Financial Planning Report

Transcription

1 {{TOC}} Financial Planning Report Prepared for: ABC Limited Prepared by: Independent Financial Adviser PPOL Penylan Mill Coed-y-Go Oswestry Shropshire SY10 9AF 06/04/2016

2 SUITABILITY REPORT Different Introductions are available. A Corporate version is available for company related advice Introduction and Basis of Advice I am authorised to provide advice on all areas addressed in this report and I can confirm you have been provided with a copy of our Client Agreement, our Terms of Business, the services we offer and how we can be remunerated for these services. My recommendations that follow are based on my understanding of your business's financial position and objectives. The report should be read in conjunction with the relevant illustrations, fee disclosure and Key Features documents; I do stress that if you do not understand any of the information then please contact me as a matter of urgency. I would also mention that if any information has not been disclosed, it is possible that my advice may not take account of all your business's requirements and could ultimately have been different. Summary of Current Position & Objectives Please find below a summary of the current business position: Business Name ABC Limited Business Type Limited Company Business Owners Mr A Client & Mr B Client No of Employees 10 Industry Construction ABC Limited will shortly reach its auto-enrolment staging date and you as directors have sought my firms help to set up a workplace pension scheme suitable to deal with the auto enrolment of your eligible workforce. You have confirmed the company has no existing pension scheme in place. My advice that follows will specifically focus on the following: To introduce a pension scheme for your employees in order to comply with pensions autoenrolment legislation Attitude to Risk I confirm that no assessment of your attitude to risk has been undertaken as it is deemed unnecessary regarding the advice given to the directors for the benefit of employees.

3 Pension Recommendations I have recommended a Workplace Pension for the following reasons: This type of pension will fully discharge your employer responsibilities for auto-enrolling your employees into a workplace pension It will allow you to set different payment limits for different categories of staff It will act as a co-operative arrangement, with pooled assets and shared costs allowing economies of scale The scheme will provide simplicity ensuring better employee engagement with the autoenrolment process You wish to keep the investment choices fairly simple and this type of scheme will meet your objective You wish to keep the associated costs and charges of your workplace pension to an absolute minimum Your employees will receive tax relief on their contributions Any employer contributions will qualify as a business expense Master which can Trust, be offset Employer against Trust & the business's taxable profits GPP are all available for selection for auto enrolment schemes The Peoples Pension - Workplace Pension Plan - ABC Limited Scheme Type Employer Contribution Level Employee Contribution Level Scheme Retirement Age Master Trust 3% of Basic Salary Monthly 1% of Basic Salary Monthly 65 Pension Contribution Insurance - This is designed to help safeguard the pension contributions in the event of being unable to work through illness or injury for a prolonged period of time. You chose NOT to include this option due to the following: This will be decided on a member level basis Indexation - The contributions will increase each year so helping to mitigate against the effects of inflation. You chose NOT to include this option due to the following: We agreed to review the level of your contributions on a regular basis Auto-Enrolment Certification - The scheme meets the government auto-enrolment legislation. Portable Pension Pot - Should you leave your employer to work somewhere else and your new employer doesn't use the recommended plan to satisfy auto enrolment, you can still select to carry on paying into it in addition to the pension they enrol you into. Pension Only Scheme - The recommended scheme is government subsidised and membership of it ensures a low cost, straightforward, pension only scheme with no other ancillary pension options. 'Net Pay' Tax Relief Arrangement - The employee's gross contribution is deducted from gross (before tax) pay and so reduce taxable earnings giving tax relief to tax payers. Note that non-tax payers will not benefit from any tax reduction under this arrangement and need to claim the tax relief via their self-assessment tax return.

