What will Budget 2025 mean for advisers and their clients?

0:12Hello and welcome to the FT Advisor podcast. Each week we'll be joined by guests from our financial services world to discuss the most pressing industry issues. I'm Amy Austin, News Editor at FT Advisor, and today I will be discussing all the big shocks and the leaks of Budget 2025 with Claire Trott, Director of Technical Connection and Head of Advice at SJP, Andrew Tully, Technical Services Director at Nucleus, Ian Cook, Chartered Financial Planner at Quilter Chevrolet Financial Planning, and Eamon Prendergast, Chartered Financial Planner at Planeteer Financial Planning. Thanks, guys. I know it's a very, very busy day for us all, so thank you for joining me today.

0:55Let's just get right into it. I mean, I think we were probably all in the same situation in that we probably ditched our lunch and ran back to our desks as soon as we saw that the leak had happened. It was quite chaotic here at the F2 with all of us running around. I think we saw many things coming from this budget, but that was something we didn't expect. So Claire, maybe we can start with you. What was your kind of initial thoughts on what the Chancellor has announced? I think, you know, as the word has been overused this week, smorgasbord, and I did have to practice saying it. I mean, lots of little things here, there and everywhere.

1:29I'm going to go with tapas. Much, much, much preference to smorgasbord. So no one big change, really, it didn't feel like there was and a lot of leaks that we obviously knew were coming as well. And then the immediate leak of the OBR, which obviously doesn't contain everything. So there were still some things that were announced in the budget. But obviously, for me, obviously, pensions being my bread and butter. So the salary sacrifice announcements, I think, are the big one for me, because actually, it's just going to be a bit of a challenge. But whether it comes in or not will be another matter due to the fact it's not due in until 2029, when we're going to start seeing towards the end of this government.

2:06So it depends when they call the election, I guess. Yeah, I guess I'll have to survive first before we can panic about that too much. Andy, what did you think? There was no particular surprises, wasn't there? Which in itself is not a surprise because, you know, every single possible thing has been leaked over the last couple of months. So it wasn't a huge surprise. There was nothing particularly unexpected in this. As Claire said, it's kind of a range of measures. Fortunately, they didn't pull out anything else, you know, particularly impacting pensions which is which is good um it was a strange little thing about pensions and IHT which which was a little bit unexpected uh and we can maybe chat around that as as we go and Eamon from an advisor perspective what did you kind of make of it are you happy are you not yeah I'm pretty happy I think a lot of my clients be relatively happy so there's been a number of leaks i think they counted 11 leaks since august so quite major leaks and then obviously a huge leak half an hour before rachel reeds was supposed to speak so i think the the takeaways from it are the things that aren't actually in it so what people really concerned about are changes to their tax-free cash changes to their contributions to pensions are they going to get reduced down from 60 000 to 40 000 um was the amount that you could put into your pension going to change so there was there was talk about having it capped at a million or 1.2 million there wasn't any changes to capital gains tax again so i think a lot of people were quite pleased about that in terms of you know if they're looking to sell property so a number of my clients are sitting on a capital gains and through their properties so i think for them there'll be a massive sigh of relief but maybe not when they've got to pay although they're rebranding it not calling it the mansion tax they're still going to have to pay some form of tax over two million yeah i think maybe they didn't like the word mansion they thought we'll leave that one out and ian you actually sat in the office with us lot at ft advisor so what were your kind of initial thoughts i think whenever i look and take into account what happens in a budget i always look at it through the lens of how it affects my clients i think broadly across the board as the other guests have said there's not going to be a lot in there that's going to scare people.

4:32I think what I will be drawing my clients' attention to, though, is how fiscal drag is going to affect them in the future. So although only minorly notable, the 2 % increase in the dividends and the saving tax, and with the reduction in the cash ISA, it means that as in the financial planning community, we've got to make sure that all of our clients are using all of their allowances moving forward, because otherwise all of us are going to be paying a a lot more tax in the future. The thing that I would draw attention to, again, it's like last year, it's tinkering with the pensions allowance. Again, it's an area that a lot of people won't necessarily understand or the consumer on the street won't understand.

