Saltus: 67% of HNWIs now considering working for longer post LTA reforms

Two thirds of high net worth individuals considering working for longer following LTA reforms

  • One in five high net worth individuals (HNWIs) planning a return to work following pension reforms to the Lifetime Allowance (LTA)
  • 72% of HNWIs say they plan to take advantage of the tax change
  • Saltus Wealth Index records a marginal improvement in HNWI confidence in prospects for the UK

Two thirds of high net worth individuals (HNWIs) say they are considering working for longer than planned following the removal of the Lifetime Allowance (LTA), according to the fourth Saltus Wealth Index Report.

In March, the Chancellor, Jeremy Hunt, announced that he would be scrapping the LTA from 6 April 2023. The LTA is a £1,073,100 limit on the amount that can be held within a pension without adverse tax implications. He also raised the annual allowance (the maximum amount that can be saved into a pension each year) from £40,000 to £60,000. 

 
 

The move was a bid to tackle fears that the cap set by the LTA – which had been frozen for six years in 2020 –was encouraging many professionals to retire in their fifties. 

It was hoped the reforms would encourage highly-skilled workers – particularly senior NHS doctors – to remain in and return to work. Four months on from this announcement, new research suggests it is starting to have the desired effect.

The Saltus Wealth Index Report surveyed more than 2,000 people in the UK with investable assets of £250,000 or more.  More than two thirds (67%) of respondents say they will now consider working for longer than they’d previously planned, rising to 76% of those in the health sector.

 
 

Furthermore, 19% of non-working HNWIs said they already have plans in place to return to the workforce as a direct result of the changes to pension allowances. In addition, a further 35% said they are considering returning to the labour market. Overall, 72% of respondents said they plan to take advantage of the tax change.

Almost half plan to use the full new annual allowance

The report also suggests that HNWIs will also be looking to take advantage of the new annual allowance.

 
 

Before limits were increased, 45% of respondents said they were investing the maximum (£40,000) each year into their pension, and the research shows a similar proportion (42%) will continue to do so at the new limit. Given this is now 50% (£20,000) more, this response suggests that this group were restricted by the old rules and that the reforms may well have the effect on the wider economy that the Government was hoping for.

Commenting on the research findings, Michael Stimpson, Partner at Saltus, said: “The latest Saltus Wealth Index Report reveals a significant and positive response from high net worth individuals to the Government’s removal of the LTA cap on pension contributions. We have seen a considerable number of clients wishing to discuss the reforms, eager to ensure they have the right plans in place that will enable them to realise their long-term retirement ambitions. There are some complexities relating to the practical legislative changes that need to be considered though so it’s important you weigh up your options carefully. 

“More than two thirds are now considering extending their work tenure, indicating the impact of this policy change on their retirement plans. We also note an increase in confidence, with 71% expressing optimism about prospects for the UK’s economy. While concerns about inflation persist as a primary risk, HNWIs remain positive about their personal finances, with 82% expressing confidence in their personal situation over the next six months.” 

 
 

The Saltus Wealth Index rises as HNWIs start to feel more positive about the economy and their own finances

The research into HNWIs’ feelings about the pension reforms is part of a wider study which combines their responses to nine questions around their own wealth and the wider UK economy to create a ‘confidence’ score that is set between 0 and 100.

The Index currently stands at 60.9 – a small increase compared with the last Index (measured in January 2023) of 59.5. This rise was primarily caused by a 4% increase in the number of respondents who have confidence in the UK economy (71% vs 67% six months ago). It was also impacted by 82% of HNWIs feeling more confident about their own wealth. Interestingly, this could indicate that HNWIs are feeling more optimistic about their prospects now than earlier this year, despite significant inflationary headwinds and political turmoil. The pension reforms may have played a large part in influencing this.  

 
 

Dr Michael Peacey, Senior Lecturer in Economics at the University of Bristol, who developed the methodology driving the Saltus Wealth Index, added: “The marginal increase in the Index suggests that, while confidence among HNWIs remains resilient, recovery to levels seen in the first Index may take some time. Many HNWIs clearly anticipated some of the challenges of the last six months, particularly around inflation, but the view that these risks will fail to dissipate as fast as previously believed is restraining confidence.

“The current mix of challenges and opportunities mean that taking appropriate decisions to protect their wealth is especially important for HNWIs. It is unsurprising, therefore, that the only measure in the Index to fall significantly corresponds to the increased anxiety caused by money, with 64% of respondents now agreeing that money makes them anxious, up from 59.6% previously.”

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