More than a third (34%) of paraplanners believe the outcome from the Budget was worse than expected for clients, the findings of Professional Paraplanner’s Parameters Survey have shown. Fiona Bond reports.
The rise in National Insurance for employers and inheritance tax changes for agricultural assets and pensions were both cited as having a negative impact on clients, with one paraplanner labelling Labour’s inaugural Budget as “short-sighted” resulting in lower growth and higher inflation.
One paraplanner told Professional Paraplanner: “Changes to inheritance tax, pensions and Business Relief have had major impacts on a lot of our clients. Whilst there was a lot of conjecture around what might and might not change, I think the impact felt is probably bigger than expected, mainly in relation to clients who expect to pass on an inheritance.”
Tinkering with pensions has long been a source of contention among advisers and one paraplanner pointed out that the changes in the Budget will have a “strongly negative effect” on clients who have been retaining their pensions for the purpose of estate planning.
Another said: “Pension changes and them being part of IHT is a real game changer. It was not what I expected and the difference I’ve been seeing lately is staggering – more than any other tax change that I can recall.”
The sentiment was echoed by a fellow respondent, who said the initial picture was “bad enough” but the “actual outcome will be worse for clients”, particularly farming businesses.
However, 39% took a more positive approach, believing the outcome was “much as expected” and just under a quarter (23%) believe it was better than expected.
Several paraplanners said that media speculation in the run up to the Budget had created a picture of “doom and gloom”, preparing them the worst.
“I thought the Capital Gains Tax rate would be aligned with income tax rates so that was better than expected. And I expected employer National Insurance to increase and IHT to be re-applied to pensions,” one respondent explained.
Another described the media speculation in the run-up to the Budget as a “storm in a teacup”, noting that client’s concerns about Capital Gains Tax and the reduction or abolition of the tax free pension lump sum proved unfounded.
“We predicted a lot of what was changed but felt changes would be more detrimental than they actually were. Personally, I believe the government deliberately leaked doom and gloom, to soften blow when it finally was announced,” one paraplanner commented.
Differing approaches to client reviews
As a result of the changes in the Budget, the majority of paraplanners agreed that client plans would need to be reviewed, however, there was a differing of opinions around the best approach. One in six (16%) paraplanners said a large number of client financial plans will need reviewing straightaway, while 3% said a large number will need action straightway. One in three (29%) said “some’ plans will need reviewing straight away, while just over a fifth (22%) believe some client plans will warrant immediate action being taken.
“The old adage of touch the pensions last for inheritance tax planning is now defunct, so many clients need reviews within the next three months to reevaluate income plans going forward,” said one respondent.
Another pointed out that clients had expressed concern before the Budget and will want a review for their peace of mind.
However, the vast majority (56%) said clients’ plans will be reviewed at the annual review, as most changes in the Budget will not come into force until 2026 and 2027, providing enough time to allow the dust to settle and offer paraplanners a better idea of the full implications of the changes.
One respondent said: “The biggest change is IHT on pensions and we still have some time until that kicks in but between now and then there will be a lot of work required around clients where the pension funds were effectively ring fenced for IHT and succession planning.”
Another commented: “There is a lot to do, particularly for those who have been using their pension as an IHT planning vehicle. However, there’s still a consultation period ahead of us, and more detail is needed before making adjustments to most clients’ financial plans.”
Almost all paraplanners (95%) agreed that the changes to IHT and pensions would have the biggest impact on clients, closely followed by the increase in CGT rates (80%).
Almost half (49%) of paraplanners said the changes to Business Relief would have the most impact on clients, while a third (34%) cited the extended freezing of IHT nil rate bands for a further two years. A fifth (19%) also felt the increase in employers NI contributions would have a major impact.
“Employers’ NI increases will have biggest effect on employees’ standard of living in the medium to long term for anyone employed in the private sector,” one paraplanner added.
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