Pension Freedoms

The recent pension changes have revolutionised how individuals are able to take their pension savings. To unlock the full potential of these new rules requires a rethink of existing advice models. A key challenge is to reverse public perception of pensions and to engage savers with their retirement planning.

For you, deciding on the right investment strategy for your business to support the new pension freedoms and finding the most efficient way to implement it to meet your clients’ needs presents new challenges and opportunities.
Here, David Tiller, now our Head of Adviser and Wealth Manager Proposition, discusses the new changes and what these are likely to mean for the adviser community.

New pension freedoms - video transcript

Top topics

Whether you're interested in understanding the key changes or finding out more on how Standard Life's products support the changes - we have the answers you need:

Tax policy

What is a tax policy?

A tax policy aims to document the tax advice you give your clients in a clear methodical way, to help them understand exactly how you recommend they approach withdrawals in retirement to maximise tax efficiency.

Why have a tax policy?

Building a tax policy into your retirement proposition gives you an easy way to demonstrate the value you can add for your clients when they reach retirement. Left to their own devices, a client is more likely to overlook the tax effect of withdrawals and end up paying more tax for the same net income. By implementing tax policy, you can easily and quickly demonstrate a value saving to the client from the adviser service you provide.

It is also good practice to build robust repeatable processes into your business to ensure a consistent approach is being taken for all clients and that advice recommendations are clearly documented and articulated to the client. The tax policy helps with this by delivering a summary of what client holdings (tax-wrappers) will be used to fund income and why.

How do I implement a tax policy?

We have created a series of guides and tools to help you create and implement your own tax policy:

Tax policy guidelines Key considerations for advisers when creating a tax policy

Tax policy statement template (Editable Word) A template ‘tax policy statement’ document for you to use with your clients

Guide to creating a tax policy on our Wrap platform A guide explaining where you can find the information you need on our Platform

Income withdrawal optimiser tool A tool illustrating the tax savings you could make for your clients through taking income from different tax wrappers

Pension Death benefits

The new pension benefits rules mean that pension pots are far more inheritable than ever before, meaning clients can now consider using their pension pot as a vehicle to pass wealth down through the generations.

The new rules have introduced two significant changes to DC pension death benefits:

What options do clients have?

Clients hoping to leave a flexible legacy to family members from their pension need to check that they have everything in place to make that happen.

Having the availability of the full range of death benefit options from a modern flexible pension and keeping nominations updated as part of regular client reviews has increased in importance.

There are a few clear options for clients to consider:

Inherited drawdown

Previously only a dependant could carry on in drawdown, but now it’s possible for anyone to be nominated to inherit the drawdown fund. For example, this means pension wealth may be passed to adult children within the pension wrapper rather than as a lump sum, and there is no requirement for them to wait until they reach age 55 to access it.

Bypass trusts

Traditionally this has been a popular way of passing on pension wealth tax efficiently. The pension death benefit lump sum is paid to a discretionary trust set up by the client and their own chosen trustees can control who benefits and when.

Nominations

How pension death benefits are taxed has now changed and there is now greater freedom over who can carry on drawing an income from the pension fund on death. It is important that a client’s death benefit nomination continues to match their wishes. Nominations can be changed at any time simple by completing a fresh death benefit instruction form.

More on inherited drawdown (PDF, 747KB)

Pension vs ISA

The introduction of the new freedoms means pensions have recently become a much more attractive savings option.

With immediate unlimited access to pension funds from age 55, many people may now be thinking about choosing their pension over more traditional savings options such as ISAs. It could even be the trigger to consider transferring their existing ISA savings into their pension plan.

ISAs are still a valuable savings option for many clients, especially those that may need access before age 55. But with pensions benefiting from tax relief on member contributions and the ability to take 25% of the fund tax free they will likely outperform ISAs in most like for like situations. Of course, investments can go up or down in value and may be worth less than was paid in.

To see how pensions and ISAs stack up against each other when compared on a like for like basis we have created a factsheet (PDF, 999KB) which covers all possible client scenarios.

