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  • This presentation looks For more information please refer to PTB 49 (Last Review 22 Oct 2010)
  • This presentation looks For more information please refer to PTB 49 (Last Review 22 Oct 2010)
  • Special Annual allowance is greater of £20,000 or 3 year average capped at £30,000 (£65,000 + £45,000) ÷ 3 = £36,666 – therefore SAA restricted to £30,000
  • Note the different treatment of the excess contribution here from the example earlier of Carrie Forward. In Carrie’s example the excess over £50,000 occurred in a later year so had to be deducted from unused allowance of earliest year. Here as excess occurred in earliest year it does not impact on later years
  • Note the different treatment of the excess contribution here from the example earlier of Carrie Forward. In Carrie’s example the excess over £50,000 occurred in a later year so had to be deducted from unused allowance of earliest year. Here as excess occurred in earliest year it does not impact on later years
  • All QROPS schemes are QNUPS. Not all QNUPS are however QROPS. QNUPS in presentation therefore refers to schemes that are not QROPS qualified as well.
  • This presentation looks at the proposed new fixed fund protection option that can be applied for as the SLA is being reduced to £1.5 million from 6 th April 2012. For more information please refer to PTB 49 (Last Review 22 Oct 2010)
  • Areas highlighted in green are where scheme pension could provide planning advanatages.
  • Global Savings and Retirement Challenge is created by a combination of the 3 issues above. [click] The great news is that people are living longer but this in itself is a problem, many clients don’t understand just how long they will live for and how long their assets are going to have to last to pay them an income. [click] However markets are becoming increasingly volatile and clients are stuck between a rock and a hard place. How do you invest? [click] Further to this we have seen annuity rates falling consistently over the last 15 years and with additional influences like increased longevity and new Solvency II measures, the outlook is for further decline…
  • From the latest figures published, longevity has increases significantly in the last decade. On average a boy born today in the UK will live until they are 89 and a girl until they are 90. However this is not an issue that is building up for the future, it is a problem that needs to be addressed today. As can be evidenced by the information above- clients income needs shouldn’t just be focused on the today but the tomorrow as their income needs will on average be for thirty years and beyond.
  • So in a nutshell its about doing what insurance companies do best “INSURE” Think about those things that are important to you and indeed your clients both financially and emotionally. [click] Why do we insure them…. Because they are important to us. Given the Retirement and Savings Challenge that clients face, [click] are their Financial Assets not important? Well now a client can insure them. [click]
  • So lets reflect on how these client strategies can benefit your clients and you and your business: Read from the slide Thank you for your time today, we look forward to discussing with you how we can implement these strategies for some of your clients.

Transcript

  • 1. This presentation is directed at Professional Financial Advisers only. It should not be distributed to or relied upon by retail clients New Model Adviser Retreat David Lane Senior Technical Sales Manager Approval No: Review Date:
  • 2. Agenda for this morning
    • Quick walk through the annual allowance rules
      • Carry forward
      • Alternative strategies……
    • Fixed Protection
      • Strategy and planning ideas
    • Taking benefits post 6 April 2011
      • Drawdown pension
      • Scheme pension
      • Third way products?
    • Summary and close
  • 3. This presentation is directed at Professional Financial Advisers only. It should not be distributed to or relied upon by retail clients Annual Allowance
  • 4. Annual Allowance
    • Annual allowance reduced from £255,000 down to £50,000 from 6 April 2011.
    • This is likely to remain unchanged until the end of 2015/16.
    • The Government has indicated it may consider options for indexing the annual allowance after this.
    • It will be down to individuals to notify HMRC via self assessment if they exceed the annual allowance.
    • No exemption from the annual allowance in year of crystallisation or for those with enhanced protection.
    • Exemption from annual allowance in year of death or serious ill health.
    • At first sight this seems straightforward.
  • 5. Carry-forward of unused annual allowance
    • The Government was keen to protect against one off spikes in pension accrual, especially for defined benefit schemes.
