What advisers are asking us right now

Published  29 February 2024
   60 min CPD

Join Senior Intermediary Development and Technical Managers, Shelley Read and Craig Muir, as they discuss what advisers, in both the protection and pensions industries, are asking us right now.

In the first half of this session, our focus will be on protection, discussing areas we’re being asked about and a look at Consumer Duty responsibilities and the questions that are being raised six months after the new regulation was introduced.

We’ll also cover topics such as choosing the perfect time to discuss how the changes in National Insurance contributions affect clients' cover and whether Relevant Life Plan is still a suitable option. Looking at personal protection, we’ll also compare trust versus beneficiary nomination and examine one way advisers can demonstrate value to protection clients.

In the second half of the webinar, we’ll look at what pension questions are being asked right now such as, the abolition of the lifetime allowance. Most of the pension session will cover this, concentrating on what happens to pension death benefits after 6 April 2024 and what’s happening with transitional arrangements, where clients have benefits which span the old and new regime.

We’ll also discuss changes to Capital Gains Tax and dividend allowances in advance of the new tax year and how advisers may be able to mitigate the impact for some of their clients.

Learning objectives

At the end of this session you’ll be able to:

  • Explain how to discuss protection with your wealth clients, including some key areas with business owner and self employed clients.
  • Be confident in discussing the difference between beneficiary nomination and writing a protection plan in trust.
  • Describe how added value support services help demonstrate real value.
  • Describe the changes to pensions and how they affect your tax year end planning.
  • Explain how the removal of the lifetime allowance affects your clients from 6 April 2024.

What’s covered

  • Answering Consumer Duty questions after the new regulations were introduced.
  • When is best to approach clients to discuss changes in National Insurance contributions which may affect their cover and whether Relevant Life Plan is still the right option for them.
  • What happens to pension death benefits after 6 April 2024.
  • Changes to Capital Gains Tax and dividend allowances in advance of the new tax year.
  • View and download the webinar slides (PDF)

Hello, everyone. Thank you very much for taking the time to listen in. My name's Shelley Read, and I am joined today by Craig Muir. We both Senior Intermediate Development Managers here at Royal London and we'd like to welcome you to the latest instalment in our webinar program. Today, we're going to cover “what advisors are asking us right now” in both the protection and pension world.

We'll start with answering some of the most frequently asked questions in the protection space. We'll look at consumer beauty just over six months in and examine the thoughts from both our mortgage protection and wealth advisors. And we'll end my session considering what opportunities and challenges lie ahead for protection advisors in 2024. Then we'll go on to consider what questions have been asked in the pension world.

I'm sure it won't surprise you too much to find that we mostly been asked about the abolition of the lifetime allowance. So Craig will spend most of the pension session covering this, predominantly concentrating on what happens to pension death benefits after the 6th of April this year, and also what's happening with transitional arrangements. But we'll also cover some other changes to be aware of in advance of the new tax year.

So lots to get through. But before we start, we need to cover up a couple of housekeeping points. As the risk so many of you on the call today. Sadly, we won't be able to answer any questions in session, but please feel free to ask any questions you have in the comments section and we'll get back to you just as soon as we possibly can.

For those of you listening live at the end of the session, you'll be able to answer the CPD questions and once you've answered those correctly, your CPD certificate will be generated. And for any colleagues who can't make the session, or if you need to revisit this webinar, it will be available on our CPD hub in due course. So that's the nuts and bolts covered so without further ado, let's get started.

And of course, for this session to be CPDable, we need to have some learning objectives. And here are. As for today. So at the end of this session, you'll be able to discuss protection with your wealth clients, including some key areas with business owners and those self-employed clients. Be confident in discussing the difference between beneficiary nomination and writing a protection plan in trust.

Describe how added value support services help demonstrate real value. And describe the changes to pensions and how they affect your tax year and planning. And finally, explain how the removal of the lifetime allowance will affect your clients from the 6th of April 2024. So let's look at my first point to kick us off.

We're just over six months into the new FCA consumer duty rules. And many advisors have upscaled their processes to ensure client protection needs are discussed and then any relevant advice given, however, hence the question. I still speak to advisors who tell me they are just too busy to give. They this really the attention it must have. This now may be because they're mortgage advisers who are coping with the ever lengthy process of securing a successful mortgage offer or are under pressure dealing with a huge number of mortgage product transfers currently.

Or it might be a wealth advisor whose core business hasn't previously majored on financial resilience and will look at this group in just a moment. But whatever the reason, let me remind you of the response ability the FCA set out in their Financial Guidance Handbook. So it reads, where a firm declined to provide a customer with a particular product or service, the firm should still consider whether there is information or support it could provide to help the customer pursue their financial objectives.

