Isas and pensions bounce back with Budget changes: Prudential

Isas and pensions bounce back with Budget changes: Prudential

The balance of power between pensions and Isas is set to shift next year as the new rules bed in from April, according to Les Cameron, technical manager at Prudential.

He told FTAdviser that using Isas as a pension feeder fund will take off, although the pensions annual allowance will become more popular than the Isa allowance for the over 45s.

“It will be the allowance of choice for at least the first £10,000 of savings for the over 55s - the pension currently holds the balance of power in the pensions versus Isa debate,” he noted, adding that the outcome of the general election is bound to change things once again.

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Mr Cameron also predicted that annuity sales will not fall as far as expected, with people proactively choosing them rather than defaulting into them. “There will not be an exodus of pensions money into alternate savings vehicles at retirement at the rate some commentators are predicting.

“Retirement income products will come to market offering a balance between total freedom and total security. When faced with an understanding of longevity risk many people will be unwilling to trade total security for total freedom.

“Understanding the ‘trade off’ will be key.”

Commenting on the changes in spring 2014 that will come to fruition in spring 2015, Mr Cameron said that it has been interesting to see the rise of drawdown, after starting the year as a ‘higher risk’ option suitable for some but a bit ‘niche’.

“The almost immediate release of the one-year fixed term annuity was also interesting. It’s strange that people were so keen for a guarantee that they were willing to guarantee themselves a reduction in value – it reminded me of the spell where interest rates were so low that people were giving money to the German government as they knew they’d lose less money there!”

Prudential set up a project team and oversaw an extension to its annuities cooling off period, as well as applying the product changes for new drawdown and trivial commutation rules within days of the Chancellor’s announcement.

“As I’m sure is the case with other providers, large numbers of our people sprang into action and worked around the clock to make changes so that customers and advisers very promptly received updated information on how the changes affected them,” mentioned Mr Cameron.

“When the transitional necessities had been attended to, there came the task of preparing for the future and working to prepare our propositions for the new world in April 2015. Needless to say, this work is still ongoing.”

He added: “Getting to grips with the yet to be finalised legislation, preparing our existing book of business for 2015, looking at how we can leverage our asset allocation and longevity expertise to bring new solutions to the retirement income market will no doubt continue into 2015 and beyond.”