Advisers fear pension death tax changes

Only one in 10 financial advisers support the government’s proposed changes to the tax rules surrounding pension death benefits. A majority warn that the potential alterations will impact clients’ financial plans. Currently if a pension owner dies before age 75, the pension passes tax-free to their nominated beneficiaries or if they were older, it is taxed at the beneficiaries’ marginal rate. However, under the new proposals, nominated beneficiaries would either have to receive the pension as a lump sum outside of a pension wrapper or as an income, taxable at their marginal rate. New research from Standard Life, part of Phoenix Group, found only 11% of advisers are supportive of the proposed changes. Meanwhile just over a third - 34% - are neutral on the subject, 39% are opposed to the changes, with the remaining 16% of advisers unsure. Those who were not in favour of the proposals said it was because: financial plans have been put in place based on assumptions about current death benefits (82%) pension changes undermine faith in the savings system (74%). 69% think the current death benefits are designed to provide a level of protection for nominated beneficiaries 50% are also concerned that such changes would incentivise pension-holders to take their tax-free cash lump sum earlier than perhaps they would ordinarily Over a quarter (28%) cite the potential level of administration required as a reason to oppose the change. Among the supporters of the change, 60% said it would help harmonise the tax treatment applied depending on the age at which the plan holder dies. A third (33%) of these advisers also believed it would encourage savers to view their pension as a source of income rather than an asset to pass to loved ones. 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 around what this meant for their finances and financial planning. I “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 a significant number of their clients’ plans.” He said if the proposal was adopted it would cause significant upheaval across the pension’s industry which in turn may struggle to be ready for next April. Without proper planning there’s a risk of customer detriment, he added.

Advisers fear pension death tax changes

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