Old Mutual Wealth Autumn Statement 2016 comments
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Old Mutual Wealth Autumn Statement 2016 comments

23/11/2016

Old Mutual Wealth pensions and financial planning experts comment on the Chancellor's Autumn Statement

Money Purchase Annual Allowance

If you are covering the proposed reduction in the pensions Money Purchase Annual Allowance, please find comment from Jon Greer, pensions expert at Old Mutual Wealth:

“Since April 2015, it is estimated that 475,000 people have accessed their money purchase pensions savings flexibly, but soon under proposals announced by the Chancellor in his Autumn Statement they will be subject to a 60% reduction on how much they will be able to save into a defined contribution pension.

“The current annual allowance stands at £40,000 which reduces to £10,000 for money purchase arrangements, as soon as the pension is accessed flexibly. Today’s announcement sees that allowance set to be reduced further, to £4,000 (subject to consultation), from April 2017.

“Careful planning is needed for people who in the future may still want to make further pension contributions, but who are considering flexibly accessing their pension savings or who may be considering starting to take income from their existing flexi-access drawdown savings. If they provide income in the wrong way it could lead to a 90% reduction in their ability to save into a pension after April 2017.

“Combining use of pension tax-free cash with withdrawals from ISA savings, taking capital gains within the annual CGT allowance, or tax-free bond withdrawals to sustain their income needs for as long as possible will extend the period over which higher future annual pension savings can be made. The best course of action is to take advice to consider how any pension withdrawals will impact your long term ability to save into pensions.

“Philip Hammond is targeting the potential to recycle pension savings to reduce tax. However, increasingly 50-75 year olds are using temporary and flexible work as a way to fund their retirement. Our YouGov research* with UK adults aged 50-75 found that 30% expect a job to help fund their future retirement income needs. These people may need to access their pension flexibly, but may also look to fund back into the pension in periods when alternative income is higher, thereby sustaining their long term pension provision.”

*YouGov surveyed over 1,600 UK adults, aged 50-75 as part of the Old Mutual Wealth Retirement Income study.

 

Changes to Salary Sacrifice

If you’re writing on the announcement of changes to salary sacrifice to come in from 2017 please see the comment from Jon Greer, pension expert at Old Mutual Wealth:

“Salary sacrifice has been a virtuous circle for employers. They offer their employees discounted benefits like private health insurance and attract good employees. The benefit to them is they don’t have to pay as much national insurance.

 “The impact of the proposed change to salary sacrifice will be a minefield for these companies. Either it will affect their bottom line if they choose to keep the schemes as they are or they will have to ditch the benefit and risk 

employee upset. The biggest concern is it could lead to more ill-health and greater pressure on the NHS as companies may choose not to offer a private healthcare benefit, including regular health checks. 

“Worse still, this could be the beginning of getting rid of salary sacrifice altogether. Pension contributions aren’t 

affected and it is likely the government is concerned about the impact scrapping pension contribution salary-sacrifice will have on auto-enrolment take up. But we shouldn’t be too quick to rule out future changes as pensions represent a larger proportion of the lost national insurance contributions.”

 

Pensions Triple lock

Press comment on the pensions Triple lock following the Autumn Statement from Jon Greer, pensions expert at Old Mutual Wealth:

“Given the multiple calls for the triple lock to scrapped, Philip Hammond had little choice but to address it in his statement. He has opted for a measured approach, by confirming it is in place in the short term, but adding that it will be looked at. While the removal of the triple lock is politically toxic, it is fiscally unsustainable and logical that it 

Jon Greer

be removed eventually. However, it needs to be undone with careful thought. 

“We expect the changes will be part of a wider review of the state pension age. What the Chancellor could do is link to CPI in isolation. However, he could also be radical and introduce a new pensioner cost of living index that would more accurately reflect the inflation that pensioners are subject to.

“To make its removal viable policymakers need to reduce reliance on the state in retirement. One easy way to do this would be to introduce policies that encourage the ‘retired’ or recently retired back into work.”

 

QROPS

Press comment following the Autumn Statement from Rachael Griffin, personal financial planning expert, Old Mutual Wealth:

QROPS (section 5.6 of Autumn Statement)

"The Government has taken steps to ensure ‘Foreign Pensions’ often referred to as QROPS (Qualifying Recognised Overseas Pension Schemes) are more closely aligned with UK pension schemes for individuals who do not intend to leave the UK long-term. This is to prevent QROPS being misused by anyone looking for a more favourable tax position. The changes will mean the income from a QROPS will be taxed in the same way as a UK pension for anyone returning to the UK – currently only 90% of income from a QROPS is subject to income tax rather than 100% in a UK pensions scheme.

"The Autumn Statement is suggesting the member payment provisions will extend from 5 to 10 years, which is likely to impact the pension commencement lump-sum, limiting it to 25% of the UK tax relieved funds for 10 years instead of 5. The Statement also suggests a further review will be carried out on the eligibility criteria for foreign schemes, suggesting some schemes may lose the ‘recognised’ status by HMRC. We look forward to the detail being released on this."

 

Non-domiciled individuals

Press comment following the Autumn Statement from Rachael Griffin, personal financial planning expert, Old Mutual Wealth.

"The Chancellor will press ahead with the changes already announced for non-UK domiciles, which will come into effect from 6 April 2017. The reforms will reduce the tax incentives for many of the wealthy non-UK domiciles, and anyone impacted by these changes should seek professional advice to ensure they structure their finances accordingly.

