Advisers in pensions advice limbo

Financial advisers are stuck between a rock and a hard place when dealing with increasing numbers of clients asking about the best course of action ahead of next April’s at-retirement freedoms, according to Claire Trott, head of technical support at Talbot and Muir.

The raft of changes announced in the Budget and put forward for final consultation in last week’s Pension Schemes Bill second reading, are still to be finalised, leaving providers and advisers in limbo.

Ms Trott said she continues to receive calls from IFAs struggling to future-proof recommendations for clients nearing retirement.

“Although the Taxation of Pensions Bill has been issued for consultation, it still needs to go before parliament where it is possible for changes to be made that will effect recommendations made now.

“In addition to this, there is still uncertainty regarding the level of lump sum death benefit charges which isn’t due to be clarified until 3rd December as part of the Autumn statement.”

The government has confirmed it will review the 55 per cent tax charge on pension funds held in a drawdown product at death or uncrystallised after age 75, which will look increasingly onerous after April when savers will be able to withdraw their entire pension at only income tax rates.

Speaking to FTAdviser, Ms Trott said she felt for advisers, who faced danger by either waiting to see the final details of legislation or not making decisions early enough.

She used the changes to capped drawdown as one example: those already taking advantage may get a great deal, but small tweaks to the policy could have big knock-on effects, with advisers ultimately on the hook.

Leigh Clayden, director of Ipswich-based Clayden Financial Planning, echoed the concern, stating his firm has several clients where small changes in the draft legislation would have a significant impact on the advice being given.

Mr Clayden said: “We have the option to wait for the legislation to go through with the risk of running out of time to implement our recommendation, or give advice now with additional disclaimers regarding the possibility of changes before the end of the tax year.”

Ms Trott also took issue with the Liberal Democrats ‘pre-election’ manifesto which pledged to review the case for introducing a single rate of tax relief for pensions, set “more generously” than the current 20 per cent basic rate relief.

“I don’t think they appreciate the implications, how will schemes run this, how will it work in terms of salary sacrifice, there are a lot of unanswered questions and potentially lots of work for employers.”

Another part of the pensions reform that has gone unnoticed by many is an easing of the rules surrounding block transfers from legacy defined contribution schemes. Provisions have been added to the Finance Bill 2014 to allow transfer without the loss of protected tax free cash.

Ms Trott explained that the change allows a block transfer to take place with a single member, provided it takes place between 19 March 2014 and 6 April 2015 with the member becoming entitled to all the pension associated with that arrangement before 6 October 2015.