Wealth managers prepare for pension client rush

Financial advisers, wealth managers and law firms are eagerly anticipating an influx of clients seeking advice after Jeremy Hunt, the chancellor, announced generous changes to pension savings tax allowances in his Budget.

Helen Morrissey, head of retirement analysis at the fund supermarket Hargreaves Lansdown, said Hunt had brought a “breath of fresh air” to pension planning which had been hugely complicated by previous restrictions on annual savings and the total allowance.

“At one stroke the chancellor has simplified the pension system for everyone, not just higher earners,” said Morrissey.

Lee Clark, financial planner at wealth manager RBC Brewin Dolphin, said any future government would find it problematic to reverse the abolition of the £1.073mn lifetime pension saving allowance which had discouraged some high earners from continuing in employment.

He noted that increasing the annual pension savings allowance from £40,000 to £60,000 could benefit a high earner by allowing them to set aside funds for the pension pot that would otherwise be taxed in a higher tax bracket.

“Someone earning £160,000 a year could make a £60,000 gross pension contribution and see their adjusted net income fall to £100,000. This would could enable them to avoid additional-rate income tax and reinstate their tax-free personal allowance (which is tapered once adjusted net income exceeds £100,000),” said Lee.

Although the abolition of the lifetime allowance on pension savings was aimed primarily at encouraging medical professionals to continue working in the NHS, Andrew Dixon, head of wealth planning at SG Kleinwort Hambros, doubted whether it would influence the decision of other high earners about when to retire. “From a financial planner’s perspective, the more you can save in a tax-efficient manner the sooner you can generally retire,” he said.

While the Budget contained few other measures to boost personal investing, wealth managers think the changes in the pension allowances could encourage investment.

Trevor Greetham, head of multi-asset at Royal London Asset Management, said he expected more better-off workers would now feel encouraged to seek higher investment returns without worrying they might be on the hook for an additional tax bill.

Venture capital trusts which provide tax breaks have historically benefited from the gradual reduction in the value of the lifetime pension savings allowance since 2011-12. The Association of Investment Trust Companies said that it did not expect demand for VCTs to suffer as high earners were still restricted in terms of how much they could save into a pension above the new £60,000 annual limit — by strict tapering rules.

“VCTs are a well-established and trusted scheme and high earners will still be looking for tax-efficient ways to invest. VCT performance has been strong with the average VCT returning 109 per cent over 10 years. VCTs also provide investors with the ability to invest in early-stage innovative companies,” said the AIC.

The approval of new medicines and medical devices will be speeded up after the chancellor said that products which had been approved by other trusted regulators could be fast-tracked for sale in the UK with a new near-automatic sign-off process.

One analyst who declined to be named said this reform could be a “game changer” for London-listed pharmaceutical companies, including AstraZeneca and GSK. Such a shift could make such groups more attractive to investors, including retail savers.


Business Asia
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