Paul Lewis has stood by his comment that advisers should recommend cash accounts rather than drawdown, as the latest government statistics showed we were back into a deflationary environment.
Last month the presenter of Radio Four’s Money Box raised concerns about providers pushing drawdown, stating that it is a “potential mis-buying scandal” and arguing that advisers should instead recommend cash accounts.
“Inflation is now at minus 0.1 per cent. Thought you should know”, adviser Derek Stafford of Premier Capital Wealth Management, told Mr Lewis at the FTAdviser Retirement Freedoms Forum today (13 October).
More than 100 advisers at Chepstow were told by Mr Lewis that all financial advisers should also be experts in cash. “The one thing you know about cash is it won’t go down in value. You go to the bank and put £10,000 into a savings account. A year later, you need the money back. You go back to the bank and take it out and, hey, the bank has added £200.
“It takes off £40 tax – though it won’t do that after April – which leaves you with a profit of £160. You have done no work; magic.
Mr Lewis continued that self-invested personal pensions and drawdown can be in cash accounts – “not cash funds, they’re a ripoff” – with no tax due or deducted and some paying more than 2 per cent over two years, or nearly 3 per cent over five years.
“A guaranteed tax-free return and no chance of the capital falling. That’ll help your clients sleep at night. They can never have the gut wrenching feeling when their pension fund begins to disappear because Chinese people have overinvested or there is a glut of oil.
“The safety of cash is why half of all premium bonds – £31bn – are owned by people who have at least £30,000 of them. A tax free return of 1.19 per cent, which is equivalent of 1.98 per cent taxable for a higher rate taxpayer.”
During the question and answer session after Mr Lewis’ keynote speech adviser, Louise Oliver, of Piercefield Oliver, pointed out that advice is paramount for the at-retirement market.
“There is an advice gap for millions of people and although we have Pension Wise, we hear that only 10 per cent or so of those who have acted since the freedoms have used Pension Wise. How can these people get quality advice?”
Mr Lewis agreed there was an advice gap, but said the Financial Conduct Authority seemed to have set up too many hoops through which the industry, and the consumers it serves, must jump.
His comments came after yesterday the government and regulator released an input paper asking the industry what can be done to mend the financial advice gap. It confirmed for the first time in a decade the FCA will reconsider the unlimited liabilities advisers now face.
The document also acknowledged there are relatively few awards by the Financial Ombudsman Service made against financial advisers in response to complaints about incidents longer ago than 15 years (which would be likely to be barred if a long-stop were in place).