25th November 2024

IFA letter of the week. Budget or Starmer Harmer?

As an IFA and having spent years running a business under the cosh of the regulatory framework whilst also trying to save for retirement, the latest budget was a just a kick in the teeth.  

Or perhaps more apt, daylight robbery by the government. 

Being a financial adviser for over 45 years, my training taught me a few basic moral values. Be responsible with your family and protect the breadwinners with life assurance. If self-employed make sure your income is protected in the event of sickness or injury, Income Protection was the answer.

Need a home? Help clients with mortgages. And with IHT, mitigate it as best as possible within the rules, legally. Planning for retirement, required many years to build a decent pension pot.  

I used to ask clients how long it takes to save for your summer holiday? Invariably the answer would be weeks or months. My point about retirement planning was, one day you will have a very long holiday e.g.  when you retire, so you better start saving now. 

It’s expected to take 40 years to achieve a decent defined benefit pension in retirement, so why wouldn’t it take the same level of contributions and years to save in a personal pension or defined contribution scheme. Planning ahead was the key.

Rachel Reeves budget have given us all reasons not to trust governments. 

Who has the motivation to save for retirement if they take most of it away on death via unscheduled and unexpected taxes? We already have a problem with the people not saving enough for retirement. Stock market returns have been relatively poor. 

Why? 

In my opinion tax and over regulations is the simple answer killing it. Arm Holdings decided to list in the USA despite our then chancellor begging them to list in the UK stock exchange. Whilst Shell is currently considering de-listing from the UK stock market. 

That won’t be the end of it either. With an overtaxed country in virtually every corner of our lives, whether corporate or personally, who in their right mind would invest in the UK. Not me, most of my investments are globally and spread predominantly in the USA. 

The UK has fallen way behind the USA since 2007 with our standard of living. The USA admire and praise entrepreneurship whilst Trump will create the environment for aspirational people.  

In the UK we have ministers like Angela Rayner who wants to force 4 days a week as a good thing. I’ve never heard of an entrepreneur who did a 4-day week. Rayner’s plan will guarantee failure whilst we watch the USA leap into orbit economically, whilst the UK standard of living will continue to flounder. 

This brings the question of our hard-earned savings in pensions. I am sure I am speaking for many pension fund holders. Except I believe many of our clients haven’t yet understood on the effect of Reeves’s budget on their Inheritance Tax position when it comes to pensions and IHT. 

How can a financial adviser recommend a financial plan when the government change the rules half way through the plan when they need a lifetime of saving for retirement? Is it a cause for a complaint from a client against the adviser?  

We all know the FOS use retrospective views; this will leave IFAs in a sticky position. It takes years to build a decent pension fund substantial enough to be able to survive comfortably on in retirement. 

Surely some retrospective regulation could easily correct this?

Then out of the blue Rachel Reeves hits the pension pot with IHT. Not only does it form part of one’s estate from 2027 at a tax rate of 40%, but if death of the member occurs post 75 the receiving beneficiary, then has to pay tax on withdrawals.  

Anything from 20% and up to 45%. That won’t leave much left for the beneficiaries. And if one is caught out by the Residential Nil Rate Band when the pension pot takes the assets above £2 million then the effect of tax is even higher.  

Is it worth saving in a pension when we have untrustworthy governments applying retrospective legislation? 

I believe there is a case for to government to be taken to task. 

The pensions industry needs to make a stand, just like the farmers have done so. Why do the heads of our providers not stand up and lobby for a reversal of this pitiful additional death tax?  

This is a time the financial services industry should now act. We all need to pull together and work on getting this ridiculous additional tax removed for good.

Paolo Standerwick

Tax, Trust & ISA, Budget