Pension Simplification are we nearly there yet'''

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Pension Simplificationare we nearly there
yet?...

• Tom Ryan
• Compliance Training Manager
• IFG Financial Services Ltd

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History

• 10th December 2002
• A-day was announced
• One regime
• To replace 8 old ones
• Simplify everything

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Current Rules

• Occupational Schemes
• Final Salary
• Money Purchase
• Contracted in/out of S2P (Second state pension)
• Earnings Cap Finance Act 1989
• Max Pension
• n/60 X final salary, max is 2/3rds
• Max Tax Free Cash
• 3n 80ths basis, max 1.5 times salary

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Current Rules

• Retirement Annuity Plan (RAP)
• Some have guaranteed annuity rates known as GARs
• Otherwise whatever it will buy
• Tax free cash calculation complicated
• Min age is 60
• Personal Pension Plan (PPP)
• Whatever it will buy
• Annuity or Drawdown
• Tax free cash is 25 of non protected rights fund
• Min age is 50

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New Rules

• Fund limit for EVERYONE
• Based on 2/3rds X earnings cap as a maximum
  pension (calculated as 75,000) ???
• What will it cost to buy this?
• Multiply by 20 (using a 5 annuity rate)
• 1.5 million
• Max you can have to avoid tax charges

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New Rules

• The 1.5 million is known as the lifetime
  allowance
• We know this for the first 5 years of its life.
• Then.?
• It will be reviewed.

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New Rules

• Contributions
• Link between earnings/age/retirement date all
  GONE
• Just a monetary limit of 215,000 pa
• We know how this will change for the first 5
  years, then it will be reviewed
• From Employer
• Or up to earnings for employee
• If earns 45,000 and pays in 45,000 will get
  full tax relief
• If more than 215,000 paid in, the excess is
  taxed at 40

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New Rules

• Also given a lot of freedom about what to invest
  in
• Residential property
• Art/Antiques/Classic Cars/Stamps
• Coins/Fine wines etc etc
• U-turn by Gordon Brown 5th December 2005, pre
  budget statement.
• Now prohibited Investments

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New Rules

• Tax Free Cash
• 25 of the fund
• (if entitled to more than this before A-day, it
  can be protected)

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What you need to do - NOW

• Retirement Annuity plans
• If a GAR is in place, the tax free cash could be
  more than 25 of the fund, NOW
• Cannot be protected through A-day
• Lose GAR if taken now
• Plans linked to mortgages REVIEW
• GAR usually at a specific date worth waiting
  for?
• Max conts now not limited by earnings cap
• Use Carry forward/Back ??

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What you need to do - NOW

• Retirement Annuity Plans
• Min age 60, will be 50 after A-day and 55 from
  6th April 2010. Any clients who will benefit?
• With Profits Funds?? MVAs in force??
• In Trust??
• Fund greater than 1.5M NOW?
• Transitional protection
• Old plans any still in force? BEWARE !!

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What you need to do - NOW

• Personal Pensions
• Near or over the lifetime limit ??
• Transitional protection
• Use of Carry Back (will disappear from A-day)
• Any clients who have recently moved abroad who
  were paying into a PPP or Stakeholder?
• Can still pay in under basis year rules

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What you need to do - NOW

• Money Purchase Schemes
• EPP/COMPS/CIMPS
• Fund for CASH
• Tax free cash more than 25 of the fund
• Pre 87, over limit can still fund, AND protect
  from tax charges !!

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What you need to do - NOW

• Money Purchase Schemes
• TRUSTEES need to consider
• What scheme offers NOW
• How this fits with new rules
• Package after A-day
• Changing scheme rules/new booklet
• Communicating to members
• Running costs

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What you need to do - NOW

• Doctors Dentists
• Extra Statutory Concession A9
• Disappears after A-day
• Full concurrency applies
• Is any protection needed for large funds?

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What you need to do - NOW

• Protected Rights and AVC/FSAVC
• No tax free cash option at present
• 25 from A-day
• Any clients due to retire shortly?
• Max contributions NOW more tax free cash

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What you need to do - NOW

• Self Invested Personal Pensions
• SIPPs
• Borrowing limits better BEFORE A-day
• 75 v 50 post A-day
• Drawdown now 35 to 100 of GAD rates
• Will be 0 to 120 REVIEW with client
• No need to purchase an annuity at age 75
• Can now have Alternatively secured pension
  instead (drawdown after 75)

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What you need to do - NOW

• Small Self Administered Schemes (SSAS)
• Borrowing limits more generous BEFORE A-day
• Protection for large funds
• Maximum contributions before A-day
• Particularly if protection needed
• No lump sums after age 75

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What you need to do - NOW

• Section 32 Policies
• REVIEW now
• Will the policy do what the client needs?
• Self investment
• Drawdown
• CHECK!!

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Pensions Simplification

• Review any clients who have a fund over or near
  the lifetime limit
• Primary protection
• Enhanced protection
• 6th April 2009 deadline
• FSA expect us to contact clients and keep them
  informed
• Treating Customers Fairly !!

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Endowments Mis-selling

• Most mis-bought not mis-sold
• Pension review 12,000,000,000
• Endowments 16,000,000,000 so far

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Endowments

• Main reasons for complaint
• No options given
• Guaranteed to pay off mortgage, plus surplus
• Attitude to risk not right for with profits
• Ability to keep up payments (ie going into
  retirement)
• Fees/Charges and how they affect returns
• Cancel one policy to take out another
• Long term commitment, poor returns if cashed in
  early
• Future house purchase

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The Winners

• Claimants
• Ambulance chasers
• Travel Agents

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Pre 29th April 1988

• Date Financial Services Act 1986 came into force
• Look at the common law position at the time
• Duty to act with reasonable care and skill
• Utmost good faith
• Contract Law
• Misrepresentation

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Attitude to risk

• No risk or Low risk ? What is documented?
• Look at investors whole circumstances
• Age
• Occupation
• Previous mortgage history
• Affordability and sustainability
• Other investments

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No client file?

• Recreate it !!
• Get client to complete a questionnaire, much the
  same one as available from FOS
• You may get lucky !!
• Letter of authority for insurance company
• Write and get information from them

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Extras

• Firms policy at the time
• Letters and illustrations given to client
• Statements from the adviser involved at the time

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FOS approach

• Consistent
• Flexible
• No indication of pre judgment
• Follows guidance issued by the regulator

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Statistics

• 70,000 complaints expected for 2005/06
• Increase of 34 on previous year
• IFAs 13
• General Insurers 6.5
• Banks Building Societies 35
• Insurance Companies 42

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More Stats

• 80 of complainants are 35 to 64 years old
• 72 of these are Male
• North West England 10
• Daily Mail is the most popular paper

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• Any
• Questions ?