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Driven to tinker

Following a series of U-turns, the industry is torn between accusing the Government of hypocrisy and recognising it is only human.

Polarisation, stakeholder pensions and Isas are all high on the Government&#39s agenda for progression but policies beginning in one direction have frequently changed cou rse and sped off in the opposite direction.

These turnarounds have a significant impact on the ind ustry developing, distributing and selling these products as it is forced to react and often embrace changes it did not ask for.

Pensions have been high on the Government&#39s list of priorities and the progression of stakeholder is a catalogue of swings and roundabouts.

Scottish Equitable pensions development manager Steven Cameron says Govern ment comments on the importance of choosing a pension led the industry to assume stakeholder charges would have advice built in. But the introduction of the 1 per cent charging cap forced the industry to reassess all plans.

Cameron says: “Capping the charge at 1 per cent was a U-turn. Although the industry is coping with this change, we will not be paying as much for advice and it will affect the low earners who need advice.

“As soon as that proposal was made the Government could not go back on it as it would have been seen as giving in to the life offices, even though the life offices were saying allowing advice will help produce a better product.”

Although consumer gro ups welcomed the low charging structure of stakeholder, Cameron says they were missing the point. A cheap product does not necessarily offer the best value for consumers but it is doubtful low earners will choose to pay extra for the privilege of independent financial advice.

Low earners have also been a target of other Govern ment tinkerings in pensions. The issue of the minimum income guarantee and the subsequent introduction of pension credit illustrates an instance of one Governmental decision solving one problem but causing another.

For people planning their future retirement, MIG represents a disincentive to save. The Government was forced to create another facility to provide a saving incentive – the pension credit announced by chancellor Gordon Brown in his November pre-Budget speech.

Scottish Life head of communications Alasdair Buch anan says the introduction of pension credits is an example of a Government turnaround that only partially sorts out the problem.

He says: “The Gov ernment has gone for a compromise, which is dangerous because it looks as though it has solved the problem. But there still remains a problem for some people. A compromise is often the worst of all worlds.”

But the industry believes U-turns do not have to disruptive and can in fact be positive. Many changes to Government policy come as a result of consultation periods and both Cameron and Buchanan say these changes demonstrate the Government is actually listening to what the industry has to say.

An idea that sounds wonderful on paper can be a complete disaster in practice and it is important the Govern ment is able to change its position on issues.

Freedom to change its mind is crucial but the Gov ernment must also take the needs of the industry into consideration. Buchanan says: “Refining an idea can be practical and is a good thing as long as there is enough time to implement the changes. But now there are only four months until the launch of stakeholder and there are still some issues that need to be resolved. Not being given sufficient time to make the chan ges is disruptive.”

The investment industry faced this disruption in March this year when Brown ann ounced an increase in the Isa limit a month before the new Isa season was launched.

Although the change was good news for consumers, the investment houses were forced to reprint marketing literature and amend administration facilities at the last minute.

Brown has redeemed himself in the eyes of the investment industry by announcing in the pre-Budget statement that he is maintaining Isa limits at £7,000 for the next five years, which should hopefully remove the risk of March&#39s fiasco happening again.

Yet even maintaining the Isa limit could be seen as a turnaround by the Govern ment as Isas were originally meant to red uce the amount of tax-free savings.

This is a positive move for the investment industry which will benefit as Isas remain an attractive prospect for investors.

Baillie Gifford sales and marketing director Ken Edwa rds says: “When the Govern ment introduced Isas the intention was trying to cap the tax rate that was going on with Peps and to reduce the limits from £7,000 to £6,000 but they have changed their minds. In our case this is a change for the better. It shows the lobbying from Autif has been successful and the Government has listened.

“They have not interfered in much in the investment industry apart from the original Isa rules and it now seems like they are relenting.”

While the investment ind ustry has received a relatively easy ride, the Governmental changes in direction is making life more difficult for IFAs and it is not just polarisation.

The Government is trying to encourage people to save but according to IFAs introducing a tax on pensions is not the best approach. Mill brae Financial Services managing director Carl Melvin believes taxing pensions is a form of stealth tax that acts as a disincentive to people put ting money into a pension.

He says: “Where is the incentive for pensions when the Government is raiding people&#39s pension funds. They need to make pensions look more attractive to encourage people to save.

“If they made tax-efficient arrangements for people on products such as protection it would be more popular but if you give people too much freedom they just choose not to save.”

These changes are not the first made by the Government and nobody in the industry believes they will be the last. Providers and IFAs alike have to be prepared to accept chan ges and adapt their businesses accordingly but as long as the Government continues to consult the industry some common sense may prevail.

Holden Meehan director Richard Hunter says: “In this industry it is very difficult to have any confidence in the Government as they have let us down on many occasions. But we will still try and give our thoughts as positively and objectively as possible. We are just a resilient bunch of people that will keep fighting and do what we do best.”

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