It is anticipated that the pension tax changes announced by chancellor Jeremy Hunt are likely to create significant demand for advice, predominantly from high earners or high net worth clients.
Not every client will be impacted by the rules, but huge changes like the ones announced last week create opportunities and also reasons to revisit plans and make tweaks.
Ian Cook, chartered financial adviser at Quilter, says: "Advisers must help clients that they think are going to be impacted by these changes reassess their financial plans.
"For those who are going to impacted by the rules, financial advisers must make time to help them decide how best to approach the change in rules even if that actually results in them doing nothing for the time being."
Much needed advice
Harry Bell, director of financial planning at Charles Stanley, says the potential benefits are “huge”, which is why it will be important for HNW individuals to get high-quality advice.
And with the Labour Party stating it would reinstate the LTA if they were victorious in the next election, financial planners are likely to be busy for quite some time.
For many HNW individuals, pension funding has been off the table for a long time.
But the tax changes announced now bring pensions right back to the forefront of the conversation, Bell says.
He adds: “Carry forward will also be able to be used, so that opens up the opportunity for considerable contributions into pensions that would otherwise have been viewed as a non-starter.
“With the reduction in capital gains tax allowances, this makes pension contributions, alongside investment bonds, much more attractive. For those with DB pensions breaching the annual allowance and LTA, it does make staying in work more attractive, so this creates opportunity for further investment from excess earnings.”
Pension planning is a primary point of discussion when meeting new clients, in addition to meeting existing clients for their annual reviews due to the tax efficiency. And pensions have always played a crucial role in inheritance tax planning due to pensions generally being outside of the estate.
Following the abolishment of the LTA, Alice Shaw, wealth planner at Succession Wealth, says she expects pensions to play an even bigger role in inheritance planning going forward.
She adds: “Even those with no relevant earnings have the capacity to contribute £2,880 (net) into a pension annually, which will then be grossed up to £3,600 after tax relief (up to age 75).”
Navigating new rules
Scott Gallagher, director at Rowley Turton, says the removal of the LTA, albeit with the tax-free cash amount still being limited, may require individuals to re-evaluate their retirement plans and consider alternative strategies for managing their pension savings.
As a result, financial advisers will need to provide guidance and advice on the most appropriate course of action for their clients, taking into account their individual circumstances and retirement goals.
