The next few months will provide a plethora of opportunities in the individual pension market but in the meantime here are some pension sales ideas to be getting on with.
1: Pensions and divorce
Pension sharing is now an option for those who started divorce proceedings after December 2000. It allows for a clean break settlement at the point of divorce with a split of the pension assets.
While one spouse can be made a sub-member of the other spouse's pension scheme, many trustees will prefer to avoid this complication by offering a transfer value.
With 180,000 divorces in the UK each year, initial estimates are that up to 50,000 may involve some element of pension sharing. This means 100,000 opportunities for IFAs to provide specialist advice and up to 50,000 potential transfers.
For pension sharing to operate effectively, the specialists need to work together, and now is the time for IFAs to develop strategic alliances with solicitors who will need help and advice.
2: Carry-forward -use it or lose it
Carryback and carry-forward have always been important pension planning tools, enab-ling clients to boost retirement planning. Despite the removal of stand-alone carry-forward, there are still opportunities.
Carryback continues to be available, enabling a contribution to be paid in the current tax year to be treated as having been paid in the previous one. Carry-forward is still available until January 31, 2002, provided it is used in conjunction with carryback.
It makes sense to use the tax relief if clients have the money now. The cost of delay, possible changes to higher-rate relief and the loss of the earliest tax year all make sound reasons to act now.
3: Planned life cover with tax relief
A personal pension allows clients to set up life insurance within their plan. The combined benefits of tax relief, prospect of tax-free payouts and flexibility to alter beneficiaries make this a very attractive option, especially for higher-rate taxpayers.
4: To transfer or not to transfer?
The valuation test, tax-free cash certification and restriction on death benefits are now only required for: those who are or were controlling directors, in the last 10 years prior to transfer date; those who are earning in excess of the current earnings' cap (or were in the last six years prior to date of transfer) and are 45 or over.
For all other members, transfers will be unrestricted, making this highly attractive for anyone who has completed the funding of his or her pension benefits and who is likely to transfer to a personal pension in the future to access income withdrawal. Review your client bank now to see who can benefit from these new rules.
5: Income drawdown
Investors drawing income are now allowed to transfer from one drawdown plan to another.
Previously, once income commenced, this was not allowed and locked clients into perhaps unsuitable or poorly performing plans.
6: One-year increase maximises contributions
By temporarily increasing earnings for one year, a higher maximum contribution level can be achieved for the next five years. The rules allow this even if earnings are subsequently reduced during this period.
7: Remuneration for director control
The new DC regime and increases in National Insurance contributions from April 6, 2001 have reopened the ongoing debate on the best type of remuneration strategy for controlling directors – salary, dividends or pensions. This could be attractive to directors who can now have the best of both worlds.
8: Self-employed rates
The self-employed now pay contributions net of basic-rate tax instead of gross.
This is an ideal time to review their current level of contributions where a contribution of £100 per month will immediately be grossed up to £128 – an immediate gain of 28 per cent.
9: Pensions for all
The rules for the new DC regime allow many more people to invest in a pension, including those with no earned income, children and retired investors up to 75. Even if they pay no income tax, their contribution to a personal pension or stakeholder will qualify for basic-rate tax relief to be added – money for nothing from the Government.
A pension for a new-born child could be funded using child benefit while pensioners can benefit even if they have no earned income. Investment income or income taken from an income-drawdown plan can now be recycled into a pension plan to obtain tax relief.
10: The spouse is back
The new rules will also mean additional opportunities for pension planning for spouses.
First, £3,600 a year gross can be invested in a PP or stakeholder without the need to employ them as no earnings are required to contribute this amount.
Second, spouses in the past were paid a low salary to avoid tax and NIC and have a fully funded EPP. Under the new concurrency rules, provided they are not controlling directors, they will be able to pay an extra £3,600 into a personal pension or stakeholder which will not be taken into account in working out maximum permissible benefits.
11: Personal pensions versus AVCs
Similarly, those in occupational schemes within the new concurrency rules could be better off making an AVC using a personal pension or stakeholder, as 25 per cent tax-free cash is available on retirement.
This means that those who can afford it could pay up to 15 per cent into an AVC and £3,600 into a personal pension.
The icing on the cake is that the personal pension would not be a retained benefit, meaning that these people can have a full two-thirds pension from the occupational scheme plus a £3,600 a year personal pension as well.
12: Protected rights as a focus
Contracting out of Serps star-ted in 1978 and, while the average size of funds varies, they typically range from £15,000 to as high as £50,000.
Many of these policies are held in old-style contracts with outdated charging structures. These would benefit from a review to ensure they meet clients' needs and have the correct investment mix and performance track record.
13: The new regime
The new £3,600 contribution allowance for personal pensions/stakeholder means that many clients will now be able to increase their personal pension contributions to this level.