M&g Plc · LSE:MNG
M&g — M&G Wealth — Investor Presentation (April 2023)
43 slides from M&g's investor presentation, April 2023
Slide 1: Techy Thursday - Lifetime Allowance: where are we, where are we going
Techy Thursday - April Lifetime Allowance - where are we, where are we going and what to do? This is just for UK advisers – it’s not for use with clients
Slide 2: Important information
This content is based on our understanding of current taxation, legislation and HM Revenue & Customs practice all of which are liable to change without notice. The impact of any taxation (and any tax reliefs) depends on individual circumstances. Where content includes case studies or examples these
Slide 3: Learning Objectives
Learning Objectives By the end of this session, you will be able to: Evaluate the impact on your Describe the pensions client's retirement planning Lifetime Allowance of the pensions Lifetime changes arising from Allowance changes arising Finance Bill 2023 from Finance Bill 2023
Slide 4: HMRC
HMRC
Slide 5: Pension Tax Limits
Pension Tax Limits increases the adjusted income level required for the tapered AA to apply to an individual from £240,000 to £260,000. The LTA is the maximum amount of tax relievable pension savings an individual can pody benefit from over the course of their lifetime. Individuals may contribute to
Slide 6: Pension Policy Cost
Pension Policy Cost £1,200 £1,000 £800 £millions £600 £400 £200 £0 2023/24 2024/25 2025/26 2026/27 2027/28 LTA AA MPAA
Slide 7: Lifetime Allowance
Lifetime Allowance
Slide 8: Lifetime Allowance
Lifetime Allowance 2022/23 2023/24 2024/25 on Excess Charges “As was” Lump Sum 55% Income 25% Marginal Rate Marginal Rate (as usual) Lifetime Allowance 2006 - 2024
Slide 9: Death Benefits > LTA, <75 (incl Serious Ill Health)
Death Benefits > LTA, <75 (incl Serious Ill Health) 2022/23 2023/24 LTA charge Income Tax LTA charge Income Tax Lump Sum 55% N/A 0% Marginal Rate Income* 25% Tax Free 0% Tax Free *DB income benefits - remain LTA free with taxed income
Slide 10: LTA on Death
LTA on Death BCE BCE BCE 7 5C 5D Drawdown Annuity Lump Sum Designated Purchase Paid Price All BCEs are treated as happening simultaneously for the purposes of determining liability to LTA excess charges, which the beneficiaries pay.
Slide 11: Post-death BCE liability apportioned equitably
“Where more than one relevant post-death BCE is paid following the death of an individual, whether from the same or different schemes, any lifetime allowance charge liability arising following the payment or designation or entitlement to any of those benefits is apportioned equitably between the (po
Slide 12: Death "admin"
Death “admin” Personal Scheme HMRC Beneficiaries reps
Slide 13: PCLS
PCLS Lower of: 25% of your 25% of your remaining “fund value” LTA Applicable Amount Available Portion
Slide 14: PCLS example
PCLS example Gill has no protection and has used of £573,100 of her LTA taking benefits from a DB scheme with no TFC. She’s got £600,000 of benefits to take i.e. she has £100,000 over the LTA. Her Pension Commencement Lump Sum is the lower of: 25% x £600,000 = £150,000, or 25% x (£1,073,100 - £573,1
Slide 15: PCLS Limits
PCLS Limits Protection Maximum Amount No protection 25% x £1,073,100 Fixed Protection 12 25% x £1,800,000 Fixed Protection 14 25% x £1,500,000 Individual Protection 14 &16 25% x Protected amount Fixed Protection 16 25% x £1,250,000 Primary and Enhanced Protection with no TFC protection 25% x £1,500,
Slide 16: Scheme Specific
Scheme Specific Bob has an old occupational money purchase plan. The current value is £573,100 with TFC of £300,000. He can receive this £300,000 and with £500,000 of LTA available (£1,073,100 – £573,100) can also receive up to a further £125,000 from any other scheme he has.
