PENSION ACCUMULATION

MasterClass

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Scottish Widows logo (a hooded woman) - with the caption 'Masterclass, Pension Accumulation'

In this recorded MasterClass from September 2016, our Financial Planning and TechTalk team give a detailed explanation of the rules surrounding pension accumulation and provide practical examples on topics including:

  • pension policy following the EU referendum vote
  • the difference between tax relief and the annual allowance
  • employer contributions, focussing on directors
  • carry forward
  • restrictions to tax relief - the tapered and money purchase annual allowances and the lifetime allowance.
  • Operator: Good day and welcome to the Scottish Widows Pension Accumulation MasterClass call. Today's conference is being recorded. At this time, I would like to turn the conference over to Simon Harris. Please go ahead.

    Simon Harris: Thank you very much and good morning everybody and welcome to the Scottish Widows TechTalk MasterClass on Pensions Accumulation. Tom Coughlan and Chris Jones from Scottish Widows Financial Planning team will shortly be taking us through the presentation reminding us of the pension planning rules and opportunities we have available to support the client on the journey towards retirement. Earlier in the year the then Chancellor George Osborne was signalling changes that would impact on the way people might save towards their retirement including potential changes to tax relief and the introduction of the Lifetime ISA.

    Following the vote to leave the EU, we have seen significant change in the key government personnel who will be responsible for reviewing the pension savings landscape going forward. At the top out go David Cameron and George Osborne and in come Theresa May and Philip Hammond. Since then it has gone relatively quiet around these pension changes, although work continues behind the scenes on the rules, which will govern the likes of the Lifetime ISA and drive the second-hand annuity market. And whilst it might be difficult to predict how – predict now how pension policy might change the new leaders have been in their past role shown a keen interest in the welfare of people in retirement particularly around developing a culture of savings.

    We may see changes based on what has been proposed so far and indeed there could be more, but for the time being we need to fully embrace the rules in place now. And what about public and how they're feeling? Scottish Widows published the 2016 Pension Savings Report in the last few weeks which offered valuable insight into the UK savings habits. This showed through the key indicator, the Pensions Index that those savings adequately towards retirement after a period of steady growth has plateaued at 56%. Further research carried out to attempt to understand the impact of the euro vote on investors feelings indicated a drop in confidence in the longer term as we go through this period of uncertainty, but naturally these are early figures and sense there is much more followed.

    If we are to reassure our clients and encourage them to continue longer term saving it highlights the need for a keen understanding of the rules on our part. And for sound advice on the most effective way to save. We've witnessed a lot of change over the last 12 to 15 months and indeed these Masterclass sessions have certainly looked to keep you up-to-date with the pensions world. You can find more information and comments around these issues by the Scottish Widows Advisor Extranet and also under the new campaign heading of 'Helping you make the most of Change' which includes more information and comment. So against this backdrop today's presentation will focus on pensions accumulation, building a client's pension fund in an efficient manner whether this involves personal, employer or third party contributions making sure along the way we maximise the release available relevant to clients’ earnings position.

    Sometimes we can take for granted the valuable benefits pension planning can bring today will act as a timely reminder on some of the finer points. The presentation is scheduled to last for about 35 to 40 minutes following which there will be time for any questions you may have. A recording will also be made and put on to the Scottish Widows Advisor Extranet should you wish to review the content again and I would remind that CPD certificates will also be issued. I would like to now hand over to Tom Coughlan to start today's presentation.

    Tom Coughlan: Thank you Simon. Good morning everyone. The content we're going to go through in the session is as follows; we’ll start by looking at tax relief and the annual allowance, and hopefully just clarify the distinction between those two because they are occasionally confused as relating to the same thing. We'll look at the different ways in which the £3,600 contribution limit can be used and that links to third party contributions. I'll then hand over to Chris who will look at employer contributions with particular focus on those who run their own companies and can therefore decide on their own reward package including pension contributions. We’ll have a look at carry forward and how the two recent restrictions in the annual allowance - the money purchase allowance and the tapered annual allowance, - affect that and then we will look at the Lifetime Allowance at the end. And there will be time for any questions that you have as well.

