June 21, 2019
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Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.
New research reveals a third of people who file a self-assessment return do not pay as much tax as they should, allegedly creating a loss of £8bn a year to the Treasury. Although HMRC estimates that £48bn of self-assessment tax should be paid annually, £8bn of this is not collected due to under-reporting of income by taxpayers. More than 10 million people file a self-assessment tax return each year. (From Financial Times, 14 June 2019)
Middle-aged money mules
A new report by UK fraud prevention service Cifas shows that middle-aged people are increasingly being lured into becoming “money mules”, with the largest rise of money mule activity apparent in the 41-60 age group. Fraudsters are believed to be targeting people without a criminal background, as many of these people do not initially realise they are committing a crime. Unwitting fraudsters could face prison time, as well as impediments in their ability to manage their finances. (From BBC, 18 June 2019)
Poor pension forecasts
The government has confirmed that approximately 360,000 people have been given incorrect forecasts of their state pension benefits, with some online forecasts misleading people by £1,000 a year. The electronic records are at risk of missing out on periods when people opted out of the state earnings-related pension scheme in the 1980s and 1990s. Paper-based forecasts, however, are thought to be much more accurate. (From Money Week, 14 June 2019)
Creditors kept at bay
New laws are set to protect people with escalating debt by having their interest payments frozen and allowing them time to seek advice on how to manage their repayments within 60 days. Bailiffs or creditors will have to allow them to reschedule payments in this time period. This comes after Labour pledged in 2017 to offer people a breathing space to help manage debt problems. (From The Times, 19 June 2019)
In the midst of increasing bank branch closures, traders in Halesworth, Suffolk, have set up their own WhatsApp “change exchange” to replace the town’s lost banking services. The message system allows small business owners to swap notes for coins amongst themselves. The innovative exchange is said to be a good alternative to getting change from the post office or visiting a mobile bank, and comes after the town lost its last two bank branches last year. (From BBC, 19 June 2019)
Since the introduction of the pension freedoms in 2015, the advice employees receive ahead of cashing in their final salary pension for a lump sum has received a fair amount of scrutiny in the press.
The topic is high up on most advisers’ agendas, and the temptation for employees to access their Defined Benefit (DB) scheme has filled numerous advice columns in the national personal finance pages. There is one point that is always agreed on: good advice is crucial before making any decision on the topic.
Advice is, in fact, mandatory before transferring your DB pension scheme – which makes the verdict of the FCA’s recent investigation into DB advice this week even more damning. Seven in ten (69%) of all scheme members advised in the past four years had been recommended to transfer out of their pension, and out of the 2,426 firms probed, nearly 60% recommend 75% or more of their clients to transfer.
The FCA has called this level of recommendations “unacceptable” and maintains that when assessing transfers, advisers should always start from the position that advice is not suitable for most clients. A statement by the regulator reads that the current state of advice is “deeply concerning and disappointing”, pointing to the large number of people who have been mis-advised in the past couple of years.
Now, a crackdown on financial advisers working on DB pension transfers is on the horizon. The regulator will begin by writing to all firms where the potential for harm has been identified in the data the firms have supplied, in a letter which will also set out the FCA’s expectations and the actions firms should take.
Given the huge amount of media attention DB pension transfers have received in the past years, this is unlikely to go off without a hitch for some firms. If actions are required, and not taken in the timely manner required, some advisers may well face having to answer questions in a manner more public than they would like.
Getting ahead of the trend and issuing communications demonstrating their commitment to thorough DB pension advice is key for advisory firms wanting to distance themselves from the current media storm – and the accusatory gaze of the regulator.