Majority of IFAs say potential alterations to pension death benefits tax rules will impact clients’ financial plans, with just over 1 in 10 advisers supportive of changes

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• 92% say any changes to the tax rules surrounding pension death benefits, which the Government is seeking views on, would impact their clients’ financial plans
• Almost three quarters (73%) of IFAs think all changes to pension benefits should be deferred until the next parliament

With the Government currently seeking views on changes to the tax rules surrounding pension death benefits, new research from Standard Life, part of Phoenix Group, finds only 11% of advisers are supportive of the proposed changes.

Currently if a pension owner dies before age 75, the pension passes tax free to their nominated beneficiaries or if they were older, it is taxed at the beneficiaries’ marginal rate. However, under the proposals, nominated beneficiaries would either have to receive the pension as a lump sum outside of a pension wrapper or as an income, taxable at their marginal rate.

Whilst 11% of advisers are supportive of the proposed changes, just over a third (34%) of those surveyed are neutral on the subject, 39% are opposed to the changes, with the remaining 16% of advisers unsure.

Standard Life’s research, conducted among more than 200 IFAs, found that those who are not in favour of the proposals say this is because:

• financial plans have been put in place based on assumptions about current death benefits (82%)
• pension changes undermine faith in the savings system (74%)
• 69% think the current death benefits are designed to provide a level of protection for nominated beneficiaries
• 50% are also concerned that such changes would incentivise pension-holders to take their tax-free cash lump sum earlier than perhaps they would ordinarily
• Over a quarter (28%) cite the potential level of administration required as a reason to oppose the change.

Among those who do support the change, 60% say it would help harmonise the tax treatment applied depending on the age at which the plan holder dies. A third (33%) of these advisers also believe it would encourage savers to view their pension as a source of income rather than an asset to pass to loved ones.

Majority of client plans would be impacted by changes

Almost all IFAs (92%) report that the proposed changes would have an impact on the financial plans they have in place for clients, with 43% saying it would impact a significant number of their clients. Only 8% say there would be no impact on their clients’ financial plans.

Given the uncertainty of a General Election and potentially new Government in the near future, nearly three-quarters (73%) of IFAs think all changes to pension benefits and the tax treatment of pensions should be deferred until the next parliament.

Chris Hudson, Retail Advised Managing Director at Standard Life, commented: “There have already been several unexpected changes to pension rules in the last year, creating upheaval for advisers as clients sought advice around what this meant for their finances and financial planning. It’s therefore no surprise that many advisers do not support further changes to pension death benefits tax rules too, especially as this would affect a significant number of their clients’ plans.

“If this proposal was adopted it would cause significant upheaval across the pension’s industry which in turn may struggle to be ready for next April. Without proper planning there’s a risk of customer detriment. This is in addition to the speculation that measures around the scrapping of the lifetime allowance could be reversed if this Government was to lose power, which would likely cause further confusion and uncertainty. The majority of advisers believe any further changes to pensions should now be postponed until after the next General Election, which would at least provide some stability for the time being.”

 

ENDS

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Notes to editors:

Opinium conducted research among 207 Independent Financial Advisers from 10th to 15th August 2023, and research among 261 Independent Financial Advisers from 16th to 24th August 2023.

 

About Standard Life

Standard Life is a brand that has been trusted to look after peoples’ life savings for nearly 200 years
Standard Life is part of Phoenix Group, the largest long-term savings and retirement business in the UK. We’re proud to be building on nearly 200 years of Standard Life heritage together
Our products include a variety of Pensions, Bonds and Retirement options to suit people’s needs, helping our customers to invest and save for their future. We’re proud to offer a leading range of sustainable and responsible investment options.
The value of investments can go down as well as up and may be worth less than originally invested.We support our customers on their journey to and through retirement with comprehensive, easy-to-understand guidance so they can invest in the right way for their needs and plan a future they feel confident about.