Olympian Financial Services

Transcription

1 Olympian Financial Services 25 November 2014 Presentation to Trinity College Dublin Pension/Tax Issues Speakers: Liam Mannion & Mark Gorman 1

2 Agenda 1. Review of proposed statutory changes to UK Occupational Pension Regime 2. Sourcing entitlement to UK State Pension 3. Review of statutory changes to pensions Standard Fund Threshold (SFT) 2

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4 United Kingdom Public Service Pensions Two main types of Public Service Pension Scheme in UK: Funded Pension Scheme a pension fund exists from which all Scheme current and future liabilities are paid e.g. UK Universities Superannuation Scheme (USS) Unfunded Pension Scheme liabilities are paid on PAYG basis or from Exchequer Vote e.g. Civil Service, NHS, Teachers, Local Government 4

5 Proposed Changes to United Kingdom Public Service Pension Regime Reform of Unfunded Pension Schemes from April 2015 In 2014,the UK government started implementing reforms of Public Sector Pension Schemes such as Increasing the retirement age to 65 Increasing contribution levels for existing members Moving to a Public Service Career Salary Averaging Scheme Breaking the link with benchmarking and pensions. Any increases in pension benefits are based on CPI rather than pay increases. Banning the release of a Transfer Value (TV) from UNFUNDED Public Sector Pension Schemes from April 2015 to protect the Exchequer. This includes the release of TV to QROPS 5

6 What is a QROPS? A Qualified Overseas Pension Scheme where individuals with United Kingdom pension rights that have become nonresident in the United Kingdom for tax purposes can transfer their pension benefits out of the United Kingdom to an Overseas Pension Scheme that has been approved by HM Revenue & Customs (HMRC) in the UK. 6

7 General Options for Deferred Members of UK Public Service Pension Schemes now tax resident in Ireland? Deferred Benefits Pension is paid from UK Scheme at retirement. These benefits are subject to reform changes currently being introduced. In lieu of all Deferred Benefits, investigate potential payment of Transfer Value from Scheme to QROPS, if permissible. Under Defined Benefit Schemes, acceptance of a Transfer Value will ordinarily result in the granting of a service credit under the Scheme that is determined with reference to actuarial tables. In lieu of all Deferred Benefits, investigate potential payment of Transfer Value from Scheme to a Personal Retirement Bond with an Insurance Company to be invested until retirement. 7

8 Potential Issue of Concern? UK Universities Superannuation Scheme Not affected by proposed restriction on TV release as it is a Funded Scheme Recent Developments The scheme commenced valuation in March The completion date is set for 30 June 2015 Deficit The scheme had a considerable deficit of 11.5 billion in March This is expected to increase upon completion of valuation in June What potential changes are being discussed? Reduction/Ban on TVs or application of TV penalty to discourage TVs Increase in retirement age Reduction in benefits this will affect the pension, retirement lump sum and Spouse s/civil Partner s Pension. 8

9 Assessing Potential Eligibility for UK State Pension If members have greater than 12 months of UK National Insurance contributions, you may potentially be eligible for a UK State Pension. Olympian will assess how many contributions have been paid and if it is worth making additional contributions to increase the level of pension payable at retirement. For people who are already receiving their pension or who will reach State Pension age before 6 April 2016, a new scheme starting in October 2015 will allow people to pay a new class of voluntary National Insurance (NI) contributions (called Class 3A). This is intended to help people boost their additional State Pension by a maximum of 25 per week. The scheme will be open for a period of 18 months from October Anyone considering this will need to weigh up the costs of contributions with the likely increase to their pension income. If you are entitled to the maximum Irish State Pension then it may not be beneficial to contribute to the UK state pension. Olympian will assess your Irish State Pension entitlement then make a recommendation on contributions to the UK State pension. 9

10 Assistance in Tracing UK Pension Entitlements & Assessing Options What we do: Starting the Process We write to the UK State Authorities about your State Pension We write to UK Employers about former Employer s Pension Scheme Benefit We write to UK Insurer Companies about Personal Pension We report back to you. This may take three to four months to gather all the information. What do you need to apply: Your UK National Insurance Number, or Details of your home addresses in the UK and Details of your UK employment. Please Note: The University of Dublin Trinity College is not liable for any professional fees occurred between any employee and Olympian Financial Services or any other Financial Advisor. Engagement of Olympian Financial Services is a personal arrangement between each employee and Olympian Financial Services. 10

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12 Overview of Standard Fund Threshold (SFT) Tax legislation imposes an overall individual lifetime limit on the maximum tax relieved retirement benefits that can be accrued. Applies to all Public Service & Private Sector pension arrangements Significant changes in 2014 Finance Act. Personal lifetime SFT reduced to 2 million from 1/1/2014. Work through some examples. 12

13 How does SFT Work? On each occasion that you drawdown benefits (called a BCE), the value of the benefits is tested against the Standard Fund Threshold. Nasty Charge Excess Tax may apply on any benefits that exceed the SFT. Applies to all benefits taken after 6 December Relevant pension arrangement. 13

14 What is SFT Chargeable Excess Tax? Where an individual draws down retirement benefits that are in excess of the 2 million statutory Standard Fund Threshold, any excess is taxed at 41% *tax (*41% PAYE tax rate proposed to be reduced to 40% from 1/1/2015) 14

15 EXAMPLE SFT Chargeable Excess Tax? Value of benefits in excess of statutory SFT = 100K SFT Chargeable Excess Tax is charged at 41%* = 41K liability Notional Nett Benefit = 59K This notional Nett Benefit of 59K will also likely be subject to further normal PAYE taxation e.g. 41%* PAYE tax, USC, etc Net 59K further up to 52%: 30,680 Net income: 28,320 Effective potential tax rate on excess could be 71.6%! (*41% PAYE tax rate proposed to be reduced to 40% from 1/1/2015) 15