    • The result of this is the introduction of carry forward unused annual allowance.
    • Unused annual allowances can now be carried forward from the previous three tax years. This includes from 2008/09, 2009/10 and 2010/11 where appropriate
    • For the purpose of carry forward the annual allowance for the three tax years before 2011/12 the allowance is deemed to be £50,000.
    • For defined benefit schemes
      • Factor of 16 is used
      • Opening values can be increased by CPI
    • To take advantage of carry forward an individual has to have been a member of a registered pension scheme for the year in question – BUT there is no requirement to have actual pension accrual.
  • 6. Carry-forward of unused annual allowance Carrie Forward is a company director and a member of the company pension scheme who is caught by anti-forestalling. Historical contributions have been paid of £20,000 p.a. and the employer is now looking to utilise carry forward to pay the maximum single contribution in 2011/12 for Carrie. The pattern of contributions for Carrie over the last four years is; What is the maximum contribution that can be paid for Carrie in 2011/12? Year Single contributions 2008/09 £20,000 2009/10 £20,000 2010/11 £20,000 2011/12 ????
  • 7. Carry-forward of unused annual allowance 2008/09 £20,000 2011/12 £140,000 £50,000 Unused £30,000 Total £90,000 unused to be carried forward to 2011/12 allowing a maximum contribution of £140,000 to be made in 2011/12 (£50,000 + £90,000) If a contribution of £100,000 was paid for Carrie in 2011/12 what is the maximum contribution that could be made for her in 2012/13? 2009/10 £20,000 2010/11 £20,000 Unused £30,000 Unused £30,000
  • 8. Carry-forward of unused annual allowance - 2012/13 (Based upon HMRC correspondence)
    • What unused annual allowance is available for Carrie in 2012/13?
    Unused £10,000 2009/10 £20,000 2011/12 £100,000 £50,000 2012/13 £50,000 + £40,000 2011/12 £20,000 2010/11 £20,000 Unused £30,000 2008/09 £20,000 2011/12 £30,000
  • 9. Planning Opportunities - Individual caught by anti-forestalling Andy Forestalling has relevant income of £170,000 and has been subject to the anti-forestalling provisions since April 2009. He is a member of the company pension scheme and historically contributions have been paid by the company based on profits. Contribution history for Andy 2008/09 = £65,000 (Paid 30/12/07) 2009/10 = £45,000 (Paid 30/12/08) 2010/11 = £30,000* (Paid 30/12/09) 2011/12 = £30,000* (Paid 30/12/10) This means that from 06/04/11 an additional £20,000 can be paid to bring the total contributions up to the £50,000 for 2011/12 The contribution paid on 30/12/10 is limited to the special annual allowance, but is assessed against £50,000 annual allowance for 2011/12 But more could be paid in for Andy *Special annual allowance is £30,000 due to history of single contributions
  • 10. Planning Opportunities - Individual caught by anti-forestalling Andy has unused annual allowances so can benefit from carry forward As the excess occurred in the earliest year it does not have to be offset against the later years 2008/09 £65,000 2009/10 £45,000 2010/11 £30,000 2011/12 £30,000 £50,000 Unused £20,000 Unused £5,000 Excess £15,000 £20,000 Paid 6/4/11
  • 11. Planning Opportunities - Individual caught by anti-forestalling Maximum contributions for Andy could be 30/12/10 £30,000 (initial single limited to special annual allowance) 06/04/11 £20,000 (balance up to annual allowance) 06/04/11 £25,000 (carry forward of unused annual allowance) Total £125,000 2010/11 £30,000 30.12.10 2011/12 £20,000 06.04.11 £25,000 06.04.11 End input 07.04.11 £50,000 08.04.11 07/04/11 Close Pension Input Period (2011/12) 08/04/11 £50,000 (Annual allowance for 2012/13)
  • 12. This presentation is directed at Professional Financial Advisers only. It should not be distributed to or relied upon by retail clients Overseas Pensions Approval No: NP20110151 Review Date: 05/04/2012
  • 13. Qualifying Non-UK Pension Schemes (QNUPS)
    • Before A-Day certain non-UK pension schemes were protected from UK inheritance tax.
