Legislative changes sponsor threats and opportunities SimplyBiz Spring 2014 For financial advisers only

Changes to the Annual Allowance, how it works and how changes to it affect clients’ ability to fund registered schemes. The Lifetime Allowance, crystallising events, valuing benefits, potential tax charges and how to mitigate them. The five different forms of Lifetime Allowance protection and their importance to clients who are likely to exceed their available Allowance. Changes to the drawdown rules and the impact on clients who are in drawdown or who may go into drawdown in the future. Learning outcomes covered in this session

GP’s Company directors Bank managers Solicitors Accountants Police inspectors Opticians Hospital doctors Dentists Chartered surveyors Local authority employees Civil servants Senior fire officers Head teachers Insurance company employees The ‘pension rich’ likely suspects…

StrengthsWeaknesses Defined benefit scheme OpportunitiesThreats The NHS doctor in 1995 scheme

StrengthsWeaknesses Defined benefit schemeLarge income tax bill Lack of awareness of opportunities OpportunitiesThreats The NHS doctor in 1995 scheme

StrengthsWeaknesses Defined benefit schemeLarge income tax bill Lack of awareness of opportunities OpportunitiesThreats Reducing Annual Allowance Reducing Lifetime Allowance The Hutton report The NHS doctor in 1995 scheme

StrengthsWeaknesses Defined benefit schemeLarge income tax bill Lack of awareness of opportunities OpportunitiesThreats Reduce tax bill in 2013/14Reducing Annual Allowance Fixed/individual protection 2014Reducing Lifetime Allowance Flexible DrawdownThe Hutton report The NHS doctor in 1995 scheme

Annual Allowance history 2006/07£215, /08£225, /09£235, /10£245, /11£255, /12£50, /13£50, /14£50, /15£40,000

The amount you use is measured by increases in registered schemes as: –a contribution within a money purchase arrangement –awards of accrual in a defined benefit arrangement.  Within the input period that ends in the tax year. *Annual Allowance charge repays excess tax relief beyond a members allowance Your Annual Allowance*

No tax relief beyond your available allowance Excess beyond available allowance added to reduced net income * Exemptions include death and severe ill health Annual Allowance for inputs ending in 2013/14 £50,000*

Use current tax year’s allowance (2013/14 - £50,000) first and supplement it by residual from three previous* Residual /11, 2011/12, 2012/13 Use some/all of next years allowance for input periods ending before 5 April 2014 with further contributions after the 2013/14 input period ends * residual allowance based on new level of £50,000 and defined benefit awards based on the new basis using a factor of 16 and uplift of opening value. Legislation requires membership of registered scheme in year of unused annual allowance relief but not an input amount. Carry forward to 2013/14

To qualify for tax relief, a member contribution must be a relievable pension contribution made by a relevant UK individual* Member contribution

Any employer or former employer of a member of a registered scheme may contribute To qualify as a deductible expense contributions must be ‘wholly and exclusively ’ Employer contributions

Tested when crystallising Lifetime allowance excess charge if benefits exceed Lifetime Allowance, unless protected 11 benefit-crystallising events** ** Your Lifetime Allowance

Lifetime Allowance history 2006/07£1,500, /08£1,600, /09£1,650,000 5 April 2009 Deadline for primary/enhanced 2009/10£1,750, /11£1,800, /12£1,800,000 5 April 2012 Deadline for fixed /13£1,500, /14£1,500, /15£1,250,000 5 April 2014 Deadline for fixed 2014

The crystallising process Identify the benefit-crystallising event(s) Value it/them Record the value(s) as a percentage of the member’s Lifetime Allowance Test growth in drawdown on following BCE

BCEs use percentage of Lifetime Allowance* 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% * rounded to two decimal points BCE 6 (PCLS) £187,500 BCE 1 (drawdown) £562,500 Total £750,000 % of LA in 2013/14* 50% PP fund of £750,000 crystallised in 2013/14

BCEs use percentage of Lifetime Allowance* 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% * rounded to two decimal points BCE 6 (PCLS) £187,500 BCE 1 (drawdown) £562,500 Total £750,000 % of LA in 2014/15* PP fund of £750,000 crystallised in 2014/15 60%

Uncrystallised rights Benefits in registered scheme Pension age 55 plus Crystallised into drawdown

Uncrystallised rights Age 75 Annuity purchase The increase in fund value needs to be tested against remaining Lifetime Allowance Benefits in registered scheme Pension age 55 plus Crystallised into drawdown

The Lifetime Allowance charge Excess benefits taken as a lump sum, 55% tax on the excess Excess benefits taken as pension, 25% tax charge on the excess

Primary protection alone 2,500 Primary and enhanced 7,900 Enhanced alone 12,300 Fixed ,000 Lifetime Allowance protections…… Source HMRC April 2013 Future protection Fixed 2014 Individual 2014 Fixed with Individual Protecting assets of over £75 billion!

