What to look out for next week

It’s fast approaching the time when Parliament breaks up for the summer. But before it does, the Treasury has an important job to do. If it wants to get the new pensions freedoms and guidance (proposed in the Budget) in place by April next year then it needs to get its skates on and get the legislation sorted. Time is of the essence.

The first step is Treasury issuing a response to the Budget consultation (which closed in June) before Parliament packs up and go on holiday. In other words, by next week.

This is important stuff. The new proposals are far-reaching, explosive, liberating, and exciting. But they are potentially dangerous for people. It’s great that we are introducing them, but it’s imperative we get the context right. Or else, things could get messy.

Right legislation will lead to new product development creating the right solutions for people. And the right guidance means people can make the most of what’s on offer. My worry is that under the new regime instead of people failing to shop around for an annuity, they fail to shop around for drawdown (or whatever product). If we end up with 50% of people simply rolling over into their current provider’s drawdown fund, then we have failed.

So what am I looking out next week from the Government’s response? Three things.

1.       Flexible legislation. Ideally, the whole legislation underpinning ‘retirement products’ could do with a good sort out and a re-write. But the Treasury hasn’t got the luxury of time. But I do want to see legislation that is flexible enough to allow innovative and useful product development. For example, let annuities go down in value, if that means we can design products that fit the way people want to take income.

2.       Impartial and effective guidance. Getting the guidance right is tricky. Getting the guidance right in the ten months they gave themselves is near enough impossible. So although the right foundations have to be laid now, the guidance has to keep evolving and changing until it’s right. It needs to be impartial, and that means asking someone like TPAS or MAS to take it forward. It needs to be there when people want it – not just a one-off. And it needs to involve the adviser community – at the very least handing over to them whenever appropriate.

3.       Sensible response to tax leakage. Once the pension freedom genie was out of the bottle, the big question on everyone’s lips was how will the Treasury stop the double dipping? The ability to invest big amounts of money (because £40,000 is still a big amount of money) tax-free, and then let people take 25% of that tax-free. The answer could be convoluted and difficult. But I am really hoping that the Treasury decides to be sensible about this. A separate annual allowance for once benefits have been taken (of say £10,000)is simple to explain, simple to administer and simple to understand. It is better to have ‘sanctioned tax leakage’ of a small amount rather than build a complicated convoluted workaround that no-one can understand, no-one can illustrate and is difficult to administer.

So that’s it. The Budget proposals were radical, and hopefully, the Treasury will get the next steps right. And it gives us the summer break to absorb all the glorious detail of the proposals whilst the Treasury is hard at work drafting legislation.