Karl Lam: Be careful what you want…

Financial Planners

Illustrated by Dan Murrell

The budget bill in March, when the Prime Minister announced plans to abolish the Lifetime Allowance (LTA), surprised many of us.

We suspected he would do something to keep GPs and consultants in the National Health Service, but widespread abolition goes much further.

Suddenly, the landscape for retirement planning changed…

You might think that perhaps the advice community is making a fuss about the fact that the LTA’s complex tax framework is gone and wealthy clients can continue to build pension pots as large as they like.

It must be good news that there are more and more funds under management.

But like many of my colleagues in the financial advice department, I am troubled and cautious.

Can advisers be confident that such actions will not be rewarded in the future with punitive charges?

Before we dive down this particular rabbit hole, we need to be more certain that this is indeed the shape of things to come.

There are good reasons to be cautious. First, the planned changes won’t be enacted until July, when the Finance Act passes Congress.

Given the recent turmoil in the Conservative leadership and the accusations already taking place against the current Prime Minister, who can blame me for waiting for the King’s consent before believing it? Will this change be reversed if the combination of Conservative prime minister and prime minister changes? Recent events suggest that this is entirely possible.

Labor leader Keir Starmer has already said he would reintroduce the LTA should his party take power in the next election, likely in the next few years. Then everything will change again, and those who have built up their pension savings by then may have to face the consequences.

It can be hard to put a hand on their heart and tell a client it’s gone forever.

In fact, if the LTA were to reappear in some form, the pension industry would expect senior lawmakers to offer some protection to those holding funds above the level set at the time of the change. .

But there is no guarantee that future Labor governments will be lenient on new protections. What better way to collect windfall income than by taxing the wealthy and their large pension funds?

In my view, the biggest challenge for financial planners will be when the new law will be passed in the summer, or if it is passed, advice to those who have used protection in the past when the value of LTAs has fallen. Thing.

Modification or enhancement of protection will cause these customers to stop building funds to avoid LTA tax. Once the LTA fee is gone, will clients have to drop the protection and add more money? Can they be sure that such actions will not be rewarded in the future with punitive charges?

Our profession has had to learn to be reactive and responsive

Eliminating the LTA will certainly bring certain benefits to those of us who advise on pensions. This simplifies life and eliminates the complex multitiered tax framework that exists today. I think most advisors would certainly welcome this change.

But it’s very difficult for us to put our hands on our hearts and tell our customers it’s gone for good, so they can change their retirement plans accordingly. If you don’t know what will happen in the short term, how do you determine the best outcome for your client?

In fact, plus change…this is the dilemma we have faced for decades, as successive governments have changed goalposts and old advice has become irrelevant. Our profession has had to learn to react reactively.

But that means clients will have to adapt and adjust their plans over and over again, even if their circumstances and objectives haven’t changed. Yes, it justifies our existence as advisors and helps us deliver real value to our clients, but it also means abandoning the work we’ve done in the past and rebuilding our strategies in light of a new set of rules. It’s painful and depressing to have to – especially knowing how quickly those rules will change again.

Karl Lamb is Executive Director of Smith & Pinching

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