Professional Women’s NetworkNicola Cornish October 2016

Housekeeping

PensionsMichelle Willcock October 2016

Agenda

• The new State Pension

• Personal Pensions Freedoms

• Pension Contributions for higher rate tax payers

• Any Questions

fcfp.co.uk

The New State Pension

• The new State Pension is applicable to anyone that reaches State Pension Age on or after 6 April 2016

• You can still get a State Pension if you have other income like a personal pension or a workplace pension.

• The full new State Pension is £155.65 per week• The actual amount you get depends on your National

Insurance Record

Eligibility

• You will usually need at least 10 qualifying years on your National Insurance Record to get any State Pension

• This means that at least one or more of the following applied to you;

• You were working and paid NI contributions• You were getting NI credits ie for unemployment, sickness

or as a parent or carer• You were paying voluntary NI contributions

Professional Women’s Network

Eligibility

• You will need 35 qualifying years to get the full new State Pension

• You will get a proportion of the new State Pension if you have between 10 and 35 qualifying years

• Some transitional arrangements in place if you would have received a higher entitlement on the old state pension criteria

• You may get less than the new full State Pension if you were contracted out before 6 April 2016

State Pension Statement

• You can get a State Pension statement which will estimate how much State Pension you may get

• You can apply for a NI statement from HMRC to check if your record has gaps

• You may be able to make voluntary NI contributions to make up the gaps that would prevent you getting the full State pension

• www.gov.uk – additional information on how to apply for above

What is a personal pension scheme?

• It is a tax-efficient savings plan to help you save for your retirement

• Currently you can take the benefits from a personal pension at any age after 55 (increasing to age 57)

• Contributions attract tax relief – details later • Current annual allowance for individuals £40,000

provided you are not accessing any ‘income’ under flexi-access drawdown or subject to the tapered annual allowance

• 25% of the total fund value at retirement can be taken as a tax-free lump sum if you wish

• The remaining 75% can be used to either purchase an annuity (a guaranteed income for life) or leave invested and take an ‘income’ from the fund (Flexi-Access Drawdown)

• You can take as much or as little from the fund as and when you wish although the ‘income’ you take will be subject to income tax in the year of withdrawal

At retirement

Budget Changes

• The Government announced fundamental changes to pensions in the UK

• Removes the compulsion to buy an annuity

• The whole fund can be taken as a lump sum

• Death benefits whether drawn as a lump sum or income are normally payable tax free to your beneficiaries if you die before age 75. If you die after age 75, death benefits withdrawn as income or as a lump sum are taxable on the recipients as earned income.

• Retain death benefits in ‘pension wrapper’

How tax relief works

• Traditionally pension contributions via relief at source method

• You pay £80 from your take home pay• The pension provider reclaims £20 basic rate income

tax from HMRC• Total contribution £100• Higher rate tax-payers can claim further tax relief via

their tax return

Pension Death Benefits

• The only death benefits tested against the lifetime allowance are those payable from un-crystallised funds from defined contribution schemes (ie funds you haven’t yet drawn on at all) or lump sums from defined benefit schemes on death before age 75. If those benefits exceed your remaining lifetime allowance there will be a 55% tax charge on the excess or 25% if left within the pension wrapper (Flexi-access drawdown) or used for survivors annuity purchase.

• You should nominate who you want the proceeds paid to - spouse, children, sibling, parents, charity. This can be changed if your circumstances change.

Higher rate tax payers

• Paying a pension contribution is even more attractive for a higher rate income tax payer

• Assume £10,000 of your income is liable to 40% income tax. Consider funding this amount into a personal pension.

• The contribution is made net of basic rate tax ie £8,000. Basic rate tax relief is reclaimed from HMRC by the pension provider of £2,000.

Higher rate tax payers

• You then reclaim the additional 20% tax relief on the contribution through your self assessment tax return

• The contribution therefore is only a net cost to you of £6,000 and £10,000 is invested.

• A pension contribution can also work very well for anyone who may have to pay a tax charge known as the High Income Child Benefit Tax Charge – Our tax department will now provide details of how this can work in more detail.

Any Questions?

?

No responsibility can be accepted for any action taken as a result of information contained in this presentation. We therefore strongly recommend that no action should be taken before obtaining detailed professional advice.

Past performance is not a guide to future returns and the value of investments and income from them may go down as well as up and an investor may not get back the amount invested.

PKF Francis Clark Financial planning and wealth management is a trading name of Francis Clark Financial Planning Ltd which is authorised and regulated by the Financial Conduct Authority. Registered Office: Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF. Registered in England No. 05413603.Francis Clark Financial Planning Ltd is a member firm of the PKF International Limited network of legally independent firms and does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.

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The High Income Child Benefit ChargeJessica Marshall October 2016

Summary

• What is the High Income Child Benefit Charge (HICBC)?• Who does it apply to?• When does it apply?• How does it apply?• How does the charge interact with making pension

contributions?

Income Tax

Rates2016/17 2015/16

Basic rate 20% 20%

Higher rate (income £43k - £150k) 40% 40%

Additional rate (income > £150k) 45% 45%

Dividend tax rate (BR) 7.5% 0%

Dividend tax rate (HR) 32.5% 25%

Dividend tax rate (AR) 38.1% 30.6%

Personal allowance £11,000 £10,600

What is the High Income Child Benefit Charge?• Applies if someone in household earns > £50,000

and they or their partner receives child benefit (CB)

• Do not have to be married

• Do not have to be paying for children’s upkeep

• Pay back a proportion of CB received

• 100% CB claw back if income above £60,000

Example

Frank and Claire

• Not married

• Frank has 3 children from previous marriage – receives £2,501.20 child benefit

• Claire’s income - £50,000

• Frank’s income - £20,000

Claire£

Frank£

Total£

Income 50,000 20,000 70,000

Tax payable (9,200) (1,800) (11,000)

Net income 40,800 18,200 59,000

Child benefit 2,501 2,501

Net retained 40,800 20,701 61,501

Example – 2016/17

Example

Claire£

Frank£

Total£

Income 55,000 20,000 75,000

Tax payable (11,200) (1,800) (13,000)

Net income 43,800 18,200 63,000

Child benefit 2,501 2,501

HICBC (1,251) (1,251)

Net retained 42,549 20,701 63,250

Claire gets a £5,000 bonus -

Example

• Net retained earnings increased by £1,750

• Effective marginal rate of tax 65%

• Retains only 35% of bonus

Pension contributions

• Tax relief:

Paid net of 20% tax relief at source – added to pension pot

High and additional rate taxpayers claim extra relief through tax return

• Reduces adjusted net income – for HICBC

Example – Frank and ClaireClaire uses £4,000 of her bonus to make a personal pension contribution -

Claire£

Frank£

Total£

Income 55,000 20,000 75,000

Pension contribution (net)

(4,000) (4,000)

Tax payable (10,200) (1,800) (12,000)

Net income 40,800 18,200 59,000

Child benefit 2,501 2,501

HICBC

Net retained 40,800 20,701 61,501

Example - Frank and Claire

• Cost £1,750 to get a £5,000 pension pot

• No HICBC

Thank you

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