“Financial planning has been redefined,” declared our Budget panellist Colin Jelley in his column on Wednesday.
“I’m speechless, this Budget was a game-changer,” gasped MGM’s Andrew Tully. Even fellow panellist and Money Marketing columnist Robert Reid was silent for a couple of seconds in our offices as George Osborne dropped his pensions bombshell.
Unlike so many ideas to spring forth from the minds of politicians and regulators, this radical reform is potentially very good news for advisers.
Whether it will end up being good news for those who don’t receive, or don’t take on board, decent advice, and end up losing out by being too cautious or frivolous with their unlocked pension cash, is another question.
In his speech, Chancellor George Osborne said everyone will be offered “free, impartial, face-to-face advice,” to help them decide on whether or not to take on the longevity risk of not buying an annuity.
This was quickly clarified as “guidance” rather than advice in the Budget documents (note to FCA- perhaps it’s time to brief George on what financial advice is and isn’t).
It will be funded by £20m of Government money on top of an unspecified about of money raised from a levy on pension firms (ie it’s not free- it will trickle down to pension savers in extra fees).
The Pensions Advisory Service, which has a good reputation for delivering decent guidance to consumers, and the Money Advice Service are being consulted on how this could work. TPAS chief executive Michelle Cracknell expressed some concerns about offering a face-to-face guidance service when speaking to Money Marketing yesterday.
Whatever the eventual outcome, a simple support service is unlikely to compete with advisers. In fact it will probably result it lots of referrals to regulated advice to help people who are potentially looking to take on a significant amount of longevity risk and need a professional hand.
As Technical Connection joint managing director Tony Wickenden said in yesterday’s Live Cofunds Budget show on our website, much depends on the secondary details. But the saver empowerment announced this week is likely to open up significant new planning opportunities for clients.
The effect on specialist annuity players has been immediate with huge falls in share prices. Perhaps this has been overplayed as I can still see a place for annuity solutions in Osborne’s brave new world but their market share is likely to fall significantly. In the US very few people buy an annuity and analysts from Barclays suggest the individual annuity market could decline by two-thirds, from £12bn a year to £4bn, in the next 18 months.
Asset managers and platforms are set to gain with assets invested with them for longer and a potential wall of cash coming out of pension funds and looking for a new home (read The Platforum’s analysis here). The Bank of Mum & Dad is also likely to soar in value, further inflating the housing market.
But the winners and losers Osborne and his team of officials should be most concerned about are the savers he is giving such flexibility, and responsibility, to.
For many savers wanting to take on this new risk, a cobbled together Government-backed service may be beneficial but it is unlikely to sufficient.
Those looking to take advantage of the Chancellor’s new individualist streak shouldn’t look further than the six steps of financial planning: establishing goals, working out assets and liabilities, evaluating your financial position, developing a plan, implementing it and then regularly reviewing it.
As adviser Phil Billingham said in a mail shot sent out speedily an hour or so after Osborne finished his speech, this really looks like a Budget for financial planners.
Paul McMillan is group editor at Money Marketing – follow him on twitter here