As with every year, this year’s Budget served to fill lots of column inches in the media. And as with previous years, it’s not just been changes in beer and fuel duty that have been grabbing the headlines (although you can always rely on these to do so).
What’s been happening with Budgets more and more is that the issues relating to our industry have been coming to the forefront. Take last year for example; pretty seismic by anyone’s standards.
So, now that Budget time has come and gone, the period of reflection has started – to try and distill everything in the Chancellor’s speech and figure out what it all really means. So to try and help you, I’ve put together a quick three-point checklist. See how many you can tick!
1. Do you know what’s happening to pensions?
If you said yes to this, then I take that to mean that you know about the cut in the Lifetime Allowance from £1.25 million to £1 million. There has been much debate around whether this is one cut too many, with examples quoted in the press of how someone saving from quite a young age would not find it difficult to come up against this limit. Whether or not that is actually the case, there is a need for the knowledge of this change to be shared widely amongst pension providers, as it affects both servicing procedures and communications.
Staying with pensions, there is then the issue of the potential opening up of a market for people to ”sell" or assign existing annuities in payment to third parties, in exchange for a cash lump sum. At the moment, this is a set of proposals and nothing more. If you read the Command Paper that was released shortly after the Budget speech, you’ll see that in order for this to work, a ready market, on both the sell side and the buy side needs to be constructed. The government has said that providers will not be forced into offering pension annuities to be assigned to a third party, and at the same time, it will not make providers effectively “buy back” their own annuities to give pensioners cash in exchange. On the latter point, though, the government is conscious that there may be pressure from the public placed on providers to do so.
All of this means two things for providers and advisers. In the former case, it’s possible that additional risk warnings will need to be provided to customers, and in the latter case, the expectations of existing clients may need be managed. But before either of these things can be accomplished, there is a need for knowledge that has to be satisfied.
2. Do you know what’s happening to savings?
If you answered yes to this one, then you must know quite a lot, because quite a lot is changing.
Firstly, you have the exemption from tax on the first £1,000 worth of savings income for basic rate taxpayers, and the first £500 for higher-rate taxpayers. This is the first time such a measure has been introduced, and it makes saving a more attractive proposition for many.
The next big change is the relaxation in the Individual Savings Account (ISA) allowance, which effectively means that money can be taken out of a cash ISA and put back in without breaching the subscription limit – provided this is all done in the same tax year. This makes ISAs a much more attractive and flexible proposition, as savers no longer need to worry about taking money out of their ISAs for fear they can’t put it back. This means that cash ISAs will now resemble savings accounts more closely.
Thirdly, we have the new “Help to Buy” savings scheme aimed fairly and squarely at first time home buyers. The idea is that for every £200 saved, the government will add in £50. Yes, this is capped at £15,000, but that means that if someone has reached that limit, they will have received £3,000 from the government to get there – not a bad return. But it’s only available if you intend to buy a house or flat for the first time.
All of these points mean that the investment and banking industries have a lot to get their heads around. Not just in terms of servicing existing customers (particularly ISA investors) but thinking about how to make the most of the obvious marketing opportunities that these changes bring.
All of which brings me to my last point.
3. Are your training arrangements robust enough to deal with all this change?
I know that there is a Budget every year. And I know that every year brings change that our industry has to deal with. But this is a good point to really look at the training needs for the forthcoming year, to see how well they are being met.
This is on two key levels. Firstly, there is the ongoing CPD requirement for both advisory and customer service staff. This ideally should encompass all of the relevant technical changes that have taken place during the year. Secondly, there is the training for advisers, to make sure they understand and are able to continue to give suitable advice. Finally, there are the teams in firms who are looking at new marketing and product development opportunities – do they understand the technicalities in order to build compliant propositions?
So how did you get on? I hope you were able to answer yes to the first two questions. But don’t worry if you struggled a bit with the third one, because you’ve come to the right place if you need help.
By Martyn Oughton a Professional Member of the International Compliance Association (ICA). Martyn now writes a regular blog for Industry Events Online focusing on the importance of training in all aspects of compliance. Read Martyn's other publications at Martyn's Writers' Residence website.
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