The Taxation Of Pensions Act Case Analysis
The Taxation of Pensions Act 2014 designed to allow flexible access to pension funds, commenced 6/04/15, meaning that a male age 65 with Defined Benefit (DB) and Occupational Money Purchase (OMP) pension scheme, could transfer into flexible-access drawdown (FAD) allowing unlimited withdrawals or purchase of a lifetime flexible annuity with all/part of transfer value.
However, there are a number of factors involved, ensuring that client outcome is the right for him and his family when considering transferring from his current DB to FAD.
This paper will critically evaluate key factors a 65-year-old male may consider with his financial adviser’s guidance, when considering transferring DB and DC OPS benefits …show more content…
This was a lifetime annuity and thus insured against it ever running out – it was paid for lifetime. It insured against longevity risk.
This is significant as people are living longer. A male aged 65 has average life expectancy of 87; he also has a one in four chance of living to 94 and a one in ten chance of living to 99, with FCA research suggesting that people think they will die earlier than the statistics prove.
The risk for our 65 year old male is that he may outlive his retirement savings or risk that he that he underspends and thus ends up with a lower income or spends too much has lower income/runs out of money is called longevity risk and it’s one that maybe understated or under-calculated by the average client. Sustainable income is calculated using cashflow modelling that assesses income/expenditure with ATR using FCA growth rates .
In my opinion, our 65 year old male will need proper, professional financial planning to assess his current and future expenditure versus his income to ensure a fulfilling financially healthy retirement and sustainable income until he dies.
Critical Yield (CY) used in establishing a Transfer Value Analysis Report …show more content…
If a 65-year-old male accesses funds (income or lump sum) from FAD, he could incur an income tax liability and be subject to the MPAA (Money Purchase Annual Allowance) Rules. The consequence being that he would only be able to make yearly contributions of up to £10000 pa in any future tax year.
DB may pay a pension to a surviving spouse, civil partner or other dependent adult. They may also pay a pension to any children until they leave full-time education. Often, dependants’ pensions are paid at a lower rate than the member’s entitlement under the scheme.
A 65 year old’s dependents could receive a drawdown pension on the males death before 6/04/15, meaning that a member nominee or survivor nominees can receive drawdown pensions called nominee flexi-access drawdown.
Uncrystallised funds on death before age 65, are paid out tax free to nominated beneficiaries. Uncrystallised funds on death before 75 are paid out tax free as long as fund distributed within 2 years of