Chase Buchanan Wealth Management has rolled out a service specifically designed to assist with wealth management and adapting pension savings strategies in light of UK lifetime allowance (LTA) reforms.
In the 2023 Spring Budget, the Chancellor announced a series of reforms impacting pension savings, and higher earners, effectively allowing higher contributions or for savers to resume contributions into funds valued close to the previous £1.073m ($1.33m, €1.23m) LTA.
Pension withdrawal strategies will be affected not only by the removal of the cap but by the restriction placed on 25% lump sum withdrawals, the maximum tax-free drawdown pension savers are entitled to make.
While the LTA has been abolished, the lump sum drawdown cap remains based on 25% of the previous LTA. However, if the fund includes LTA protection, the 25% tax-free value is based on the protection granted.
Chase Buchanan said that within the wealth management sector, there are several key aspects of these reforms:
- The potential for higher-income pension savers to be exposed to up to 40% inheritance tax on their pension wealth subject to future anticipated changes;
- Limitations on the value individuals can draw down as a lump sum if pension funds remain subject to UK withdrawal restrictions; and
- The likelihood of the LTA being reinstated if next year’s general elections see a change in governmental power.
‘Significant repercussions’
Private wealth manager Malcolm McDowell will head up the advisory service.
He says: “Like so many sudden, unexpected reforms, removing the LTA cap has significant repercussions for those saving towards retirement and with pension wealth of £800,000 or above.
“Leaving pension assets in situ without assessing available opportunities could be a serious error. Even though the total LTA threshold has been removed, the limit on tax-free lump sum withdrawals remains subject to the previous cap, restricting access to pension wealth.
“Another consideration is where the higher annual allowance, now at £60,000, reduces for higher-income individuals, further adding complexity where clients need a clear, objective view of the options, whether transferring pension funds overseas, retaining a UK-based scheme, or reinvesting in an alternative with greater flexibility and control.
“I am delighted to be heading the new advisory service, supporting our clients with navigating their pension plans in the context of changing UK tax legislation and ensuring we shine a light on the varied opportunities with confident, fuss-free financial advice.”
Reverse decision
Recently, a AJ Bell survey found financial advisers fear that the scrapping of the lifetime allowance (LTA) in the spring Budget may be a short-lived policy decision.
The survey revealed that the majority of advisers (72%) expect a future government to reintroduce the LTA in some form. A further 19% said they thought it was a possibility, 5% don’t believe a future government is likely to bring it back and 4% were unsure.
More than half of advisers surveyed said they expected at least some clients to crystallise their pension before the next general election, in an effort to mitigate any change in legislation that could land them with a tax charge.
Advisers were also asked if they expected the cap on the maximum pension-commencement lump sum, also introduced in the Budget, would remain.
More than half (55%) said they expected it to remain unchanged, 19% said they expect it to be cut, 11% took the view that it could increase in future and 15% said they were unsure.
