So, the British weather is unpredictable and so is the Government. Financial planners need a solid legislative base on which to build plans for clients. Ever changing tax regimes generally result in winners and losers and these are often overlooked by the legislators.
Take, for example, the 10p tax band fiasco. It makes no significant difference to the wealthy but it was pretty clear from the moment the Chancellor opened his box that the losers would be the people who could least afford to lose money. This from a Labour Government. Whatever next?
Well, look at personal accounts. This sounds like a great scheme to encourage the 12 million or so people with little or no savings in pensions to be auto-enrolled into schemes. This would be very welcome if it could be guaranteed that these savings would improve their income at retirement but the current system of means-tested benefits at retirement means that anyone with a small amount of pension savings will receive less benefits as a result. So, total income will be unchanged despite saving money while working.
This seems completely unfair and is a further example of lack of thought by politicians at the expense of the poorest in society. I suppose I would have to say that this is predictable.
What may also be predictable are further closures of qualified recognised overseas pension schemes. Transferring tax-privileged pension funds abroad might be good for certain workers but doing so after retirement with the deliberate intention of avoiding UK tax looks too good to be true.
As more advisers jump on this bandwagon and recommend such schemes to overseas resident clients, I do not think it will be long until such transfers are stopped. It might be a case of buy now while stocks last. I would imagine that advisers in overseas jurisdictions are filling their boots with such clients.
I haven’t yet mentioned further examples of unpredictability including the fiasco of residential property in Sipps. This was always a bad idea but no one predicted that the Government would go so far down this route before outlawing it completely and blaming the change of heart on advisers gearing up to abuse the system.
Also on the list is the 18 per cent capital gains tax regime and the resultant impact on onshore investment bonds – a further nail in the coffin for the UK insurance industry – along with the hastily thought-up entrepreneurs’ relief, the tax position and rule changes on alternatively secured pensions and the 20 per cent starting rate for income tax. Perhaps the last of these is the only sensible and predictable change.
As financial planners, what do we recommend to our clients? Should we strip money out of pensions or buy annuities and third-way products to avoid Asp charges? Should we encourage higher-rate taxpayers to cash in their investment bonds due to tax inefficiency? Should we recommend employees to opt out of auto-enrolment?
As always, the answer will depend on circumstances and future legislation which is subject to change.
Let us hope that future Governments see the folly of change for change’s sake and, when a system works, let us leave it that way.
Yes, minor tweaks are welcome to stop abuse, to make things fairer and encourage people to save but please let’s put a halt to all the unpredictable changes which do nothing to fulfil these objectives.
Peter Heckingbottom is deputy managing director and investment director at Pearson Jones