OpinionApr 3 2014

Radical pensions reforms thrusts advisers into spotlight

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Two weeks on from George Osborne’s game-changing Budget there is still a sense of wonder at the pensions revolution.

Those minorities who have expressed horror have, in truth, revealed just how little they know about middle Britain.

People who have saved all their lives will not squander the money. The chief concern of older Daily Mail readers I have spoken to over many years is how to organise their finances in order to leave as much as they can to their children.

So while they may withdraw their pension pot, they are more likely to hoard it than spend it.

Those with larger pots will surely phase withdrawals to avoid large tax bills.

The Exchequer is expecting net tax receipts from these changes to top £3bn over the next five years with a net gain every year until 2030.

This will, presumably, come not only from extra income tax but also from inheritance tax. Premature deaths will benefit the Exchequer and, hence, other taxpayers rather than insurance companies – now that is a satisfying thought.

And, let’s be honest, it is not as if insurance companies did not have it coming. Press campaigns, investigations by regulators and shots fired across their bows by the pensions minister were all shrugged off.

Regulators and the government must now be on their guard to prevent insurers and their lackeys from dipping into pension pots in other ways. My fear is that drawdown fees could increase or new ones be added.

As for financial advisers, this pensions revolution could offer a once-in-a-generation opportunity.

For financial advisers, this pensions revolution could offer a once-in-a-generation opportunity

Now people are no longer being herded into annuities they will need independent advice on how to make their money last.

There are 13m people in defined contribution schemes. All will now be eligible for some form of advice at retirement. A good proportion may well want help throughout their retirement.

The pendulum has well and truly swung towards good independent advice.

Investment Isa exit fees are wrong

The new £15,000 super Isa has thrown the spotlight on exit fees being charged by fund supermarkets.

The clear intention of the £15,000 Isa is to make it easier for people to make investment decisions.

Exit penalties on cash Isas, with the exception of fixed-rates deals, disappeared for the most part years ago.

So why are they being charged by fund supermarkets? Fidelity has called for a ban on exit fees on all long-term investment products.

My thought is that investors or an adviser may want to challenge them under the Unfair Terms in Consumer Contracts Regulations 1999. These stipulate that suppliers should usually only claim net costs when a contract is broken. They also state that any fee should be “a real and fair pre-estimate of the costs”.

Does it really cost a fund supermarket £250 or £300 if someone chooses to transfer 10 funds at once?

Among those charging fees are Barclays at £30 per fund, Hargreaves Lansdown at £25 per fund and Alliance Trust at £146 per account.

These fees erect a barrier to customers who want to move their money to a rival fund supermarket.

The fund supermarkets should learn from the harsh lesson doled out to insurers. They may not like the idea of removing these fees but perhaps they should do it before someone else does it for them.

Lifestyle choice is not adaptable

Lifestyle pension investment funds always struck me as a particularly stupid idea. Gradually moving someone’s money from shares to bonds and gilts based exclusively on their age and a decision that may have been made years previously is a lazy and vacuous option.

The approach takes no heed of changing economic conditions nor could it adapt to recession and recovery.

There is no way I would want my money transferred from shares to gilts without first weighing up the current investment climate and considering what the future holds, both economically and personally.

Pension reforms must now raise further question marks over their suitability.

By all means switch investments if it is the right decision for the investor at that time, but funds that trigger this by default cannot make sense for anyone now.

Tony Hazell writes for the Daily Mail’s Money Mail section. He can be contacted at t.hazell@gmail.com