    • A-Day regulations omitted this exemption and meant that UK pension funds would be liable to IHT when transferred to QROPS.
    • The Inheritance Tax Regulations 2010, which came into force on 15 th February 2010 solved this problem and also created QNUPS.
    • QNUPs must broadly satisfy the same conditions as a ROPS.
  • 14. Who would consider a QNUPS?
    • Expatriates saving for their retirement who may wish to return to the UK in the future
    • Individuals transferring from overseas pensions or QROPs
    • High net worth UK residents or domiciled individuals who have;
      • paid their maximum UK pension contributions
      • reached the maximum fund
    • and require another route to “top up” their benefits
  • 15. QNUPS – Contributions & Transfers
    • No tax relief available therefore no requirement to have relevant income
    • Contributions must be seen as proportionate for an individual taking into account overall wealth and what is necessary to provide them with appropriate levels of benefit in retirement
    • Can be funded by contribution or transfer from international pensions or QROPS.
    • Transfer from the UK directly to QNUPS would be treated as an unauthorised payment.
    • Transfer into QNUPS from UK scheme only achievable by transferring to QROPS first and then transferring to QNUPS once individual has been non resident for five complete tax years.
    • If any of the fund is derived from employer contributions, a potential tax charge will currently be made as part of the disguised remuneration regulations.
    • UK IHT not normally payable
    • If UK income tax is due, only 90% of the income is taxable
    • Ability to take a lump sum of 30%
    • No reporting requirements to HMRC
  • 16. QNUPS – Fund
    • Not subject to inheritance tax on creation and no relevant property charges during the life of the scheme (unlike a trust)
    • For capital gains tax purposes the transfer of assets into a QNUPS could be a chargeable occasion triggering a charge at either 18% or 28%, depending upon the marginal tax rate of the member
    • Gains and income can roll up tax free (apart from withholding tax) in a similar manner to a non UK resident trust
  • 17. This presentation is directed at Professional Financial Advisers only. It should not be distributed to or relied upon by retail clients Fixed Protection and SLA Planning Approval No: NP20110095 Review Date: 05/04/2012
  • 18. Reduction in the Lifetime Allowance
    • The lifetime allowance will be reduced from £1.8m to £1.5m from 6 April 2012
    • Individuals who have the current forms of transitional protection are unaffected by the reform.
    • Individuals with Primary Protection will have their primary protection enhancement factors underpinned in legislation
    • Equally individuals with scheme specific cash protection will be unaffected with their cash underpinned again at £1.8m
    • Clients will however be able to apply for a new form of protection called “fixed protection”
  • 19. Fixed Protection
    • This applies to anyone who does not have Enhanced and/or Primary Protection
    • It will protect pension savings up to a maximum value of £1.8m. However……
    • No new contributions can be paid
    • Clients will not be able to establish a new Registered Pension Scheme unless it is put in place to receive a transfer of EXISTING pension rights
    • Individuals in DB schemes can benefit from an annual rate of increase specified in the scheme rules as at 9/12/2010 or the increase CPI in the year ending in September of the previous tax year
    • Payment of NI rebates will not break the terms of Fixed Protection
  • 20. What are the planning issues?
    • Identify those clients who have sufficient pension savings to consider fixed protection
    • What levels of return would be required to exceed the £1.8m threshold
    • Assets classes currently invested in?
    • Should portfolio be de-risked…?
    • Are making ongoing contributions important…?
      • e.g. contractual employer contributions
      • Tax efficient means of profit extraction
    • Options for those for whom fixed protection is not appropriate and will have a reduced lifetime allowance of £1.5 million or those who do apply for fixed protection but fund is near or already in excess of £1.8 million?
