Poor pension freedom knowledge opens door for advisers

Firms could ‘reap rewards’ if they endorse inheritance tax incentives to new prospects

Thesis jumps on decumulation bandwagon

Financial advisers stand to benefit from the split in the knowledge between advised clients and the general UK population on the awareness of pension freedom tax changes, according to a report from insurer Canada Life.

The pension freedom changes, which came into force in 2015, revolutionised how pension death benefits are taxed and gave clients the opportunity to utilise pensions in their wealth planning.

Canada Life conducted a survey of 1,000 UK adults over 55, who own a property and have a pension, and surveyed 100 UK-based IFAs.

Nine in 10 (90%) advisers surveyed said their clients are aware of the pension freedom tax changes, and 91% said they have seen marked interest from clients in using pensions as a wealth vehicle for inheritance tax planning.

But, around two-thirds (67%) of over 55s in the UK aren’t aware of the changes, and among higher earners (£45,000+) – the most likely group to benefit from the changes – only 41% of over 55s know about the changes.

Untapped market

Neil Jones, wealth management and tax specialist at Canada Life, said: “The disconnect in enthusiasm between advised clients and the general public shows that promoting the tax and estate planning benefits of the pension freedoms to new prospects could reap rewards.

“Certainly, our broader consumer findings indicate an untapped market for advisers among people who are less aware of the benefits of the changes.

“The market for advice is potentially huge. Having benefited from the growth in house prices, increasing numbers of baby boomers are potentially being dragged unwittingly into the inheritance tax net.

“Younger generations are also in line for inheritance windfalls. Estate planning is, or should become, a bigger priority for many people who will find themselves caught by the overall value of their estate.

“This offers an opportunity to advisers looking to expand their customer base and can demonstrate the value of professional financial advice.”

Seeing a financial adviser

Rachael Griffin, tax and financial planning expert at Quilter, told Portfolio Adviser sister publication International Adviser: “The inheritance tax system has layers and layers of complication, which have created a jenga tower on the verge of toppling over.

“As the world of inheritance tax is filled with technical nuances, someone is required to be well-versed in the rules of inheritance tax to fully understand the best way to pass on wealth.

“Seeing a financial adviser can not only be a good way ensure that wealth is passed on in the most efficient way, it can also be a good catalyst for having a frank conversation with relatives about the ways in which you want to pass on your wealth and how much they stand to inherit, so they can plan as well.”

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