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One in five clients in danger of breaching reduced pension lifetime allowance

Advisers estimate that one in five (19 per cent) of their clients is in danger of breaching the UK’s reduced pension lifetime limit by the time they reach retirement age, according to a study commissioned by Albion Ventures.

Well over half (57 per cent) of IFAs are particularly concerned about higher earning younger clients breaching their lifetime limits and are advising them to diversify their retirement investments. 
Over two thirds (68 per cent) are advising clients who are in danger of exceeding the limit in future years and 56 per cent are dealing with clients who will do so this tax year.
To highlight the potential impact of the reduced lifetime limit, Albion has calculated that a 40 year old who plans to retire at 65 and who currently has a pension pot of GBP351,551 can make no additional contributions without expecting to breach the GBP1.25m threshold.
The survey shows that advisers are pessimistic about what will happen to the lifetime allowance limit in future: over four in ten (41 per cent) anticipate that it will be reduced further compared to just seven per cent who think it will increase.  However, almost a quarter of advisers (23 per cent) predict it will be inflation-linked.
As a result of the pension lifetime limit, almost half (43 per cent) of IFAs believe that VCTs are becoming increasingly important as a pension supplement to some of their clients and 35 per cent are recommending their clients consider investing in them.  When ranking the most important aspects of a VCT, IFAs ranked tax-free income, portfolio diversification and the prospect of capital growth as their top three choices.
Advisers were almost unanimous in their belief that there is a lack of awareness of the potential implications of breaching the lifetime limit with 94 per cent believing this to be the case.
Almost two thirds (63 per cent) of advisers think the lifetime allowance should be scrapped altogether compared to 31 per cent who believe it should remain in place.
Patrick Reeve, managing partner of Albion Ventures, says: “The reduced pension lifetime limit will ensnare a significant part of Middle England and the findings clearly show how many advisers are taking action on behalf of their clients.  Diversification has become a retirement watchword and as a result VCTs are becoming an increasingly popular pension supplement, particularly given their ability to deliver a regular tax-free income.”

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