Fixed protection 2012* Protects Lifetime Allowance of £1,800,000 Applications ended on 5th April 2012 Not open to anyone with primary or enhanced Lost if benefit accrual occurs *For fuller details of Fixed 2012 follow the link

Fixed protection 2014* Protects Lifetime Allowance of £1,500,000 Applications end on 5 April 2014 Not open to anyone with primary, enhanced or fixed 2012 Lost if benefit accrual occurs *For fuller details of Fixed 2014 follow the link

Individual protection 2014* Requires minimum capitalised value of £1,250,000 on 5 April 2014 Protects capitalised values between £1.25m and £1.5m Allows benefit accrual Three years from 6 April 2014 to apply Can apply if registered for: fixed protection 2012 or fixed protection 2014 enhanced protection (but not where client also registered for primary protection) * Further details in Finance Bill 2014 Final detail in Finance Act 2014 and regulations

Open ended during the member and dependants’ lives. Income returning to 120% of GAD Females now use the same rates Higher max income after 75 No minimum income Statutory reviews every three years* before and one year beyond 75. Capped drawdown – the latest deal *Statutory review period, member nominated reviews allowed annually if contract permits

Income limit – the past 120% and 90% USP and ASP Male life gilt yield 2.75 % GAD 120% 55 to 75, 90% thereafter based on 75 year old rate. Lower rate for females USP ASP

GAD rate - 100% male rate based on 2.75% gilt yield Income limit 100% of GAD

Income limit post 26 March or from next pension year end 2.75 % gilt yield GAD 120% males and females. Limits apply for next statutory review and from next scheme income year in 3 year statutory review period.

No limit on withdrawals Some arrangements allow phasing into flexible drawdown Income tax charge on withdrawals beyond the pension commencement lump sum Partial annuity purchase allowed * Pensions policy institute Flexible drawdown

No charge on uncrystallised rights to 75 within member’s Lifetime Allowance. Charge on crystallised rights of 55% before and beyond 75. Charge on uncrystallised rights beyond 75 of 55%. No IHT or unauthorised payment charges after age 75. Lump sum death benefits tax bill SpouseChild Grandchild

Changes to the Annual Allowance, how it works and how changes to it affect a client’s ability to fund registered schemes. The Lifetime Allowance, crystallising events, valuing benefits, potential tax charges and how to mitigate them. The five different forms of Lifetime Allowance protection and their importance to clients who are likely to exceed their available allowance. Changes to the drawdown rules and the impact on clients who are in drawdown or who may go into drawdown in the future. Learning outcomes covered in this session

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. Skandia cannot be held responsible for any errors or omissions in the details. This presentation is based on Skandia’s interpretation of the law as at November 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. Skandia 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 Skandia Group products can be obtained from the appropriate Technical Guides which are available from any Skandia Group office.

Calls may be monitored and recorded for training purposes and to avoid misunderstandings. Skandia provides you with access to its investment platform, known as Skandia Investment Solutions. Within this platform you can open an ISA and Collective Investment Account provided by Skandia MultiFUNDS Limited and a Collective Retirement Account and Collective Investment Bond provided by Skandia MultiFUNDS Assurance Limited. Skandia Life Assurance Company Limited, Skandia MultiFUNDS Limited and Skandia MultiFUNDS Assurance Limited are registered in England & Wales under numbers , and respectively. Registered Office at Skandia House, Portland Terrace, Southampton SO14 7EJ, United Kingdom. Skandia Life Assurance Company Limited and Skandia MultiFUNDS Assurance 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. Skandia MultiFUNDS Limited is authorised and regulated by the Financial Conduct Authority with register number VAT number for all above companies is /January 2014