Play it cool with pensions

A I’m hearing, “You must be sick of answering this question” a lot just now as a preface to discussions with clients about what might happen to pensions legislation.

As a chartered financial planner, I will always have time and patience when it comes to allaying my clients’ fears and ensuring they feel calm, safe, secure, and confident.

Will pensions lose tax relief on contributions? Will tax-free lump sums be reduced, or removed?

Honestly, who knows?

Speculation and fearmongering are rife ahead of any Budget.

Pension questions have been in the air since 2015, when tax-free cash was renamed Pension Commencement Lump Sum (no mention of tax-free). While details have changed, we continue to be entitled to draw part of our pensions tax-free.

Last autumn, I heard many predict the tax-free lump sum attached to pensions could be reduced to £100,000. That didn’t happen.

But, given the uncertainty in the government’s messaging, as well as the resulting and ongoing speculation regarding what might be announced next month, well informed and educated people will be fearful.

It’s a hard topic as we simply cannot know what will come from the Autumn Budget, so we can’t operate with certainty.

As regulated, highly qualified financial professionals, financial planners provide advice based on legislation as it stands at the time the advice is provided. It is impossible for us to provide advice based on speculation.

In that light, I say to clients stay calm – retaining monies in a pension may provide the opportunity for the lump sum to grow over time, depending on investment performance. Withdrawing the tax-free element now could well have adverse future effects.

Also, it isn’t possible to obtain the same level of tax sheltering for investments outside a pension.

Critically, our advice will always be based on our clients’ circumstances, not on financial tools they have. And certainly not on what may or may not be announced next month.

My clients’ concerns are eased through conversations about their financial position and the purpose of their money. They can then make informed, confident decisions about what to do or not to do. If it isn’t driven by their plan or their needs, it doesn’t need to happen.

If you are worried about the Autumn Budget and what it could mean for you or your family, or if you aren’t as confident as you would like to be financially, please get in touch.

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