NEWSLETTER: New projection rates. Non-standard investments and QROPS after the Budget
Contributed by MW Pensions
08 April, 2014
Changes to Projection Rates
There are new projection rates for pensions, including SIPPs, effective from 6 April 2014:
We will be using these for all projections that we produce after 6th April.
We would remind you that IFAs who use our online SIPPs can do their own projections free of charge. Full details of this service and our online SIPPs, which are easy to use and extremely competitively priced are available at www.sippspecialists.co.uk
The FCA is currently carrying out its third Thematic Review of SIPP Providers. We had a visit from them in February and found it helpful and constructive. In particular they were happy with the processes and procedures we have in place for carrying out initial and ongoing due diligence on non-standard investments. We are one of a decreasing number of SIPP Providers who are willing to consider non-standard investments (not just UCIS) but they must pass our rigorous due diligence process. And we will only contemplate them for High Net Worth or Sophisticated Investors.
If an advisor wishes to consider a non-standard investment for one of their clients, please feel free to contact us. But be aware that we will initially ask two questions: why does the advisor think it is suitable for their client and can we please have a copy of the advisors own diligence? If it passes those two initial tests, we will carry out our rigorous and thorough due diligence.
It is expected that the FCA will issue the results of their third Thematic Review of SIPP Providers in late May or early June. Their new requirement for Capital Adequacy for SIPP Providers is expected to follow soon afterwards. Obviously we do not yet know what transitional period there will be for Providers to meet the new requirements. As advisors will be aware, the deadline for full implementation of the new Capital Adequacy requirements for Financial Advisors has recently been put back from 31st December 2015 to 31st December 2017. A similar timeline for SIPP Providers would be consistent and reasonable but we will have to wait and see.
FCA to review historic pensions sales by insurance companies
The FCA is to review sales of pensions, endowments, investment bonds and life insurance stretching back to the 1970s.
The FCA is concerned that insurers are exploiting long-standing customers, who are not given the same treatment as new clients and are left with high fees and poor service. The regulator will consider banning exit fees that can deter customers from switching to another provider. It is honing in on the practice of some insurers to use these closed 'zombie' funds to cover the costs of other areas of their business. As a result of this, shares in some insurers fell over 5%.
QROPS post the Budget
The radical changes to UK pensions from April 2015 announced in the Budget are likely to have an effect on the QROPS market.
We expect many of those who have permanently left the UK and who are over 55 and have relatively small UK pension pots to fully encash them, taking 25% tax free and paying UK tax on the balance 75%. That is likely to be a cheaper option than paying QROPS transfer and ongoing administration fees, plus they will get their cash sooner.
However, for those with larger UK pension pots, we expect the Budget to have little impact, as they will be interested in minimising their total tax bill and currency issues. Advisors will still need to ask their client the same fundamental questions:
- Where are they and their family likely to live for the remainder of their life? Will they stay outside the UK or are they planning to return to the UK perhaps if grandchildren are born or one of them dies?
- What do they consider as their residence and domicile
- If they are going to remain outside the UK, where do they expect to live? Where they are now or are they likely to move to another country
- What UK assets do they still have?
- How often do they expect to return to the UK?
- What is their tax situation?
- What are their income needs and in which currency?
- What is their inheritance planning?
If a QROPS transfer is still recommended, the advisor will need to consider which jurisdiction is most appropriate. We remind you that we can assist advisors on QROPS and QNUPS issues via our sister company QROPS Choice www.qropschoice.com
Gilt Yield for Drawdown
The gilt yields to be used for drawdown calculations are:
We do not give financial advice and no comments here are intended as such. The above information is based on our understanding of the legislation governing pensions at the time of writing. Before taking any action you should consult a qualified financial and/or tax adviser. Levels, bases of and reliefs from taxation may be subject to change.
This Newsletter is intended for professional advisors only, not members of the general public
Authorised and Regulated by the Financial Services Authority
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