Further pension reforms, better financial education, more cuts to corporation tax, and less red tape are just some of the ideas put forward by the investment industry in their post-election wish list for Number 10.
Dominic Johnson, CEO of Somerset Capital and chairman of think-tank, New City Initiative
“Our industry is a diamond in the economy….but we cannot rely on the blunt and distortive instrument of regulation to enforce good behaviour”
The competitive agenda for the Financial Conduct Authority needs to be increased, as it is the key to promoting stability and better returns for investors.
The ‘one size fits all’ approach that has prevailed since the 2008 crash simply does not work. Proportionality of regulation is absolutely imperative. Start-ups need to be encouraged, not crushed beneath the heavy burden of regulatory and compliance costs, which negatively impact competition, load risk up onto the biggest firms and also, in our view, reduce much needed returns for our ageing population.
Attention should also be paid to the ‘structure and culture’ of financial services firms, rather than relying on the blunt and distortive instrument of regulation to enforce good behaviour. Employee-owned businesses, where the interests of fund managers are firmly aligned with those of their clients, provide staff with a stronger incentive to generate good performance while appropriately managing risk, and discourage unscrupulous actions. Our regulators need to reduce the financial burden on these firms, and advocate the benefits that they bring to employees, investors and the economy at large.
A state funded pension fund would change the dynamics of investment in the UK
Meanwhile, too much of the European Union’s financial services policy would diminish the asset management sector. We need a more powerful champion for our industry who will fight our corner within the European body politic.
The government should also take note that growth has stalled in asset management firms – the main growth is now in the employment of compliance officers. If this is not reversed, Britain will fast lose its edge to another international location, weakening London’s human capital leadership. Our industry is a diamond in our economy.
Stephen Watson, chief investment officer of Beaufort Investment Management
“Let's hope the new government has policies that are conducive to growing expertise and innovation in the financial services arena”
‘Dictum meum pactum’ (or my word is my bond) is the registered trademark of the London Stock Exchange and governed behaviour of market participants prior to deregulation and big bang in 1986.
This opened the floodgates to new participants globally and forever changed the financial landscape which in turn led to major changes in regulation and eventually the creation of the Financial Services Authority. Whether this deregulation contributed to the crash of 2007 onwards is arguable, but it has resulted in a significant increase in regulation, culminating in the RDR most recently.
One improvement from a new government would be to allow straightforward transactions to be processed on a simplified advice basis and avoid the large amount of paperwork involved in full advice (fact finds, attitude to risk surveys, suitability reports, etc). Pension top ups, Bed and Isa’s (moving taxable holdings into tax sheltered ISA’s) and increases in regular premiums are relatively straightforward transactions but often require large amounts of paperwork.
Two other areas which would clearly be market friendly, but are revenue unfriendly to the government, would be to further reduce corporation tax to encourage investment and abolish stamp duty on share purchases. The latter would encourage foreign investment in the UK and would reduce friction in the share market.
Capital adequacy requirements are also onerous and can discourage growth as businesses are required to hold large sums in cash which could be applied to growing the business.
Cedric Bucher, head of UK funds at Architas
“We now have Pension Wise but do we also now need 'Investment Wise?'"
Increased ISA limits, combined cash and stocks and shares ISAs, and the introduction of the new pensions freedoms, are all part of the very positive steps this government has taken to promote investing in the UK and to encourage people to take individual ownership of their financial future. This is a trend we would like to see continued by the next government.
However, having taken these positive steps we must now go further in terms of financial education and beyond the welcome focus in the national curriculum. If we are encouraging more self-sufficiency we need more education across all ages, with a greater focus on investments.
We now have ‘Pension Wise’ (a free and impartial government service) but do we also need ‘Investment Wise’? If we want people to take more responsibility for their investments then they need to understand issues such as risk and return, the erosion risks of cash and the potential impact of inflation. Professional financial advice is not free, in the same way as accountants and solicitors charge fees.
Of course, we need to see and evaluate the success of Pension Wise before we seek to replicate. There is also a review taking place of the Money Advice Service and its role. But, whatever mechanism we choose, if we want people to take more responsibility for their financial future we must give them the means and knowledge to be able to do so.