4 Entry Charges Ongoing Charges Adviser Charge AC Paid By Adviser Charge AC Paid By Investment Management Fee 1,000 initial advice fee Employer 250 per quarter Employer 0.75% p.a. of scheme value I am recommending the above for the following reasons: The People s Pension is as an additional workplace based pension to compliment the Building, Construction and Engineering (BCE) Industries stakeholder pension scheme, one of the largest in the UK. It will assist any sized organisation to comply with their auto enrolment duties. It operates as a Master Trust, multi-employer scheme with independent trustees and operates on a not-for-profit basis A master trust structure enables all businesses whatever their size to benefit from independent, robust, high quality governance without the costs associated with an employer establishing and running their own trust-based scheme The charging structure of the recommended plan is competitive when compared to similar plans in the market place The research undertaken of the market place has identified this as being the most suitable solution for your needs and objectives They have provided us and our clients with an excellent service in the past Investment Strategy - Target Date / Lifestyle Funds This style of fund can offer a lifelong managed investment strategy which should remain appropriate to an investor's risk profile. The fund will gradually adjust its underlying asset allocation as retirement (the target date) approaches by moving away from high risk - high return assets into lower risk - lower return assets. The derisking process typically commences around 10 to 15 years before retirement and will often adjust further around 5 years before retirement to match the expected retirement income strategy. This derisking process is termed the 'investment glidepath'. Your investment glidepath is targeted for the retirement outcome of Annuity Purchase. I have recommended the above for the following reasons: Target Date funds are available for selection when advising on workplace pensions Members can simply be enrolled into the fund that targets their year of expected retirement and / or type of retirement income The funds offer a consistent objective which is to target investment returns in excess of CPI inflation after all charges over the longer term They have a realistic growth target of CPI + 2 percent Each fund will have a set of building block funds and an asset allocation which always remains appropriate to its target date or retirement outcome Funds can be blended between return seeking and income seeking objectives to manage the on-going risk profile Funds will be blended between active and passive management strategies The funds underlying assets automatically adjust to reduce exposure to higher risk assets the closer you get to retirement and to the extent required to match match your expected retirement outcome Income Requirements in Retirement Each scheme member will receive an illustration providing an indication of the income they could receive at retirement based on the agreed employer and employee contributions to the

5 recommended workplace pension. It is important that this workplace pension is reviewed on a regular basis to ensure the initial and future level of contributions is sufficient to meet legislation and the members stated income requirements in retirement. Where members elect to take part of their pension fund at retirement as a tax free cash payment, this will reduce the income they receive from the residual pension fund. The illustrations provided do not include any member State Pension entitlement. Expression of Wish I would recommend that all members complete an Expression of Wish Form. This will ensure the proceeds of their workplace pension, subject to the trustee's discretion, are paid to their chosen beneficiary on death. Alternative Solutions Considered But Discounted I confirm due consideration was given to a range of alternative solutions but subsequently discounted for the following reasons: Small Self-Administered Scheme This type of pension scheme does not reflect your retirement planning objectives Employer Trust Scheme This type of pension scheme does not reflect your retirement planning objectives Group Personal Pension This type of pension scheme does not reflect your retirement planning objectives

6 Important Information Further Information and Risk Warnings A summary of the risk warnings associated with my advice can be found in the Appendix of this report and should be read with particular care. Additional information regarding the recommendations can be found in the Key Features Document(s) provided. Cost of Services A summary of how my company can be remunerated for the advice received and the provision of my services is detailed in the disclosure documentation provided. Our Service Proposition My company offers a number of service propositions which govern the type of service and the regularity of contact and reviews you will experience. The ongoing servicing of your plans is recommended but not compulsory and if taken up can be cancelled at any time. The associated costs of our propositions and when they commence are set out in our disclosure documentation already provided and these costs may go up or down in line with the fluctuating value of the underlying assets. I confirm that you have elected for the following service: A focused and limited advice transaction service instigated by client request. Charges Summary Proposed Workplace Pension The Peoples Pension ABC Limited Entry Charges Ongoing Charges Adviser Charge AC Paid By Adviser Charge AC Paid By Inv Management Fee 1,000 initial advice fee Employer 250 per quarter Employer 0.75% p.a. of scheme value Entry Charges: One off charges taken before or on investment. Adviser Charge: A fee paid to the adviser for advice and services. AC Paid By Employer: The Adviser Charge will be paid by the relevant employer. Ongoing Charges: Regular charges, typically taken over a year. Adviser Charge: A fee paid to the adviser for ongoing advice and services. AC Paid By Employer: The Adviser Charge will be paid by the relevant employer. Investment Management Fee: Or Annual Management Charge (AMC). A fee levied by the investment firm paid out of the fund for the costs of investment management and fund administration. Cancellation Notice

