Nine in ten high net worth individuals (HNWIs) do not think UK pensions work as well as they should and would like to see reforms, according to research from wealth management firm Saltus.
The firm’s fifth Saltus Wealth Index, which surveys 2,000 people with assets of £250,000 or more and pension pots worth an average of £484,000, found that almost nine in ten (88%) of HNWIs would like to see changes to the current pension rules, with addressing the issue of ‘lost’ and ‘loss-making’ pots the most popular single reform.
When asked what the single most useful change the government could make to reform pensions, one in five (19%) respondents favoured creating a ‘pension pot for life’ – a change that was first proposed last year by the previous Government.
If the new Labour Government could do one thing to reform pensions, what do you believe the most useful change would be?
- Create a pension pot for life 19%
- Create a ‘minimum pension transfer time’ 12%
- Increase the Annual Allowance 18%
- Increase the 25% level of tax-free cash 17%
- All inherited pensions can be accessed tax free 13%
- Remove the tapering of the annual allowance as earnings increase 9%
- NET (reforms to pension limits) 57%
- No most useful change in particular 12%
The ‘Pension Schemes Bill’ which was recently announced by the new Government promises similar reforms but takes it a step further by enabling an individual’s referred small pots to be automatically brought together into one place to maximise income in retirement and help to avoid any pensions from being lost.
One in eight (12%) of those surveyed said the top change they’d like to see is a ‘minimum pension transfer time’, which is likely to be addressed by the new Government’s proposed automatic consolidation of pensions.
Increases to the annual allowance and tax-free lump sum
The most popular pension reforms that HNWIs would like to see include changes to the current pension limits, including the annual allowance and tax-free lump sum.
According to the Wealth Index Report, 18% would like to see an increase to the annual allowance, while 9% would like the tapering of the annual allowance removed – since 6 April 2023, for every £2 of income over £260,000, the annual allowance is reduced by £1.
Furthermore, almost one in five want to see an increase to the tax-free cash limit.
Currently, up to 25% of the amount built up in any pension can be taken out as a tax-free lump sum (up to £268,275) but almost 17% of respondents would like this increased and a further 13% would like all inherited pensions to be accessed tax-free.
Gianpaolo Mantini, Partner at Saltus said “This data reflects the sentiment amongst HNWIs we speak to, who are seeking reforms that simplify the pension system and provide a clearer path to retirement planning. Our clients believe in the UK and want to put their savings to work on behalf of the country and believe that a few simple reforms could significantly contribute to this goal.
“A ‘pension pot for life’ is the most popular single change they’d like to see alongside easier and quicker pension consolidation, so the new Labour government’s promise that would tackle these issues will prove popular with HNWIs.
“This could be improved further if employees could also insist on employers paying into newly established pensions (such as SIPPs) in addition to existing workplace schemes, some of which are limited in their ability to provide for flexible drawdown or offer poor investment solutions.
“Overall, changes to the tax thresholds are what HNWIs would most like to see. However, with no mention of either the lifetime allowance or the tax-free lump sum in the Pension Schemes Bill, it is unlikely we’ll see any changes, and if we did, it is more likely to be a cut than an increase.”
Gianpaolo said that while he doubts the new Chancellor will cut the 25% tax-free lump sum – given it is one of the most popular and valued pension rules – she might look at the lifetime limit.
“As mentioned earlier, it is currently 25% to a maximum of £268,275 – which may sound like an oddly precise figure, but it is in fact just 25% of the (now-abolished) Lifetime Allowance of £1,073,100,” Mantini said.
“It is possible; therefore, that the new Chancellor may decide to freeze or reduce this limit in the future – which would, over time, start to have an impact on the pension pot ‘freedoms’ of all retirees, not just HNWIs.”
The survey, carried out online in December 2023, included 2,000 UK respondents (aged 18+) who have £250k+ of investable assets.
Research was conducted by Censuswide (Censuswide abides by and employs members of the Market Research Society, based on the ESOMAR principles).
