Tina Weeks on her lightbulb moment for business success

Tina Weeks, founder of Serenity Financial Planning, talks about what makes a successful advice firm.

Aviva switches to FNZ for adviser platform

Aviva is switching its adviser platform to FNZ from the Bravura-backed Genpac offering.

The announcement confirms plans first revealed by Money Marketing in July last year.

Aviva expects to complete the transition in the first half of 2017, and say it will be communicating with advisers to minimise disruption.

It brings the provider's advisers on to the same platform as its direct customers, and will function as a consolidation following the firm's acquisition of Friends Life last year.

While Friends Life already had an existing contract with FNZ, Aviva was utilising both FNZ and Genpac, following the US technology firm's acquisition of OpenWealth last year.

Speaking to Money Marketing, Aviva advised platform chief executive Tim Orton says: “We've got the majority of our business on FNZ already and it was the optimal choice to use that architecture going forward.

“We review our technology commitments over time, and this was a sensible point to make a change.”

Orton adds the change is expected to cost Aviva a total “in the low tens of millions”.

The software front-end used by advisers is not expected to change.

Orton says: “This will enable us to provide more flexibility for advisers and their clients.

“We will be simplifying the experience around some of our journeys and also expanding out our investment choices.”

Consolidator secures £25m in private equity funding

IFA consolidator Fairstone Group has been boosted with a £25m capital injection by private equity backer Synova Capital.

The deal makes Synova the lead investor in Fairstone, previously known as Moneygate, with further cash also likely to be made available to the advice firm in future.

Committed Capital and Northstar Ventures have also retained stakes in the business.

Synova parter Alex Bowden will become a director at the business as part of the deal.

Newcastle-based Fairstone has incorporated 40 firms since 2011, and now has 260 advisers and 60 staff, with £5.8bn funds under advice and £2.4bn under management.

Synova also backs software and information group Defaqto, as well as insurance broker Stackhouse Poland.

Fairstone chief executive Lee Hartley says: “This partnership with a leading mid-market private equity house will allow us to accelerate our successful downstream buy out acquisition model beyond our current forecasts.”

Lee Robertson: Time to move on from independent versus restricted debate

So it appears the move towards restricted is gathering a fair bit of pace, with the news more firms are being snapped up by larger, life assurance company-backed wealth managers, among others. Many of these are excellent firms too: chartered, profitable, award winning and highly admired.

The cost pressures of being regulated – including the Financial Services Compensation Scheme levy, client acquisition and the pressure to keep fees as they are or even cheaper year after year – all add up. With this in mind, I can quite understand why firms are making the decision to sell out to larger operators.

Despite promises to look seriously at reform, the FSCS levy pretty much means that advisers have no control over the cost of operating in the regulated sector. Most advisory firms run lean already, with little fat to guard against large and unwelcome bills. According to research by Apfa, while turnover is up for most firms, profitability is shrinking for many. I am sure that it is not as simple as its statement that it is all down to the FSCS levy but it is bound to be impacting to a fair degree for most firms.

While much of our sector may have a vague uneasiness at the shrinking number of independent financial advisers around, I wonder if it really is such a big problem as the industry moves on post-RDR.

Increased due diligence standards and the desire of most business owners to ensure they have a robust, repeatable investment process that leads to defined outcomes for clients has led to many narrowing their proposition to a clearly defined centralised investment proposition in any case.

As more advisers have either outsourced their investment management, taken it all in house or come to some sort of hybrid arrangement, many look less like the old independent financial adviser we knew so well.

Some believe that the term independent became somewhat tarnished pre-RDR and actively distanced themselves from it. Others battle on with the term and continue to deliver excellent financial advice to their clients.

But does it really matter now? Should we just give up on the restricted versus independent debate? Surely professional financial advice that assists the general public with their financial problems and issues and objectives should be the most dominant aim.

My only real concern is that too few large players end up dominating the market and somehow we as a sector, against all the best intentions of those entering into arrangements with the consolidators, revert to a large company, with an at best average standard of advice. The investing public deserve better.