Glen Nimmo, chief executive of Revera Asset Management
“The UK state pension system is one of the world’s largest ever Ponzi schemes…the next government must help fund future state pension obligations”
It is perhaps a typical hypocrisy of our political system that if a concept of national insurance was launched in the private sector based on the concept of that run by the government, it would be instantly shut down by the Financial Conduct Authority or the Prudential Regulation Authority, because it would have no assets to back it. On top of this, the UK state pension system is one of the world’s largest ever Ponzi schemes – if people stop paying in, current pensioners have nothing to sustain them.
I would like to see the next government start the process of properly funding future state pension obligations. I would like to see it run these obligations in the way they force the private sector to do.
The fiscal burden is too great to address the funding requirements for anyone currently in work. But progressively the next generation of tax payers can have their houses put fully in order; make national insurance just that – insurance, and not taxation by another name.
A state funded pension fund would change the dynamics of investment in the UK, providing long-term capital for companies and infrastructure. Indeed, given the current inflation dynamics, the government could permanently debase sterling by endowing a fledgling state pension fund with the £375bn of gilts held by the Bank of England under its quantitative easing programme, without materially risking price stability in the UK.
That would be a useful first step to giving our children and grandchildren confidence that the pension safety net is genuinely going to be around when they need it.
Peter Toogood, investment director at City Financial
“Individuals have been ill-prepared for rapid policy changes… a far more grown-up approach to financial planning is needed from government”
In all likelihood, the attack on pension provision will continue regardless of who is in power. Gordon Brown set the precedent for easy wins in withdrawing obscure, yet key, benefits to pension funds in the 1990’s, and the latest changes to reliefs are an extension of these easy wins that impact a limited audience but ’save’ money. This is not a party political observation.
The current coalition has reduced the lifetime allowance and further restricted the tax relief available on pension contributions, a policy which the Labour party seems equally keen to embrace. However, how this squares with the constant push to make individuals responsible for their own retirement remains a mystery.
Indeed, it is an unfortunate contradiction that, on the one hand, governments seem desperate to limit the amount we can save for retirement while, on the other hand, politicians will continue to encourage or force us to save into pensions.
The next administration must spend far more time breaching the advice gap for investors. The rush to ‘liberate’ pension planning in the recent budget was yet another example of the cart before the horse, with rumours that even the pensions minister was surprised by the Chancellor’s announcement.
Individuals are ill-prepared for such rapid changes and have limited information upon which to make decisions. The current Australian experience of impoverished pensioners ten years after pensions were ‘liberated’ is instructive. A far more grown-up approach to financial planning, including the early years, should be an absolute priority for any government of whatever colour.
Nick Blake, head of UK retail at Vanguard Asset Management
“The government needs to lead the way on improving financial literacy and bringing additional clarity to the role of costs”
The introduction of financial education into the national curriculum is a positive step and should give millions of Britons a better chance of achieving financial freedom over the long term.
However, education must not stop at school. Financial education is important for everyone and the government needs to encourage the industry to deliver the right mix of education, clear communication, and straightforward low-cost products. The recent change in UK pension legislation has created much uncertainty but could be a catalyst for positive change in the long term. There is still a great deal of work to be done to encourage people to save more for their retirement.
Legislative and policy changes have also put fees under greater scrutiny in the UK. Investors are now more aware of the importance of costs in the investment decision-making process. We would welcome any moves from the government to make fund costs more transparent. However, it is not just a case of ‘the more information, the better’: the challenge for the industry is to make sure we share information that is meaningful.
Currently, like-for-like comparisons between different funds may not be appropriate as some fund costs can be calculated in a variety of ways, and different firms may legitimately use different methods.
With the current regulatory and industry focus on cost disclosure, we hope the current inconsistencies will be ironed out and that future investors will benefit from clearer information on costs.
Jonathan Willcocks, global head of retail sales at M&G Investments
"The biggest help to our industry would be to implement measures to improve financial education from an early age"
A startling number of people only think about pension savings when they get to about 45 years old. The biggest help to our industry would be to implement measures to improve financial education from an early age.