Slide 17: Enhanced/Fixed Protections
Enhanced/Fixed Protections Applied before and held on Contribute after Can’t be lost 15 March 2023 5 April 2023 Enhanced with Applied After stated % locked in Contribute after Can be lost
Slide 18: Primary and Individual
Primary and Individual Primary Protection Individual Divorce: Divorce: • Debits reduce relevant amount • Debits reduce relevant amount • 5% offset Higher PCLS can be lost/reduced
Slide 19: Is PCLS that big a deal?
Is PCLS that big a deal? Under “LTA” Over “LTA” Cost after Net Benefit RIP Cost after Net Benefit Tax Relief (after PCLS) Tax Relief (no PCLS) Basic Rate £80 £85 Basic Rate £80 £80 Higher Rate £60 £70 Higher Rate £60 £60 Additional Rate £55 £66.25 Additional Rate £55 £55
Slide 20: Intergenerational Planning
Intergenerational Planning
Slide 21: Don't ignore the pension because the LTA is gone!
Don’t ignore the pension because the “LTA” is gone! Brian, a higher rate taxpayer has used up his LTA and has £20,000 per annum disposable income. This is exacerbating his IHT issue and he has made a chargeable lifetime transfer that used up his nil rate band. Assume when he dies his beneficiaries a
Slide 22: The outcomes – dying before 75
The outcomes – dying before 75 Leaving in Estate Paying £20k to pension ▪ £20,000 less IHT at 40% = ▪ £5,000 (from tax return) less £12,000 IHT at 40% = £3,000 ▪ £25,000 from pension less LTA excess at 0% = £25,000 (income tax free) Net Benefit Net Benefit £12,000 £28,000
Slide 23: The outcomes – dying after 75
The outcomes – dying AFTER 75 Leaving in Estate Paying £20k to pension ▪ £20,000 less IHT at 40% = ▪ £5,000 (from tax return) less £12,000 IHT at 40% = £3,000 ▪ £25,000 from pension less 20% tax = £20,000 Net Benefit Net Benefit £12,000 £23,000
Slide 24: Or contribute to someone else's pension
Or contribute to someone else’s pension Brian’s daughter Briana is currently a basic rate taxpayer. If Brian paid into her pension what would the outcome be if she gets or doesn’t get PCLS? And just to make it more interesting, she wins the lottery between now and taking benefits and is an additiona
Slide 25: Briana's benefit…
Briana’s benefit… With PCLS Without PCLS ▪ PCLS of £6,250 ▪ £25,000 taxed at 45% ▪ £18,750 taxed at 45% Left in estate £12,000 Net Benefit Net Benefit £16,563 £13,750
Slide 26: All the outcomes
All the outcomes Beneficiary (Pension at Marginal rate plus remainder from estate) Further Tax Net Passed Net Gross Tax Rate Relief on from 0% 20% 40% 45% Contribution Contribution (stays in estate) estate 20% £20,000 £25,000 £0 £0 £25,000 £20,000 £15,000 £13,750 40% £20,000 £25,000 £5,000 £3,000 £2
Slide 27: All the outcomes
All the outcomes Contribute to someone else's Pension (no PCLS) Further Tax Relief (stays in Tax Rate Net Cont Gross Cont 0% 20% 40% 45% estate) 20% £20,000 £25,000 £0 £25,000 £20,000 £15,000 £13,750 40% £20,000 £25,000 £5,000 £30,000 £25,000 £20,000 £18,750 45% £20,000 £25,000 £6,250 £31,250 £26,25
Slide 28: But what if there was trust planning available?