Lee Robertson is chief executive of Investment Quorum

MM Wired: Managing the risks of non-advised drawdown

Topics discussed:

• Following the wave of non-advised drawdown launches, have savers been left overly exposed to stockmarket falls?

• Should there be greater controls to prevent people from running out of money?

• How do advisers manage drawdown clients without the fixed review periods that existed under capped drawdown?

• Is there an appropriate pot size when it comes to income drawdown?

• How do pension freedoms interact with the latest Budget announcements? How does this all feed into the value of retirement advice?

Panellists:

Tom McPhail, head of retirement policy, Hargreaves Lansdown

Billy Burrows, director, Retirement Intelligence

Nick McBreen, IFA, Worldwide Financial Planning

Simon Massey, wealth management director, MetLife

Chaired by: Sam Brodbeck, pensions reporter, Money Marketing

Tyrie secures FCA chief exec scrutiny role

The chair of Parliament's influential Treasury Select Committee has secured a deal allowing it to interview the next FCA chief executive ahead of their appointment.

Andrew Bailey was named as the incoming FCA leader in January, with Committee chair Andrew Tyrie calling for MPs to be handed power of veto on future appointments just a month later in a bid to entrench the regulator's independence from government.

Tyrie tabled the proposal as an amendment to the Bank of England and Financial Services Bill, currently being debated in Parliament, suggesting that the Government would be barred from appointing or dismissing an FCA chief executive without the support of the Treasury Committee, mirroring a similar function on the Office for Budget Responsibility.

However, Money Marketing understands that in a deal reached with the Government, the Committee will instead gain a new right for a public pre-appointment hearing with the Government's preferred candidate for the role.

If the Committee does not approve the nomination, then it will issue a report outlining its objections, with the matter referred to a vote in the House of Commons, and the Government bound to the result.

A spokesman for the Committee could not be reached for comment.

Woodford fund tops list of best-selling Isas

CF Woodford Equity Income has topped the best selling funds within Isas from the Bestinvest online investment service this year.

Tilney Bestinvest Growth Portfolio and Fundsmith Equity came in second and third, while Threadneedle rounded out the top five with its UK Equity Income  and European select funds.

The rankings come against a backdrop of market volatility and investor uncertainty in the lead up to the UK's Brexit referendum.

With this in mind, investors stuck with proven managers, such as Neil Woodford and Terry Smith, while income funds also proved popular.

CF Woodford Equity Income has ballooned to £8.28bn since Woodford launched it less than two years ago, following his departure from Invesco Perpetual.

It continues to have high exposure to tobacco (Imperial Brands, British American Tobacco and Reynolds American) and healthcare (AstraZeneca, GlaxoSmithKline and Roche).

Only one index tracker came up in the top 10 – the HSBC American Index fund at eighth place, which has a low ongoing charges figure of 0.08 per cent.

Standard Life's Global Absolute Return Strategies fund remains popular totalling £26.2bn. This is despite it maintaining a negative rating from Fundhouse, announced last week, whereby the ratings agency criticised it for not having a diversified set of returns.

Do you think peer-to-peer lending has a role in retirement planning?

Does volatility create opportunities?

Do macro headlines create white noise which impacts market prices? Portfolio Manager at Harris Associates, David Herro, discusses how market volatility can create opportunities to buy good business at a discount.

Red Letter Days features in London Stock Exchange's 1000 Companies to Inspire Britain report

Red Letter Days has been identified as one of London Stock Exchange's 1000 Companies to Inspire Britain. The report is a celebration of the UK's fastest-growing and most dynamic small and medium sized businesses.

To be included in the list, companies needed to show consistent revenue growth over a minimum of three years, significantly outperforming their industry peers. More detail on the methodology can be found in the report online at www.1000companies.com.

Red Letter Days, set up in 1989, pioneered the concept of giving unforgettable experiences as gifts. The idea caught people's imaginations and today the company continues in its mission to make memories for as many people as possible by offering unique days out and breaks.

