Question: What impact will the Budget have on people coming up to retirement, and how will it affect how advisers deal with their clients' retirement savings?

Each month, we ask our industry to answer one big question!

Alison Beeston is compliance & communications manager at Bridgewater Equity Release

The removal of 40% tax relief on pensions for higher earnings may not only affect those who earn over £150k but might lead to a less supportive approach to pension arrangements for others as well. If the high-earning executives are put off pensions because there is no tax benefit to it, will this lead to those same executives putting less emphasis on providing pensions for the other employees in the firm?

A positive from the Budget is that those retiring with small frozen pension pots worth less than £2k can now take those amounts out as lump sums whereas before if they had savings over £16k they could not. Generally there will not be much impact on pensions and arguably now is a good time to be investing. However, many people are feeling the pinch and cannot afford to contribute.

Possibly in recognition of the fact that State support for the elderly is becoming problematic the Budget did increase the amount of pensioner's capital disregard to £10k, meaning they can hold more capital without it affecting their benefits.

The pension time bomb is still building, accentuated by the rise in unemployment and the documented issues faced by those looking after elderly parents and children where they are struggling to financially support both. The UK will struggle to support the next generation of retired people in the same fashion it has previously done, not only because the numbers of elderly people are rising, but also there will be less people of working age to generate money for the Government to cover the costs of benefits and care.

Current state benefits for the elderly will become increasingly unaffordable and by 2030, a significant portion of the costs will need to be met from private funds. As a result we will see an increase in multi-generational living where three generations of the same family pool funds and live together to provide care support.

The issues with pensions and the demographics are all key drivers which will lead to an increase in demand for products, such as equity release, which allow customers to decumulate their assets to privately fund their care.

David Butler is a Symponia member and chartered financial planner

The recent Budget shows the Government intent to tax more and judging by the state of UK finances, (without taking into account the state schemes pension funding time bomb and the increasing costs of an ageing population) will not be the last of many measures in an effort to balance the accounts.

For those close to retirement or considering retirement, in particular those in the 50% tax bracket, this Budget may well prompt them to retire sooner. Especially those 54 or under between now and April next year. The minimum retirement age for taking a pension, including any tax free cash, is 50 but will rise to 55 from next April.

Taking initial and ongoing independent financial advice will be essential to ensure that investment for pension and investment income will take account of probable rising taxation and at some point rising inflation. Advisers will have to consider all available investment options within their client's attitude to risk and maintain investment flexibility to guard against further taxation rises and of retrospective taxation changes.

Peter Carter is head of product marketing at MetLife UK

Just three years ago the UK pensions system was supposed to have become simpler with A-Day ushering in sweeping changes to legislation. The changes were meant to last 30 years.

The Budget is a small but significant reversal of the drive towards simplicity as it reintroduces complexity to the system by withdrawing higher rate tax relief for everyone earning over £150,000 from 2011.

It is not yet clear how exactly this is going to be implemented and that is perhaps the key effect this Budget will have on people coming up to retirement and their advisers.

In reality most clients will not be affected by the changes, but understandably they will be concerned about the continuing changes to the pensions legislation.

Advice for high earners may well now focus on alternative savings vehicles and there is likely to be a shift away from pensions. Property in particular now looks more attractive as the tax treatment of capital gains now seems low in relation to pension taxation for high earners.

The Budget does very little to encourage saving over spending and that is especially the case in pensions.

Matt Connell is head of government affairs at Zurich UK Life

You cannot create a pension system that everyone thinks is fair, but any government should be able to create a system that is predictable - a system which allows people to plan for the future.

In the Budget, the Government made the system far less predictable by breaking the principle that pensions should be treated as a form of deferred pay. In the long run, that is bad news for the Treasury, because many more people will spend their earnings while they can, rather than tying them up in pension pots that can be raided in future. Who will trust personal accounts if they see the Government attacking higher rate tax relief?

