The FSA needs to find a better way to oversee advisers

So, here we are safely in the RDR era. But how does the landscape look? Is the terrain as widely different as predicted by a few media naysayers?

I think not as I believe the financial advisory world is now a better place to be in and its reputation with the public will continue to improve. covering professional standards, charging, description of services and independence and restricted offerings. This will be done in three cycles beginning later this month. It will publish its findings after each cycle.

If advisory firms are not on track after the third cycle, action will be taken thereby filling the regulators purse and forcing RDR improvements to be undertaken by the firm.

All findings will be used to form a post-implementation review of the RDR. To me, this exercise sounds like a great deal of time intensive work to be undertaken by the Financial Services Authority.

Where will the time come from as it morphs itself into the Financial Conduct Authority, costing millions of pounds to change the name of the regulator across literature, business cards, advertisements and other expensively produced items?

My last IFA inspection visit took three bright young people employed by the then regulator more than three days to inspect my IFA business. We were a small firm with two RIs. Thankfully we were found to be satisfactory. This is one reason why I now help firms with regulatory issues.

It takes millions of pounds to thoroughly inspect advisory firms. Would it not be better for clients to feed back on their experience with financial advisers on a website similar to Trip Advisor from which the FSA can then follow up? For after all, some of the most experienced financial advisers, especially IFAs receive only circa 1 per cent of all FOS complaints. The FSA may be wasting its time inspecting many quality firms or will need to ‘nick pick’ to justify the huge cost of visiting firms.

The independent versus restricted debate continues but at last the banks have disclosed their charging structures.

HSBC is charging £950 upfront for those with assets of less than £75,000 which will cover the majority of the investing public. As HSBC is offering a restricted product range people may better be served seeing an IFA who will offer a more personal service, whole of market advice and will charge a similar upfront fee with the first meeting free. It is so much more conducive to receive financial advice at your work place, home, or in a social environment than making an appointment at a bank branch which can result in waiting in a banking hall full of people.

The bank advice could then be geared towards product sales as HSBC pay a bonus to high performing financial advisers.

Description of service is fairly straightforward with most of the information already on websites which will be checked out by clients before making an appointment. This is where clever market positioning is needed by those who offer the services to ensure the benefits of tax, inheritance and trust planning is understood.

The nirvana of being financially secure and debt free in both in sickness and health is, and always will be, about financial planning – not product sales. I wish the RDR was more about focused on highlighting the benefits of financial planning.

http://www.moneymarketing.co.uk/adviser-news/kim-north-the-fsa-needs-to-find-a-better-way-to-oversee-advisers/1064226.article

Budget packed with surprises?

The Chancellor is under serious pressure to produce a growth Budget on 21 March. But where will the money come from for tax cuts for entrepreneurs and businesses generally, not to mention other good causes? Increased borrowing is probably not the answer, if Mr Osborne has been influenced by Moody’s shot over his bows when the ratings agency recently designated a negative outlook for the UK economy.

One answer, according to commentators, would be to raid the higher rate tax relief on pension contributions – there have been several stories to that effect in the Financial Times and elsewhere. Of course, this has been threatened many times in the past. But this time could be different.

For a start there are people in the Coalition Government – the Lib Dems – who favour the policy. And discussions about the possibility of abolishing higher rate tax relief have been reported as taking place at the highest levels. The practicalities have been an inhibiting factor in the past, but now the legislators know exactly how to do it from their recent experience under the previous occupants of Downing Street. What’s more, it would look as if we really were ‘all in it together.’

Of course, there would be a lot of squealing – and quite right too. Yet what is the alternative political home for those who don’t like the idea? It is unlikely that most would be tempted into voting for Mr Miliband. David Cameron and George Osborne can blame Clegg and co. And there’s no getting away from the fact that it would raise billions.

So the Budget really could contain some major surprises this year – and pensions tax relief might only be one of them.

Source ” http://www.taxbriefs.co.uk/ngen_public/article.asp?id=0&did=0&aid=162&st=&oaid=0

Labour claims state pension reform has been “sunk”

The Government says it remains committed to its state pension reforms despite industry concern that public sector pension settlements threaten the proposals and Labour claims the Treasury has “sunk” the plans.

In April last year, pensions minister Steve Webb unveiled a green paper outlining proposals to bring an end to state pension means-testing and offering a higher state pension of around £140 at today’s prices by either introducing a single-tier state pension or accelerating plans to flat-rate the state second pension
Labour Shadow pensions minister Gregg McClymont (pictured) says Webb’s plans to reform the basic state pension may have been vetoed by the Chancellor due to the costs. He says: “State pension reform was the Government’s flagship pension policy. It appears it may have been sunk by the Treasury.”

Writing in Money Marketing this week, Hargreaves Lansdown head of pensions research Tom McPhail says public sector pension disputes will be making the Government nervous about state pension reform.

He says: “It is possible the Treasury is getting cold feet about the knock-on effect reform of the state pension would have on negotiations with the public sector unions over their final-salary schemes.

“The end of contracting out would mean an increase in NI rates for the five million public sector workers who are currently contracted out through their final-salary schemes.

“It is a safe assumption they would react very badly to being asked to pay 1.4 per cent in NI on top of the 3 per cent increase in member contributions which the current Treasury-led reforms of public sector pensions have demanded.”

