Elevate Regular Drawdown

Transcription

1 Elevate Regular Drawdown Shaping income around a client s requirements Only for use with financial advisers

2 Regular Drawdown full flexibility in the new world of retirement The pension market demands fresh thinking and a fresh approach to taking retirement income old world thinking may result in clients paying more tax than is necessary, now and in the future. Regular Drawdown offers a new alternative delivering all of the flexibility possible in a way that benefits advisers and their clients.

3 freedoms what this means In retirement (normally from age 55), pension s can be accessed completely flexibly: Take as much tax-free cash (TFC) as you want, whenever you want* Take as much taxable income as you want, whenever you want** Tax planning in retirement means making smart use of the allowances on offer each year, in order to minimise Income Tax and reduce the likelihood of future Inheritance Tax (IHT). Regular Drawdown has been designed to help you create tax-efficient pension income withdrawals tailored to the needs of your clients in a streamlined and easy to manage way. *Subject to legislative limits remember not everyone is entitled to 25% **Tax can change and depends on personal circumstances

4 Retirement options a case study A client wants 20k net income per annum and has a pension of 400,000 to support this. They have a Personal Allowance of 11,500 (2017/18) and no other taxable income. There are a number of options with pros and cons, arguably none of these deliver the ideal client outcome: Type of income Full Drawdown full entitlement to TFC paid; taxable income set up with balance to generate the 20k pa net. 100% TFC income made up of purely of TFC. UFPLS each payment made up of 25% TFC and 75% taxable income. In order to get 20k net, almost 21k is crystallised. Tax-free cash paid Taxable income Personal Allowance used Income Tax paid Remaining pension 100,000 22,125 11,500 2,125* 277,875** 20, ,000 5,206 15,618 11, * 379,176 TFC needlessly paid out, Income Tax paid and less available for future income and IHT-free inheritance planning Less TFC available for use in future years and the Personal Allowance not used Income Tax paid, reducing by more than is necessary *End of year tax position **Note: client also has 100,000 (TFC) but now in estate for IHT purpose

5 Regular Drawdown what is it? Regular Drawdown is a way of gradually taking pension benefits to provide tax-efficient withdrawals from the Elevate Investment Account. It provides the flexibility to select the right combination of tax-free cash and taxable income used to provide each withdrawal. This could be: Tax-free cash (with the unused value being moved to the Drawdown ) A full withdrawal of both tax-free cash and taxable income from each crystallisation Tax-free cash and a specified amount of taxable income Regular Drawdown provides an automated approach to this, giving the adviser full control and flexibility to easily adjust as clients needs evolve, whilst also supporting a one and done approach to setting up the appropriate client income options. Once set-up, Elevate will look after each Regular Drawdown payment: selling the investments chosen for each withdrawal, carrying out the crystallisation and making the payment all timed so the income arrives in the client s bank account on the requested payment date. Regular Drawdown automating full pension freedoms flexibility

6 Regular Drawdown a case study With Regular Drawdown we can pay the client any combination of tax-free cash and taxable income (within legislative limits), so can pay 8,500 tax-free and 11,500 taxable and as this is within the Personal Allowance, no Income Tax is paid. This protects the client s and ensures that no tax is paid in the current year. Type of income Tax-free cash paid Taxable income Personal Allowance used Income Tax paid Remaining pension Full Drawdown 100,000 22,125 11,500 2, ,875* 100% TFC 20, ,000 UFPLS 5,206 15,618 11, ,176 Regular Drawdown 8,500 11,500 11, ,000 *Note: client also has 100,000 (TFC) but now in estate for IHT purpose Regular Drawdown is the only one of these options that allows pension income to be completely shaped around a client s individual requirements. Should 100% TFC or UFPLS be required, then Regular Drawdown can also deliver these outcomes The option that is most suitable for a client needs to be assessed against their likely long-term tax position to ensure the best overall client outcome is delivered

7 Benefits of Regular Drawdown Complete income flexibility: Just take tax-free cash or withdraw the full value of each regular crystallisation or any level between the two Fully automated solution: Once set-up, the Regular Drawdown functionality will manage each crystallisation so clients receive their income on the requested payment date Wrap SIPP All Platform Eligible Assets - Insured Funds - Mutual Funds - Investment Hub One consolidated payment to the client s bank account (or Elevate Cash) combining the tax-free cash and any taxable income Complete investment control: Select the investments used to generate tax-free cash and taxable withdrawals; and separately select the investments to be moved into Drawdown Select a different first Drawdown payment and regular withdrawal great for clients who want a lump sum payment to start retirement and a lower regular income Review, edit and amend Regular Drawdown directly on the platform no forms or client signatures needed - Insured Funds (Inner Ring) - Mutual Funds (Middle Ring) There are always risks with Drawdown. A Drawdown arrangement will need to be reviewed on a regular basis to ensure that the pension can sustain the level of income that the client is taking, as they could run out of money. Once the TFC runs out, the whole income received will be taxable (after the Personal Allowance).

