If we mismanage reform, Ucis will come back to haunt us

There has been no queuing around the block outside pension firms to access cash.

That would have been a visible manifestation of what is happening. Instead, we have to listen to what providers and advisers say. But beyond their client banks, we really are only guessing what it means across the market.

Advisers already had a handle on what their client base wanted to do. They tell me they are seeing new inquiries too and the good news, I suspect, is that in a year’s time, investment advisers will be looking back on a reform that brought a substantial increase in business. The difficulty for them may be in saying no to lower-value clients.

For the advised sector, the reform has always looked to be a boon. As I have written before, however, the bigger issue is with the broader market in financial services. Those who have a lower amount invested, who would previously have ended up in the safe haven of an annuity, may become investors by default.

We have to hope these customers and clients heed the warnings about out-and-out scams. Yet it is arguably more worrying that other types of investments, which would have fallen into the category of Ucis from an adviser’s point of view, could make a comeback.

We have to hope those with a lower ammount to invest heed the warnings about out-and-out scams.

Plans that have been avoided by IFAs (especially for mid-net-worth clients) during the accumulation stage could, bizarrely, become much more popular post-retirement. It is unlikely investment advisers will play a large part in this. But after decades of consumers being assailed with warnings – some accurate, some less so – about the poor value of pensions and annuities, it seems there is an almost mythical belief among some consumers that they can obtain a higher income outside the clutches of the ‘industry’. Unfortunately, that may make them ripe for what you or I might call mis-marketing. The consequences could be grim.

Another huge group is likely to remain invested. The risk of what is described as ruin is real, of course. Yet a lot depends on the strategy for income drawdown that someone has embraced (or fallen into).

Adopting a high-volatility strategy, on purpose or otherwise, and taking significant amounts out in income could see a pension pot disappear rapidly. Advised clients and those who have strong relationships with their provider may dodge that particular bullet. Others may not be so fortunate.

Yet consumer groups and the Labour Party seem intent on the easy fix of price-capping drawdown. Fees and charges are not unimportant. They are just not as important as the risk of taking out significant amounts of income in a falling market and expecting it to stretch years into the future.

That brings us to the most significant issue. The reforms may need to be adjusted. The warnings – and, indeed, basic messages – for the general population may need to be better targeted. We may want to take a really hard look at whether we have given inappropriate Ucis investments a second wind.

We also need to know what is happening. The government’s failure to find out is, as experts such as Hargreaves Lansdown’s Tom McPhail and consultant Rachel Vahey have argued, a huge oversight. It needs to be compiling data now. Any delay could leave a lot of consumers in the lurch.

John Lappin blogs about industry issues at www.themoneydebate.co.uk