Advisers need to look closely at the opportunities and threats of the new pensions tax regime, in order to guide clients through their options at retirement, according to restricted advice firm Towry.
Bob Fraser, senior client partner at Towry, told FTAdviser that people are too focused on the tax consequences of using the new flexible drawdown options from next April.
“From our point of view the planning that should be considered is that this will allow you to better match the level of income you want from your pension based on your spending requirements in retirement.”
“The old GAD rules constrained you from how much you wanted to take, to prevent people emptying the pot, but you can do that now, so you can plan for spending more in the earlier years of your retirement when you’re going skiing twice a year as opposed to the later years when you’re dribbling into your cornflakes.
“It’s not so much looking at the tax implications, it’s more about the opportunities of the flexibility will allow to plan with a client how best to maximise pension benefits.”
The National Association of Pension Funds also responded to draft clauses to the Taxation of Pensions Bill, stating that the key to making these reforms a success is keeping them as simple as possible for pension savers to understand.
“Even with the help of guidance, many scheme members will find the options available to them from age 55 baffling and will struggle to select an appropriate mechanism for turning their pot into an income.
A survey by Napf found that 30 per cent of respondents did not feel capable of deciding what to do with their pension savings and just 14 per cent felt they would need no guidance at all on what to do with their savings.
Mr Fraser added that the reduction in the annual allowance is also something that needs to be addressed, as it makes the carry forward rules all the more important.
Once a lump sum has been taken, the annual allowance will reduce to £10,000 per annum and will be known as the ‘money purchase annual allowance’, with no carry forward allowance. This reduction in annual allowance could create opportunities for advisers over the next few months.
