Question: When is a bank account not a bank account?
Answer: When it is a pension that the Chancellor has told you that you can use like a bank account.
It’s no surprise that some providers are not giving their customers the full suite of flexibilities that George Osborne’s pension flexibilities have made possible.
Aegon is the latest to feel the heat from the national press for refusing flexible access to everyone except those prepared to pay for ‘expensive financial advice’.
Instead, customers have the choice of cashing in their entire fund, which in all likelihood will leave them paying more tax than they would probably want to, transfer somewhere else or buy an annuity.
I would not be surprised if part of their reluctance to make withdrawals as easy as possible is down to the fact that the more that is taken out, the less assets under management they control, and the lower their profit will be.
But given the fact that the final rules for withdrawals were only in place in the spring of this year, and a review of advice is currently ongoing, I can understand why providers might feel they have been given a hospital pass in having to guide customers to the right option through the second line of defence.
Why take on the risk of future claims from ambulance chasers – how many times have the pensions freedoms been described as the next potential mis-selling risk?
Far better for them to pass the buck to someone better skilled at helping their customer make the right choice.
As an adviser, I am more than happy for the buck to be passed to me.
Some have said that it casts advisers in a bad light if we end up in a situation where clients are having to pay for ‘costly financial advice’ that they do not want, and that they will ignore if it tells them something other than what they want to hear – namely that yes, they should get their hands on their cash.
But I welcome the fact that providers are effectively promoting the value of the services I deliver, and pushing home the point that financial advice is something that should be paid for.
Yes, insistent clients are something that are better avoided. But that works across the board.
The whole adviser/client relationship should be about working together, not in conflict. Who in the advisory community has not looked to swerve those potential clients we know are going to cause us problems.
I also take issue with the suggestion in some corners of the broader media that giving advice on withdrawals is somehow straightforward.
The tax issues created by Osborne’s 2014 Budget are significant.
How many people accessing more than their tax-free cash realise they are foregoing the right to use carry forward in future, or that their annual allowance will fall from £40,000 to £10,000 as a result.
Recent figures from the Association of British Insurers showed huge levels of withdrawals – £2.5bn in the first three months, most of which would under the old rules go into something as low-risk as an annuity.
Some of the people making withdrawals have been taking out several hundred thousand pounds, and, as a result, will end up being clobbered for tax of 45%.
Then there is the thorny issue of guaranteed annuity rates, some of which are well into double figures, and challenge consumers’ desire for cash today.
Or the issue of individuals close to bankruptcy, and the unfortunate choices they have to make in dire circumstances.
There is an argument to say that freedom should mean treating people who have made it to the age of 55 like adults and allowing them to do what they want with their money.
I have some sympathy for that argument, but until we get to a point where it is a point of view shared by the Financial Ombudsman Service, I have more sympathy for the likes of Aegon who are taking a cautious, commercial view based on the risks presented to their business.
In the meantime, we should celebrate the fact that Osborne’s pensions upheaval is putting financial advice at the centre of the debate, and emphasising just how valuable it is to everyone approaching their retirement.
Sheriar Bradbury is managing director of Bradbury Hamilton
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