Today s Talks Pensions Update Guest speaker Pension Planning

Transcription

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2 Today s Talks Pensions Update James Jones-Tinsley of Barnett Waddingham Guest speaker Rory McPherson of Psigma Pension Planning Mike Ferguson of Barnett Waddingham 2

3 Regulatory Information We recommend taking independent advice before making any decision related to your pension savings or income from it. The information in this presentation is based on our understanding of current taxation law, proposed legislation and HM Revenue & Customs practice, which may be subject to future variation. This presentation is not intended to provide and must not be construed as regulated investment advice. Returns are not guaranteed and the value of investments may go down as well as up. Barnett Waddingham LLP (OC307678) and BW SIPP LLP (OC322417) are limited liability partnerships registered in England and Wales whose Registered Offices are at Cheapside House, 138 Cheapside, London, EC2V 6BW. Barnett Waddingham LLP is authorised and regulated by the Financial Conduct Authority and is licensed by the Institute and Faculty of Actuaries for a range of investment business activities. BW SIPP LLP is authorised and regulated by the Financial Conduct Authority. 3

4 This Session s Agenda Spring Budget 2017 Hammond s first and last! Pension Freedoms two years in: a Stocktake Are Self-Invested Pensions under attack? HMRC stance on In Specie Contributions LBTT on property transfers and new rules on leases Government call to restrict transfers to SSAS The Pensions Regulator s call to ban new SSAS 4

5 Key Takeaway - One Clients need advice in response to continued changes to their pensions 5

6 Spring Budget 2017

7 Annual Allowances - Refresher Standard Annual Allowance 40,000 for 2017/18 Money Purchase Annual Allowance applies to those who have flexibly accessed their pension 10,000 for 2017/18 (or 4,000 ) Tapered Annual Allowance A lower Annual Allowance that applies to high earners Reduces standard allowance on a sliding scale down to 10,000 7

8 A Budget of No Change? Pensions relatively unscathed by the Chancellor on Budget day No change to the current system of pensions tax relief No change to tax-free lump sums: normally 25% of the fund No change to the (standard) Annual Allowance (AA): 40,000 for 2017/18 No change to the Lifetime Allowance (LTA): 1 million for 2017/18 (CPI increases from 2018/19) 8

9 A Budget of Missed Opportunities! MPAA reduced from 10,000 to 4,000 from 6 April 2017 Affects everyone who has triggered the MPAA Possible 25% tax charge to transfer to a QROPS Effective from 9 March 2017 for new QROPS transfer requests BUT No closure yet on pensions tax relief Tapering of the Annual Allowance not scrapped Lifetime Allowance not scrapped No automatic-enrolment for the self-employed 9

10 Money Purchase Annual Allowance MPAA reduced to 4,000 from 6 April 2017 Rationale for reduction stop tax relief recycling Save HM Treasury 65m in year 1 & 70m from year 2 Tapered AA is unaffected minimum AA remains at 10,000 Legislation concerning the reduction still to receive Royal Assent Triggering MPAA = a 90% reduction in tax-relieved savings for life! 10

11 Key Takeaway - Two Clients must be careful not to trigger the MPAA too early! 11

12 Overseas Transfer Charge to QROPS Charge introduced to discourage overseas transfers as a way of reducing or avoiding income tax 25% tax charge will apply - unless, for example: Transfer is within the European Economic Area (EEA); or Individual resident for tax in the country to which the pension fund is being transferred In the five years following transfer, any payments made out of QROPS subject to UK tax rules, regardless of the individual s country of residency 12

13 Overseas Transfer Charge to QROPS Overseas Schemes had to tell HMRC they met the conditions to be a ROPS by 13 April Revised ROPS list issued by HMRC on 18 April HMRC expect Scheme Administrator to undertake due diligence pre-transfer to a QROPS, including; Ensure member has provided required information and a written acknowledgement; and Check the ROPS list the day before transfer to ensure receiving scheme is on it (and retain a printout on file) Scheme Sanction charge if not a recognised transfer 13

14 Pension Freedoms Two years in: a Stocktake

15 Pension Freedoms in figures 10.8bn has been flexibly accessed since the pension freedoms were introduced in April 2015 But, average amount withdrawn per person is falling; 18,571 for second quarter of 2015; compared with 9,034 for first quarter of 2017 Tax take to HM Treasury far higher than expected; 1.5bn raised in 2015/16 (initial estimate = 0.3bn) 1.1bn expected for 2016/17 (initial estimate = 0.6bn) Source: HM Revenue & Customs Statistics for