8 Why it s good for advisers Evidences effective tax planning A simple concept for you to explain to clients Protects value in a tax-efficient pensions pot Income instructions can be changed at any point Evidences ongoing value through investment strategy used Supports building long-term client relationships

9 Appendix 1: What you need to know There are no additional charges for Regular Drawdown The minimum Regular Drawdown instruction is 100 Sufficient cash must be available in the accumulation arrangement 10 working days before each Regular Drawdown payment date to meet the value of the tax-free cash and any taxable income to be paid, otherwise the Regular Crystallisation Strategy will be used to automatically sell the investments you ve selected We recommend holding a buffer of available cash in the accumulation arrangement before setting up Regular Drawdown and an additional regular sale of investments in the accumulation arrangement to complement Regular Drawdown The Regular Crystallisation Strategy will automatically sell the selected investments 10 working days before the payment date but only once any available cash in the accumulation arrangement has first been used to pay Regular Drawdown Any part of the regular Drawdown amount not paid as tax-free cash or taxable income is moved as cash or investments to the Flexi-Access Drawdown arrangement. Here it can be used to provide taxable income at a later date An adviser charge cannot be selected for setting up Regular Drawdown. Where an adviser charge needs to be made, this can be taken as an ad hoc payment, or a separate single Drawdown crystallisation can be submitted at the same time with an initial adviser charge

10 Appendix 2: Adviser next steps Information is required when setting up a Regular Drawdown income What are the tax-free and taxable income instructions? Which day of the month should they be paid and on what frequency? Have regular sells been set up to future income payments? Does the client have any other benefits to consider and what is the total Lifetime Allowance used? Does the client have protection? Is the client subject to the Money Purchase Annual Allowance? / Speak to your usual Standard Life contact for more information or call (open 8am 6pm, Monday to Friday) Calls may be monitored and/or recorded to protect both you and us and help with our training. Call charges will vary.

11 Appendix 3: How Regular Drawdown works Drawdown allows pension income to be paid directly from a Money Purchase pension. Normally, 25% of these s will be tax-free, with the balance taxed at the individual s marginal rate of Income Tax. Tax-free cash can be paid out in instalments e.g. to provide monthly income. This is done by phasing (also known as crystallising) benefits in stages. Each time tax-free cash is taken, the balance is then available to be taken as taxable income at the same time, or remains invested for future income. Regular Drawdown provides the ability to set up a tailored regular income using the tax-free cash entitlement (capped as a maximum of 25% of the prepension pot), and the taxable portion (limited as the maximum of the value of the post-pension pot). Tax-free cash Post-pension pot (taxable income) Pre-pension pot

12 Appendix 4: Making monthly payments A Regular Drawdown amount of 500 every month could be used to make monthly payments to a client in the following ways: Take tax-free cash Take tax-free cash from each Regular Drawdown and put the remaining proportion in the Drawdown to take at a later date as taxable income. Investment Account Investment Account Investment Account Drawdown Drawdown Drawdown Month 1 Month 2 Month Drawdown 375 Drawdown 375 Drawdown 0 taxable income 0 taxable income 0 taxable income 125 payment 125 payment 125 payment This example is for illustrative purposes only. The amount of Regular Drawdown your client is able to take will depend on the value of their pension.

13 Appendix 4 (cont.): Making monthly payments Tax-free cash and maximum taxable income Take tax-free cash and the rest of each Regular Drawdown amount as taxable income. The full amount selected is paid to your client and no s accumulate in the Drawdown. Investment Account Investment Account Investment Account Month 1 Month 2 Month 3 0 Drawdown 0 Drawdown 0 Drawdown 375 taxable income 375 taxable income 375 taxable income 500 payment (before tax) 500 payment (before tax) 500 payment (before tax) This example is for illustrative purposes only. The amount of Regular Drawdown your client is able to take will depend on the value of their pension.

14 Appendix 4 (cont.): Making monthly payments Tax-free cash and some taxable income Take a mixture of tax-free cash and taxable income from each Regular Drawdown, putting the remaining proportion in the Drawdown to take at a later date as taxable income. Investment Account Investment Account Investment Account Drawdown Drawdown Drawdown Month 1 Month 2 Month Drawdown 275 Drawdown 275 Drawdown 100 taxable income 100 taxable income 100 taxable income 225 payment (before tax) 225 payment (before tax) 225 payment (before tax) This example is for illustrative purposes only. The amount of Regular Drawdown your client is able to take will depend on the value of their pension.

15 The information in this document should not be regarded as financial advice Elevate Portfolio Services Limited trades as Elevate and is part of Standard Life Aberdeen group. Elevate Portfolio Services Limited ( ) is registered in England at 14th Floor, 30 St. Mary Axe, London EC3A 8BF and authorised and regulated by the Financial Conduct Authority. SLE Standard Life Aberdeen, images reproduced under licence. All rights reserved.