7 Once your investment plan is set up you have a legal right to cancel should you change your mind, the period is generally 30 days (which may reduce to 14 days for NISA and Unit Trust investments and may increase to 60 days for annuities). The amount you get back may be reduced by a decrease in value between making your initial investment and up until your investment is sold. Affordability & Emergency Fund You should keep some money immediately accessible to cover any unforeseen emergency expenditure that may arise. I would normally recommend that you retain an emergency fund equal to three month's expenditure within an immediate access deposit account as a bare minimum. I confirm you are happy with the level of your emergency reserve. I would also like to take this opportunity to confirm that the above recommendations are affordable to you. Financial Services Compensation Scheme (FSCS) The FSCS was set up under the Financial Services and Markets Act 2000 and exists to protect clients of FCA authorised firms and covers deposits, insurance and investments. The scheme can pay compensation to clients who have lost money as a result of their dealings with FCA authorised firms that are unable to pay claims against them. The deposit limit for bank accounts is currently 75,000 or 150,000 for joint accounts. For workplace pension schemes the compensation limit up until retirement is 100% with no upper limit and also 100% post retirement.

8 Confirmation I have identified your objectives and I hope you agree that the recommendations made correspond to your current needs and future requirements. If you have any queries concerning the content of this report, or should you feel the recommendations are in any way an inaccurate reflection of your circumstances and future objectives please contact me immediately. Report written by David Edwards Signature Date / / We the undersigned have received this report. We acknowledge this is a fair reflection of our conversation and confirm we have received all supporting literature including Key Features Documents, fund fact sheets and illustrations. Accepted by ABC Limited Signature Date / /

9 APPENDIX

10 Risk Warnings General The recommendations are based on current taxation, law and practice all of which may be subject to change. Any quotations provided are for illustration purposes only and are not guaranteed. For a full explanation of the charges and how they affect the plan, please refer to the personalised illustration and Key Features document(s). Investments Past performance is no guarantee of future returns. Inflation will reduce the real value of the capital invested if returns do not match or exceed the rate of inflation. An investment should be considered over a medium to long-term time frame and should not be entered into if the capital is required for other needs. The value of the investment is determined by units or shares, the price of which can fall as well as rise. The value could be less than what was originally invested, especially in the early years. Please bear in mind that the outlook for asset classes and market sectors can change and as a result the asset allocation could become unbalanced. Investing in a single or limited range of asset classes or sectors may lead to greater volatility and therefore carry a greater investment risk. A certain fund or funds may have a higher risk rating than the agreed attitude to risk, but the overall risk applied of the combined funds or portfolio is designed to meet the agreed risk profile. Equities can significantly fall in value and in difficult times dividends may reduce or stop. Where an investment is exposed to property there can be times when this is difficult to sell, meaning the investment may not be able to be cashed-in when required. Corporate bonds are not risk free as the bond issuer could default, interest rate rises could reduce the capital values and in adverse market conditions the fund could become illiquid making it difficult to sell. Where a fund invests in overseas markets, domestic upheaval and changes in currency exchange rates mean that the value of the investment can go up or down. It is important to periodically review the value of an investment against expectations and the underlying investment strategy, particularly when close to retirement. The higher the charges applied to an investment the greater the effect of those charges on the performance. Changing funds or transferring excessively, may erode the value due to transactional based fees. Any sale of investments held, including switching may give rise to a capital gains tax liability and any income generated will normally be subject to income tax. Workplace Pensions The employer must ensure that any salary sacrifice (exchange) arrangement is effective according to HMRC rules. This means that employers must alter the terms and conditions of employment for the employees who choose to opt-in.

