Only 11% of IFAs are supportive of the government’s proposed changes to tax rules around pension death benefits, according to Standard Life research.
Just over a third (34%) of respondents did not hold a strong view either way and 39% said they were opposed to the changes.
Currently, if a pension owner dies before the age of 75, the pension passes tax free to their nominated beneficiaries or is taxed at the beneficiaries’ marginal rate, if the pension owner is over 75.
Under the proposals, nominated beneficiaries would either have to receive the pension as a lump sum outside a pension wrapper or as an income, taxable at their marginal rate.
Impact on client plans
Among the advisers not in favour of the proposals, 82% said that clients’ financial plans have been put in place based on assumptions about current death benefits; 74% said that pension changes undermine faith in the savings system; and 69% expressed the view that the current death benefits are designed to provide a level of protection for nominated beneficiaries.
Some 50% said that the changes would incentivise pension-holders to take their tax-free cash lump sum earlier than they might otherwise have done and over a quarter (28%) cited the potential level of administration required as a reason to oppose the change.
Of those who do support the proposed change, 60% said that it would help harmonise the tax treatment applied depending on the age at which the plan holder dies. A third (33%) of these advisers believed it would encourage savers to view their pension as a source of income rather than an asset to pass to loved ones.
Almost all IFAs (92%) reported that the proposed changes would have an impact on the financial plans they have in place for clients. Some 43% claimed that it would impact a significant number of their clients. Only 8% said that there would be no impact on their clients’ financial plans.
‘Risk of customer detriment’
Chris Hudson, retail advised managing director at Standard Life, said: “There have already been several unexpected changes to pension rules in the last year, creating upheaval for advisers as clients sought advice on 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 many of their clients’ plans.
“If this proposal were adopted it would cause significant upheaval across the pensions industry. 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 the current government were to lose power, which would likely cause further confusion and uncertainty.
“The majority (73%) 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.”