The Autumn Statement 2012
Contributed by MW Pensions
10 January, 2013
Contributed by MW Pensions.[www.mwpensions.co.uk]
There were 3 changes to pensions announced in the Autumn Statement:
- Reduction in Annual Allowance
- Reduction in Lifetime Allowance
- A return to a maximum drawdown of 120% of GAD.
We look at each of these in detail
Reduction in Annual Allowance
The Annual Allowance will be reduced to £40,000 from the 2014/15 tax year. It will affect Payment Input Periods (PIP) that end on or after 6th April 2014. So for a PIP ending on 31st December, a contribution in January 2014 will count towards the new reduced maximum of £40,000.
There are no changes to the carry forward arrangements, so unused Annual Allowances in the previous 3 years can still be used
Reduction in Lifetime Allowance
The Lifetime Allowance will be reduced to £1.25M from the 2014/15 tax year.
There will be a new Fixed Protection regime available for those who think they may be affected by the reduction to £1.25M. It will work the same way as the existing Fixed Protection Scheme and will require that those who have this new Fixed Protection can have no pension contributions paid for them after 5th April 2014 (this includes personal contributions, employer contributions and contributions by other third parties). Details of how this new Fixed Protection can be applied for will be released after the Finance Act 2013 is enacted (which is expected to be July 2013). Anyone with any existing form of Protection will not be eligible for this new one.
Rather worryingly, this new Protection will be called Fixed Protection 2014 which suggests that there may well be further reductions in the Lifetime Allowance in future years, that will give rise to Fixed Protection 2015, Fixed Protection 2016 etc.
HMRC are also going to consult on the feasibility of introducing Personalised Protection whereby the existing £1.5M Lifetime Allowance can be retained but with additional accrual permitted. This would be available for those with pots in excess of £1.25M.
The joys of Pensions Simplification!
Drawdown and 120% of GAD
Legislation will be introduced to increase the capped drawdown limit for pensioners of all ages from 100 per cent to 120 per cent of the value of an equivalent annuity. Draft legislation and a Tax Information and Impact Note (TIIN) will be published in January 2013.
Changing SIPP or SSAS Provider
Our proposition has always been service led. We believe in quality administration provided by professional staff, coupled with personal service. Advisors and clients always deal with the same team of administrators. We couple that with providing this at a competitive price. We may not be the cheapest but we believe we offer the best value for money.
One of our philosophies is that we remove barriers. So if someone has an existing SIPP or SSAS, we do NOT charge a take on fee. Our view is that the client will have already paid one when they set up their SIPP or SSAS, so why should we ask them to pay for a second time just so that they can transfer to us?
We must be doing something right, because we are finding an increasing number of existing SIPPs are coming to us. We always like to find out why this is and the answers are interesting.
For SIPPs, we find that the prime reason is service. We find that advisors look for efficient personal service - which is precisely what we offer!
For SSASs, increasingly we are finding that it is price led as many other SSAS Providers seem to be hiking their fees significantly (perhaps because they are concentrating on the SIPP market rather than the SSAS market: but that is their decision). Like SIPPs, SSASs receive personal service.
We appreciate that advisors have to justify to their client any recommendation to move to a new SIPP or SSAS Provider. And if our fees are higher than those of the existing Provider that can be a potential problem. However, we would ask advisors to also consider:
- The service being provided for the fee is it a personal service or a call centre
- Are they comparing like with like? For instance does the existing Provider have additional non-transparent charges eg by taking a turn on the bank account or on investments? We do not. [See also our section on Hidden fees below.]
- Is the existing Provider causing extra work for the advisor because of their inefficient service? This may mean that the advisor would be forced to increase their own fees to the client to cover these extra (avoidable) costs. And these costs could be higher than the net increase in direct SIPP fees. This may be particularly pertinent post RDR.
- How strong is the current Provider? The FSA are closely looking at Capital Adequacy we have over twice the minimum FSA-required capital.
- Do you know the SIPP provider personally? One of our IFAs recently (very kindly) told us that one of the reasons they use us is that they trust us.
Numerically, the vast majority of new SIPPs over recent years have been small SIPPs typically less than £100,000 and often less than £30,000,
These have been in two main areas:
- Joe Public going direct, not using an IFA, and setting up an online SIPP with one of the well-known providers of such general public SIPPs. This is not a market we (or indeed the IFAs we deal with) are in.
- Thousands (yes thousands) of small SIPPs (typically £20,000) set up to invest in UCIS. Most of these we believe are a disaster waiting to happen. There are already well-known and public examples such as Sustainable Wealth. Most of these were not HNW or SI investors
We believe that post RDR new SIPPs will substantially be for HNW and SI clients. In other words, SIPPs will go back to what they were originally for the better off.
Accordingly, going forward, we have 3 main types of SIPP for new clients:
- Acorn Lite, which allows cash plus up to 2 regulated investments (which can include a DFM and/or platform). There is no set up fee and the annual fee is £275 VAT. We believe this is extremely competitive and will be suitable for the majority of an IFAs HNW/SI client base.
- Insight SIPP, which is effectively a full SIPP and will allow a wide range of investments. There is a £200 set up fee and an annual fee of £500 (both plus VAT). This will be appropriate for an IFAs more complex clients
We believe that these 2 products will cover the vast majority of an IFAs clients. All have personal service. There is no minimum or maximum fund size. And the fees are extremely competitive. And remember for existing SIPPs (and indeed SSASs) we charge no transfer/set up fee.
Please contact us for more details of any of the above SIPPs.
We make no apology for returning yet again to this subject.
We have never taken any commission on investments in our SIPPs or any turn on bank interest. Many other SIPP providers do. Recently John Moret, of MoretoSIPPs has issued comments on the FSAs disclosure requirements that will force SIPP Providers to disclose interest retained on bank balances.
Moret says from my experience of the industry interest retained on cash balances can account for at least a third of the operators overall revenues (in one of two cases I believe it may be higher) the rest comes from charges and perhaps other commissions. Note the last comment re other commissions from investments, platforms etc. We reiterate IFAs must check how whether the SIPP Provider they use takes any hidden income.
As Moret says, theres one simple back of the envelope check. Multiply their total number of SIPPs with their average SIPP fee and the difference between that and their total income is what they get from hidden fees. It works for us, as the hidden fee income is a big fat zero!
We are finding an increasing interest from some IFAs in Flexible Drawdown as a result of the low maximum income available under Fixed Drawdown. Typically it is for clients with in excess of say £500,000 and who are over 65, so they have a significant State Pension that counts towards the £20,000 Minimum Income Requirement. In many cases, the plan is for the member to withdraw as much as possible each year without going into the highest income tax band.
However, a number of SIPP providers are seemingly not offering Flexible Drawdown, so we are finding we are taking over SIPPs in order to facilitate that option. IFAs may wish to bear this in mind. Our fees for Flexible Drawdown are £250 VAT.
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
MW Pensions Ltd
Oaklands Park, Hooton Road
Hooton, South Wirral
Tel: 0151 328 1777 Fax: 0151 328 0707
Authorised and Regulated by the Financial Services Authority
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