SELF INVESTMENT OPTION ADVISER OVERVIEW

Transcription

1 SELF INVESTMENT OPTION ADVISER OVERVIEW This information is for UK financial adviser use only and should not be distributed to or relied upon by any other person.

2 WHAT IS THE SELF INVESTMENT OPTION? Our Self Investment Option offers a wide range of extra investments for members of Scottish Widows Group Pension Plans. The Self Investment Option is provided via a separate Scottish Widows Retirement Account policy. And our transparent approach to charging can help your client to consider and compare the costs of self investment. Members can choose to invest in: A range of Scottish Widows Pension Funds. A wide range of funds via the Funds Supermarket. A bespoke investment portfolio managed by one of our panel of Discretionary Fund Managers. Governed Investment Strategies. Listed stocks, shares and other securities. UK commercial property (excluding former Protected Rights). Any Fixed Term Cash Deposits we choose to make available. Using a separate policy means only you and your client have access. The Retirement Account can be used: As a top up vehicle to supplement the member s retirement savings. To invest lump sums differently from the regular savings going into a Group Pension Plan. As a tax efficient way of contributing shares from employers Save as You Earn (SAYE) schemes (see the In-specie Guide for more information). As their primary means of retirement planning provided a nominal amount remains in the Group Pension Plan (see page 6). BUILDING UP FUNDS IN A GROUP PENSION PLAN TO THEN MOVE TO RETIREMENT ACCOUNT Employees may wish to build up savings in their Group Pension Plan and then, from time to time, move funds into their Retirement Account. This way, they can benefit from: The group terms negotiated by their employer while building up value in their Group Pension Plan. Greater investment choice from the Retirement Account, as well as extra choices for their retirement income. DESIGNED SPECIFICALLY FOR YOUR CLIENT S NEEDS Members can: Make payments directly by direct debit or cheque (single contributions). Through their employer s online contribution collection (via payroll deduction). Note that this method is not suitable for variable contributions. Transfer the value of existing pension arrangements into their Retirement Account. Self-invest. It may also be possible for us to accept non-monetary ( in-specie ) transfers and contributions into your client s Retirement Account. MORE INFORMATION FOR EMPLOYEES Any employee who wants to know more is encouraged to speak to their adviser. MORE INFORMATION Our Self Investment Option Members Overview booklet (see page 5) can help employees understand what the option is all about, and how it can work alongside their Group Pension Plan. 1

3 PAGE 3 RETIREMENT ACCOUNT THE FACTS PAGE 4 IS THE RETIREMENT ACCOUNT APPROPRIATE FOR YOUR CLIENTS? PAGE 6 PAYMENTS RETIREMENT PLANNING PAGE 7 PENSION ENCASHMENTS RETIREMENT PLANNING PAGE 8 INCOME WITHDRAWALS RETIREMENT INCOME PAGE 9 CHARGES PAGE 18 CHANGE TO ADVISER REMUNERATION BASIS PAGE 19 CONTROL ACCOUNT(S) PAGE 21 TRADING PAGE 22 DEATH BENEFITS PAGE 23 COOLING-OFF INFORMATION PAGE 24 GLOSSARY 2

4 RETIREMENT ACCOUNT THE FACTS It is a personal pension made up of two elements, Retirement Planning (RP) and Retirement Income (RI). It is possible to move assets from the Retirement Planning element to the Retirement Income element. This is known as designation. Each element has its own Control Account which is used to administer the Retirement Account. For example, certain charges and expenses are taken from the Control Account(s). Retirement Accounts set up before 6th April 2012 may also have former Protected Rights parts for Retirement Planning, Retirement Income or both, which also have their own Control Account. The investment range for the elements includes: Scottish Widows Pension Funds. Governed Investment Strategies (using Scottish Widows Pension Funds) for Retirement Planning only. Access to a wide range of funds via a Fund Supermarket. Any Fixed Term Cash Deposits we make available. A panel of Discretionary Fund Managers (DFM). Share Dealing. Commercial Property. Up to six payers are allowed on a Retirement Account: One customer. Two employers. Three others. Basic rate tax relief is applied immediately to your clients payments to the Retirement Planning element including any payments made on their behalf by other individuals. Higher or additional rate taxpayers can claim additional tax relief via their self-assessment tax return. Transfer payments and payments made by an employer won t receive basic rate tax relief. Tax rules can change. The charges applied to the Retirement Account are unbundled helping to make it easier for your clients to understand the costs. The comprehensive remuneration options are designed to meet your business model and allow choice and flexibility. An online service offers you access to illustrations and applications, as well as daily valuations and the ability to buy, sell and switch most investments. Your clients can also view their Retirement Account online. ENTRY AGES There is no minimum age for Retirement Planning. Retirement Income can generally be accessed from age 55. The maximum age at entry for Retirement Planning is 74 and 98 for Retirement Income. This must be at least one full year before your client s chosen retirement date. RETIREMENT AGES Your client must choose a retirement age at the beginning of the Retirement Account, although this can be changed at any time. The minimum retirement age is normally 55. The maximum retirement age your client can choose is 75 for Retirement Planning and 99 for Retirement Income. Please note: Scottish Widows annuities are only available to buy up to age 75, however, it may be possible to purchase an annuity after this by transferring to another provider. 3