In the late 1990s, the Government restored faith in monetary policy by handing over crucial decisions to the Monetary Policy Committee - a body that could not be swayed by short term political considerations. At the time of the Turner Review, many people suggested something similar was needed for pensions - a body to oversee Government policy and offer an authoritative voice on what was best for the long-term health of the system.

That kind of authoritative voice, speaking up for the long-term interests of the pension system, is needed now more than ever before.

Maureen Duckworth is pensions technical manager at Scottish Life

Most people save for their retirement over the long-term. They make contributions regularly each year and add a bit more when they can, and so will have banked their tax relief long before the Chancellor introduced the changes for high earners. People who have delayed saving will find themselves in an entirely different position. For example, many people who are building up a business will re-invest in that business instead of taking higher amounts of income and/or paying pension contributions for themselves.

With the annual allowance effectively slashed in the current tax year, scope to provide for their retirement in a cost efficient way has been significantly affected with immediate effect. The rule that allows the annual allowance to be set aside in the year benefits are taken has effectively been removed without any warning or consultation.

Advisers need to re-visit clients who have an income of £150,000 or more in this tax year (or either of the last two tax years). Affected clients paying contributions of more than £20,000 a year regularly (with 'regularly' meaning at least quarterly) can continue to pay this contribution. Checks will need to be made for clients looking to increase or start contributions.

Andrew Gadd is head of research at the Lighthouse Group

While the changes in this year's Budget only affect very high earners it creates a worrying precedent by breaking the long-standing principle that an individual receives tax relief on their pension contributions at their highest marginal rate. All political parties need to be questioned as to their stance regarding pension contribution tax relief going forward and as there will be an election in the next year it will be interesting to see if this is something that is specifically covered by any of the parties in their election manifesto.

In terms of tax planning the increase in the ISA allowance is welcomed and further highlights the fact that pension planning needs to be dealt with on a case by case basis and depending on individual circumstances can involve a combination of ISAs and pensions.

Nigel Hare Scott is managing director at Home & Capital

Advisers

It is of some comfort that the Chancellor has considered the needs of those in or approaching retirement by raising the savings limit for pension credit to £10,000 and by planning to increase pensions by 2.5% even if the RPI is negative.

Similarly, the steps to bolster the housing market such as the rise in the stamp duty threshold, albeit temporarily, are to be welcomed.

However, it is disappointing that one anomaly closely related to both the retirement and housing sectors remains ignored. The principal and often the sole assets of the elderly are their homes. A simple method of improving the sometimes desperate financial circumstances of retired homeowners would be to make cash releases under regulated equity release schemes outside the scope of income support and pension credit assessments.

As the home itself is excluded when assessing eligibility to pension credit, there is no logic for including savings which derive from, say, lifetime mortgages which are designed to enable pensioners to remain in the same home. Means testing on this basis discourages the elderly from improving their standard of living, an absurd consequence of a rigid interpretation of the rules. The Treasury have clearly not yet recognised that equity release plans are an effective method of improving pension provision at negligible cost to the taxpayer.

The early implementation of the higher ISA limit for those aged over 50 will be well received even while the returns from retirement savings are so modest. The increase should encourage better off pensioners to reinvest in equity markets.

Peter Hicks is head of UK retail sales at Fidelity International

The Government succeeded in muddying the retirement saving waters. Simplicity is out and complexity has made a big return, and the overall feeling is one of disappointment at the Government's tinkering. It would be a shame if this overall cloud of uncertainty puts people off pensions, since the vast majority are not affected by the new rules. In fact, that same majority will soon have their annual ISA allowance increased by more than 40%! In this respect, I expect the value placed on good independent advice to rise significantly. Higher rate taxpayers are most affected through the changes on pensions tax relief and the personal allowance, but they too will have an increased ISA allowance and will probably re-evaluate the respective balance of investments into pensions and ISAs in addition to ensuring they make best use of the annual CGT allowance.

