Chancellor George Osborne’s proposed pension reforms look like heralding a transformation of the savings landscape. Allowing people to access their pension funds from age 55 will be an attractive option for many and early polling suggests big support for the measure.
But with this new flexibility comes responsibility and a significant transfer of longevity risk from the insurer to the individual. Osborne declared that everyone would have access to “free, impartial, face-to-face advice” to help them with what may be a complicated decision. Budget documents clarified that this would in fact be guidance, rather than “advice”, although Conservative ministers continue to confuse the situation. It will be set-up through £20m of Government funding plus an unspecified levy on pension firms (so not free as these costs are likely to lead to extra fees).
We think this will open up a huge opportunity for advisers to offer professional advice to many individuals who will need far more than the generic guidance likely to be on offer through the Government’s scheme.
Our Budget columnist Colin Jelley last week declared that the Chancellor’s pensions bombshell had redefined financial planning and there looks likely to be significant new strategies to offer clients approaching retirement.
The empowerment of savers triggered by the Budget is also a great chance to promote the benefits of financial planning. These new freedoms mean it is even more important that individuals think carefully about evaluating their financial position, developing a plan, implementing it and then regularly reviewing it.
Has Osborne killed off the annuity market? Probably not. A secure income for life is likely to be an attractive option, although you would expect a significant fall in the share of the market annuities currently hold.
Will this unlocking of pension funds create a buy-to-let boom? Again, probably not. The tax implications of taking a sum large enough to invest in a sizeable deposit are likely to be restrictive, although concern about the risk involved could put BTL regulation back on the agenda.
Osborne’s pensions liberation will entrust savers to make the best decision for themselves about what to do with the money they have accumulated.
Many will need a professional regulated adviser to ensure they make the most of their new found freedoms. This could turn out to be a great Budget for advisers and their clients.