5 IS THE RETIREMENT ACCOUNT APPROPRIATE FOR YOUR CLIENTS? The Retirement Account usually appeals to people who: Are experienced investors and are confident in making their own investment decisions. Want much closer personal involvement in the investment of their pension fund. Are in a position to adopt a more individual risk-reward balance with some or all of their pension savings. Have substantial existing funds and want to spread investment risk. Want to top up existing contributions, taking advantage of additional investment options. USING THE RETIREMENT ACCOUNT WITH A GROUP PENSION PLAN Our Retirement Account can run comfortably alongside a Group Pension Plan, enabling the member to invest their different pension pots in completely different ways. It s up to each member how they divide their retirement savings between the two pension pots, subject to our minimum requirements. For example, using the Group Pension Plan for regular scheme contributions and the Retirement Account for additional regular contributions or for special one off contributions. 4

6 MOVING MONEY FROM THE GROUP PENSION PLAN TO THE RETIREMENT ACCOUNT A Group Pension Self Investment Instruction Form detailing the current transfer value of your client s Group Pension Plan can be requested from your corporate servicing team (CST). To move money, this and a Retirement Account application should be completed and returned to the Corporate Pensions, 15 Dalkeith Road, Edinburgh EH16 5BU. If you are advising a client on the Self Investment Option and are not the Group Pension Plan adviser, please request this form through your usual Scottish Widows Account Manager. You ll need a letter of authority from your client that allows you to obtain information on their Group Pension Plan. Additional literature The Retirement Account Adviser Technical Guide (45981). IMPORTANT NOTE MEMBER COMMUNICATIONS These are the main client booklets Self Investment Option Member Overview (47233). Key Features of the Retirement Account (46253). For use with clients who are considering Self Investment, or who want to know how it could work alongside their Group Pension Plan. Retirement Account Your Guide (45816). For use with clients who are likely to go ahead with a Retirement Account. A Retirement Account Key Features and personalised illustration must also be provided before the client applies for the Retirement Account. Additional literature All the brochures and forms for the Self Investment Option are available from us on request, or online at You can also view and print the Retirement Account literature online from the Retirement Account section of our Literature Library, at: To avoid any administration delays, it is important that at every stage of the process applications and relevant correspondence clearly documents that your client s Self Investment Option (Retirement Account) is to be linked to their Group Pension Plan. Please write Self Investment Option linked to and quote at least one of the following: Your client s Group Pension Plan scheme number, Group Pension Plan name, and/or Group Pension Plan number. 5

7 PAYMENTS RETIREMENT PLANNING If your client decides to move value from their Group Pension Plan to their Retirement Account, they must keep a nominal amount of at least 1 in their Group Pension Plan. The following minimum payment amounts apply to the Retirement Account. The figures shown are after any tax relief has been added. MINIMUM PAYMENTS NEW RETIREMENT ACCOUNTS The minimum payments into new Retirement Accounts, after any tax relief has been added, are: Payment Frequency Monthly 200 Yearly 2,400 Single 10,000 Transfer 10,000 Minimum Payment (Gross) Each minimum applies to the total payments from all payers who are making payments at the same time. Please see page 3 for the number of payers allowed. If there is more than one payer, each payer must pay a minimum of 10 per month, 120 per year, or 2,000 for single payments and transfers. For example, if three monthly payments are being made in respect of one client, each payer must pay at least 10 and the total of all three payments must be at least 200. Where a single payment and transfer payment are being made at the same time the minimum payment is a total of 10,000. Each payment must be at least 2,000. For example, if a client wants to make a single payment and transfer 9,000 from another pension policy, the minimum single payment would be 2,000. However, if the transfer payment was less, e.g. 5,000, then the minimum single payment would need to be 5,000. ADDITIONAL PAYMENTS TO EXISTING RETIREMENT ACCOUNTS The minimum additional payments into the Retirement Planning element for existing Retirement Accounts, after any tax relief has been added, are: Payment Frequency Monthly 50 Yearly 600 Single 2,000 Transfer 2,000 Minimum Payment (Gross) There is no minimum limit for automatic indexed increases to monthly or yearly payments. MAXIMUM PAYMENTS There is no maximum limit on the amount that can be invested in a Retirement Account. However, limits do apply to the amount of tax relief that your client can receive on payments into the Retirement Planning element. This is the greater of 100% of their relevant UK earnings or 3,600 (gross). We will refund payments made by a client, or by another individual on behalf of a client, which do not qualify for tax relief. You should ensure that your clients do not exceed their Annual Allowance for pension payments in any one year. If your client has taken a pension encashment (Uncrystallised Funds Pension Lump Sum) from any pension, or income from Flexible Access Drawdown, they will be subject to the Money Purchase Annual Allowance. This means that your client will only be entitled to obtain tax relief on contributions to all money purchase pensions up to 4,000, after which they will be subject to a tax charge. 6

