Revolutionary but there’s no rush

The forums were held over the course of two days, with the first event being hosted at the May Fair Hotel in London and the second at the Crowne Plaza Hotel in Birmingham.

It presented a timely opportunity for advisers to refresh and update their knowledge of the pension freedoms which will come into force next month. Chairing both events, Ashley Wassall, editor of FTAdviser.com, began the proceedings with a quotation from the chancellor‘s now-famous Budget 2014 speech that unveiled a host of unprecedented freedoms at retirement before introducing the first keynote speaker of the day – pensions minister Steve Webb.

The Liberal MP for Thornbury and Yate began with a question that was probably in the minds of many financial advisers in the conference room: what should clients do on 6 April?

His answer was: “My strong FCA-approved suggestion to you is – stay in bed. There isn’t a rush. Don’t get on speed dial at 12.01am to Pension Wise or to your provider.” He added: “We are trying to get away from the sense that although this is a revolutionary and radical reform, somehow, because you may have been waiting for a year, you absolutely have to do it all on day one.”

A motif of Mr Webb’s speech was the idea of giving individuals greater control over their pension pots. The pension changes, according to the minister, represent a shift in the state’s historic paternal approach to retirement options towards a more individualistic one.

He added: “People will get it wrong. Some people will buy the wrong product. Some people will be worse off than if we had forced them to buy an annuity. Some people will buy an annuity when they shouldn’t have done. That is what happens when you set people free.

“We are not belittling that, we are trying to minimise this, but that is the risk you take. But the opposite risk is that you force everybody into a single mould, which simply doesn’t fit.”

Demand

Michelle Cracknell, chief executive at the Pensions Advisory Service, told the audience that Pension Wise, which was set up to help pensioners consider their options at retirement, would be able to cope with the anticipated initial surge in demand for its services and the capacity to cater for a more steady demand over the long term.

She said guidance would allow people to understand the things they needed to consider and would open the door for them to go out and seek tailor-made advice, and added: “I don’t think any form of regulations will stop scams, and it is only by the customer knowing what to recognise to be able to spot the activity.”

The pension changes will require advisers to juggle risk, which mainly centres on longevity, inflation, volatility and flexibility, when building an at retirement portfolio, according to Stuart Tragheim, sales director at Engage Mutual, and Colette Dunn, head of strategy at Milliman, who spoke at both forums. Mr Tragheim said: “The retirement freedoms that are now avaliable are huge and are game-changing.”

He added: “These are the first changes that I have seen in the past 30 years that are likely to have a huge impact on the demand side, not just for initial advice but ongoing advice, and helping customers managing risk through their retirement.”

Ms Dunn said that with the pension changes, the risk of investments had been shifted from the provider to the individual. Advisers would have to be prepare and be equipped to take on this responsibility when these individuals sought their service.

Mr Webb said that critics of the freedoms claim that those who end up spending the total sum of their pension pot will claim state benefits, but added that that would not be an issue and that the office for budget responsibility agreed.

However, these individuals would be supported by the state pension and could also get help from their local authority to pay their council tax

The new freedoms also posed a problem for people who have already annuitised, according to Mr Webb.

“You annuitised a day before the Budget or six months before the Budget and you are locked in for 30 years, but actually you did not want an income stream, you wanted capital, but that was the only option on the table,” Mr Webb said.

Abolition

He added: “What would be so terrible in allowing people who have got an income stream to assign it to somebody else, a financial institution or somebody, and turn it back into cash?”

However, he admitted the idea was unlikely to be implemented in the near future.

Mr Webb expressed the need for the abolition of the lifetime allowance, describing it as “illiberal” not to encourage wealthier people to save into pensions. However, he admitted this too was unlikely to happen in the near future.

He added: “Once you have a sensible flat-rate system for tax relief you do not need a lifetime allowance. If you have an annual allowance and a sensible rate of relief they you can do away with lifetime allowance, that would be my package.”

Myron Jobson is a features writer of Financial Adviser