11 An employee's gross salary must not fall below the National Minimum wage as a result of salary sacrifice (exchange). Employees should be made fully aware salary sacrifice (exchange) may impact on other benefits which are linked to their salary, for example, benefits on death, redundancy payments and over-time rates. Statutory benefits linked to lower salary may also be impacted such as, basic state pension, statutory maternity, paternity and sick pay and working or child tax credits. Where a company does not comply with the auto enrolment of its employees it will be deemed to be acting unlawfully and liable for potential fines. Where an employer provides different schemes and benefit structures to different groups of workers they must still provide at least the minimum requirements to all. An expression of wish regarding who inherits a fund's value upon death should be given to a pension provider at the earliest opportunity and should be kept updated to ensure it reflects the wishes of the policy holder. If benefits are taken from the pension earlier than planned, the projected income or fund value could be less providing reduced benefits during retirement. There are no limits to the amount of contributions that can be made but there are limits on the amount of tax relief received. Where a regular contribution is commenced without premium protection, there is a risk that the contributions will stop if illness prevents the ability to work, meaning the future retirement income may be adversely affected. Where no escalation has been selected, the effects of inflation may erode the value of the contributions over time.

12 Technical Notes Pensions A current summary of the main UK registered pension's legislation can be found below. State Pension Age The State Pension Age is 65, it is proposed to be further increased to age 66 by 2020, age 67 between 2026 and 2028, age 68 by the mid 2030s and age 69 by the late 2040s Contributions There is no restriction on the number of pension schemes one can contribute into Individual contributions are unlimited. However, there are limits on the amount of tax relief receivable. This is restricted to the higher of 3,600 or 100% of salary subject to the annual allowance. The annual allowance for contributions in 2016/17 is 40,000 which if breached; the excess will be subject to a tax charge at the members marginal rates. It is possible however to offset contributions in excess of the annual allowance against unused allowances from the previous three years. The government has introduced a tapered annual allowance for those who earn in excess of 150,000 p.a. including pension contributions. The allowance is tapered by 1 for every 2 of income that exceeds 150,000. However the allowance cannot fall below 10,000. The Money Purchase Annual Allowance (MPAA) is 10,000 and this lower allowance is triggered when money purchase pension scheme benefits are accessed flexibly by the member through flexi-access drawdown (although not if just tax free cash is withdrawn), short term annuity, uncrystallised pension fund lump sum or payment of a scheme pension under a money purchase arrangement with less than 12 members. This reduction only applies to money purchase pension schemes. For members subject to the MPAA, an 'alternative annual allowance' of up to 40,000 is retained for defined benefit scheme contributions. Employer contributions count towards the annual allowance. It is up to the Employer's local inspector of Taxes whether or not the entire contribution will be relievable for tax purposes. No tax relief will be granted on contributions paid after age 75. A tax free lump sum recycling limit of 7,500 exists to prevent exploitation of pensions tax relief. It seeks to avoid the payment of the tax free lump sum amount just received back into the plan as a new tax relievable contribution. Retirement Ages The normal minimum pension age is 55 Benefits can be taken earlier if a protected pension age applies or permanent ill health Tax-Free Lump Sums Are generally 25% of the fund values from a registered scheme It was possible to protect funds in excess of 25% (before April 2006 only) Death Benefits