The corporate arm of the business, Red Letter Days For Business, helped support the rapid growth of the company; its team of incentive and reward experts work with businesses across the UK to recognise and engage employees, and incentivise and reward customers.

Seeing a gap for reward solutions in the business-to-business market, Red Letter Days For Business also launched its own shopping and leisure voucher, Lifestyle, in 2012.

Bill Alexander, CEO, Red Letter Days, said: “To be included in this list is a fantastic achievement and something we're very proud of. The industries we operate in are extremely competitive yet our ambition to push boundaries has helped result in strong company growth.

“Lifestyle, our shopping and leisure voucher, launched four years ago and this year we're celebrating sales of over £4 million as we gain popular brand partners every month to join the likes of John Lewis, M&S and Currys. It shows the hard-work and dedication from our team.

“Here's to inspiring Britain this year and striving to do the same in the future.”

Xavier Rolet, chief executive, London Stock Exchange Group said: “High growth SMEs are the driving force behind the UK economy, developing the skills, jobs and growth we need. But ambition alone is not enough; their success must be highlighted and their growth properly supported with appropriate finance. That's why today's event is so important: demonstrating the strong alliance between UK Government, financial market participants, investors, entrepreneurs and companies to support these inspiring businesses.

“Today's celebration is fundamental to London Stock Exchange's core, the need to support UK high growth companies in their journeys from Start-up to Stardom and create an entrepreneurship revolution.”

Apfa demands stronger claims management crackdown

Apfa has outlined a raft of new proposals to strengthen regulation of claims management companies as part of its response to a Ministry of Justice consultation.

The MoJ unveiled its plans for the CMC market in mid-February, and took responses to the reforms in a consultation that closed yesterday.

At the time, Apfa said the proposals would do little to address vexatious advice complaints, and now the trade body has released its own suggestions.

According to Apfa's figures, the Financial Ombudsman Service received 2,707 complaints about financial advisers in 2015, with almost one-in-five brought by a CMC.

Of those complaints, only 22 per cent were successful. By contrast, 34 per cent of all complaints made in relation to advisers were upheld.

To address this, Apfa says while making a complaint to the FOS should remain free for consumers, CMCs should be required to pay a fee which can then be refunded if it is found to be legitimate.

In addition, it says a threshold should be set for spurious claims, with regulatory action linked to the rules.

The trade body also argues that many of its members receive poor quality information in claims, and calls on the MoJ to require CMCs to obtain confirmation from clients that all information provided in support of complaints is correct, and include this documentation.

The MoJ is currently analysing the feedback received through the consultation process, and is due to respond later this year.

FCA fines Catalyst boss £450k after appeal fails

The chief executive of failed investment firm Catalyst Investment Group has been fined £450,000 after the Court of Appeal rejected his application to appeal.

In 2015 the FCA sought to ban and fine Timothy Roberts for his part in the collapse of Catalyst.

The regulator said the firm mislead investors when promoting bonds issued by ARM Asset Backed Securities. A £30m interim FSCS levy for investment advisers was issued as a result.

Roberts referred the FCA decision to the Upper Tribunal in 2013 which backed the regulator in 2015.

In January 2016 the Court of Appeal refused Roberts' application for permission to appeal the Tribunal's decision.

The regulator is now free to fine Roberts £450,000 and ban him from any regulated activities.

In November 2009, the Luxembourg regulator told ARM to stop issuing bonds as it did not have the proper licence.

In the 2015 determination, the Tribunal ruled that Roberts allowed Catalyst to continue promoting ARM bonds and collecting money from investors after November 2009, despite the statements from the Luxembourg regulator.

Roberts and Wilkins also allowed Catalyst to provide misleading information about ARM's licence in a letter to advisers in December 2009. This was followed by another misleading letter to investors in March 2010.

The Tribunal has moved to water down the original sanctions proposed against Wilkins, halving the fine from £100,000 to £50,000. It has also referred the decision to ban him from senior roles in financial services back to the FCA.

