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Independent view

A week is a long time in politics. A week is also a long time in financial services. Which is the longer time now is arguable. In fact, for possibly the first time ever, financial services has actually become politics. Whether it has risen or fallen to that status is also perhaps arguable.

Every day – and in every newspaper and on TV news and debates – one can enjoy the latest commentaries on final-salary schemes throwing in the towel versus a counterclaim from the FRS17 lobby (or anti-lobby).

The funny thing is that this time it is not IFAs who are being held to blame. Could this be a first? Actually, it is a double first because of FSS and FRS17. Should we throw in the cautionary “yet”? No, I do not think we need to this time because “they” are doing quite well on their own.

Indeed, one might say that perhaps IFAs would actually offer some free advice on FRS17 – were it to be asked for. The anti-FRS17 lobby is saying that at least there should be some smoothing effect built into the assessment of pension funding surplus/deficit for accounting purposes – after all it is a longer-term investment strategy.

And of course, IFAs are only too aware of the benefits of “pound-cost averaging”. Why should the concept not be applied to FS pension contribution accounting assessments?

Similarly, one of the main benefits of with-profits investments is/was the smoothing effect feature of the annual investment accounting procedure. It has been good enough for millions of successful with-profits policies over the years so why should the concept not be useful for the current FS contribution accounting scene?

Now to pastures new or more accurately, level playing fields – but only as far as final-salary schemes.

Was it not the case only a little time ago that Fimbra and the PIA were saying to everyone that the final-salary scheme was the sacred cow of pension planning and woe betide anyone who said differently? Hence the pension review. Not only that but along came the FSAVC review too.

So, referring to level playing fields, if the pension review was based on “firm defined knowledge of the certainty of final-salary schemes benefits and, therefore, the final resulting pension” versus “the uncertainty of managed fund performance in personal pension plans and the unknown final resulting pension”, then surely we could now expect to see some red faces . And some pension review re-reviews to see if the pensioner would have been better off with a personal pension plan after all.

So was all the fuss and cost of the pension review really worth it? And was it justified? Strictly speaking, the jury should still be out on this one.

Also high on the financial services agenda has been split-caps. The poor things. Let us face it, they have been severely mistreated. Whoever thought that a professionally run, quality performance, investment trust would ever see a market downturn?

Bank covenants had been put in place which had never been designed to be used, it is just professional to have them in place. By modelling your portfolio in your investment trust could you test it to see what the effect of a downturn would be on assets, and on banking covenants?

“Well, it is not really necessary, is it? I mean, they will never actually be used will they. And we are professionals after all.” I do not propose to take this one any further, for the time being.

Meanwhile, did you receive your pair of Government issue National Savings & Investment socks? I did. But wait a minute, how did they know my size? Silly me, I almost forgot. So, everyone clear on pensions? OK, let us move on swiftly to multi-ties which, in case you had not noticed, have also been filling column inches.

Ask any member of the general public to explain why polarisation had originally been set up and there is a reasonable chance that you will get a decent explanation from them.

Dare you ask the same person why the current system needs to be changed to the new system currently proposed? Of course, we would not be able to explain adequately to them in the time allowed exactly how the new proposed system will work. Please note, this article is not in any way intended to convey any aspects of real life.

Steve Payne,

SJ Payne & Co


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