The state pension will be a “hot topic” next year and will elicit a range of strongly held views and opinions, according to Andrew Tully, technical director at Canada Life.
Speaking to FTAdviser, Tully explained that from April, the state pension increases by a record 10.1 per cent, taking the single tier state pension above £200 a week for the first time.
“The state pension will be back under the microscope,” he said. “The government is due to publish the outcome of the state pension age review before May 2023.
“That will tell us the government’s timetable for future increases to the state pension age which, whatever the decision, will be a highly controversial move.”
He said understandably people will feel more protective and dependent on their retirement income as they get closer to being able to claim it.
Tully said the big regulatory move in 2023 is the introduction of the consumer duty.
He said the new consumer duty aims to help clients avoid foreseeable harm and pursue their financial objectives in the best possible way.
“Providers and advisers need to ensure governance of products is suitable, and there will be ongoing focus on value for money across all elements the client is paying for,” he said.
“And providers and advisers will need to support consumers in understanding the product they are using, and the implications in terms of sustainability of income, taxation and so on. There will also need to be suitable support in place for clients who display vulnerable characteristics.”
From an economic point of view, continuing the freeze on limits such as the higher rate tax threshold, pension lifetime allowance and IHT nil rate band “may not sound so bad”, but it will send a “chill wind through personal finances", he said.
“These stealth taxes raise significant amounts of money for the government and mean many more people will be affected including some who have done little or no planning.
“The lifetime allowance is less than half what it was 10 years ago in real terms, and IHT is no longer a tax just for the wealthy, so conversations around lifetime allowance, estate planning and IHT need to take place for more people and happen much earlier in life.”
From April 2023, the dividend allowance will be reduced from £2,000 to £1,000, and then halved again from tax year 2024/25 down to £500, for individuals.
The individual capital gains tax exemption will reduce from £12,300 to £6,000 from tax year 2023/24, and then to £3,000 on 2024/25.
“These changes are bad news for the average investor holding money in unwrapped portfolios outside Isas and pensions," Tully said.
“There could be an opportunity for these investors to take gains in these portfolios and invest into Isas and pensions. Where these contributions have already been maximised, investment bonds provide a real investment opportunity without limiting the investment options.”
Tully explained that using an investment bond wrapper could enhance tax efficiency of the money as it is a non-income producing asset.