Financial Planning Report

Transcription

1 {{TOC}} Financial Planning Report Prepared for: Mr & Mrs Penylan Prepared by: Mr PPOL REMOTE DEMO Independent Financial Adviser PPOL Penylan Mill Coed-y-go Oswestry SY109AF 00/00/2018

2 SUITABILITY REPORT Introduction and Basis of Advice I am authorised as an Independent Financial Adviser 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. The advice that follows is based on my understanding of your current financial position, objectives and characteristics. The report should be read in conjunction with the relevant product information, illustrations, fee disclosure and Key Features documents. I would 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 relevant information has not been disclosed then this could affect the suitability of my advice. Summary of Current Position Name James Lexi Marital Status Married Health Good Good Notes We met last Wednesday and discussed XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXX You have specifically requested that I focus my advice on the following: You would like to draw some benefits from your pension arrangements to supplement your lifestyle. However you do not wish to purchase an annuity at this time as you wish to keep your pension arrangements in a tax efficient and flexible environment where future income levels can be varied to reflect your changing needs and circumstances Pension Wise Guidance Guarantee I understand you have not received help under the governments Pensions Wise guidance guarantee in navigating the wide range of access options available for your inherited pension funds detailed in this review. You were made aware of this service, but you opted instead to seek my advice on this matter directly. Investment Knowledge & Experience We discussed your knowledge and experience of financial products and investments.

3 James Basic knowledge of relevant financial products but can make an informed investment decision based on the regulated and authorised offer documentation or with the help of basic information provided at the point of sale Risk Profile We discussed at some length your attitude to risk and in particular the relationship between risk and reward. Investment Attitude to Risk: Low Medium Risk The risk scale is made up of 10 profiles overall. This means that you are about average in how much risk you want to take in your investments. Your risk score is important in two ways to the type of investments you should consider. These are shown below. How comfortable you are with the possibility of losing money on your investments? You are likely to be more comfortable and better able to adapt to losing money on your investments than someone whose attitude to accepting risk is lower, for example, someone in profiles 1 to 4. However, you are probably not as comfortable as someone in profiles 7 to 10. How much you want to invest in higher-risk investments to get better returns? Higher-risk investments such as equities (shares) generally offer higher returns over the long term, but the investments also fluctuate more (go up and down in value). This means that while people may make more money in the long term with higher-risk investments, they are more likely to lose money in the short term. As your attitude to accepting risk is low medium, you would probably prefer your investment to go up and down less and make more modest returns than risk losing money for higher returns. However, you are probably prepared to accept some falls in order to make higher returns than just investing in low-risk investments. This means that you could make a loss on the amount you invest, particularly in the short term. An investment portfolio appropriate for this risk level may contain, for example, a balanced mix of lower and medium-risk investments such as cash, bonds and property, and higher-risk investments such as shares. While a portfolio like this should rise and fall in value less than a higher-risk portfolio, the value of investments can always go down as well as up. Lexi's risk profile is summarised as follows: If you feel that this does not accurately reflect your attitude to risk please contact me as a matter of urgency.

4 Review of Existing Pension Arrangements Further information concerning the following pensions can be found in the Appendix of this report. Legal & General Personal Pension Plan - FG James Fund Value Transfer Value Investment Strategy - Funds Fund Objective Sector Invesco Perpetual Income Policy Benefits & Features The investment objective of the Sub-Fund is to achieve long term growth by investing in a diversified portfolio of Global stocks. UK Equity Income Fund Rating Initial Charge Ongoing Charges Figure Allocation AA % Tax Free Cash Entitlement This pension does not include any protected or enhanced pension commencement lump sum entitlement in excess of 25%. Guaranteed Annuity Rate - Benefits can usually be taken from a pension at the age of 55 in the form of an annuity, including while you are still working. At that time the fund may be used to purchase an annuity, which can be established on a basis to suit your individual circumstances and objectives. This pension plan incorporates a guaranteed annuity rate and could provide benefits as follows: Projected Fund Value Assumed Return Rate GAR Basis Guaranteed Period Benefits Age %% pa 6.8% 6700 P/A Single 0 years 66 Please note if a tax free cash payment is required the guaranteed income could be reduced. I have recommended this pension is crystallised for the following reasons: We agreed that fully crystallising your pension best reflected your immediate and future income requirements We agreed that partly crystallising your pension best reflected your immediate and future income requirements You require an additional lump sum to be able to meet your expenditure requirements The critical yields shown on your personalised illustration indicate your income requirements can be sustained over the long term