1. 15 out of 20 years

"Non-UK domiciles living in the UK will become deemed UK-domiciled for tax purposes after they have been in the UK for 15 out of 20 years. This is a tightening of the current rules, which have a timescale of 17 out of 20 years. Once they become deemed UK domiciled they will nolonger be able to pay tax on the remittance basis and will become liable to UK IHT on their world-wide assets.

"Non-UK domiciles approaching 15 years in the UK should seek advice to ensure their assets are structured in the most effective way. For example, they may be able to use an Excluded property trust to protect their overseas assets from becoming liable to UK tax once they become domiciled.

2. Property held in overseas corporate structures:

"Non-UK domiciles will be caught by the same inheritance tax rules for their UK property as those who are UK domiciled.  The new rules will mean that any non-UK domicile holding UK property in an overseas corporate structure (known as ‘enveloping’) will no longer be exempt from UK IHT. This is likely to make overseas investment in UK property less attractive, and is likely to impact London the most, where overseas investment through these corporate structures is particularly high.

"Any non-UK domicile currently invested in UK property through an overseas corporate structure should speak with their financial adviser. From 6 April 2017 these structures should be unwound as they are no longer effective and won’t justify the ongoing fees involved. If individuals are concerned about the exposure to UK IHT their adviser can put a plan in place to help beneficiaries pay any IHT liability, such as setting up a life assurance policy, or they could look at using trusts.

 

Personal Portfolio Bonds – widening of investment choice

Press comment following the Autumn Statement from Rachael Griffin, personal financial planning expert, Old Mutual Wealth.

"It is good news that the Government will press ahead with broadening the range of assets which can be held within a Personal Portfolio Bond. The original restrictions on asset classes dates back to 1999. This move recognises the rise in demand for new types of assets, such as REITS, and will be good news for investors.

"It is a shame the Government didn’t go one step further and remove the punitive 15% ‘deemed gain’ tax charge applicable where non-permissible assets are held. This charge applies when individuals in the UK inadvertently hold non-permissible assets at the end of the bond year. It is not inconceivable for a situation to arise where an individual invests in an open-architecture offshore bond whilst overseas, when they return to the UK they are unaware they are holding non-permissible assets, and so incur a cumulative 15% tax charge. This cumulative charge dates back to when they first held the asset, and could create a large tax charge even where there has been no economic gain.

 

Partial withdrawals from bonds

Press comment following the Autumn Statement from Rachael Griffin, personal financial planning expert, Old Mutual Wealth.

The disproportionate tax charges on life insurance policies

"The Government has confirmed that, from 6 April 2017, it will allow HMRC to correct the inequitable tax position which can arise when someone withdraws money from their life policy (bond) in the wrong way. HMRC will correct the case on a ‘just and reasonable basis’. The number of customers taking withdrawals from bonds in the wrong way is minimal so this feels like a pragmatic approach, and will allow for corrections to be made without impacting the general withdrawal rules on bonds for all other customers. My only reservation is around how the correction will be reflected in all future correspondence with the policyholder, and could lead to confusion."

Background information:

There are two ways in which a customer can withdraw money from an investment bond; they can either make a partial withdrawal from all policy segments or they can do a complete closure of individual policy segments. The way a customer is taxed in each scenario can be significantly different, and often the customer is unaware of the implications.

As a general rule of thumb, it may be more tax efficient to withdraw money (over and 

Rachael Griffin

above the annual 5% allowance) through surrendering individual policy segments rather than taking the money through a partial surrender across all policies.  However, each case needs to be reviewed on its own merits.

If a customer asks for money to be withdrawn from across all policies, where this is in excess of their 5% tax deferred allowance, the customer could be faced with a significantly greater tax liability than would have otherwise been the case. Mistakes can happen and may lead to extreme tax consequences which are completely disproportionate to the growth received on the investment (as in the case of Lobler). This is what has prompted the review by HMRC.

 

 

For more information contact

Tim Skelton-SmithOld Mutual Wealth02380 916 99807824 145 076tim.skelton-smith@omwealth.com
Sophie HeywoodOld Mutual Wealth02380 91677007834 499558sophie.heywood@omwealth.com
Kathleen GallagherOld Mutual Wealth023 8072 629307990 004932kathleen.gallagher@omwealth.com

Notes to editors:

About Quilter plc:

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

Quilter plc oversees £116.5 billion in customer investments (as at 30 June 2018).

It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset 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 the Multi-asset investment solutions business.

The Quilter plc businesses are being re-branded to Quilter over a period of approximately two years:

• The Multi-asset business is now Quilter Investors

• Intrinsic to Quilter Financial Planning

• Private Client Advisers to Quilter Private Client Advisers

• The UK Platform to Quilter Wealth Solutions

• The International business to Quilter International

• The Heritage life assurance business to Quilter Life Assurance

• Quilter Cheviot will retain its name

This press release is for journalists only and should not be relied upon by financial advisers or customers.

Please remember that past performance is not a guide to future performance. The value of investments and the income from them can go down as well as up and investors may not get back any of the amount originally invested. Exchange rate changes may cause the value of overseas investments to rise or fall.

This communication is issued by Quilter plc.  Registered office: Millennium Bridge House, 2 Lambeth Hill, London EC4V 4AJ, United Kingdom. Registered number: 6404270.  Registered in England.