Presentation on theme: "THE CONSTANT PROCESS OF CHANGE TO PENSIONS"— Presentation transcript:
1 THE CONSTANT PROCESS OF CHANGE TO PENSIONS Jim Jarvie, Jon Hogg,Lead specialists – PensionsFor financial advisers only
2 LEARNING OUTCOMESBy the end of the session you will be able to explain:The latest position in connection with the proposed pension changes identified in the 2014 budgetThe implications of the changes for those retiring now and after April 2015The impact of the changes on the advice that you might give both now and after April 2015
3 AGENDA – THE VALUE OF INFORMED ADVICE PENSION CHANGES SO FARThe latest transitional processAnticipating what’s to comeThe member contribution rulesCapital tax planning of residual fundsThings to do today!
4 THE PAST – APRIL 2011 TILL MARCH 2014 Reduced Annual and Lifetime allowancesThree new forms of protectionCapped and Flexible drawdown55% lump sum death benefit tax charge on crystallised units and beyond 75 on all unitsCONSTANT CHANGES REQUIRE CONSTANT REVIEWS AND REVISIONS
5 AGENDA – THE VALUE OF INFORMED ADVICE Pension changes so farTHE LATEST TRANSITIONAL PROCESSAnticipating what’s to comeThe member contribution rulesCapital tax planning of residual fundsThings to do today!
6 THE PROCESS – 27th MARCH 2014 TILL 5th APRIL 2015 Chancellors announcementsFCA interim regime till 5th April 2015Triviality from money purchase schemes increasedIncome from small pots increased for those aged 60‘Buddy‘ transfers without a buddy!TRANSITIONAL PERIODCREATES RISK TO CLIENTS AND ADVISERS
7 THE CLOCKS TICKING – MAKE IT HAPPEN! Treasury document ‘Freedom and choice in pensions’Consultation till June, response in JulyDraft clauses for Pensions Tax Bill. More consultation in AugustPrimary legislation - Pensions tax and Pensions schemes ActsPOSITION CLIENTS ANDKEEP THEIR OPTIONS OPEN
8 AGENDA – THE VALUE OF INFORMED ADVICE Pension changes so farThe latest transitional processANTICIPATING WHAT’S TO COMEThe member contribution rulesCapital tax planning of residual fundsThings to do today!
9 ANTICIPATING THE FUTURE – 5th APRIL 2015 ONWARDS New options for money purchase withdrawalsReduced money purchase Annual Allowance where income taken ‘the new’ wayNormal Minimum Pension age 57 from 2028‘Guidance’ for those approaching retirementDeath benefit rule changes
10 PENSION POT PCLS – Normally 25% Annual Allowance reduces to £10,000Annual Allowance reduces to £10,000Uncrystallised funds pensionlump sum*25% tax free75% income tax chargeIncome taken from flexi access drawdown/Short-term annuitiesLifetime Annuity/scheme pension* Not available to clients with Primary or Enhanced protection and protected cash entitlement over £375,000 Not available to clients who have a Lifetime Allowance enhancement factor and a lump sum allowance of less than 25%
11 GRANDFATHERING – CAPPED DRAWDOWN Existing Capped Drawdown ClientIncome above capped LimitsIncome within capped Limits*£40K annualallowance plus 3 yearcarry forwardAnnual Allowance reduces to £10K –no carry forward* Maximum income applies from statutory review, annual re-basis review and additional designation under Post 5/4/2006 drawdown arrangements where scheme rules allow
12 HANDSET QUESTIONHow many of your clients will want to retain their full annual allowance while drawing benefits?noneless than 10%more than 10%
13 AGENDA – THE VALUE OF INFORMED ADVICE Pension changes so farThe latest transitional processAnticipating what’s to comeTHE MEMBER CONTRIBUTION RULESCapital tax planning of residual fundsThings to do today!
14 OPPORTUNITY THRESHOLDS – 4.4 MILLION HIGHER/ ADDITIONAL RATE TAXPAYERS* Earnings above £41,865 – higher rate liabilityEarnings above £50,000 – loss of child benefitEarnings above £100,000 – loss of Personal AllowanceEarnings above £150,000 – additional rate tax liability* Source: HMRC – survey of personal incomes - updated table February 2014 – Number of higher rate and additional rate taxpayers
15 HANDSET QUESTIONWhat percentage of your existing client bank are higher rate taxpayers?noneless than 25%more than 25%
16 MEMBER CONTRIBUTIONS BIGGER CONTRIBUTIONS NEED MORE ADVICE Up to 100% of earnings in the tax year*Available Annual Allowance carry forwardAvailable Lifetime AllowanceBIGGER CONTRIBUTIONSNEED MORE ADVICE* £3,600 contributions and under do not require earnings
17 MEMBER CONTRIBUTIONS – MONEY IN AND MONEY OUT Basic rate in – Basic rate outHigher rate in – Higher rate outHigher rate in – Basic rate outREDUCE YOUR 2014/15TAX BILL, INCREASEYOUR FUTURE INCOME
18 OPPORTUNITY THRESHOLDS – TAX BREAKS IN AND TAX CHARGES OUT Tax relief on the member’s contribution*Capital appreciation assuming member’s incometax rate on withdrawals at *20%40%45%+ 6.25%– 12.50%%%%%* withdrawals normally restricted to beyond age 55. Figures assume tax free cash paid at 25%. The capital appreciation figures represent the increase/decrease in the value of the contribution as a percentage due to tax relief but excluding charges.* Drawing benefits via flexi access drawdown or uncrystallised lump sums will restrict future annual allowances to £10,000** Higher rate tax reclaim will be in subsequent tax year
19 AGENDA – THE VALUE OF INFORMED ADVICE Pension changes so farThe latest transitional processAnticipating what’s to comeThe member contribution rulesCAPITAL TAX PLANNING OF RESIDUAL FUNDSThings to do today!
