with a £1.5bn cap on total pension contributions, the hnwis are going to look to life bonds to top up their retirement funds
Wherever we look these days, we are reminded that change is the only sure thing. And the financial services industry cannot expect to be immune from this.
Following A-Day, there have been some major changes to the rules governing UK pensions. This means it is necessary to reconsider the options available to clients seeking advice on longer-term retirement planning.
Like the unforeseen changes to the way trust arrangements are taxed, as implemented in the most recent Budget, the changes to UK pensions affect the flexibility and choice previously available to investors.
However, the critical factor to remember is that investors' needs and wants have not changed. People still want to reduce their inheritance tax liability and they still need to plan for retirement.
They want to manage their finances in a way that suits them. But, for many customers, anything beyond the basic financial transaction is now quite confusing and they will be concerned they do not know enough about the legislative changes to make an informed decision.
So perhaps more than ever professional financial advice is vital. Therefore, intermediaries will be looking for other ways to satisfy their customers' needs for flexibility, tax-efficiency and choice.
One product group that really comes into its own following the impact of pensions simplification is offshore investment bonds.
The A-Day changes have not affected the status of offshore bonds and the benefits available to investors who use them. The investment flexibility, 5% withdrawal facility and virtually tax-free growth, for example, are all still available.
So what might the new role for these products be now the pensions landscape has changed?
Since the introduction of the lifetime pensions allowance - currently £1.5m for the tax year 2006/07 and expected to rise to £1.8m by 2010/11 - wealthy individuals seeking to build a larger pension pot will have to find alternative forms of investment.
One such solution in many cases will be an offshore investment bond, which can provide a tax-efficient way to grow funds for retirement and also offer greater flexibility for taking income than can be managed within a pension product.
Even before the changes in pensions legislation, there was clearly a role for offshore investment bonds in retirement planning. Wealthy individuals appreciate the greater flexibility offered by products that are not shackled by pensions regulations when they are planning for their (often early) retirement.
Those intending to retire abroad often like to have a non-UK domiciled investment. And the same goes for wealthy individuals who are not UK resident and who do not intend to retire in the UK, but who are living and working in the UK today.
An offshore investment bond, with the tax efficiency and investment flexibility it offers, can be the ideal complement to an individual's UK pension planning.
Ailo recognises this route may not be familiar to some advisers and, following the popular guides to offshore investment produced in 2005, will shortly be publishing a guide to post-A-Day retirement solutions using offshore investment bonds.
This guide, which will be freely available to intermediaries through Ailo member companies, will help advisers to understand in more depth the benefits of these products in retirement planning.
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