover a Thesis Asset Management conference, where the main draw was the Financial Conduct Authority’s technical specialist Rory Percival.
He warned advisers about “individual suitability” around centralised investment propositions, explaining that ensuring personalised objectives are documented in suitability reports through mechanisms such as free text input is the “best defence” against regulatory action.
Mr Percival added that having “free text” in the fact-finder documents gives clients space for an extra level of detail, noting that while standardisation was “good and efficient”, there just needs to be a balance.
3. RDR report bills revealed.
Our colleagues at Financial Adviser reported on its Freedom of Information Act request which revealed the FCA is set to pay out more than £210,000 for two reports on the effects of the Retail Distribution Review.
The City watchdog admitted it paid £147,192 including VAT for the 107-page Europe Economics post-implementation review, and received a VAT-inclusive £62,998 invoice for the 50-page Towers Watson report on the advice gap. This latter might seem a bit steep considering no primary research was undertaken.
Perhaps more galling for advisers dutifully paying their FCA fees was that the 226-page Clifford Chance inquiry into the ‘zombie fund’ press briefing bungle cost a whopping £3.15m, excluding VAT. That’s a lot of levies.
4. Differing opinions on pension freedoms.
Separate financial statements this week from big life insurers gave the opportunity for their respective chief executives to opine about the opportunities and challenges presented by the pension freedoms.
Royal London’s group chief executive Phil Loney took the headlines first thing Thursday with several controversial statements on the Pension Wise government guidance service, saying it has been “thrown into place in an entirely unrealistic timescale” and that he feared “many will make the wrong, often irrecoverable decisions... [resulting] in some very poor outcomes”.
Mr Loney added that its own data showed less than 2 per cent look likely to take up the new guidance guarantee service.
Zurich’s chief executive Gary Shaughnessy was more positive, throwing down the gauntlet by stating that they “give providers huge potential to differentiate themselves”.
While he’s clearly confident about the firm’s proposition ahead of the Spring, Mr Shaughnessy added that the economic environment remains challenging, with yields continuing to fall alongside low interest rates.
5. Warnings of client poaching.
Last, but not least, a popular story in its own right was the somewhat contrarian view that advisers risk client ‘poaching’ when outsourcing investment functions via discretionary managers which have financial planning arms.
Most experts in FTAdviser’s latest guide agreed there was little risk of DFMs stealing clients due to agreements between the parties and the fact that future referral business could be put under threat, but Morningstar.co.uk’s editor Emma Wall warned it depends on what other services they are providing.
She commented that if advisers use a bespoke service provided by a DFM that also employs financial planners, then there is “some risk” of poaching as the client will have a direct relationship with an investment manager at the DFM firm.
Expect a full follow-up piece on these pages next week.
peter.walker@ft.com