So the FCA aren't saying you have to give advice on every area, but you do need to give information and support to help the client pursue their financial objective. And this might mean signposting to a third party. So let's have a closer look at this now. So with regard to awareness, we need to make sure your clients are first of all aware that protection will be discussed either during the meeting or at a later time which leads me onto referral.

Now, for me, this means if you're not actually having the protection conversation yourself, you need to signpost the client to either a protection expert in your company and I think we all know in 2023 there was a huge demand for protection advisers for this very reason. Or if you're a one man band or your firm doesn't have an out and out protection expert, then you should consider referring to an expert either possibly within your network or an advisor you can refer to locally.

When we look at holistic planning, then I know I've got a protection hat on today, but you also need to consider signposting clients to other services such as mortgages, pension advice, wealth planning, or even will writing and legal services. If you identify that's what's needed to achieve the best outcome for your client. And if you've explored all options for protection advice, you can direct your client to BIBA, the British Insurance Brokers Association, who will find a local firm who specialize in clients with maybe health conditions or a dangerous job or hazardous hobby through their find a broker service.

Now, I mentioned a little while ago, and I do get asked this an awful lot how can wealth advisors discuss protection with their clients? So how can we help you have these protection conversations? Now, I suspect when talking to your clients about pensions and investments, that this is sure to bring out a conversation about attitude to risk and capacity for loss. Now those wealth advisors on the webinar will be really familiar with this, I'm sure. But just to recap with attitude to risk, we're really considering how much risk the client is prepared to take with their money and assets in a particular time frame and capacity for loss.

Well, here we mean the amount of loss that the client can actually afford to bear and if any loss or of capital would have a materially detrimental effect on their standard of living, then this must be taken into account in addressing the risk really that they're able to take. So really what I'm trying to do here is understand the risks a client are prepared to take with their money and also ascertain how much they could actually afford to lose, what their capacity for loss.

And what I'm really interested in showing you is if we take this same approach with a protection client, what really might that look like? So what would the risk profile look like for a client who has no protection in place at all? And maybe they have a mortgage, maybe they've got young children or they own a business? What might it look like in these examples?

Well, I don't think we could say that it's balanced, could we really? I think we'd have to be we couldn't even really say that that sitting on the very cautious side, I think we'd have to say they would be sitting on the very adventurous side of this scale. And would your clients want that? I think this can definitely open up a conversation about protecting their family, their home and their lifestyle should the worst happen.

So many of you have used a cash flow modelling process, and I'm guessing lots of you are familiar with this. But just in case you're not aware, cash flow modelling allows you to give a detailed picture of a client's assets, their investments, debts, income and expenditure. And we can project that forward year by year using assumed rates of growth, income inflation, salary increases and interest rates too.

What we can then do is bolt on some life events. For example, things like how about if I want to retire early? What if I suddenly get divorced? Can I draw some cash for emergencies or to help the children? And how about if I end up needing care in later life? The list of these events is really endless, but it's very personal to the client, and I think this can help the client see the importance of protection.

Now, I think a good way to start that conversation is to let your client visualize their finances in a very simple way. So let me show you an example of what I mean with this slide we've got on the screen now. So let's imagine we've got an individual. He's 45, a director of a company, and let's assume he plans to retire at about 65.

Now, what we can see here is that up to age 65, things are going great. He's building up those assets and wealth. Then after 65, when he retires, he's enjoying that wealth that he's built up. But the big question really is what if catastrophe struck? What if he suffered a heart attack? Might now be looking at early retirement or what if even worse, he passes away prematurely, what would this mean for his family?

So I think talking about his risks and showing exactly what it looks like visually is extremely powerful, I hope you agree. Now moving away from that area, let's have a look now at the next thing I wanted to talk about, which I get asked really, really frequently. What's the difference and when should I use a trust or opt for beneficiary nomination?

So first of all, let's just remind ourselves of the real financial benefits of writing a plan in trust. So first of all, right, hands. Hey, are we making sure the payment goes to the correct people nominating beneficiaries in the trust board ensures the proceeds go to the intended recipients that the donor wanted. Right time, well here, we're talking about speed and writing a planning trust means the proceeds are paid directly to the trustees without any delay through probate or confirmation in Scotland.

