I have been in financial services longer than I care to admit and I reckon I have seen more than my fair share of ups and downs. One downer beginning to gain traction among the lobbying community is the ever-louder call for us to be left alone. This call is not as entirely selfish and self-serving as it might sound, however.
Of course, we all hate the constant and unrelenting – not to mention costly – burden of regulatory obligations, especially if one feels it is just change for change’s sake. Slightly humorously (and I really do mean only slightly), certain quarters feel this complexity is keeping them in a job: if it were not for complexity, certain clients with a bit of confidence could surely do most of this by themselves.
But there is a serious side to all this. The constant tinkering with our pensions system is eroding the long-term prospects in the consumer’s mind, with the pendulum of advantage swinging wildly between the various changing tax breaks. Not only that, we have a system that favours final salary mechanisms one decade, then money purchase the next.
Nature abhors a vacuum, so it is inevitable money flows, just like water, downhill to the most tax efficient home it can find.
Most of us have clients who, on the face of it, are cautious but who are suddenly requesting transfers from final salary schemes, akin to the wild movement of assets back in the late 1980s and early 1990s. Fast forward 10 years and we all know what happened next. The same will surely happen again.
It is a clear and obvious disaster waiting in the wings. The current short term feast will once again turn to famine if subsequent rules change the pendulum back once more in favour of final salary schemes.
And it is perfectly easy to imagine the scenario. Political will changes, as does the colour of the politician’s rosette, and those nasty, greedy pensioners with huge pension funds must be reined in a little. Stop letting them pass on their funds on death tax-free and restore the good old fashioned link with death and dependents, and you have a recipe for wholesale misselling, with aggrieved clients realising it is once again better to have assets held in a final salary regime with all the perceived certainty that affords them.
Huge resentment is just a legislative fiddle away and it is simply unfair to everyone we must live with this constant second-guessing. It is a system designed to catch you out, not pull you in.
The solution, however, is really quite simple. Politicians of all persuasions must accept changing anything in financial services risks the erosion of consumer confidence, which in turn reduces the sums people are prepared to tie up for the long-term benefit of not only themselves but the wider UK economy.
There is a price to pay in asking consumers to delay monetary gratification – and tax relief is the most effective. It is the least we can do to give them that confidence, otherwise they will continue to buy rental properties and branded Champagnes.
Tom Kean is director of Thameside Financial Planning