Half of firms offering retirement advice have seen increased demand for their services as a result of changes in pensions tax allowances.
These changes include the abolition of the lifetime allowance increase in the money purchase annual allowance (MPAA). These changes affect many wealthier clients, including directors of small business and those who have built up substantial pensions through workplace schemes.
This research, commission by Aegon was carried out in late 2023, before HMRC had published the final details on how the lifetime allowance was to be removed from legislation. Further details were published at the end of November.
Aegon says advice around the lifetime allowance continues to be fraught with difficulty as the Labour Party has previously said it would reinstate it if elected, with some exceptions for NHS staff.
Those affected by these changes face a number of challenges and are looking for support on key issues. Areas on which they are seeking 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.
Aegon’s pensions director Steven Cameron says: “The abolition of the pensions lifetime allowance 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.”
