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What should advisers be doing differently with their pension clients in 2015?
As we enter the New Year, a time for resolutions to be made, many advisers and their clients will be reviewing the changes in the pension legislation, which come in to force in April 2015, and how the changes will impact their current planning.
Kerry Houghton, SIPP & SSAS Business Development Manager, has identified the key themes that advisers and their clients need to be aware of as we approach the changes in April 2015.
Individual Protection 2014
For individuals who have a fund value of £1.25 million or over in a money purchase scheme, or an equivalent value in a defined benefit scheme, as at 5th April 2014 and still wish to accrue benefits consideration should be given as to whether they apply for Individual Protection. It allows them to secure the value of their benefits up to a limit of £1.5 million as at 5th April 2014 without paying excess tax charges when they draw it. They are still able to accrue benefits in new schemes but would pay tax charges on anything above the figure secured as at 5th April 2014 or the lifetime allowance if higher. This exercise needs to be done prior to the 5th April 2017.
Clients aged over 55 currently uncrystallised
For clients aged over 55 who are currently uncrystallised it may be worth considering if they should take benefits from a small proportion of their funds prior to 5th April 2015. This would ensure that they were crystallising under capped drawdown rules and any further crystallisation events within the same scheme would also be done under capped drawdown. This would ensure that those individuals retain the full annual allowance currently £40,000 as opposed to being forced into the new money purchase annual allowance of £10,000.
Taking pension benefits from other providers post April 15
Advisers should ensure that none of their capped drawdown clients are careless with any correspondence they receive from other pension providers. Advisers may not even be aware of some smaller forgotten pension funds. If completed and returned without advice it could result in clients taking benefits through the new flexible access arrangements and this would trigger the new money purchase annual allowance of £10,000, across all schemes.
Changes to death benefits
With the improvements to the tax rates paid on death within pension schemes i.e. completely tax free prior to 75 and taxed in the hands of the recipient post 75 consideration ought to be given to building pension pots further for those clients with inheritance tax issues. Pensions are looking increasingly attractive for passing funds down the generations in order to mitigate IHT issues. We anticipate that many clients will prefer to withdraw personal assets thus potentially reducing their IHT bills over and above withdrawing income from the pension fund. We may therefore see a decline in those taking regular payments from their pension schemes. In addition those who were in a position to still contribute whilst having drawn benefits may wish to do so subject to the lifetime allowance charge. Where contributions had not historically been considered they may now look attractive.
Also in light of the flexibility and the vast range of beneficiaries that could receive pension benefits we encourage you to speak to all your clients and get them to update their Expression of Wishes. This will assist with the payment process in the event of death and help your pension administrator’s deal with matters as efficiently as possible.
A brief checklist for advisers – if the answer to any of the questions is YES or NO then action needs to be taken.