As we are now settled into 2013, we would like to take this opportunity to wish you all a happy and prosperous New Year. 2012 was an interesting year for the world of SIPPs (Self-Invested Personal Pensions) and the indications are that 2013 is going to be equally as fascinating!
With so many SIPP related topics around at the moment we thought we would put together an update note which covers the points you need to be aware of as we enter the New Year, both in respect of the general SIPP market and IPM specifically.
RDR (Retail Distribution Review)
IPM has been RDR ready for sometime and we are able to facilitate adviser charging. We believe the integrated nature of our application form should provide sufficient validation to enable any new business transacted following the introduction of RDR. We will continue to operate on client agreed remuneration basis, upon production of an invoice, as has always been the case.
January is typically a busy month for IPM where we see an increase in the amount of employer contributions being made into SIPPs to co-inside with the company year end date of 31st January. If you, or indeed your clients are looking to make a contribution before this date, please ensure leave sufficient time for the necessary paperwork to be completed and submitted to us.
In April 2013, the highest rate of tax will be dropped from 50% to 45%. This will have a corresponding effect on the amount of tax relief that will be available for personal contributions.If you or your clients are currently paying 50% tax then the countdown is on to pay a contribution and receive tax relief at this level.
You should have received our note in early December about the announcements that impacted on SIPPs however we thought it would be useful to provide an aide memoir for the key points.Reduction in Annual Allowance
The Annual Allowance is to reduce from £50,000 to £40,000 for the 2014/15 tax year. Therefore if you are looking to utilise the carry forward regulations and pay a contribution up to £200,000 gross then this will need to be considered before 5 April 2014.
From 2014/15 the Lifetime Allowance will reduce from £1.5m to £1.25m. The Government has indicated that a new form of protection from the Lifetime Allowance charge will be offered for those with pension savings between to £1.5m and £1.25m. Further details are expected in this regard in due course. Those people with primary, enhanced or fixed protection should not be impacted by the reduction in the Lifetime Allowance. The Government also announced consultation on a new ‘personalised protection regime’ the details of which we look forward to hearing of in due course.
Increase to maximum GAD level
Perhaps the biggest surprise in the Autumn Statement was announcement that the maximum income under Capped Drawdown will be increasing from 100% to 120%. You may recall that 120% GAD was originally introduced in April 2006 as part of Pension Simplification however this was reduced back down to 100% in April 2011. This reduction along with record low gilt yields and poor performing investments had seen the maximum income that some clients could receive under capped drawdown dramatically reduce.
On 17th January HMRC issued draft legislation stating that the new maximum limit will apply for drawdown years beginning on or after 26th March 2013. It is worth noting that this is draft legislation so this date could potentially be amended. For any individual whose maximum income limit IPM calculates before this date, whether this as a result of a benefit crystallisation event or a scheduled income review, will continue to calculated using the 100% limit. Where IPM has received a transfer in drawdown and the previous GAD maximum was calculated prior to 6 April 2011, IPM will still be required to review this maximum level on the first anniversary date of the pension year after the transfer has completed. This is so that clients can be brought into line with the new requirement to review their maximum income on a three yearly basis going forward.
Capital Adequacy Requirements for SIPP Providers
The FSA has put forward proposals to change the way that Capital Adequacy is measured for firms that operate SIPPs. These proposals are currently subject to market consultation, which is due to close on the 23rd February 2013.
This proposal by the FSA is for a regulated firm to hold capital based upon the level of Assets under Administration as opposed to holding sufficient liquid capital to cover a certain number of week’s expenses. This is further complicated by the fact that the FSA wishes to introduce a Capital Adequacy Surcharge based upon the amount of non-standard assets that a SIPP Provider holds for its clients as a proportion of overall assets under administration.
Currently IPM has a requirement to hold sufficient capital to cover a minimum of six weeks of its commercial expenses. If the FSA proposals were to be introduced as currently proposed this would increase significantly; over seven times the current requirement based upon our current assets under administration. IPM is a well run and profitable firm and although we would be disappointed for these rules to be adopted as they are proposed, however we can confirm that IPM meets the proposed requirement.
It should be noted that IPM and other SIPP firms are looking to challenge the proposals put forward by the FSA as we believe that the proposals to link capital adequacy to assets under administration is flawed. We will of course keep you fully abreast of any changes in the rules and how this would affect IPM.
Since our establishment in 1999, IPM has seen the SIPP market change almost beyond recognition. As the market continues to evolve, we are continuously looking at ways to develop and enhance our offering, with our sole aim being to provide a high level of technical yet personable service and support to our introducers.
We are dedicated to continuing to provide this level of service and look forward to embracing the changes that the industry may face over the coming months and years.
We are always interested to hear your views, and where possible, accommodate your requirements. In this connection please us know if there is anything or anyway we can assist you further.
Thank you for your continued support of IPM and we look forward to working with you in 2013 and beyond.
Please note that the information given above is IPM’s view on current legislation only and should not be taken as a definitive and conclusive statement of law.