Rich clients rush to profit from tax giveaway but wealth managers can further target
The sweeping changes to pension taxes announced earlier this year by Chancellor Jeremy Hunt have had a profound impact on the wealth management industry. As richer Britons have sought to work out the impact of the reforms, they have turned to financial advisers and wealth managers for assistance.
In response, the industry has prioritised pensions advice as a key offering, leveraging it to attract more affluent clients to appoint managers to look after their pension savings.
From the 2023-24 financial year onwards, the amount individuals can pay into their pension fund, tax-free, will increase from £40,000 to £60,000 each year. Additionally, the lifetime allowance of just over £1,000,000 is being abolished.
In light of these changes, we at Savanta conducted research to investigate the effects of these changes on high-net-worth individuals (HNWIs) to see how they will invest into their pension funds. The research surveyed individuals with over £1 million investable assets, using our quarterly survey of UK millionaires, Savanta’s MillionaireVue, and 26 leading UK wealth managers in partnership with the FT.
From our data, three in five millionaires have a pension they’re yet to draw down on, meaning the change affected an estimated two million of the country’s wealthiest. And the changes in pension policy have been very important to HNWIs. Many wealth managers (22 of 26) believe that it is a vital investment tool, with pensions typically the second largest asset people are likely to ever own.
Positively for the industry, almost 80% of millionaires affected are aware of the changes. But this falls to only 69% among those with £5m or more in investable assets, perhaps because their wealth is more diversified beyond pension pots, and so the changes have less impact on their total wealth.
And even more positively, many have done something. Two in three HNWIs still paying into their pensions are planning to take advice on the subject in light of the changes, particularly those wealthiest individuals who have £5m-plus in investable assets. And the majority of leading wealth managers we surveyed stated that at least some of their clients have increased contributions to tax- shielded pension pots to the lifetime allowance (23 of 26).
Intriguingly, our research indicates that those who utilise execution-only investment platforms exhibit the highest awareness of the changes, yet they are the least likely to take advantage of the reforms compared to those who already seek professional advice. This suggests a significant opportunity for platforms to refer to advisers and provide valuable content on how to maximise the benefits of the current policy.
The announcement of pension rule changes has been a significant boost for the wealth and financial advice industry, providing a potential distraction from challenging markets and tepid performance. But there appears to be more that can be done to allow the wealthy to enable further investment and steal share from traditional pension providers.
David Barks is a Senior Director in the Wealth Practice at Savanta, a global market research agency, with particular expertise in supporting brands in financial services, wealth and luxury make better decisions.
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