8 MAXIMUM PAYMENTS CONTINUED A Lifetime Allowance, set by the Government, will apply to the total value of pension benefits that your clients can receive from all of their pension arrangements. Please note that tax rules can change and that the value of the tax advantages of a Retirement Account will depend on your client s circumstances. Your client s circumstances and tax rules may change in the future. Tax charges may apply if the Government s Annual Allowance, Money Purchase Annual Allowance or Lifetime Allowance is exceeded. PENSION ENCASHMENTS RETIREMENT PLANNING Your client can take pension encashment(s) (Uncrystallised Funds Pension Lump Sum) from the Retirement Planning element of their Account, subject to the following conditions: normally they must be age 55 or over, and they must have sufficient Lifetime Allowance. Your clients are ineligible for pension encashments if they have: either primary or enhanced protection with protected lump sum rights greater than 375,000, or a lifetime allowance enhancement factor and the available portion of their lump sum allowance is less than 25% of the proposed encashment. It isn t possible to give up primary protection but your clients can contact HMRC about giving up enhanced protection. PENSION ENCASHMENT OPTIONS There are two options for taking pension encashments: Partial Pension Encashment where part of the value of the Retirement Planning element is taken as a cash lump sum withdrawal; Full Pension Encashment where the full value of the Retirement Planning element is taken as a cash lump sum withdrawal. 25% of each encashment will be tax-free (regardless of whether your client has protected tax-free cash) and the remainder taxable. Following a full pension encashment we will close your client s Retirement Account if there is no remaining value in the Retirement Account. Restrictions will apply for Partial Pension Encashments. Please contact us for details. PAYMENT OF PENSION ENCASHMENTS Payments are made from the Retirement Planning Control Account(s) via BACs. You will need to ensure there is sufficient balance in each relevant Control Account or no payment will be made. Please see Control Account(s) on page 19 for details. TAX For all pension encashments, 25% of the value will be tax-free. The remainder of the value will be taxable as income in the tax year of payment. We will deduct tax using your client s PAYE tax code (or the PAYE Emergency Tax Code if HMRC has not told us your client s tax code). The tax deducted may not be the right amount due, when all of your client s income for the year is taken into account. After the following 5th April, HMRC will deal with any additional tax or refund due. If your client thinks they have paid too much tax, they can ask HMRC for a tax refund. 7

9 INCOME WITHDRAWALS RETIREMENT INCOME TAX-FREE LUMP SUM For designations and immediate vesting, clients can normally choose to take up to 25% of the value as a tax-free lump sum. A higher amount may be available if your client has a protected tax-free cash entitlement. MINIMUM WITHDRAWAL No minimum limit tax-free cash can be taken and a zero income selected. You can ask us to change your client s level of income at any time. INCOME WITHDRAWAL BASIS Retirement Income elements set up before 6th April 2015 will be on a Capped Drawdown basis and Retirement Income elements set up on or after 6th April 2015 will be on a Flexible Access Drawdown basis. If your client is on Capped Drawdown, they can stay on this basis or choose to switch to Flexible Access Drawdown, but will not be able to switch back to Capped Drawdown at a later date. If your client asks to take an income higher than the maximum allowed under Capped Drawdown, they will switch to a Flexible Access Drawdown basis, but will not be able to switch back to Capped Drawdown at a later date. Drawdown-to-drawdown transfers where the existing drawdown is on a Capped basis can stay on this basis. CAPPED DRAWDOWN Maximum yearly income limit of 150% of the basis amount determined by reference to Government Actuary s Department (GAD) tables. Income limits applicable for three years (or one year after age 75), or until a review is triggered if earlier. Certain events, such as an additional designation or an annuity purchase, will trigger a recalculation of the basis amount. FLEXIBLE ACCESS DRAWDOWN There is no restriction on the amount that your client can withdraw as income each year, up to the full value of the Retirement Income element of their Account. Income can be set up either as a percentage of fund value or as a fixed monetary amount. If income is based on a percentage of the fund value, the monetary amount quoted will only be valid until the next anniversary of the date the Income element of the Account was set up. At this point it will be recalculated on the Retirement Income fund value at that time, so the amount could change. If the Retirement Income element of your client s Retirement Account reduces to zero (and there is no remaining value in Retirement Planning and no regular premiums are being made), we will close the Account. The value of the Retirement Income element of the Account will change: each time an amount is moved into the Retirement Income element when an amount is used to buy an annuity when income is taken as the value of investments rise and fall when charges are deducted. PAYMENT OF INCOME Income can be paid on a monthly, quarterly, half-yearly or yearly basis. Ad hoc payments can also be made. The frequency and amount of income payments can be varied at any time. Payments are made from the Retirement Income Control Account(s) via BACS, net of tax using PAYE. There must be sufficient balance in each relevant Control Account or sufficient units in Scottish Widows Pension Funds to cover the income payments due. If not, a partial payment or no payment will be made. See Control Account(s) section for more details. 8

