Transitional rules have made advising on pensions more confusing than ever for clients, even without the uncertainty that the upcoming general election might pose for future changes, Claire Trott has warned.
Speaking at the Technical Connection conference in London today (June 4), Trott - who is a director of Technical Connection and divisional director of retirement and holistic planning for St James's Place - warned advisers they may have to revisit all pensions advice made before April 6 2024 if their clients crystallised any pension benefits before that date.
Describing the removal of the lifetime allowance as a "fiasco", whereby even the rules from HM Revenue & Customs have been riddled with inaccuracies, as previously reported, Trott told delegates that the "real pickle" is over the transition.
She explained there will be clients with many different pension pots, some pre-2006 and some afterwards, all of which are governed by different tax arrangements and could be sitting with different providers.
Now the LTA has been replaced by two different tax allowances.
Not only that, but clients may have crystallised some, or all, benefits from some or all of these pensions - or from none of them.
After the LTA changes came into force on April 6 2024, the ways in which clients had been advised to access their pensions tax-efficiently will have changed, necessitating advisers to go back and review it.
One delegate told FT Adviser: "Any clients who had been accessing their pensions tax-efficiently last year thanks to our structured plans - well, now we have to reassess everything again. It is as if the rug has been pulled from under our clients' feet."
Advisers whose individual clients may have accumulated a variety of pensions - NHS pensions, pensions with guaranteed benefits, AVCs, FSAVCs, personal pensions and the like - now face having to go through every single one to see whether there was, at any time, a crystallisation event.
"You can't rely on clients remembering this", said one adviser.
"You can't even rely on the providers having data going back to 2007 or 2008. It's a lot of work involved to assess whether the tax benefit that might come about under the new rules will outweigh the additional cost of advice."
The certificate
Trott asked the room who had applied for a transitional tax-free amount certificate for their clients. Many hands went up.
The TTFAC became relevant after the abolition of the LTA, which introduced a cap on the amount people can take from their pensions tax free - typically £268,275 - unless certain protections are in place.
The certificate is therefore relevant for clients who have accessed, but not yet taken, their maximum pension commencement lump sum.
A certificate is provided to the member by the scheme administrator of a registered pension scheme which has confirmed the amount of the individual's lump sum-transitional tax-free amount, and the amount of the individual's lump sum and death benefit transitional tax-free amount.
