Exactly how recent legislative changes to pension regulation will play out over the next few years is unclear. The changes by the government in the 2023 Spring Budget means there will no longer be a charge for breaching the Lifetime Tax Allowance (LTA) and clients can now accrue further benefits going forward and build up their pension savings. This may well be replaced if policy changes in the future, creating some inconsistencies in the planning process.
Would a change of government impact pension tax rules?
It’s more than possible that a future government could reverse the recent lifting of the pensions lifetime allowance. The removal of the allowance cap in the Budget was intended by the Chancellor to prompt people to return to, or stay in, work. This has already prompted financial advisers to reassess the retirement planning for some of their clients.
Advisers should be conscious of the potential reversal as this will make additional changes necessary. Should the policy change, it does seem unlikely that the government would do so without a mitigation for those who have already taken advantage of the removal of the cap but what form this will take is unclear.
When will the 2023 Spring Budget pension changes come into effect?
Even until the next general election, there’s no clarity as to the exact way in which pensions will be taxed. The removal of LTA charges came into effect at the beginning of April, however, income tax will still be due on excess which is taken as a lump sum. Whilst the LTA charge has been removed from 6 April 2023, it is scheduled to be fully abolished from the 2024/25 tax year.
The impact of regulatory uncertainty on the delivery of financial advice
This lack of clarity makes retirement planning for your clients more challenging. It is imperative that advisers are aware of the impact of these changes on your clients’ investments, and have a plan to mitigate it. Clients will be looking to you for clarity and confidence in their financial planning.
Lack of a clear path forward into retirement will put stress onto their financial futures, and could undermine their confidence in retirement planning, the advice process and your service. A mis-step at this stage, with very few details being clear, could result in poor outcomes for clients.
Retirement advice can be easier
FEI Investments offers a Decumulation portfolio range so you don’t have to create from scratch an investment strategy that provides both growth and sustainable income for a broad range of risk profiles and investment terms. You can also make use of our Decumulation Illustrator tool to plan your clients’ retirement investments more methodically, and use the visual modelling to create clearer conversations with clients around their retirement plans.
We believe that advisers should be able to look to their strategic partners to help navigate periods of flux. A model portfolio service provider should deliver value for the client and adviser relationship, not just provide portfolios alone.
With FE Investments, our partners have access to valuable resources, such as regular market commentary and insights, produced by our investment team. We aim to help you deliver better client outcomes and grow your businesses. We know this relies on clear and open communication between you and your clients, and we support you in this while leaving the client relationship to you.
Find out more about how FE Investments can support your advice business in delivering retirement advice in our Retirement Guide.
Important information
This is a marketing communication, intended for professional investors only. Not for use by retail investors. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. The value of investments and the income from them may go down as well as up and you may not get back the amount originally invested.