I am not talking about studying the stock markets in secondary school, but making financial services relevant and tangible so that by the time people reach adulthood, they are comfortable thinking about pensions and investments and informed enough to seek independent advice and take decisions.
Could we see working examples of the impact of inflation and interest rates on consumer goods that really matter to young people - cinema tickets, mobile phones, music? Or mortgages explained more clearly?
Encouraging small, simple changes in thinking and behaviour from much earlier in life would help people plan properly for their financial futures. If people are educated from childhood and money is made interesting and relevant, they will be less fearful of the concepts of equities and bonds, risk, returns and what is meant by ‘long term’. Most people want an income in retirement they can rely on for the rest of their lives but how many people really understand how they might achieve that?
If we can encourage young people to take an interest in money matters, they will be more inclined to see the value of independent financial advice when they leave education and start working.
Laura McAlpine, senior government and industry affairs manager at Zurich
“We need a tax system that rewards savers for their prudent approach”
With the polls showing no outright majority, whatever the final composition of the next government, it is vital it seeks to ensure stability for the economy.
Stability is especially important for long-term financial decisions like pension savings. While we recognise that UK plc needs to balance its books, it is disappointing the lifetime tax allowance was targeted again in the coalition’s last budget, reducing to £1m, creating more uncertainty for savers.
Index-linking the lifetime tax allowance from 2018 is a step in the right direction, but this only partially mitigates the impact of this change, especially for younger savers who are doing the right thing for their retirement. It would be fairer for the allowance to reflect the actual amount that people invest into a pension as opposed to its overall value and this is something which could be addressed in the next parliament.
We would like to see a tax system which rewards savers for their prudent approach, with tax relief used as a way of encouraging positive behaviour and helping people to take ownership of their financial affairs.
Fraser Blain, head of UK retail sales at Allianz Global Investors
“Welcome changes to savings have already been made”
George Osborne’s 2014/2015 budget announcement marked a welcome change in the government’s attitude towards savings in the UK, empowering individuals to have a greater awareness and responsibility for their savings and retirement. This has resulted in a greater requirement for advice, especially in an era of ultra-low interest rates.
New pieces of regulation, including an increase to ISA limits, have coincided with a new regulator with new ideas about its chosen focus and the new technical challenges that they bring.
This brave new world needs to be centred on better outcomes for end clients. From a planning perspective, clients who are at retirement and are opting to use drawdown want lifestyle maintenance, not capital gain. This will involve a new kind of dialogue with a client.
For example, the level of investment return is irrelevant to the client if their income goals are met for their lifetime and they do not require a lump sum on death. While significant change has already occurred, change will no doubt remain the only constant. This will require advisory firms to reconsider many elements of their business model, from how they choose and charge customers, to the services they offer and products they use.
Those firms that are able to embrace such changes and adapt their business models will be the most likely to succeed. From an investment perspective, a greater focus on suitability will bring multi-asset funds to the fore, particularly those which are able to deliver and outcome in terms of volatility and target return.
Jason Stather-Lodge, CEO and CIO of OCM Asset Management
“Flexibility and fairness in investment can only come with a simplification of the taxation system”
We would like to see a simplification of the taxation system to allow more flexibility, fairness, and the removal of complexities that do nothing as regards to changing investment culture and creating transparency.
Other changes needed include better savings options. This could include a single annual allowance that each individual over the age of 16 can invest into pensions and investments of £50,000 per annum with the following rules around it:
- If put into a pension, investors get a flat rate of tax relief at source of 30% and are taxed at higher rate on extraction, keeping 25% tax free cash limit and flexibility on how benefits are taken. All income should be taxed at individual’s highest rate with restrictions on underlying investments as they are today.
- If put it into an ISA, investors get “no tax relief” but can take benefits free of tax at any point with no restrictions and can invest in anything.
- Both Pension and ISA accounts would grow with no taxation on income bar dividends and no capital gains tax as is the case today.
- We would like the pension Lifetime allowance removed as having ceilings and a cap on contributions is completely illogical.
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