There was a sense with last week’s Autumn Statement that there are actually some grown-ups involved this time round.
If we think back to 13 months ago, with the absolutely batsh*t crazy Kwasi Kwarteng/Liz Truss mini-Budget of this time last year, then this was less crazy than that by some distance.
It was clear this was a pre-election budget, but really it was the pre pre-election budget. There’s set be a Budget in March next year, and that may be where the real ‘rabbits out of the hats’ appear. But the government has started to pivot and position towards an election in the next 12 months, and so we’ve had the accompanying feel good policies and tax cuts to make people happy before they’re sent to the ballot box.
From a financial planner’s point of view, the more significant stuff that was being trailed around changes to inheritance tax in particular obviously got no mention whatsoever in the chancellor’s final speech. You wonder whether that’s just been kicked into the Spring Budget, which one would assume will be the final one before a general election.
The politics and the timing are interesting here. If there is a new government in 12 months’ time, how much of what was contained and signalled in the Autumn Statement will remain? And how much will actually be put into practice? I don’t know the answer to those questions, but it’s got to be a consideration for financial services firms.
We now have a proposal for a pension ‘pot for life’ and new ISA ‘flexibilities’, including the ability to pay into more than one ISA of the same type each year, and partial transfers of current year ISA subscriptions.
The issue with both pot for life and the ISA changes is that they rely on engagement.
The dilemma of change
Whether the industry classes them as members of pension schemes or investors, these developments require people to engage with their pensions or ISAs and work out what it is they want to be doing. For example, do I want to get my employer to pay into this pension or that pension?
In a lot of cases, those decisions are pretty complicated to make. What’s more, the pensions sector and the wider financial services industry doesn’t always do a particularly great job of helping people with that. So there’s definitely work to do around the engagement side of things.
The ongoing work around advice and guidance will be a big part around that, where firms can start to help people make more informed choices by pointing them in the right direction within the confines of an agreed regulatory framework.
There is then the secondary issue around the dilemma of change, and how to bring in change well.
Looking at the approach to pensions freedom, that was a sudden big bang – a fundamental change to be delivered with 12 months’ notice, sending the industry into a tailspin as to how that was going to happen. There is a clear downside to that approach, the criticism being there wasn’t enough consultation and a lack of involvement from the appropriate consumer bodies and relevant organisations.
The upshot though was the change did get implemented within 12 months, and did deliver a positive change, particularly in terms of people engaging with their retirement income in a different way.
That probably wouldn’t have happened if it hadn’t been forced through. Who knows, if it had gone a different way we might still be on the final pension freedoms consultation even now.
With pot for life and some of the other pension discussions that are underway, it does feel right to take a more collaborative approach, with a clear consultation process and with the various regulators, consumer bodies and industry stakeholder getting involved and getting a chance to have their say.
But the danger is that becomes a very lengthy process and that, ultimately change never happens. We’ve got previous with pensions reform, so it’s worth learning the lessons of what has worked before – as well as what hasn’t worked.
Mike Barrett is consulting director at the lang cat
