A revolutionary Budget for savings

A revolutionary Budget for savings

With a revolutionary Budget for savings, the financial services industry faces one of the biggest communications challenges in its history. Customers, clients, investors and savers have more choice now than they have had for at least a couple of decades and perhaps more.

There are huge opportunities but as with any liberalisation, there are big risks too. Plotting the correct course, and encouraging clients to do so too, is a huge responsibility.

So here are a few thoughts from Space 01 on the changed landscape.

Our view is that the Isa changes probably represent the most easily explained of the reforms. Equity and cash Isas will be interchangeable, complete with the big upgrade to the £15,000 limit, this summer. It is certainly fascinating to see the big high street banks promise to extend their fixed rate offers into the summer to encompass the increased threshold. It probably represented more of a strain both administratively and balance sheet wise for the banks than is widely appreciated.

When it comes to stocks and shares NISAs, there are risks to be explained, but we think that cash Isa investors are unlikely to convert en masse to equities.

More likely, experienced investors who have big historical cash savings may want to manage their savings and investment portfolios more holistically. That can only be good news for the platforms, but also financial planners.

It certainly doesn’t preclude investment houses from crunching some ideas about how to convince big cash savers to consider investing a proportion in stocks and shares. Such an opportunity has always existed; it is just there is a lot more freedom now.

But our view in the Space 01 office is that for this year at least what we are likely to see is a double Isa season, aimed at and taken advantage by wealthier savers and investors.

It will be intriguing to see what the advertising and marketing strategies look like, as firms bid to scoop up the extra cash.

Yet by far and away the biggest challenge will be to take account of the new pension freedoms. This has changed everything not just about converting a pension into an income. It is also likely to radically alter investment strategies too.

Investors are asking the question (or asking again) what is better, the Isa or the pension? We suggest the answer remains that both have their place, while happily both are improved versions of their former selves after the Budget.

Investors have more choice – the industry needs to consider how to present those choices are simply as possible.

The new pension freedoms encompass less restrictive drawdown and will soon offer the ability to take your whole pension as cash. Yet we also think many people will want to secure an income. The case for annuities, especially enhanced annuities, perhaps a little later in life may need to be restated or even reworked and rephrased.

Our view is that the risks are pretty obvious, certainly in an advisory context, but advisers at least will be able to warn people not to run down their funds completely if they lack other sources of income. Arguably supplying such information is even more challenging in the execution only world.

The Government and the regulator can help by telling us exactly what guidance around the retirement decision looks like for retail pension investors, for those in company schemes and of course people with lots of different plans too.

This is a huge challenge, and we will be researching the views of clients and advisers and combining them with our knowledge of providing effective compliant communications. We will suggest a few of our ideas and your ideas on this blog in the next few months.

Yet one thing we are pretty sure of is that the industry has to come up with intelligent, compliant, informative messages to explain the changes, the huge opportunities and the increased risks.

If we get things right, the rewards are huge.

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