Now the stakeholder pensions deadline has passed, the initial priority is no longer advising employe...
Now the stakeholder pensions deadline has passed, the initial priority is no longer advising employers about scheme designation.
However, there are several other pensions issues which you could discuss with your clients to ensure they get the best possible financial advice and you continue to build your business.
John Joe McGinley, Product Marketing Manager (Individual Pensions) at Scottish Life summarises the current opportunities for IFAs.
1. Pensions and Divorce
With over 180,000 divorces in the UK each year, initial estimates are that up to 50,000 may involve some element of pensions sharing. This means there are around 100,000 opportunities for IFAs to provide specialist advice and up to 50,000 potential pensions transfers. Recent reports suggest the amounts of money involved are substantial - averaging over £500,000.
For pension sharing to work effectively, specialists need to work together so now is a good time for IFAs to develop strategic alliances with solicitors who will need help and advice.
2. Carry Forward - Use it or lose it by 31st January 2002
Despite the removal of standalone Carry Forward, there are still opportunities as Carry Forward is still available until 31 January 2002, provided it is used in conjunction with Carry Back options.
Carry back continues to be available, enabling a contribution to be paid in the current tax year to be treated as having been paid in the previous one.
It can make sense to make use of the tax relief if clients have the money now. The cost of delay, as well as possible changes to higher rate relief and the loss of tax relief from previous years, all make sound reasons to act now.
3. Life Cover with tax relief
The combined benefits of tax relief, the prospect of tax-free payouts and the flexibility to alter beneficiaries make this a very attractive option in a personal pension, especially for higher rate tax payers.
b>4. Income Drawdown
Investors drawing income are now allowed to transfer between drawdown plans. Previously, once income commenced, this was not allowed and clients were locked into which perhaps had
* Poor performance
* Limited Fund Choice
* Poor Administration
* High charges
Reviewing a clients' plans to see whether a change of provider is appropriate might now be a sensible option.
5. Increase earnings for one year and maximise contributions for six
New pensions rules stipulate that by temporarily increasing earnings for one year, a higher maximum contribution level can be achieved for the next five years. The rules allow this even if earnings are subsequently reduced during this period.
6. Remuneration for Directors
The new DC regime and continuing increases in National Insurance Contributions have reopened the ongoing debate as to which is the best type of remuneration strategy for controlling directors - Salary, Dividends or Pensions?
Many directors seem likely to be hit hard by the changes to company car taxation next April. They could be handing back the Mercedes/BMW/Jaguar keys and looking for other ways to pay themselves, so make sure pensions are high on the list.
January 31 is a key date for the self-employed as it's the last day they can elect to use their combined carry back and carry forward option. And, as they now pay contributions net of basic rate tax instead of gross, a contribution of £10,000 will immediately be grossed up to £12,800 - an immediate gain of 28% (before charges). Where else could they get that kind of guaranteed immediate return?
8. Pensions for all
The rules allow many more people to invest in a pension including those with no earned income (perhaps non working spouses), children and retired investors up to the age of 75. Even if they pay no income tax, their contribution to a personal pension or stakeholder will qualify for basic rate tax relief to be added thus increasing their investment. It's money for nothing from the Government -the only real question to ask do they want some?!
9 . The Spouse is back!
Remember, there are also new pension planning opportunities for spouses.
Firstly, £3600p.a. gross can be invested in a PP or Stakeholder without the need to employ the spouse, as no earnings are required to contribute this amount.
Secondly, spouses in the past were paid a low salary to avoid tax and NIC and they may have a fully funded EPP. Under the new Concurrency rules, provided they are not Controlling Directors, they will be able to pay an extra £3,600 into a Personal Pension or Stakeholder which will not be taken into account when working out their maximum permissible benefits.
10. Personal Pensions versus AVC's
Those in occupational schemes within the new Concurrency rules could be better off topping up their pension by using a personal pension or stakeholder (rather than with a traditional AVC) as 25% tax free cash is available directly on retirement.
Those who can afford it could pay up to 15% into an AVC and £3,600 into a Personal Pension. The icing on the cake is that the personal pension would not be a retained benefit, meaning that these people can have a full two-thirds pension from the occupational scheme plus a £3600pa personal pension as well!
11. Targeting Protected Rights
Contracting out of SERPS started in 1978 and while the size of the accumulated fund will ary according to individual circumstances, it typically will range from £15,000 to as high as £50,000 or more.
Many of these policies are held in old style contracts with outdated charging structures. These would now benefit from a review to ensure they not only meet clients' needs but have the correct investment mix and performance track record.
The ideas shown above are part of an campaign by Scottish Life aimed at intermediaries called "Get Your Business Moving".
To obtain sales aids on each of above issues contact Scottish Life on 08457 19 20 21 or visit www.scottishlife.co.uk
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