Elaine Turtle, Director of DP Pensions, looks at an anomaly that has arisen around dependant pensions for children under age 23, as a result of the Pension Freedoms.

http://professionalparaplanner.co.uk/a-quirk-of-the-new-pension-freedoms-rules

New legislation was introduced in the Pensions Scheme Act 2015 following the Government’s concerns over protecting consumers who may lose valuable pension benefits in favour of transferring to arrangements that facilitate flexible access to pension savings. In this article Elaine Turtle, Director, DP Pensions discusses what advisers need to be wary of with transfers from defined benefit schemes and safeguarded rights to SIPPS.

http://adviserbusinessreview.com/db-pension-transfers-into-sipps-what-you-need-to-know/

Capital adequacy is an area of the SIPP market that has been the source of much discussion. In this article Greg Kingston from FTAdviser Money Management looks into what advisers need to know. DP Pensions assisted in providing information and Elaine Turtle, Director, has been quoted in the article.

http://www.ftadviser.com/r/FT%20Publications/FTA/Money%20Management/Assets/Pdf/SIPPSBox1%20(1).pdf

Elaine Turtle, Director at DP Pensions, provides insight into commercial property purchase in SIPPs and an example of how the purchase may be carried out in stages.

http://professionalparaplanner.co.uk/development/staged-property-purchase/

Pension scams are on the increase in the UK. Scammers will try to entice you with a ‘free pension review’, ‘one-off investment opportunity’ or ‘legal loophole’.
If you’re under age 55, you cannot release your pension unless you are in ill health. If you are over 55, you can release funds from your pension from April 2015. You may still be at risk from scammers.
For information and tips on giving yourself the best possible protection against scammers download the attached booklet below or visit The Pensions Regulator website

http://www.thepensionsregulator.gov.uk/individuals/dangers-of-pension-scams.aspx

Downloads
 Pension scams booklet

ABOUT THIS DOCUMENT

This Bulletin is based on our understanding of current and proposed legislation (subject to Royal Assent) and HMRC practice and every care has been taken to ensure it is correct. It is issued by DP Pensions Ltd for use by our SSAS and SIPP clients and their advisers. By its very nature it is a précis and can only be treated as a simplified indication of detailed legislation.
Please note that DP Pensions Ltd is not authorised to give financial advice. We do not know all of your circumstances or details of any other pension schemes of which you are a member. You should contact your financial adviser for help on how these new rules affect you personally.
No responsibility to any third party is accepted if this information is used for any other purpose. The legislation and HMRC practice may change in the future.

