THE HOME OF THE PROFESSIONAL ADVISER Retirement planning for business owners - in the light of Budget 2014 Retirement Solutions

2 The Learning Outcomes To understand the: Use of carry forward and changing Pension Input Period end dates. Limits on individual and company contributions. How to assess the available lifetime allowance for clients with pre-commencement pensions. Options available now and in 2015.

3 Fact file The company is a successful specialist civil engineering company with around 15 employees. There are three directors and they are all UK residents. Dr. Alan Jackson is the Managing Director. His wife Pauline Jackson is Company Secretary and HR Manager. Alastair Jackson (their son) is Finance Director. APD Consultants Limited 3 3

4 Fact file Aged 58. Company secretary and director. Salary £30,000 a year. Personal pension started in 2007 – all uncrystallised. Pension input period ends in July. Employer only contributions of £20,000 a year each tax year since 2011/12. Pauline Jackson 4 4 For Financial Adviser Use Only

5 Objectives To find out what the maximum contributions are to increase her pension provision as she plans to retire next year. Pauline Jackson 5 5 Questions How much can be paid into her personal pension as: An employee contribution? An employer contribution? Could contributions be increased by amending Pension Input Period end dates? If third party contributions are paid by her husband would he qualify for higher rate tax relief? What are the issues around “wholly and exclusively”?

6 What do we need to determine maximum personal contributions? Pauline Jackson - objectives 6 6 Tax yearEarnings between 6 April to 5 April ArrangementPIP endingEmployer contribution within pension input period Total pension input amount 2011/12£26,000XYZ Life1 July 2011£20, /13£27,500XYZ Life1 July 2012£20, /14£29,000XYZ Life1 July 2013£20, /15£30,000XYZ Life1 July 2014£20,000 £30,000

7 What is the maximum employer contribution? Pauline Jackson - objectives 7 7 Tax yearEarnings between 6 April to 5 April Arrange- ment PIP endingEmployer contribution within pension input period Total pension input amount Annual allowance/ deemed annual allowance Carry forward available from tax year 2011/12£26,000XYZ Life1 July 2011£20,000 £50,000£30, /13£27,500XYZ Life1 July 2012£20,000 £50,000£30, /14£29,000XYZ Life1 July 2013£20,000 £50,000£30, /15£30,000XYZ Life1 July 2014£20,000 £40,000£20,000 Maximum contribution is £110,000

8 Is there any way to increase the maximum employer contribution? Pauline Jackson - objectives 8 8 Tax yearEarnings between 6 April to 5 April Arrange ment PIP endingEmployer contribution within pension input period Total pension input amount Annual allowance Carry forward available from tax year 2011/12£26,000XYZ Life1 July 2011£20,000 £50,000£30, /13£27,500XYZ Life1 July 2012£20,000 £50,000£30, /14£29,000XYZ Life1 July 2013£20,000 £50,000£30, /15 £30,000 XYZ Life1 July 2014£20,000 £40,000 N/A 2014/15LV =1 Dec 2014£110,000 N/A 2015/16TBALV =1 Dec 2015£40,000 N/A Maximum contribution is now £150,000

9 Outstanding questions 1.What rate of tax relief will her husband get if he makes third-party personal contributions for her? 2.Who should be involved in large employer pension contributions? Pauline Jackson 9 9 Answers 1.Third-party contributions gain tax relief at the member’s rate of tax ie: Pauline’s rate not Alan’s. 2.The company’s accountant.

10 “wholly and exclusively” requirements 1.Employer contributions are not “relievable contributions”. 2.She is a “connected employee” as married to the MD. 3.Contributions need to be: “in line with those that would have been made for an unconnected employee in a similar situation”. 4.Contributions must be paid before the end of the company’s accounting period. 5.Reduce taxable profits. Pauline Jackson 10

Handset Question 1 Do you have clients that will need advice between now and 5 th April 2015 on Carry Forward and Pension Input Periods?: 1.Yes 2.No

12 Fact file Aged 67. Managing Director (50% shareholding). Current salary £50,000 a year plus dividends. SIPP valued at £450,000 – started in July 2004 and uncrystallised. No contributions since 2009/10 tax year. Pension in payment from Universities Superannuation Scheme (USS) currently £40,000 a year which started before 6 April 2006, when it was £30,000 a year. No other pensions. Dr Alan Jackson 12

13 Objectives Wants to know if he has a potential lifetime allowance excess problem. Aims to retire and take SIPP benefits “in next few years” using new drawdown option. Has no plans for additional pension contributions and applied for Fixed Protection in March Dr Alan Jackson 13 Questions What is the current value of Alan’s pension scheme benefits for lifetime allowance purposes? Does the pre A-Day pension in payment count towards the lifetime allowance? Is there a potential excess problem?

