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Robert Reid: Fall guys in Budget guidance tug of war

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After a family bereavement I was informed the newly widowed relative was heading for the bank to have her late husband’s Isa changed to her name. Being a helpful sort I explained it was not possible to alter the name on the account in this manner.

She, of course, told me I was wrong and went on to successfully execute the change. Evidently, this bank had its own process for operating Isas and had completed this task thousands of times. Luckily, HMRC had not descended on it and uncovered this aberration.

Now the Chancellor has made it official. At the same time, he has parked the idea of tax relief on pension contributions post-75.

Quite how he arrived at this conclusion I do not know, unless the same number crunchers were used that estimated the impact of the recent Budget changes.

Indeed, I have to say the absence of detail on the operation of taxation on the new pension freedoms continues to concern me. It is great that taxation is at marginal rate and not 55 per cent but deducting the right amount will be crucial if providers are to avoid complaints.

The introduction of tax-free income for dependents’ pensions for DC only is another blow to the DB regime. Just how long the 25 per cent cash remains tax-free is questionable. I for one would not be surprised if this found its way into a subsequent Budget.

This improvement to death benefits will boost not just the use of drawdown but give a shot in the arm to annuities too. What does concern me, however, is that the combination of benefits set to emerge will make guidance by those competent to only a basic level problematic – if not plain dangerous.

Pensions advice in an environment of many options and variable risk reminds me of a tug of war, where the Treasury drives the changes making matters more complex and the guidance becomes more difficult to deliver. As complexity builds, the Treasury tugs at the rope, with those responsible for delivering guidance falling over in the process. Is this what the Chancellor really intended?

There is also a great deal of irony in that, in a time where longevity is the ultimate risk, we encourage people to raid their pension fund. Running out of money before they die is not just a possibility, more of a certainty.

Much has been written on the need for financial education. Hopefully more will be done to deliver something that both engages and educates people into making smarter choices and asking the right questions before they commit to a recommended course of action.

Perhaps my relative has shone a light on the use of common sense in the drafting of legislation of Budget changes. We might see legislation in the future that reflects what we need and not just used to raise revenue by stealth. Then again, we might also see a less commercial Christmas. I think not. My best wishes for the season and for 2015.

Robert Reid is managing director at Syndaxi Chartered Financial Planners

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. A well written article by a man who understands the value of professional financial advice and the problems that guidance from the C.A.B may bring.

  2. Robert. Did you check that the bank did not merely open a brand new ISA account up in the widow’s name using the proceeds of her deceased husband. As long as it was under the annual limit there would not have been a problem….

  3. She had use here allowance already they actually crossed out the name on the statement and popped hers in when the next statement came out she had 2 isa accts.
    the bank is now owned by us so maybe the relaxation was prompted by them!

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