5 Pension Benefits Recommendations I have recommended that you draw benefits from the pension arrangements highlighted in the earlier review section. Your Needs and Objectives Income Requirements You do not require a fixed guaranteed regular income, and would prefer instead a flexible income stream which can be altered to reflect your future circumstances Lump Sum Requirements An individual can take up to 25% of a pension fund when it is crystallised as a tax free cash lump sum or they can take an uncrystallised lump sum payment of which 25% is non-taxable irrespective of the type of money purchase pension they hold. You do not require a pension commencement lump sum payment at this time and instead would be willing to use the additional funds to enhance your income in retirement I understand you require the lump sum because: It has been earmarked for immediate capital expenditure purchasing a new car and having a jolly I confirm we have discussed alternative ways of raising this capital and the implications of accessing your pension fund now as opposed to delaying in favour of the potential to receive greater benefits later in retirement. In simple terms, this is because the sooner you start to draw benefits the greater the likelihood that your pension fund will be eroded later in life. Recommendations Aviva Life & Pensions - Flexi-Access Drawdown - James I have recommended a Flexi-Access Drawdown for the following reasons: It represents the most flexible retirement option available to meet your stated lump sum and income requirements You want to phase your retirement benefits by crystallising set amounts as and when required This option combined with your other income provides the necessary flexibility to tailor your income within limits which in turn assists in your overall tax planning Fund Value Crystallised Aviva is the largest insurance group in the UK. It is one of the leading providers of life and pensions products to Europe. Aviva PLC are financially strong and hold a A- (Stable) rating

6 awarded by Standard & Poors, a leading independent ratings agency. As of 30th June 2017 they managed assets totalling 475bn on behalf of their customers. The charging structure of the recommended plan is competitive when compared to similar products in the market place The research undertaken has identified the provider to be the most suitable They provide access to a wide range of investment opportunities, making it simple to vary your investment strategy to reflect changing market conditions, or should your risk profile change in the future Income Benefits After analysing your income and expenditure we agreed a target gross monthly income of 700. Comparable Lifetime Annuity 1000 monthly Critical Yield A at Age % Your provider has confirmed your proposed income could be sustained for 22 years. Please see your personalised illustration for further details. For comparison purposes I have also included details of the guaranteed income you could receive if you were to use your fund to purchase a conventional annuity at this time. The Critical Yield A is the rate of investment return required to break-even with the comparable annuity. The greater the level of income you plan to withdraw the more significant this figure is. Included within the critical yield is a provision for mortality drag. Mortality drag refers to the loss of the cross-subsidy which would have been gained on entering the annuity pool. In effect individuals who die early leave their funds to be used by individuals who live longer. Please note Taking a regular income may erode the capital value of the underlying fund, especially if investment returns are insufficient to offset withdrawals. Ultimately the income over time could be reduced or even stop. You should satisfy yourself that the strategy agreed is sustainable and meets your overall income objectives. By taking all of your pension benefits in one go, or in stages, you may incur a higher tax liability You understand the pension funds withdrawn cannot be reinstated and the associated benefits will be forfeited By withdrawing the funds from your pension you could be seriously compromising your future income in retirement and could experience financial hardship If you spend, transfer or give away any money that you take from your pension pot, the Department for Work & Pensions may assess whether you have deliberately deprived yourself of that money in order to secure (or increase) your entitlement to benefits When you first take a taxable lump sum or income from a pension, it is likely that emergency tax will be deducted, unless your retirement provider has been supplied with a current original P45. Emergency tax would continue until HMRC send your correct tax code directly to your retirement provider. More tax may be deducted than you owe, in which case you would need to reclaim this from HMRC directly using form P50Z, P53Z or P55.

