The biggest danger our clients face at the moment is uncertainty. I do not recall a time at any point in my 29 years in financial services when we had so little idea about the direction both the industry and the country will be taking over the next few years.
No sooner do we get a sense of Government or FCA thinking, the goalposts move and we are plunged back into the mire. The recent election result and subsequent hung Parliament leaves us wondering whether measures from this year’s original Finance Act will ever get implemented, whether the Conservative manifesto is any guide to their real intentions and whether we will be able to achieve a successful Brexit deal.
Uncertainty about future policy on financial matters is making advice impossible. Pensions are a particular area of confusion. Pension flexibility brought great opportunities but subsequent changes have muddied the waters.
The original money purchase annual allowance of £10,000 seemed logical and offered sensible opportunities for those who wanted to take advantage of the new flexibilities while still able to accumulate pension savings. However, dropping the MPAA to £4,000 has completely reshaped the advice we might give and closes the door to rebuilding pension savings for many of those who have crystallised their funds in a strategy developed on the basis of the £10,000 allowance. Action taken on the basis of a higher MPAA can rarely be undone, leaving some clients now at a permanent disadvantage.
Back in 2006, we had A-Day. Pensions became sexy investments and everyone was encouraged to save as much as possible in tax-efficient schemes. Fast-forward 11 years and both the lifetime allowance and the annual allowance have been reduced, and advisers are left wondering whether the Government is running scared because of the cost of all that tax relief to the Treasury.
Tax relief for pensions has become a hot potato, with suggestions prior to the last couple of Budgets that it will start to disappear. We need to know now what the long-term intention is for tax relief, so we can plan for our clients.
The Lifetime Isa is another cloud on the pension advice landscape. Is this going to be our retirement income vehicle of the future or will it become just another idea that did not really quite work out?
We are still getting mixed messages from the regulatory triumvirate of the FCA, the Financial Ombudsman Service and the Financial Services Compensation Scheme, too; particularly in respect of defined benefit transfers.
I remain hugely concerned today’s guidelines may well be turned upside down and lead to claims against firms on the scale of PPI. The latest suggestion is that the recommended starting point that a DB transfer will not be suitable should be removed but, frankly, I am sceptical. I suspect the FOS and the FSCS will continue to look askance on the vast majority of DB transfer cases.
We need every element of the financial sector to work together and the Government to listen to our concerns. We all want clients to be in a position to plan ahead for future prosperity and a comfortable retirement. Unless we have a clear idea of what lies ahead, our advice is compromised by uncertainties. Time to get a grip.
The FCA is currently recruiting a new head. Perhaps the new chairman can take on the task of getting answers from the Government, as this will be the best way it can help to ensure the best outcomes for clients.
Carl Lamb is managing director of Almary Green