Pensions are more important than ever for farmers

One thing I have suggested a few times is that the proposed new rules on pension death benefits mean that they are no longer attractive. Whilst it’s certainly true to say that pensions as a tool to pass on wealth to future generations is going to be much more difficult – or less attractive – in the future, having worked through the permutations for many clients now, rather than announcing the slow death of pensions, I’m firmly of the opinion that they will be even more attractive and important going forwards.

The reason for this contrarian opinion is relatively straightforward. It’s widely accepted that the way ‘around’ the new Inheritance Tax rules is to see earlier gifting of assets to future generations. If in the future you take less partnership profit or receive lower salary or dividends from your company, or if you exit completely and have to start paying costs that were previously covered by the business, these will have a material impact on the amount of income that you need. You will then need to look at ‘off farm’ assets… and that is where the good old pension will be front and centre. Pensions are still the best available option (by a distance) for providing for your income needs in older age.

Let us not forget that people will be paying more tax in the current environment where allowances are frozen (according to the government’s own numbers there were 5.6m higher rate taxpayers in 2023/24, an increase of 40% from 2020/21), and where Corporation Tax rates have risen by as much as 38% in recent years, the ability to pay into a pension and receive tax incentives for doing so remains one of the few ways you can provide for your future with an immediate tax benefit.

I’ve long advocated that building off farm pots can really help succession and retirement planning and all I can see is that if the rules go through as intended, earlier planning will be key, which lends itself to needing to sustain yourself for longer from those pots. To achieve this, strategies such as paying more into pensions during the good years, or starting earlier and getting the compounding impact of long-term investment will help to get those funds to a size where they can play an important part in those succession plans.

Whilst I was as disappointed as anyone with the changes in the budget, it has just focussed the need for some planning and some clear direction. Not every farm has the ability to make wholesale changes to navigate matters, but for many overlaying personal and business needs as part of a joined-up plan should lead to much better outcomes. Just don’t dismiss pensions or the role they can play in assisting with this.

If you are pension planning or just want to explore your options, our rural specialist financial planners will be able to help, please do get in touch with Stuart direct at stuart.coombe@om.uk or 07815 561333. Or contact us here.