Advisers will benefit from an advice demand windfall as market conditions build a “pensions perfect storm” and consumers will realise the “value of advice has never been greater”, Aegon UK chief executive Adrian Grace has said.
Grace said pension flexibilities coupled with recent volatile market conditions of late will leave even financially savvy consumers turning to advisers for help.
“The market volatility of the last ten months means that both those saving for retirement and those who opted for non-advised drawdown last April will be wondering how well equipped they are to make decisions in difficult markets,” he said.
Aegon’s analysis of a balanced drawdown portfolio indicates investments are down around 9% since last April.
“Faced with these markets, many will be turning to an adviser for help as to how they balance their new flexibility with income security.
“Options like guaranteed drawdown, which many consumers won’t be aware of, can help.”
Tax relief changes
Grace said changes to pensions tax relief, which he thinks “appear more than likely” in next month’s Budget, could further impact savers, particularly higher earners.
He said: “Advisers are set to benefit from an advice windfall as market conditions build to deliver a pension perfect storm. The pension freedoms have provided a huge advice boost around income options, investment decisions and passing on wealth through the generations.
“Next month’s Budget could see significant changes to pensions tax relief, adding further demand for advice, particularly from higher rate tax payers looking to optimise their savings.
“Combined with one of the most volatile starts to the year in recent stock market history, the value of advice to balance security with flexibility has never been greater.”
His comments came as the company published its annual results, which saw UK income before tax decrease 8%, from £173m in 2014 to £160m last year.
However, Grace said the firm had benefited from the growth in demand for advised drawdown and saw assets grow “significantly” as a result of people seeking to manage their retirement income through its platform.
Assets under administration on Aegon’s platform were up 134% in the last year, from £2.7bn to £6.4bn. Total assets under management for drawdown were up 88% in a year, to £0.9bn.
Grace denied previous suggestions its Dutch owner was preparing to sell the UK business, saying Aegon was “completely committed to the UK”.
Big changes
The government reformed the retirement income space following Budget 2014, to allow everyone saving in a defined contribution scheme full access to their savings from age 55.
The pension freedom reforms also included changes to death benefits, which gave people greater freedom to pass on wealth through the generations with greater tax efficiency.
In addition, the Treasury has been consulting on new options for pensions taxation over the past few months, with a view to cut his £35bn pension benefits budget, the outcome of which is expected to be announced in the March Budget.
George Osborne is looking at ways to change the current system of awarding tax relief at the point of saving and accumulation (EET) to one similar to ISAs (TEE), which would see pension savings taxed before they reach the pensions pot and tax-free at withdrawal. A third, and some think preferred, option would be to introduce a flat rate of tax relief for all.
Osborne already cut the lifetime allowance from £1.25 to £1m in last year’s Budget to take effect this April.
Some advisers and providers suggested any changes to pension taxation in the Budget could be made with immediate effect as the Chancellor seeks to prevent a stampede of tax-free pension top-ups.
But Grace suggested this was unlikely. “The government really needs to give all the parties time to adapt as changes to pension tax relief will require employers to update their payroll systems and the tax authorities would have a big task that I expect would take twelve months or more,” he said.
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