In general terms, people will want to ensure that as much capital and income as possible is sheltered from tax. The best ways to do this remain through pensions and ISAs, which provide an excellent mix of tax relief at the front, and income flexibility on the way out. Would-be retirees may be comforted to know that, in a lower risk income producing asset class like corporate bonds, an ISA can return up to 67% more than it does outside of the ISA wrapper. I suggest people max out their ISA allowance to shield as many current and legacy assets as possible. In this respect the Budget has given an opportunity for advisers to reassess whether clients with investment bonds should transfer to a better wrapper, or even into a straight collective.

Only about 3% of the population earn over £75k per annum, so for the remaining 97% a pension is still the most tax efficient method of retirement saving. The Budget simply means that would-be retirees just need to be a little smarter about how they allocate their company and personal pension assets and then seek an income from them. For example, immediate vesting was not touched by the Budget and remains an opportunity to be considered. This sees the client place a cash sum into a pension, which then attracts tax relief, and then withdrawing it as part of the 25% tax-free allowance post age 50 (or from next year 55).

The Budget has also made the capital gains tax allowance even more attractive. It is the most underused tax allowance in financial planning but when faced with a choice of paying 18% or 50% plus, I daresay many clients will take far more interest in knowing how to make best of use of their CGT allowance.

The Budget was disappointing in so many ways. However, it was potentially so confusing to the consumer that it also presents an opportunity for advisers to offer clarity and creativity, at a time when many clients are likely to be bruised and confused. Reassessing the clients' tax wrappers can mean saving or making the client money from day one, which in these times is a message they will definitely understand.

Jonathan Howard is head of corporate clients at Courtiers

This Budget will have a major impact on almost all retirement savers over the coming years. While commentators were relieved that higher rate tax relief on contributions was not removed altogether, the fact that it has been reduced at all has set a dangerous precedent. The first step is always the hardest, but now that hurdle has been jumped, the temptation to reduce the earnings threshold down and down will surely be irresistible to a government scratching around for ways to earn a quick buck. Eventually I am sure we will see higher rate tax relief disappear altogether.

Furthermore, directors who have thus far fought to keep generous company pensions alive for all employees will have just lost a significant personal incentive to continue doing so.

The closure of company schemes had been gaining momentum long before this Budget but now we can expect it to go into over-drive to the detriment of everyone, not just the super-wealthy.

High earners should be advised to fully utilise the increased ISA allowance, maximise the relief that is still available for pension contributions, and then 10 years prior to retirement make contributions to offshore bonds, or onshore vehicles that primarily deliver capital gains rather than income.

Peter Jordan, head of proposition marketing for Skandia

Although much of the attractiveness of pension contributions for the highest earners has been lost, it has not been lost entirely. For those taxed at 40% pension contributions still remain an extremely tax efficient way of funding for retirement. Anyone approaching retirement should certainly make use of the generous relief still available. Pension contributions by way of salary sacrifice could be used to reduce the tapering of personal allowance for those affected by this. We should not forget the tax-free pension commencement lump sum a pension provides which could be used for additional investment and income.

Aside from pensions, the increase in the ISA allowance (although small) provides an additional and valuable way to provide extra tax-free income in retirement. Through careful financial planning, other investment vehicles can be used to provide tax efficient income, whether that might be by utilising an individual's CGT allowance or perhaps '5% withdrawals' from tax deferred bonds.

While there may be a shift in the level of savings to different investment wrappers, the Budget is unlikely to have a big impact on the overall level of savings. The Budget has introduced some new complexities that mean it is even more important for sound advice, and this can only be good news for advisers.

John Moret is director of sales and marketing at Suffolk Life

Assuming the Budget proposals are adopted without change advisers will have to review the retirement planning for all clients with earnings that are close to or in excess of the new £150k limit. The self employed are most likely to be affected as they tend to have more erratic earnings and planning tends to be more short term.

The irrationality and inequity in the proposed changes mean that individuals who deferred pension contributions, by virtue of the A-Day rules, with the aim of investing substantial sums later in their working career will be materially disadvantaged whereas those that funded their pensions early will be less affected. Advisers will need to look at alternative saving strategies using non-pension vehicles.

