With some clients waiting upwards of two months for pension tax relief to be received, Andy Zanelli, head of retirement planning at AXA Wealth, assesses the benefits of pre-funding...
More often than not, it is the things that you take for granted, or that just happen without you really thinking about it, that can mean a great deal.
In the modern, online, digital age, pre-funding could be viewed as one of those things.
If advisers mention pre-funding to clients, are they aware of what we mean? Do all advisers and clients realise the true impact this can have?
What is pre-funding and what are its benefits?
The concept of pre-funding is not a new one that has come in under the radar, but rather it has been a factor in the pension and savings world for many years.
The concept is simple: when the customer takes action in relation to their pensions or investments, they can reasonably expect it to occur at that time or within the next 24 hours. Reasonable? Yes. Reality? Not always. Pre-funding can help to bridge the gap between client’s reasonable expectations and reality.
We recently undertook some research in this area and the findings around what a customer could potentially lose where pre-funding is not available were eye opening:
• 65 days’ worth of potential growth waiting for pension tax relief to be received;
• 35 days’ worth of potential growth waiting for a fund rebate;
• Six days’ worth of potential growth waiting for a switch to settle;
• Four days’ worth of potential growth waiting for a cheque to clear.
Why the wait?
As mentioned, the concept of pre-funding is nothing new but, in an age where the expectation of most is for near instant action through an online or digitally-enabled solution, how comfortable would consumers be with a potential 65-day wait?
To put this into context, how would the client feel if they ordered their weekly food shopping from a well-known national supermarket chain, the delivery driver turned up at the door and explained that 80% of it was there and the other 20% would follow in around two months’ time? Then they went on to explain that the price of the remaining shopping would be at the prevailing market price on the day it would be delivered, not today’s prices?
From many years in the financial planning profession dealing with clients, the one thing that is paramount to most of them is that they want peace of mind where their investments are concerned.
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