The potential liability risks to advisers has caused the Association of Independent Financial Advisers (Aifa) to tell its members it is not opposed to the Government's move to change the rules on the inclusion of residential property and other ‘exotic' assets in self-invested personal pensions (sipps).
Fay Goddard, deputy director general of the Aifa, says although the late decision has taken many people by surprise and caused consternation, with many IFA firms, life offices and other stakeholders investing considerable time and money in preparation for the new investment regime, she said AIFA had to consider why the government felt it necessary to make the U-turn.
She says: “While we recognise there will be some disappointment in some quarters over this decision, there has been growing concern over the media focus and marketing tactics of certain companies, particularly those outside the regulated community.”
Goddard adds sipps have been portrayed as an easy way of buying a property, heavily discounted by the tax advantages, without sufficient information of the risks and legislation associated with the purchase. Although the Government has highlighted property as their main concern, Goddard points out that the anti-avoidance measures also apply to other assets including fine wines, classic cars and works of art.
But Goddard does question why it has taken the Government so long to act when throughout the consultation and subsequent drafting of the legislation, the ability to invest residential property in a pension was always considered a “too good to be true” opportunity for those with sufficient funds and appetite for diversified investment.
“This was never going to benefit the mass market or encourage higher take up of pensions amongst those that most need to. Overall, in the interests of consumer protection, potential reputational damage to the financial services industry and liability risks to advisers, we are not opposed to the decision. But the reversal will leave a sour taste and dented confidence in reliance on government policy,” continues Goddard.
AIFA’s comments that residential property was not going to benefit the mass market, are backed up by results of an online poll by Scottish Life, taken before the pre-Budget report, which reveals the ability to invest in residential property after A-day was less appealing to advisers, than the new rules on the Unsecured Income rules on taking tax-free cash form the age of 50.
Of the 354 intermediaries which took part in the poll, 59% believed the tax-free cash rules would be the most interesting part of A-day, more than double the 27% who believed residential property would be the biggest factor. Only 14% thought there were other A-day changes that would be “most interesting”.
As it stands this 14% will be the only ones not too affected by the pre-Budget report as the tax-free cash changes were also hit with anti-avoidance rules to try and stop the ‘abuse’ of recycling tax-free cash.
To prevent people artificially boosting their funds, the Government plans to insert an anti-avoidance rule into the pensions simplification legislation which will come into effect on A-Day. The legislation will target cases where lump sums are taken with the sole or main purpose of reinvesting them in a pension fund to gain additional savings through extra tax relief.
Steve Bee, head of pensions strategy at Scottish Life, says it seems that the Government doesn’t want the wrong kind of people putting money into pensions, as the Treasury would lose a lot of money in tax relief if people suddenly started piling all their money into pension schemes, but he says the problem with this measure is how can it be regulated.
He says: “The only way I can think of to regulate it, is if the minute you withdraw your tax-free cash you can’t invest in pensions anymore. There is no other practical way of it working otherwise. My concern is that they are going to take a very heavy hammer to solve a minor problem.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
Lack of innovation for solutions
Some 2,000 consumers affected
Achievements, charity work and other happy snippets
Appetite has suffered since Brexit vote
'Failure to pay attention can result in enforcement'