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Tony Wickenden: Hard times mean making tough choices

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I am a big fan of Seth Godin and have been for some time now. I have Chris Woodhams of Prescient to thank for that.  Over the past couple of months, in among all the good stuff that is thrown out daily for free on Seth’s blog (www.sethgodin.com), three pieces in particular resonate with the times we are living through. 

Exciting times. Game-changing times. Hard times. Hard times we should embrace because out of the hardness comes opportunity.

I have quoted from these blogs before. All three together really ram home the message though. Life is hard. Accept it.  No, embrace it. But for those looking to make a living out of difficulty, opportunities abound. 

As Ringo said… “Rock on George for Ringo one time” …well, he did midway through Honey Don’t on The Beatles For Sale Album but the Ringo line that I had in mind in this context is: “It don’t come easy” …Success in financial planning that is.

Ask Seth. To quote from one blog, he says: “In an industrial setting, the obvious plan is to seek out the easy work. You’re more likely to get it done with less effort and then move on. The easy customer, the easy gig, the easy assembly line.

“Today, though, it’s the difficult work that’s worth doing. It’s worth doing because difficult work allows you to stand out, create value and become the one worth choosing.

“Seek out the difficult because you can. Because it’s worth it.”

Consider the “game changers” going on at the moment. All the changes referred to below do (or will if implemented) force choices to be made and the right choices cannot be made without a full understanding of the consequences. And that is why advice will be so needed. 

 1: Pensions drawdown reform

We have had the Freedom and Choice consultation and we now have some draft legislation and guidance and some more specialist technical consultation. 

From 6 April 2015 you will be able to take all your money from a defined contribution scheme at age 55 (57 and upwards in the future), with no need to buy an annuity. Game changer? Yes. But perhaps more than any other game changer, this brings into sharp relief so many choices. 

Whether to take your money all at once from your pension, leave it invested, draw it down or buy an annuity. All have different consequences and these need to be fully understood before a decision is made. 

Most having to make these decisions will have other assets, so the choice of whether and how to take money when it is needed cannot be restricted to the pension fund. This conundrum has been made even more challenging by the latest proposals in relation to “death taxes” on pensions. Will this require advice? Of course it will. It is hard.

2: Potential further pension input/tax relief reform

The Centre for Policy Studies, the Institute for Fiscal Studies and the pensions minister all seem to be constantly proposing changes. These proposed changes (only ideas at the moment) include: 

  • Removing or reducing NIC relief on contributions
  • Removing tax-free cash
  • Removing the lifetime allowance
  • Reducing the annual allowance to £30,000 and sharing it with the Isa
  • Introducing a lifetime Isa. A £30,000 annual input limit, shared with pensions, and with the Government contributing 50p for each investor – contributed per pound up to £8,000. So at £8,000 of contribution the maximum Government input would be £4,000. 

Oh, and as a corollary to the 50p Government contribution for every £1 saved, the removal of tax relief on pensions contributions as we know it. 

3: The Lifetime Isa  

Ok, only a Centre for Policy Studies proposal, not official consultation, but Michael Johnson (as well as being a peerlessly upright 400m champion and brilliant “big athletics” commentator) is apparently well “listened to” in official circles. So we cannot ignore a proposal for a Lisa which could just take over from pensions. Perhaps this could be supplemented with a Bart (Better At Retirement Transactions) initiative. Couldn’t resist it …D’oh!

4: Anti-avoidance – the stuff of legend 

The general anti-abuse rule, targeted anti-avoidance rules and relentlessly successful litigation have removed the public appetite for aggressive tax avoidance (cue loud cheering from the vast majority of the financial planning sector).

And there is more, like accelerated payments, tougher Dotas provisions and the guidance guarantee. Uncertainty, difficulty, hard stuff but it all has to be embraced.

Given the apparent preference of increasing numbers of consumers for financial planning founded on a mix of digital “self-serve” and bespoke advice when needed, smart, low-margin, transaction-based models will be an essential component of the client proposition for many advisers. In relation to the “advised” part of the offering, though, it is the hard stuff that clients will want advice on.

Tony Wickenden is joint managing director at Technical Connection

Access full CPD, technical updates and business generation ideas through Techlink Professional.  Go to www.techlink.co.uk and click the Contact Us link at the top of the screen and then request your free trial from the drop down menu. 

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  1. What would have made eminent sense is to disallow encashment unless the individual can prove other pension incomes now (or later, upon the relevant qualifying ages) exceeding the State Pension guarantee level – or whatever level could be set to ensure basic State Income Support would never be needed.

    Then they would need to buy an annuity/deferred annuity for the difference to protect the State.

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