1. www.pkf.co.uk PKF Financial Planning Limited are authorised and regulated by the Financial Services Authority PKF Financial Planning Limited Pensions Update Peter Brewill Financial Planning Consultant

2. www.pkf.co.uk PKF Financial Planning Limited Summary of Pensions Simplification (April 2006) Fund limit - Statutory Lifetime Allowance (SLA) of £1.5m (2006) increasing to £1.8m (2010) – Treasury to review after 2010. ALL pensions count - NHSPS pension x 20 plus lump sum Contribution limit - Annual Allowance of £215,000 rising to £255,000 in 2010 Factor of 10 x increase in pension year on year to calculate “deemed contribution” for NHSPS plus actual amount paid to private pension Personal relief only granted on personal contributions up to amount of earnings

3. www.pkf.co.uk PKF Financial Planning Limited But what if I have more than the SLA? A recovery charge is applied Take as lump sum - 55% charge on excess Take as pension - 25% charge on excess (but pay marginal rate of tax in income drawn) Transitional rules available to help protect those who have/expect to have more than SLA at A day National Audit Office did not envisage problem for NHSPS members but that was before the expected improvements in NHSPS benefits mentioned earlier

4. www.pkf.co.uk PKF Financial Planning Limited The Recovery Charge SLA At some point in the future, Ray Tiring has a fund of £3m at his SRD. The SLA is now at £2m. Transitional protection is not involved. EXCESS

5. www.pkf.co.uk PKF Financial Planning Limited The Recovery Charge (1) - the lump sum option SLA EXCESS A lump sum less 55% deducted at source £1,000,000 less 25% = £750,000 £750,000 less 40% = £450,000

6. www.pkf.co.uk PKF Financial Planning Limited The Recovery Charge (2) - the pension option SLA EXCESS A pension with 25% deducted at source The reduced pension is then taxed at the individuals marginal rate of tax The pension option only looks attractive to those who can avoid tipping into Higher Rate!

7. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here To protect or not to protect ! The first key question.. of many ! Two forms of protection : –Primary Protection –Enhanced Protection Or.. No protection !

8. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Primary protection Only permitted if total funds are in excess of £1.5 million at ‘A’ day Protected maximum fund is indexed in line with increases in the SLA Recovery charge is levied on growth over % increase in SLA * * SLA is Statutory Lifetime Allowance ……..The cap !

9. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Primary protection Allows further contributions into registered arrangements post ‘A’ day Must be registered within 3 years of ‘A’ day Beware interaction with overall limit, still applies !

10. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Primary Protection SLA Growth 6/4/06 SRD Personal Allowance The Recovery Charge will be levied on the real return achieved £1.5 m initial limit Fund value on A Day is £2m

11. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Primary protection Who is likely to opt for Primary protection ? Those with fund over £1.5m now but want to make additional contributions or retain future pensionable service of the NHS Pension Scheme

12. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Enhanced Protection Permitted on any level of fund Complete protection against recovery charge Member must leave pensionable service pre ‘A’ day (Does not apply to NHSPS) No post ‘A’ day contributions to any pension plan Must be registered within 3 years of ‘A’ day

13. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Enhanced Protection SLA Growth 6/4/06 SRD Personal Allowance No Recovery Charge will be levied on the real return achieved

14. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Enhanced protection Who is likely to opt for Enhanced protection ? Those with fund over £1.5m now with assets that may grow quickly Those who have funds under £1.5m with assets that may grow quickly

15. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Enhanced protection – NHS Pension Scheme Enhanced Protection is designed for those members who believe that the growth in their pension fund will be greater than the increase in the LTA. If a person applies for Enhanced Protection, they normally cannot pay further pension contributions to a Registered Scheme. However, this does not apply to the NHSPS, but does apply to any associated MPAVCs, FSAVCs etc that the member may have. In summary: Enhanced protection removes the recovery charge completely but is subject to several important conditions: –Benefits at A-Day must also be subject to a test against the current pre A-day Revenue limits. –Members cannot continue to pay contributions to a defined contribution scheme, including money purchase additional voluntary contributions schemes. –Members can continue to pay contributions to a defined benefit scheme, such as the NHS Scheme, and can continue to build up Scheme membership. –The further permitted increase to benefits is subject to a ceiling known as 'Relevant Benefit Accrual’ (RBA) – possibly 5%.

16. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Personal Pension Plans – contributions not restricted to percentage of earnings – can now be up to earnings subject to overall annual limit of £215,000. Funds invested in Personal Pensions can be tailored to suit individual’s attitude to risk from Cash funds to Managed funds to Global Equity funds. Beware complicated calculation based on a factor of 10 x increase in pension year on year to calculate “deemed contribution” for NHS Pension Scheme and Statutory Lifetime Allowance (enhanced Protection). Retirement Planning – Alternative Investments

17. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Example for NHS Pension Scheme Value of Scheme @ 6 th April 2006 38 years Membership and Pensionable Pay of £120,000 Pension @ 6 th April 2006 = £57,000 Lump Sum @ 6 th April 2006= £171,000 £57,000 x 10 + £171,000= Opening Value £741,00 Value of Scheme @ 5 th April 2007 39 years Membership and Pensionable Pay of £160,000 Pension @ 5 th April 2007 = £78,000 Lump Sum @ 5 th April 2007= £234,000 £78,000 x 10 + £234,000= Closing Value £1,014,000 Deemed Value of Increase to Scheme = £1,014,000 - £741,000 = £273,000 for 2006/07

18. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Individual Savings Accounts (ISAs) – contributions restricted to £7,000 per tax year and are guaranteed to run until at least 2010. There are two types of ISAs - Maxi ISA and Mini ISA. An individual can only subscribe/contribute to either one Maxi ISA or up to two Mini ISAs (one for each component), each tax year. Money cannot be invested in both a Mini and Maxi ISA in the same financial year. The table shows the maximum amount that can be invested into each component. MAXI ISA MINI ISA Stocks & Shares up to £7,000 * up to £4,000 Cash up to £3,000 up to £3,000 * If the maximum amount is invested in this component then no more money can be invested in the other component in that financial year. Funds invested in ISAs can be tailored to suit individual’s attitude to risk from Cash funds to Managed funds to Global Equity funds. Retirement Planning – Alternative Investments

19. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Whilst not an exhaustive list, other investments to be considered are; –Investment Bonds – 5% Tax deferred income withdrawals –Venture Capital Trusts - tax relief at 30% - on investments of up to £200,000 per tax year –Enterprise Investment Schemes - tax relief at 20% is available on investments of up to £200,000. Beware Investment Risk and accessibility of capital Retirement Planning – Alternative Investments

20. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here What you need to consider when investing 1. What risk you are prepared to take 2. What your objectives are 3. What timescale do you have –short, medium or long term? 4. Do you have any specific requirements 5. Are there any restrictions – i.e. Ethical investments?

21. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Risk v Reward High Risk Medium Risk Low to Medium Risk Minimal Risk 10 1 5

22. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Investment Steps to a successful portfolio Growth Income Access Risk / Reward Inflation Budgeting

23. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Asset Classes Cash Fixed Interest Equity Property

24. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here No risk: -No danger of Capital Loss -No danger of Capital Gain Relatively low return (inflation) Return comes solely from interest Easily accessible and divisible Influencing Factors -Inflation – Interest rates Cash

25. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Cash v inflation

26. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Fixed Interest Range of risk, but considered low risk -Government stock (Gilts) -Corporate loan stock Return comes from: -Capital appreciation -Interest Easily realisable Influencing Factors - Interest rates (expectation) -Upgrades/downgrades

27. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Fixed interest v cash v inflation

28. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Equity Higher risk -Market -Specific -Different stocks – different risks Higher expected return Return comes from -Dividends - typically increasing - FTSE100 3.2% -Capital appreciation Easily realisable

29. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Equity Influencing Factors - Long term: - economic growth - fundamentals  earnings, growth, P/E ratios, yields/earnings and dividend etc - long term interest rate trends - Short term: - sentiment (fear and greed) - Mergers & Acquisitions activity (Boots) - short term interest rates - technical analysis (charts)

30. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Equity v cash v inflation

31. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Property Medium/higher risk -Economic (UK) (Sectors) -Default Variable return Returns from -Rental Income (NB Costs, voids etc) -Capital Appreciation Highly illiquid

32. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Property Influencing Factors -Long term – economic growth -Short term – supply/demand -Quality of tenant NB: Direct versus indirect

33. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Property v cash v inflation

34. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Fund performance over 20 years

35. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Annual compound return

36. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Some investments available

37. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Investment for Income How much risk are you prepared to take? Minimal Risk Examples Ready Cash Individual Savings Accounts (ISA’s) National Savings Certificates Guaranteed Income Bonds Cash (building societies and banks)

38. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Investment for income How much risk are you prepared to take? Low to medium Risk Examples Gilts/Corporate Bonds ISA’s Distribution Funds

39. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Investment for income How much risk are you prepared to take? Medium Risk Examples General Unit Trusts/Open Ended Investment Companies (OEICs) ISAs Managed Investment Funds

40. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Investment for income How much risk are you prepared to take? Higher Risk Examples Investment Trusts Individual Shares Specialist Unit Trust/OEICs – Japan, Gold etc ISAs

41. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Investment for growth How much risk are you prepared to take? Minimal Risk Examples Bank / building society deposits National Savings certificates National Savings pensioners g’teed income bond Guaranteed growth bonds

42. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Investment for growth How much risk are you prepared to take? Low Risk Examples Government securities (gilts) Distribution bonds Guaranteed income plan

43. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Investment for growth How much risk are you prepared to take? Medium Risk Examples Distribution Bonds Guaranteed income plan With Profit bonds Managed bonds Unit trusts ISAs

44. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Investment for growth How much risk are you prepared to take? High Risk Examples Shares Investment Trusts Unit trusts ISAs VCTs EISs

45. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Summary!! Start planning as early as possible Look ay your outgoings Use your tax allowances Use tax efficient ‘wrappers’ Think about what you are trying to achieve Think about what risk you are prepared to take Seek advice – like your patients do!

46. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here Questions ?

47. www.pkf.co.uk PKF Financial Planning Limited Type the proposal name here This presentation is intended for general guidance only and is not a substitute for professional advice which takes account of individual specific circumstances. While this presentation highlights some of the opportunities for planning, it should be recognised that it is not a complete or exhaustive description of the opportunities or pitfalls which are personally applicable to your situation. The information provided is based on our current understanding of the relevant legislation and regulations which may be subject to alteration as a result of changes in legislation or practice. Past Performance is not necessarily a guide to future performance. The value of investments can go down as well as up. Levels and bases of and reliefs from taxation are subject to change. PKF Financial Planning Limited are authorised and regulated by the Financial Services Authority. Risk Warnings