10 CHARGES There are three main types of charge which apply to both the Retirement Planning and Retirement Income elements of the Retirement Account. These are: Service Charge Investment charge(s) Adviser remuneration Monthly Charging Date There is a Monthly Charging Date on which we will deduct charges from the Control Account(s). The first charging date will be one month after the Start Date of the Retirement Account. The Start Date is: For single or transfer payments the date the payment is received. For regular payments (Retirement Planning only) the date we process all the relevant paperwork. Where more than one type of payment is being made, for example a single payment and a regular payment at the same time, the Start Date will be the earliest of the dates described above. There is no change to the Monthly Charging Date on designating existing assets. SERVICE CHARGE For setting up and managing your client s Retirement Account, Scottish Widows will deduct a Service Charge from the Retirement Account. The charge is calculated as a percentage of the total value of all assets (Retirement Planning and Retirement Income) and the percentage can reduce as this value increases and increase if the value reduces. Please see the table for more details. The Service Charge will be split proportionally between each Control Account, and will be deducted on the Monthly Charging Date. The first Service Charge will be deducted one month after the Retirement Account Start Date. Service Charge rate table The table directly below shows the standard rates that currently apply for new Retirement Account applications. Total value of Retirement Account From To less than Service Charge (per year) 0 30k 0.90% 30k 50k 0.40% 50k 250k 0.30% 250k 500k 0.25% 500k 1million 0.20% 1 million and above 0.10% If the total value of a client s Retirement Account moves from one tier to another, so will the rate of the Service Charge. For example, if the value of a Retirement Account increases from 29,000 to 31,000, the rate of the Service Charge will decrease from 0.90% to 0.40%. However, if the value of the Retirement Account decreases from 510,000 to 490,000, the rate of the Service Charge will increase from 0.20% to 0.25%. 9

11 INVESTMENT CHARGE(S) The investment charge(s) can include charges made by Fund Managers, the Discretionary Fund Managers, the Share Dealing provider and the Scottish Widows Property Management Charge. Other charges and expenses can apply for example, professional fees and certain third party administration costs. Investment charge(s) are dependent on the type of investment(s) chosen. For further details, please refer to the following documents: Scottish Widows Pension Funds The Retirement Account, Scottish Widows Pension Fund Charges (45422). Governed Investment Strategies Governed Investment Strategy Adviser Guide (49970). Supermarket Funds The Retirement Account, Fund Supermarket List and Charges (19145) Fixed Term Cash Deposits The Retirement Account Fixed Term Cash Deposit Guide (48856). Discretionary Fund Management Discretionary Fund Managers Guide to Services and Charges (25361). Share Dealing The Retirement Account Share Dealing Guide (47937). Commercial Property The Retirement Account, Commercial Property Administration Guide (22926). The range of investments available and investment charges can change. A personal illustration will provide an indication of the investment charges that can apply to your client s Retirement Account. Switching Scottish Widows will not normally make any charge for changing investments, whether switching between investment funds, or moving between different asset classes. Costs may, however, be incurred in the sale or purchase of certain investments. Scottish Widows Pension Funds Some of the Scottish Widows Pension Funds are managed by a subsidiary of Aberdeen Asset Management plc. and some are managed by other fund managers. Each fund is made up of units, which are like shares of the fund. The price of one unit in each fund depends on the value of the investments and the number of units in the fund. There is no initial charge under the Scottish Widows Pension Funds. A Fund Management Charge will be taken directly from the funds selected, and is allowed for in the fund pricing. Governed Investment Strategies As part of our Scottish Widows Pension Funds offering, your clients can choose from a range of Governed Investment Strategies, which gradually move the Retirement Account into lower risk investments as clients approach their selected retirement date. At five years from this date, the chosen strategy will automatically adjust so that the Retirement Account is invested in one of three ways, depending on whether clients want to purchase an annuity, keep their funds invested (including taking income drawdown), or take a cash lump sum. Governed Investment Strategies are available for Retirement Planning only. Supermarket Funds The funds available via the Fund Supermarket include Unit Trusts, Open Ended Investment Companies (OEICs) and Societes d Investissement a Capital Variable (SICAVs). Each fund is made up of units or shares. The price of one unit or share in each fund depends on the value of the investments and the number of units or shares in it. No initial charges apply to the selection of funds that Scottish Widows makes available. A fund management charge will be taken directly from the funds selected, and is allowed for in the fund pricing. 10

12 The following will also apply: Fund Supermarket Platform Charge This charge is deducted monthly by cancelling units or shares and is based on the total value your client s Account holds in these funds. If the Account is invested in more than one Supermarket fund, the Fund Supermarket Platform Charge will be deducted from the fund in which your client has the highest value invested at the charge date. The fund supermarket platform charge is currently 0.14%. Please refer to Fund Supermarket List and Charges (19145) for the charges that apply to funds currently available for new investments. Fixed Term Cash Deposits Fixed Term Cash Deposits aim to provide an alternative to cash funds and may be suitable for those who are riskaverse or who wish to avoid short term market volatility. Share dealing The share dealing facility will allow your clients to invest in securities traded on an HMRC (HM Revenue & Customs) recognised stock exchange. These include: Company shares and bonds. Government, public and local authority bonds. Exchange Traded Funds listed on the London Stock Exchange, or on the official list of a competent authority in another European Economic Area (EEA) state. Investment Trusts including Real Estate Investment Trusts. Please refer to The Retirement Account Share Dealing Guide (47937) for details of the type and value of charges that can apply. Each Fixed Term Cash Deposit will be available for investment during its Offer Period and will: aim to protect the value of your investment, allow you to benefit from competitive terms negotiated with deposit-takers, and offer a fixed rate of interest on amounts invested to the Investment End Date. Please refer to The Retirement Account Fixed Term Cash Deposit Guide (48856) for the type and value of charges that can apply. Discretionary Fund Management The Retirement Account offers access to a panel of Discretionary Fund Managers. A Discretionary Fund Manager will construct an investment portfolio specific to your client s requirements from a range of permitted investments. More than one Discretionary Fund Manager (DFM) can be selected at any time. Investments are made via a privately managed fund. Charges will be taken by the Discretionary Fund Manager from the sums and assets they hold. This will be allowed for in the valuation of your client s DFM portfolio. For details of the type and value of charges that can apply, please refer to the Discretionary Fund Managers Guide to Services and Charges (25361). 11