7 Reporting Requirements These recommendations fall under the flexible access of pension benefits rules and as such places a requirement on you as a member to inform other schemes to which you are accruing rights or actively contributing, or to which you will contribute to in the future, that you have taken pension benefits flexibly (excepting when only a tax free Pension Commencement Lump Sum was taken). This must be done within 91 days to avoid potential HMRC fines. Investment Strategy - Model Portfolio This investment solution typically involves a pre-constructed portfolio of investment funds that meets a specific risk mandate and/or investment mandate (e.g. growth, income or a combination). Model portfolios offer a clearly defined risk and return path for investors and aim to maximise the returns for the given level of risk agreed upon. Making use of the resources and expertise of investment professionals, providers of model portfolios will seek to combine asset allocation with fund selection to create a range of model portfolios to suit investor s requirements. Portfolio Tatton Managed Core Description This investment management style combines the benefits of active management with the passive investment approach through a balanced blend of both investment styles. This management style will appeal to investors who are cost sensitive and understand the merits and shortcomings of both fundamental investment approaches. Risk Rating Low Medium Risk Annual Management Charge Allocation 0.56% 100% I have recommended the above for the following reasons: They have a large degree of experience and expertise in providing model portfolio solutions It reflects your income requirements The portfolio provider combines an expert research and fund selection process with robust risk controls Expression of Wish I would recommend that you complete an Expression of Wish Form. This will ensure the proceeds of your pension, subject to the trustee's discretion, are paid to your chosen beneficiary on your 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: Conventional Annuity You wished to take a higher risk approach with your pension funds in return for the potential to receive greater returns over the medium to long term You preferred the flexibility of withdrawing funds as and when required and not the rigidity of an annuity income

8 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: An ongoing service, details of which have already been provided to you. Charges Summary Personal Pension Legal & General FG55556 James Ongoing Charges Adviser Charge AC Paid By Inv Management Fee 0.5% 890 aggregated p/a Provider 0.67% 934 aggregated p/a Aggregate of Ongoing Charges 1.17% aggregated 1014 p/a The value of the investment can fall as well as rise. The aggregated ongoing charges maybe greater or lower than illustrated. Flexi-Access Drawdown Aviva Life & Pensions Entry Charges Ongoing Charges Adviser Charge AC Paid By Adviser Charge AC Paid By Inv Management Fee 2% = 1780 Provider 0.5% = 356 aggregated Provider 0.56% = 376 aggregated Aggregate of Ongoing Charges 1.06% = 732 aggregated The charges shown are ex-ante or before the investment and are therefore estimated The value of the investment can fall as well as rise. The aggregated ongoing charges maybe greater or lower than illustrated.

9 Any income being withdrawn will reduce the value of the investment 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 Provider: The Adviser Charge will be facilitated by the product provider but taken from your funds. 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 Provider: The Adviser Charge will be facilitated by the product provider but taken from your funds. 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 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 ISA, Unit Trust and EIS 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 85,000 or 170,000 for joint accounts. For pensions the compensation limit is 100% of the investment with no upper limit. For retirement income plans the compensation limit is 100% of the investment with no upper limit.

10 Aspects of Your Financial Affairs Not Addressed But Deemed Important I practice a comprehensive approach to financial planning. To this end, I would like to draw your attention to the following. If on further consideration you wish to discuss any of the below in more detail please do not hesitate to contact me. Long Term Care It was agreed that we would address this issue at a later date Wills and Lasting Power of Attorney I understand you have made a Will. I do stress the importance of keeping your Will up to date, thereby ensuring your estate passes in accordance with your wishes.

