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Retirement Planning

Whether you are trying to grow your savings to help fund your retirement or have reached the stage where you are ready to draw down from those savings, we can provide the expert guidance needed to ensure your plans meet your needs both now and in the future.

We will review your existing pension arrangements and explain what they mean to you and your financial objectives. If appropriate, we will suggest and recommend changes with a view to achieving a solution to better meet your needs.

Retirement planning, whether pre-retirement or in retirement, is for the long term and therefore once any plans are put in place, we will ensure we review those plans with you on a regular basis. This is the key to a successful financial outcome for life.

Pension Simplification

A’ Day (the Appointed day) arrived on 6th April 2006 and brought with it sweeping and radical changes in relation to pension legislation.

This has created a single universal regime that replaced the previous eight tax regimes and the changes affect all savers in occupational and personal pension schemes, employers and financial advisers.

Pension simplification introduced two new controls, the pension Lifetime Allowance (LA) and pension Annual Allowance (AA).

From April 2006, there is now just one set of tax rules for all types of pension, with an individual LA of £1million (2017/2018) and an individual AA of £40,000 (2017/2018). Most individuals are able to fund up to these limits with the possibility to also carrying forward unused AA from the previous 3 years.

High earners with income in excess of £110,000 p.a. may have a reduced annual allowance of £10,000 under the tapered annual allowance rules. Individuals who have already flexibly accessed part of a pension scheme will only have an AA of £4,000.

Exceeding either the LA or the AA will simply trigger a tax charge.

Other changes included:

Early retirement age available from age 55
Full concurrency (i.e. being able to pay into any array of plans you wish), subject to the annual allowance and potential for carry forward
Wide investment flexibility
Up to 25% Tax Free Cash
The ability to commute ‘small’ funds as a one off lump sum as opposed to having to draw a regular income from age 55 (subject to part of the fund being taxed)
Flexible options at retirement when deciding to take benefits such as Flexi-access Drawdown
No need to secure benefits at age 75 via an annuity
In addition another raft of changes introduced in April 2016 also gives individuals further and greater flexibility to access their pension savings from age 55.

The changes also include:

To increase the flexibility of the drawdown rules by removing the maximum ‘cap’ on withdrawal and minimum income requirements for all new drawdown funds from 6 April 2015;
To enable those with ‘capped’ drawdown to convert to a new Flexi-access Drawdown fund once arranged with their scheme
To enable pension schemes to make payments directly from pension savings with 25 per cent taken tax-free, known as the Uncrystallised Fund Pension Lump Sum (UFPLS) option
To remove restrictions on lifetime annuity payments;
To ensure that individuals do not exploit the new system to gain unintended tax advantages by introducing a reduced money purchase annual allowance (£4,000 2017/2018) for money purchase savings where the individual has flexibly accessed their savings; and,
To increase the maximum value and scope of trivial commutation lump sum death benefits.
Pensions are a long term investment. You may get back less than you put in. Pensions can be and are subject to tax and regulatory change therefore the tax treatment of pension benefits can and may change in the future.

Advanced Pensions

In recent years the pensions industry has become more advanced in terms of the flexibility of investments available and the structure of the actual pension arrangements.

It is an area of constant change and you should consult us regularly to make preparations for a secure and enjoyable retirement.

Self Invested Personal Pensions (SIPPs)

A Self Invested Personal Pension (SIPP) is a tax-efficient wrapper within which a wide range of investments can be held. A new SIPP must appoint a scheme administrator, usually the recognised product provider. SIPPs have the same tax benefits and regulations as conventional personal pension plans but you and / or your advisers have control over the investment choice – each SIPP is unique to the individual. Otherwise, it operates in the same way as a conventional personal pension in respect of contributions and eligibility, for Her Majesty’s Revenue & Customs (HMRC) purposes.

The complex nature of a SIPP means that it is not suitable for all investors. Often, the benefits of ‘self investment’ are only advantageous to people with very large funds and / or investors with some level of sophistication when it comes to investment decisions. Often, there are additional charges for arranging and dealing within a SIPP and these charges would erode smaller funds quickly.

