'Pension advice needs to come with a health warning for next 12 months'

According to the guests on the FTAdviser In Focus podcast, chancellor Jeremy Hunt's decision to abolish the lifetime allowance, raise the annual allowance and raise the MPAA are likely to achieve the aims they set out to achieve; to keep people in work for longer, or entice them back into work.

They will also have positive effects on pension saving and inheritance tax planning, they say, but caution advisers will need to watch out for possible changes to both the LTA and IHT under a different government after the next general election.

Labour's staunch opposition to the tax measures "will make people nervous," said Nimesh Shah, chief executive of Blick Rothenberg.

"We've already seen some reaction from independent financial advisers and people that wanted to contribute to their pension, saying 'we need to have a mad rush now between now and the next election to try and get as much as we can into our pensions to lock in those current benefits with the higher LTA and the IHT protection as well'.

"Because those things are probably up for grabs," he said.

The Labour party, which regards the latest changes as a giveaway to the rich, could move into government within the next two years, potentially reversing the measures.

Richard Stanley, partner at the Nottingham office of UHY Hacker Young, said pensions should not be used as a "political football", and even though he thought it likely Labour would bring "something" back should it get to power, he said it would not be the LTA at its current level, "otherwise it makes a mockery of the legislation that's going to be introduced now and it would mean that nobody could really give good concrete financial advice to individuals that are now looking to invest to maximise the benefits that they may be able to take in the longer term."

Nevertheless, he said "any pensions advice now probably needs to come with a government health warning written on the side of the packet almost."

But Stanley said Labour was somewhat missing a point in its criticism: "I do take the point that Labour are making that I think the average man on the street will see this as a giveaway, but when you start to look at the cold facts of what the chancellor is trying to achieve, whilst he has taken away the LTA [...] if you get past the age of 75 then that [pension] pot is going to suffer income tax, potentially at 40 or 45 per cent when it's withdrawn.

Any pensions advice now probably needs to come with a government health warning written on the side of the packet.Richard Stanley, UHY Hacker Young

"So the only tax effect in reality is probably a differential of only 10 per cent, which if the pension pots are now going to get bigger and bigger, which I would expect them to, it means that the overall tax take is probably going to be in line or very similar to that which the government would have had previously.

"So while I think it is a bit of a giveaway, I think in the long term it will start to average out as pension pots increase."

Shah agreed, adding: "What Labour haven't quite got their heads around [...] is the tax-free amount that somebody can take out of their pension is still capped at 25 per cent of the original LTA, so you're still capped at £268,000. 

"It's not the big giveaway that maybe that Labour are proclaiming that it is because of that restriction on the tax-free lump sum."

Shah also pointed to the annual allowance, which remains in place albeit at a higher rate of £60,000, which restricts how much somebody can put into their pension tax free every year.

To hear our guests' thoughts on whether the chancellor should have reformed death benefits, what impact the continued freeze of income tax brackets has on workers, and what the chancellor might have in store for VCTs and EISs, click on the link above.

carmen.reichman@ft.com