The pension industry's relationship with government has always been interesting to say the least. While closer working ties were established in the run up to A-Day, the situations surrounding the use of residential property in SIPPs and the confusion surrounding ASP are both examples where this relationship has ended in frustration. The Government's recent decision not to change tax rules surrounding GAD limits for third way products looks to be another instance where the industry has been left disappointed.
Product providers believe that GAD limits are an unnecessary complication for third way products. While they ensure that clients in drawdown do not deplete their funds too early, the argument is that as third way products provide guaranteed income for life regular GAD reviews are not needed. It was hoped that by removing the need for GAD reviews providers could focus on developing simpler, more cost effective products that could be used by a greater proportion of retirees.
For now it seems that providers' hopes have been dashed, but while evidently disappointed there is a real will to see things change. In this issue (see pages 14-15) I talk to providers and advisers as to how the third way marketplace can go forward from here. This month's Big Question (pages 38-39) also canvasses industry opinion as to what happens now. The overwhelming response is to engage more closely with government and industry bodies to try and forge some common ground. If the government can see how third way products can serve the needs of customers at all stages of the income ladder then it is hoped change can happen in future. However, even if this change is not forthcoming it is cheering to see that rather than seeing the legislation as a constraint or a hurdle to be crossed providers and advisers are increasingly looking at how they can innovate within the rules in consultation with bodies such as the FSA.
When the general public really engage with a new product then the growth opportunities are massive. You only need to see the massive growth in the UK's SIPP market to know this is true. Undeterred by the government's stance on residential property the public's appetite for SIPP continued to grow. They have now developed from something that was once seen as suitable for high net worth clients only to something more mainstream. If the general public becomes interested in third way products we may well see not only great expansion but also further innovation in product design with models built to accommodate people on different income streams.
It's worth taking a look at the retirement market in the USA. Third way products have been present in this market for some time and make up a large proportion of the market. The market has not reached this point through any changes in legislation rather customer and adviser demand have shaped and driven the market forward. There's no reason why the same shouldn't happen in the UK.
£300bn of liabilities
View from the front row
Transfer from occupational scheme
Appointed by FCA and PSR boards