With potential changes to pensions death benefits on the horizon, now is the time for advisers to change the advice they are giving to clients.
Speaking at the FTAdviser Financial Advice Forum today (September 28), Eugenia Campbell, tax director at RSM UK, and Alistair Cunningham, a director at Wingate Financial Planning, looked at mitigating tax for end of life wealth transfers.
Cunningham said he has already started the conversation with clients around what the next move should be with their estate planning.
Currently most pension plans allow you to nominate who you want to inherit your pension savings when you die - this includes the inheritance of funds being tax free if the deceased was under 75 and if the they were over this age when they died the beneficiary just pays income tax on any withdrawals.
The rules have been the same since 2015 however, now the government is considering rolling out tighter tax rules on pensions inherited from people who died before 75.
Cunningham told the panel: “Inheritance tax exemptions for pensions aren't going to be there forever. I think there is quite a high risk that the pension changes for wealthy people will reverse from what we saw in 2015.
“I think a number of my clients will stop trying to leave pensions to their kids and grandkids and start leaving it to old school trusts.”
In response to a question on the topic, he added: “A pension is to have an income in retirement, it is almost an accident of the 2015 changes that people see it as a way to cascade down wealth.
“The proposals would suggest that we are going to move away from the lifetime allowance.
“For people who have pension wealth of more than £700,000-800,000, maybe what we do today and have done for the last eight years isn’t really appropriate anymore.
“It is an opportunity for us to go to our clients and say everything that we’ve suggested has been appropriate but now we need to start doing the opposite.”
Elsewhere in the discussion, Campbell said it is important for advisers to make sure their clients understand the rules around passing on property to their families and understand the risks of passing on property before you die.
She added: "We will find more people whose estates are subject to inheritance; there was about 5bn in 2021 and it is projected to rise to 7bn in the current tax year.
“Passing property to your family in your lifetime is difficult to do. With a main home we have to be careful, you don’t want to gift your home and not be able to live in it for legal reasons.”
tara.o'connor@ft.com
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