jim jarvie, jon hogg, lead specialists – pensions the constant process of change to pensions for...

Jim Jarvie, Jon Hogg,Lead specialists – Pensions

THE CONSTANT PROCESS OF CHANGE TO PENSIONS

For financial advisers only

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By 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 budget

• The implications of the changes for those retiring now and after April 2015

• The impact of the changes on the advice that you might give both now and after April 2015

LEARNING OUTCOMES

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AGENDA – THE VALUE OF INFORMED ADVICE

• PENSION CHANGES SO FAR

• The latest transitional process

• Anticipating what’s to come

• The member contribution rules

• Capital tax planning of residual funds

• Things to do today!

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THE PAST – APRIL 2011 TILL MARCH 2014

• Reduced Annual and Lifetime allowances

• Three new forms of protection

• Capped and Flexible drawdown

• 55% lump sum death benefit tax charge on crystallised units and beyond 75 on all units

CONSTANT CHANGES REQUIRE CONSTANT REVIEWS AND REVISIONS

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• Pension changes so far

• THE LATEST TRANSITIONAL PROCESS






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• Chancellors announcements

• FCA interim regime till 5th April 2015

• Triviality from money purchase schemes increased

• Income from small pots increased for those aged 60

• ‘Buddy‘ transfers without a buddy!

THE PROCESS – 27th MARCH 2014 TILL 5th APRIL 2015

TRANSITIONAL PERIOD CREATES RISK TO CLIENTS AND ADVISERS

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• Treasury document ‘Freedom and choice in pensions’

• Consultation till June, response in July

• Draft clauses for Pensions Tax Bill. More consultation in August

• Primary legislation - Pensions tax and Pensions schemes Acts

THE CLOCKS TICKING – MAKE IT HAPPEN!

POSITION CLIENTS AND KEEP THEIR OPTIONS OPEN

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• ANTICIPATING WHAT’S TO COME





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• New options for money purchase withdrawals

• Reduced money purchase Annual Allowance where income taken ‘the new’ way

• Normal Minimum Pension age 57 from 2028

• ‘Guidance’ for those approaching retirement

• Death benefit rule changes

ANTICIPATING THE FUTURE – 5th APRIL 2015 ONWARDS

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Uncrystallised funds pension lump sum*

25% tax free75% income tax charge

Lifetime Annuity/scheme

pension

Income taken from flexi access drawdown/Short-term annuities

Annual Allowance reduces to £10,000

Annual Allowance reduces to £10,000

PENSION POT

PCLS – Normally 25%

* 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%

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GRANDFATHERING – CAPPED DRAWDOWN

Income within capped Limits*

Existing Capped Drawdown Client

£40K annual allowance plus 3 year

carry forward

Annual Allowance reduces to £10K – no carry forward

Income above capped Limits

* Maximum income applies from statutory review, annual re-basis review and additional designation under Post 5/4/2006 drawdown arrangements where scheme rules allow

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HANDSET QUESTION

How many of your clients will want to retain their full annual allowance while drawing benefits?

1. none

2. less than 10%

3. more than 10%

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• THE MEMBER CONTRIBUTION RULES




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• Earnings above £41,865 – higher rate liability

• Earnings above £50,000 – loss of child benefit

• Earnings above £100,000 – loss of Personal Allowance

• Earnings above £150,000 – additional rate tax liability

OPPORTUNITY THRESHOLDS – 4.4 MILLION HIGHER/ ADDITIONAL RATE TAXPAYERS*

* Source: HMRC – survey of personal incomes - updated table February 2014 – Number of higher rate and additional rate taxpayers

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HANDSET QUESTION

What percentage of your existing client bank are higher rate taxpayers?

1. none

2. less than 25%

3. more than 25%

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• Up to 100% of earnings in the tax year*

• Available Annual Allowance - carry forward

• Available Lifetime Allowance

MEMBER CONTRIBUTIONS

* £3,600 contributions and under do not require earnings

BIGGER CONTRIBUTIONS NEED MORE ADVICE

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MEMBER CONTRIBUTIONS – MONEY IN AND MONEY OUT• Basic rate in – Basic rate out

• Higher rate in – Higher rate out

• Higher rate in – Basic rate out

REDUCE YOUR 2014/15 TAX BILL, INCREASEYOUR FUTURE INCOME

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OPPORTUNITY THRESHOLDS – TAX BREAKS IN AND TAX CHARGES OUT

* 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

Tax relief on the member’s contribution*

Capital appreciation assuming member’s income tax rate on withdrawals at *

20% 40%

20%

40%

45%

+ 6.25% – 12.50%

+ 31.25% + 12.50%

+ 37.50% + 18.75%

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• CAPITAL TAX PLANNING OF RESIDUAL FUNDS



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• Inheritable residual money purchase funds

• Lump sum death benefits tax free on death before 75 from 6th April 2015 onwards

• 45% 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

CAPITAL TAX – GENERATION PLANNING

* Proposed option to allow beneficiaries drawdown based on an income tax charge on the recipient from the 2015/16 tax year onwards

Spouse

Child ChildChild

Grandchild

Grandchild Grandchild

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HANDSET QUESTION

Will the changes to the death benefit rules encourage your clients to fund more of their retirement income from other assets?

1. Yes

2. No

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• THINGS TO DO TODAY!


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• Refresh knowledge on FCA temporary regime

• Contributions for higher rate taxpayers

• Legacy book capabilities

• Pre A day transitional rights

• Flexible drawdown clients

• Crystallised funds death benefits now - delay payment?

• Anyone for Individual protection?

• Defined benefit transfers

TO DO LIST?

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By 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 budget

• The implications of the changes for those retiring now and after April 2015

• The impact of the changes on the advice that you might give both now and after April 2015

LEARNING OUTCOMES

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www.oldmutualwealth.co.uk

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 1363932, 1680071 and 4163431 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 110462 and 207977 respectively. Old Mutual Wealth Limited is authorised and regulated by the Financial Conduct Authority with register number 165359. VAT number for all above companies is 386 1301 59

Old 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 171847 and 208543 respectively. Old Mutual Global Investors is registered in England & Wales under number 02949554 and its registered office is 2 Lambeth Hill London EC4P 4WR.Old Mutual Investment Management is registered in England & Wales under number 4227837 and its registered office at Millennium Bridge House, 2 Lambeth Hill, London, EC4V 4AJ.

VAT number for all above companies is 386 1301 59.

Royal 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)1624 655 555 Fax: +44 (0)1624 611 715. 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: 309649 Ireland. Administration Centre for correspondence: Skandia House, King Edward Road, Onchan, Isle of Man, IM99 1NU Tel: +353(0)1 479 3900 Fax: +353(0)1 475 1020 Head Office: Iveagh Court, 6-8 Harcourt Road, Dublin 2, Ireland. Tel: + 353 (0) 1 479 3900 Fax: + 353 (0) 1 475 1020.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 6329649S. Skandia Life Ireland is a member of the Association of International Life Offices.

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This 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 2014. 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.

LEGAL FOOTER

jim jarvie, jon hogg, lead specialists – pensions the constant process of change to pensions for...

Documents

proposed pension changes

value of informed advice

pensions tax bill

options open slide

learning outcomes slide

tax free

units constant changes

latest transitional