13 Death before age 75 - Any beneficiary can inherit the pension funds and there is no tax charge whether taken as an income or lump sum provided that income is designated, and lump sums are paid, within 2 years. Death at or after age 75 - Any beneficiary can inherit the pension funds either as an income or a lump sum. Both would be taxable at the beneficiary's marginal rate. (A higher tax rate of 45% applies if the beneficiary is an entity other than an individual.) Beneficiaries - The term 'any beneficiary' means a 'dependant' (financially dependent) or other 'nominee' (not financially dependent). On the dependant or nominee beneficiary's death, funds can be inherited by a 'successor'. Payment from a dependant's flexi-access drawdown fund will not cause the money purchase annual allowance rules to apply to the dependant. The Lifetime Allowance Is the limit of pension benefits that can be drawn before tax is applied. Excess benefits are subject to a tax charge of 25% if income or 55% if taken as a lump sum. The lifetime allowance is currently 1 million and from April 2018 the allowance will be indexed annually in line with CPI Pension Protection Enhanced, Primary, Fixed or Individual are forms of pension protection and were introduced between 2006 and 2016 in order to ring fence benefits from the lifetime allowance Retirement Benefits - Post 5th April 2015 Unrestricted retirement benefits can be taken from a defined contribution or money purchase pension scheme at any time from age 55. Drawdown Pension Income can be taken direct from the pension fund as follows: Flexi-Access Drawdown Allows any income amount chosen Short Term Annuity An amount can be used to buy an income for a term of up to 5 years Uncrystallised Pension Fund Lump Sum Allows a single or a series of lump sums to be withdrawn. Lifetime Annuity Allows a guaranteed income for life that can increase or decrease. Scheme Pension This offers a secure lifetime income payable to the member of the scheme. Small Pot Lump Sums Where a pension fund is less than 10,000 (up to a maximum of three pots), the entire fund(s) can be withdrawn as a lump sum (25% tax free rule applies) Trivial Commutation Lump Sum Where a Defined Benefit pension is worth 30,000 or less the value can be surrendered as a lump sum (25% of which is tax free). Serious Ill Health Lump Sum Whether accessed or not, individuals with less than 12 months to live can withdraw their entire fund tax free up to age 75 or taxed at their marginal rate if aged 75 or over.

14 Auto-Enrolment All employers are required by law to automatically enrol certain members of their workforce (known as eligible workers) into a qualifying workplace pension scheme and contribute to it. A minimum contribution is set based on a band of the gross annual earnings and will include the employee's and employer's contribution and the tax relief added together. These duties took effect for the largest employers from 2012 with all other sized employers being phased in until 2018.

15 Notes on Financial Products Work Place Pensions Auto-Enrolment All employers are required by law to automatically enrol certain members of their workforce into a pension scheme and make a contribution towards it. Employers must enrol all workers known as 'eligible job holders' which are those who: Are not already in a qualifying workplace pension scheme Are at least 22 years old Are below state pension age Earn more than 10,000 p.a. Work, or ordinarily work, in the UK The largest employers have already fulfilled these duties with all other medium and small sized employers being phased in up to Workers that don't meet the criteria shown above can 'opt-in' to the workplace pension and employers still have duties in relation to making contributions to them. 'Entitled workers' (those that earn less than 5,824 (2016/17) will not be automatically enrolled or receive employer contributions but can apply to join a workplace pension. The government has set a minimum percentage that has to be contributed in total This minimum increases gradually. By April 2019, the total contribution will be no less than 8% (of which at least 3% will be paid by the employer). 'Qualifying earnings' for 2016/17 are earnings between 5,824 and 43,000 and can include salary, wages, commission, bonuses and overtime or statutory, sick, maternity, paternity and adoption pay. A charging cap of 0.75% per annum (excluding transaction costs) applies on all default investment strategy funds from April 2015 and includes schemes with a combination charging structure. Taxation Member contributions will typically be deducted under the net pay method i.e. the employer deducts the gross member contribution from salary before income tax is deducted by PAYE. The contribution reduces taxable earning and full tax relief is received via PAYE. Growth in the value of the pension fund is free from capital gains tax and certain types of dividends paid to the plan are free from income tax. Under normal circumstances, no inheritance tax liability will arise from pension death benefits provided a named beneficiary exists at the date of death.