16 Do my benefits exceed 2M SFT now? In the first instance, you will need to establish the value of all accrued pension entitlements under Relevant Pension Arrangements sources at 31 December 2013 including those drawndown after 6 December For Defined Contribution Pension Arrangements, this will usually be the fund value at 31 December 2013 (available from Insurer) For Defined Benefit Pension Schemes, this is the notional capitalised value of actual accrued retirement benefits at 31 December 2013 Pre 31/12/2013 Accrual: Flat Capitalisation Factor of x 20 applied to accrued pension benefit at 31/12/13 Post 01/01/2014 Accrual: Flat Capitalisation Factor is replaced by retirement age based Capitalisation Factors for future benefits accrued from 01/01/2014 e.g. Age 65 = x26 ; Age 67 = x24 16

17 EXAMPLE A Assumptions Member is aged 55 He is a member of a Defined Benefit Pension Scheme At 31 December 2013, his accrued benefit if he had left service was calculated to be 60,000 pa When he retires at age 65 (i.e. BCE = 25/11/2024), it is expected that his accrued pension will amount to 75,000 pa with no retirement lump sum Capitalisation Factors for DB Schemes At 31/12/2013 x20 (regardless of age) At 25/11/2024 x26 (age based) 17

18 EXAMPLE A Workings A. Determine Capitalised Value Accrued at 31/12/2013 DB Scheme Accrued Pension Benefit: 60,000 p.a. Capitalisation Factor: x20 Capitalised Value 1,200,000 [A] B. Determine Capitalised Value Accrued from 01/01/14 to 25/11/2024 (BCE) Accrued Total Pension Benefit: 75,000 p.a. [B] Pension Benefit Accrued from 01/01/2014 to 25/11/2024 [B] [A] 75,000 60,000: 15,000 p.a. Capitalisation Factor: x26 Capitalised Pension Value 390,000 [C] C. Assess TOTAL Value of Capitalised Benefits at BCE on 25/11/2024 [A] + [C] 1,200, ,000 1,590,000 No Excess SFT Tax! 18

19 What should I do if I think my accrued benefits exceed 2M SFT now? If you think that the value of at 31 December 2013 exceeds the 2M SFT, you need to formally review your financial affairs and may need to make a personal application to Revenue for a Personal Fund Threshold (Certificate) of up to 2.3M Where a valid Revenue PFT Certificate is not furnished to Pension Administrators at time of BCE, the Pension Administrator is legally obliged to automatically calculate SFT Excess Tax Charge. The onus is on you to make a personal application to Revenue ahead of the prescribed PFT Application Deadline of 30 June

20 EXAMPLE B Assumptions Member is aged 60 She is a member of a Defined Benefit Pension Scheme At 31 December 2013, her accrued retirement benefits under the DB Scheme if she had left service were calculated to be Pension: 85,000 p.a. and Lump Sum 135,000 When she retires at age 65 (i.e. BCE = 25/11/2019), it is expected that her total retirement benefits under the DB Scheme will be Pension: 95,000 p.a. and Lump Sum 200,000 In addition, she has a Defined Contribution Personal Pension Plan policy with an insurance company from when she was previously self employed. This Personal Pension was valued at 225,000 on 31/12/2013 and is estimated to be worth 260,000 on 25/11/

21 EXAMPLE B Workings A. Determine Capitalised Value at 31/12/2013 Defined Benefit Scheme Accrued Pension Benefit: 85,000 p.a. Capitalisation Factor: x20 Capitalised Pension Value 1,700,000 + Lump Sum Value 135,000 1,835,000 [A] Defined Contribution Pension Policy Fund 31/12/2013: 225,000 [B] Total Capitalised 31/12/2013 2,060,000 [A] + [B] Exceeds 2M 31/12/2013 Personal Action Required Now to obtain PFT of 2.060M from Revenue before 30 June 2015!! 21

22 EXAMPLE B (Cont) Workings B. Determine Capitalised Value from 01/01/14 to 25/11/2019 (BCE) Defined Benefit Scheme Accrued Pension Benefit at 31/12/2013: 85,000 p.a. [C] Accrued Total Pension Benefit at 25/11/2019: 95,000 p.a. [D] Total Retirement Pension Accrued from Defined Benefit Scheme during period [D] [C] 95,000 85,000: 10,000 p.a. Capitalisation Factor: x26 Capitalised Pension Value accrued after 01/01/14 260,000 [E] Accrued Lump Sum Benefit at 31/12/2013: 135,000 [F] Accrued Total Lump Sum Benefit at 25/11/2019: 200,000 [G] Increase in Lump Sum Value after 01/01/14 [G] [F] 65,000 [H] Total Value of DB Benefits Accrued from 01/01/14 325,000 [E] + [H] 22

23 EXAMPLE B (Cont) Workings (from previous slides) Capitalised DB Value at 31/12/2013 1,835,000 Increase in Capitalised DB Value from 01/01/14 to 25/11/ ,000 PLUS Retirement Fund Accrued from Personal Pension at 25/11/ ,000 Total Capitalised Value from all sources at 25/11/2019 2,420,000 [X] C. Make allowance for PFT Certificate granted by Revenue 2,060,000 [Y] Excess of Benefit Value Over PFT [X] [Y] 360,000 [Z] D. Determine PFT Chargeable Excess 360,000 [Z] x 41% x Tax Rate 41% Personal Tax Liability payable at retirement 147,600!! 23

24 Contact Us Olympian Financial Services Regulated by the Central Bank of Ireland Independent Financial Advice Non Union Affiliated Dublin Office Address: College Green, Dublin 2 Phone Number: (01)