    Starting with tax relief and the annual allowance. These are two separate limits that apply to personal contributions. The first is a limit on tax relief on all gross personal contributions to a scheme and it's in the tax year; they are limited to their client's relevant UK earnings for that tax year. If the client has low earnings or no earnings then they may pay £3,600 gross. This means different things for different clients; so a client that earns £1,500 over the tax year can pay gross contributions to a scheme in that year of up to $3,600 so they benefit from the de minimis limit. A client who earns £15,000 a year, then they may pay up to their earnings in terms of gross personal contribution and get tax relief.

    A higher earner earning £150,000, they can pay that amount as a gross contribution in the tax year and get tax relief, but there may be an annual allowance charge, but that is separate from the tax relief; the tax relief is given upfront by the provider then the annual allowance charge may later reclaim some of that in the form of an annual allowance tax charge. The annual allowance applies to all contributions; personal contributions, employer contributions, also any paid by third parties. If the annual allowance charge plus carry forward is exceeded then there is an annual allowance charge. Continuing with the example of Client C who made personal contributions equal to their earnings of £150,000. If there are also £10,000 worth of employer contributions as well then they pay £160,000 in total against an annual allowance we’ll say of £140,000. There is a £20,000 excess. So the annual allowance charge recoups some of the tax advantages, but the tax relief was still available up-front to the client.

    Just a few points to clarify regarding these two rules, personal contributions that attract tax relief cannot go above earnings in the tax year, mainly because many providers won't accept them; it’s allowed for in the legislation, but generally provider systems can't deal with them. Personal contributions can only be paid with tax relief to the extent that the client's earnings permit, because carry forward is related to the annual allowance and there's no carry forward of unused earning, and that also includes the £3,600 de minimis limit. If a client doesn't take advantage of the £3,600 in a particular tax year then there's no scope for carry forward of that.

    And one final point. Previously you were able to manipulate pension input periods so that you could have paid two annual allowance's worth of contributions in a short space of time, but because pension periods are now always fixed and are always linked to the tax year then there's no longer any scope to be able to do that. Just to show all that in a slightly different format, so a client with relevant earnings in the year of £70,000, they could pay contributions of that amount. They would get full tax relief so they would get 20% relief up-front paid by the provider and they'll be able to get some high rate relief through self-assessment. But it's just worth pointing out that that higher rate relief would be limited to the amount of higher rate income tax that they actually pay on their earnings. In this case their earnings are £27,000 above the higher rate threshold. So they would only be able to get 40% relief on that £27,000.

    The rest would only benefit from 20% relief. But it's also worth noting that they would get 20% relief even on the part of their earnings that sits within the personal allowance, so they're getting tax relief on a part of their earnings that didn't suffer income tax in the first place. The contribution and just the basic rate relief are invested. The higher rate relief is claimed through self-assessment. All contributions for that member to all schemes are then compared against the annual allowance.

    The annual allowance was say £50,000 and that would lead to a 40% higher rate tax charge on that excess £20,000. That annual allowance charge would be taken out around the same time that the 40% relief on the pension contribution was granted. So there would probably be some offsetting of those two things. Hopefully that just highlights that they are two distinct steps.

    Onto the £3,600 contribution limit. This only applies to personal tax relievable contributions; the main use is for low earners as they can pay up to that amount in the tax year that’s treated as a gross contribution. And as it is an earnings limit as I said on the previous slide, it can't be carried forward. The main use is by a parent or grandparent or another third party. Just to show how the tax relief would work, the third party actually pays the contribution to the scheme. It is treated as a net contribution so the provider adds the 20% tax relief to that and then reclaims that from HMRC. If there is any additional tax relief available because the client might be a high rate taxpayer, say, that actually goes back to the scheme member. So for all intents and purposes, it’s treated as a member contribution; and there's no requirement for the third party to have sufficient earnings or anything like that and they don’t get any tax relief. It’s just a contribution paid on behalf of the member and the member gets all the tax benefits.