5:10But again, it gives another disincentive to save into a private pension. And it's the long term ramifications of that for the younger savers that worries me. Yeah. So Andy, Claire, we've got the pensions experts with us today um claire maybe i can start with you let's look at pensions then this whole salary sacrifice you know cap what what do we make of that is it our savers going to be put off from putting money into their pensions now i think it's it's it's going to hit those those people that really need to save because as we know the more complex you make it the less likely people are to do it and they shy away um you know autumn romps a great thing but when you start going actually you can only do this or we're going to change the way your pension scheme works because a lot of people salary sacrifices is great but an all-in or all-out approach is a lot simpler to having a cap so two thousand pounds where you can get the ni is great to get the ni but actually um administering that is going to be hard um because there's going to be record reporting requirements according to the policy paper they're going to have to report that through payroll so it goes through to hmrc so that's if you've got multiple employers as well mostly employments as well it becomes more complex and what happens when things become more complex is people shy away.

6:22So either the employer is going to go, we're not going to do salary sacrifice anymore, which can be a detriment to all their employees, even those that wouldn't even be getting to that£2 ,000, or it's going to be people just going, I might have to pay a tax charge, or I might have to pay back NI, or whatever, and then again, shy away from making the right decisions to actually invest in their pensions. So I know the£2 ,000 limit sounds like a great thing, but I think in the grand scheme of things, an all in or an all out would have been a a lot simpler for people to understand and a lot easier for employers to deal with.

6:52The other thing comes is that they're going to pass on these savings. Actually, the leaked OBR document talks about that, about how this is actually going to, they're going to not be able to pass on the savings. They're actually going to pass on costs to individuals, which might be in a case of less pay rises, less bonuses, or actually just less pension contributions. So there's actually sort of behavioural science behind all of this that I think is quite interesting. And we're going to have to wait to see how it plays out. and how soon people are going to start, you know, reconsidering the structure of their pension schemes, and whether or not they're going to go over to a relief at source or go over to a net pay scheme, rather than a salary sacrifice scheme.

7:29I have to say, I'm personally a little bit gutted. My whole scheme is salary sacrifice, and I'm going to be really disappointed with my pension savings going forward. As is mine, Claire. So I feel the pain. Andy, do you think then it will, you know, is the messaging mixed here? You know, we're always told to contribute more, contribute more. Is that going to change? Yes, I think it is. And we've seen quite a few changes from this government that they've almost got conflicting aims and conflicting things going on. And this feels like another one, because on the one hand, they are saying we need more people to save.

8:03On the other hand, they're introducing a policy which will undoubtedly hit savings. And they seem to do that. There's been a few examples of that we've done. So another quite strange one here is that it probably hits people earning between about 40 and 50 ,000, the hardest in percentage terms, not necessarily in monetary terms, but in percentage terms, people earning 40 to 50 will see the biggest impact. And that's definitely a group of people that we absolutely need saving more. So to send this message of discouraging people is not good. And then the other potential downside is whenever we push changes and unless we're pushing changes onto employers and almost if we're kind of raising the bonnet of car and then making a change, there's always a potential for them making further changes as well.

8:57And so we could see other adverse impacts. And then from an individual point of view, it just hit savings. So we just produced a confidence index a week or two ago. And, you know, people's retirement confidence is very low. And one of the big things he highlighted in that was the constant change we're seeing, the constant, you know, drip, drip of, you know, continual policy changes. And it's just yet another one of these changes that people will go, you know, look, let's just not bother with saving at all because it's just too difficult. and Ian how is it how do you think the client's going to take it I think I just echo the sentiments of everybody else it's just more complexity I I come from a military background so I've got a non-contributory scheme in my earlier years and one of the things when I left the military before I became a financial planner I had no view on what my future would be pension wise so I was lucky enough that I then joined a company that encouraged me to begin to save and I was educated in the area so I had a responsible employer this is pre-auto enrollment what I worry about is the depth and scale of people that are out there that are just not saving and this is just another disincentive to save so it's it's the long the long-term impact to the behavior of the everyday man on the street who feels actually i just won't bother you know i'm seeing a lot of articles in the press at the moment of people that are giving up in saving in pensions in favor of saving into isis which that has its merits it's got it's got its place but it's got its place within a cohesive plan and people are neglecting pensions in favor of ice because because they just can't understand you know pensions falling into death duty legislation last year's big takeaway that's going to start impacting people before we know it again as soon as the press or the media starts to report on actual estates that are paying it it's going to be a further disincentive we need the government to stand by pension legislation and put some framework that the younger generations and even the middle generations can stand by and know that they can plan their future around stop tinkering and Eamon what do you think what was your kind of thoughts on it I think where you put any sort of friction within a pension it stops people contributing so where there's kind of mystery there's some margin there and what people feel now is that why am I bothering put into my pension now the NI side was was quite attractive for both the employer and employee so it was quite easy to explain that to clients at the time and they would kind of get that if you change that like which they're proposing to do people I think are less likely then to put into their pensions now they may decide they might put into their own personal pension but you kind of get this second order consequence where people may draw money out of their salary and not put into their personal pension and then not put it also into their workplace pension so as Andy said I think the people that could be most affected are those probably I would say probably above£30 ,000 that are in auto enrolment that are going to get eight percent going into their pension in total and they've only got that two thousand pound allowance and then you've got to try and work back then in terms of what the tax implications are to them so I think yeah it's what you want to do is obviously try and make pensions as easy as possible make sure that people try to understand them grow the pot as well and continue to put those contributions in there so to me this is very much backward looking in terms of for a small well relatively small amount of money they're going to sort of prevent people wanting to contribute into their pension.

