In the third of the accounts of the WealthBriefing London Summit of 30 April, this report focuses on a discussion around recent high-profile pension reforms that affect the wealth industry.
Reforms allowing holders of UK pension funds to liberate their money and transfer it to a wider variety of heirs could be a boost for wealth managers so long as practitioners grasp the issues at stake, industry practitioners said at a recent WealthBriefing conference in London.
From the start of April, persons holding defined contribution and defined benefit pensions gained new freedoms, no longer required – subject to certain conditions – to buy annuities; they also have more freedom in how to pass on pension assets to heirs. These reforms have already caused a stir in the wealth management sector, potentially putting several extra billion pounds per year into play. (To see a feature about these issues, click here.)
Persons holding defined contribution retirement savings schemes will, from the age of 55, be able to take this money out and won’t be forced to buy annuities to provide for their old age. (Annuities are, due to high bond prices, expensive and widely considered to be poor value.) People can, if they receive professional advice, also move funds from defined benefit pensions and turn them in defined contribution schemes. The government has also changed inheritance rules so that people can pass on pension savings without the current punitive tax rate of up to 55 per cent. Wealth industry figures predict tens of billions of pounds could be reallocated into new investments – creating a potential bonanza for wealth managers. Less benignly, such a change could tempt people into unwise savings or, worse, improvident spending.
To discuss these issues and what they mean for wealth managers, a number of figures in the industry spoke at the 30 April WealthBriefing London Summit at the Guildhall. Speakers were Sean Jones, director, complex pensions specialist, Coutts; David Lane, technical director, Vestra Wealth; Nick Paul, senior financial planner, Turcan Connell; Daryl Roxburgh, global head, BITA Risk; and Aurèle Storno, chief investment officer, Lombard Odier Pension Fund – Lombard Odier Investment Managers.
Sponsors for the conference were Appway; Dubai International Financial Centre; Objectway; smartKYC; ProFundCom; Standard & Poor’s Money Market Directories, and K2.
Turcan Connell’s Paul reflected on the scale of the changes made and the direction of travel of recent years. “Pensions have changed dramatically in recent years. Pensions were traditionally intended to build a fund for retirement after a working life, lasting until the point of death, or the death of a financial dependant if later. Now, a pension can continue on after death, being made available to dependants or other non-dependent beneficiaries,” he said.
“It seems slightly unfair that pension legislation changes so frequently. People need to be informed and there is a need for advice,” he continued. “Over several years, many changes have occurred to restrict the tax reliefs available via pension funding, via reductions in the annual allowance and lifetime allowance,” he said.
Paul said it is crucial for the wealth industry to work alongside legal advisors; an existing expression of wishes document held alongside a pension fund (i.e. to express wishes as to what will happen to the pension fund on death) may now not be the most suitable, so individuals should review their expression of wishes, he continued.
“If people wish to commence drawing from their pension funds, they need to be careful… although we have entered the 'new world' for pensions since 6 April, with full flexibility in drawing from money purchase pensions, the old capped drawdown regime still exists…there is a huge number of individuals who are in this capped regime and they need to be aware of the consequences of drawing more than the capped amount,” he added.