Artemis Strategic Bond Fund: thank you, Mr Draghi …

As Europe's QE goes further than expected, the manager of the Artemis Strategic Bond Fund has upgraded his outlook from “quite” to “very” positive.

Wells Street Journal: Alien concept lacks currency

Not all banks can claim support from extraterrestrials, but unauthorised WeRe Bank is an exception.

The blender, which has made up its own bizarre 'Re' currency and claims to offer cheap cheques that force lenders to write off debts, made headlines recently when the FOS logged dozens of complaints about the firm.

The firm's founder, 'Peter of England', who is a friend of conspiracy theorist David Icke, claims “both on-planet and off-planet” involvement in his firm.

Speaking to the WSJ, Peter, who at one point referred to the noble press corps as “presstitutes”, said he wanted the bank to “get the people to implode the fiat currencies”.

He added that many in the financial services sector were fed up with “the degree of criminality and theft, and they realise that eventually it's going to change”.

Perhaps sensing mild scepticism from the journalist involved, Peter gave the conspiracy theory pot a stir.

He said: “There is a concerted effort within the media to preserve the status quo. If you are favourable about what we're doing you would probably be removed from your post, so I do understand.”

The WSJ can confirm that none of its journalists will be fired for an overtly pro-WeRe stance any time soon.

CML members vote for trade body merger

Members of the Council of Mortgage Lenders have voted in favour of the proposed trade body merger.

The trade body said 75 per cent of its members voted in favour of the merger, which will see the CML, the British Bankers' Association, Payments UK, and the UK Cards Association combine to form a mega-trade body.

In a statement, the CML says: “This decision is subject to a range of conditions being met in terms of the final form and operating plans of the body.

“Once the members of all the trade bodies have completed their own decision-making processes, if all the trade bodies agree on the proposal to amalgamate, the Financial Services Trade Association Review team will in due course make further announcements on the operational aspects of the integration.”

The merger was first suggested in an independent review last summer after pressure from nine major UK retail banks and a building society: Barclays, Clydesdale Bank & Yorkshire Bank, Co-operative Bank, HSBC, Lloyds Banking Group, Nationwide, RBS, Santander, TSB and Virgin Money.

At the time the lenders said they wanted to review the current trade body setup because they wished to cut costs and avoid duplication of work.

The Building Societies Association and the Intermediary Mortgage Lenders Association have ruled themselves out of the merger.

Northern Rock loans to be part of biggest securitisation since crash

US investment firm Cerberus Capital Management is set to launch Europe's biggest mortgage-backed securitisation since the financial crisis.

The bond is reportedly backed by £6.2bn worth of mortgages originated by Northern Rock, which had to be nationalised in 2008.

Cerberus bought £13bn of Northern Rock mortgages off the Treasury in November. It has already sold £3.3bn of the portfolio to TSB, so the latest deal means it will have offloaded around three-quarters of the loan book it bought just six months ago.

Securitisation, where investors buy bonds backed by mortgage payments, is a key form of funding for mortgage lenders. However, investors shied away mortgage debt in the aftermath of the crisis as they were considered toxic.

Experts say the size of the deal shows investors have recovered their appetite for mortgage debt.

Nomura Holdings Inc's head of European ABS strategy David Covey told Bloomberg: “It's a huge deal, and the fact that such a large volume of U.K. mortgage bonds can be sold shows there is strong demand for high-quality securitisations.

“That said, the size belies the fact that the investor base remains thin, as it's likely a substantial portion of the deal was pre-placed with a few large investors.”

Henderson Global Investors head of ABS investment Edward Panek told Reuters: “We always assumed it was going to come at some point, in some way. That's a pretty significant chunk of issuance that has now effectively been dealt with. From a technical point of view, it's good news for the market.”

Former Aifa boss Cummings named Investment Association chief exec

Former Aifa director general Chris Cummings will be the new chief executive of the Investment Association.

Cummings, who is founding chief executive of financial services lobbying organisation TheCityUK, joins the trade body six months after Daniel Godfrey was ousted from the role. He was also previously director general at AIFA, having spent 7 years at the organisation.