12:51I think it's quite amusing how many allowances we now have. I was thinking there's well you've got tax relief is an allowance in in essence a lot of people forget that's tested separated from the annual allowance and you've got the annual allowance and you've got the money purchased annual allowance you've got the tapered annual allowance and then then you've got the the NICS annual allowance or whatever it's going to be called. And then you've got the lump sum allowance and the lump sum of death benefit allowance. That's terrifying for anyone, especially when you're like me and just use acronyms with writing centre.

13:17People just run away. And to kind of round up with pensions then, Andy, Claire, did we get off lightly? And will this, after we've had another year of no changes to tax-free cash, will we finally hear the end of the rumours every single year? Oh, I don't know. I don't know how long you've been in this industry, Andy, But for the 25 years I've been in it, it's been every year. So I'd be really surprised if it goes away. Every year there's at least some kind of rumour about it being capped or it being culled or something. So I suspect for me, it won't end here. Yeah, I mean, we really need government to give some certainty over some sort of time frame.

13:57So things like a triple lock, they said, well, you agree with policy. I don't agree with policy, but they said triple lock will be here for this parliament. so at least people then had some certainty they could very easily do something the same with tax free cash and say we're not asking them necessarily to bake it in for 50 years, it would be nice if we did but to say in this parliament we're not going to reduce tax free cash that would just take all these continuous rumours away and it's not the rumours in themselves it's the poor behaviour that the rumours drive because people start doing taking action off the result of those rumours and and rushing to take action and not properly thinking through action.

14:39So that's the kind of disappointing aspect. But yes, it was obviously good. It hasn't changed, but it would be good to get some certainty of it changing. And then the other thing that we had kind of sneaked through, a little change of proposed change to pensions in IHT, which in itself is another very disappointing policy. It's horribly complicated. And what they're suggesting now is that personal representatives will be able to tell schemes not to pay out money for up to 15 months. And that doesn't feel a great outcome either in terms of the pension beneficiaries are potentially, again, going to have to wait a long time to get their money at a time when they're grieving and they've probably got costs of funerals and all that kind of thing.

15:31So there is an issue we're trying to solve here, but it just shows how complex this issue is, kind of layering complexity upon complexity, as opposed to just going, actually, is there a much simpler way to do this, which there are, and moving to something like that. I think that's a real shame, because there's a real impact on what could be very, very vulnerable clients, couldn't it? Which we really should be, as providers, we're always asked to protect. Yes, 100%. To add further to your point as well about the tax-free cash, yes, it comes around every year, but by definition, it's already capped, albeit not for the majority, for the minority.

16:12So if you're dealing with clients with larger pension pots that exceed the 1 ,073 million allowance, their effective rate of tax-free cash is already reduced, and it's not as much as 25%, But actually having the tax-free cash allowance, I think it gives the government an opening in the future to adjust that number. So maybe not adjusting the 25%, but they might adjust the total quantum from what is currently 268 ,000. We could see in a future budget a 250 or 200. I think that avenue is always open rather than the blunt instrument, which is the 25 % to say 20 or 15. Well, we'll have to see how many people start running back to put that tax-free cash back in.

16:58Moving on to the next savings vehicle that we kind of knew was coming, we knew there were going to be changes to ISA, we just kind of didn't know what until a couple of days ago, really, for sure. Eamon, maybe I can start with you. Cash ISA, the changes to the allowance, is it going to push people to stocks and shares ISA? And also, we have seen in the actual document that actually lifetime ISAs are set to be scrapped as well. So is this going to be helpful, you know, this changes to the kind of ISA world? I think from a cash ISA perspective, I think the average amount that anyone puts into a cash ISA that started one is only round about£7 ,000 a year.

