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Pensions drawdown underpin January 2014. 2 Consider you have a client with a large fund subject to IHT at 40%* Would you use a Whole of Life plan to cover.

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Presentation on theme: "Pensions drawdown underpin January 2014. 2 Consider you have a client with a large fund subject to IHT at 40%* Would you use a Whole of Life plan to cover."— Presentation transcript:

1 Pensions drawdown underpin January 2014

2 2 Consider you have a client with a large fund subject to IHT at 40%* Would you use a Whole of Life plan to cover the charge? Now assume you have a client with a very large pension fund, and for all the right reasons you recommend pensions drawdown. In the future, the member (and their spouse) will die, then the fund in drawdown will be subject to tax at the 55% recovery charge Do you protect that charge? Consistent approach to planning *if death estate (including any assets held in trust and substantial gifts made within seven years of death) is over the threshold, IHT will be due at 40%. As from 6 April 2012, people who leave 10% or more of their net estate to charity can choose a reduced rate of IHT at 36%.

3 3 Client aged 60 with a spouse three years younger Gross designation £600,000 PCLS £150,0000 Income Drawdown fund £450,000 Max GAD £28,620 (Government Actuarial Department) Annual income required: £20,000 Quote assumes 2% initial commission and 0.5% trail fee PruFunds used 1.45% annual management charge 3% gilt yield 7% investment return Figures supplied by Prudential and are based on the Drawdown Plan For illustrative purposes only Income drawdown underpin example

4 4 Drawdown example (no underpin) Male draws down £20,000 each year – dies aged 78 Policy holder YearAge at start of year Gross annual income Fund value at end of year Age at end of year 160£20,000£443, £20,000£449, £20,000£459, £20,000£471, £20,000£485, £20,000£502, £20,000£524,00078 Figures supplied by Prudential and are based on the Drawdown Plan For illustrative purposes only

5 5 Options for the spouse Drawdown death benefits Lump sum – 55% tax Dependents Annuity Dependents Drawdown Lump sum – 55% dependents annuity and drawdown 1 st death 2 nd death Ceases Estate

6 6 Income drawdown – no underpin Policy holderSpouse YearAge at start of year Gross annual income Fund value at end of year Age at end of year 1975£20,000£532, £20,000£541, £20,000£550, £20,000£560, £20,000£570, £20,000£581, £20,000£593,00082 Spouse aged 75 - takes income drawdown Designation £524,000 Continues to take income withdrawal of £20,000pa Dies aged 82 Fund on death£593,000 Less 55% tax £326,150 Net Fund £266,850 Adviser fee £9000 Figures supplied by Prudential and are based on the Drawdown Plan For illustrative purposes only

7 7 With Whole of Life underpin (Vitality Optimiser premiums) Policy holder YearAge at start of year Gross annual income Fund value at end of year Age at end of year 160£22,028£441, £22,195£443, £22,424£446, £22,676£450, £22,840£454,00078 Spouse 1975£22,897£455, £23,074£459, £23,135£464,00082 Based on Vitality Optimiser premiums Bronze status achieved each year Premium added to level income £20,000 Adviser Earnings Fee £9,000 Commission £3,831 TOTAL £12,831 Fund on Death£464,000 Less 55% tax £255,200 Net fund £208,800 Plus WoL plan £247,500 Total Payable £456,300 Figures supplied by Prudential with PruProtect premiums added and are based on the Drawdown Plan For illustrative purposes only

8 8 Comparing Benefits Without Underpin Annual income £20,000 Fund on 2 nd death £593,000 Less 55% tax £326,150 Net Value £266,850 Adviser Fee Initial£9, % trail With Underpin Annual income £20,000 Fund 0n 2nd death£464,000 Less 55% tax£255,200 Net Value£208,800 WoL payout£247,500 Total payout£456,300 Adviser Fee Initial £9,000 WoL commission£3,831 Total initial£12, % trail Figures supplied by Prudential with PruProtect premiums added and are based on the Drawdown Plan For illustrative purposes only

9 9 Same level of income taken by members Over 30% more income for the adviser Significantly more death benefits available to beneficiaries Why Drawdown Underpin

10 10 How long to be worse off under Vitality Optimiser YearEssentials level Optimiser bronze Younger life nbEssentials level Optimiser Bronze Saving Optimiser Level 12,7182,028592,7182, ,7182, ,95210,5543, ,7182, ,18422,2074, ,7182, ,49437,8035, ,7182, ,36749,2785, ,7183, ,95964,5873, ,7183, ,55179,9571, ,7183, ,14395, ,7183, ,734110,697-1,962 Joint life 2 nd Death WOL guaranteed premium Life cover: £247,500 Essentials premium: £2, Optimiser premium: £2, Optimiser premium (less £3 monthly fee- which is subject to change) changes each year on a guaranteed basis dependent on Vitality status: Bronze: 2% Silver: 1% Gold: No change Platinum: 1% reduction Premium charges apply up to the plan anniversary immediately prior to the youngest policyholder’s 80 th birthday. Premiums remain level thereafter. Figures rounded to nearest £ Based on PruProtect premiums, 2013 For illustrative purposes only