THE CHANGES

The key announcements are outlined below:
NON-PENSIONS ANNOUNCEMENTS

• The tax-free personal allowance will be increased from £10,600 in 2015-16 to £11,000 in April 2016
  • The tax-free personal allowance – the amount people earn before they have to start paying income tax – will increase to £11,000 in 2016-17
  • Increases to the personal allowance since 2010, when it was £6,475, mean that a typical taxpayer will be £905 a year better off in 2016-17
  • The government has an ambition to increase the personal allowance to £12,500 by 2020
• Reforming dividend tax
  • The dividend tax credit (which reduces the amount of tax paid on income from shares) will be replaced by a new £5,000 tax-free dividend allowance for all taxpayers from April 2016. Tax rates on dividend income will be increased
  • This simpler system will mean that only those with significant dividend income will pay more tax. Investors with modest income from shares will see either a tax cut or no change in the amount of tax they owe
  • Dividends paid within pensions and ISAs will remain tax-free and unaffected by these changes
• Taking the family home out of inheritance tax
  • Currently, inheritance tax is charged at 40% on estates over the tax-free allowance of £325,000 per person. Married couples and civil partners can pass any unused allowance on to one another.
  • From April 2017, each individual will be offered a family home allowance so they can pass their home on to their children or grandchildren tax-free after their death. This will be phased in from 2017-18
  • The family home allowance will be added to the existing £325,000 inheritance tax threshold, meaning the total tax-free allowance for a surviving spouse or civil partner will be up to £1 million in 2020-21
  • The allowance will be gradually withdrawn for estates worth more than £2 million
• The amount people with an income of more than £150,000 can pay tax-free into a pension will be reduced
  • Most people can contribute up to £40,000 a year to their pension tax-free. From April 2016, this amount will be reduced for individuals with incomes of over £150,000, including pension contributions
• The higher rate threshold will increase from £42,385 in 2015-16 to £43,000 in 2016-17
  • The amount people will have to earn before they pay tax at 40% will increase from £42,385 in 2015-16 to £43,000 in 2016-17
• Restricting tax relief for wealthier landlords
  • Currently, individual landlords can deduct their costs – including mortgage interest – from their profits before they pay tax, giving them an advantage over other home buyers
  • Wealthier landlords receive tax relief at 40% and 45%. This tax relief will be restricted to 20% for all individuals by April 2020
  • In addition, from April 2016, the ‘wear and tear allowance’, which allows landlords to reduce the tax they pay (regardless of whether they replace furnishings in their property) will also be replaced by a new system that only allows them to get tax relief when they replace furnishings
• Ending permanent non-dom status
  • Non-domiciled individuals (non-doms) live in the UK but consider their permanent home to be elsewhere. The UK rules allow non-doms to pay UK tax on their offshore income only when they bring it into the UK
  • Permanent non-dom status will be abolished from April 2017. From that date, anyone who’s been resident in the UK for 15 of the past 20 years will be considered UK-domiciled for tax purposes
• Making sure individuals and businesses pay what they owe
  • The government will continue to clamp down on tax avoidance, planning and evasion, as well as increasing resources for HM Revenue and Customs (HMRC) so they can make sure people pay the tax that’s due. This includes:
    • extra investment between now and 2020 for HMRC’s work on evasion and non-compliance
    • tripling the number of criminal investigations HMRC can undertake into complex tax crime, concentrating on wealthy individuals and companies
    • allowing HMRC to access more data to identify businesses that aren’t declaring or paying tax
    • clamping down on the organised crime gangs behind the illicit trade in tobacco and alcohol
    • stopping investment fund managers from using tax loopholes to avoid paying the correct amount of capital gains tax on their profits from the fund (this is known as carried interest)
    • making sure international companies pay tax on profits diverted from the UK
    • introducing a ‘general anti-abuse rule’ penalty and tough new measures for serial avoiders, including publishing the names of people who repeatedly use failed tax avoidance schemes