The benefits of using a SIPP include being able to invest in:

Stocks and shares listed or dealt on an Inland Revenue recognised stock exchange, including AIM
Stock exchanges that are not recognised by HMRC, e.g. OFEX.
Unit trusts, open ended investment companies (OEICs)
Warrants, covered warrants
Government stock and fixed interest stock
Unquoted shares
Commercial property & land
Property funds
We will be able to provide more details and make a recommendation based on your own circumstances.

Pensions are a long term investment. You may get back less than you put in. Pensions can be and are subject to tax and regulatory change therefore the tax treatment of pension benefits can and may change in the future.

Personal and Stakeholder Pensions

Personal Pensions represent a popular and attractive way of saving for your retirement.

All monies invested into your fund grow free of capital gains tax, and the contributions you make are enhanced by income tax relief at source. For example if you invest £80, the government adds on tax relief (currently 20%) to enhance your contribution to £100! If you are a higher rate taxpayer you can claim additional relief through your PAYE coding. An annual allowance of up to £40,000 (2017/2018) is available as well as the possibility of utilising potential carry forward of unused annual allowances.

A personal pension is an arrangement made in your name over which you have personal control. You can alter your contributions, suspend them, or stop them completely.
You will be eligible to take 25% of your accumulated fund tax-free when you retire, the earliest age being from 55. There are a range of options when you decide to take benefits such as purchasing annuity or electing capped or flexible drawdown.

Personal Pensions usually offer a range of investment mediums to suit your attitude to investment risk, and you can change your investment at any time.

Stakeholder pensions are similar to personal pensions but have their charges capped at 1.5% for the first 10 years reducing to 1% thereafter. Whilst Stakeholders are generally considered a little cheaper than Personal Pensions, investment choices may be restricted.

Pensions are a long term investment. You may get back less than you put in. Pensions can be and are subject to tax and regulatory change therefore the tax treatment of pension benefits can and may change in the future.

Your Options At Retirement

From age 55, there are a number of options available to you including:-
  • Draw your benefits available from the existing provider.
  • Purchase an annuity with a different provider on the open market. This could potentially increase the payments to you.
  • Transfer to Flexi-access Drawdown (or a Third Way Plan)
  • Use the Uncrystallised Fund Pension Lump Sum (UFPLS) rules
  • Transfer to phased retirement
  • Transfer the full amount to any/a combination of the above
  • Undertake a partial transfer to any/a combination of the above
Draw your benefits from your current scheme

Pension arrangements can usually provide an immediate Tax Free Cash (TFC) sum of 25% with the remaining fund generating an income which is subject to income tax. Some schemes/providers also allow partial transfers to facilitate added flexibility.

Purchase an annuity with a different provider on the open market

Often taking the funds from the existing provider and shopping around on the open market can considerably increase the level of your income. This is because some providers offer better rates than others.

Buying an annuity means using your built-up pension fund to buy the guarantee of an income for life from a company. Before you buy your annuity with another provider, you will still have the option to receive the TFC from the original pension scheme but the remaining fund value is passed to the new provider to secure your guaranteed income. The value of your pension income in these circumstances depends on several factors such as your age, current interest rates, the value of your pension fund and the type of pension you choose. Enhanced annuity terms may be available if, for example, you have a life-impairing medical condition.

Flexi-access Drawdown (FAD)

Under the option of FAD you can choose to immediately take 25% tax free cash from your plan. Instead of buying an annuity with the remainder of the fund, the money remains invested and can continue to benefit from investment performance in a tax-efficient environment. There will be no limit on the income taken which is taxed at marginal rate.

After you have taken your entitlement to the tax free lump sum at outset, you can choose to take as much or as little of the remaining pot as you wish and it will be added to any other income you have in that tax year to determine the income tax rate that will apply. Please note that if you draw any income from this plan, any future money purchase pension contributions is limited to a £4,000 (2018/2019) maximum Annual Allowance, and these will be no ability to make use of any carry forward. (i.e. topping up any unused annual allowance in future.)

