Wealthy Britons will not abandon venture capital trusts in favour of boosting their pension contributions, despite the pension saving regime becoming more attractive for higher earners, a specialist has said.
Jess Franks, head of investment products for Octopus Investments, said although chancellor Jeremy Hunt abolished the controversial lifetime allowance cap in the 2023 Budget, this did not make the tax incentives of VCTs any less attractive for investors wanting to boost their assets ahead of retirement.
Franks said: “We don’t expect to see the majority of VCT investors increasing pension savings at the expense of VCTs, as they are very different propositions, with different timelines, objectives and outcomes."
As reported at the time, Hunt got rid of the increasingly punitive lifetime allowance cap in the Budget earlier this year, potentially boosting pension investment over alternative tax-incentivised investments.
In previous years, FTAdviser has written on advisers using VCTs and similar investment structures to help higher net-worth clients overcome a punitive LTA cap.
In 2015, cuts to the LTA saw Albion VCT poll advisers, 32 per cent of whom said their clients would be more interested in VCTs as a result of the cut to the allowance.
In 2016, the introduction of tapered pension allowance for those earning £150,000 and above, in addition to cuts to the LTA, saw national accountancy firm RSM UK state these as reasons why people were starting to consider alternatives such as enterprise investment schemes and VCTs to boost their retirement income.
Each on their merit
But Franks believes the structures are different enough, and the investment propositions of VCTs attractive enough in their own merit, to allow for wealthier clients using both.
She said: "For example, with a VCT you receive a tax-free income stream, and you can access your savings more readily than you can with a pension, so tends to form part of medium-term planning.
"Equally, there are many well-advised savers who look to invest in VCTs and are happy to take more risk with this part of their portfolio in order to support UK entrepreneurs.
"A typical pension is not investing in exciting, high-potential companies that these investors are seeking out."
She added this was even more so the case for EIS investors, who are targeting high growth over five to 10 years from a small portfolio of very early-stage companies.
EIS investors typically invest larger amounts than they would, or even are able to, put into their pension.
Her comments came amid a swathe of fundraising in the VCT space, with companies such as Octopus Future Generations VCT seeking to raise £30mn, the British Smaller Companies VCT looking for £65mn, and Pembroke VCT looking to raise £40mn.
simoney.kyriakou@ft.com
