Linking Benefits Programmes Background

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(No Transcript)
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Linking Benefits Programmes- Background
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Background

• 1980
• SAYE Schemes launched
• 2000
• SIP Scheme (AESOP) Launched
• 2004
• Employer Task Force Report

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Linking Share Schemes to PensionThe SIP
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SIP SIPPExample assumes no employer matching
and no share price increase over 5 years
SIP
SIPP
Share incentive plan
Self Invested Personal Pension
Tax / NI Relief
256 uplift through double tax relief !
128
Net Contribution
Additional Tax Relief Of 18 - Rebate 23
100
100
59
Brings net outlay down from 59 to 36
36
0
5 years
TIMELINE
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SIP SIPPAssuming a 11 share match in Stock,
assuming 30 increase in share price over next 5
years

• Initial outlay of 59 for Higher Rate Taxpayer
  buys 100 stock
• (40 tax relief and 1 National Insurance Relief)
• Matched 11 means employee gets 200 stock in SIP
• 5 years on stock increased by 30
• Value now 260
• Used as contribution to SIPP

• Uplifted to 333 by addition of Basic Rate Tax
  Relief at source
• Higher Rate relief at 18 granted via tax return
  tax rebate of 60
• But, initial outlay only 59

• NEGATIVE NET COST OF 1 TO CREATE PENSION POT OF
  333

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SIP SIPP
SIP
SIPP
Share incentive plan
Self Invested Personal Pension
333
( 60 tax rebate )
Matched Shares
Tax / NI Relief
Net Contribution
260
200
100
59
0
5 years
-1 Cost
TIMELINE
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Linking SIP to Pension Longer Term

• Basic Rate Taxpayer
• Saving Capacity Approximately 80 per month
• Saving for the Longer Term 30 years
• Two Options

1 Direct Investment into Pension Net Outlay of
80 Gross Pension Contribution 102 (22 Basic
Rate Tax Relief)
2 Investment into Pension via SIP Net Outlay of
80 Share Value Purchased 119 (22 Basic Rate
Tax Relief plus 11 National Insurance
Relief) Assuming no share price change Used
later as a pension contribution- Gross Pension
Contribution 152 (22 Basic Rate Tax Relief)
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Pension vs SIP Pension - Longer
TermAssuming 5 Growth per annum in investments-
personal net saving 80 pm
Fund Value 127,000
A- Pension Contribution Alone
B- SIP - Pension Contribution
Fund Value 85,000
30 years
NB Assumes Basic Rate Tax Relief of 22 on
Pension, 22 tax 11 NI relief on SIP continues
throughout life of saving
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Pension vs SIP Pension - Longer Term
and where the company offers a matching share
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Pension vs SIP Pension - Longer
TermAssuming 5 Growth per annum in investments-
personal net saving 80 pm With a 1 for 1 Share
Match
Fund Value 254,000
A- Pension Contribution Alone
B- SIP - Pension Contribution
Fund Value 85,000
30 years
NB Assumes Basic Rate Tax Relief of 22 on
Pension, 22 tax 11 NI relief on SIP continues
throughout life of saving
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Why not link?

• Need to amend scheme rules
• Costs involved in additional administration
• Limits on Company Stock held in Occupational
  Scheme
• Annual Contribution Limit
• 15 AVC, capped at 105,600
• Maximum contribution 15,840

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The Missing Link
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Pensions Simplification

• Limits

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Pensions Simplification

• Annual Contribution now 100 Earnings
• Up to 100 (or more!) of tax paid can now be
  reclaimed
• Includes
• Salary
• Bonus
• RSUs

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Pensions Simplification

• Limits
• Annuity purchase no longer required

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Traditional Annuity
Pension Fund at Retirement
25- TFC
75 - Annuity Purchase
Disadvantages of annuity Annuity Rate Tax Free
Cash now largely taxable Death Benefits No
future tax free growth
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21st Century Thinking
Pension Fund at Retirement
Cash
Unvested
Income
Disadvantages of annuity Annuity Rate Tax Free
Cash now largely taxable Death Benefits No
future tax free growth
x
x
x
x
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21st Century Thinking
Pension Fund at Retirement
Vested Portion
Cash
Unvested Portion
to age 75
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Pensions Simplification

• Limits
• Annuity purchase no longer required
• Concurrency

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Instividualisaton
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Instividualisation
Institutional
Individual
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Instividualisation
Insti
vidual
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Instividualisation
Insti
vidual
Bringing the benefits of the economies of scale
normally available at the institutional level to
the individual through increasing use of
technology
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The Workplace SIPP
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The Workplace SIPP
Group SIPP Tax Wrapper
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Workplace SIPP Tax Wrapper

• Required Functionality
• Personal contributions
• Employer contributions eg Salary Sacrifice
• Group Contributions
• Lump Sum Contributions eg Bonus
• In Specie Contributions from Shareschemes
• RSUs
• Legacy Scheme Transfers

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The Workplace SIPP
Group SIPP Tax Wrapper
Comprehensive Investment Platform
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Workplace SIPP Investment Platform

• Required Functionality
• Hold Company Stock
• Diversify
• Self Select
• Discretionary Management
• USP / ASP
• Vested / Non- Vested
• Balanced Portfolio
• Cash
• Bonds
• Equities

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The Workplace SIPP
Education Communications Programme
Group SIPP Tax Wrapper
Comprehensive Investment Platform
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Workplace SIPP Education

• Why is it needed?
• Take up of Pensions
• Take up of Share Schemes
• Information vs Education
• Education
• Seminars
• On- line tools
• Webcasts/ Webinars
• Podcasts

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The Workplace SIPP
Strategic Tax Investment Planning
Education Communications Programme
Group SIPP Tax Wrapper
Comprehensive Investment Platform
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Workplace SIPP Strategic Planning

• Why is it needed?
• More complex personal financial circumstances
• Holistic Tax Planning
• Understanding of the underlying vehicles
  interplay

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The Workplace SIPP Four Cornerstones
Individual
Strategic Tax Investment Planning
Education Communications Programme
Group SIPP Tax Wrapper
Comprehensive Investment Platform
Institutional