UK Tax Relief Changes To Hit Pension Contributions
Monday, October 17, 2011
Self Invested Pension Plans (SIPPs) and Small Self Administered Schemes (SSASs)
will see their fund flow reduced as a result of reductions in tax relief, new
research has revealed.
The research, carried out by Investec Bank, is based on a survey of 100 independent
financial advisers (IFAs) across the UK. It shows that almost two thirds of
IFAs predict that changes to the tax relief system will negatively impact contributions
into SIPPs and SSASs. In addition, since new legislation was introduced in April,
around three quarters of IFAs surveyed have seen no change in the volume of
SIPP/SSAS business, while a fifth of pension focused IFAs have seen an increase
in this type of business. Of those IFAs to
have seen an increase in business, 30% said that it has increased by more than
20%, with one in ten seeing an increase of more than 30%.
Earlier this year new legislation was introduced changing some of the rules
around tax relief on SIPPs and other wrappers. As Investec explains, for the
current tax year 2011/12 the level of contributions on which personal tax relief
is granted is up to 100% of UK earnings (from employment or self employment),
subject to an overall limit of GBP50,000 (USD78,870), down from the previous
limit of GBP255,000. This change also meant a drop in the lifetime allowance
from GBP1.8m to GBP1.5m.
Investec has argued that part of the reason for the increased demand in SIPP
and SSAS investments is investors’ desire for greater control over their
pension investments. At the same time, it is noted, more IFAs are using wrap
platform technology to offer their clients access to a broader range of funds
and managers across a range of sectors.
Those IFAs surveyed said that their clients have on average almost 10% of their
SIPP/SSAS assets held as cash deposits, equating to some GBP37,800. However,
Investec has warned that many investors are losing out on higher returns because
the cash element of their SIPP or SSAS is held in a deposit account paying a
poor rate of return.
Lionel Ross, speaking on behalf of Invested, commented: “Investors appear
to be looking at SIPP and SSAS wrappers as an effective way to manage their
pension investments in a low base rate environment and while equities remain
volatile. More wrappers are migrating on to the UK wrap platform market, offering
an even wider range of assets...Cash continues to play an important role in
any SIPP or SSAS portfolio; whether that role is to ride out turbulent markets
or achieve greater flexibility but investors ensure their cash is held in an
account offering a fair rate of interest.”
Robert Graves, Head of Pensions Technical Services, Rowanmoor Pensions, added,
“The fact that SIPP and SSAS volumes have continued to increase despite
recent rule changes is testament to the added value strengths of these products.
However, part of the success story is that these products are used by those
who have already built up pension funds through making tax-advantaged contributions
in the past. New generations need incentives, such as the current tax relief
available, to save for retirement too. Therefore it is not surprising many IFAs
expressed concern that reducing tax relief would be detrimental.”
“Investment flexibility, particularly in turbulent investment times,
is important. Those who wish to avoid the current volatility witnessed in some
markets may seek the relatively safe harbour of cash deposits. With this research
indicating that an average of 10% of assets in SIPPs and SSASs being held as
cash, it is important that IFAs use SIPP and SSAS products that can readily
facilitate the use of competitive cash deposit accounts”, Graves concluded.