Your IndustryJan 21 2022

Regulation and tax top concerns for retirement advisers

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Regulation and tax top concerns for retirement advisers

According to research from Aegon with Next Wealth, after the pandemic led to delays in consultations and regulatory changes, the push to catch up for lost time is creating a very “congested roadmap” of regulatory change for 2022.

Steven Cameron, pensions director at Aegon, said the chancellor’s approach to freezing the pensions lifetime allowance and annual allowance and the threat of possible further cuts is also seen as a particular advice challenge. 

“The LTA limit has seen a significant reduction since reaching £1.8m a decade ago and now sits frozen at £1,073,100 until 2025/26,” he said. 

“While we hope any further short term changes here are unlikely, freezing these allowances particularly when inflation is at a decade high means more people could be dragged into paying more tax on their pension pot unless receiving careful advice.”

Advisers' top three challenges this year

1Regulatory and tax changes
2The impact of Covid on stock market volatility and client meetings
3Balancing investment risk objectives with income needs amid macro-economic uncertainty

Tim Morris, IFA at Russell & Co Financial Advisers, said: “Regulatory change is a room 101 event. You just have to grin and bear it. Tax changes can be a headache yet also provide planning opportunities with clients. Although pensions have suffered negatively of late.”

The survey, which was conducted with 212 financial advisers in December 2021, also found that “a small but notable number of advisers” saw adjusting advice in light of the regulator’s evolving focus on environment, social and governance as a challenge to providing retirement advice. 

“Responsible investing is expected to be a big theme this year with advisers playing a key role on building a wide variety of customer attitudes towards green and sustainable investing into their suitability assessments,” Cameron said. 

The impact of covid on stock market volatility and client meetings was second in the list of concerns, followed by balancing investment risk objectives with income needs amid macro-economic uncertainty.

Throughout the pandemic, covid restrictions caused disruption to face-to-face meetings which have traditionally been the foundation of the client-adviser relationship. 

While many clients have benefitted from accessing advice for the first time through new technologies, concerns persisted over further disruption to service caused by covid.

Advisers also highlighted the challenges of satisfying client investment risk objectives while also meeting income requirements during the ongoing high inflation, low interest rate environment.  

Cameron said: “Advisers highlight stock market instability as a challenge for retirement advice in the coming year. Both Brexit and the covid pandemic have created significant market volatility in recent times. 

“Advisers are adapting by moving to more dynamic tools to meet their clients’ objectives and provide sustainable income strategies amid expected continued market volatility.”

However, Justin King, chartered financial planner at MFP Wealth Management, said he views the three challenges as a “fantastic opportunity”. 

He said: “Volatility has always been present, but clients need help with it. Regulation and tax of course is a challenge but what are we here for unless this stuff was difficult?

"And covid has provided us a greater opportunity to serve more clients in less time, with no traveling or setting up meeting rooms. Clients have now become accustomed to video calls and I think that's a positive step.”

Meanwhile, Darren Cooke, chartered financial planner at Red Circle Financial Planning, said the first and third concerns were the same as every year and the second was “just this year's reason for stock market volatility. 

“This is why we have a job, if you can't manage those three things with clients each and every year then you might as well pack up and go home,” he said. 

Morris added: “For me, the investment outlook provides the biggest challenge this year. Covid is no longer the biggest concern and inflation and subsequent monetary tightening are more of a threat. 

“We've been in a loose monetary policy world for over a decade now. And not had to deal with the threat of 'stagflation' for about 50 years.”

sonia.rach@ft.com

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