For more information and case studies, visit Techzone

Due diligence

Why is due diligence such a key part of the new world of pension freedoms and new retirement propositions?

  • Clients in retirement may place a greater demand on your services - your provider needs to have the capability to support you with this.
  • Clients will seek different ways of accessing their money - your provider should provide
    maximum flexibility to help you meet the needs of your clients.

As a result, you may need to make changes to your business operations to adopt and use platforms successfully. For example, you will need to identify the business areas affected, assess the potential impact upon them and manage the change. This can include:

  • Segmenting clients: if the platforms you are considering are not appropriate for all your clients, you may need to divide them into separate groups that you monitor differently.
  • Developing new service propositions: adopting a platform may mean providing a new type of service, such as regular investment reviews, which may need to be managed differently.

You need to be able to rely on your provider to help your business meet the increased demands

More information on our approach to due diligence

Our product solutions

The vast majority of your clients with Standard Life pensions will be able to gain easy access to the new flexibility from age 55.

Standard Life product family

Individual SIPP family
Wrap SIPP, Active Money SIPP)
  • Clients have full access to new flexibility
  • Beneficiaries have full access to flexible death benefit options
Individual non-SIPP family
(AMPP, PP, IP, SHP, FRP, FSAVC) Workplace Contract-based family
(GSIPP, GFRP, GPP, GSHP) Workplace Master Trust family
(Master Trust, Stanplan A CIMP/ EPP)
  • Clients and beneficiaries have easy access to new flexibility in the majority of circumstances
  • Access to full flexibility is by transfer or upgrade at retirement or death
Workplace Own Trust family
(TBP, CIMP, EPP, RAP, GAVC, AVC, SSAS)
  • The employer or trustees decide the degree of flexibility available for members
  • Easy access is available in all circumstances if the employer or trustees wish to offer it
Old-style Individual family
(RAC, buy-outs, FSSU/N)
  • Clients must normally transfer to access the new flexibility
  • No access to flexible death benefits

More on our drawdown solution

More on our research and planning

Your pension questions answered

Calculating how much tax your clients could pay

Remember we will only be able to confirm to you the amount of tax that will be applied to the payment being processed and the net lump sum which will end up in your client’s bank account but remember this will not take into account any over or under payment of tax.

Use our ready reckoner to identify the amount of emergency tax your client could pay on lump sum withdrawals or you can calculate the amount of emergency tax which will be applied using this tool on the HMRC website.

Reclaiming tax overpayments

Individuals can get any tax overpayment back by filling in a tax form which you or your client can request from HMRC or download from their website.

To request a tax reclaim, the following forms should be completed:

  • P50Z – for those who have no other PAYE or pension income (other than the state pension)
  • P53Z – for those who have other employments or pensions
  • P55 can be completed by those who plan to make a single or irregular withdrawals, however, this may take some time

Next steps before instructing a withdrawal

Withdrawal instructions should be made for the gross amount your client requires, having taken into account the impact of emergency tax. Before making an instruction, please ensure there is sufficient cash in your client’s SIPP Bank Account to fund the withdrawal.

You can check available funds and process trades to generate any cash required using our online services on Adviserzone. This step-by-step guide (PDF, 2.6MB) will take you through the process.

Once sufficient cash is in your client’s SIPP Bank Account, please call our team to arrange the withdrawal from your client’s plan.

Link to service directory

Clients already in drawdown

Where your client is already in drawdown with us or if you have provided us with a valid (less than three months old) P45 for them, this will be taken into account when calculating the initial tax that will be applied to the payment. The final calculation will depend on a number of factors:

  • The type of tax code (e.g. BR, D0 or D1)
  • The point in the tax year
  • Whether the tax is being paid on a month 1 or cumulative basis
  • Previous income paid in the tax year

As a result, this can be a complex calculation and one that we cannot support on the phones. We recommend that advisers refer to HMRC and can potentially use the PAYE tax calculator to determine the tax payable in specific circumstances