16 Coping with AA Tapering Individuals with adjusted income of over 150,000 subject to a reduced AA For those earning over 210,000 AA drops from 40,000 to 10,000 Some employers choosing a safety first approach e.g. a 10,000 cap on workplace pension contributions Cash in lieu of pension contributions also becoming prevalent - with a lower percentage of salary to allow for the higher employer national insurance cost; For example, employer offers choice of 15 per cent pension contribution, or 13 per cent paid to employee 16

17 Key Takeaway - Three Clients may need to take advantage of the current reliefs and allowances while they are able to 17

18 Are Self-Invested Pensions under attack?

19 HMRC vs In Specie Contributions? RAS claim form for 2016/17 onwards separates out personal cash contributions from in specie contributions HMRC then asking SIPP providers for more information; withholding all tax relief in the meantime (even for cash) Many SSAS and SIPP providers not currently allowing in specie contributions, as a result Legal action undertaken by providers to ascertain why HMRC s change in stance; for example, Are in specie contributions always pre-ordained? Has an overvaluing scam been unearthed? 19

20 HMRC vs In Specie Contributions? Update received from HMRC on 21 April (via PS Newsletter 86) No change in their stance that the only contributions on which tax relief can be claimed are those made in cash BUT it is possible to give effect to a pre-existing obligation to make a cash contribution with the transfer of an asset HMRC will continue to look into transactions where there are concerns that the transfer of an asset does not give effect to a cash contribution Concern particularly high in regard to intellectual property and company [preference] shares 20

21 Revenue Scotland vs In Specie Transfers? Properties based in Scotland moved between self-invested pensions - by way of an in specie transfer No longer exempt from Land and Buildings Transaction Tax (LBTT) i.e. Scottish Stamp Duty - unless transfer is between two Bare Trusts Revenue Scotland stated this is because; a) it is a land transaction; and b) assumption of the liability by the receiving pension fund is debt as consideration Possible to appeal (successfully) against imposition Advantage for SSAS over SIPP when changing providers can change trustee in SSAS with no LBTT arising 21

22 Energy Performance Certificates (EPCs) Since October 2008, an EPC must be obtained for a commercial property, before it can be bought or sold An Energy Performance Asset Rating (EPAR) on the EPC provides a range of A (best) to G (worst) New rules will apply to new lettings and lease renewals (commercial or residential) in England and Wales from 1st April 2018 and to existing leases in England and Wales from April 2023, unless exempt It will be against the law to lease a property with an EPAR in bands F & G 22

23 Pension Scams Consultation Consultation set out measures aimed at tackling three different areas of pensions scams ; 1. a ban on cold-calling - a key source of pension scams; 2. change an individual s statutory right to transfer, so a ceding scheme can block a transfer proceeding, if they believe the receiving scheme could be a scam; and 3. only active companies can register a pension scheme - as one-member Occupational Pension Schemes require no registration with The Pensions Regulator - and can be set up using a dormant company as the sponsoring employer 23

24 What has The Pensions Regulator said? A TPR Blog on 14 February (the day after the Pension Scams consultation closed) said: We need to close off once and for all the second half of the open goal relevant small schemes (commonly referred to as SSAS ) Pension transfers to SSAS arrangements ought to be banned. In fact.. an outright ban on the establishment of any more SSAS arrangements also warrants serious consideration AMPS (representing SSAS providers) now actively engaging with TPR regarding this 24

25 Key Takeaways Seek advice Watch out for MPAA Current allowances 25

26 Questions Any Questions? 26

27 Barnett Waddingham 16 th May 2017 For professional use only not to be relied upon by retail clients 27

28 Psigma at a Glance Psigma is a privately owned discretionary manager offering investment solutions to meet the needs of private clients, charities, trusts and pensions. Psigma is a privately owned and operationally independent Discretionary Fund Manager Established in 2002, Psigma is the Wealth Manager for the Punter Southall Group (PSG) Over 2.71bn of assets under management (as at 31 st March 2017) 81 permanent employees including 23 Investment Managers, an Investment Team of 8 and 7 dedicated client investment support teams Range of investment solutions. Multi-Asset, Fixed Interest, Equity and AIM Inheritance Tax Portfolio Service Accessed via, Bespoke, Managed Portfolios and Psigma Platform Strategies Diversified and highly disciplined approach to risk Consistently protecting the real value of client assets Defaqto 5 Star rated for five consecutive years

29 Protecting Assets in Extreme Markets Demonstration of how we have helped safeguard our assets against downside impacts Core Balanced Strategy Portfolio in grey against the same return series for the FTSE All-Share Index in gold Global Financial Crisis European debt crisis contagion Chinese devalued currency, commodity markets plummeted and EU Referendum in the UK resulted in continued volatility. Source: Psigma, Bloomberg

30 Growing the Real Value of Client Portfolios Some thoughts on Investment What we see and what we do

31 Why do we invest? To achieve a desired outcome which will involve beating inflation -50%!! -50%!! 31 Source: Bloomberg. 31/12/1989 to 31 March Global Equities as per MSCI Local Index total return.