PENSIONS ANNOUNCEMENTS

• Annual allowance for pensions will be tapered away to £10,000
  • For 2016 to 2017 onwards the annual allowance for tax relieved pension savings will be reduced for those with incomes of over £150,000
  • The annual allowance will be reduced by £1 for every £2 of income over £150,000 with a maximum reduction of £30,000, to a minimum of £10,000
  • In advance of the introduction of this tapered annual allowance, transitional rules are being introduced to align pension input periods with the tax year by April 2016 and to protect any savings already made before the Budget from retrospective tax charges. Now all pension input periods open on 8 July 2015 will end on 8 July 2015. The next pension input period will be 9 July 2015 to 5 April 2016 for these arrangements. This means that all existing arrangements on 8 July 2015 will have two or three pension input periods ending in tax year 2015 to 2016, depending on the start date of the open pension input period. For new arrangements that have their first pension input period starting on or after 9 July 2015 and on or before 5 April 2016, the pension input period will start on the normal commencement day and end on 5 April 2016. This means for individuals who made pension savings of more than £40,000 prior to the Budget, on the expectation these savings would be tested against the annual allowance for tax years 2015 to 2016 and 2016 to 2017 will now be only tested against the annual allowance for 2015 to 2016. Transitional rules are therefore also being introduced to ensure that in these circumstances pre-Budget savings of up to £80,000 are protected from an annual allowance charge. From 2016 onwards, HMRC stated pension input periods will continue to exist from 6 April 2016, but they will be aligned with the tax year.
• Green Paper consultation announced
  • Green Paper published that asks questions, invites views, and takes care not to pre-judge the answer, could include:
    • Pensions taxed like ISAs
    • You pay in from taxed income – and its tax free when you take it out. And in-between it receives a top-up from the government
• Second hand annuity market delayed until 2017
  • The government wants existing annuity holders to have the freedom to sell their annuity income
  • Plans for a secondary annuities market will be set out in the autumn
  • Implementation will be delayed until 2017 due to industry concerns
• Pension Wise service extended
  • Following the successful launch of Pension Wise in April 2015, the government is extending access to this free and impartial guidance service to those aged 50 and above
  • There will be a comprehensive nationwide marketing campaign to further raise awareness of the service
• Salary sacrifice remains under review
  • Salary sacrifice arrangements can allow some employees and employers to reduce the income tax and national insurance that they pay on remuneration. They are becoming increasingly popular and the cost to the taxpayer is rising. The government will actively monitor the growth of these schemes and their effect on tax receipts
• Making ISAs more flexible
  • March Budget 2015 announced that the government will change the ISA rules in the autumn to allow individuals to withdraw and replace money from their cash ISA in-year without this replacement counting towards their annual ISA subscription limit. This policy will also cover cash held in stocks and shares ISAs. These changes will commence from 6 April 2016
• Taxation of pensions at death
  • As announced at Autumn Statement 2014, the government will reduce the 45% tax rate that applies on lump sums paid from the pension of someone who dies aged 75 and over to the marginal rate of the recipient from 2016-17

The full Budget can be found here:
https://www.gov.uk/government/publications/summer-budget-2015/summer-budget-2015

HMRC issued its latest pension schemes newsletter 70 on 21 July 2015. This provided a summary of all the announcements in the Budget on 8 July 2015 in connection with tax relieved pension savings, see selected detail below or please click on the link for full details.

A. TAPERED ANNUAL ALLOWANCE (AA)

From 6 April 2016, there will be a tapered reduction in the amount of the AA. This will apply to individuals whose income, including the value of their total pension input amount, is over £150,000. For every complete £2 their income exceeds £150,000 the AA will be reduced by £1, up to a maximum reduction of £30,000 for individuals whose income is over £210,000. The total pension input amount for this purpose will be calculated in the same way as it is for working out the value of pension savings for the AA.
However, where an individual’s taxable income is no more than £110,000 they will not be subject to the tapered AA.
Pension input periods will be aligned with the tax year for the year 2016 to 2017 onwards. Transitional rules for the 2015 to 2016 tax year will be introduced to protect savers who might otherwise be impacted by the alignment of their pension input periods.
Legislation is included in the Summer Finance Bill 2015 to 2016.

B. LIFETIME ALLOWANCE

In the Budget on 8 July 2015 the Chancellor of the Exchequer confirmed that, as previously announced, the lifetime allowance for pension savings will be reduced from £1.25 million to £1 million from 6 April 2016. Transitional protection will be introduced alongside this reduction to ensure the change is not retrospective.
The lifetime allowance will also be indexed annually in line with the Consumer Prices Index from 6 April 2018. Legislation will be included in Finance Bill 2016.
There will be 2 protection regimes which will have the same conditions as the previous fixed and individual protection regimes for individuals who want to rely on them. That is for the new ‘fixed protection’ you must have no benefit accrual on after 6 April 2016, and for the new ‘individual protection’, you must have savings of at least £1 million on 5 April 2016.
The notification process will though be different, as individuals will not need to notify HM Revenue and Customs (HMRC) in advance where they want to rely on fixed protection or have 3 years to apply for individual protection. Instead, HMRC are considering options around removing the deadlines for applying for these protections. We will be discussing this informally with stakeholders over the next few weeks so that we can publish full details later this summer.
In the meantime, pension providers and employers should consider what communications they need in advance of 6 April 2016 to individuals who may be affected.

