Your Pension Arrangements

Transcription

1 Your Pension Arrangements

2 Who are BMA Services Independent financial advice only for BMA members Service provided by Chase de Vere - ALL welcome to attend seminars and briefings - Personal advice only provided to BMA members Largest Financial Advisory Group in Europe, owned by Swiss Life Committed to Independent Financial Advice Initial consultation at our cost with no obligation or charge Expert source of information and advice regarding NHS Benefits All Advisory Services available: - Mortgages and Financial Protection; - Investment and Retirement Planning; - Tax and Inheritance Planning.

3 Today s Agenda Independent financial advice only for BMA members Understanding the impact of recent pension legislation changes - Lifetime Allowance - Annual Allowance - Retirement age - Private pension arrangements Proposed changes to the NHS Pension Scheme - How these will affect you and your colleagues Potential Follow up actions and next steps

4 The New Pension Regime Legislation Changes and their Impact

5 The Key Basics Annual allowance reduced to 40,000 on 6th April Carry forward 3 years unused relief Lifetime Allowance reduced to 1.25m on 6th April 2014 Minimum Pension age 55 More flexibility for private arrangements

6 Annual Allowance for Hospital Doctors

7 Annual Allowance - Officers Just what is 40,000? CPI is 2.7% (Tax year 14/15) This is as at Example: Member with 34 years service (beginning of the year ) with pensionable salary of 95,860-34/80 x 95,860 = 40,740 x = 41,840 Following year 35 years service (end of the year ) with increment to point 9-35/80 x 101,451 = 44,385

8 Annual Allowance Independent financial advice only for BMA members One year s increase in pension benefit is 2,545 plus additional lump sum benefits of 7,635 Pension Accrual 2,545 x 16 40,720 Plus Lump Sum Benefit 7,635 TOTAL DEEMED CONTRIBUTION 48,355 Calculate any unused relief from the three previous years If none available this exceeds allowance by 8,355 Tax charge at either 40% or 45% of excess Do not forget to include any private pension contributions in the calculation

9 MHO Status Once 20 years service achieved each year of service doubled Therefore 2/80 th s would be accrued each year. Based on previous example the total deemed contribution would have been 72,446 Exceeds the Annual Allowance by 32,446

10 Key Date 6 th April 2014 Implication Result Taxation Reduction in total lifetime allowance to 1.25m on 6 th April 2014 Any amount over the lifetime allowance will be liable for a tax charge. 25% or 55% charge depending on whether surplus taken as an income or as a lump sum

11 The New Lifetime Allowance? How much have you actually built up towards the 1.25m? Example 1995 scheme member retiring with pension valued at 55,000 55,000 x 20 = 1,100,000 Lump sum = 165,000 TOTAL = 1,265,000

12 A Possible Solution Flexibility of Lump Sum NHS Pension now allows members to obtain a larger lump sum than the standard 3 x pension This is approximately 5.36 x pension with an overall limit of 25% of the current lifetime allowance ( 312,500) 12 lump sum for each 1 of pension sacrificed

13 Option One Option Two Pension 55,000 x 20 1,100,000 Pension 52,000 x 20 1,040,000 Plus tax free cash 165,000 Total value 1,265,000 Minus Lifetime All 1,250,000 Surplus 15,000 Plus tax free cash 165,000 Extra tax free cash 36,000 Total Value 1,241,000 Minus Lifetime All 1,250,000 Surplus - 9,000 Equivalent Lifetime Allowance Charge to pay 8,250 Lifetime Allowance Charge NIL

14 What if you have a private arrangement? Pension 55,000 x 20 1,100,000 Plus tax free cash 165,000 Plus PPP 100,000 Total value 1,365,000 Minus Lifetime All 1,250,000 Surplus 115,000 Pension 42,709 x ,180 Plus tax free cash 165,000 Extra tax free cash 147,492 Plus PPP 100,000 Total Value 1,266,672 Minus Lifetime All 1,250,000 Surplus 16,672 Equivalent Lifetime Allowance Charge to pay 63,250 Equivalent Lifetime Allowance Charge to pay 9,170

15 Other Potential Solutions Independent financial advice only for BMA members Early retirement actuarial penalty Allocation of pension to a dependant

16 Pension Protection Independent financial advice only for BMA members Four types of historic protection - Primary Protection available until Enhanced Protection available until Fixed Protection 2012 available until Fixed Protection 2014 available until

17 Fixed Protection Words of warning Strict rules apply from either 6 th April 2012 or 6 th April No further money purchase (private pension arrangement) contributions can be made - For defined benefit schemes (e.g. NHSPS), no further benefits can accrue above the "relevant percentage". - In the NHS pension scheme the relevant percentage is the rate of CPI Deferred members extreme caution needed - Auto enrolment started October Where possible will be reinstated into the NHS Pension Scheme - Where not possible an alternative NEST scheme will be provided. If appropriate must opt out within one month of joining - Will be enrolled every three years

18 Individual Protection Draft legislation issued will apply to those with pensions which have a capital value over 1.25 million on 5th April Planned to give individuals a personal lifetime allowance of the greater of the value of their pension rights on 5 April 2014 (up to an overall maximum of 1.5 million) and the standard lifetime allowance ( 1.25 million from April 2014). Planned to allow people to carry on saving in their pension scheme without losing their protection (with any savings above the individual's LTA becoming subject to the LTA charge when benefits are taken). Three years to apply from Can have alongside Fixed protection 2012 or 2014 and enhanced protection

19 Flexibility Your private arrangements

20 Annuity Purchase abolished for some For those with private arrangements no compulsion to purchase an annuity at any age Introduction of Flexible Drawdown Change to taxation on death increased from 35% to 55%

