If I were a chartered financial planner I would at this very moment be rejoicing in the nearest champagne bar, popping a cork and toasting chancellor George Osborne.
After hero-worshipping George, I would then be raising a glass or two to the understated – but hugely radical and intelligent – pensions minister Steve Webb, before ordering smoked salmon and caviar blinis. Heaven. Nirvana.
Why the bubbles? You know why. Radical change is occurring in the personal finance world, and when this happens, opportunities for financial planners to excel – and demonstrate their considerable wares – abound. Seize the day.
Not once in my long career have there been two revolutions in such close proximity, changing so dramatically the personal finance landscape. Maybe you could argue the advent of both Peps and personal pensions in the late 1980s (thank you Margaret Thatcher, rest in peace) were equally landscape-changing, but I think the double revolution now on our doorstep will be seismic.
So, first, we have the pensions revolution announced 12 months ago and about to hit the streets when the new tax year swings into action on 6 April. And a year from now a savings revolution will begin as tax on savings (a tax I have never agreed with) of up to £1,000 is swept away for millions of people, either still working or enjoying retirement.
No wonder The Daily Mail took the opportunity on the day after the Budget to announce that the ‘sun shines on savers’, illustrating its front page with George Osborne’s face beaming out of a blazing sun. Not a pretty sight, I hasten to add. In fact, it reminded me of Little Weed from The Flower Pot Men (Bill and Ben, George and Steve).
We have known about most of the changes impacting on pensions for more than a year. And the numerous financial advisers I have met in champagne bars over that period have been enthusiastic about the pension freedoms coming our way – and the tax planning opportunities.
Some have been so turned on they have already written books on pension life post-5 April 2015 – Nick Bamford of Informed Choice, for example, has cranked out: ‘How to take your pension pot: a practical guide to your retirement options’.
Others are busy reinventing themselves to make themselves more marketable in the new pensions world. One adviser I know is soon to launch her own pension freedoms-friendly website and has embarked on a 90-day writing course. Her mission post-course completion is to write the definitive user-friendly guide on pensions with a view to attracting new clients on the back of it. Clever. Very clever.
The additional pension changes announced in the Budget provide further opportunities for advisers. The creation of a ‘market’ in annuities next year will enable five million annuitants to think about exchanging their regular income stream for a one-off cash payment. Although most will quite rightly be reluctant to surrender a guaranteed income, there will be opportunities for advisers to demonstrate their expertise and provide some annuitants with better outcomes.
In the aftermath of the Budget, I had an illuminating conversation with the effervescent Stephen Lowe of retirement income provider Just Retirement. He outlined several scenarios where it might make sense for someone to trade in an annuity.
These include having to meet a financial need such as a home deposit for a child; to extract better value than simply cashing in a pension pot (for example, taking an attractive GAR annuity then trading it for enhanced cash); and to buy a more appropriate annuity which better takes into account personal circumstances (for example, trading in a single-life annuity for one with spousal benefits). Fascinating. A financial planner’s paradise. The only sour note of the Budget was the further reduction – from April 2016 – in the lifetime allowance to £1million. A cut which most commentators found unacceptable.
I am in the Simon Laight camp here. A pensions expert at international law firm Pinsent Masons, Laight described the reduction as a “retrograde step”, adding: “It doesn’t just hurt higher earners, it starts to impact on middle England – senior teachers and senior nurses.”
Yet, from adversity springs opportunity – the opportunity for advisers to go out and explain how this reduction impacts on the pensions accrued by those lucky enough to be members of defined benefit schemes. I do not think I have yet to meet anyone outside the financial advisory and pension communities who understands how you assess benefits amassed in a final salary or career average scheme against the lifetime allowance.
I will leave the last word to Bhargaw Buddhdev, executive pensions partner at pension consultants Barnett Waddingham.
Post-Budget, I asked him to do some number crunching for me on the lifetime allowance for the Budget coverage in The Mail on Sunday. His view was as follows: “The reduction in the lifetime allowance – the third in just three years – means many pension savers are now in danger of exceeding the allowance. The worrying fact is that there are a considerable number of people out there who have no idea they are exceeding it and are liable to be taxed at 55 per cent on the excess.”
He added: “If individuals think they may be impacted by the new allowance, it is crucial they seek professional advice.”
So, over to you. Drink down the champagne and get advising. The new pension world, the new savings world, is your oyster.
The new pension world, the new savings world, is your oysterJeff Prestridge is personal finance editor of the Mail on Sunday
