How can advisers deliver better retirement advice with pension tax rules unclear?
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.
Important information
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