Half of firms (49%) offering retirement advice have seen an uptick in demand for their services as a result of changes in pensions tax allowances, research from Aegon has revealed.
The research was carried out in late 2023 when HM Revenue & Customs had not yet published the final details of the way in which the Lifetime Allowance is being removed from legislation. Advisers were left contending with uncertainty until the Finance Act was published at the end of 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 complexity, says Aegon, with the Labour Party suggesting it would reinstate the allowance if elected.
The pension specialist said advisers face a “major challenge” in offering personalised recommendations to those clients affected by the change as the end of the tax year approaches.
Advisers will need to support 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. They will also need to look 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.
In addition, advisers will also need to explain 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. 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.”
Cameron said that with many different implications, advisers face a “busier time” than ever as the end of the tax year approaches.
