The UK Budget in July meant that just before we all disappeared for our summer holidays, we got pages and pages of draft legislation to consider.
In addition, it seems to be the time for ‘reviews’. We have an ongoing review of how the pension freedoms are working and we also now have a review about how we can get more people to take financial advice and appreciate the value of such advice. At the heart of it all, we have a review of pensions tax relief, with the headline aim of whether we should make pensions look and behave more like ISAs.
There is a perception that ISAs are simple to understand and use; the money paid into ISAs is paid out of taxed income and it can then be drawn tax-free. This simplicity has long been mooted as the blueprint for a future pension model.
All becomes clear
The Government’s proposal to lower the amount that can be put into pensions for higher earners – to £10,000 in some cases – could have a significant effect on the pensions market, as those with lower contribution allowances turn to other tax wrappers for all or part of their savings portfolio.
Ultimately, the stated aim is to encourage people to save, and achieving this means addressing some big questions. For example, once we have got our vision for the future, will we be able to cope with it?
Under the surface I think the financial services industry has made real progress and is in a good position to administer whatever the new framework is.
Platforms are at the heart of all this, and with the emergence of clean funds and the removal of any cross-subsidy, we now have a market where clients know they should be paying for investment and fund management, for administration and for advice from the financial adviser. They also know that each amount is separately identifiable.
