Hollands says potential changes introduced by the government enabling private clients pension funds to invest in illiquid assets such as infrastructure could have a more consequential impact on asset allocation within pensions.
Indeed, Matt Ralph, a partner in the financial advice team at Castlefield, says that while some clients may respond to the changes by increasing their contributions or investing in riskier assets, it could also be that clients who have breached, or are close to breaching the LTA decided to withdraw money now to lock in the tax gain in case a future government changes the policy.
He says clients who want to own less liquid assets may be better suited to collective defined contribution funds, rather than any other kind of pension, as those vehicles are designed for the purpose.
Alternative remedies?
One way in which the changes could impact providers is it draws investors with tax efficiency as a priority away from existing structures such as venture capital trusts and the Enterprise Investment Scheme.
As part of his role with Evelyn, Hollands runs the VCT business of the Bestinvest direct-to-client platform.
He says: “It is possibly the case that some of the people who have been dabbling in VCTs or EIS to achieve 30 per cent income tax relief may feel less inclined to do so now there are increased pension funding options.
"However, those schemes are targeted at very high earners, many of whom will still be severely restricted from adding to pensions because of the continuation of the tapered pensions allowance.”
Ralph says clients will differentiate between the tax efficiency of VCTs and pensions on the basis of risk, that is, the tax reliefs associated with VCTs only accrue because one is investing in higher risk assets, while the pension tax break can be accessed while investing in relatively mainstream asset classes.
He adds that changes to the money purchase pension death benefits announced in 2016 has also increased the attractiveness of pension pots as inheritance tax planning vehicles, potentially reducing the appeal of some alternative tax-efficient investment products.
Ross-Field says: “VCTs and EISs were very attractive and the natural home for those who had their pension funding limited by the LTA. The scrapping of this limit and the increased annual contribution allowance should see greater funds into pensions at the expense of VCT/EISs.”
David Thorpe is investment editor at FTAdviser
