Pensions  

Advisers urged to beware consequences of LTA cut

The associate director of Oxfordshire-based Oak Tree Wealth Management said advisers should make a list of the pension assets of each client, regardless of whether they are handling their pension affairs or not, before the lifetime allowance is cut from £1.5m to £1.25m in the next tax year.

Mr Jones said clients could increasingly fall foul of changes to the threshold as future governments seek to raid pensions as a source of taxation in austere times.

He added: “I do not see any prospect of the lifetime allowance being raised and, if anything, it should continue to fall. If a typical person in their early to mid-40s has a pension pot of £500,000, it would be very likely that they will get caught out when it comes to retirement.”

Article continues after advert

Mr Jones said that clients who do not have enhanced protection against this eventuality would be at risk of incurring a six-figure tax bill, adding: “They could well seek huge sums for compensation for not receiving the correct advice to avoid that liability”.

Scott Gallacher, director of Leicestershire-based Rowley Turton, said: “One would hope that advisers would be aware of this danger but it all depends on where the liability falls.

“First there is the question of whether or not this would be covered under the ongoing service agreement post-RDR, then there is a grey area concerning whether it falls under regulated advice or tax advice.”