Is it time financial advisers broadened their remit? While most may be happy discussing the relevant tax-advantages of pensions, Isas or single-premium life insurance bonds, how many will be as confident discussing benefits, tax-credits and workplace salary-sacrifice schemes?
It is perhaps not surprising that many have to now stayed clear of such areas. The benefit system is notoriously complex and those that have been most reliant on such payments haven’t had the surplus capital to save and invest – let alone pay for financial advice.
But there is one significant change to the benefit system which is going to impact more than a million middle-class families, many of whom could save significant sums with some basic financial planning. These are just the customers many are predicting will not pay for financial advice, once RDR is introduced. But this could be a good opportunity for advisers to prove they are delivering a tangible benefit.
From January 7 next year those earning more than £50,000 will start to lose their child benefit. This is currently worth £1,056 a year – tax-free – for those with one child, £1,752 for those with two kids, and almost £2,500 a year for those with three.
Once earnings top £60,000 a year then this benefit will be withdrawn completely. For many of these families this couldn’t have come at a worse time as they face flat wages and rising food and fuel prices.
But there are steps that people can take to help alleviate such losses. Those whose salary is between £50,000 and £60,000 are among the worst hit, as this gradual withdrawal means that those in this income bracket will pay higher marginal tax rates than millionaires.
The tapering means that parents will lose £10 of their benefit for every £100 they earn over the £50,000 limit. So a father of three earning £50,000 will pay a 66pc tax-rate if he gets a £1,000 pay rise.
Those in such a position would be well advised to maximise pension contributions – and make sure that charitable donations they make are properly registered with HM Revenue & Customs.
A £1,000 pension contribution would effectively cost just £424 if this contribution brings a salary back to £50,000, ensuring a parents keeps the full child benefit for two kids.
But those in this situation don’t just need someone to crunch the numbers. Many now face the decision of whether one parent – typically the mother – forfeits this payment, or whether the higher-earning parent pays an equivalent tax charge.
This isn’t just a decision based purely on statistics, although this will play a part. Will the higher earner get dragged into the self-assessment system if they decide to keep this benefit and pay a tax charge at the end of the year? If one parent stays at home to care for the children could electing not to take this money affect their eligibility to other state benefits, particularly a pension? How will the bills be shared if the lower earner loses this benefit? Many people will want to talk through such options with an informed professional.
This change turns the principles of taxation on its head, as those who live together as a family unit – whether married or not – will be obliged to share details about how much each earns.
The complexities of the system mean that those who have children from a previous relationship might have to ask a new partner to pay an additional tax charge if they move into the family home. Meanwhile married couples – who have since separated may not be so affected.
This is the kind of “real world” financial advice many families now desperately need but are not getting, from their employers, their bank, or the man they see once a year about their annual Isa investment.
As one adviser pointed out, these issues don’t just affect the bottom line on a bank balance. Losing such benefits is prompting some parents to consider a return to work. If advisers can put in place plans that help people them live their lives they way they want, then my guess is they will have a client for life.
Emma Simon is deputy personal finance editor at The Telegraph Media Group