A debate on the impact of the election on financial services in the coming years saw focus thrown on compensation limits for defined contribution pensions, in the wake of pension freedoms which have increased access and widened the scope for investment options.
Amid questions over the in-tray of new pensions minister Ros Altmann, Nigel Jones, director of 20-20 Trustees Ltd, asked whether the £50,000 protection offered to DC investments should be raised by the new government.
Mr Jones said this should be a consideration given the large amount of individual wealth built up in such pensions - and the fact that savings are protected up to £85,000.
However, panelist and retirement director at Fidelity Alan Higham said in the wake of a recent surge in the cost of compensation for retirement advisers that limits should not be moved and that instead the challenge was around ensuring good advice and adequate PI cover.
Mr Higham explained that DC investments should be relatively secure, as assets are held by custodians away from the employer or pension provider.
“The challenge lies in so many unregulated investments which have a much higher potential to blow up or indeed to be fraud. Also, the limit for bad advice via FSCS is also £50,000.
“If a rogue adviser recommends unregulated [investments] that blow up, then the limit of compensation for the bad advice is £50,000.
“I’m already concerned that far too many good advisers have to pay the price for the failings of the few bad advisers... Helping people find a reliable adviser with proper PI cover who is very unlikely to cause any losses that could not be paid out on would also be ideal.”
Last month the FSCS announced life and pension advisers are to be hit with a levy of £100m in 2015/2016, up by 75 per cent from the January forecast of £57m and three times the £33m levy last year. It also follows an interim levy of £20m in March.
FSCS said this was largely due to a continuing surge in self-invested pension claims. It included a number of case studies in its outlook citing claims against a range of esoteric and unregulated investments which have been wrapped into Sipps.
Elsewhere in the debate, a poll ask whether people were happy with the outcome of the election found that 40 per cent would have favoured a continuation of the previous coalition, while 30 per cent were happy with the outcome of a Conservative majority administration.
The actual result saw the FTSE 100 index on 8 May finishing up 2.3 per cent - or 159 points - on the back of the Tory victory, at 7,046 - its biggest rise since January.
George Bull, fellow panelist and senior tax partner at Baker Tilly, called this a bit of a “damp squib” and argued that what we saw represented a reversal of negative expectations based on concerns over a Labour-led coalition.
Mr Higham added that since last Friday it has fallen back, so perhaps the 7000 FTSE mark is a break through level that market sentiment struggles with and that the election was having little effect on overall trends.
Meanwhile, the Conservative win could signal a change in the way non-domiciles living in the UK are treated from a tax perspective, with plans to abolish hereditary domicile status potentially leading to more global assets becoming liable to UK inheritance tax upon death.
Currently the UK deemed domicile rule is based on the number of years someone is in the UK. If someone is in the UK for 17 out of the last 20 tax years then they will become deemed UK domiciled for IHT purposes, and all worldwide assets will be subject to UK IHT on their death.
Mr Bull: “The best advice is to take experienced professional advice tailored to your personal circumstances, and to ensure that whatever arrangements are entered into are sufficiently flexible to accommodate subsequent changes of law and practice.”
Mr Higham added that there is no doubt that many people will benefit from such advice, “but I have always understood the complexities are outside my knowledge area and tend to steer clear of it myself preferring to introduce those who have the knowledge and experience”.
peter.walker@ft.com