32 Global Growth is Not at the Races 32 Source: The Economist

33 Core bond market valuations are at extremes.. 33 Source: Bloomberg / Psigma

34 The Challenge for Investors (Most Assets are Expensive) US S&P 500 Shiller Price to Earnings Ratio (Blue) & US 10 Year Bond Yield (Red) 34 CAPE has only been this high twice before in 146 years of data Doesn t mean game is up: got to 44 in late-1999, but.. Does and future returns are going to be lower, and Puts much more emphasis on growth, earnings and policy Source: Shiller website / Psigma

35 Central Bankers are on-side, but have done their bit 690+ interest rate cuts since Lehman Over $12.3trn Financial Assets purchased by Global Central Banks $23.4trn Central Bank balance sheets expanded (greater than GDP of US & Japan combined) 35 Over $13.4trn global bond yields less than zero Source: businessinsider, google images, yahoo finance. Numbers accurate at 31/12/16

36 Over to the Politicians 36

37 What Do Future Returns Look Like? A Traditional Approach No Longer Makes Sense Taking the well-trodden route sets you up for a fall Source: Psigma / Bloomberg

38 We have a plan! If you don t know where you are going, you will probably end up somewhere else, - Laurence J Peter A sensible plan should include Goals and Objectives (discipline) Risks (inflation) An agreed judgement of success 38

39 Our process forces us to be brave.. 39

40 Japan: Favourable cycle supports valuations No Swimming! No Swimming! No Swimming! No Swimming! I will change the time periods here and do in excel so it looks better 40 Cycle is supportive: Central bank is easing Earnings growth is evident Corporate reform is underway Valuations are solid Sentiment is bearish Source: Goldman Sachs

41 Asia: Contrarian value No Swimming! No Swimming! No Swimming! No Swimming! I will change the time periods here and do in excel so it looks better Market is cheap and under-owned! 41 Source: Blackrock

42 Healthcare: Tapping into the Demographics Over 65 Population Needs and Demands More Healthcare 42 Source: Polar Capital Investments

43 The Changing Shape of Psigma Portfolios Psigma Balanced Asset Allocation 31 st December 2015 vs Current Asset Allocation 50% Asset Allocation 31st Dec 2015 Asset Allocation 4th April % 40% 39.0% 30% 20% 15.0% 15.0% 10% 0% 0.0% 6.5% 6.5% 2.5% 10.0% 5.5% 5.0% 7.5% 7.5% 5.5% 2.5% 2.5% 2.5% 1.0% 1.5% 0.0% 12.0% 10.0% Cash Sovereign Debt Investment Grade High Yield Index Linked Developed World Equity Emerging Market Equity Property Resources Gold Alternatives Adding diversification and decreasing risk Taking profits and reducing risk into rising markets Reduction of contrarian investments and interest rate sensitive themes 43 Source: Psigma as at 4 th April 2017

44 What Can Kill This Old Bull? Old age X Valuations X Policy? Central Banks? Geopolitics? Over-heating economies X Enough question marks + contrarian sentiment indicators = caution! 44

45 Conclusion Beating inflation remains the name of the game Economic growth will be solid but not spectacular inherent hand-brakes remain! The equity bull remains in tact but needs supportive earnings and sensible policy Bond markets tread carefully! 45

46 What Does It Look Like? Core Balanced Strategy Performance to 31 st March Psigma MPS Balanced Global Equities -50%!! 46 Source: Interactive Data and Morningstar ARC PCI Report as at 31/03/2017. The data above represents the performance of the Psigma Managed Portfolio Service (MPS). Performance figures are shown net of underlying fund charges and net of Psigma Investment Management fees. ARC January 2017 figures are estimates. Psigma MPS AMC is 0.5% + VAT, deducted at 0.15% per quarter. Past performance is not a guide to future performance. Equities as per MSCI World in Local Currency.

