Investments  

Pension freedoms spark sales sea change

Pension freedoms spark sales sea change

The introduction of pension freedoms has produced a major shift in the way advisers invest clients’ money, new data has suggested.

Figures detailing net fund sales across the country’s four largest adviser platforms during the past year, as well as execution-only giant Hargreaves Lansdown, show pensions have overtaken Isas as intermediaries’ product of choice after a surge in flows.

Although fund sales remained flat year on year overall, sales for personal pensions rose 40 per cent to £5.5bn in 2015.

This was offset by net sales into Isas dropping 10 per cent to £3.5bn, and unwrapped products falling 18 per cent to £3.7bn.

Advisers have flagged the introduction of pension reforms last April as a principal factor behind their shift in focus, suggesting clients are increasingly targeting longer-term savings products.

“The reforms have certainly made people more aware of the benefits of putting money into pensions,” said SBN Wealth Management director Dan Farrow.

“The adviser market’s customer is generally around 45-50 [years old] and this is when people are thinking about retirement. Pensions’ tax advantages far outweigh those of Isas.”

Ian Lowes, managing director of Lowes Financial Management, said clients were moving away from the traditional practices of only topping up pension products once they had used up Isa allowances.

He added that other reforms, such as changes to the tax regime that make it easier to pass on pension entitlements after death, had increased both interest in pensions and clients’ investment-time horizons.

“It now makes sense to leave a pension alone at retirement [and use other assets first]. This has made it more long-term and means holding more equities than in Isas.”

Mr Farrow also flagged the possibility that a change in product preference would have an impact on the type of underlying investment favoured by intermediaries and their clients.

He said he was observing “people taking more risk to generate a decent return in order to fund their retirement”.

But he also expected advisers to continue to target more cautious investments.

“Any sector that exhibits low volatility will win over the next five years,” he said.

A spokesperson for the Investment Association (IA), which produced the net sales figures, said it planned to look into how the increase in personal pension flows might change the popularity of various investment strategies.

The trade body also highlighted the likely introduction of changes to the pension tax relief system as another reform that could impact future investor behaviour.

Chancellor George Osborne is expected to use next month’s Budget to highlight his latest overhaul of pension legislation following the government’s 2015 green paper on tax relief, with a flat rate of relief being considered among the reforms.

Wingate Financial Planning director Alistair Cunningham said higher-rate taxpayers would be left with “next to no incentive” to save into a pension in the event of such a measure.