Investment Association chair Helena Morrissey says: “I am delighted we have secured a chief executive of Chris's calibre to take the Investment Association forward. Chris has years of experience helping businesses to deliver the best outcomes for their customers.

“Under Chris's leadership the IA will continue to work with all our stakeholders to serve our members and shape the investment industry to meet the needs of savers.

“The board would like to thank Guy Sears for his work and achievements as interim chief executive, including the launch of the Productivity Action Plan to boost the British economy and a major pledge to develop a new generation of Disclosure Codes.”

Cummings says: “I am very excited to be taking over as chief executive of the Investment Association, which plays a crucial part in securing the best outcomes for savers, investment managers and the broader economy.

“I believe the UK's asset management industry has the opportunity to adopt a greater role in society, generating wealth and lifelong financial well-being for millions of people and providing stable long-term financing to help British businesses to grow.”

Cummings will start at the Investment Association in Q3 this year.

Claire Trott: A Budget boost for Sipps and SSASs

As a result of the continued stockmarket volatility, savvy investors have spent the past few months looking for stable assets to invest in for the long term.

Although it is true stockmarkets can be stable over the long term and looking at short-term volatility is not the way to think when investing for retirement, there is no doubt having a steady base can be very reassuring. To that end, direct commercial property has been attracting increasing attention of late.

The recent changes to residential stamp duty land tax have been welcomed by many and the announcement in the Budget to align this with commercial property has provided a bonus to those considering investing in such assets within their pension.

SDLT is payable by a pension when purchasing commercial property, which adds to the overall cost of the transaction. When calculating the amount of SDLT, you not only need to look at the value of the property or land but at the cost plus any VAT payable on it, even if the VAT can be reclaimed at a later date. Even in-specie contributions need to pay SDLT because there is a change of owner, which is the key trigger to the charge. Only when property is transferred between pension schemes is it exempt.

The big change to the way in which SDLT is charged on commercial property is the move from the threshold to tiered basis. When the charge was on a threshold basis, it meant that being only a few pence over it levied the higher tax charge on the entire amount.

This not only forced prices down for the seller but would put off a purchaser if the price was just above the threshold. Moving to a tiered approach means the increase is more gradual and applies only to the amount over each level. This makes any small increase in price less of an issue when looking at the overall cost of purchase.

New tiers versus old thresholds

The old thresholds meant there was no SDLT paid on properties costing less than £150,000 and this remains the same. However, whereas previously adding just a single pound would have meant a charge of £1,510, under the new regime this would only be 20p (2 per cent of the of the amount over £150,000). This difference varies as the amount increases because of the way the changes work.

Take, for example, someone with a property or land worth £249,999 (including VAT). The old charge would have been £2,500 bar 1p (1 per cent on the whole lot) but the new rates would be near to £2,000.

Tipping over into the next banding, you have another sudden drop in the amount payable. Previously, the whole amount where the cost was £250,000 and over was subject to 3 per cent but under the new rules only the extra over £250,000 is subject to the new charge of 5 per cent.

This will mean for higher-value properties the SDLT will be higher but this was expected as the Budget was about helping smaller companies, not big businesses.

And this will indeed be a real boost to the smaller companies looking to invest with their pension fund, as well as directly. In many cases, the directors of these types of companies have pension funds built up from previous employments and it is great they will have more of this to use towards building their business. The old saying “my business is my pension” or “my property is my pension” has never been more true.

Claire Trott is head of pensions technical at Talbot and Muir

Is Osborne's Lifetime Isa the shape of things to come?

In his recent “Budget for the next generation”, Chancellor George Osborne unveiled the Lifetime Isa as a more flexible way for younger people to save over the long term. Instead of choosing whether to save for a home or a pension, the Lifetime Isa has been pitched as a way for people under 40 to do both, subject to a £4,000 annual limit. The Government will top up investments through a 25 per cent bonus.

