New research from NextWealth commissioned by Aegon UK1 shows that half of firms (49%) offering retirement advice are seeing an increase in demand for their services as a result of changes in pensions tax allowances, including the abolition of the Lifetime Allowance and the increase in the Money Purchase Annual Allowance.
The research was carried out in late 2023 when HMRC had not yet published the final details of the way in which the Lifetime Allowance is being removed from legislation. Advisers were left in limbo until the Finance Act was published on 27 November 2023, which offered some relief as previous plans to tax beneficiaries who took death benefits as income were scrapped.
However, advice around the Lifetime Allowance continues to be fraught with difficulty as the Labour Party initially said it would reinstate it if elected, with some exceptions for NHS staff.
Advisers face a major challenge in offering personalised recommendations to those clients affected by the change as the end of the tax year approaches.
Areas of advice include:
- Supporting those at or above the previous allowance who had registered for protection before 15 March 2023 to consider paying in additional contributions in the 2023/24 tax year without losing protections.
- Looking at the pros and cons of crystallising benefits this tax year or ahead of the Election for those at or above the previous allowance without protection.
- Explaining the new tax-free lump sum allowances applying on lump sums available when benefits are taken and payable on death.
Steven Cameron, Pensions Director at Aegon, said:
“The abolition of the pensions Lifetime Allowance, with the details announced only very recently, will pile pressure on advisers as the tax year end approaches.
“Some clients will want to discuss if the removal of the allowance means it makes sense to pay further contributions into their pension this tax year. This could prove very tax efficient although they need to understand that if already over the previous lifetime allowance, they’re unlikely to accrue any additional tax-free lump sum entitlement.
“Others may want advice on the pros and cons of crystallising their pots now, particularly if already above the lifetime allowance and without any protections. While there is no immediate need to do so, particularly before the end of the tax year, some may have concerns that an incoming Labour Government could reinstate the allowance, meaning they have a limited timeslot for crystallising without facing a lifetime allowance charge.
“Some clients may also have read about the previously proposed changes to the tax treatment of death benefits, and advisers will be able to offer assurances that these were scrapped, albeit with some new complexities around allowances there too.
“With many different implications depending on personal circumstances, advisers face an even busier time than usual as the tax year end approaches.”
Methodology:
1The latest research was conducted by NextWealth in November 2023 with 200 financial advisers. Further details are available upon request.
About Aegon UK
In the UK, Aegon offers pension and investment solutions to over 4 million customers. Aegon employs over 2,000 people in the UK and together with around 600 people employed by Atos, we serve the needs of our customers. Figures correct as at 31/12/2022. More information: www.aegon.co.uk
Aegon UK is part of the wider Aegon Group, based in the Netherlands, whose roots go back to the first half of the nineteenth century. Since then, Aegon has grown into an international business, with over 29 million customers in multiple countries and over 747.4 billion EUR of revenue generating investments (as at 30/12/2022). More information on www.aegon.com
The information in this press release is intended solely for journalists and shouldn’t be relied upon by any other persons to make financial decisions.