Transcript Document

Pension decumulation
Claire Trott
Pensions Technical Manager, Suffolk Life
Agenda
• Background
• Capped Drawdown
• Flexible Drawdown
• Investing for Drawdown
HAPPY PENGUINS?
Why are we here?
Drawdown changes 2011-2012
Changes to age 75 rules
Rise of flexible drawdown
What do we want to achieve?
Reaffirm knowledge of implications of capped
drawdown changes – Tax issues
Be confident in complexities of flexible
drawdown
Review issues of investment for drawdown in
these difficult times
Capped Drawdown
Scenario
•
Female, aged 62
•
FV = £500,000
•
Wants max Pension Commencement Lump
Sum
Questions
1.
What is her Max GAD today
2.
What would it be if the gilt yields remained the same
but she chose to wait until Jan to crystallise?
3.
List the circumstances that would cause the Max
GAD to be recalculated/reduced
4.
List some reason why Capped DD is still suitable
even at reduced GAD rates
Model answers 1
•
Max gad is £17,250
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Fund value used = £375,000
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Gad Rate, based on age, gender and FV = £46
per £1000
Model answers 2
•
The interim gender neutral tables should
be used
• This means males table
•
•
•
Max gad is £18,375
Fund value used = £375,000
Gad Rate, based on age, gender and FV = £46
per £1000
Model Answers 3
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•
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Buy a lifetime annuity with part of the fund
Buy a scheme pension with part of the fund
Pension sharing order placed on the
drawdown
Crystallise further funds into the same
drawdown arrangement
Model answers 3 - bonus points
•
Transfer from one RPS to another if you are
crystallised before April 2011
• Will also mean a move to 100% GAD from 120% and
move to triennial reviews
•
At their request, although this will only be at
the anniversary of the pension year.
Model answer 4
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Retained control
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Improved death benefit options
• Investment control
• Future retirement options
• Not locked into current rates
• Ability to take advantages of future improvements
• Lumps sums
• Flexibility for spouse
Flexible drawdown
Scenario - Martin
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•
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Male aged 70
Partially crystallised in Drawdown in February 2005
Review of limits in June 2011
•
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Max GAD now £20,000
He has:
•
•
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state pension benefits of £7,000
Final salary pension currently £15,000pa increasing annually
by 5%, in payment since age 60
£500,000 uncrystallised funds
Questions
•
•
•
Give an overview of the basic conditions for Martin to
enter flexible drawdown
List reasons for entering Flexible other than to strip
the fund
Martin meets the conditions and enters flexible taking
an income of £100,000 from his fund, when he
crystallises his remaining fund in October 2012, how
much lifetime allowance is remaining following this
crystallisation
Model answer
Model answer 1
1. No contributions (personal or third party) or
accrual in a DB scheme have occurred in the
tax year in which declaration is made
2. One payment of each income used for MIR
has been received
3. The whole MIR (£20,000) will be received in
the tax year of the declaration
Model answer 2
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Protection of death benefits
• Crystallise less to receive same income
• Leaves more uncrystallised for death lump sum pre 75
•
•
Reduction in fees for triennial reviews
Maximising income in tax rate band
• Possible gifts from income - IHT
Model answer 3
First crystallisation since A-day, need to test pre
A-day benefits
25 x £20,000 = £500,000
25 x £15,000 = £375,000
Lifetime allowance reduced by £875,000 = 58.33%
BCE 1 = £375,000 = 25.00%
BCE 6 = £125,000 = 8.33%
Remaining LTA = 100 - (25+8.33+58.33) = 8.34
Monitor increases in pre A-day benefits!
Investment in drawdown
Scenario
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•
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Male, Age 62,
Not looking to annuitise for at least 10 years
Fund value = £500,000
Going to take maximum PCLS
Max Gad of £18,750 but only looking to take
income of £10,000pa.
He is a medium risk profile.
Model answer
Thanks to Brooks Macdonald Asset
Management
GAD rates . . . built on Gilt Yields
Source: Bloomberg, September 2012
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Income segregation
Source: Brooks Macdonald, 2012
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Asset allocation
Structured returns, 10% Alternatives, 4%
Fixed Interest
Alliance Trust Monthly Income Bond Fund
International &
Cash, 10%
AXA Framlington US Short Duration HY Bond
Thematic, 12%
Fund
UK Equity
Lindsell Train UK Equity Fund
Japan, Far East and
Montanaro UK Smaller Companies Trust
Emerging Markets, 5%
UK,Fixed Interest, 11% North America
Threadneedle American Fund
Europe
Henderson European Special Sits Fund
Japan, Far East & Emerging Markets
Newton Asian Income Fund
International & Thematic
North American Equity,
John Laing Infrastructure Fund
10%
Internation, Fixed
M&G Global Dividend Fund
Interest, 12%
UK Equity, 19%
Property
European Equity, 3%
Braemar Ground Rents Fund
Structured Return
IFSL Brooks Macdonald Defensive Growth Fund
Source: Brooks Macdonald Asset Management
Property, 4%
Dividends matter – Global returns from
January 1970 to December 2011
Source: MCSI, 2012
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Risk warning
Investors should be aware that the price of investments and the income
from them can go down as well as up and that neither is guaranteed. Past
performance is not a guide to the future. Investors may not get back the
amount invested. Changes in rates of exchange may have an adverse
affect on the value, price or income of an investment.
Investors should be aware of the additional risks associated with funds
investing in emerging or developing markets.
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recommendation and investment decisions should not be made on the
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