Pensions reform 2015: savings and investment implications

Out-Law Analysis | 28 Sep 2015 | 11:16 am | 3 min. read

FOCUS: The results of the Treasury's consultation on pension tax relief, and another on financial advice, could create new opportunities for providers and advisers in the wider investment and savings industry.

It was not so long ago that savings and investment firms were anticipating a period of calm consolidation to look forward to, after the significant upheaval of implementing new EU laws, the Retail Distribution Review (RDR) and related adviser charging rules. But the surprise changes of the 2014 Budget triggered fresh uncertainty, and an industry still trying to balance the twin consequences of opportunity and challenge stirred up by that budget now has to face up to the fact that this uncertainty is set to continue for some time yet.

It is no coincidence that, shortly after the Green Paper on pension tax relief was published in July, the Treasury and Financial Conduct Authority (FCA) announced the Financial Advice Market Review (FAMR). A lack of savings for retirement and concern over how money is used following retirement are two sides of the same coin, and decisions on both can be very significant for individual customers. The Treasury does not want to see its pension reforms derailed by consumer inertia due to lack of support from firms that are treading on eggshells in the face of regulatory uncertainty.

More choice, more guidance?

The outcome of the Green Paper could lead consumers to look for more ways to save for the long term - and accentuate the challenges that firms are already dealing with in the aftermath of the Freedom and Choice reforms. Customers could be looking for even more help and support in their decision-making, although they will not necessarily be expecting to pay more for it.

The question of how provider firms and advice firms can help these customers has been a hot topic for the industry in the aftermath of an FCA review of investment advice. This review appeared to further narrow any scope to provide meaningful help to customers, without straying into carrying out regulated activity.

The Financial Advice Market Review – another RDR?

The terms of reference for the FAMR begin by using the controversial term "advice gap" when setting out the government's aims to encourage a "healthy demand side for financial advice" and to address the barriers preventing customers from seeking advice. FAMR makes bold promises of the "package of reforms" to follow, including a "set of principles to govern the operation of financial advice". More specifically, the suggestion of "proposals as to whether the regulatory perimeter for financial advice should be amended" hints at the possibility of a change of law that could pave the way for just the kind of regulatory change that the FCA shied away from in its recent review.

It is not for nothing that FAMR is being viewed as having the potential to introduce further significant change to the savings and investments industries. Nor should it just be assumed that any resulting proposals will simply build on the post-RDR position, as this could be an opportunity to undo less successful elements of the RDR. Firms providing products, information or advice to retail investors of any kind should pay close attention to the outcome of both the Green Paper and the FAMR.

Another catalyst for change?

'Grossing up' contributions has become an important incentive for putting more money into a pension for many, particularly those paying higher rates of tax. Putting the full amount of a bonus or percentage of a salary raise into savings for a saver's own benefit, instead of giving a large proportion directly to the government in the form of tax, can seem an attractive prospect,even if tax will be applied at some future date.

Moving from an exempt-exempt-taxed (EET) method of taxing retirement saving to a taxed-exempt-exempt (TEE) system, as proposed in the government's Green Paper, would do away with this incentive, meaning that some of these investors may look at other, simpler ways of investing and accessing their money. One winner could be investment ISAs, and firms providing online savings and investment products will no doubt be watching - and contributing to - the consultation with interest.

If firms need to make changes to their pension products once the outcome of the consultation is known, then this also provides an opportunity to think beyond what is currently available. The development of new products, already given a boost following the 2014 Budget, could also accelerate with any further changes to the historical norms of pension saving.

So while change may not always be good, nor is it always necessarily a bad thing. The new opportunities presented by the Freedom and Choice agenda, already much-discussed over the past 18 months, may prove to be just the beginning for providers and advisers alike.

Tobin Ashby is an insurance and wealth management law expert at Pinsent Masons, the law firm behind This article is part of a series dealing with the government's pensions tax relief consultation, Strengthening the Incentive to Save, which closes on 30 September 2015.