  • 21. Ready reckoner – annual growth rate required to fund for £1.5m. Another potential market for an individual trust based SIPP? 0.72% 0.96% 1.45% 2.91% £1,300,000 2.05% 2.74% 4.14% 8.45% £1,000,000 1.57% 2.09% 3.15% 6.40% £1,100,000 1.13% 1.50% 2.26% 4.57% £1,200,000 0.47% 3.47% 4.28% 5.21% 6.30% 7.60% 9.21% 11.32% 14.37% 19.78% 15 years 0.70% 5.24% 6.49% 7.92% 9.59% 11.61% 14.12% 17.45% 22.31% 31.08% 10 years 1.39% 10.76% 13.39% 16.46% 20.11% 24.56% 30.24% 37.95% 49.60% 71.83% 5 years 0.35% £1,400,000 2.59% £900,000 3.20% £800,000 3.89% £700,000 4.69% £600,000 5.65% £500,000 6.83% £400,000 8.38% £300,000 10.60% £200,000 14.49% £100,000 20 years Existing Fund value Term to retirement
  • 22. Ready reckoner – annual growth rate required to fund for £1.5m. (Assuming client pays a contribution of £50,000 p.a.) Existing Fund value Term to retirement 5 years 10 years 15 years 20 years £100,000 44.71% 14.28% 6.19% 2.66% £200,000 33.62% 11.04% 4.69% 1.81% £300,000 26.37% 8.65% 3.50% 1.12% £400,000 21.06% 6.77% 2.51% 0.52% £500,000 16.88% 5.22% 1.68% 0% £600,000 13.47% 3.90% 0.95% -0.46% £700,000 10.60% 2.75% 0.30% -0.87% £800,000 8.12% 1.74% -0.28% -1.25% £900,000 5.95% 0.83% -0.80% -1.59% £1,000,000 4.03% 0% -1.28% -1.91% £1,100,000 2.30% -0.74% -1.73% -2.21% £1,200,000 0.74% -1.43% -2.14% -2.48% £1,300,000 -0.69% -2.07% -2.52% -2.74% £1,400,000 -2.01% -2.66% -2.88% -2.99%
  • 23. This presentation is directed at Professional Financial Advisers only. It should not be distributed to or relied upon by retail clients Reduced lifetime allowance - Fixed Protection & targeted growth
  • 24.
    • Fred has a £2,100,000 pension fund as at 06/04/2012
    • Fred has no primary protection & no enhanced protection
    • Lifetime Allowance is currently £1,800,000 but,
    • Falling to £1,500,000 from 6 th April 2012
    • Fred’s fund exceeds both the proposed and current SLA so…
    • Should he apply for Fixed Protection
    • or is there an alternative?
  • 25.
    • Protected Lifetime Allowance
    • Vs
    • Individual Trust Based SIPP & targeted growth
  • 26. Fixed Protection Assumed 6% net growth Year crystallised Fund Excess Tax Yr 0 £2,100,000 £300,000 £165,000 Yr 1 £2,226,000 £426,000 £234,300 Yr 2 £2,359,560 £559,560 £307,758 Yr 3 £2,501,134 £701,133 £385,624 Yr 4 £2,651,202 £851,202 468,161 Yr 5 £2,810,274 £1,010,274 £555,651 Year crystallised Fund Excess Tax No protection and targeted growth (1%) £330,000 £600,000 £2,100,000 Yr 0 £341,550 £621,000 £2,121,000 Yr 1 £353,216 £642,210 £2,142,210 Yr 2 £364,998 £663,632 £2,163,632 Yr 3 £376,898 £685,268 £2,185,268 Yr 4 £388,917 £707,121 £2,207,121 Yr 5
  • 27. Allocation of investment growth – Optional basis Dad £500,000 50% Son £200,000 20% Mum £300,000 30% Investment Growth - £100,000 Pooled Fund £1,000,000
  • 28. Allocation of investment growth – Optional basis Dad £510,000 46.3% Son £250,000 22.7% Mum £340,000 30.9% Dad 10% Mum 40% Son 50% Pooled Fund £1,100,000
  • 29. Allocation of investment growth – Optional basis Dad £510,000 46.3% Son £250,000 22.7% Mum £340,000 30.9% Dad 10% Mum 40% Son 50% Investment growth accrues on unallocated basis Pooled Fund £1,100,000
  • 30. Discretionary allocation of growth
    • Applies to growth only - not losses
    • Applies to certain types of fund only i.e. uncrystallised funds relating to non protected rights and only where there is no enhanced or fixed protection
    • Growth is not allocated until an allocation event, which must be at least annually, and not on a “prospective” basis
    • Mechanism for accruing growth does not fall foul of current legislation and is not caught by the anti assignment/surrender provisions contained in Sections 172 and 172A Finance Act 2004 as the governing documentation of the scheme is drafted so that the member has no right to the growth in the first place
    09/13/11
  • 31. A summary of the post retirement options from 6 April 2011 This presentation is directed at Professional Financial Advisers only. It should not be distributed to or relied upon by retail clients
