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Putting a cap on choice

We now live in a time where everything in financial services appears to be capped.

Last week’s Budget capped every qualifying product that is not already capped to a maximum annual limit of £3,600 a year issued on or after April 6, 2013.

The Government will consult on the implementation of these changes, with legislation to be included in Finance Bill 2013. There will be transitional rules applying to qualifying policies issued on or after March 21, 2012 and before April 6, 2013.

These changes will also be included in the consultation. Because of this cap, some product providers will stop marketing products such as maximum investment plans. Is it the Government’s intention to lessen consumer’s product choices?

Pensioners were given a cap in their elderly age allowance as from 2013/14 the higher age related personal allowances will not be increased and their availability will be restricted to people born on or before:

  • April 5, 1948 for the £10,500 allowance
  • April 5, 1938 for the £10,660 allowance.

There are 14.1 million people in the UK over 60 and 1.41 million aged over 85. According to Age UK, 1.8 million older people live in poverty. Is it the Government’s intention to push more pensioners into poverty by lessening the value of their tax reliefs?

And it is not just the Chancellor talking about capping things. The FSA is to look into charges levied by UK fund management groups after its head of investment policy queried why they have been rising in recent years and why they are so high. UK fund management charges, on average, tend to be double the amount of the fund charges in the US. Do you think the regulator will apply a cap to all fund charges?

As for adviser-charging, we all know that the RDR will cap the amount an adviser can charge. FSA policy statement PS12/5 issued last week makes the rules final (for now) and states that where adviser charges are paid through a product, providers can deduct the charge before or after the client’s money is invested. The important thing about adviser charging is that it must be set and capped up front with the client before advice is provided. How many people will not be able to afford adviser-charging?

We are waiting for indications of the capped costs, access and terms for simplified products and the final National Employment Savings Trust product which is currently positioned as having initially over 45 Nest retirement date funds, meaning each retirement year has its own fund with appropriate levels of risk which does not exactly sound simple. Does this sound simple for consumers to understand?

Let’s hope all this restricting and capping does not stifle innovation and creativity within financial services. After all, London is the world’s biggest financial centre alongside New York and it would be a shame if financial services product and service providers and distributors decided to go elsewhere.

Kim North is director of guidetoadvice.co.uk

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