13 Commercial Property UK Commercial Property can be purchased in full by the Retirement Planning or Retirement Income elements of a Retirement Account, subject to a minimum property value of 100,000. It is not possible to purchase a Commercial Property using a combination of both Retirement Planning and Retirement Income. However, if the Commercial Property is held within Retirement Planning, your client could designate their Commercial Property in part, or in full to Retirement Income. Please note that only one Commercial Property is allowed in the Retirement Account at any one time. Commercial Property can be purchased any time before your client s 65th birthday, provided there is at least ten years until their chosen retirement date at the date of purchase. We will not normally allow a purchase after reaching age 65. Scottish Widows has appointed a third party administrator, Curtis Banks, to oversee the purchase process and the ongoing property administration. The Commercial Property investment will consist of up to three components: the property, the mortgage (if applicable) and the property cash account. You will be able to see a consolidated valuation of these online by logging in at Up to 50% of the total value of the Retirement Account can be borrowed to facilitate a property purchase, subject to the mortgage not exceeding a maximum of 75% of the value of the property to be bought. Lenders may impose their own limits. The property cash account will receive any rental payments which the property generates, and will be used to fund any mortgage payments and other costs arising in relation to the property. In all cases the property cash account must hold a minimum balance. In addition to the Service Charge(s), Scottish Widows will deduct a percentage-based Property Management Charge from the relevant Control Account(s) on the monthly Charging Date following the purchase of the property. It is based on the gross value of the property. The Property Management Charge covers certain purchase and ongoing administration costs. The following scale applies: Property Value From To less than 0 100k 1.25% 100k 150k 0.80% 150k 200k 0.60% 200k 250k 0.45% 250k 300k 0.35% 300k 500k 0.25% 500k 750k 0.15% 750k and above 0.10% Property Management Charge (per year) Other charges and expenses will apply in relation to buying, selling and administrating Commercial Property. For example, legal expenses, surveyor charges and the cost of valuations. We will have the property valued immediately prior to purchase, and normally yearly thereafter. Scottish Widows can require the property to be formally revalued at any time. Commercial Property investments will be made via a privately managed fund. Please refer to The Retirement Account Commercial Property Administration Guide (22926) for further details. ADVISER REMUNERATION Adviser remuneration is intended to cover the cost of any advice and/or services that you provide to your client in relation to their Retirement Account. In line with the Retail Distribution Review, whether we deduct Adviser Charges or Commission will depend on when your client s Retirement Account was set up and whether advice was given. Each of the two Retirement Account elements (Retirement Planning and Retirement Income) is independent and can be set-up on a different basis (e.g. Retirement Planning could be on a Commission basis and Retirement Income on Adviser Charges). Please see page 18 for details on changing the remuneration basis. 12

14 ADVISER CHARGE(S) Adviser Charge(s) can be paid when you have given your client either independent or restricted advice, and must be agreed between you and your client. Illustrations will be required for any new Adviser Charge(s) or increases to existing Adviser Charge(s) so that your client can see the impact on their projected Retirement Account value. Once we have received your client s consent to the Adviser Charge(s) on the appropriate form, we can facilitate the payment. Adviser Charge options Initial Adviser Charge Ongoing Adviser Charge(s) (at element level) Percentage of Account Fixed Monetary Amount One-off Adviser Charge Initial Adviser Charge For single contributions and transfer payments, the charge is deducted immediately from contributions made to the Retirement Account. For regular contributions, the charge will be taken either monthly or yearly, to match the contribution frequency. We will spread the Initial Adviser Charge by limiting the amount we pay you to 50% of each regular contribution, until the charge is paid in full. This limit allows us to deduct any Fixed Monetary Amount Ongoing Adviser Charges, from the Control Account(s), that you may have agreed with your client at the same time (please see page 14, example 1). Where the illustration shows multiple payers of the same contribution type, any Initial Adviser Charge will be apportioned across that contribution type (please see page 15, example 2). For payments designated to Retirement Income, any Initial Adviser Charge(s) are deducted from the designated amount after the payment of any tax-free lump sum. Ongoing Adviser Charge(s) Percentage of Account This is taken as a percentage of the total value of all the assets held within an element of your client s Retirement Account (different percentages can apply to each element). It can be deducted monthly or yearly in arrears. It will be deducted on the charging date, for the lifetime of the Account. Fixed Monetary Amount This can be set up for a fixed number of payments or for the lifetime of the Account. It can be paid monthly or yearly in arrears. It is possible to have multiple Fixed Monetary Amount charges on the same element (for example, you can have 5 per month for the lifetime of the Account plus 100 per year for the first five years). If multiple yearly charges exist, each charge can have its own anniversary when the charge is deducted. For new business, Percentage of Account and/or Fixed Monetary Amount Ongoing Adviser Charges can be selected. Please see page 15, Example 3. One-off (Ad hoc) Adviser Charge You might agree a One-off Adviser Charge with your client for additional advice that falls outside the services that you have already agreed in respect of the Retirement Account. You should request an illustration from us so that your client can see the impact of the additional charge and they must sign and return the consent form. Changes to Adviser Charges A Percentage of Account and/or a Fixed Monetary Amount Ongoing Adviser Charge can be added, removed or changed during the term of the Retirement Account. You should request an illustration from us so that your client can see the impact of the change and they must sign and return the consent from. A One-off Adviser Charge can also be added. 13