    Another use of the £3,600 contribution limit is for those who cease to be resident in the UK. They can pay up to £3,600 in each of the five tax years after the year in which they lose their UK residency. But crucially it has to be paid to a scheme that they were a member of when they left, so they have to maintain at least one scheme after they've ceased UK residency to be able to take advantage of this rule. However, this rule doesn't apply to employer contributions so employer contributions can continue beyond the five year period and above the £3,600 limit, but the employer should just check the tax deductibility of that contribution because it may be based on different rules depending on what jurisdiction they're based in.

    In the year that the client ceases UK residency then they will normally be able to pay on their earnings because you would expect them to be at least £3,600 in a year. The next tax year, so the first year after they’ve departed, they can pay the £3,600 gross, and they can pay that for each of five years after that year in which they leave. Once you get beyond that then personal contributions that attract tax relief have to cease.

    Okay so that is just a quick introduction to some of the issues around personal contributions. I'm going to hand over to Chris who is going to look at employer contributions now.

    Chris Jones: Thanks Tom. Good morning everyone. Employer contributions; the main question employers ask about pension contributions is how much can be paid. So unlike personal contributions, employer contributions are not limited by the employee salary or relevant UK earnings. To be a deduction in the company's accounts and therefore will qualify for tax relief, it must be wholly and exclusively for the purposes of trade. The good news is that the vast majority of employer contributions will meet this tax relief. The HMRC tax manual contains some useful assurances on this point.

    As part of the costs of employing staff, pension contributions are likely to be allowable. Pension payment by an employer is normally wholly and exclusively for the purpose of its trade, even in respect of employees being made after they've retired or in another employment. There are some limits of course, a very large contribution for employee with low earnings, limited duties is unlikely to meet this test. So someone doing very basic admin duties earning a low wage, say £10,000 a year, if there was suddenly a £100,000 employer contribution that maybe be looked at. And the same also those closely related to business owner, e.g. spouse or children, if they employ them on limited duties and again with a low wage, but a very high pension contribution, that's likely to be looked at to see if that's really a fair market reward.

    Directors are a special case; they have to meet the wholly and exclusive test as normal, however, with directors, you look at the whole reward package as a whole, not the employer contribution in isolation. And that reward package must be linked to the value of the work carried out. So consequently employer contributions are not limited to salary. Directors are usually the driving force behind a business, therefore there's no theoretical limit on their total reward package. Again HMRC provides some useful reassurance. Where the controlling director is also the person whose work generates the company's income then the level of remuneration package is a commercial decision and it is unlikely that there will be a non-trade purpose for the level of remuneration package.

    And a classic example here is the IT contractor set up as a self – sorry, set up as a limited company, they will generate all the income in that company so they can distribute that and reward themselves as they like. Some of this reward package can therefore be paid as a pension contribution, but still subject to the annual allowance. Of course if a director had limited duties or limited input in the business, the reward package should reflect it; this wouldn't affect the dividends of director shareholders because that would be a distribution of profit, but it would affect their reward package. As the annual allowance is relatively low, potentially as low at 10,000 but only up to 40,000, it means it’s likely that the limiting factor rather than the wholly and exclusive test, will be the annual allowance itself.

    So pension contribution can be used to either top-up the reward package each year or you could pay up one-off large contribution every few years. Just a couple of examples; Director 1 has adjusted income of 190,000 subject to tapered annual allowance so it goes down to 20,000. They decide to pay themselves a combination of salary and dividend of 170,000 and then top-up 20,000 to the annual allowance maximum. On the other hand, Director 2 has the same level of adjusted income, but in this case pay a very low salary and dividend, say £10,000 salary, £10,000 dividend and then a very large pension contribution of £170,000. Now the extra bonus of this is because their salary and dividend is now very low, it's below the threshold income of £110,000 which means they get their full annual allowance back to £40,000. So, if they carry it forward, if they haven’t paid any contributions in the three – previous three tax years, they could make that maximum £170,000 of contribution.