C. TAX ON LUMP SUM DEATH BENEFITS

For deaths on or after 6 April 2016, lump sum death benefits that are currently subject to the special lump sum death benefit charge of 45% will, when paid to an individual, be taxable at the recipient’s marginal rate.

D. SALE OF ANNUITIES

The changes to allow the sale of annuities announced at the March 2015 Budget will go ahead, but the start will be delayed until 2017 to give time to develop the most effective protection for consumers. The government’s response to the consultation and plans for implementation will be set out in the autumn.

E. CONSULTATION ON PENSIONS TAX RELIEF

HM Treasury have published a consultation document on strengthening the incentive to save: a consultation on pensions tax relief. The aim of the consultation is to look at how individuals can be better encouraged to save adequately for their retirement.

F. UNFUNDED EMPLOYER FINANCED RETIREMENT BENEFIT SCHEMES (LEGISLATION POTENTIALLY TO BE INCLUDED IN FINANCE BILL 2016)

HMRC will consult informally with stakeholders on how to tackle the use of unfunded employer financed retirement benefit schemes to obtain a tax advantage in relation to remuneration. Stakeholder meetings are expected to take place during the summer and further details will be published later.
https://www.gov.uk/government/publications/pension-schemes-newsletter-70-july-2015/pension-schemes-newsletter-70-july-2015

In his March 2014 Budget, the Chancellor George Osborne announced sweeping changes that will remove the limits on the pension benefits that can be drawn from your pension scheme each year as well as reduce the taxation of benefits payable to your family in the event of your death The Taxation of Pensions Act 2014 has now confirmed the details of those proposals and the new rules will come into force on the 6th April 2015. This pension bulletin gives you an update on the new rules and how they might affect you.
We are currently developing the necessary literature and forms to ensure that the full range of options will be available to our clients on the 6th April 2015. We will be updating our website www.dapco.co.uk with our progress and forms as they become available.

Your Pension Options

Under current rules, you can usually take your pension benefits from age 55. This age restriction is not changing and so the options outlined in this bulletin will only be available to members once they reach that age.
When you crystallise your benefits you are usually entitled to take 25% of your fund as a tax free lump sum (the pension commencement lump sum or PCLS). In addition to the PCLS, you can take a pension which is taxed as earned income. The new rules change the pension options that are available to you.

Flexi Access Drawdown (FAD)

FAD will allow you to take any level of income from your drawdown fund with no annual restrictions. You can take regular payments or one off ones, and vary the amounts at any time. This means that you can take your entire pension in one go or over time. However, it may not be tax efficient or sustainable to do so. If you are reliant on your pension to support you, you may need to consider taking a lower level of income which can sustain you for the rest of your life. Taking an income from a FAD fund will trigger the new money purchase annual allowance rules (outlined later in this Update).

Uncrystallised Funds Pension Lump Sum (UFPLS)

UFPLS will be an alternative way to access your pension benefits from funds not already in drawdown. It allows you take a one off payment or a series of payments while keeping the remainder of your pension uncrystallised.
When you take a UFPLS payment, 25% of the payment will be tax free and 75% of the payment will be taxed as pension income at your marginal rate of income tax.
Payment of a UFPLS will be a benefit crystallisation event and we are required to test your fund against the lifetime allowance, which is currently £1.25 million. There may be tax consequences where the total of all payments and previous crystallisations exceed the lifetime allowance.
The UFPLS is not available on funds that are already in drawdown. Payment of a UFPLS will not be available to members if they have rights to a disqualifying pension credit, primary protection, enhanced protection or a right to take a tax free lump sum of greater than £375,000 on 5th April 2006.

Access to impartial guidance – Pension Wise

In addition to the sweeping changes in his Budget, the Chancellor also announced that everyone should have access to free impartial guidance to help them make sense of their options.
This guidance will be provided through a new government service called Pension Wise. The Pension Wise service can be accessed online, over the phone with the Pensions Advisory Service and face to face at the Citizens Advice Bureau. The Pension Wise website can be found at www.pensionwise.gov.uk. We understand that the full service will launch on 6th April 2015, but you can visit the site now and register your interest to get early access to the service.
Please note that, while this service will provide useful information, it is not intended to be a substitute for full financial advice from a regulated financial adviser.

