How are advisers preparing for the new pensions freedoms?
What actions are adviser firms taking in preparation for the new pensions rules post 6 April 2015? Fiona Bond reports
April 2015 will mark the start of a new era for pensions, with a host of far-reaching rules promising greater pensions freedoms for savers. The pensions market is no stranger to change, as recent years have proved, but once again advisers are having to adapt – and quickly.
Patrick Connolly, spokesperson, Chase De Vere, says that the changing landscape will provide an exciting opportunity for firms. The company is currently offering training sessions for advisers on the implications of the new rules to ensure they are in a position to capitalise on them. “In the past, change has often been for change’s sake, but these new rules will really benefit the consumer. They create a far greater need for individuals to take financial advice, and offer advisers great planning opportunities. We need to ensure we are properly equipped for our own clients, as well as prepared for the new clients we expect to come on,” he says.
Advisers have reported an increase in enquiries from both existing and prospective clients, as growing discussion around retirement prompts people to consider their options more closely.
Chris Daems, director, Principal Financial Solutions, said: “While the new freedoms aren’t necessarily more complicated than the existing rules, they do mean that anyone approaching retirement needs to potentially incorporate true financial planning principles more effectively,” he says.
As such, the company has taken the step of writing regularly on the subject, both to clients and online. It is an approach shared by other advisers, who are in agreement that signposting the changes early on, and identifying which clients are going to be most affected in the short term, will help avoid any confusion. The incoming changes have also presented advisers with the opportunity to start discussions with previously dormant clients.
Bradbury Hamilton managing director, Sheriar Bradbury, said he is using the new rules as a catalyst to mobilise the firm’s inactive clients: “After April, retirement planning and inheritance tax planning will become much more interlinked and as such, we are alerting all of our clients, both active and inactive, to the opportunities available. We are expecting to see a sharp increase in new business.”
Changes to internal processes
Bradbury has taken on additional staff to meet the growing needs of his client base, and is focusing on ensuring that the company’s paraplanners and administrators take on the bulk of the admin work, allowing advisers to fully concentrate on advising clients.
However, it’s not simply a case of communicating the changes to clients; firms are busy adapting their internal processes to reflect the new rules. The wording of suitability letters and risk warnings is being reviewed and updated across the board, in order to meet compliance needs and manage risk.
Solomons’ financial planner Dominic Thomas says managing risk and client expectations will be crucial in the new environment. Thomas believes advisers will almost certainly need to have sophisticated financial forecasting software at their disposal in order to create effective and meaningful long-term plans that their clients can understand.
Daems agrees: “I firmly believe that in the new environment, lifetime cashflow software becomes key. This allows the freedoms of the individual to be balanced with appropriate planning to try to ensure that the money they have for retirement is held for as long as possible.”
Pressure on providers for the right products
While Daems argues that the focus of the new rules should be on improving flexibility through the use of a high-quality, robust financial plan, advisers are agreed that providers will to some extent be forced into change if they wish to compete in the new environment.
Alan Smith, chief executive, Capital Asset Management, expects to see “a fair amount of innovation” coming from providers over the coming months. While for some clients an annuity will remain the best option, especially for those who qualify for an impaired life annuity, the new rules are likely to lead to a push in new retirement products. Smith says he would like to see investment portfolios that focus on decumulation rather than accumulation.
Levels of annuity business are also expected to be hit in the wake of the new rules. Those at the lower end of the scale could be more tempted to take their cash out rather than lock in to a low annuity rate, while Thomas anticipates a rise in the number of single people looking at drawdown.
However, while the industry speculates on clients’ financial appetite, Connolly warns that “it is all well and good hypothetically, but there remains a question mark over what exactly providers are able to offer and what their charges will be. We still require clarification on this matter.” He is not expecting to see a huge raft of new products in the spring but believes it will be a gradual process over time as providers once again adjust to another round of changes.
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