    Let's have a look at carry forward now. Now pension input periods are fully aligned to the tax year it makes it simple from now on. Unfortunately though, they still could be out of line for the previous tax year. So you still need to check you’ve allocated your premiums to the correct tax year for a couple more years yet. To be eligible for carry forward the individual must have been a member of the team in the tax year which they are carried forward from. The carried forward applies automatically; you don’t need to apply to the provider. You don’t need to apply to the revenue. If you’ve got that allowance available, you can use it.

    However, with personal contributions, you still need the earnings in the same tax year you paid the contribution, and that's often going to be the limiting factor. Therefore, anyone earning 40,000 or less – could not use carry forward in respect of personal contributions only. However, employer contributions don't face that same restriction; this allows them to use carry forward by business owners in full without the need to pay a high salary. So for the current year 2016-2017 it's possible to carry forward from 2013-2014. And from 2015-2016, it's forward from the pre-alignment tax year. So in 2016-2017, if you’ve still used your full 40,000 for this year you then go back to 2013-2014, 2014-2015 and 2015-2016. Same with the numbers so we’ve got 2016-2017, you pay your full 40,000, then look back to 2013-2014 to see what you’ve got unused.

    In this example we have 10,000. 2014-2015 we have 15,000, and then for 2015-2016, as I said it’s always the pre-alignment year, and that does cause some confusion. So 2015-2016, you had a maximum of 40,000 to carry forward to the post-alignment tax year. Anything you don’t use in that tax year can be carried forward to future years. So technically it’s always carried forward from the pre-alignment year.

    Two further restrictions on pension contributions have come in recent year. This year we had the tapered annual allowance for those with adjusted income of greater than 150,000 which showed in the example of the directors. They will have their annual allowance reduced by half of the excess down to a minimum of 10,000. That's subject to threshold being – threshold income being greater than 110,000.

    Also from April last year, the money purchase allowance came into force. That – applies whenever anyone used the new Pensions Freedom and Choice rules taking Flexi Access Drawdown or an Uncrystallised Fund Pension Lump Sum. And the 10,000 money purchase allowance restriction comes in straight away. So the interactions of those two separate rules with carry forward can be particularly complex. And Tom’s going to take you through that with some examples.

    Tom Coughlan: Thank you Chris. Yes, as we have dedicated separate sessions to these two sets of rules - the tapered annual allowance and the money purchase annual allowance - so we won't go through them in a huge amount of detail, but we will just quickly summarise those two sets of rules and then show how the interaction between those two works. So the tapered annual allowance; for that the income definition that is important is called adjusted income. That isn't always known when the contribution is been made which adds an additional layer of complexity. The actual starting point for calculating adjusted income is the taxable income and this includes all sources of taxable income, so salary, bonus, banking and building society interest, any dividends etc.

    If the client is self-employed then for salary and bonus read trade earnings, and from this, certain deductions are allowed such as qualifying interest payments and also net pay contributions - personal contributions to an occupational scheme. And the reason for that being the starting point is that that is simply the definition in the tax legislation, so it just borrows from existing legislation. The next step to calculate adjusted income is to add on a personal contributions paid under net pay and also employer contributions as well. So in step one, you're deducting net pay contributions, in step two you're adding them back on which does seem unnecessarily complex, but it is just because of the way the legislation was written that it borrows from the existing rules.

    As an adviser you may not always be privy to all that information, so if in doubt then the best approach would be to confirm with the client's accountant who should be able to confirm that taxable income figure. Just to run through a quick example. Charles is paid a salary of £160,000. He’s in his employer's net pay scheme and pays 5% to that which is matched by the employer. He also receives a £10,000 dividend in the year. So the starting point is to calculate taxable income. That is the salary of £160,000. You’ve got to deduct the net pay contribution from that which takes it down to £152,000 and then by including the dividend takes it back up to £162,000.

    Then step two, as I said, is add-on all of those pension contributions, so the net pay contribution of £8,000 and the employer contribution, also of £8,000, which takes you back up to £178,000. So the client, in terms of adjusted income, is above that £150,000 threshold by £28,000, so half of that £14,000 will be knocked off their annual allowance. The threshold income is also above £110,000, which is the other criteria. As I said the annual allowance tapered down to £26,000 for that client. Just to clarify how carry forward relates to that, so even though in this tax year that client has a £26,000 annual allowance because of the tapering, their annual allowances from previous years are unaffected.

