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Stay ahead of the game

Standard Life head of pensions policy John Lawson says advisers should be asking themselves if they are up to speed on aspects of A-Day which will affect them and he warns against some delaying action until it is too late to advise clients

With less than six months left until A-Day, the question remains whether or not financial advisers are up to speed with all the rule changes? Of course, the only people who can answer this question are advisers themselves. But what advisers really need to know is this:

o What are key issues that need action before A-Day and which sort of clients are potentially affected?

o What issues, that might have an effect on the recommendations that I am making today, remain unresolved?

o Where can I find out more about these issues and satisfy myself that I am up to speed with what I need to know?

‘What I need to know’ will also vary from adviser to adviser, depending upon the adviser’s customer base. But what is clear is that no adviser is immune from A-Day. Even advisers who specialise in investment and tax/trusts planning need to know what is going on because the new pension rules are likely to create significant scope for inheritance tax mitigation.

Taking the key issues first. Clients can fall into a number of groups, some of which need immediate attention, and others where immediate action is less pressing. Immediate issues include whether to claim protection (and the effect of a second lifetime allowance test on this decision), whether to transfer occupational pensions to section 32s pre- A-Day and whether to maximise funding, earnings or a combination of both. Then there are clients who have additional voluntary contributions or protected rights (funds built up with rebates received by contracting out of the state second pension). In both cases, some clients may be best advised to defer their retirement until after A-Day.

Each of these issues is rather complex. Take enhanced protection, for example. Those in money-purchase schemes must stop funding their pension before A-Day but for those in final-salary schemes, it is not quite so simple. They can continue building up more 60ths or 80ths as long as their pensionable salary does not increase much or if they know that they will suffer an actuarial reduction in their benefits on a planned early retirement.

The other issues mentioned are equally complex, relying upon a mix of up-to-date knowledge of draft pension simplification legislation on the one hand and a detailed understanding of the current pension tax rules on the other.

Another issue which has had a lot of press coverage is protection of tax-free lump sums over 25 per cent of the fund in money-purchase schemes. Some clients may want to transfer before A-Day or boost their earnings but for most clients, the bulk of the work in protecting tax-free lump-sum entitlements will fall after A-Day. Advisers will need to know how, if at all, each provider plans to collect the necessary information and what help the provider needs from the adviser to get these details.

Then there are the issues which have probably caused the greatest confusion – the ones still to be resolved. The constant tweaks to the detail of the new tax rules have had an unfortunate effect on some advisers. Rather than stay up to date with the constantly moving feast of changes, they have decided to do nothing until they get the all clear that the final position has been decided.

While this attitude is understandable (advisers have a day job as well as trying keep abreast of everything that is going on), in some cases, delaying action until the point of certain knowledge will mean that there is not enough time left to advise clients.

Inheritance tax on alternatively secured pension funds is one issue that is still in limbo. However, the outcome of the consultation launched in July is not that critical to advisers’ pre-A-Day activity.

For advisers wanting both to get up to and keep up to speed with pension simplification, there is no shortage of help available. Starting with the basic framework for the new pension rules, there is the Chartered Insurance Institute’s Pensions Simplification Update Programme, now better known by its codename CF9.

This exam course also covers the new investment and retirement rules and, importantly for pre A-Day advice, the detail of enhanced and primary protection. Any adviser serious about pensions should consider taking this course, using it as the solid foundation upon which to build some of the more advanced planning ideas.

Then there are product providers and Sipp administrators. There is the suspicion that providers are using pension simplification to drive their own agendas but this is not the case.

Virtually all the training material which has been produced by providers has been generic. Sure, there are some A-Day sales aids but most advisers should be able to spot the difference between these and genuine educational material.

Most of the big providers also have a rolling programme of seminars and workshops. These aim to tease out the real practicalities using case studies and real-life examples. They also give advisers the opportunity to ask questions specific to their own needs.

Finally, for those who want to stay at the cutting edge, there is always the trade media.


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