Let’s not get hung up on higher rate relief - there plenty to be positive about, says Duncan Howorth, chief executive of JLT UK Employee Benefits Group
Those of us who have been in the pension advice business for a good while should not complain about the tail winds that we have enjoyed. Attractive tax relief for our clients, regular changes to legislation ( good for consultancy ) and regular thematic change to advise around restructure of corporate pension schemes.
Of course, we’ve had our doses of head winds – too much regulatory interference – on us as an industry and on pensions themselves; poorly thought Government strategies and even more poorly drafted legislation and regulations. And now – uncertainty and change – all coming at once.
First, the challenge to our long held tax relief system, no longer full and extensive tax relief for pension contributions; second, RDR challenging the business models of some and potentially making it harder to earn money. Finally, a major competitor in the form of Nest. All this coupled with the first coalition Government for, well, a generation or more. But are these headwinds, or just the next phase in the development of our UK retirement savings system, representing a further opportunity for us as advisers? Let’s reflect further on what is before us.
Taking an apolitical view, if we have to reduce our Nation’s deficit ( and we have to if we are to survive in financial services at all ! ) then the tax take has to rise ( amongst other things ). It is doubtful that the higher rate tax payer actually needs the incentive of tax relief to save for the longer term. Nice if you can get it, but the essential incentive of tax relief to support or encourage savings behaviour is not needed at this level.
Do we need full tax relief in order to advise/encourage our higher rate clients on their retirement savings ? We might actually be better with some reasonable limits on this and then get down to the job of advising how else they can invest their disposable income and their personal wealth generation. Do we really believe that absence of full tax relief for members of the boardroom undermines their ability or willingness to support occupational pensions for their staff ? Personally, I don’t think so.
Nest is perhaps a competitor of sorts but largely an opportunity to reflect andconsider what is right for the future
What we need in the area of tax relief is clarity and consistency going forward – a basis upon which we and our clients can plan for the future.
What we also need is clear government messages on a number of issues including: Preservation of the tax free cash option; preservation of the trivial commutation option; confirmation of the approach and timetable for auto enrolment and Nest.
This brings me on to the opportunity that auto enrolment offers. Auto enrolment has to be one of those once in a decade opportunities for us. It offers the chance to work with our clients on their response to an issue that affects every employee; the chance to re-consider pensions and benefit strategy, to re-align it to the new economic environment and the clients’ current strategy and ambitions. There’s the opportunity to expand membership of pension schemes, to refresh existing DC schemes and to look at flexible benefits and other responses for employers that want to provide both a pensions and benefit and framework for their employees security. Nest is perhaps a competitor of sorts but largely an opportunity to reflect and consider what is right for the future.
So with all this opportunity there should be profit. Has RDR killed the goose? Perhaps the golden one for some, but I have always found that people or corporations value sound advice and good service. Employers that offer benefit programmes now will continue to do so in the future, and they will need as much help in the future as in the past. Of course, we might need new and extended capabilities to succeed. We will need to embrace technology both in our operations and in our delivery propositions. We may need to extend our reach to support members as they accumulate assets within DC schemes, but there should be no doubt that opportunity exists.
Change in our market is good and should be seized upon. Under the new coalition and with a new pensions minister in the form of Steve Webb we can expect changes to the two tier state pension system; we have already seen the removal of compulsory annuities and I would expect further change that raises demand for our services as advisers. Let’s hope that we see further innovation in the regulatory landscape, perhaps access to proportions of accumulating retirement savings as the politicians address the issue of improving confidence in the long term savings
system in the UK.
The future for pension advisers, particularly in the corporate market, is promising.