    So in 2013-2014, as the table shows, client has used £5,000 of their allowance, £10,000 in 2014-2015, and nothing in 2015-2016. So in terms of carry forward they have the £26,000. While they can use the £26,000 current year annual allowance first and then carry forward the full allowances with reference to whatever the full allowance was in that particular year. So £45,000 from 2013-2014 and £30,000 from 2014-2015 and the full allowance from the previous year giving £141,000 in total.

    The money purchase annual allowance works in a completely different way. So when it is triggered it applies from the following day onwards. The trigger events are broadly flexible access under the Freedom and Choice regimes. The main two are UFPLS: Uncrystallised Funds Pension Lump Sums and also flexi access drawdown income; and it does have to be the income not just the tax-free cash and designation to drawdown. They have to actually receive some flexi access drawdown income for the money purchase annual allowance to be triggered.

    There are other trigger events as well; annuities that can change in value, certain types of small scheme pensions and others as well including previous flexible drawdown under the pre-April 2015 rules. Once triggered then a £10,000 annual allowance applies to all DC contributions and as I said from the next day after that trigger point, but also for each subsequent year as well so it's not just a one-off limit. It does apply indefinitely from then on as far as the current legislation goes. Whatever is left of the full annual allowance, which is normally £30,000 is called the alternative allowance, that can be used for DB accrual. So they do get the full annual allowance or possibly the tapered annual allowance it’s just that only £10,000 can be used for money purchase contributions.

    Halfway through this tax year the client triggers the money purchase annual allowance. Anything paid before the trigger point is unaffected so they could have used their full allowance for funding DC schemes and DB schemes. After the trigger then they have a maximum annual allowance of £10,000 for DC schemes. If they have any annual allowance left, then they can use that for DB accrual as well. In terms of calculating if there is an excess above the money purchase annual allowance you have to do two calculations. The first stage is looking at by how much they have exceeded the money purchase annual allowance, if at all. So the example on the slide shows someone who's paid £12,000 against £10,000 money purchase annual allowance.

    So you have a £2,000 excess, and then you’ve got to look at the rest of the annual allowance and see what has been paid to that. So this client has also accrued £33,000 in terms of DB benefits, and that's against the remainder of the allowance which is £30,000 so their excess is £3,000. So by adding those two together gives you a £5,000 annual allowance excess, but you have to check this as well by just making sure that that isn't any lower than the excess over the standard allowance as well. So taking all of those amounts together (£45,000) and testing against the standard annual allowance of £40,000 gives you a £5,000 excess. So that will be their annual allowance excess, although in some cases you won't get the same result from doing those two things, and if you do then you have to choose the higher of those two.

    The table just shows the previous slide, so £12,000 against the money purchase annual allowance, £33,000 against the rest of the annual allowance, and if you would do the second check as well and just compare it against the full standard £40,000 annual allowance then you get a £5,000 excess. Another example for a client who has used up all of their money purchase annual allowance, but they've gone over the remainder of the annual allowance by £5,000 and also just double checking that against the standard annual allowance then you'll get the same excess of £5,000. But just to give you a situation where that doesn't always give you the same outcome, so a client who is subject to the money purchase allowance pays £20,000 against that £10,000 annual allowance, but they remain within the rest of their annual allowance.

    And then when you do the check against the standard annual allowance, you find that they are only £5,000 over. In this case you're taking the higher of the two excesses so the higher excess which is £10,000 above the money purchase annual allowance, that is what the tax charge will be based on, and so it’s just that two stage process and just taking the higher of those two excesses. Okay so just to show where those two sets of rules combine together, so a client is subject to the tapered annual allowance because they have high earnings. For example, their annual allowance is tapered down to £25,000 and also in the year they trigger the money purchase annual allowance.