11 Confirmation I have acted in your best interest and the advice given in this report is aligned with your personal circumstances, objectives and characteristics and meets your stated objectives. 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 our discussions please contact me immediately. Existing Pensions Ownership Type Company Fund Value Action James Personal Pension Plan Legal & General Crystallise Accepted: Amended: Declined: Deferred: Notes: Proposed Retirement Income Ownership Type Company Value James Flexi-Access Drawdown Aviva Life & Pensions Accepted: Amended: Declined: Deferred: Notes: Report written by Mr PPOL REMOTE DEMO Signature Date / /

12 APPENDIX

13 Risk Warnings General The recommendations are based on current UK 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 or if withdrawals are greater than the underlying returns. 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. Property fund investments may take significantly longer to sell. If market conditions are volatile prices may fall, exit fees could be applied or even a fund dealing suspension be imposed. This would delay any withdrawals and affect the rebalancing of a portfolio. 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. Specialist funds which invest in emerging markets, niche industries, smaller companies or unquoted securities are likely to be more volatile and therefore carry greater investment risk. 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.

14 Retirement Income Where no escalation has been selected, the effects of inflation may erode the value of the income received over time. If any of the benefits withdrawn are spent, transferred or given away, the Department for Work & Pensions may assess whether this has been done purposely to allow entitlement to benefits. If benefits are withdrawn early, the level of income benefits available may be lower than expected and may not meet the desired income requirements. Taking retirement benefits is a crystallisation event with the value of the pension being assessed against the lifetime allowance and any excess may be subject to a recovery tax charge of up to 55%. Flexi-Access Drawdown (FAD) By taking all of the pension benefits in one go, or in stages, may incur a higher tax liability as a consequence and may also compromise future retirement income. When a lump sum or income using FAD is taxable, it is likely that emergency tax will be deducted, unless a current original P45 is supplied to the respective provider. The combined effect of 'mortality drag' and the on-going charges on a drawdown pension means that in order to produce the same income as a conventional annuity, the underlying assets must grow faster. By taking income flexibly under FAD the maximum annual contribution is reduced to 4,000 except for beneficiary drawdown using inherited pension funds. It is important to remember that any pension income withdrawn on a regular basis is not guaranteed. High income withdrawals are likely to erode the capital value of a fund and may not be sustainable resulting in a lower income or the income ceasing. Taking benefits via any flexible access of pensions requires reporting to any other schemes, this must be done within 91 days of accessing benefits to avoid possible fines from HMRC. A Benefit Crystallisation Event (BCE) will occur when a member dies before age 75 and there are remaining uncrystallised funds which are subsequently designated for dependant s or nominee s FAD. A Lifetime Allowance Test (LTA) is carried out against the deceased s LTA and not that of the beneficiary. Any LTA tax charge that arises however is chargeable to the recipient of the benefits.

15 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 will be fully equalised for men and women at age 65 by November 2018 then it will gradually increase for all to age 66 by October 2020 with further increases between 2026 & 2028 to take it to age 67 and between 2044 & 2046 to age 68 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 2017/18 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 4,000 for 2017/18, subject to Royal Assent of the Finance Bill 2017 or any prior amendments, 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 pension commencement lump sum recycling limit exists to prevent exploitation of pensions tax relief. It seeks to avoid the pre-planned payment of the tax free lump sum(s) received over a 12 month period, back into a registered pension plan as a new tax relievable contribution. The limit equates to 30% of the pension commencement lump sum received provided this exceeds 7,500. 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)

16 Death Benefits 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).

17 Serious Ill Health Lump Sum Individuals with less than 12 months to live can withdraw their entire pension fund (if not already accessed) tax free up to age 75 or taxed at 45% if aged 75 or over. If already in drawdown then withdrawals are taxed at marginal rates. 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 Foreign Pensions From 9 March 2017 certain transfers to and from a Qualifying Recognised Overseas Pension Scheme (QROPS) outside of the EEA, where funds originated from a registered UK pension scheme or had previously received UK pensions tax relief will (unless exempted under certain conditional scenarios) be liable to a 25% tax charge called the overseas transfer charge.

