In our latest Parameters survey, we asked you what effect the speculation and uncertainty around the upcoming Budget has been having on clients. Fiona Bond reports.
Clients are feeling overwhelmingly concerned about their personal finances in the run-up to Labour’s inaugural Budget, the findings from the Professional Paraplanner October Parameters Survey have revealed.
Nearly half (47%) of paraplanners said their clients had shown “a lot of concern” regarding potential personal tax changes in the Budget, while the remaining 53% said clients had shown “some concern.”
Mounting press speculation has fuelled fears, paraplanners said, with firms reporting the highest number of clients contacting them pre-Budget.
“There is a lot of concern over articles in the media about various changes to pensions, capital gains tax, inheritance tax and more. Lots of clients are seeing these articles as gospel rather the opinion pieces they are,” one paraplanner told Professional Paraplanner.
Clients are particularly concerned about changes to pensions tax-free cash, with the rumour mill suggesting Chancellor Rachel Reeves could seek to tinker with the current amount of £268,275. According to the findings of the survey, 95% of paraplanners said tax-free cash was their clients’ biggest area of concern, followed by capital gains tax (70%) and inheritance tax (48%), with the latter two often viewed as a “tax on the wealthy”.
Just over one in three (31%) paraplanners said higher rate pensions tax relief was the biggest source of concern for clients, with a similar number (29%) citing pension death benefits. Just over a fifth (21%) said business relief was clients’ key concern.
Panic spurring action
The survey showed that the growing speculation and worry had driven lots of clients to make decisions based on what might be, rather than facts.
The most common course of action among clients appears to be accessing their tax-free cash earlier than planned, with more than four fifths (82%) of paraplanners saying they had seen clients try to pre-empt changes by taking their cash early.
“Clients are particularly worried about the potential loss of tax free cash or it being severely limited,” one respondent explained. “A number of clients have sought to access the tax free cash ahead of their previous planned retirement dates.”
A fellow respondent echoed the sentiment, noting that clients are worried that changes could come into effect immediately rather than be implemented at a later date.
“Clients are panicking and making poor decisions on things that may or may not happen,” one respondent told Professional Paraplanner.
Paraplanners noted that a large number of changes to pensions over the past 10 years had made it difficult to remind clients that pensions are a long-term investment and to avoid knee-jerk reactions.
Meanwhile, nearly half (49%) of paraplanners said their clients had been selling assets that generate capital gains taxin a bid to get ahead of any potential changes.
“Clients have certainly looked to use up their CGT allowances and potentially create paper losses by buying and selling investments to carry losses forward,” said one.
In addition, one in three paraplanners (30%) reported higher rate tax paying clients putting more lump sums into their pensions.
One respondent blasted the government for allowing such uncertainty to rise, forcing clients to take action often against advice.
“This government should have scheduled a budget within 30 days of coming into power. In 36 years in financial services I have never seen such panic over a budget, leading to clients crystallising enormous capital gains, in one case over £1m,and rushing to take their tax-free cash from pensions. It is a total shambles.”
They added that changes in client behaviour had led to huge workloads during VCT season, adding extra pressure on the firm.
Another paraplanner agreed that panic was creating an additional burden for firms.
“Clients that have drifted along with total inertia over years of not bothering to do things with their pensions have been spurred into action creating a great deal of stress at this end. Other clients with large embedded capital gains are opting to pay the known amount of tax now expecting this will increase post budget,” they said.
Quelling fear
While clients have been spooked by ongoing media reports of changes to come, the survey found that paraplanners were taking a number of approaches to deal with rising panic.
One firm said it had been proactively contacting some clients and recommending they crystallise gains on investment accounts prior to the Budget, while others have taken a more cautious approach.
“We are only allowed to provide advice based on a client’s objectives and we are unable to give advice based on speculation. We cannot agree to withdrawing tax free cash from pensions based on what “might” happen,” one explained.
Others have sought to find a middle ground, with one respondent acknowledging that “some CGT planning and making pension top ups makes sense” but actively discouraging clients from accessing their tax-free cash unless they needed the funds anyway.