11 11 Drawdown underpin – level vs VO premiums Joint life 2 nd death (spouse 3 years younger) Essentials WOL Premiums Designated fund after PCLS Potential tax LSDB 55% Attained M55 F52Attained M60/F57 Attained M65/F62 NB M70/F67 £300,000£165,000£1,435 / 0.48%£1,856 / 0.62%£2,426 / 0.81%£3,012 / 1.00% £500,000£275,000£2,396 / 0.48%£3,007 / 0.60%£3,942 / 0.79%£4,904 / 0.98% £700,000£385,000£3,302 / 0.47%£4,150 / 0.59%£5,448 / 0.78%£6,783 / 0.97% £1,000,000£550,000£4,650 / 0.47%£5,850 / 0.59%£7,686 / 0.77%£9,576 / 0.96% Indemnity commission (£500k)£3,819£4,793£5,736£4,801 Designated fund after PCLS Potential tax LSDB 55% Attained M55 F52Attained M60/F57 Attained M65/F62 NB M70/F67 £300,000£165,000£1,104 / 0.37%£1,457 / 0.49%£2,004 / 0.67%£2,591 / 0.86% £500,000£275,000£1,740 / 0.35%£2,315 / 0.46%£3,211 / 0.64%£4,173 / 0.83% £700,000£385,000£2,370 / 0.34%£3,168 / 0.45%£4,410 / 0.63%£5,744 / 0.82% £1,000,000£550,000£3,308 / 0.33%£4,437 / 0.44%£6,192 / 0.62%£8,079 / 0.81% Indemnity commission (£500k)£3,150£4,238£5,404£4,741 Level VO Comparison of first year premiums only Based on PruProtect premiums, 2013 For illustrative purposes only

12 12 A fair approach to risk Integrated health and wellness programme built into protection Immediate incentives and rewards Premiums can change each year depending on engagement Up to 40% discount in first year* Creating a new generation of protection A scientific foundation to encourage and reward healthy living Regular behavioural nudges Cashback every year Vitality Plus rewards automatically included** Vitality Optimiser *compared to our standard protection premium **as part of the £3 fee with Vitality Plus benefit

13 13 If you’ve done enough to look after your health by the end of each year, we will send you cash back to reward you for your efforts SILVERGOLDPLATINUM Double Cashback for PruProtect and PruHealth members: Single life policy Joint life policy £100£150£200 £300£400 An extra incentive to be healthy A protection industry first Joint life policy £50£75£100 £150£200 Single life policy Cashback every year Any cashback we give you may be subject to tax. This might affect your personal tax position. If you have any questions about this, please contact a Financial Adviser or HM Revenue & Customs (hmrc.gov.uk).

14 14 An integrated health and wellness programme Vitality Plus £3 per month A platform to engage, improve health and get benefits 50% off Up to 75% offAnd more discounts Free cinema ticket each week 50% off monthly gym membership And more… Vitality Plus benefits* included: Vitality optimiser benefits *Terms and conditions apply

15 15 50% off cost Full price £682 reduced to £341 Boosts members vitality points Tests include –See doctor and physiologist –Cholesterol tests –Full blood works –Body composition –Spinal assessment –Active cardiovascular tests - ECG Attends Nuffield 360+ Health Assessment Figures correct as at 01/2014

16 16 Health Screen included Prostate Specific Antigen (PSA) and the results were slightly raised indicating the need for further tests. A Biopsy confirmed early stages of Prostate Cancer Early treatment can now be started (and has a much better chance of success) If he had Serious Illness Cover with Pruprotect a payment would be made He can also consider securing a higher level of income by looking at enhanced life annuities as a further planning option Results Better planning, enhanced security, more engagement

17 17 Enhanced client proposition Enhanced client security and peace of mind Enhanced revenue per client Enhanced cash-flow Enhanced embedded value of your business Reduced consumer risks within the business No longer an “average” wealth adviser Why you should consider Wealth Preservation: Good for you, good for your clients

18 18 PruProtect – providing in depth support F2F support Experienced consultant with wealth background Specialist support TrainingHNW proposition Advice led proposition Tools and support pre / at / post sale Local field based consultants Outsourced solutions

19 Thank you


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