  • 32. Pre age 75: USP v Drawdown pension Flexible drawdown Tax charge on death Formal review of income level Minimum income Maximum income Availability Drawdown pension Unsecured Pension Available assuming minimum income level is secured N/A 55% of fund 35% of fund 3 years up to age 75, annually thereafter 5 years 0% of GAD 0% of GAD 100% of GAD (based on age, gender and gilt yields) 120% of GAD (based on age, gender and gilt yields) From 55 with no upper age limit 55 - 75
  • 33. Post age 75: ASP v Drawdown pension Flexible drawdown Tax charge on death Formal review of income level Minimum income Maximum income Availability Drawdown pension Alternatively Secured Pension Available assuming minimum income level is secured N/A 55% of fund 82% of fund Annually Annually 0% of GAD (based on age, gender and gilt yields) 55% of GAD (based on age, gender and gilt yields) 100% of GAD (based on age, gender and gilt yields) 90% of GAD (based on age, gender and gilt yields) From age 55 with no upper age limit At age 75
  • 34. Scheme Pension v Drawdown pension Fund Value 20 x initial pension Value for BCE purposes Lump sum less 55% tax Survivors pension? Charity lump sum if no dependant Fixed payment period/capital protection. Survivors pension? Left over fund Death benefit options 3 years up to age 75, annually thereafter 3 years Formal review of income level No Yes Health taken into account 100% to 0% of GAD (based on age, gender and gilt yields) Actuarially calculated (based on age, gender and equity/cash yields) Maximum income Minimum income From 55 with no upper age limit From 55 with no upper age limit Availability Drawdown pension Scheme Pension
  • 35. Scheme Pension Death Benefits Does member die in the fixed period? Dependant nominated by the member? Did member request annuity protection lump sum? Any remaining fund is used for the benefit of the nominated Dependant (s) Lifetime Annuity (No guarantee period) Scheme Pension (No fixed payment period allowed) Drawdown Pension If the fund is allocated to a member who is not connected to the deceased no unauthorised payment tax charge or IHT arises. If the fund is allocated to a member who is connected to the deceased or the left over fund is paid out of the scheme to any individual the maximum Unauthorised Payment Charge is 70% Any remaining fund forms part of the general fund and is used to meet scheme charges and fees until the scheme administrator receives unanimous written agreement to pay an annuity protection lump sum, use all or part of the fund for the benefit of any Dependant, allocate to any other members of the scheme or make payments out of the scheme NO NO NO YES Annuity protection lump sum payable on death at any age subject to sufficient funds remaining; A maximum of 20 x the initial annual level of ‘scheme pension’ less the amount of pension payments made up to the time of death can be paid out as a lump sum subject to a 55% tax charge . An appropriate amount of the fund, as determined by the actuary, will be ring-fenced to provide the payments due up to the end of the fixed period. These payments are made to an individual at the discretion of the scheme administrator, free of IHT, but liable to Income Tax in the hands of the recipients YES On death of Dependant no further benefit arises If Dependant dies in scheme pension the remaining fund used for the benefit of any other Dependant of the member. If no other Dependant, the left over fund forms part of the general fund and will be dealt with as above If Dependant dies in Drawdown Pension then the remaining fund, 1) less 55% tax, paid as a lump sum : to a trust set up by the Dependant, or if no trust through the discretionary rule, taking into account any expression of wish by the Dependant, or 2) tax free charity lump sum where there are no dependants of member YES Income options for Dependant
  • 36. This presentation is directed at Professional Financial Advisers only. It should not be distributed to or relied upon by retail clients Third way strategies?