Saga director general Ros Altmann says: “Any delay is likely to be linked to the public sector pensions issue but Webb and Work and Pensions Secretary Iain Duncan Smith are still committed to getting this reform through.”

Institute of Directors senior pensions policy adviser Malcolm Small says: “The issue of contracting out is a difficult one for both the Treasury and the DWP, particularly in relation to public sector workers, but there will be many more winners out of this than there will be losers.”

A Department for Work and Pensions spokeswoman says: “We will be bringing forward further proposals on a simpler and fairer state pension in due course.”

Source “http://www.moneymarketing.co.uk/pensions/labour-claims-state-pension-reform-has-been-sunk/1044201.article

Markets regain majority of losses despite Italy concerns

European markets have recovered most of their early losses despite concerns that Italy may be the latest country to fall victim to the eurozone crisis.

At close, the FTSE 100 stood at 5510.82, a fall of 0.3 per cent from its opening price, while the French Cac 40 and the German Dax were both down 0.6 per cent.

Markets across Europe fell by around 2 per cent in early trades as concerns were raised over political uncertianty in Italy. The yield on Italian 10-year bonds rose from 6.37 per cent to a high of 6.64 per cent, before falling back slightly. Prime Minister Silvio Berlusconi is set to face a vote on public finance tomorrow.

Meanwhile, Greek prime minister George Papandreou has stepped down to make way for a unity government of all political parties, despite winning a vote of confidence late last week. A new prime minister will be named to head the coalition government, with fresh elections forecast for early next year.

source http://www.moneymarketing.co.uk/investments/markets-regain-majority-of-losses-despite-italy-concerns/1041028.article

Auto Enrolement or Nest (Do you know what it is?)

More than 100 employers around the UK have agreed to enrol some of their staff in the new national top-up pension scheme known as Nest – the National Employment Savings Trust.

Employers will not be formally obliged to begin the phased enrolment of their staff in Nest until October 2012.

If they already run a decent pension scheme, then all staff can be automatically enrolled in that instead.

But in a “soft launch” that began in July this year, a variety of small, medium-sized and large employers have volunteered to start the Nest process.

This will gradually ramp up activity, so that the Nest system will be absolutely ready come October next year.

So, how is it going?

“It’s going pretty well,” said Tim Jones, the chief executive of Nest.

“What is happening here is probably the single biggest implementation of behavioural economics, certainly in the financial sector, that’s been done yet.”

The basic facts

Automatic enrolment, either into Nest or an existing company scheme, begins in October 2012 and will apply to workers who:

are at least 22 years old but below their state pension age
earn more than £7,475 a year
Minimum contributions will be paid on their earnings between £5,035 and £33,540.

Employers will start paying a minimum of 1% of qualifying earnings, rising to a minimum of 3% by 2017.

Employees will start paying a minimum of 1% of their qualifying earnings, rising to a minimum of 5% by 2017.

The process of employers joining Nest and automatically enrolling their staff to it – or to their own pension scheme – will start with big and medium-sized employers between 1 October 2012 and July 2014.

Small and micro employers will have to join in the process between August 2014 and February 2016.

sourc “http://www.bbc.co.uk/news/business-15270701

 

 

Hutton recommends career average pensions for public sector

Lord John Hutton has recommended pensions for public sector workers shift from final salary to career average provision before the end of this Parliament.

In the final report of the Independent Public Service Pensions Commission, published today, the former Labour minister sets out detailed structural reforms designed to make public sector schemes “sustainable and affordable”.

He resists calls to introduce a hybrid scheme with a salary cap “due to the complexity this introduces to the system”, instead suggesting Government implements tiered contribution rates to reflect the “different characteristics” of higher earners.

Other key recommendations include linking the normal pension age in most public sector schemes to the state pension age, setting a “clear cost ceiling” for public provision to limit taxpayers’ exposure to employees’ pensions and introducing stronger, independent governance regimes across public service pensions.The pension age for uniformed services employees – which includes the armed forces, police and firefighters – will be 60.

The report says the cost ceiling, which has not been specified, should be the proportion of pay that Government will contribute. If it is breached, a consultation would be issued to bring costs back below the ceiling. However, if the consultation ended in deadlock Hutton says there should be a default mechanism which could take the form of an increase in employee contributions or a decrease in accrual rates.

The commission says accrued rights should be protected, meaning the final salary link for past service for current members would be maintained. It also proposes an overhaul of the legal framework for public service pensions to make it simpler.

Hutton (pictured) says: “These proposals strike a balanced deal between public service workers and the taxpayer. Pensions based on career average earnings will be fairer to the majority of members that do not have the high salary growth rewarded in final salary schemes.

“The current model of public service pension provision is clearly not tenable in the long-term. There is a clear need for reform. Getting the decisions right on the most appropriate structures and designs will be crucial to making any changes work in the future. This will only be achievable if there is effective dialogue between public service employers, employees and unions.”

The commission has not recommended specific levels for accrual rates, indexation and employee contributions as these remain “a matter for Government”. However, Hutton does warn that setting contribution rates too high would risk low-earners opting out of the scheme.

The report also recommends that benefits are increased in line with average earnings during the accrual phase for active scheme members. Post-retirement benefits should then be linked to prices to ensure they maintain their purchasing power.

The Treasury is currently in discussions with representatives from the Trades Union Congress over how a 3 per cent increase public sector pensions contributions will be phased in from 2012.