    What happens here is that that tapered annual allowance is split between the money purchase annual allowance and the rest of the annual allowance, so they'll still get the £10,000 for DC contributions. But it's the rest of the annual allowance that is tapered so they will have a £15,000 allowance for DB contributions. A client where they tapered annual allowance down to £20,000 - this client will get the full money purchase annual allowance of £10,000. But it’s the rest of their allowance that is tapered which is the bit for DB accrual. And taking it to the extreme, so someone who has a tapered annual allowance all the way down to £10,000 then they’ll still get the £10,000 for DC contributions, but they will have no annual allowance remaining for DB accrual because it has all been removed by the taper.

    But if the client does have any carry forward then that can be added to that and used for DB accrual whereas the carry forward can't be added to the money purchase annual allowance.

    Okay I'm just going to hand back to Chris who's just going to cover the lifetime allowance.

    Chris Jones: Okay Tom, yeah we'll just take a brief look at the lifetime allowance. The overall limit of the tax advantage savings in a pension scheme. It has reduced substantially since the 2011-2012 from 1.8 million having increased since [inaudible] from 1.5 to 1.8, and now it's gone down gradually to £1 million. Ultimately this means the tax take and the number of people affected has increased substantially. Many, many more clients will need help with this.

    A lifetime allowance test occurs whenever benefits are taken, so whenever you take tax free cash, move into drawdown or buy an annuity or scheme pension. And you can't even avoid it by not doing anything either because you still have a test; if you do nothing there’ll be a test at age 75. If the LTA is exceeded you’ve got a choice; you can take the excess as a lump sum subject to 55% charge or, what's becoming more popular, 25% if you use in to provide an income. Now when those figures were first set with the higher lifetime allowance, it was expected that everybody who chose the latter option would be subject to higher rate tax, so the two figures would always be even. Now the lifetime allowance has come down and we have pension freedoms that might not always be the case; it might be possible to take some of that money below the higher rate threshold and so the income option may provide a slightly more favourable outcome.

    So obviously the lifetime allowance is a key planning consideration for those planning significant amounts of pension funding. And there's rarely any tax advantage in personal contribution above the lifetime allowance. One thing we've seen more recently again linked to the Pension Freedoms, people who are never intending to take their money out of their pension fund at all, kind of using it as an IHT planning vehicle if they're a higher or additional rate tax payer now getting that relief upfront, getting it outside of their estate. At age 75 there will be a 25% tax charge, but depending on the ultimate beneficiaries that may be preferable to – to no tax relief and then a 40% IHT charge.

    However, employer contributions may still be of benefit, especially if there is no alternative and that will be the case in most public sector schemes and many senior employees of public sector schemes will start to become affected by the lifetime allowance for senior public servants, doctors, senior teachers that kind of thing. Their pension funds will likely to exceed this if they stay in their careers until normal retirement age.

    That’s all our technical content, a reminder of all the rest of our support material. Instructions on how to get to that on our website. Two things I'd like to highlight relevant to this particular section is the bottom left, the tools – the carry forward calculator which we’ve updated to include the tapered annual allowance and also a salary dividend pension calculator that looks at the most tax efficient way of extracting profits in the kind of owner managed small company area, which I described earlier in the slides.

    We also highlight the latest edition of September TechTalk, the bumper edition particularly relevant to this session; we've got the retirement planning and insight into the future of pensions legislation. We have a much more detailed look at the tapered annual allowance there towards the bottom and also the new dividend rules again linked to that calculator I just described. We’ve also got a couple of articles now that DB to DC transfers are becoming more popular. Two articles on that, one highlighting the difference between the two and one looking at DB schemes and pension protection. Also a brief reminder of the previous MasterClasses, if you would like to look at any of the subjects, carry forward an annual allowance or the tapered annual allowance in more detail they're there and of course all the other subjects as listed.

    So that's it for us. We'll now check if there's any questions and I think we'll – we’ll do that today just via the – the webinar rather than the phone. So we have one here. Tom, where the annual allowance has been exceeded how is the tax collected? Is it by the tax return? And is tax paid at the marginal rate?

