A design principal held in high regard by the US Navy could serve as a useful instruction for those giving their two pennies’ worth to the pension tax relief debate opened by the chancellor.
The Keep It Simple Stupid principle, or KISS, was allegedly coined by Kelly Johnson, who helped create the SR-71 Blackbird spy plane for Lockheed Skunk Works, as well as other important military aircraft.
The beauty of the principle is that it demands simplicity but not at the expense of quality and rigour.
To end up with a system for pension tax relief that incentivises greater levels of contributions, encourages more people to save for their futures and that ticks the KISS box will be, frankly, remarkable.
But the investment industry has been given the chance to help the government do so thanks to the launch of the chancellor George Osborne’s green paper in last week’s Budget.
Initial chats with senior figures at asset management houses suggest rather than the current complex system of applying tax relief at the marginal rate, to use the jargon, there should be a simpler, easier-to-understand approach of ‘matching’.
Such a system would simply state that if an individual contributes £4, the government will top that up with £1, for example.
This is easier to understand for the majority of consumers - your clients or potential clients - than them having to calculate what the government contributes to their pensions now through tax exemptions.
It also fits neatly into the push by The Investment Association to have funds publish their charges in pounds and pence figures, a move which ticks that KISS box.
Another tectonic shift could be on the cards for those that want itWe could soon be in a world where fund charges are expressed in terms people understand sitting alongside a jargon-free expression of what the government is contributing to one’s pension pot.
If this simplicity does emerge and a greater number of individuals do engage with their pensions, for me, this could open up a whole new client-bank for advisers - albeit with some entrepreneurship and business development involved.
Advisers could for a low fee and, say, an hour’s worth of their time, discuss with individuals their options with their defined contribution pension, whether they should go for the ‘lifestyle’ option or perhaps consider a more risky asset allocation if such a move would be right.
They could also tell people about how much they should be contributing and whether they have the capacity to even invest outside their pension in, for instance, an Isa.
Enterprising advisers could benefit hugely from this, in my view. An hour of your time now to offer some simple advice, for a low fee, could effectively be a down payment on a wealthier future client looking for more expensive and bespoke advice on how to manage their accumulated pot.
Mr Osborne’s green paper rightly said the advice market for pensions and savings had “changed dramatically” in part because of the RDR and it seems another tectonic shift could be on the cards for those that want it.
Bradley Gerrard is news editor at Investment Adviser
