It would have taken a lot to top the surprise of the 2014 Budget, when ‘freedom and choice’ was announced.’ To a large extent, the changes announced to pensions in the 2015 Budget were already well trailed.
The lifetime allowance will be reduced to £1m (from £1.25m) from April 2016, with plans to index it from 2018. If implemented as planned, it will create another raft of different protection issues for people close to or beyond the £1m mark, introducing further complexity to the system.
Those affected may want advice on what they should do.
By far the biggest announcement on pensions was confirmation that the government has launched a consultation on how a market may be established for people to trade in their future annuity income. The proposal would extend this year’s retirement freedoms to over 5m existing annuitants from April 2016. However, the consultation document provides an insight into the many complex issues involved in making this a reality; including taxation, underwriting, valuation and administration.
There was no mention of ‘advice’ this time from the Chancellor, but it clearly raises the question of whether advice would need to be mandated, given the obvious parallels with those wishing to transfer out of DB pensions. The consultation acknowledges this point.
Regardless, I think many people would want advice before making such a big decision.
And of course advice will be mandated for those transferring out of DB, or those with income guarantees under DC. Probably 100,000s of people. And many predict that people receiving guidance will ultimately ask what they should do, i.e. they will want advice. At least some of the 100,000s of people reaching 55 each year will surely be in this position. And then there are those people who already take advice.
Oh, and there’s the small matter of over 1m small firms which have yet to set up a pension scheme, many of which will seek advice.
If these predictions prove correct, the demand for advice may far outsrip the supply. If so, we will undoubtedly see firms adopting new ways of dealing with the volume. We’re already seeing a growing interest in telephone based and online services and some predict that robo-advisers will be roaming our streets before we know it.
But many advisers will remind me that there is still no substitute for face to face advice. I’ve been on the receiving end, so I can say with some confidence that I agree.
So, perhaps a more immediate development will be the broader use of centralised investment propositions, perhaps centralised retirement propositions, outsourced automatic enrolment services (or indeed outsourced individual advice for those purely dealing with corporate clients).
Processes will need to be scaled up for those wanting to take on significant numbers of new clients – individual or corporate. And scaled up without proportionately increasing overheads. I’ll leave that to the experts who run advice businesses. But I can say with some confidence that I believe the need for advice will increase, driven by all the initiatives underway for pensions.
In the 2014 Budget, the Chancellor was criticised for using the word ‘advice.’ Some would say it was remiss of him not to mention the word in his 2015 address.