15 ADVISER CHARGE EXAMPLES Example 1 Regular contributions with an Initial Adviser Charge and a Fixed Monetary Amount Ongoing Adviser Charge You set up a Retirement Account for your client with a 500 per month gross ( 400 per month net) regular premium. You agree to an Initial Adviser Charge of 1,100 for setting up the Retirement Account and a 20 per month Fixed Monetary Amount Ongoing Adviser Charge for ongoing services. 500 per month is paid into your client s Control Account, 250 of which is deducted and paid to you as an Initial Adviser Charge. The remaining 250 is invested according to your client s investment instructions. At the end of the month, on the charging date, 20 will be deducted from the Control Account to pay you the first Fixed Monetary Amount Ongoing Adviser Charge. Each following month, 250 will be deducted from the regular payment(s) until the Initial Adviser Charge is paid in full. An additional 20 will also be deducted from the Control Account on each monthly charging date to cover the Fixed Monetary Amount Ongoing Adviser Charge. Month Amount paid in by client Tax relief Total paid in Initial Adviser Charge amount paid to adviser Fixed Monetary Amount Ongoing Adviser Charge paid to adviser

16 Example 2 Initial Adviser Charge where there are multiple payers of the same contribution type John is setting-up and paying a single contribution of 8,000 and a regular contribution of 200 per month into his new Retirement Account. His employer has also agreed to pay a 4,000 single contribution, and his wife another 4,000 single contribution into the same Retirement Account at the same time. John agreed with his adviser to pay an Initial Adviser Charge of 2,000, split 1,000 from the regular contributions and 1,000 from the singles. We will therefore apportion 1,000 of the Initial Adviser Charge across the three single premiums, taking 500 from John s single contribution, 250 from his employer s contribution and 250 from his wife s contribution. If any of these contributions are not received, we will not facilitate payment for that part of the Initial Adviser Charge. Example 3 Drawdown transfer with Initial Adviser Charge and Ongoing Adviser Charges (Percentage of Account and Fixed Monetary Amount) You transfer your client s existing drawdown plan with a value of 150,000 into a new Retirement Account. You agree to take an Initial Adviser Charge of 3,000 for the initial advice. For ongoing services you also agree to take a 50 per month Fixed Monetary Amount Ongoing Adviser Charge for 24 months, and a 0.5% (per annum) Percentage of Account Ongoing Adviser Charge to be paid monthly for the lifetime of the Account. 150,000 is transferred into the Retirement Income Control Account. 3,000 is deducted from the Retirement Income Control Account and paid to you as an Initial Adviser Charge. 147,000 is invested according to your client s investment instructions. Assuming the value remains the same, a Percentage of Account Ongoing Adviser Charge of ( 147,000 x 0.5%/12) and a Fixed Monetary Amount Ongoing Adviser Charge of 50 are deducted from the Control Account and paid to you at the first Monthly Charging Date. The Percentage of Account Ongoing Adviser Charge will continue to be deducted from the Control Account and paid to you for the lifetime of the Account. The Fixed Monetary Amount Ongoing Adviser Charge of 50 will stop after 24 months. 15

17 COMMISSION Commission can be paid when you have provided a service to your client but have not given them advice. Please note that our personalised correspondence will refer to Commission as an Adviser Payment Charge. However, the term Adviser Payment Charge is also used in the policy provisions, schedules, and endorsements to cover both Adviser Charges and Commission. Commission options Scaled Commission Fund Based Commission Commission details Scaled Commission regular payments to Retirement Planning Scaled Commission single and transfer payments to Retirement Planning and payments to Retirement Income Fund-based Commission Commission limits 0 50% (in steps of 0.01%) of the regular payments made in the first year 0 8% (in steps of 0.01%) 0 1% pa paid monthly or yearly Claw-back Term Between 1 and 5 years (in whole years), chosen by adviser Between 1 and 5 years (in whole years), chosen by adviser Not applicable Scaled Commission This is paid to you immediately and then recovered each month from your client s Retirement Account, over an agreed period known as the Claw-back Term (please see example 2, on page 15). Claw-back Term for Scaled Commission The Claw-back Term can be any number of whole years between one and five. This will be reduced where the term to the chosen retirement age is less than five years, subject to a minimum term of one year. Claw-back will be triggered in the following circumstances: Any transfer to another pension provider before the end of the Claw-back Term. Any transfer to another Scottish Widows pension policy before the end of the Claw-back Term. Any reduction in regular payments to the client s Retirement Planning element of the Retirement Account during the Claw-back Term. 16

