How could the Chancellor help advisers?
For adviser use only
With Brexit negotiations at a critical stage, and the government lacking a Parliamentary majority, the Chancellor has a difficult task ahead in deciding what to include, and what to avoid, in his November Budget. Will Philip Hammond be content to ‘keep it boring’ ahead of Brexit? Or might he feel pressurised into coming up with some more radical ideas to re-energise the government’s policy programme.
Aegon recently carried out research to understand what advisers want to see from the Chancellor to support their customers, so we can make sure the voice of advisers is heard in our conversations with government. (Aegon autumn budget 2017 adviser research) The headline finding is that Aegon and advisers agree a boring Budget would be in the best interests of customers. From a pensions, savings and investment perspective, advisers are calling for limited change to offer their clients as much pre-Brexit stability and certainty as possible.
When asked to pick which possible measures would most benefit their customers, the top three adviser choices were:
- stimulating economic growth (ranked in the top three by 67% of those surveyed);
- relaxing the lifetime and/or annual allowances for pensions (55%), and
- limiting change to create stability pre-Brexit (51%).
Pension tax relief
At least until Brexit is concluded and auto-enrolment fully rolled out, 43% of advisers strongly agree and a further 34% agree there should be no radical reform of pension tax relief. So no significant change this side of 2020, which is in line with what Aegon has been calling for.
While there may be a case for moving to a single flat rate of relief across tax bands in the longer term, the practical complexities of doing so can’t be overstated, particularly for defined benefit schemes which receive a substantial share of overall tax relief. Even if Brexit preparations allowed the time for detailed thinking, changing the rules while continuing to roll-out auto-enrolment would cause unsettlement. That’s exactly what we don’t need as we focus on keeping people saving when minimum contributions rise over the next two years.
Our survey found advisers have a strong desire for relaxations in the pension lifetime and annual allowances. These limits are clearly adversely affecting a growing number of clients. Aegon has focussed its lobbying on relaxation or ideally removal of the lifetime allowance not least to offer greater scope for people to fund in advance for social care costs through their pension.
Social care funding
While the Government’s fingers were burnt by its Manifesto proposals on social care funding, it can’t avoid this emotive issue and the Budget offers an opportunity for the Chancellor to set the pace by launching a consultation. Advisers have previously told us they see this as a key growth area for advice. But to allow advisers to help their clients plan ahead, we need clarity on a sustainable deal between individuals and the state, setting out what the Government will pay and what individuals will be personally responsible for. And there needs to be an overall maximum personal contribution before the government takes over to allow advisers to help customers plan ahead while protecting inheritance ambitions.
Advisers are clearly impatient to see Government proposals here with over three quarters (77%) calling for the Government to consult urgently. Only 2% disagreed.
Aegon believes that with the pension freedoms, social care funding can ideally be planned within pensions. Almost 3 in 5 (59%) of advisers agreed that social care funding should be looked at alongside pension policy.
Social care funding is at the heart of intergenerational fairness, which Aegon would like to see tested across all new Government policies. Three in five (60%) of advisers agreed with us, with only 6% disagreeing.
We also asked if advisers supported the Government introducing measures which make pension saving the default for the self-employed and gig economy workers, along the lines of auto-enrolment. The majority (59%) are in favour although almost a quarter (22%) did not support this.
We’ve also been considering measures the Government could take in other policy areas to support advisers and their customers. Housing and pensions represent the two biggest financial commitments for most people. We believe the Government should consider reducing property stamp duty to help free up the housing market. Not only would this make first-time purchases more affordable, it could also encourage older people to downsize, boosting funds to pay for retirement and freeing up family homes. This suggestion divided adviser opinion with around a third (37%) agreeing and a similar number (39%) against.
Short term stability v long term innovation
There’s the potential for the Budget to combine a bit of boring with some more radical ideas. It seems advisers and Aegon are in agreement that for the benefits of the UK’s savers, the Chancellor should focus on stability in the short term while setting in motion the thinking on important longer term matters. The Government needs to remember that social care funding will affect UK citizens long after Brexit is a footnote in the history books.