The move has been widely heralded as changing the face of savings. However, some in the industry suspect the Chancellor has ulterior motives. They see it as no coincidence the Lifetime Isa appeared as the Chancellor pulled back from changes to pensions tax relief – and a potential move to a pension Isa system – so as not to rock the boat ahead of the EU referendum.

So could the Lifetime Isa be a tactic to soften up the public for a future pension Isa system? Could it be a threat to traditional pensions, particularly automatic enrolment? Or is it just a well-intended move to boost savings among younger people?

Creeping towards a pension Isa?

Dentons Pension Management director of technical services Martin Tilley believes this is “without doubt” the introduction of a pension Isa by stealth means.

He says: “It's actually quite clever because everyone was thinking about a 'big bang' switch from one regime to another, whereas there is scope for these regimes to run in parallel and for the terms to gradually be altered to favour the pension Isa route.

“I can see gradual extensions to the age ranges for Lifetime Isas, requirement for contributions to them to be offset against someone's pension allowance and then the slippery slope towards full-on pension Isas.”

Lane Clark & Peacock senior partner Bob Scott agrees the Chancellor could be viewing the Lifetime Isa as a trial run. He says: “If it proves attractive Osborne will be able to say 'we tried a soft launch and look how successful it is. I'll switch off tax relief on pensions and people can save in this instead'.”

However, some are not so sceptical. Talbot and Muir head of pensions technical Claire Trott recognises the danger the new product could be a precursor to a pension Isa system but ultimately feels it is more likely both products would be run alongside each other.

She says: “If it is popular, then it could be used as an excuse to move over to another system but it is such a dramatic move away from the current system,  it would still cause outrage.”

“The fact that it is presented as a 25 per cent bonus versus 20 per cent tax relief will certainly confuse some into thinking the Lifetime Isa is more attractive”

Walker Crips executive director, wealth management and pensions David Hetherton agrees, highlighting future tax technicalities. “I don't think it is a taster for a full pension Isa system as the Lifetime Isa allows you to take tax-free withdrawals after age 60. That's a big loss in tax revenue for the Treasury if this was extended to be a full pension Isa allowing a greater amount to be saved each year.”

Who is the fairest of them all?

One of the most prominent fears within the industry is the apparent attractiveness of the Lifetime Isa, particularly the element that allows funds to be withdrawn to use towards  a deposit for a first home, poses a dangerous threat to future retirement saving as a whole. Could this move signal the death of pensions as we know it?

Intelligent Pensions marketing director Andrew Pennie says the Government has been clever to introduce a bonus of 25 per cent on contributions to Lifetime Isas that is the equivalent to the existing 20 per cent basic rate tax relief on pensions.

“The fact that it is presented as a 25 per cent bonus versus 20 per cent tax relief will certainly confuse some into thinking the Lifetime Isa is more attractive,” he says.

However, he says it is important for consumers to realise there are many advantages to a pension compared to a Lifetime Isa, such as receiving employer contributions and higher-rate tax relief. He adds many people will also need to save more than the maximum Lifetime Isa contribution to achieve their retirement objectives and wonders why anyone would use it to save after the age 50 when the Government stops adding bonuses.

Old Mutual Wealth retirement planning manager Adrian Walker points to other advantages the current pensions system has over the Lifetime Isa, such as the ability to make up lost ground on funding with the carry forward of unused annual allowance provisions. But he, like many others in the industry, sees auto-enrolment as one area most under threat.

A collision course with auto-enrolment?

Former pensions minister Steve Webb, who was charged with the task of implementing auto-enrolment when the coalition came to power back in 2010, is very concerned.

He says: “I would go so far as to say when it comes to improving workplace pension coverage we are in danger of snatching defeat from the jaws of victory.

“Just at the point we have got literally millions more people starting to save in a pension via auto-enrolment and benefiting from an employer contribution, there is a real danger they will be diverted into a shiny new product which looks attractive but which has no employer top-up.”

For Webb, now director of policy at Royal London, the risk is the Chancellor will actively promote Lifetime Isas, leaving auto-enrolment to trundle on quietly in the background. He says the nightmare scenario would be if people continued using Lifetime Isas for retirement saving past age 50, when they will not get a Government top-up.