18 Any pension benefits being taken before the end of the Claw-back Term. Designation (either full or partial) of funds to Retirement Income. This triggers claw-back on the Retirement Planning element, if the designation takes place within the Claw-back Term. Claw-back is applied to each payment made to the Retirement Account that is still within the Claw-back Term. Claw-back will not be triggered on death of the Retirement Account holder, or a change of chosen retirement date (except where pension benefits are taken, or designated at a date which falls within the Claw-back Term). Adviser payments will be clawed-back from the adviser to whom the original Scaled Commission was paid. For part claims, claw-back will apply pro rata across all payments to the Retirement Account still within their Claw-back Term. For regular payment reductions, claw-back will apply first to the latest payments to the Retirement Account in their Claw-back Term. The Claw-back Term will cease on funds that are fully designated. If benefits are partially designated, the Claw-back Term will continue for the balance of the original period. The Scaled Commission will be reduced accordingly. There are a number of factors which can change the claw-back calculation. Please contact your Scottish Widows Account Manager for further details. Fund Based Commission This is taken as a percentage of the total value of all the assets held within an element of your client s Retirement Account (different percentages can apply to each element). It can be deducted monthly or yearly in arrears. It will be deducted on the charging date, for the lifetime of the Account. Changes to Commission Once chosen, the Fund Based Commission percentage cannot be increased but it is possible to decrease and remove it. Please speak to your Scottish Widows Account Manager for further details. 17

19 CHANGE TO ADVISER REMUNERATION BASIS Each Retirement Account element can be set-up on a different basis (e.g. Retirement Planning could be paying Commission and Retirement Income could be paying Adviser Charges). With client consent, however, it is possible to convert a Commission-paying element to an Adviser Charge-paying one if you want to be remunerated for any advice you have given on, for example, an increment. This consent will be requested on the increment application or charge change form. Where Fund Based Commission is currently being paid, we will require specific consent to convert this to a Percentage of Account Ongoing Adviser Charge. Once this conversion has taken place no further Commission can be paid for services in relation to that element. It is not possible to convert an Adviser Charge-paying element to a Commission-paying one and any new Adviser Charge(s) can only be deducted with client consent, and if advice has been given, or ongoing services are to be provided. 18

20 CONTROL ACCOUNT(S) The Control Account(s) act as a clearing and transactional account for all payments made to and from a Retirement Account. Please refer to the diagram on page 20 for a typical example of the payments made to and from a Control Account. If a Control Account has a positive balance it can receive positive balance adjustments. You can contact us for the current rate or go to The Service Charge(s), Adviser Charge(s) or Commission, and certain investment-related charges and expenses are deducted from the Control Account(s). Please refer to page 9 for further details on charges. If the Control Account balance is insufficient and the Retirement Account is invested in any Scottish Widows Pension Funds (even if the Account holds other investments), we ll automatically sell units proportionately from the Scottish Widows Pension Funds held to cover the charges and/or income. Alternatively, to ensure that a sufficient balance in the Control Account is maintained, you can contact us to arrange a regular disinvestment from specified Scottish Widows Pension Funds. We will not automatically sell other types of investments to cover charges and/or income. If, at any time, the balance of a Control Account and the units available in Scottish Widows Pension Funds are insufficient to meet the Service Charge(s), any Commission, and any investment-related charges, these charges will become a Deferred Charge. Please see the Deferred Charge section opposite for more details. Please note that a Deferred Charge will not be applied to cover Adviser Charges. If your client wishes to make a pension encashment, you need to ensure that there is a sufficient balance in the relevant Retirement Planning Control Account to cover this in full. We will not automatically sell units from any Scottish Widows Pension Funds held or make any payment and a Deferred Charge will not be applied. If your client wishes to take an income, a sufficient balance in each Retirement Income Control Account or sufficient units in Scottish Widows Pension Funds will need to be maintained in Retirement Income to meet the value of the payments due. A Deferred Charge will not be applied to cover income and this may result in a partial or non payment. ADVISER CHARGES AND THE CONTROL ACCOUNT Where former Protected Rights and non Protected Rights Control Accounts exist within the element, any Ongoing Adviser Charge will be automatically taken across the two Control Accounts, provided there is sufficient balance. Where possible, this will be taken proportionally, depending on the relative balances of each Control Account. Where we are unable to deduct an Adviser Charge in full, that instance of the charge won t be paid, not even in part. If an Adviser Charge fails, a letter will be sent to you and your client explaining this. The failed charge will not be carried forward to the next charging date. DEFERRED CHARGE Each day a Deferred Charge cannot be collected, we will increase its amount by a percentage of the Deferred Charge. You can contact us for the current rate or go to A Deferred Charge can be settled by selling investments held under the relevant Retirement Account element, with the proceeds paid to the relevant Control Account. Alternatively, where possible, a single payment or transfer payment may be paid to the Control Account to settle a Deferred Charge. Regular payments, in respect of Retirement Planning, will not be automatically used to settle a Deferred Charge, but can be redirected by your client to the Control Account for this purpose. If a part or total claim is requested, any Deferred Charge will be settled from the proceeds of disinvestments before any benefits or income payments are paid out. We will write to you and your client if a Deferred Charge occurs. 19