47 Risk Warning & Disclaimer This document is prepared for professional advisers and is intended to provide information only. It is not intended to be construed as a solicitation for the sale of any particular investment nor as investment advice and does not have regard to the specific investment objectives, financial situation, capacity for loss, and particular needs of any person to whom it is presented. The investments contained in this document may not be suitable for all investors. The value of investments and the income from them can fall as well as rise. An investor may not get back the amount of money that he/she invests. Past performance is not a guide to future performance. Foreign currency denominated investments are subject to fluctuations in exchange rates that could have a negative or positive effect on the value of, and income from, the investment. This document has been approved and issued by Psigma Investment Management Limited Psigma Investment Management Psigma Investment Management Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales No FCA Registration No Registered office: 11 Strand, London, WC2N 5HR. A Punter Southall Group Company Psigma Investment Management, 11 Strand, London, WC2N 5HR, Telephone

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49 Regulatory Information We recommend taking independent advice before making any decision related to your pension savings or income from it. The information in this presentation is based on our understanding of current taxation law, proposed legislation and HM Revenue & Customs practice, which may be subject to future variation. This presentation is not intended to provide and must not be construed as regulated investment advice. Returns are not guaranteed and the value of investments may go down as well as up. Barnett Waddingham LLP (OC307678) and BW SIPP LLP (OC322417) are limited liability partnerships registered in England and Wales whose Registered Offices are at Cheapside House, 138 Cheapside, London, EC2V 6BW. Barnett Waddingham LLP is authorised and regulated by the Financial Conduct Authority and is licensed by the Institute and Faculty of Actuaries for a range of investment business activities. BW SIPP LLP is authorised and regulated by the Financial Conduct Authority. 49

50 Pension Planning Self-Invested Pensions

51 Agenda Pension planning opportunities for; Individuals aged under 55 Individuals over 55, but yet to draw benefits Individuals who are drawing benefits For everyone; Expression of Wishes Form Power of Attorney for pension schemes Any Questions? 51

52 Individuals under 55

53 Personal Contributions Annual Allowance (AA) is 40,000 for 2017/18 All Pension Input Periods aligned with tax year Maximum tax-relievable personal contribution still based on 100% of earnings (up to AA) or 3,600 gross if higher Does the MPAA or Tapering of AA apply? Carry Forward is still available, but now subject to 40,000 gross for all four years 53

54 Carry Forward Contribution Limits Tax Year Annual Allowance Maximum Possible Contribution 2011/12 50, , /13 50, , /14 50, , /15 40, , /16 40, , /17 40, , /18 40, ,000 54

55 Employer Contributions All Employer Contributions are paid gross Employer can treat the contribution as a deductible business expense against their corporation tax bill for the relevant trading year Provided that the contribution is part of a remuneration package paid wholly and exclusively for the purposes of the trade They are not limited to the employee s earnings But are still subject to the AA 55

56 Pensions Advice Allowance (PAA) PAA came into effect on 6 April 2017 Allows members and beneficiaries of DC pension schemes to take 500 taxfree from their scheme To redeem against the cost of provision and/or implementation of retirement financial advice Without incurring an unauthorised payment tax charge Individuals can only take 500 once per tax year, up to a maximum of three times in total 56

57 Pensions Advice Allowance (PAA) Retirement financial advice means advice in respect of the person s financial position, including their pension arrangements and the use of their pension funds Advice must be provided by a financial adviser regulated and authorised by the Financial Conduct Authority PAA is not mandatory - pension schemes have a choice whether to offer the allowance or not If offered the payment must be made directly from the Scheme Administrator to the financial adviser Members will have to self-declare how many times they have taken a PAA 57

58 Key Takeaway - One Are your clients aware of the Pensions Advice Allowance and how much they can contribute to their pensions? 58

59 Individuals over 55 But yet to draw benefits

60 Preparing to Draw Benefits.. Recommended that individuals seek guidance or advice As there are a number of benefit options Some of the options are irrevocable (e.g. annuities) The amount being crystallised also needs thought; What level of income is required? What other sources of income are available? Will the amount exceed the Lifetime Allowance? If so, do I need protection for my pension fund? What forms of protection are available? 60

61 Lifetime of the lifetime allowance (LTA) 2,000,000 1,750,000 1,500,000 1,250,000 1,000, , , ,000 0 CPI increases promised 61

62 Fixed Protection 2016 No deadline for Fixed Protection 2016 yet! Apply online via HMRC s portal but first Need to set up an account for HMRC online services Holders have a protected LTA of 1.25 million provided no contributions (or accrual) from 6 April 2016 Applies only if no existing forms of protection held - other than Individual Protection 2014 or 2016 Obtain a permanent reference number from HMRC (not a certificate) and quote this to Scheme Administrator before first drawing benefits 62