    Tom Coughlan: Yeah the tax will always be at the marginal rate. So that excess is added to the client’s income and taxed depending on what tax band it falls in. In terms of the way it is collected then it is either by self-assessment or if the client qualifies for scheme pays then they can ask the scheme to meet that charge out of their pension fund. And the requirement for scheme paid I think are that the charge has to be at least £2,000 and the member must still have paid at least £40,000 to the scheme that they're asking to meet that charge from. And if that is the case then if they ask the scheme to pay that charge then the scheme are obliged to, and the scheme may also offer it on a voluntary basis if they don't quite meet those requirements.

    Chris Jones: I’ll take this one, is the annual allowance triggered if the client just takes the 25% tax free cash, so as we are talking about the money purchase annual allowance here. So if you move into flexi access drawdown and just take the tax free cash then that doesn't trigger the money purchase allowance. Money purchase annual allowance would apply as soon as you took any income from that drawdown fund.

    Tom Coughlan: Okay there is another question here for me I think. So for someone who moved to Guernsey leaving a SIPP which was created by divorce and there are no other contributions being made or was ever made by the member, can the member now make UK pension contributions for five years? Yeah the rules around that simply state that if the member was a member of that scheme when they ceased to be UK resident then they could take advantage of that £3,600 limit for five years after that. So there's no link really to the divorce rule. It is just a very simple rule,: were they a member of that scheme when they left? In which case then they should be able to take advantage of that.

    There’s a question here for you Chris; for small businesses, a director pays himself £10,000 salary and £30,000 dividend. I was under the impression that the £10,000 was only allowed under net relevant earnings, but your presentation suggests the £40,000 is net relevant earnings.

    Chris Jones: No because we're talking about – no you're right, dividends wouldn't count as net relevant earnings for pension contributions. But because it’s an employer contribution it's not linked to the level of earning so as a director it’s the total rearward package so they don't have to worry about the level of earnings, it's just their value to the business. So, in most cases they will produce all the value or most of the value of that business so you don’t need to worry about the level of earnings.

    Tom Coughlan: Okay there's another question here, yeah, I think I'll take this one. Do employee contributions need to be made from company profits during the tax year or can they be made and create a loss situation? As far as I’m aware, there's no requirement that the company has to be in profit to be able to pay an employee pension contribution. If – yeah, if there are no profits and the company makes that deduction for the employer contribution then in that case it would, I guess, enhance the actual loss. I’m not aware of any requirement that you have to be in profit to get that employer contribution deduction. Are there any more questions there?

    Chris Jones: Yeah I think that's probably it. We might – sorry we might have missed some, but if we do we'll get back to you individually. So thank you everyone for dialling in and thank you for your questions.

    Simon Harris: Thank you everybody. Just to summarise then, armed this knowledge and experience as advisors, you are clearly well placed to support clients saving towards a comfortable retirement, and importantly at the moment reassure them with ongoing support and communication. We may be in uncertain times, but let's make sure the rules in place now are put to best use. Scottish Widows has a wealth of support information in this space including a strong well priced individual pensions proposition through retirement account, offering a wide range of investment choices including some excellent low cost multi-asset solutions. And this is backed up with the strong operational and online proposition designed to reduce paperwork and the need for client's signatures and allow for certain transactions such as taking ongoing benefits to be carried out over the phone.

    In addition to this as Chris has indicated tools to help with some of the more complex calculations particularly around carry forward and advising directors on remuneration strategies employing dividends and pension. Please speak to your Scottish Widows contact if you would like further information and please visit the HELPING YOU MAKE THE MOST OF CHANGE hub on the extranet where you can find valuable source material, the latest pensions report I referenced earlier, and Scottish Widows research in association with Money Marketing, summarising the views of advisors on the changing industry outlook.

    As with our previous MasterClasses, a recording will be placed on the extranet for further review. Indeed, if you wish to review any other recordings they will still be available on the extranet. And a reminder, CPD certificates will also be issued following today's call. My thanks to Chris and Tom for taking us through the slides today and it's just a thought to leave you with, the people governing at the top now go by the name of May and Hammond. Maybe the future bodes well for anyone with the surname of Clarkson. Thank you for joining and that concludes today's presentation.

    Operator: Ladies and gentlemen that will conclude today's call. Thank you for your participation. You may now disconnect.

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