14 Questions 1.Can the pre A-Day Universities Superannuation Scheme pension be subjected to a Benefit Crystallisation Event? 2.Can this scheme have an impact on any future Lifetime Allowance Charge? Dr Alan Jackson 14 Answers 1.No. 2.Yes.

15 Questions What is the current value of his pension scheme benefits? 1.Pre A-Day USS pension in payment? 2.His SIPP? Dr Alan Jackson 15 Answers 1.£40,000 x 25 = £1,000, Current value = £450,000.

16 Planning considerations The USS pension in payment is index linked. Capital value may increase by the time the first Benefit Crystallisation Event (BCE) occurs. Current value of his pension benefits is £1.45 million. Standard Lifetime Allowance fell from £1.5 million on 6 th April 2014 to £1.25 million. May be worth creating a BCE? Dr Alan Jackson 16

17 Fixed protection He applied for fixed protection in March Individual protection Should he apply for individual protection? Individual protection protects the value of his pension benefits at 5 th April Has until 5 th April 2017 to apply but no downsides. Could protect him if he lost fixed protection! Remember 55% tax charge still applies on lifetime allowance charge!! Dr Alan Jackson 17

18 Fixed Protection - Penalties Individuals who applied for fixed protection (2012 or 2014) and subsequently lose it by breaching benefit accrual rules need to advise HMRC within 90 days or risk a fine of: Up to £300. And up to £60 a day thereafter. What would be the impact on Alan if he lost Fixed Protection? (Assuming value of his pension benefits remained at £1,450,000) No Fixed Protection = £110,000 tax charge With Fixed Protection = £0 With individual protection = £0 (any increase in benefits since April 2014 would be taxed)

Handset Question 2 Do you have any clients for whom you applied for Fixed Protection 2014, or who will need advice on Individual Protection? 1.Yes 2.No

20 Fact file Aged 35. Finance Director (20% shareholding). Current salary £65,000 a year plus dividends. In current tax year (2014/15): Employer contributions of £10,000. Member contributions of £5,000. Alastair Jackson 20

21 Objectives His wife has recently had a baby and he wants to know if there is a way of getting the Child Benefit. His wife does not work at present. Alastair Jackson 21 Questions What pension related actions could be taken to remove the child benefit income tax charge, if any?

22 Fact file This tax charge applies where one partner has “adjusted net income” in a tax year of over £50,000. For each £100 over £50,000, 1% of the Child Benefit received is subject to the Child Benefit Income Tax Charge. For couples where one earns £60,000 a year or more, benefit of Child Benefit fully offset by the tax. Child Benefit Income Tax Charge 22 Solution Reduce “adjusted net income” to £50,000 by making pension contributions. Would a £10,000 (gross) contribution be adequate?

Handset Question 3 Will you be advising clients -with earnings over £50,000 a year - on maximising pension contributions prior to the end of the 2014/15 tax year? 1.Yes 2.No

24 Consider salary sacrifice. Flexible drawdown for appropriate clients. Fixed term annuity options. Look at guaranteed funds. Effective rates of tax relief? Funding for capital needs in retirement too. The future of tax relief? Is tax relief working? CPS Pointmaker General Election coming up. Planning now 24

25 Freedom and choice. Risk of ruin. More higher rate tax payers than ever before – how many fail to claim higher rate tax relief? Need for advice greater than ever. Planning from April

Handset Question 4 Following the 2014 Budget announcement, LV= have developed a number of tools to assist advisers. Which of the following would you like further information on?: 1.Pension consolidation 2.Simplified at retirement advice process 3.Secure income options 4.All of the above

27 The Learning Outcomes To understand the: Use of carry forward and changing Pension Input Period end dates. Limits on individual and company contributions. How to assess the available lifetime allowance for clients with pre-commencement pensions. Options available now and in Any questions?

LV= The Home of Secure Retirement

This is for financial advisers only This presentation is based on our understanding of current legislation as at 21 October 2014 applicable in England and Wales and HM Revenue & Customs practice which may change in the future. We cannot accept responsibility for any action arising as a result of the information contained in this presentation. Liverpool Victoria Friendly Society Limited, Keynes House Tilehouse Street, Hitchin, Herts, SG5 2DX. LV= and Liverpool Victoria are registered trade marks of Liverpool Victoria Friendly Society Limited (LVFS) and LV= and LV= Liverpool Victoria are trading styles of the Liverpool Victoria group of companies. LVFS is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, register number NM Pensions Trustees Limited, (registered in England No ), act as Trustees and Scheme Administrators. Authorised and regulated by the Financial Conduct Authority, register number Registered address for all companies: County Gates, Bournemouth BH1 2NF. Tel: /14 Not to be used after 5 th April