Changes to Contribution Levels

Money Purchase Annual Allowance Rules (MPAA)

The annual allowance is the total amount that can be contributed to a pension scheme each year and will qualify for tax relief. The standard annual allowance is currently £40,000.
However, flexibly accessing your pension savings will trigger the money purchase annual allowance (MPAA) rules which will reduce your annual allowance from £40,000 to £10,000 per annum for money purchase savings (special rules apply to ‘final salary’ schemes). This will be effective from the day after the trigger event occurred. The MPAA rules also prohibit the ability to carry forward any unused annual allowance.
The following actions will trigger the money purchase annual allowance rules as you will have flexibly accessed your pension savings; taking an income under Flexi Access Drawdown; taking an Uncrystallised Pension Lump Sum; taking a stand alone lump sum with Primary Protection; taking income under a flexible annuity.
If you flexibly access your pension savings we will issue you with a Flexible Access Notification which will explain the reason for the notification being issued along with confirmation of any actions you will need to take.

What if you have already taken benefits from your pension?

If you have already taken benefits from your pension and you are in income drawdown (either capped drawdown or flexible drawdown) then you will be able to benefit from the new rules. If you are in scheme pension, or are receiving your pension income through an annuity then you will not be affected by the new rules.

Capped Drawdown

Capped drawdown is a current drawdown option which allows you to take an income from your pension fund limited to a maximum annual amount, which we calculate on a regular basis. Under the new rules, capped drawdown will not be available if you take your benefits for the first time from the 6th April 2015 onwards. However, if you are already in capped drawdown then you have a couple of options.
If you do nothing then you will continue in capped drawdown. We will continue to calculate your maximum annual pension amount just like we currently do. If you stay in capped drawdown then you will not be subject to the money purchase annual allowance rules, meaning that your annual allowance will remain at £40,000. In order to remain in capped drawdown you must not exceed your maximum annual pension amount.
If you had crystallised part of your fund rather than the whole fund, then you will also be able to designate new funds into your capped drawdown fund without triggering the money purchase annual allowance rules.
If you would like to take advantage of the new flexible options then you can convert your fund into a Flexi Access Drawdown (FAD) fund at any time. You can do this by completing our Flexible Access Member Declaration Form. Converting your capped drawdown fund into a FAD fund will remove the annual income limit on your pension, but it will also trigger the money purchase annual allowance rules, meaning that your annual allowance will reduce to £10,000.

Flexible Drawdown

Flexible drawdown is a current drawdown option which allows you to draw any level of income without limits provided you meet certain requirements. One of those requirements is that you cannot pay any further contributions to your pension funds.
Flexible drawdown will cease to be available to members from the 6th April 2015. If you are currently in flexible drawdown then we will automatically convert your fund to a Flexi Access Drawdown fund on the 6th April. The money purchase annual allowance rules will apply, meaning that your pensions will be able to receive contributions, but you will be limited to £10,000 per annum.

Changes to Death Benefits

Changes to how death benefits can be paid have also been introduced to be effective for payments made from 6th April 2015. You may like to review your death benefit nomination in light of these new options.

The Current Rules

You can nominate anyone you would like to receive your death benefits. If you die under the age of 75 and before drawing any benefits then your nominated beneficiaries can usually take your fund as a tax free lump sum outside of your estate. Once you have reached age 75 or taken your benefits then the lump sum becomes taxed at 55%, or dependants could take an income from your fund subject to income tax.

