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Was this the great Financial Planning Budget?

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“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

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Guidance/Advice – its all getting very confusing!
    So we have the ‘Money Advice Service’ that does not give advice, now the ‘Pensions Advisory Service’ – that does not give advice either! But those of us that do give advice basically pay for their ‘guidance’ – which is really advice that they are not liable for. What is going on here, has someone swallowed a ‘take then mickey’ pill?

  2. headbelowthe parapet 21st March 2014 at 7:06 pm

    The pension challenges raised by this budget are huge.

    Is it sensible to allow individuals full access to their pension savings? There are arguments on both sides. Many will shout that the nanny state has no business restricting the wealth of the electorate and concluding that it’s correct that all restrictions be lifted. But, many others will argue that the primary objective of a pension is to provide income in retirement; and so allowing individuals, with their innate cognitive biases and apparent lack of logic, the freedom to make irrational decisions about their future will be a prelude to a future financial catastrophe.

    There have been a number of issues in the annuity arena – retirees have been led to believe that insurance companies are profiteering and will make huge amounts of cash if they die early; retirees don’t like giving away control of, and access to their money; and most members of DC schemes are encouraged to think in terms of capital value rather than income value.

    Pension funds should not be thought of in terms of capital value, but rather in terms of future sustainable income – otherwise funds will be disinvested and be hoarded in the bank, or be spent without thought for tomorrow. I suspect that guaranteed deferred income pension contracts will become more popular (and less costly) and I hope that this announcement heralds the dawn of a new era in our profession where advice and cashflow planning/goals based investing will be seen as key to a sustainable future and lifestyle.

    It seems as though the Treasury has realised that advice is paramount, however there is a very real danger that the advice that the £20M “guidance guarantee” fund provides will be a watered down version of advice – it should not be flowchart or decision tree led, nor should it be provided by call centre script readers. There is an opportunity to lobby that proper advice should only be provided by qualified professionals in the same manner as Equity Release, Long Term Care and Pension Transfer business currently is. Independent or Restricted doesn’t matter, professionalism does. Hopefully the representatives of the advisory profession will lead the call.

    I must add that I think that this is a deliberately calculated vote winning strategy, but as far as these things go it’s quite a good one, with the caveat that the most important things are advice, advice, and advice.

    One more thing, Australia and Korea have tax incentives in place to encourage the taking of an income stream from a pension fund, and I think that introducing tax incentives in some way, shape, or form will be vital to encourage sensible planning.

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