20 CAPITAL TAX – GENERATION PLANNING SpouseChildGrandchildInheritable residual money purchase fundsLump sum death benefits tax free on death before 75 from 6th April 2015 onwards45% tax charge on lump sum death benefit beyond 75*Dependent's drawdown changes to beneficiaries drawdown – income tax free if member dies before age 75* Proposed option to allow beneficiaries drawdown based on an income tax charge on the recipient from the 2015/16 tax year onwards
21 HANDSET QUESTIONWill the changes to the death benefit rules encourage your clients to fund more of their retirement income from other assets?YesNo
22 AGENDA – THE VALUE OF INFORMED ADVICE Pension changes so farThe latest transitional processAnticipating what’s to comeThe member contribution rulesCapital tax planning of residual fundsTHINGS TO DO TODAY!
23 TO DO LIST? Refresh knowledge on FCA temporary regime Contributions for higher rate taxpayersLegacy book capabilitiesPre A day transitional rightsFlexible drawdown clientsCrystallised funds death benefits now delay payment?Anyone for Individual protection?Defined benefit transfers
24 LEARNING OUTCOMESBy the end of the session you will be able to explain:The latest position in connection with the proposed pension changes identified in the 2014 budgetThe implications of the changes for those retiring now and after April 2015The impact of the changes on the advice that you might give both now and after April 2015
25 Calls may be monitored and recorded for training purposes and to avoid misunderstandings.Old Mutual Wealth is the trading name of Old Mutual Wealth Limited which provides an Individual Savings Account (ISA) and Collective Investment Account (CIA) and Old Mutual Wealth Life & Pensions Limited which provides a Collective Retirement Account (CRA) and Collective Investment Bond (CIB).Old Mutual Wealth Life Assurance Limited, Old Mutual Wealth Limited and Old Mutual Wealth Life & Pensions Limited are registered in England & Wales under numbers , and respectively. Registered Office at Old Mutual House, Portland Terrace, Southampton SO14 7EJ, United Kingdom.Old Mutual Wealth Life Assurance Limited and Old Mutual Wealth Life & Pensions Limited are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Their Financial Services register numbers are and respectively. Old Mutual Wealth Limited is authorised and regulated by the Financial Conduct Authority with register number VAT number for all above companies isOld Mutual Global Investors is a trading name for Old Mutual Global Investors (UK) Limited and Old Mutual Investment Management Limited both of which are authorised and regulated by the Financial Conduct Authority. Their Financial Services register numbers are and respectively. Old Mutual Global Investors is registered in England & Wales under number and its registered office is 2 Lambeth Hill London EC4P 4WR.Old Mutual Investment Management is registered in England & Wales under number and its registered office at Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4AJ.VAT number for all above companies isRoyal Skandia Life Assurance Limited is registered in the Isle of Man under number 24916C. Registered and Head Office: Skandia House, King Edward Road, Onchan, Isle of Man, IM99 1NU, British Isles. Phone: +44 (0) Fax: +44 (0) Authorised and regulated by the Isle of Man Insurance & Pensions Authority.Royal Skandia Life Assurance Limited is a member of the Association of International Life Offices.Skandia International is registered in Ireland as a business name of Skandia Life Ireland Limited.Skandia Life Ireland Limited Registered No: Ireland. Administration Centre for correspondence: Skandia House, King Edward Road, Onchan, Isle of Man, IM99 1NU Tel: +353(0) Fax: +353(0) Head Office: Iveagh Court, 6-8 Harcourt Road, Dublin 2, Ireland. Tel: (0) Fax: (0) Registered Office: Arthur Cox Building, Earlsfort Terrace, Dublin 2, Ireland. Skandia Life Ireland Limited is regulated by the Central Bank of Ireland. VAT number for Skandia Life Ireland Limited is S.Skandia Life Ireland is a member of the Association of International Life Offices.
26 LEGAL FOOTERThis communication is designed for and directed at professional financial advisers. It should not be relied on by consumers.This presentation is designed to assist financial advisers in taking the appropriate examination. Old Mutual Wealth cannot be held responsible for any errors or omissions in the details.This presentation is based on Old Mutual Wealth’s interpretation of the law as at September We believe this interpretation is correct, but cannot guarantee it. Tax relief and the treatment of investment funds and trusts may change.The value of any tax relief will depend on the investor’s individual circumstances.Investors should be aware that the value of units can fall as well as rise. The value of investments may fluctuate as a result of market and currency fluctuations and are not guaranteed.Old Mutual Wealth does not accept any responsibility for any losses or liabilities arising from actions taken or omissions as a result of the information contained in this presentation.Further details of the Old Mutual Wealth products can be obtained from the appropriate Technical Guides which are available from any Old Mutual Wealth Group office.