The upheaval from the economic and legislative reaction to the Covid-19 pandemic has in turn thrown the nation headlong into what could be its worst recession ever.
But what does this all mean for personal finance and pensions in particular? The public has reacted by paying off record amounts of unsecured debt, mainly credit card bills, overdrafts and loans. In April alone £7.4bn was paid off by Britons, the highest figure for monthly debt repayment since records began in 1993. Similar housekeeping has been undertaken by IFAs and their pension planning clients.
As administrators of 1,500 small self-administered schemes (SSAS) schemes on behalf of a wide range of clients and their financial advisers, we have been asked to help make their pension schemes post-Covid19 “oven-ready.”
These schemes are administered on behalf of business owners, two or three generations of families and those for clients coming up and in retirement.
Everyone, it seems, is reviewing their schemes during lockdown – pulling out of investments, piling in, taking benefits, drawing loans, buying properties and taking a close look at the levels of service they receive, turning to their IFAs for a critical assessment of performance. Now, it seems is a time to change things up.
The first Covid-trend we observed was a dash to cash. Protecting capital was the first priority and as we observed the roller-coaster stock market in March many clients lost their appetite and moved to cash deposits, often spreading funds across numerous banks to ensure FSCS coverage of up to £85,000 per bank.
In addition inflows to National Savings & Investments rose sharply as banks and building societies slashed their interest on deposit accounts following the Chancellor’s interest rate reduction at the start of lockdown.
From their position of relative safety, they have taken a few months to assess the future and are now starting to act. Many clients have spotted opportunities in the property market, inundated with surplus retail units, offices and other commercial property.
We have seen a considerable number of new schemes set up in readiness to invest. The loosening of planning laws, particularly in securing a change of use from commercial to residential without the need for consent announced by the Prime Minister last month provides both opportunities and challenges.
Business owners, many of whom have furloughed staff and have seen revenue plummet have understandably drawn retirement benefits to supplement or replace lost business income. We have also seen an increase in the number and size of loans to companies while taking advantage of the ultra-low base rate. This means they can borrow from their SSASs at 1.25% p.a. over 5 years. Purchases of own company shares are up – 5% of a fund can be used to purchase shares – and opportunities to benefit from tax-free growth as valuations bounce-back are evident.
As stock markets stabilised and new markets are flourishing in the Covid world, funds are being re-introduced to stockbroking accounts and platforms. In the case of SSASs, many clients are opening trading accounts to take advantage of opportunities alongside their main investment strategy.
It has become standard practice in recent years for financial advisers’ HNW clients, keen to mitigate their IHT liabilities to whittle down assets that form part of their estates for IHT purposes and to pass on intact their pension funds IHT-free to beneficiaries. During lockdown, demand to check or amend beneficiary nominations is soaring.
Pension providers and administrators have also taken the opportunity during lockdown to assess their service levels and fee structures. The more forward-thinking advisers are recommending providers that have taken the time to upgrade IT, increase the use of automation to process the changes requested and to work on making the switch from one provider to another easier.
The importance of service has been emphasised more than ever during this period and the nimble firms who made a seamless transition to home-working have been the winners. When it comes to switching providers it is not in anyone’s interest to make this transition anything other than seamless. A cumbersome and time-consuming process as the trustees’ legal ownership is updated is invariably complicated and the exit fees often irksome and petty.
It is more than just an irritant for the client who is keen to wrap up affairs at short notice and not to miss out on an investment opportunity and to avoid an unnecessary tax bill.
Out of every crisis, some good may come. What we have found is that IFAs are taking more time to ensure the service their clients receive is improved as most clients are deeply unsettled and keen to have their financial affairs in the best possible shape. Our role is to ensure that their pension schemes are efficiently administered and provide the best outcome for all scheme members.
Richard Mattison is director at Whitehall Group