  • 37. The global savings & retirement challenge… Longevity - people are living longer… Investment markets are increasingly volatile… Annuity rates have been falling for the last 15 years…
  • 38. illustrating the point… Longevity A man aged 60 60 65 70 75 80 85 90 95 100 … has a 50% chance of living beyond the age of 88 and a 25% chance of living beyond the age of 95 Source: Mortality tables UK A woman aged 60 … has a 50% of chance of living beyond the age of 91 and a 25% chance of living beyond the age of 98 Life expectancy is increasing every year, even for 60 year-olds years In 2009 … A man and a woman aged 60 … have a 50% chance of one of them living beyond the age of 95 and a 25% chance of living beyond the age of 101 Savings and retirement strategies must prepare for an increasingly long time horizon
  • 39. … what about their Pension & Investments…? Consider adding protection around future income….. Consideration can now be given to protecting assets that are most important to a client’s retirement lifestyle… What do clients insure? … their houses… … their lives… … their cars…
  • 40. In Summary…
    • Client benefits
    • Give clients the ability to invest for upside; but provide some protection against market downside.
    • Clients can see what they have bought from Day 1.
    • Answer to annuity rate risk.
    • Combine with other strategies.
    • Utilise the features these plans provide i.e. annual uncapped growth lock-in
    • Adviser Benefits
    • Ability to manage client expectations from Day 1
    • Alternative strategies to present to clients
  • 41. Alternative tax wrappers….. This presentation is directed at Professional Financial Advisers only. It should not be distributed to or relied upon by retail clients
  • 42. Asset allocation decision If selected assets can be purchased under more than one wrapper, consider appropriate tax wrapper allocation Analysis of client’s tax position Tax wrapper selection ISA (to allowable limit) Is client to take regular withdrawals/ rebalance portfolio? Annual CGT exemption? Is it a mixed portfolio, e g part Equity, part Fixed Interest? Consider whether separate tax wrappers would increase tax efficiency? Tax Wrapper + relevant assets Tax Wrapper + relevant assets Tax Wrapper + relevant assets
  • 43. Important information Information regarding tax and practice is based on AXA Wealth’s understanding of current legislation and HM Revenue & Customs policy/practice. Tax treatment is subject to change and individual circumstances. The information contained in this presentation does not constitute advice. It is designed for financial adviser use only and is not intended for use with individual investors. Any sample screen shots displayed are correct at date of issue but may be subject to change. AXA Wealth, Winterthur Way, Basingstoke, Hampshire, RG21 6SZ. Telephone number: 01256 470707. As part of our commitment to quality service, telephone calls may be recorded. Architas Multi-Manager Limited (No. 06458717), AXA Portfolio Services Limited (No. 1128611), AXA Wealth Services Limited (No. 02238458), Winterthur Life UK Limited (No. 3116645) and AXA Wealth Limited (No. 01225468) are all companies registered in England and limited by shares. Their registered office is 5 Old Broad Street, London, EC2 1AD. Each company promotes and distributes its own products and is authorised and regulated by the Financial Services Authority. AXA Wealth Services Limited also promotes and distributes the products of AXA Isle of Man Limited and AXA Life Europe Limited in the United Kingdom. AXA Wealth is a marketing brand used by these companies. Details of the companies offering specific products are contained within product literature.