THE HOME OF THE
PROFESSIONAL ADVISER
Retirement planning for
business owners
- in the light of Budget 2014
Retirement Solutions
2
The Learning Outcomes
To understand the:
Use of carry forward and changing Pension
Input Period end dates.
Limits on individual and company
contributions.
How to assess the available lifetime allowance
for clients with pre-commencement pensions.
Options available now and in 2015.
3
APD Consultants Limited
Fact file
The company is a successful specialist civil engineering
company with around 15 employees.
There are three directors and they are all UK residents.
• Dr. Alan Jackson is the Managing Director.
• His wife Pauline Jackson is Company Secretary and HR
Manager.
• Alastair Jackson (their son) is Finance Director.
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Pauline Jackson
Fact file
• Aged 58.
• Company secretary and director.
• Salary £30,000 a year.
• Personal pension started in 2007 – all
uncrystallised.
• Pension input period ends in July.
• Employer only contributions of £20,000 a
year each tax year since 2011/12.
For Financial Adviser Use Only
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Pauline Jackson
Objectives
• To find out what the maximum contributions
are to increase her pension provision as she
plans to retire next year.
Questions
•
•
•
•
How much can be paid into her personal pension as:
• An employee contribution?
• An employer contribution?
Could contributions be increased by amending Pension
Input Period end dates?
If third party contributions are paid by her husband would
he qualify for higher rate tax relief?
What are the issues around “wholly and exclusively”?
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Pauline Jackson - objectives
What do we need to determine maximum personal
contributions?
Tax year
Earnings
between 6
April to 5
April
Arrangement
PIP ending
Employer
contribution within
pension input
period
Total pension
input amount
2011/12
£26,000
XYZ Life
1 July 2011
£20,000
£20,000
2012/13
£27,500
XYZ Life
1 July 2012
£20,000
£20,000
2013/14
£29,000
XYZ Life
1 July 2013
£20,000
£20,000
2014/15
£30,000
XYZ Life
1 July 2014
£20,000
£20,000
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Pauline Jackson - objectives
What is the maximum employer contribution?
Tax year
Earnings
between 6
April to 5
April
Arrangement
PIP ending
Employer
contribution
within
pension
input period
Total
pension
input
amount
Annual
allowance/
deemed
annual
allowance
Carry
forward
available
from tax
year
2011/12
£26,000
XYZ Life
1 July 2011
£20,000
£20,000
£50,000
£30,000
2012/13
£27,500
XYZ Life
1 July 2012
£20,000
£20,000
£50,000
£30,000
2013/14
£29,000
XYZ Life
1 July 2013
£20,000
£20,000
£50,000
£30,000
2014/15
£30,000
XYZ Life
1 July 2014
£20,000
£20,000
£40,000
£20,000
Maximum contribution is £110,000
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Pauline Jackson - objectives
Is there any way to increase the maximum
employer contribution?
Tax year
Earnings
between 6
April to 5
April
Arrange
ment
PIP ending
Employer
contribution
within pension
input period
Total
pension
input
amount
Annual
allowance
Carry
forward
available
from tax
year
2011/12
£26,000
XYZ Life
1 July 2011
£20,000
£20,000
£50,000
£30,000
2012/13
£27,500
XYZ Life
1 July 2012
£20,000
£20,000
£50,000
£30,000
2013/14
£29,000
XYZ Life
1 July 2013
£20,000
£20,000
£50,000
£30,000
XYZ Life
1 July 2014
£20,000
£20,000
LV =
1 Dec 2014
£110,000
£110,000
£40,000
N/A
LV =
1 Dec 2015
£40,000
£40,000
£40,000
N/A
2014/15
N/A
£30,000
2014/15
2015/16
TBA
Maximum contribution is now £150,000
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Pauline Jackson
Outstanding questions
1. What rate of tax relief will her husband get
if he makes third-party personal
contributions for her?
2. Who should be involved in large employer
pension contributions?
Answers
1. Third-party contributions gain tax relief at
the member’s rate of tax ie: Pauline’s rate
not Alan’s.
2. The company’s accountant.
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Pauline Jackson
“wholly and exclusively” requirements
1. Employer contributions are not “relievable
contributions”.
2. She is a “connected employee” as married
to the MD.
3. Contributions need to be:
“in line with those that would have been
made for an unconnected employee in a
similar situation”.
4. Contributions must be paid before the end
of the company’s accounting period.
5. Reduce taxable profits.
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Handset Question 1
• Do you have clients that will need advice
between now and 5th April 2015 on Carry
Forward and Pension Input Periods?:
1. Yes
2. No
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Dr Alan Jackson
Fact file
• Aged 67.
• Managing Director (50% shareholding).
• Current salary £50,000 a year plus dividends.
• SIPP valued at £450,000 – started in July 2004 and
uncrystallised.
• No contributions since 2009/10 tax year.
• Pension in payment from Universities Superannuation
Scheme (USS) currently £40,000 a year which started
before 6 April 2006, when it was £30,000 a year.
• No other pensions.
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Dr Alan Jackson
Objectives
•
Wants to know if he has a potential lifetime allowance
excess problem.
Aims to retire and take SIPP benefits “in next few
years” using new drawdown option.
Has no plans for additional pension contributions
and applied for Fixed Protection in March 2014.
•
•
Questions
•
What is the current value of Alan’s pension scheme
benefits for lifetime allowance purposes?
