Inheritance planning ‘booms’ post-pension freedoms

Inheritance planning ‘booms’ post-pension freedoms

Almost two thirds of advisers say their clients have changed their retirement plans to exploit the loosened death benefits rules as a result of pension freedoms, according to a survey by Prudential.

Half of the 101 advisers surveyed by Prudential also said they had seen a spike in final salary transfer enquiries for inheritance tax reasons.

The findings come 15 months after reforms to pensions people enabled people to pass on wealth to non-dependents, and abolished the so-called “death tax” on retirement savings.

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One third of the advisers surveyed by Prudential reported an increase in enquiries specifically about inheritance tax (IHT) planning since pension freedoms were introduced in April 2015, while 52 per cent said they expected demand for IHT advice to increase over the next 12 months.

However, while Prudential said pension freedoms and the abolition of the death tax were “major reasons” for the increased interest in inheritance tax advice, increasing house prices was the number one reason.

Les Cameron, tax specialist at Prudential, said the freezing of the IHT nil rate band in recent years had seen inheritance tax planning “fast becoming a major growth area for advisers and their businesses”, adding pension freedoms had “clearly further accelerated that growth”.

“The value of IHT receipts is rising and we are seeing an increase in the number of estates that are now liable under this tax. In basic terms, more families are paying more in tax,” he said.

“It is crucial that advisers assess the impact of all pension schemes held by their clients and adopt a holistic approach to their overall retirement, tax and estate planning.

“Not all schemes will have pension freedom friendly death benefits and all are certainly not IHT-free, therefore carrying out this due diligence is crucial.”

He said advisers were “ideally placed” to help clients both maximise retirement income and ensure their assets are passed on to beneficiaries in a tax-efficient way.

Gretchen Betts, a financial planner with Broadway Financial Planning, said the biggest IHT planning change since pension freedoms was in nomination of beneficiaries.

The new rules lift the restriction on passing wealth on to non-dependents, and Ms Betts said clients have been nominating adult children alongside dependent spouses.

She estimated around 40 per cent of her clients had made a change of this sort.

On the subject of defined benefit transfers, however, she said there may have a slight increase in interest, but that her firm had not facilitated any transfers.

She said DB trasnfers were something that made her “very, very nervous”, adding they were only really appropriate for people who were ill and unlikely to live long enough to get the full benefit of their DB pension.