More and more of my conversations with advisers are focused on those clients that have exceeded the lifetime allowance and have either not been eligible for any of the protections available at the time or have invalidated the options before they realised.
There is little the adviser can do; a problem compounded thanks to not knowing what the future holds from one week to the next, let alone in the years to come.
In many cases, these problems arise because clients have deferred defined benefit schemes but no idea of their value and what the implications are for the rest of the money they have been saving.
So what should they do about their lifetime allowance issues? There is no right answer here but there are a number of considerations that must be worked through.
Firstly, do they want and need the guaranteed income from the DB scheme? This is usually a no-brainer: yes, they do. If they are over the lifetime allowance with all their benefits put together, then it is imperative they access their DB scheme first to avoid paying the charge from there.
If they do not need to take the money purchase benefits, there is then the issue of when or if they should crystallise the funds.
If you look at it in a purely technical way, it makes perfect sense to crystallise the money purchase benefits in their entirety as soon as possible to protect any growth from the lifetime allowance charge.
You need to consider any inheritance tax issues that may occur because of the pension commencement lump sum but this can be mitigated with other investments over the longer term.
If you do decide to crystallise the money purchase scheme and the funds are in drawdown, it needs to be managed so as to ensure any growth taken from the fund is done so in as tax-efficient manner as possible before the client reaches age 75.
This is because any growth will, again, be set against the lifetime allowance and would cause an additional lifetime allowance charge.
This might all sound like perfect sense. However, should the client be considering this at age 65 – even 55 – you have as much as 20 years’ worth of legislation to anticipate.
Is any of this the right thing to do in a world where we do not know whether there will even be a lifetime allowance in a few years’, let alone two decades’, time?
None of us have a crystal ball and the only thing you can really do is explain (and document the fact you have) to clients that this is a risk.
You can protect them from the current legislation but not future unknown changes often suggested by thinktanks and others who believe they have the ear of the Government.
One can only dream of a level of stability in the pension world that would mean clients being sure they are advised correctly.