•
•
Does the pre A-Day pension in payment count towards
the lifetime allowance?
Is there a potential excess problem?
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Dr Alan Jackson
Questions
1. Can the pre A-Day Universities
Superannuation Scheme
pension be subjected to a
Benefit Crystallisation Event?
2. Can this scheme have an
impact on any future Lifetime
Allowance Charge?
Answers
1. No.
2. Yes.
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Dr Alan Jackson
Questions
What is the current value of his pension
scheme benefits?
1. Pre A-Day USS pension in payment?
2. His SIPP?
Answers
1. £40,000 x 25 = £1,000,000.
2. Current value = £450,000.
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Dr Alan Jackson
Planning considerations
• The USS pension in payment is index
linked.
• Capital value may increase by the time the
first Benefit Crystallisation Event (BCE)
occurs.
• Current value of his pension benefits is
£1.45 million.
• Standard Lifetime Allowance fell from £1.5
million on 6th April 2014 to £1.25 million.
• May be worth creating a BCE?
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Dr Alan Jackson
Fixed protection
He applied for fixed protection in March 2014.
Individual protection
Should he apply for individual protection?
• Individual protection protects the value of his pension
benefits at 5th April 2014.
• Has until 5th April 2017 to apply but no downsides.
• Could protect him if he lost fixed protection!
Remember 55% tax charge still applies on lifetime
allowance charge!!
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Fixed Protection - Penalties
Individuals who applied for fixed protection (2012 or 2014) and
subsequently lose it by breaching benefit accrual rules need to advise
HMRC within 90 days or risk a fine of:
•
•
Up to £300.
And up to £60 a day thereafter.
What would be the impact on Alan if he lost Fixed Protection?
(Assuming value of his pension benefits remained at £1,450,000)
No Fixed Protection = £110,000 tax charge
With Fixed Protection = £0
With individual protection = £0
(any increase in benefits since April 2014 would be taxed)
Handset Question 2
• Do you have any clients for whom you
applied for Fixed Protection 2014, or
who will need advice on Individual
Protection?
1. Yes
2. No
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Alastair Jackson
Fact file
• Aged 35.
• Finance Director (20%
shareholding).
• Current salary £65,000 a year plus
dividends.
• In current tax year (2014/15):
•
•
Employer contributions of £10,000.
Member contributions of £5,000.
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Alastair Jackson
Objectives
• His wife has recently had a baby and he
wants to know if there is a way of
getting the Child Benefit. His wife does
not work at present.
Questions
• What pension related actions could be taken
to remove the child benefit income tax
charge, if any?
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Child Benefit Income Tax Charge
Fact file
•
This tax charge applies where one partner has
“adjusted net income” in a tax year of over
£50,000.
• For each £100 over £50,000, 1% of the Child
Benefit received is subject to the Child Benefit
Income Tax Charge.
• For couples where one earns £60,000 a year or
more, benefit of Child Benefit fully offset by
the tax.
Solution
• Reduce “adjusted net income” to £50,000 by making pension
contributions.
• Would a £10,000 (gross) contribution be adequate?
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Handset Question 3
• Will you be advising clients -with
earnings over £50,000 a year - on
maximising pension contributions
prior to the end of the 2014/15 tax
year?
1. Yes
2. No
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Planning now
•
•
•
•
•
•
•
Consider salary sacrifice.
Flexible drawdown for appropriate clients.
Fixed term annuity options.
Look at guaranteed funds.
Effective rates of tax relief?
Funding for capital needs in retirement too.
The future of tax relief?
• Is tax relief working? CPS Pointmaker
• General Election coming up.
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Planning from April 2015
• Freedom and choice.
• Risk of ruin.
• More higher rate tax payers than
ever before – how many fail to
claim higher rate tax relief?
• Need for advice greater than ever.
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Handset Question 4
• Following the 2014 Budget announcement,
LV= have developed a number of tools to
assist advisers. Which of the following would
you like further information on?:
1.
2.
3.
4.
Pension consolidation
Simplified at retirement advice process
Secure income options
All of the above
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The Learning Outcomes
To understand the:
Use of carry forward and changing Pension Input Period
end dates.
Limits on individual and company contributions.
How to assess the available lifetime allowance for
clients with pre-commencement pensions.
Options available now and in 2015.
Any questions?
LV= The Home of Secure Retirement
29
This is for financial advisers only
This presentation is based on our understanding of current legislation as at 21 October 2014 applicable in
England and Wales and HM Revenue & Customs practice which may change in the future. We cannot accept
responsibility for any action arising as a result of the information contained in this presentation.
Liverpool Victoria Friendly Society Limited, Keynes House Tilehouse Street, Hitchin, Herts, SG5 2DX.
LV= and Liverpool Victoria are registered trade marks of Liverpool Victoria Friendly Society Limited (LVFS) and
LV= and LV= Liverpool Victoria are trading styles of the Liverpool Victoria group of companies.
LVFS is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and
the Prudential Regulation Authority, register number 110035. NM Pensions Trustees Limited, (registered in
England No. 4299742), act as Trustees and Scheme Administrators. Authorised and regulated by the Financial
Conduct Authority, register number 463402. Registered address for all companies: County Gates, Bournemouth
BH1 2NF. Tel: 01202 292333
21444897 10/14 Not to be used after 5th April 2015