As a follow up to our interview with AJ Bell founder Andy Bell earlier this month, we’ve managed to secure a little more of Andy’s time to discuss his views on the Government’s response to the consultation on the post- April 2015 pension freedoms.
Can you give us a snapshot of your views on Monday’s announcements?
In terms of Monday’s news I’d sum it up as more positive than negative. The majority of the announcements were sensible in the context of the wider reforms.
Looking at the broader reforms, when we spoke before I said I thought the Government might be moving a bit too far, too soon. I still hold those views and have concerns we’ll see a few ‘Viv Nicholson – spend, spend, spend’ horror stories in a few years time when the pension money of some has run out. I back the principle of increased control and flexibility but all parties involved in the pension industry need to make sure customers understand the consequences of taking too much out of their pension too soon.
Do you have concerns that the rules are permissive, so providers won’t be forced to offer the freedoms to their customers?
I’m not sure the Government had any other choice. Some providers just won’t be able to offer anything other than an annuity or scheme pension because of limitations in their systems.
The requirement on providers to point out the new pension freedoms to customers when they are approaching retirement, rather than just pointing out the open market annuity option will help. I do believe that the elephant in the room will remain how providers deal with old style pension plans. Many will have limited appetite for the new freedoms and I fear that a large number of clients will be handcuffed by the restrictions imposed by issues such as early encashment penalties.
Do you think the Government was right to allow transfers from most defined benefit schemes?
Yes. It is clear that allowing transfers from unfunded public sector schemes would have been a case of the Government shooting itself in the foot. The requirement for advice before transfer will be an opportunity for advisers in that area of the market. It will be interesting to see whether DB trustees will allow transfers if the advice given is not to transfer. It is not clear from the consultation response whether the requirement is purely to obtain advice, or to obtain advice that it makes sense to transfer. The fact that the emphasis is placed on the scheme trustees to check is a positive move.
What do you think of the Government’s plans for the drop in the annual allowance for those who access the new pension freedoms?
Clearly the Government had to do something and a reduced annual allowance is simpler than some of the other available options. The opportunity for playing around with earnings, contributions and withdrawals to obtain a tax advantage was too great. I have concerns that customers with multiple schemes are going to face problems through a lack of understanding of how the annual allowance works – issues like pension input periods could cause problems for some.
I am also surprised that capped drawdown will no longer exist as an option for customers starting to take benefits from April. Many people don’t need the extra flexibility and they will be hit with the restricted annual allowance, so will be worse off.
Do you think the Guidance Guarantee is being delivered by the right parties?
Yes. Providers would not have been the right delivery mechanism for a number of reasons. Some wouldn’t have been able to avoid the temptation of loading the guidance with product bias, the delivery of the guidance would not have been sufficiently consistent, and others just would not have had sufficient resource to offer it. There are understandable concerns about the funding of the Guidance Guarantee, and I think this will attract a lot more attention until the FCA’s consultation closes in a couple of months.
You’ve lobbied on the tax on crystallised lump sum death benefits for some time. Do you have concerns the delay in announcing a new rate might mean the rate stays at 55%?
The delay is far from ideal as it affects the planning of people who might be thinking of taking benefits. Having said that, I’d rather the Government takes it’s time to settle on a rate that is fair and which it is comfortable leaving alone for a while, rather than rushing into something that needs to be reviewed in a couple of years. A period of a few years where we don’t see significant changes to the tax rules affecting pensions is still something I’d like to see, though I’m not holding out too much hope.
In spite of the delay in confirming the exact rate, the consultation response and my discussions with the Treasury strongly indicate that we will see a drop, which is good news.
I have suspicions that the delay may be nothing more than a political tactic. Timing announcements of reduced tax rates to coincide as closely as possible to the run up to a general election is a well-trodden path.
|A graduate of Nottingham University, Andy Bell founded the AJ Bell group in 1995 where he is now Chief Executive, focusing on growth opportunities and strategy.AJ Bell launched the UK’s first online SIPP in 2000, called Sippdeal (now renamed to AJ Bell Youinvest).
The AJ Bell Group now offers a range of products to the DIY, advised and institutional markets and has approximately 100,00 customers with in excess of £20 billion of assets under administration.