21 Flexible and Capped Drawdown If minimum guaranteed income of 12,000 per year 25% tax free cash can be taken Remaining fund can be withdrawn in full Further withdrawals taxed at marginal rate of income tax Income can be occupational pension, state pension, pension annuity income Drawdown pension income excluded Annual allowance reduced to nil (although further tax relievable pension contributions can be made an annual allowance charge would apply which would effectively claw back the tax relief) From 6 th April 2015 it is proposed that anyone can withdraw total money purchase (private or occupational) pensions in cash Apart from the 25% tax free cash sum, any further withdrawals are subject to the individual s marginal rate of income tax

22 What is 24 Hour retirement? The ability to retire, draw pension benefits and return to work with unlimited earnings potential

23 24 Hour Retirement Independent financial advice only for BMA members Need to ensure position is still available post retirement if you plan to return Employer will save 14% employer superannuation NEGOTIATING POINT Clinical Excellence awards are likely to be lost Must have a 24 hour break Cannot work for more than 16 hours per week in the month following Abatement rules have been relaxed but not abolished - MHO s must take care if returning to NHS between ages 55 and 60

24 Post Retirement Working Independent financial advice only for BMA members John, age 60 Joined scheme age 23 (37 years service) Earnings of 100,000 Option one - continues working and takes pension Option two - continues working and continues to accrue pension

25 Post Retirement Working Independent financial advice only for BMA members Option one 24 Hour Retirement 37 years of service pension 46,000 gross pension 138,000 tax free cash Income in year - 95,000 approx (assuming one month at maximum 16 hours per week income) - plus 46,000 pension

26 Post Retirement Working (cont d) Option two - Continue working as normal 38 years service now achieved Pension approx 47,500 and lump sum 142,500 Cost 13.5% contribution for year = 13,500 gross Lost pension (age 60-61) = 46,000 Interest lost on tax free cash 2% gross = 2,760 (Less additional 4,500 tax free cash and 5,000 reduction in earnings) COST of deferral in for one year 52,760 gross Additional benefit accrued 1,500 index-linked pension

27 Post Retirement Working (cont d) 1,500 per annum additional index linked pension Cost of deferral 52,760 gross

28 What are the proposed public sector pension scheme changes and how will they affect you? Expected Implementation date 1 st April 2015

29 Changes 1/54 Career Average Revalued Earnings (CARE) scheme Revaluation of active members benefits by CPI + 1.5% Normal pension age linked to State Pension Age - Transitional (full) protection of NPA and current accrual for anyone within 10 years of current NPA on 1 April Tapering protection for those within 13.5 years of their current NPA i.e. delayed switch to new scheme Increased contributions Commitment to allow members who are TUPE d* out to remain in the NHSPS *Transfer of Undertakings Protected Employment

30 Transitional (full) Protection Applies to members who are within 10 years of their current normal pension age on 1 April 2012: 1995 section over age section over age 55 Full protection of current normal pension age and method of accrual

31 Tapering (partial) protection Applies to members who are between 10 and 13.5 years of their current normal pension age on 1 April 2012: 1995 section age 46.5 and over 2008 section age 51.5 and over Tapering protection delays the date at which you join the new scheme loss of 2 months protection for each month in excess of 10 years from normal pension age

32 Accrued benefits Independent financial advice only for BMA members All accrued benefits (pension and lump sum) earned up to 1st April 2015 will be protected Hospital doctors will keep their accrued 80ths or 60ths and these would be based on actual final pensionable pay at retirement These benefits can be taken from current normal pension age Option to pay additional contributions to fund early retirement of up to 3 years early without penalty (earliest age 65) What happens if you still want the option to retire at age 60?

33 Additional Benefits Independent financial advice only for BMA members Death in service, death in retirement and survivors pensions will remain the same Ill health retirement for tier two awards - Enhancement 50% of prospective service to NRA - Currently 66% of prospective service to NRA

34 Choice exercise Independent financial advice only for BMA members Option to transfer from 1995 to 2008 scheme finalised. Government recognised that those not covered by full protection may wish to change their retirement plans and retire later Second choice to transfer will therefore be offered - For service up to On the same terms as originally agreed Those with full protection in the 1995 scheme and those who have already transferred will not have another choice opportunity

35 Summary Benefits of BMA Services The Pension basics 1995 and 2008 sections Understanding the impact of recent pension legislation changes Proposed changes to the NHS Pension Scheme How these will affect you and your colleagues Do you feel you or your colleagues would benefit from advice? Would any of your colleagues departments benefit from a briefing?

36 Your views are important Independent financial advice only for BMA members

37 Questions? Independent financial advice only for BMA members

38 Important Information Independent financial advice only for BMA members If you are unsure of the suitability of this presentation to your circumstances please contact BMA Services, to introduce you to Chase de Vere for independent financial advice to be provided. The levels and bases of, and reliefs from taxation are subject to change, and any changes might be applied retrospectively. The Financial Conduct Authority does not regulate trust advice, tax advice, will writing or offshore investments. Issued by Chase de Vere Limited. Chase de Vere Limited (registered in England Number ) is authorised and regulated by the Financial Conduct Authority. Registered office: 60 New Broad Street, London, EC2M 1JJ. VAT Registration Number BMA Services is a trading name and trademark of the British Medical Association. The British Medical Association is an introducer appointed representative of Chase de Vere Limited who are independent financial advisers, authorised and regulated by the Financial Conduct Authority, licensed to use the BMA Services trademark and trading name.