18 Technical Notes Pension Benefits There are a number of options available in respect to your existing pension arrangements. A summary of the advantages and disadvantages associated with each option can be found below. Conventional Annuity including Investment Linked Annuities - Unit Linked (UL) & With Profit (WP) An annuity is a series of income payments made in return for a pension fund. The income level is dictated by age, annuity rate, size of fund and options selected. Advantages A guaranteed income for life Any included beneficiary can receive a guaranteed income in the event of death A tax-free lump sum can be taken An enhanced annuity can be achieved due to ill health or lifestyle choices The contract is simple with no ongoing administration and comparatively low charges (Investment Linked Annuities will require some ongoing administration) Investment Linked Annuities can benefit from future investment growth within the pension fund, which in turn could increase your income payments Disadvantages The level of income is fixed at outset providing minimal flexibility Any options to provide benefits on death must be selected at outset A conventional annuity cannot participate in any future investment returns The selected income level for Investment Linked Annuities is not guaranteed, if investment growth is poor your income payments could go down Flexi-Access Drawdown Pension Drawdown pensions allow a tax free cash lump sum and / or an income to be withdrawn. Advantages A variable income can be withdrawn by taking either a single or multiple withdrawals of any amount over any time period in order to suit personal circumstances Tax free cash can be structured to help mitigate personal income tax The residual drawdown funds may provide the opportunity for further growth The annuity purchase can be timed to maximise potential income rates The death benefits are extremely flexible and are exempt from inheritance tax Disadvantages By accessing a pension income flexibly means the lower money purchase annual allowance is triggered The value of the pension fund may go down resulting in a potentially lower income Flexibly withdrawing a pension takes no account of mortality. Under an annuity, those who survive longest are subsidised by those who die early. Delaying the purchase of an annuity lessens the benefit you could receive from cross subsidy

19 Ongoing charges and the need for regular advice and/or plan administration Annuity income rates may be lower when an income is required in the future Note: For Beneficiary Flexi-Access Drawdown, following the death of the member or previous beneficiary, no pension commencement lump sum is possible and the lower money purchase allowance would not be triggered for any beneficiary when accessing income from the fund. Uncrystallised Funds Pension Lump Sum (UFPLS) Individuals aged 55 or over can take lump sums from a pension fund without the need to designate funds to drawdown. Advantages No limits exist for the number of withdrawals that can be taken The first 25% of each lump sum can be taken tax free Funds not crystallised can remain invested providing growth opportunities Death benefits if assigned are not liable to inheritance tax Disadvantages The process will activate the lower money purchase annual allowance Restrictions apply where certain types of pension protection apply The lump sum is only payable to a member and therefore cannot be paid as a death benefit Tax free cash cannot be paid in isolation - a taxable income must also be taken at the same time Drawdown with Guarantees Similar rules as for drawdown but include guaranteed options attaching to the income paid out or future fund values. Advantages Guarantees can be selected or removed when required Safeguards can be added to limit falls or lock in investment gains Disadvantages Additional charges and limits may apply to the guarantees

20 Notes on Financial Products Personal Pension Plan Personal pensions aim to build up a sum of money in a tax efficient way which can subsequently be used to provide an income or lump sum(s) during retirement. Modern personal pensions are generally extremely flexible in that they will accept regular, monthly, annual or one off contributions from individuals and from employers and the level of regular contributions can be changed at any time subject to the provider s minimums. Taxation Contributions will qualify for tax relief at the individual s highest rate of income tax and are paid net of basic rate tax at 20%. The pension provider collects the basic tax relief from HM Revenue & Customs up to the maximum limits set by them. Any higher or additional rate relief entitlement can be reclaimed through the individual s annual tax return. 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. Flexi-Access Drawdown This is the default drawdown option post 6 April Flexible drawdown is a way of accessing pension savings flexibly, it is allowable to draw out as much or as little income as is required. The whole pension fund can therefore be drawn as one single payment 25% of which is tax-free, and the rest is taxed as income at the member s highest marginal rate. Tax free cash lump sums up to the 25% limit can be taken in isolation or alternatively, smaller tax free cash and income payments can be taken by way of a phased withdrawal process to maximise tax efficiency. The residual fund not taken as benefits remains invested and could potentially benefit from tax advantaged growth, which could in turn result in greater benefits in the future. Guarantees can be attached to the pension benefits or to the residual fund value. The income paid out can be set at guaranteed levels and a future maturity value can be guaranteed for the residual fund. Taking a pension income under Flexi-Access Drawdown will trigger the reduced Money Purchase Annual Allowance (MPAA) contribution rules. Taking tax free cash in isolation will not.