Trott is also conscious of the huge potential risk. “Tempting people to opt out of auto-enrolment schemes, with the offer of flexibility when the penalties for accessing the funds are so high, seems like a car crash waiting to happen,” she says.

However, Pershing head of wealth client solutions Nick Stebbing believes the new product will not actually have much of an impact.

He says: “Auto-enrolment is shown to benefit most significantly from inertia. There will be a few people who opt out of auto-enrolment to put money into a Lifetime Isa but I expect they  will be few and far between.”

At a glance: Lifetime Isas

• Eligible for savings of up to £4,000 a year, which will qualify for a 25 per cent Government top-up or 'bonus' up to £1,000 a year


• A Lifetime Isa can be opened between the ages of 18 and 40. The Government top-up is only on contributions prior to a saver's 50th birthday


• Accounts will be available from April 2017


• Savings can be used towards a deposit on a first home worth up to £450,000


• Accounts are limited to one per person, not one per household


• Those with Help to Buy Isas can transfer savings into a Lifetime Isa in 2017, or continue saving into both. Only the bonus from one account can be used to purchase a property


• For retirement, all savings can be withdrawn tax-free after age 60


• Money withdrawn before age 60 will see savers lose the Government bonus plus interest and growth. Savers will also be forced to pay a 5 per cent penalty charge


• Government is considering whether to allow Lifetime Isa funds to be withdrawn in full for other life events beyond buying a home. If savers are diagnosed with a terminal illness, they can withdraw the funds tax-free regardless of age


• Government will also consult on adopting a model similar to US 401K plans, where savers can borrow against their Lifetime Isa funds but do not incur a penalty charge
  
  if funds are repaid

Is Osborne's Lifetime Isa the shape of things to come?

In his recent “Budget for the next generation”, Chancellor George Osborne unveiled the Lifetime Isa as a more flexible way for younger people to save over the long term. Instead of choosing whether to save for a home or a pension, the Lifetime Isa has been pitched as a way for people under 40 to do both, subject to a £4,000 annual limit. The Government will top up investments through a 25 per cent bonus.

The move has been widely heralded as changing the face of savings. However, some in the industry suspect the Chancellor has ulterior motives. They see it as no coincidence the Lifetime Isa appeared as the Chancellor pulled back from changes to pensions tax relief – and a potential move to a pension Isa system – so as not to rock the boat ahead of the EU referendum.

So could the Lifetime Isa be a tactic to soften up the public for a future pension Isa system? Could it be a threat to traditional pensions, particularly automatic enrolment? Or is it just a well-intended move to boost savings among younger people?

Creeping towards a pension Isa?

Dentons Pension Management director of technical services Martin Tilley believes this is “without doubt” the introduction of a pension Isa by stealth means.

He says: “It's actually quite clever because everyone was thinking about a 'big bang' switch from one regime to another, whereas there is scope for these regimes to run in parallel and for the terms to gradually be altered to favour the pension Isa route.

“I can see gradual extensions to the age ranges for Lifetime Isas, requirement for contributions to them to be offset against someone's pension allowance and then the slippery slope towards full-on pension Isas.”

Lane Clark & Peacock senior partner Bob Scott agrees the Chancellor could be viewing the Lifetime Isa as a trial run. He says: “If it proves attractive Osborne will be able to say 'we tried a soft launch and look how successful it is. I'll switch off tax relief on pensions and people can save in this instead'.”

However, some are not so sceptical. Talbot and Muir head of pensions technical Claire Trott recognises the danger the new product could be a precursor to a pension Isa system but ultimately feels it is more likely both products would be run alongside each other.

She says: “If it is popular, then it could be used as an excuse to move over to another system but it is such a dramatic move away from the current system,  it would still cause outrage.”

