1 in 5 clients risks breaching new pension allowance

Well over half (57%) of IFAs are particularly concerned about higher earning younger clients breaching their lifetime limits and are advising them to diversify their retirement investments. 
Over two thirds (68%) are advising clients who are in danger of exceeding the limit in future years and 56% are dealing with clients who will do so this tax year.

To highlight the potential impact of the reduced lifetime limit, Albion has calculated that a 40 year old who plans to retire at 65 and who currently has a pension pot of £351,551 can make no additional contributions without expecting to breach the £1.25m threshold.2

The survey shows that advisers are pessimistic about what will happen to the lifetime allowance limit in future: over four in ten (41%) anticipate that it will be reduced further compared to just 7% who think it will increased.  However, almost a quarter of advisers (23%) predict it will be inflation-linked.

As a result of the pension lifetime limit, almost half (43%) of IFAs believe that VCTs are becoming increasingly important as a pension supplement to some of their clients and 35% are recommending their clients consider investing in them.  When ranking the most important aspects of a VCT, IFAs ranked tax-free income, portfolio diversification and the prospect of capital growth as their top three choices.

Advisers were almost unanimous in their belief that there is a lack of awareness of the potential implications of breaching the lifetime limit with 94% believing this to be the case.

Almost two thirds (63%) of advisers think the lifetime allowance should be scrapped altogether compared to 31% who believe it should remain in place.

Patrick Reeve, Managing Partner of Albion Ventures said:

“The reduced pension lifetime limit will ensnare a significant part of Middle England and the findings clearly show how many advisers are taking action on behalf of their clients.  Diversification has become a retirement watchword and as a result VCTs are becoming an increasingly popular pension supplement, particularly given their ability to deliver a regular tax-free income.”