But what if there was trust planning available? • Brian is higher rate – will get £5k back in tax return • Pension and Trust will grow at 5% • Assets in estate will grow at 4%
Slide 29: Briana's benefits - Basic Rate
Briana's benefits - Basic Rate £40,000 £35,000 £30,000 £25,000 £20,000 £15,000 - 1 2 3 4 5 6 7 8 9 10 Trust 20% Brian's Pension 20% Briana's pension NO PCLS 20%
Slide 30: Briana's benefits - Higher Rate
Briana's benefits - Higher Rate £33,000 £31,000 £29,000 £27,000 £25,000 £23,000 £21,000 £19,000 £17,000 £15,000 - 1 2 3 4 5 6 7 8 9 10 Trust 40% Brian's Pension 40% Briana's pension NO PCLS 40%
Slide 31: Briana's benefits - Additional Rate
Briana's benefits - Additional Rate £33,000 £31,000 £29,000 £27,000 £25,000 £23,000 £21,000 £19,000 £17,000 £15,000 - 1 2 3 4 5 6 7 8 9 10 Trust 45% Brian's Pension 45% Briana's pension NO PCLS 45%
Slide 32: Briana's benefits by taxpayer rate
Briana's benefits - Non taxpayer Briana's benefits - Basic Rate £50,000 £40,000 £45,000 £35,000 £40,000 £30,000 £35,000 £30,000 £25,000 £25,000 £20,000 £20,000 £15,000 £15,000 - 1 2 3 4 5 6 7 8 9 10 - 1 2 3 4 5 6 7 8 9 10 Trust 0% Brian's Pension 0% Briana's pension NO PCLS 0% Trust 20% Brian's Pens
Slide 33: Abolishing the LTA
Abolishing the LTA
Slide 34: Lifetime Allowance
Lifetime Allowance Finance Act 2004 217 mentions Benefit Benefit Types Limits
Slide 35: Political Risk?
Political Risk?
Slide 36: Lifetime LTA charges to 0% and possible reversal
Lifetime LTA PCLS charges to 0% capped & “Reversal” (marginal rate tax) protected Reinstate LTA charges? LTA reinstated at £1,073,100? NHS specific LTA “solution” Death LTA pre 75 Pre budget Reinstate at another level? Fixed & Enhanced Lump sums Protection can’t Marginal rate Something else? be lost
Slide 37: Actions
Actions Designate excess Pay a contribution Take excess as Deliberately fund to drawdown where you have lump sum at beyond LTA whilst LTA tax is protection marginal rate 0% Retrospective loss of Net benefit expected Leave as is? Leave as is, testing at protection? potentially reduced. next BCE/Age 7
Slide 38: Accessing Excess
Accessing Excess Bob has an unvested fund of £1,273,100. He wants to trigger his LTA excess while the LTA charge is 0% He takes his PCLS of £268,275. The balance of £1,004,825 is designated to drawdown tax free IHT on PCLS? (£107,310) Is LTA tax and beneficiary tax on excess worse? Loss of PCLS if L
Slide 39: Factors
Factors FUNDING LIFETIME ALLOWANCE CURRENT POSITION STOPPED LIFETIME CURRENT FUNDING Protection Already used Fully Unvested Projecting over LTA ALLOWANCE POSITION Projecting over Fully vested PAYING Targeting LTA Projecting under Mixed Accepting LTA charges
Slide 40: Learning Objectives - Recap
Learning Objectives - Recap By the end of this session, you will be able to: Evaluate the impact on your Describe the pensions client's retirement planning Lifetime Allowance of the pensions Lifetime changes arising from Allowance changes arising Finance Bill 2023 from Finance Bill 2023
Slide 41: Support
Support Articles Videos Tools & Ask the Techs Calculators Usual Contact LinkedIn My View
Slide 42: Thanks for your time
Thanks for your time Get in touch with your usual contact if you need further help.
Slide 43: M&G Wealth legal and regulatory information
M&G Wealth is a trademarked brand of the M&G plc group, which includes 3 business divisions as follows: M&G Wealth Advice, provided by M&G Wealth Advice Limited, registered number: 08022795. Model Portfolio Services, provided by M&G Wealth Investments LLP, registered number: 0C305442. M&G Wealth Pla