THE CONSTANT PROCESS OF CHANGE TO PENSIONS Jim Jarvie, Jon Hogg, Lead specialists – Pensions For financial advisers only

LEARNING OUTCOMES 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

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!

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

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!

THE PROCESS – 27th MARCH 2014 TILL 5th APRIL 2015 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! TRANSITIONAL PERIOD CREATES RISK TO CLIENTS AND ADVISERS

THE CLOCKS TICKING – MAKE IT HAPPEN! 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 POSITION CLIENTS AND KEEP THEIR OPTIONS OPEN

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!

ANTICIPATING THE FUTURE – 5th APRIL 2015 ONWARDS 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

PENSION POT PCLS – Normally 25% Annual Allowance reduces to £10,000 Annual Allowance reduces to £10,000 Uncrystallised funds pension lump sum* 25% tax free 75% income tax charge Income taken from flexi access drawdown/ Short-term annuities Lifetime Annuity/scheme pension * 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%

GRANDFATHERING – CAPPED DRAWDOWN Existing Capped Drawdown Client Income above capped Limits Income within capped Limits* £40K annual allowance plus 3 year carry forward Annual Allowance reduces to £10K – no carry forward * Maximum income applies from statutory review, annual re-basis review and additional designation under Post 5/4/2006 drawdown arrangements where scheme rules allow

HANDSET QUESTION How many of your clients will want to retain their full annual allowance while drawing benefits?   none less than 10% more than 10%

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!

OPPORTUNITY THRESHOLDS – 4.4 MILLION HIGHER/ ADDITIONAL RATE TAXPAYERS* 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 * Source: HMRC – survey of personal incomes - updated table February 2014 – Number of higher rate and additional rate taxpayers

HANDSET QUESTION   What percentage of your existing client bank are higher rate taxpayers? none less than 25% more than 25%

MEMBER CONTRIBUTIONS BIGGER CONTRIBUTIONS NEED MORE ADVICE Up to 100% of earnings in the tax year* Available Annual Allowance - carry forward Available Lifetime Allowance BIGGER CONTRIBUTIONS NEED MORE ADVICE * £3,600 contributions and under do not require earnings

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, INCREASE YOUR FUTURE INCOME

OPPORTUNITY THRESHOLDS – TAX BREAKS IN AND TAX CHARGES OUT Tax relief on the member’s contribution* Capital appreciation assuming member’s income tax rate on withdrawals at * 20% 40% 45% + 6.25% – 12.50% + 31.25% + 12.50% + 37.50% + 18.75% * 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

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!

CAPITAL TAX – GENERATION PLANNING Spouse Child Grandchild 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 * Proposed option to allow beneficiaries drawdown based on an income tax charge on the recipient from the 2015/16 tax year onwards

HANDSET QUESTION   Will the changes to the death benefit rules encourage your clients to fund more of their retirement income from other assets? Yes No

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!

TO DO LIST? 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

LEARNING OUTCOMES 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

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