Platforms and Pension Freedoms
At the heart of it all
Hugo Thorman considers the impact of the new pension freedoms on the platform sector and how advisers and clients use them
April’s pension changes will have a huge impact on long-term savings in the UK, with opportunities right across the value chain, from asset managers to advisers, clients and platforms. Longer term, it will transform the retirement saving landscape. Platforms are ideally placed at the heart of the changes by offering clients a way to manage all of their long term savings and investment income in one place.
There are, of course, many ‘freedoms’ coming; but really there are just two key changes that will impact clients and the industry. These are, put simply, the ability to take the whole pension pot at age 55 and the ability to pass on the value of the pension on death after age 75 to any number of beneficiaries.
Potential pitfalls
The pension freedoms are extremely positive - it is hard to argue with the principle of ‘it’s your money, you’ve saved it, you do what you like with it’. However, platforms need to be cognisant of the pitfalls this additional choice will bring clients. Choice can also manifest itself as complexity, so the risk of client detriment is higher than perhaps ever before.
We have already seen the emergence of opportunistic ‘schemes’ promising amazing income levels in return for that precious pension pot. This is one end of a very large scale - the opposite being that the client takes all their money and pays higher levels of tax than they need to. The potential impact on the already bruised reputation of our industry is worrying and we all have a responsibility to ensure that client confidence in financial services is not further damaged. The need for professional financial advice at retirement has never been greater, or more important; and platforms need to do their utmost to support advisers and their clients by encouraging advice at every opportunity.
Help at a critical time
So how can platforms help advisers and clients at this critical time in a client’s life? It goes without saying that platforms can provide a flexible way to manage money across different tax wrappers. But what does that really mean? If we put the client needs of a ‘tax efficient income’ and ‘wealth preservation and growth’ at the heart of the platform, there are many ways we can help advisers and clients achieve this aim.
All platforms offer a range of tax wrappers - some more than others - but broadly a SIPP, ISA and General Investment Account are common; less common are onshore and offshore bonds. We can expect most platforms to offer Flexi-Access Drawdown (FAD) come April, and some will introduce the Uncrystallised Fund Pension Lump Sum (UFPLS) option. All these wrappers are important when managing a client’s optimal tax situation, and having a single view of all holdings is both convenient and simpler for both the client and adviser.
And it’s not just the tax wrappers. All platforms provide access to a very wide fund universe providing a diverse range of investment solutions - and many will offer direct share dealing, along with Exchange Traded Funds and Investment Trusts.
The ability of advisers to put the investment strategy at the heart of their advice (often through model portfolio functionality), irrespective of wrapper, is an imperative for those clients reaching retirement and having the combined needs of providing an income, preserving or growing capital and optimising tax.
Wraps and Platforms
Investment Life & Pensions Moneyfacts
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