63 Individual Protection 2016 No deadline for Individual Protection 2016 yet! Apply online via HMRC s portal but first Need to set up an account for HMRC online services Can apply if pension wealth was over 1 million as at 5 April 2016 and Primary Protection or Individual Protection 2014 not already held Gives personal LTA of between 1 million and 1.25 million, and allows pension contributions/accrual to continue IP2016 may be lost through a pension debit on divorce Obtain a permanent reference number from HMRC (not a certificate) and quote this to Scheme Administrator before first drawing benefits 63

64 Key Takeaway - Two Consider which of the two current protection options might be appropriate for your clients 64

65 Several Options to consider Set up or top-up a Flexi-Access Drawdown fund (+ PCLS) Receive one or more Uncrystallised Funds Pension Lump Sums Only 7 BW SSAS members so far have taken up this option Buy a Lifetime Annuity and/or Flexible Annuity (+ PCLS) Top-up a pre-6/4/15 Capped Drawdown fund (+ PCLS) Scheme pension still possible, but out of favour (inflexible, and harder to close down or transfer) PCLS = Pension Commencement Lump Sum 65

66 Flexi-Access Drawdown Key Concepts PCLS paid separately as normal Unrestricted drawdown Withdrawals subject to income tax Withdrawals (not PCLS) triggers MPAA Short term annuities can be bought from funds Versions for members, dependants, nominees and successors Available from both SSAS and SIPP 66

67 Uncrystallised Funds Pension Lump Sum Key Concepts Taxed lump sum from unvested money purchase fund (*) Single payment: no concept of drawdown fund 25% is tax-free, 75% taxed as income (ignoring LTA issues) Payment of an UFPLS triggers MPAA Available to most members, but not beneficiaries Available from both our SSAS and SIPP (*) excludes funds relating to disqualifying pension credits 67

68 Uncrystallised Funds Pension Lump Sum Eligibility Most members can take an UFPLS - but not those with; Enhanced Protection and protected PCLS rights of 375k + Primary Protection and protected PCLS rights of over 375k Primary Protection and 0% to 25% PCLS rights Disqualifying Pension Credits, or lower than 25% PCLS rights Eligibility is restricted to avoid abuse of the 25% portion that is paid tax-free 68

69 Individuals who are drawing benefits

70 Capped Drawdown Options 1. Retain cap and scheduled income reviews Retains higher contribution allowance Can designate additional funds 2. Draw more than cap, and automatically convert to FAD 3. Request conversion to Flexi-Access Drawdown 4. Request conversion as part of transfer process Around 50% of our BW SSAS members have converted capped drawdown to Flexi-Access Drawdown 70

71 What happens at Age 75? A Lifetime Allowance test will take place On unvested funds - and any growth on vested funds Drawdown can continue beyond age 75 Switch from every three years to annually Can align different drawdown dates Death benefits tax regime alters Death benefits taxed at recipient s marginal income tax rate Or at 45% if paid to for example - a trust Contribution tax relief No tax relief for personal contributions paid on or after age 75 71

72 Key Takeaway - Three Clients may need advising as to whether to convert from Capped to Flexi-Access Drawdown 72

73 For Everyone

74 Cascading Drawdown Funds on Death Member Dependant or nominee Taxable if beneficiary dies aged 75 or over Tax-free if not Successor Tax-free if member dies under age 75 Taxable if not Successor Successor 74

75 Expression of Wishes Form Trustees need to be aware of all circumstances Ensure all information captured on a post-april 2015 Expression of Wishes Form CASE STUDY: Older couple on second marriage Both have children from their first marriage But no children together He nominates her and his children on his EoW Form She takes FAD pension income after he dies and then passes on.. His children then receive income - because nominated 75

76 Power of Attorney for Pensions Schemes A Lasting Power of Attorney (LPOA) allows someone else to make decisions for you whether mentally capable or not Property & Financial LPOA or Health & Welfare LPOA PROBLEM: An LPOA doesn t work for a Pension Scheme Trustee A Trustee Power of Attorney is required Section 25 of the Trustee Act 1925 allows a Trustee to grant a POA delegating their functions as a Trustee to their Attorney BUT: only last for 12 months and the other Trustees must be told 76

77 Power of Attorney for Pensions Schemes A TPOA permits instructions to be taken from the Attorney or the Donor (Trustee) provided Donor still mentally capable If mental incapacity suspected Trustee needs to retire Retire before incapable otherwise a (time-consuming and costly) application to the Court of Protection will be required A Section 25 TPOA is a specialist power and best drawn up by a Solicitor (rather than a DIY approach by the Trustee) 77

78 Key Takeaway - Four Ensure clients have reviewed and/or updated their Expression of Wishes Form 78

79 Questions Any Questions? 79