Having various pension allowances is too complicated, puts individuals off saving and even causes advisers to struggle at times, according to this week’s guests on the FTAdviser podcast.
Rachael Hall, independent financial adviser at Sandringham Medical, said because of the complicated nature of the pension allowances and the way they operate, many people leave their pension schemes when they do not need to.
Hall said she finds people leave their scheme because “they do not have context”.
She said: “They don't understand what they gain or what they can gain by using scheme pairs, and sometimes they think that they're going to end up just reducing their pension every year when actually they do still increase their pension but just not by the rate that they would have normally.”
Hall added it was a challenge for advisers as they needed to be the ones to provide this context but some “do not have the systems or the resources to be able to do that”.
“If the pension schemes are not going to provide these resources then the industry is on pretty much on a back foot,” she said.
It comes after the government published data showing that in 2018-19, 34,220 taxpayers reported their pension contributions exceeded their annual allowance via their self assessment forms, with total excess savings of £817m.
Meanwhile in 2018-19, 7,130 lifetime allowance charges were reported by schemes.
Also appearing on the podcast, Tom Selby, senior analyst at AJ Bell, said this was where advisers can offer real value to people because the system is so complicated and people end up with significant tax bills.
Selby said: “I suspect most financial advisers would much rather not have to explain something so complicated to clients.
“If there could be a world that was a lot simpler than we have at the moment, then advisers would be able to focus on where they can actually do better things with people’s pensions and focus on the future in a positive way rather than just trying to navigate a system which has just become far too complicated.”
He added: “There is absolutely nobody who would look to design a better system and include three different types of annual allowance, one of which varies between two amounts and a lifetime allowance which is applied differently to different people over years.”
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