Once again, changes to pension legislation driven by short term need e.g. tax revenues will potentially penalise those who were intent on saving for retirement over the long term. They also provide further evidence of a lack of a coherent and consistent pensions saving policy and will further damage the already frail confidence of the majority that pension savings are worthwhile. If we needed proof that pensions simplification is dead, then 52 pages of a technical guide to introduce a relatively simple tax change is pretty conclusive.

Mike Morrison is head of pensions development at AXA Winterthur Wealth Management

The obvious effect is that people earning above £150k will get less tax relief on their pension contributions. This will not immediately affect their fund values, as the higher rate relief would have to be claimed through their self assessment return.

It does, however, make pensions less attractive and therefore could cause people to stop funding altogether and even to change their view of pension provision for any employees.

Anything that means that people save less is not good and will not assist in addressing the pensions gap.

Let us not forget, however, that pensions still enjoy tax relief of at least 20%, growth is tax efficient and individuals can still take a 25% lump sum.

Ian Naismith is head of pensions market development at Scottish Widows

Very high-earning people near retirement could be among those most affected by the Budget changes. They may have been thinking about investing substantial amounts close to retirement to boost their pensions or take them right up to the lifetime allowance. That option has now been closed off without warning. However, it gives advisers the opportunity to discuss retirement plans holistically with clients and help them make the best investments, in pension and elsewhere, that will be as tax-efficient as is possible with the new rules.

Nigel Orange is technical support manager at Canada Life

For individuals approaching retirement receiving bad news from the Budget on top of all time low interest rates, annuities and depressed stock markets would have been very depressing. Thankfully for the vast majority of impending retirees the Budget delivered some small positives including ISA limits increasing to £10,200 (£5,100 for cash deposits). However the ability to transfer from equity funds over to cash would have been a useful tweak

The 2009 Budget was not so kind for high earners whose income of £180,000 or more will result in losing all higher rate tax relief after April 2011 and for those earning between £150,000 and £180,000 facing tapered relief.

Many advisers see this as the 'thin end of the wedge' and are convinced that higher rate relief for pension contributions will in time disappear altogether! So what alternatives might advisers consider in lieu of these changes?

Saving for retirement by investing in 'offshore funds' and tax-efficient plans such as enterprise investment schemes may gain in popularity for high earners and those willing to accept higher risk but for the majority it's likely to be business as usual with the emphasis at retirement on shopping around for the best annuity rate.

Pamela Reid is head of CitiQuilter's Bristol office

The Budget carried some nasty surprises on the tax relief available for larger pension contributions which will question whether pensions are the right place for savings for retirement for those earning over £150,000. With tax relief of 20% on the contribution and the potential of paying a higher rate of tax when benefits are withdrawn, the attraction of making large one off contributions needs to be considered carefully against alternatives such as ISAs, personal savings, offshore bonds or transferring to spouse etc.

With a capital gains allowance rising to £10,100, building up a personal investment portfolio that can be retained beyond the age of 75 and accessed at anytime, has its merits for a growth orientated client.

One thing is for sure, the pension needs to work hard to achieve the expected returns in these current market conditions and management of a client's overall assets will become more important. The Budget changes emphasise that it is increasingly important to consider the risk profile and asset allocation across a range of asset classes and investment products, portfolios and family requirements.

Andrew Tully is senior pensions policy manager at Standard Life

The Budget gives advisers many reasons and opportunities to speak to their higher earning clients. In 2009/10 and 2010/11, even the highest earners can get tax relief on pension contributions up to £20,000 - or more if they were paying contributions on a regular basis before the Budget.

From April 2011, early details suggest people with taxable income of up to about £180,000 are likely to find pensions more attractive than other investments. However it's important to remember that this group only makes up around 1% of UK taxpayers. These very highest earners may find alternative investments - ISAs, qualifying life policies, offshore investments, paying pension contributions for their spouse - prove more tax-attractive from 2011. But they will need advice in working out what options are best for their particular circumstances.

There are also a number of other tax planning opportunities arising from the tax and national insurance changes outlined in the Budget. For example, salary sacrifice for those earning between £100,000 and £150,000 should prove particularly attractive.