Knowledge, not products - navigating the retirement landscape in 2016

As we approach the first anniversary of the pension reforms introduced in April 2015, it is clear that as financial advisers, keeping abreast of the swathe of changes being introduced is vital if we are to help clients make the most of their retirement. In 2016, we can expect no let up in the pace of changes either.

Ray McCarthy
3rd February 2016
Ray McCarthy Later Life Academy LLA

The consequences of the pension freedoms so far seem positive, with no real evidence of people running out of cash, indeed some evidence that younger people have been encouraged to save more. But, as we consider the impact of the recent changes on our advice to retirees, two very big changes are coming in the first half of this year: firstly, the introduction of the new state Pension from April 2016 and, secondly, the major overhaul of the Pension Taxation system.

First up, is the state pension with the introduction of a new 'flat rate' payment to replace the unwieldy two-tier system in April. The plan was to make the state pension simpler and fairer but the changes have already prompted some anger among savers who expected to get the full flat rate amount - recently finalised at £155.65 a week - but discovered that after applying for state pension forecasts, they will end up with smaller payments. According to the Government’s own figures, an anticipated one in three is expected to qualify for the full amount of £155.65.

To help address this, the Government has introduced a facility that allows most of those individuals affected to be able to increase their state pension entitlement by topping up their contributions. The top-up is through Class 3A voluntary contributions which require a lump sum payment to buy additional weekly pension units. The unit price has been set by the Treasury and is based on an actuarially fair rate, calculated by the Government Actuary's Department using gender neutral terms. There is an 18-month window to make an application which expires on 5 April 2017. Importantly this facility will not replace the existing Class 3 voluntary contribution option which addresses gaps in a person's National Insurance record.

The second elephant in the room is the Government’s re-think on the £34 billion pension tax relief system. At present, the Government rebates all the tax on people's contributions, whether you pay at the 20 per cent, 40 per cent or 45 per cent rate. Your pension is only taxed when you start making withdrawals in old age.

George Osborne is expected to go further and introduce a flat rate of tax relief for everyone, perhaps set at 30 per cent next year, but some speculate it could be as low as 25 per cent. Osborne might also do some further tinkering with everyone else's £40,000 annual allowance or how much unused allowance people are able to carry forward from previous years. Savers are currently allowed to roll over unused annual allowances up to a maximum of £120,000, on top of their annual allowance in the current year.

Then of course there is the Lifetime Allowance - the total amount people can put in their pension pot during their lives and qualify for tax relief. The present plan is to cut this from £1.25 million to £1 million from the 2016-17 tax year, and index-link it to inflation from 2018-19, but this could be revised as part of a wider shake-up.

At the Later Life Academy, we have had to keep a constant eye on this developing situation, as these changes have a huge impact on those retiring after April 2016. While the Government’s Pension Wise service offering non-advised guidance to retirees is welcomed, the LLA is pursuing a number of projects that will give current retirees far more than guidance, and provide access to the expert advice available from our national membership of advisers.
 
In the twelve months to December 2015, the number of financial advisers joining the LLA grew by a staggering 431% as advisers see the benefit in having access to an organisation that supports financial advisers operating in the rapidly changing retirement market. In addition to offering extensive training via regular national workshops and webinars on a range of later life advice areas including retirement planning, members can graduate via the accredited training course as Later Life Advisers, as well as access a huge range of commercial benefits.

These benefits include access to well over 80 later life products on enhanced terms, a range of research software and tools, a technical helpdesk for advice queries or obtaining illustrations, as well as a raft of marketing support including website, e-mail, social media training and personalised marketing materials.

The coming year will see the retirement planning landscape change dramatically and advisers who’ve invested time in keeping abreast of the changes will be in pole position to spot opportunities, help their clients make the most of retirement and grow their business in what is a rapidly changing and exciting sector. As we transition into a climate of fee-based advice, knowledge - and not product - will be king.

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