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Access to pension freedoms in ill health could lead to inheritance tax trap

05/11/2015

Following the unveiling of its ‘Income Select’ retirement income solution last month, Old Mutual Wealth has further enhanced the retirement income options for its pension customers with the introduction of three new options which facilitate the delivery of regular income in a tax efficient manner - also known as ‘drip-feed drawdown’.

This new development, available from Nov 16, means that Old Mutual Wealth’s Collective Retirement Account (CRA) now provides advisers and their customers with complete flexibility in how their untouched pension savings are accessed under the new pension freedom rules.

Specifically, the new option provides optimum tax efficiency of withdrawals by allowing customers to use the least amount of pension capital to deliver their monthly retirement income needs. Once an instruction is made for regular withdrawals, the process is automatically repeated, including any associated benefit crystallisation event calculations.

Advisers and clients will be able to control the tax they pay on regular monthly income withdrawals by drip-feeding their tax-free cash lump sum in order to provide the required income, build a drawdown fund for future use, or combine monthly tax free cash withdrawals alongside of taxable income to deliver their monthly income needs. This is instead of taking all their tax free cash in one go.

Using tax free cash in this way avoids the need for clients to withdraw larger tax-free cash sums which they have to re-invest outside of a pension tax wrapper to deliver regular income needs. These options also ensure that clients retain as much of their pension savings as possible for future retirement needs and also to increase the potential legacy value that can be passed on in the event of their death.

To accompany these new choices, Old Mutual Wealth has also upgraded the functionality of its Retirement Income Explorer Tool (RIET), which allows advisers to map out a client’s income plan, using the most tax-efficient method available across all investment assets a client holds either on or off platform.

Using a sophisticated stochastic modeller, the tool helps advisers bring to life a range of probable outcomes, based on realistic forecasts of variables such as life expectancy, investment returns and inflation. The interactive process results in clearly written reports, which can be branded with the adviser’s logo, that will help to demonstrate the value of advice by illustrating likely outcomes in retirement dependent upon the choices a client makes.

The tool will also help advisers to regularly review the initial planning with their clients. It will enable advisers to take account of changing circumstances in health, income needs and changing values of underlying wealth that clients may have.

Adrian Walker, retirement planning manager at Old Mutual Wealth, comments: “These new retirement income choices within the CRA allow advisers and clients total flexibility over how they create tax-efficient withdrawals from pension savings.

“Combined with the sophisticated RIET tool, the CRA now enables advisers and their clients to achieve almost any available combination of taxed and tax-free income that they choose as part of any client’s retirement income planning – whichever and whenever suits the client’s retirement income journey the best.

“Since the pension reforms were announced in March 2014, we have constantly been looking to enhance the service that we offer advisers and their clients. The CRA was built with flexibility in mind and has been delivering flexible income options for advisers and clients for many years, but I’m delighted that these latest enhancements will significantly increase the solutions we have available.”

For more information contact

Tim Skelton-SmithOld Mutual Wealth02380 916 99807824 145 076tim.skelton-smith@omwealth.com

Notes to Editors:

Old Mutual Wealth is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.

Old Mutual Wealth oversees £131.3 billion in customer investments (as at 30 September 2017).

It has an adviser and customer offering spanning: Financial advice; investment platforms; multi-asset and single strategy investment solutions; and discretionary fund management.

The business is comprised of two segments: Wealth Platforms and Advice and Wealth Management.

Wealth Platforms includes the Old Mutual Wealth UK Platform; Old Mutual International, including AAM Advisory in Singapore; and the Old Mutual Wealth Heritage life assurance business.

Advice and Wealth Management encompasses the financial planning network, Intrinsic; Old Mutual Wealth Private Client Advisers; discretionary fund management business, Quilter Cheviot; and Old Mutual Wealth’s multi-asset investment solutions business.

Old Mutual Global Investors (‘OMGI’) is the asset management business of Old Mutual Wealth with £39.8bn funds under management (as at 30 September 2017). On the 19th December 2017, Old Mutual Wealth announced that it has agreed to sell its Single Strategy asset management business to the Single Strategy Management team and funds managed by TA Associates. The proposed transaction is subject to customary closing conditions, including regulatory approvals. 

Following managed separation from Old Mutual plc, Old Mutual Wealth will rebrand to Quilter plc. Each of the businesses within the Quilter Plc group will be rebranded over a two-year period, with the exception of Quilter Cheviot, which will retain its existing name.

Old Mutual Wealth is part of Old Mutual plc, a FTSE 100 group that provides life assurance, asset management, banking and general insurance. Old Mutual is trusted by more than 19.4 million (as at 31 December 2016) customers across the world and has a total of £212.3 billion of assets under management (as at 30 June 2017).

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