Pension advisers need to be on the look-out for a new flat rate of tax in the coming Budget, the head of pensions at Fidelity International has warned.
Speaking to Emma Ann Hughes, editor of FTAdviser.com and Financial Adviser, Richard Parkin said: “It seems likely it will be flat rate but we cannot rule out the possibility that he might go for Isa-style pensions.
“It depends on what flat rate he goes for. If the Chancellor goes for 25 per cent as a flat rate, then people who pay higher-rate tax in retirement will be slightly worse off being in a pension than not, but for people paying base-rate tax, being in a pension is still a good thing.
“What we are really looking for is to make sure that pension saving is still worthwhile. It might be easy for people to say ‘it’s not worth saving into a pension any more’ but what we are telling people to look out for is that, by stopping paying into a pension, they are giving up employer contributions and this would have a much bigger effect than losing tax relief.”
Fidelity International also reported an increase in pension holders taking action ahead of the reduction to the lifetime allowance in April this year.
He said: “We are still getting a huge number of calls. After the Autumn Statement we got a lot of calls when it became clear the change was still going ahead.”
Mr Parkin said the conversations have been centred on two things, mostly. The first is people moving into drawdown to crystallise and manage what income they take, and secondly, people thinking about going for the protection regime.
The other big thing that is causing some confusion is the tapered annual allowance.
This is the reduction of how much people can put into pensions for higher earners and this is “really confusing individuals and employers as well”, Mr Parkin said.
However, he believes advisers have a “real opportunity here”, to help people make the most of previous years’ unused allowance - and do this before the 16 March, which is the day of the Budget.
When it came to the million smaller employers auto-enroling this year, Mr Parkin added: “It is a shame the messaging around auto-enrolment has changed. ‘We’re all in’ was a good message and now it has changed to ‘Do it or we’re going to fine you’ this is a bit stick rather than carrot.”
