Pension Helping employees manage risks. Bob Brassington Director Smith & Williamson Financial Services Limited

Transcription

1 Pension Helping employees manage risks Bob Brassington Director Smith & Williamson Financial Services Limited

2 This seminar is of a general nature and is not a substitute for professional advice. No responsibility can be accepted for the consequences of any action taken or refrained from as a result of what is said.

3 Presenter Bob Brassington Smith & Williamson Financial Services Limited Director

4 Smith & Williamson Pensions advisers to a number of social housing providers Independent financial advisers authorised and regulated by the Financial Conduct Authority 8 th largest accountancy firm in the UK (Accountancy Age 2015) Private banking services Private client investment managers 12 principal offices in UK and Ireland 1,500 partners, directors and staff across the group Merlin Housing 4

5 Housing Associations The pensions landscape: LGPS close? SHPS Defined benefit or Defined Contribution Group Personal Pension (GPP) - DC Merlin Housing 5

6 Pensions: Should you be concerned? DC Pensions Why would you, as the employer, help your staff achieve a good outcome from their pension savings? Ease retirement Avoid poverty New Stand Out Benefit

7 The Pension Regulator Guidance: Regularly inform members: That their level of contributions is a key factor in determining the overall size of their pension fund. Funding Risk Of the importance of reviewing the suitability of their investment choices Investment risk

8 Balance of Funding & Investment Risk 65, 10,000 pa, Fund 200,000 INVESTMENT GROWTH?? CONTRIBUTION Assumes 2% pa contribution growth Pension target: single life, non escalating, 5 year guarantee, current annuity rates

9 Age 25 5% Growth 64% 7% Growth 78% 36% Age 45 5% Growth 40% 22% 7% Growth 52% 60% 48%

10 Age 35 5% Growth 46% 7% Growth 67% 54% 33% Age 55 5% Growth 22% 7% Growth 30% 78% 70%

11 Value of extra 2% pa return to 65 Age Pension Increase * 25 65% 35 43% 45 25% 55 11% * The difference in outcome between 5% and 7% pa investment return

12 Investment Risk Member takes investment risk Strongest and poorest GPP performing funds Strongest performing funds Poorest performing funds AEGON SCOTTISH WIDOWS Member needs help *12 months to 31 March 2016

13 How the employer can help Provide access to independent advice to: Quantify funding gap & affordability of increasing pension contributions Advise on asset allocation and funds Establish the member s portfolio Conduct annual review and implement changes Advice charge recovered from member pension account Advice charge tax relievable

14 STAND OUT BENEFIT PENSION SCHEME CONTRIBUTION & INVESTMENT ADVICE & MANAGEMENT FOR YOUR EMPLOYEES

15 Pension Salary Exchange Scheme

16 Pension Salary Exchange Scheme LGPS Not available SHPS DB & DC - Yes GPP - Yes

17 Pension Salary Exchange Scheme - DC Employee pension contributions will be switched to a salary exchange basis Employee saves National Insurance Contributions (NIC) Employee take home pay increases Employer saves NIC at 13.8% - retained or shared by increasing employer pension contribution Merlin Housing 17

18 Pension Salary Exchange Scheme - DC How it works Employee monthly salary is reduced by the amount of their gross pension contribution Employer then pays an equivalent amount to pension scheme as an employer pension contribution The employer pays its normal contribution as well + any share of their NIC saving Merlin Housing 18

19 Pension Salary Exchange Scheme Employee NIC saving and tax relief Salary is reduced so the employee pays less NIC The NIC saving depend earnings 12% or 2% (based on rates for the 2016/17 tax year) Tax relief is unchanged if earnings > 11,000 HMRC accepts pension salary exchange as a conversion of salary for a non-cash benefit Merlin Housing 19

20 Pension Salary Exchange Scheme Employer NIC saving - example Total Employee gross contribution: 150,000 pa Employer ni saving at 13.8%: 20,700 pa Retain (DB/DC) or share (DC)? Merlin Housing 20

21 Encourage increased employee contributions 1,000 salary rise SALARY 20% Tax 12% NI PENSION 1, % investment return SALARY 40% Tax 2% NI PENSION 1, % investment return

22 Pension Salary Exchange Scheme Calculator Tool Merlin Housing 22

23 Pension salary exchange scheme Joining Automatic joining with prior consultation, unless Salary is below a viability threshold Salary would reduce below the National Living Wage Those over state pension age Employee can choose to opt out of the PSE Voluntary - with exchange of letter Open ended or fixed period Merlin Housing 23

24 Pension salary exchange scheme Other important points Employer tracks the Reference Salary for Future pay reviews Overtime normal employer pension contributions Other salary related benefits, such as death in service life cover Merlin Housing 24

25 Pension salary exchange scheme Further considerations Statutory Maternity Pay Can be reduced as the first six weeks of SMP is based on 90% of the reduced salary State pension No affect as now flat rate Mortgage applications The employer can confirm the Reference Salary Merlin Housing 25

26 Pension salary exchange scheme Employee Information Announcement Booklet, FAQ s Group presentation Salary exchange calculator Merlin Housing 26

27 Budget red book The government s intention is that pension saving, childcare and health-related benefits.... should continue to benefit from income tax and NIC s relief when provided through salary sacrifice arrangements

28 Conclusion Consider: Helping employees manage their pension funding & investment risks. The savings delivered by a Pension Salary Exchange Scheme for the employer and employee

29 Disclaimer These notes have been produced for the guidance of delegates at the conference for which they were prepared and are not a substitute for detailed professional advice. No responsibility can be accepted for the consequences of any action taken or refrained from as a result of these notes or the talk for which they were prepared. Copyright Smith & Williamson Holdings Limited 2016

30 Smith & Williamson LLP Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International Smith & Williamson Financial Services Limited Authorised and regulated by the Financial Conduct Authority Smith & Williamson Investment Management LLP Authorised and regulated by the Financial Conduct Authority The Financial Conduct Authority does not regulate all of the services referred to in this presentation The word partner is used to refer to members of Smith & Williamson LLP Portwall Place, Portwall Lane, Bristol, BS1 6NA Tel: Fax: smith.williamson.co.uk