I well remember last year's Pre-Budget Report which effectively banished residential property and things like art, wine and cars from being purchased directly by a self invested personal pension.
I recall much of the industry being outraged by this u-turn. Not because residential property had been outlawed but by the nature of the u-turn. During the pensions simplification consultation, the industry - despite voicing its reservations - was assured by HMRC that inclusion of such assets in sipps would not be a problem.
I can’t begin to estimate the amount of time, effort and expense the industry expended in preparing to facilitate these sipp assets, which would have come online just four months later. One saving grace is that at least the u-turn was made prior to clients actually making investment into these asset types.
In this year’s Pre-Budget Report we are faced with two further u-turns. Firstly, pension term assurance. It appears that much like the residential property issue, the industry was at pains to ensure that selling pension term assurance as a stand-alone product would be OK.
It appears that, eight months after its implementation, the Treasury is now jittery about pension tax relief being used for stand-alone life policies, which is not aligned to its policy, and it will look to do something about it. The result is an immediate hiatus in the sale of such policies whilst action is considered. Perhaps it is the relative success of these policies, with something like 100,000 sold to date, which has been their undoing.
However, the numbers game does not appear to be relevant for the alternatively secured pension (ASP) u-turn. As ASPs are only available to those that attain age 75 after 6th April 2006 it is not something that can be sold by the bucket load. The numbers involved to date are probably in the very low thousands but no one really knows because no official statistics have been gathered. However, changes to ASPs are apparently warranted on the grounds that more people than expected will use this facility.
So where does this leave us? Product providers must surely be wondering what else will change. I could certainly understand reticence in developing innovative new products. Ironically I see innovation is trying to be encouraged through the likes of The annuities market discussion paper issued alongside the pre budget report documents but innovation is difficult in what appears to be an unstable environment.
It would be nice to think that we could have a period of stability but I really can’t see this coming in the short term, given the likes of National Pension Savings Scheme developments and the FSA consulting on many issues, including MiFID.
I can only conclude that the risk of change remains a high probability. For product providers to manage the risk I would suggest that outsourcing administration with its associated IT functionality must be high on the agenda for consideration.
But it is advisers who are put under immediate pressure from such changes. Clients will want to know how they will be affected and the switched-on adviser needs to be proactive in this regard. The pension term assurance issue is a prime example. If cover was at proposal stage but the provider has curtailed sale of the product, the adviser needs to move quickly. They need to identify which clients are affected. If alternative cover is needed as a matter of urgency, they must be able to arrange this efficiently -ie reassessing the market for the most appropriate alternative life product - obtaining quotations and application details and submitting new proposals accordingly.
This is where an IFA client management system that is fully integrated with research and quotation facilities comes in to its own. Given the frequency and unexpected nature of changes, for advisers, this is a system I suggest u-turn to.
Graham Coxell is business and commercial development director at Capita Financial Services.
The views expressed are those of the author and not those of the company he represents.IFAonline
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