“The fact that it is presented as a 25 per cent bonus versus 20 per cent tax relief will certainly confuse some into thinking the Lifetime Isa is more attractive”

Walker Crips executive director, wealth management and pensions David Hetherton agrees, highlighting future tax technicalities. “I don't think it is a taster for a full pension Isa system as the Lifetime Isa allows you to take tax-free withdrawals after age 60. That's a big loss in tax revenue for the Treasury if this was extended to be a full pension Isa allowing a greater amount to be saved each year.”

Who is the fairest of them all?

One of the most prominent fears within the industry is the apparent attractiveness of the Lifetime Isa, particularly the element that allows funds to be withdrawn to use towards  a deposit for a first home, poses a dangerous threat to future retirement saving as a whole. Could this move signal the death of pensions as we know it?

Intelligent Pensions marketing director Andrew Pennie says the Government has been clever to introduce a bonus of 25 per cent on contributions to Lifetime Isas that is the equivalent to the existing 20 per cent basic rate tax relief on pensions.

“The fact that it is presented as a 25 per cent bonus versus 20 per cent tax relief will certainly confuse some into thinking the Lifetime Isa is more attractive,” he says.

However, he says it is important for consumers to realise there are many advantages to a pension compared to a Lifetime Isa, such as receiving employer contributions and higher-rate tax relief. He adds many people will also need to save more than the maximum Lifetime Isa contribution to achieve their retirement objectives and wonders why anyone would use it to save after the age 50 when the Government stops adding bonuses.

Old Mutual Wealth retirement planning manager Adrian Walker points to other advantages the current pensions system has over the Lifetime Isa, such as the ability to make up lost ground on funding with the carry forward of unused annual allowance provisions. But he, like many others in the industry, sees auto-enrolment as one area most under threat.

A collision course with auto-enrolment?

Former pensions minister Steve Webb, who was charged with the task of implementing auto-enrolment when the coalition came to power back in 2010, is very concerned.

He says: “I would go so far as to say when it comes to improving workplace pension coverage we are in danger of snatching defeat from the jaws of victory.

“Just at the point we have got literally millions more people starting to save in a pension via auto-enrolment and benefiting from an employer contribution, there is a real danger they will be diverted into a shiny new product which looks attractive but which has no employer top-up.”

For Webb, now director of policy at Royal London, the risk is the Chancellor will actively promote Lifetime Isas, leaving auto-enrolment to trundle on quietly in the background. He says the nightmare scenario would be if people continued using Lifetime Isas for retirement saving past age 50, when they will not get a Government top-up.

Trott is also conscious of the huge potential risk. “Tempting people to opt out of auto-enrolment schemes, with the offer of flexibility when the penalties for accessing the funds are so high, seems like a car crash waiting to happen,” she says.

However, Pershing head of wealth client solutions Nick Stebbing believes the new product will not actually have much of an impact.

He says: “Auto-enrolment is shown to benefit most significantly from inertia. There will be a few people who opt out of auto-enrolment to put money into a Lifetime Isa but I expect they  will be few and far between.”

At a glance: Lifetime Isas

• Eligible for savings of up to £4,000 a year, which will qualify for a 25 per cent Government top-up or 'bonus' up to £1,000 a year


• A Lifetime Isa can be opened between the ages of 18 and 40. The Government top-up is only on contributions prior to a saver's 50th birthday


• Accounts will be available from April 2017


• Savings can be used towards a deposit on a first home worth up to £450,000


• Accounts are limited to one per person, not one per household


• Those with Help to Buy Isas can transfer savings into a Lifetime Isa in 2017, or continue saving into both. Only the bonus from one account can be used to purchase a property


• For retirement, all savings can be withdrawn tax-free after age 60


• Money withdrawn before age 60 will see savers lose the Government bonus plus interest and growth. Savers will also be forced to pay a 5 per cent penalty charge


• Government is considering whether to allow Lifetime Isa funds to be withdrawn in full for other life events beyond buying a home. If savers are diagnosed with a terminal illness, they can withdraw the funds tax-free regardless of age


• Government will also consult on adopting a model similar to US 401K plans, where savers can borrow against their Lifetime Isa funds but do not incur a penalty charge
  
  if funds are repaid