As the rest of your pension fund remains invested in a tax-efficient environment, your final pension – and the income you may withdraw each year – will be determined by the continued investment management of your funds. Careful attention, therefore, needs to be given to investment management whilst in Flexi-access Drawdown to try to ensure that your income can continue for as long as possible and, if you do finally buy an annuity, you would be in a similar situation to that if you had bought an annuity at the start.

You are able to vary your income each year and the level of income you choose to take will have an effect on the value of your invested fund which will influence both future levels of income as well as the amount of any annuity income you may choose to buy.

Whilst in the short term many clients wish to consider drawing large amounts of income from their funds, in the medium to long term it is important that you balance your income requirements with the investment policy to ensure the annuity purchasing power of your pension fund is maintained.

With this type of contract (together with the UFPLS option shown below):

(1) The capital value of the fund may be eroded;
(2) The investment returns may be less than those shown in the illustrations;
(3) Annuity or scheme pension rates may be at a worse level in the future;
(4) When large amounts of income are taken or the maximum short-term annuity is purchased, high levels of income may not be sustainable;
(5) Be aware that some state benefits are means tested by the DWP.

Draw your benefits as an UFPLS payment from your current scheme

Your current pension arrangement could provide you with multiple or a one off lump sum. 25% of this would be tax free, the remaining pot initially taxed at emergency rate then falling to marginal rate in the future. There is no limit on the size of the lump sum you choose to draw. Please note that this type of payment will limit any future money purchase pension contributions to a £4,000 maximum Annual Allowance.

Phased Retirement

This option allows you to retire gradually. It can make the most tax-efficient use of your pension fund and it also allows you to build up the value of your pension when it suits you.

Generally, your pension fund is split up into 1,000 equal segments, and these segments can be phased in over a number of years. Every time you phase in some segments, you can choose to receive a TFC sum of up to 25% of the value of these segments, and the remainder of the fund will be used to buy you an annuity. The pension bought will be guaranteed to be paid to you for life, and you can choose one that increases in value each year and whether payments should continue for your spouse if you die first. The remaining segments will continue to be invested in a tax-efficient environment, thus providing you with the possibility of higher future income.

A Combination Plan

A Phased Flexi-access Drawdown / Combination plan consists of two distinct parts. Firstly, the funds are transferred into the plan. The plan is split into a large number of identical “mini-plans”, benefits from which can be taken at different times. This provides a large degree of control over the amount and timing of the income to be taken.

Income is released by “opening” sufficient numbers of these mini-plans to produce the required level of income. This is achieved by transferring the funds to the FAD element of the plan. When each mini-plan is opened, 25% of its fund value is released as tax-free cash. The residual fund from each mini-plan then remains invested in real assets and an income is drawn directly from this remaining fund. The income that is drawn from the FAD funds can be varied. Each income payment that you actually receive is therefore made up of part tax-free cash and part (taxable) income from the FAD element of the plan.

Important Note:

HMRC has advised that, where an individual flexibly accesses their pension benefits and takes an income stream, they then have a duty to tell the scheme administrators of any ‘live’ (where contributions are still being made) or future pension schemes they join in the future, that they have done so. This is your own personal responsibility. This is because the money purchase Annual Allowance falls to £4,000 where an UFPLS payment is made and scheme administrators have a duty to inform HMRC if they think someone has paid pension contributions which exceed this limit.

You should note that, if you do not inform other scheme administrators that you have drawn income from your FAD within 91 days, you will be liable for a penalty of up to £300. Where information is not provided after the initial penalty, a further penalty of up to £60 per day may be applied until the information is provided. If incorrect information has been provided a penalty of up to £3,000 may be due where that incorrect information has been negligently or fraudulently provided.

Pensions are a long term investment. You may get back less than you put in. Pensions can be and are subject to tax and regulatory change; therefore the tax treatment of pension benefits can and may change in the future.