21 TYPICAL TRANSACTIONS OF A CONTROL ACCOUNT: Money in Client payments (RP only) Payments made by another individual on behalf of a client (third party payments) (RP only) Employer payments (RP only) Drawdown to drawdown transfer (RI only) Other transfers (RP only) Designation of funds to Retirement Income from Retirement Planning Tax relief on client and third party payments (RP only) Proceeds from the sale of assets Positive balance adjustments Money out Service Charge Additional Service Charge (RI only) Adviser Charge(s) / Commission Property Management Charge Settlement of a Deferred Charge Purchase of assets Transfer out Partial or full pension encashments (RP only) Tax-free lump sum Income payments (RI only) Designation of funds from Retirement Planning to Retirement Income 20

22 TRADING SCOTTISH WIDOWS PENSION FUNDS If a request to buy or sell units is received by us before midday, the trade will normally be subject to the following day s unit prices. Requests received after midday will normally be subject to the unit prices applying two days in the future. Switches between Scottish Widows Pension Funds are carried out as simultaneous transactions, involving both sell and buy trades. The trades are subject to the pricing rules described above. FUND SUPERMARKET If a trade request is received online, the request will normally be passed to the Fund Supermarket provider in real-time, who will aim to have the trade completed at the price determined at the next available pricing point. Where a request is submitted on paper, we will try to pass the request to the Fund Supermarket provider in time for the next available pricing point. On receipt of the request, the Fund Supermarket provider will aim to complete the trade at the price determined at the next pricing point. Switches involve both a sell and a buy trade. The sell trade will be priced as described above. The buy trade will normally be priced at the next available pricing point following the completion of the sell trade. Switches between Fidelity Funds with the same pricing point will be processed simultaneously. Please note that pricing points may vary according to the funds being traded. FIXED TERM CASH DEPOSITS Each Fixed Term Cash Deposit that we make available will have an Offer Period during which your client can ask you to invest. There must be sufficient funds available in the relevant Control Account on the day the request is made. At the Investment Start Date, provided there are still sufficient funds available in the Control Account, we ll invest the requested amount in the Fixed Term Cash Deposit. At the Investment End Date, we ll arrange to switch the value of your Fixed Term Cash Deposit investment, including the interest earned, back to the Control Account. The proceeds will be available in the Control Account on the working day following the Investment End Date. DISCRETIONARY FUND MANAGEMENT We will aim to transfer money to the Discretionary Fund Manager on the date of receipt of an instruction. The timing of disinvestments from DFM assets to the Control Account(s) will generally be dependent on the liquidity of the DFM portfolio. SHARE DEALING Before trading can commence, you must move sufficient funds into the Share dealing account. Trading is available both online and by telephone. You will be quoted a price for the transaction, which can then be agreed and carried out in real time. Processed trades will be confirmed and contract notes issued subsequently. There is more information about Share dealing in The Retirement Account Share Dealing Guide (47937). COMMERCIAL PROPERTY We will aim to transfer money to the third party administrator, Curtis Banks, on the date of receipt of an instruction. Typically, a property purchase can take anything from 8 12 weeks to complete. However, there is no guarantee a purchase will take place in these timescales. The timing of disinvestments to the Control Account(s) depends on the nature and size of the request, the amount of available cash and, if necessary, the time taken to sell the property. Any payments received for which we have not received an investment instruction will be held in the relevant Control Account(s). 21

23 DEATH BENEFITS If your client dies, the value of their Retirement Account can be used to provide benefits, as follows: If they die before age 75: Lump sum any beneficiary can take the value of the fund as a tax-free lump sum. Income Drawdown any beneficiary can take the value of the fund through income drawdown. The income will be tax-free. Annuity any beneficiary can use the value of the Retirement Account to buy an annuity. Please note, however, that Scottish Widows can only currently provide an annuity for a spouse or any other dependant who must be under 75 at the time of purchase. Income from any annuity will be tax free. If they die on or after age 75: Lump sum any beneficiary can take the value of the fund as a lump sum. This will normally be taxed at their marginal rate of income tax. Income Drawdown any beneficiary can take the value of the fund through income drawdown. The income will normally be taxed at their marginal rate of income tax. Annuity any beneficiary can use the value of the Retirement Account to buy an annuity. Please note, however, that Scottish Widows can only currently provide an annuity for a spouse or any other dependant who must be under 75 at the time of purchase. The income will normally be taxed at their marginal rate of income tax. A beneficiary could be a dependant, a nominee or a successor. A dependant is someone who is a spouse, civil partner, or financially dependent on your client. A nominee can be any other person that your client chooses to nominate, even if they are not dependant on them, and can also be a charity. The beneficiary can pass on any unused drawdown funds on their death to their own beneficiary, known as a successor. Where the lump sum option is applicable, there is no tax charge if it is paid to a charity nominated by a client. If a Retirement Account is arranged under an individual trust, we will pay any lump sum death benefit to the trustees. Some investments may take longer to sell than others, and we may therefore pay the death benefits in stages. No inheritance tax will normally be payable on the value of the Account because we will choose the beneficiary, taking into account any nomination your client makes. Where your client has not made a nomination and there are no dependants, then we can nominate a beneficiary. Accidental Death Benefit Retirement Planning only If your client dies as a direct result of an accident before their Retirement Account has been running for five years, the amount we will pay will be the greater of 120% of the total payments received, or the value of the investments on the date that we receive notification of death. Please note that Accidental Death Benefit does not apply to Retirement Income. No charge is made for the Accidental Death Benefit. 22