The New Rules

Under the new rules, you can continue to nominate anyone that you want to receive your death benefits. Your nominated beneficiaries can choose to take their benefits as a lump sum or as an income under the new flexi-access drawdown rules.
The tax treatment of these payments will depend on your age when you die (pre or post age 75) and whether the funds are designated and/or paid to your beneficiary within 2 years. Designating the funds just means that they are moved into the beneficiary’s name, it doesn’t mean that any payments have to be made.
If you die before you reach age 75 and your funds are paid to your beneficiaries within 2 years then the payments will be tax free, irrespective of whether you had taken any benefits or whether the beneficiary take them as a lump sum or as flexi-access income.
If you die after your have reached age 75, then the payments will be subject to a tax charge, which is normally the beneficiary’s marginal rate of income tax, but will be 45% if taken as a lump sum in the 2015/16 tax year.

What happens when a beneficiary dies?

If a beneficiary dies, having not drawn out the entire fund, then the funds can be passed on again. The beneficiary can nominate successors, who will have the option of taking the funds as a lump sum or as flexi-access income.
The tax treatment of these payments will depend on the age of the beneficiary when they die (not on your age when you died). There is no limit to the number of times the funds can be passed on to successors. So provided it is not all taken out, your pension could be passed on for generations.

About this document

This Update is based on our understanding of the legislation recently published by HMRC with regards to pension flexibility for money purchase schemes from 06 April 2015.
Every care has been taken to ensure that it is correct. It is issued by DP Pensions Ltd for use by our SSAS and SIPP clients and their advisers.
Please note that DP Pensions Ltd and D A Phillips & Co Ltd are not authorised to give financial advice. We do not know all of your circumstances or details of any other pension schemes of which you are a member. You should contact your financial adviser for help on how this legislation may affect you personally.
No responsibility to any third party is accepted if this information is used for any other purpose. The legislation and HMRC practice may change in the future.
If you have any queries regarding the information in this Bulletin and how it affects your circumstances then please contact your financial adviser.
This bulletin was issued by DP Pensions Ltd.

We are very proud to announce that we have again received a Defaqto 5 Star Rating for our Premier Trust SIPP for 2015.
Defaqto is an independent financial research company focused on supporting better financial decision making.
The 5 Star Rating means that the Premier Trust provides one of the highest quality offerings on the market.
More information about Defaqto can be found at www.defaqto.com

The FCA certainly took their time in issuing their final policy on a new capital framework for SIPP operators in August of last year following extensive comment and feedback from the industry and other interested parties. The new rules are set to come into force from 1st September 2016.
Now that we have had a chance to digest the implications of the changes, we thought that you might like to know how the new rules will impact us at DP Pensions Ltd.

Background

The FCA require all businesses that they regulate to hold sufficient capital reserves to allow for an orderly wind down of the business without any consumer detriment. Each sector of the financial services industry has its own set of capital adequacy rules that it must adhere to.
At DP Pensions, we have always ensured that we have sufficient capital to enable us to grow in a controlled manner without putting our clients at risk. Under our current capital adequacy rules, we are required to maintain solvency of at least 13 weeks of operating costs. At our last reporting date we held significantly more than that threshold with 59 weeks solvency.

The new rules

The calculation of the capital required under the new rules will be based on the total assets under administration within an operator’s SIPP product and the percentage of those SIPPs that hold a “non-standard” investment. Non-standard investments include assets like unlisted shares, unregulated collective investment schemes and other non-regulated investments. However, the final policy confirmed that commercial property would not normally be treated as a non-standard asset. Details of the new rules can be found in the FCA Policy Statement.
These new rules will significantly increase the amount of capital that most SIPP operators will have to hold from 1st September 2016 and investors and their advisers are quite rightly concerned whether SIPP operators will be able to meet them.
At DP Pensions, we already hold enough liquid capital to meet the new capital requirements even if they came into effect today. In fact our capital reserves exceed the new requirements by 50%.
We are projecting various business models to see how the new rules will impact on the capital needs of the business going forward. Clearly there are many variables pulling in different directions but our work so far suggests that our position will get easier as we move forward under the new rules. We are therefore confident that we can continue to operate DP Pensions under our current business model for the foreseeable future.
If you have any queries about this news item then please do not hesitate to contact us.