NEWSLETTER: SIPP opportunities, new investment challenges for IFAs and delays in SSAS registration
Contributed by MW Pensions
06 May, 2014
More new SIPPs to be written?
As advisors and their client begin to take in and understand the implications of the changes to pension introduced by the 2014 Budget, we believe it is inevitable that there will quite quickly be an increase in the number of new SIPPs being set up.
The reasons we say this are simple:
- There are generous tax reliefs on contributions – remember that a member gets tax relief at their marginal rate of income tax and a company gets Corporation Tax relief
- For the vast majority of people, the £40,000 Annual Allowance is perfectly adequate
- Given that the Annual Allowance is £40,000, the Lifetime Allowance of £1.25M is irrelevant to most people (and those that might be affected by it almost certainly will have taken out the appropriate Protection for a higher Annual Allowance for them)
- Most importantly, from April 2015 it is proposed that people will be able to take out as much as they want when they want, subject to only 2 criteria:
- They are aged at least 55
- They will be liable to tax on their drawings at their marginal rate of income tax – except that of course 25% of their fund can be taken tax free!
Might it get even better?
In an interview with the Daily Mail the pensions minister Steve Webb said the current system of tax relief gave greater incentives to save to higher rate tax payers. "Most people get 20% relief, some people get it at 40%. But the people who get it at 40% get shed loads. If you gave everybody 30% then that spreads it much more evenly. Clearly that is not government policy, it is not even Lib Dem policy yet - but I'm working on that."
Last year, the Pension Policy Institute said replacing the current system with a 30% flat rate would be revenue neutral for the government but "spread the advantages of tax relief more evenly"
In the same interview Mr Webb also said that the Lifetime Allowance was an "illiberal" concept
So might he, as pension minister, soon be proposing a policy of an across the board 30% tax relief level, and a removal of the Lifetime Allowance?
The right SIPP will be needed
We think that the “new world” will bring an increasing demand for “simple” SIPPs with transparent and competitive fees
For most people we believe that our AcornLite SIPP will serve the purpose:
- No set up fee
- Annual fixed fee of £275 + VAT irrespective of fund size
- No additional SIPP fees for any investment transactions
- Investments allowed are cash plus up to 2 Regulated investments, which can include a platform and/or a Discretionary Fund Manager
What about property and other non-standard investments?
A number of SIPP Providers are withdrawing from the commercial property market and many more have already withdrawn from the UCIS/unregulated market. We still allow both, via our Insight SIPP, the basic fees for which are a set up fee of £200 + VAT and an annual fee of £500 + VAT. There are additional property/UCIS/unregulated investment fees – please just ask us for the full fee list.
However, please be fully aware that we have rigorous procedures that must be followed before we will allow a property purchase to be made. We also require that full due diligence to be carried out on any proposed unregulated investment such as a UCIS, this due diligence being to a standard acceptable to the FCA as well as to ourselves. And we are not afraid to say “no”.
New investment considerations for IFAs?
The greater freedom to draw income from April 2015 is likely to have a profound effect on the investment advice that IFAs give their clients. More clients will, we suspect, be looking for shorter term and more liquid investment options post age 55. A 10 or 15 year TIP may no longer be suitable for a 55 year old client, for example. And what about those clients who already have say a 10 year investment with a further 8 years to go to maturity and who would now like to be able to take a significant drawdown say in 2016. IFAs may have to review some existing portfolios.
Delays in registration of new SSASs by HMRC
There are currently long delays in getting HMRC to register new SSASs. Whilst this is frustrating for us and other practitioners, not to mention the clients and their advisors, there are very good reasons for this. It appears that a number of new SSASs have allegedly been set up in order to facilitate pension busting. Often these are one member SSASs with the member being the sole trustee ie there is no Professional Trustee and also the Scheme Administrator. If IFAs come across such a scheme, we advise extreme caution.
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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