NEWSLETTER: Protection update and more reasons why everyone needs to save more

Contributed by MW Pensions [www.mwpensions.co.uk]

This Newsletter is intended as technical support for financial and other professional advisers. Members of the general public should not rely upon it

Fixed Protection 2014

The form to apply for FP2014 is now available on the HMRC website. The form can be completed and submitted online or by printing the PDF off and posting the completed form to HMRC Pension Schemes Services.

The relevant weblink is:

http://www.hmrc.gov.uk/pensionschemes/fp14online.htm

Applications for FP2014 must be received by HMRC by 5 April 2014. HMRC have advised that they will not send out any FP2014 certificates before 1 November 2013.

Individual Protection 2014

The consultation closed on 2nd September 2013. We do not know when HMRC will issue actual guidance on this. Watch this space!

But is there a need for HMRC to have a Lifetime Allowance at all?

It's worth standing back a moment. As a refresher, here is a history of the Lifetime Allowance:

2006/07   £1,500,000
2007/08   £1,600,000
2008/09   £1,650,000
2009/10   £1,750,000
2010/11   £1,800,000
2011/12   £1,800,000
2012/13   £1,500,000
2013/14   £1,500,000
2014/15   £1.250.000
2015/16   ???

This follows the introduction of – wait for it – "Pensions Simplification". Does HMRC expect the general public to understand this? The bottom line is that from next April the Lifetime Allowance will be £250,000 less than it was when it was first introduced a mere (in  pensions terms) 8 years ago.

And all this is at a time when the government is also trying to encourage people to save – see later in this newsletter for more good reasons for IFAs to be advising their clients to save for their retirement.

We also need to look at the Annual Allowance – here's its history:

2006/07   £215,000
2007/08   £225,000
2008/09   £235,000
2009/10   £245,000
2010/11   £255,000
2011/12   £50,000
2012/13   £50,000
2013/14   £50,000
2014/15   £40.000
2015/16   ???

This means that the Annual Allowance for the next tax year is £175,000 less than it was when it was first introduced 8 years ago and £215,000 less than it was just 4 years ago (is it symbolic that £215,000 was the initial Annual Allowance?).

The Liberal Democrats have already adopted as party policy a reduction in the Lifetime Allowance to £1,000,000.

But wait – if the Annual Allowance is £40,000, how many years does it take to accumulate £1M, let alone £1.25M (ignoring investment income)? You don't need an actuary to work that one out! In reality very few people can actually pay in £40,000 a year consistently for 10, let alone 20+ years.

It's a total nonsense having a Lifetime Allowance as well as a low Annual Allowance. We would ask that HMRC do away with the Annual Allowance altogether and simplify the extremely complicated pensions legislation in at least one small way.

The increasing need to save

We've written many times about increasing longevity and how that means IFAs need to encourage their clients to save more. The Office of National Statistics has recently published some more stark reminders about how we are all living longer. Look at the following:

• There are 12,032 people aged 100+ today compared 100 in 1913
• There are projected to be 22,000 aged 100+ in 2020 and 280,000 in 2050.
• A quarter of children today are expected to live beyond 100
• There are 465,000 people over aged 90, representing almost 1% of the population
• There are 3.3 women for every man over 90 and 8 women for every man over 100 (we make no comment!)
• Traditionally people got a telegram from the Queen on their 100th birthday. That has been changed to a card but, more interestingly, they now get a card every year from 105 onwards as well.
• The UK has one of the largest groups of "very old" people – 823 out of every 100,000 or one in 121 people are at least 90 years old.
• Japan has the highest proportion with 1,197 per 100,000.
• India has the lowest of the countries in the ONS survey with one in every 1,700 being 90+
• Sweden, France and Italy had a higher proportion of 90+ than the UK.
• Norway, Australia and the USA had less.

The bottom line is that £1 of annual pension from age 65 now costs somewhere between £25 and £30. So a pot of at least £250,000 is needed to provide an annual pension of just £10,000. Sobering, isn't it?

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

October2013