Some changes will make you better off, others will cost you money, some will make your life simpler, others will make it more complex.
We’ve put our thinking caps on and come up with six changes we’d like to see in 2014, which would make many people better off, whilst increasing fairness and transparency.
Do you agree with us? What would you like to see changed? Leave your comments at the end of the article, we’d love to hear what you think.
1. Annuity reform
Our views on the Annuity market are well known; in a nutshell we believe it’s dysfunctional and often doesn’t produce the best outcomes for the consumer.
The market needs to change, so that the best interests of the consumer are served. Especially when we consider that for most people an Annuity is the second largest purchase, after their home, which they will ever make and it’s a purchase which can never be changed!
We’d like to see a range of changes, including:
More emphasis on shopping around for the best retirement income product, rather than just the best Annuity rate
A review and simplification of the retirement process, with aim of producing better outcomes for the consumer through a simpler and more transparent system
Ban commission on all non-advised Annuity sales
Anyone involved in the advice or sale of Annuities should clearly and transparently confirm which Annuity providers they do and don’t use
Improve minimum standards and force anyone who advises on, or sells Annuities, to check the existing pension scheme and inform the retiree if there are any Guaranteed Annuity Rates or other valuable benefits which could be lost.
2. A rise in savings interest rates
Savers have been hit hard since the financial crisis; Bank of England Base Rate has been stuck at 0.5% for over four years, for much of that time inflation has been relatively high and to cap it all, in August 2012, the Funding for Lending scheme pushed interest rates even lower.
Last month, the Treasury and Bank of England jointly announced the Funding for Lending scheme would no longer be available for banks and building societies to use for residential mortgages.
This should be good news for savers; as the flow of cheap money comes to an end, banks and building societies will need to look to more traditional sources of finance to lend out to borrowers, namely savers.
Over time, this should mean the interest rate cuts we saw in the autumn of 2012 are reversed and rates start to rise. Be warned though, this won’t happen overnight as many mortgage lenders are still sat on a pile of cash they raised through Funding for Lending.
3. Stop penalising Cash ISA savers
If you are an investor and you are prepared to take some risk with your cash, investing some or all of it into assets which could fall in value, for example shares, you can put up to £11,520 into an ISA (Individual Savings Account) in the 2013/14 tax year.
But, if you are a saver, who isn’t prepared to see the value of your capital fall, you can only put £5,760 into a Cash ISA.
We believe this is wrong, why are savers discriminated against?
We’d like to see an immediate change to the rules, to allow savers to put the same amount into Cash ISAs as investors.
4. Automatic Enrolment reform
Automatic Enrolment is a good thing, it will undoubtedly mean any more workers join a workplace pension and will consequently enjoy a better retirement.
But, the system isn’t perfect, at the same time two million more workers were automatically enrolled, three million were excluded, because they were too young or earned too little.
These excluded millions will lose out on valuable pension contributions from their employers, reducing their income in retirement and forcing them to rely on the State Pension.
We’d like to see changes made to make Automatic Enrolment more accessible for lower paid workers so that as many people as possible can benefit from the biggest change to workplace pensions in a generation.
5. Allow Child Trust Funds to be converted into Junior ISAs
Since Child Trust Funds (CTFs) were stopped for new babies and replaced with Junior ISAs, the interest rates offered have steadily dropped and the choice reduced.
Finally, the Government has announced that those children with CTFs will be able to convert them into Junior ISAs and therefore benefit from the better deals available.
But the change will apparently take two years to implement; we’ve got one simple question���why?
We’d like to see the change made immediately and go ever further, with an automatic conversion to a Junior ISA, in much the same way as PEPs (Personal Equity Plans) were converted into ISAs.
6. Clamp down on pension swindlers
Known as ‘pension liberation’ this usually involves a series of complex transactions, high charges and risky investments. It will also undoubtedly at some stage, involve a call from Her Majesties Revenue & Customs (HMRC) to claim the tax they are due, at a minimum rate of 55%.
Thankfully, the regulators seem to be catching up with firms offering early access to pensions and in collaboration with reputable pension providers, the ‘liberators’ are on the run.
But you still need to be on your guard. There are firms out there doing their best to part you from your hard earned pension, by suggesting that it isn’t performing and offering to put you into weird and wonderful alternative investments, which of course will grow faster, be less risky and give you a better income in retirement.
Our Marketing Manager, Phillip Bray, was recently targeted by one such firm, who tried to persuade him that an investment into African forestry was low risk and provided a guaranteed double digit return each year. Of course this can never be the case, but some people might be tempted by the slick sales patter, promises of huge returns and guarantees that nothing can go wrong.
We’d like to see the regulators do more to clamp down hard on these firms and their dubious tactics. In the meantime if you are approached by one of these firms, simply remember the old saying: “If it sounds too good to be true, then it probably is.”
2014, a year of change?
Of course we don’t know whether any of these changes will be made in 2014, but we do know that we will continue to campaign for a fairer deal for you, whether you are a saver, an investor, a worker or a pensioner.