17:37So by then dropping it from£20 ,000 to£12 ,000, it doesn't make a huge difference. It's not going to hurt that many people. And those that do already persuade put£20 ,000 in a cash ISA, by reducing it down to 12 what they're probably going to do is rather than put it into a stocks and shares isa they're going to put it in their bank accounts and they're obviously increasing the savings by an extra two percent so the government will get some tax from that or they will probably use premium bonds up to fifty thousand pounds as well so i think what we need to look at is more educating clients certainly my clients but educating them to think about okay what are your long-term goals short term is fine to hold a certain amount of cash as a buffer but after that you've got to look at possibly using some sort of investment and that's educating the client really not to hold that much cash all the time if it's for a long-term plan so I think it's not going to change the behavior of people because there does need to be a lot more education and I think it's really just tinkering around the edges really and it's not going to get people investing into stocks and shares which i think that's what their goal is do you think ian they're going to push people to stocks and shares okay so last year approximately 66 percent of savers saved into cash and that'll be a cohort of people that predominantly as aemon says they're people that perhaps don't have a plan they don't have a financial planning or don't take financial planning advice.

19:08So I think you need to draw a line between the two products and not see them as the same. You know, one's an investment products and one's a cash-based product that benefits from some tax regrowth. I would be concerned if it changed people's behavior as such that they started taking on risks that perhaps they were uncomfortable with, directing themselves to platforms to invest in stocks and shares when maybe they have no experience, they have no capacity for loss. So I think that opens up a wider question but I would echo Eamon's thoughts on we need to we need to educate the wider community on the benefits of long-term savings anything that is beyond you know needs over the next 12 to 24 months and a pot of emergency funds should be invested for the long term you know much like they do in the US they're much better educated than us here in the UK and they tend to be long-term mainly index trackers but they're long-term investors that invest into their market the government probably missed an opportunity with a piece of educational reform to get people investing and understanding the benefits and that comes back to opening up financial advice or affordable financial advice to people with modest amounts of sums yeah yeah i mean claire they did mention the advice guidance boundary and like around the cash isa stuff saying it will help you know when people are able to get maybe targeted support do you think this is going to be the answer or do you think people are just so so scared of investing without help that they will just steer clear I think targeted support is a great idea I think it's something that can actually really really help people but they need to walk towards it so if they're not with a provider because they're not investing they're not going to get targeted support because you need to know the client to target the support so they need to be a client otherwise you can't target them.

20:59So it kind of falls down a little bit at that point. The reference in the document to financial services firms providing easy navigable ways for people to find the right UK investment for them, I thought was quite interesting. So it's not just driving people to invest, it's driving people to invest in the UK, which I don't have a great deal more detail on that. I'm not that I've found yet, so I don't know if anyone else has seen anything more on that. Might make sure again with this, it's just adding more complexity to the ISA world. ISAs were always simple that was the nice thing you know there was one limit you put money in and then we obviously got lots of different limits um uh with the LISA and uh and different things so it becomes more complex and again back to more complex people walk away um uh the the it's good that those over 70 over 65 can still have the full full cash allowance my father-in-law will be very happy uh because he was very adamant that that's what he wanted to do um we won't talk about his other investments.

21:53But it's, again, just the complexity of it, I think, you know, you need to be in there to understand it. And if you're not in there, you're not going to get the help. So, you know, it might just, it might be a barrier to people starting investing, or even starting putting cash in them. And as Eamon said, just putting it in their bank or premium bonds. And Andy, what about, you know, RIP Lifetime Isla? They said they're going to replace it with something from first time buyers. And I was like, oh, that sounds familiar. Isn't that they helped buy well exactly I mean I think just echo Claire's point about complexity is is you know that looks like we're going to get yet another different type of oiser and you know we've already got about seven so to have yet another one just what we really need is is one one type of oiser that people can save in and then going back to that whole cash and stocks and shares thing if you had one contract and people saved cash in it you would be able to use things like nudge techniques that once people had a certain amount of cash saving, you might then be able to nudge them over and above that into stocks and shares.

22:57At the moment, you have to go away and take a completely different contract. And that's just too big a barrier in the way of people to do that. So we need more simplicity and less ISA contract rather than more of them. Yeah, well, at least we didn't hear anything about the British ISA. We can breathe a sigh of relief there. But guys, I'm going to have to round up there. I mean, I think we could go on for an hour and a half talking about the budget, but we are running out of time. So I'm going to round up there and thank you all for joining us today. It's been really great to have you on. I know it's a very busy day week for us all.

23:32So everyone else tune in next week where we will discuss other goings on in the industry. Thanks all.

23:47Thank you.