As part of the Lloyds Banking Group, Scottish Widows is proud to be an Official Provider of the London 2012 Olympic and Paralympic Games

Pension Change – Opportunity or Threat?

Robert Cochran

Pension Development Manager

Adviser Value Proposition

2008 2009 2010 2011 2012

Equity Loss

(Value)

Value (£)

Time

Change in NRD

50% High Earners Tax

PA changes above £100k

Rise in Trust Tax

Increase to National Insurance

Lifetime & Annual Allowance

Freeze

20% Tax Relief for high earners

Personal Accounts

Auto Enrolment

Abolition of Contracting Out

Full RDR implementation

PCLS protection

Large pension contribution rules

Bed and Sipping

Removal of Safeguarded Rights

£20,000 Special Annual Allowance

Risks?

Opportunities?

Budget opportunity – clients earning around £150k

• Client earns £175k

• Wants to make a pension contribution of £50k

• How can they get higher rate relief on it all?

£20k Pension Reduction

Gift Aid£150,000

Income

£5,001 contribution

• Using £20k allowance and Gift Aid contribution can reduce Earnings below £150k

• Entire £50k contribution will now get higher rate relief

• Remember last 2 years definition

Why should high earners use their £20k allowance?

• Three different rates of tax relief for next three years

• £20k payments in next two years generate extra £10k tax relief compared to £40k after April 2011

£12k net cost

£10k net cost

£32k net cost

£20k £20k £40k

Budget opportunity – clients earning around £100k

• Earn £110,000

• Tax of 40% on all earnings above the threshold

• Personal allowance reduced by £1 for every £2 above £100k

• Personal Allowance reduced by £5,000 so pay 40% on this as well

• This means they will pay 60p on every £1 over £100k

• Earn £110,000

• Tax of 40% on all earnings above threshold

• Make contribution to pension of £10k

• Keep full personal allowance

• Effective relief of 60% on contribution

Higher rate tax payers – a sigh of relief?

• Higher Rate Relief – use it or lose it?

• The importance of regular premiums

• Bed and SIPPing/Pensioning for lump sums

• www.scottishwidows.co.uk/budget

Adviser value proposition

2008 2009 2010 2011 2012

Equity Loss

(Value)

Value (£)

Time

Change in NRD50% High Earners Tax

PA changes above £100k

Rise in Trust Tax

Increase to National Insurance

Lifetime & Annual Allowance

Freeze

20% Tax Relief for high earners

Personal Accounts

Auto Enrolment

Abolition of Contracting Out

Full RDR implementation

PCLS protection

Bed and Sipping

Removal of Safeguarded Rights

£20,000 Special Annual Allowance

Risks?

Opportunities?

Age 50 change gaining momentum in the press

• Baby boomers face tough decision on tax-free cash – 28 May 2009

• Ban until 55 for Tax Free pension Grab – 01 June 2009

• Time is running out for those wishing to take tax free cash early – 04 April 2009

• Economic gloom spurs rise in phased pensions – 23 May 2009

At retirement flexibility

Scheme & Master Trust

Simple Re-Registration of Assets through Designation

Retirement Account Offer

Support available

• Expert Account Managers

• Approach Letters for those affected

• Ideas for maximising tax relief

• Case studies

• Income Recycling calculator

• Bed and Sipping examples

• scottishwidows.co.uk/three

Adviser value proposition

2008 2009 2010 2011 2012

Equity Loss

(Value)

Value (£)

Time

Change in NRD

50% High Earners Tax

PA changes above £100k

Rise in Trust Tax

Increase to NILifetime & Annual Allowance

Freeze

20% Tax Relief for high earners

Personal Accounts

Auto Enrolment Abolition of Contracting Out

Full RDR implementation

PCLS protection

Bed and Sipping

Removal of Safeguarded Rights

£20,000 Special Annual Allowance

Risks?

Opportunities?

Why Personal Accounts?

• Engages just over 30% of the private sector workforce in workplace schemes

• 21% of Employers provided access to and contributed to a pension scheme

• 42% of eligible employees had joined an Employer sponsored pension scheme

• Average DC contribution is 6% Employer and 3.7% Employee but very much dependent on scheme type

The Current System

*Sources: DWP: Research Report No 545 - Employers’ Pension Provision Survey 2007 (page 2); DWP: Research Report No 546 - Employers attitudes and likely reactions to the workplace pension reforms 2007 (pages 2 and 3); Deloitte & Touche: Employer Pension Contributions and Pension Reform (page 18)

Personal Accounts vs. Private Provision

Personal Accounts

Private Provision

Wide choice of Investment Funds

Self Investment

Tailored communication material

One scheme for all employees

Maintain existing relationships

Recognisable Brand

Adviser Support

The value of Salary Exchange

• Assume client earns £30,000 per annum

• Employee Net £100.00

• Employee gross - £125.00

• Salary Exchange –

By adding in Employee NI saving £144.93

By adding in both Employee and Employer NI saving £163.48

31% increase in contribution over normal net pay method

Immediate HRT relief if applicable

Salary Exchange the range of benefits

Scottish Widows – Comprehensive support

Adviser value proposition

2008 2009 2010 2011 2012

Equity Loss

(Value)

Value (£)

Time

Change in NRD

50% High Earners Tax

PA changes above £100k

Rise in Trust Tax

Increase to NI

Lifetime & Annual Allowance

Freeze

20% Tax Relief for high earners

Personal Accounts

Auto Enrolment Abolition of Contracting Out

Full RDR implementation

PCLS protection

Bed and Sipping

Removal of Safeguarded Rights

£20,000 Special Annual Allowance

Risks?

Opportunities?

This presentation represents Scottish Widows’ interpretation of current and proposed legislation and HM Revenue & Customs practice as at the date of publication - these may change in future.

This material is strictly for internal use only. It is not intended for onward transmission to private customers and should not be relied upon by any other person.

As part of the Lloyds Banking Group, Scottish Widows is proud to be an Official Provider of the London 2012 Olympic and Paralympic Games.

Scottish Widows plc. Registered in Scotland no. 199549. Registered Office in the UK at 69 Morrison Street, Edinburgh, EH3 8YF. Tel: 0131 655 6000.

Scottish Widows plc is authorised and regulated by the Financial Services AuthorityOur FSA Register number is 191517.

33841 10/09