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:
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.
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 ????
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
Carry-forward of unused annual allowance - 2012/13 (Based upon HMRC correspondence)
What unused annual allowance is available for Carrie in 2012/13?
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
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
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)
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
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
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
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?
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
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%
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
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
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
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
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
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
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
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
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
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
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
This presentation is directed at Professional Financial Advisers only. It should not be distributed to or relied upon by retail clients Third way strategies?
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…
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
… 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…
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
Ability to manage client expectations from Day 1
Alternative strategies to present to clients
Alternative tax wrappers….. This presentation is directed at Professional Financial Advisers only. It should not be distributed to or relied upon by retail clients
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
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.