And right money using a trust can ensure that any proceeds will be held outside of an estate upon death, therefore avoiding the need to pay IHT or indeed reducing the amount to be paid. And let's not forget the overall convenience, if the policyholder is too ill to make a claim, someone may need to act on their behalf, now this can take time and money. However, if the plan is written in trust, the trustees may be able to make a claim on behalf of the plan holder. And if critical illness is included in the plan, the trustees can continue to hold the proceeds in trust for their benefit. Of course, depending on the type of trust used and at Royal London you have available a real wide range of support, material, expert and expert information and support along with tools to make sure that you always choose the right trust.

So historically, when we looked at who received the benefit from a successful claim, then it could have gone into the deceased estate. If written in trust, it could have gone into the trust to be distributed by the trustees. And now with some providers, there's a third option nominating beneficiaries. So let's have a quick look at what that means now.

So what is a beneficiary nomination? Well, basically, it's a simple alternative to writing a plan in trust. And why should you consider it? Well, it may be an option if your client's situation is maybe more straightforward and they know who they want to benefit. You can have peace of mind that who you choose will receive the money you want them to.

You won't need to instruct a trustee to look after the money for you and to ensure it's paid to the right person with beneficiary nomination the proceeds will go direct to the beneficiary you have chosen and any covers that pay it while you're still alive will be paid direct to you. And with Royal London, it's available on a single own life, including family income benefit, single own life or critical illness and whole of life policies.

So important question how flexible is beneficiary nomination? So you must always have at least one beneficiary but when you apply, you can actually nominate up to five people for each cover you have and if you apply for more than one cover, you can also nominate a different beneficiary for each of them. For example, you might want some money to go to your partner so they can pay off the mortgage and some money to go to your children so they can be looked after.

But it's completely flexible. So you can change your mind about who you'd like to nominate at any point. And also if your circumstances change and become more complicated, you can always put your plan under trust at a later date. And just some numbers for you. If we look at quarter three last year with us, the overall trust take up on plans that were relevant was 11% versus 24% on beneficiary nomination.

So the next question I wanted to look at and again, one that I get asked an awful lot, how can we demonstrate value in protection advice? We know value is really important. It was mentioned many times in the consumer duty. So this is the wording I've taken from the consumer duty guidelines. And I think this is important because often advisers I speak to think that value is all about price.

So the FCA say the specific focus of the price and value outcome rules is on ensuring the price the customer pays for a product or service is reasonable compared to the overall benefits, the nature, quality and benefits because the moat will experience considering all these factors, value needs to be considered in the round and low prices do not always mean fair value.

We expect firms to think about price when assessing fair value, but not at the expense of other factors. So I think this makes it clear about not always looking at the cheapest premium. And one of the ways we can demonstrate value is by considering addition to a policy such as things like fracture cover, hospitalization, cover, adding indexation to a plan, particularly on an income based plan and also the area I wanted to just touch on today is added value support services.

So at Royal London we have always thought that good protection is more than just about the money. And I think these days with comparison size and price competition, it can sometimes be hard to say what sets some policies apart. But by recommending cover that offers tangible benefits and additional support, you will be giving your clients much more than they probably might have even expected. When your clients take cover, they are planning for the very worst that can happen and often they can't imagine or they really don't like to think about making a claim.

But many of your clients, like most of all, may still go through some testing times in theirs and their families lives. They may have to face issues such as periods of ill health, mental health challenges and sadly, bereavement. Many added value support services included with protection policies are designed to look after your client's physical and mental wellbeing.

So, as I move on to my final few points, this really is a very common question. Are relevant life plans still relevant post the lifetime allowance change is due on the 6th of April, so I think we all know that a relevant life policy allows employers to give death in service benefits to their employees outside of a group scheme. It's useful for small businesses that don't have enough eligible employees to justify a group scheme or certain employee such as company directors who want more than just the usual four or five times salary as a benefit.

And currently this type of plan could help high earning employees who have substantial pension funds and don't want their debt in service to form part of their lifetime allowance. So what I really wanted to stress here is that there are lots of good reasons to choose a relevant life policy for your clients, and it really boils down to tax, efficient life cover for directors and employees.

So let's remind ourselves what these are. So premiums are paid direct by the employer. HMRC doesn't treat premiums paid by employers as a benefit in-kind. So this means employers don't have to pay p11d benefit in-kind tax on their premiums. Premiums are not assessable for employer or employee national insurance contributions. And if the taxman is satisfied, premiums qualify under the wholly and exclusively rules, the employer can treat them as an allowable expense for corporation tax relief.

And remember the benefits are paid by a discretionary trust. Somebody they are paid free of IHT because the payout doesn't form part of the employee's estate. So the point I'm making is that, yes, relevant life policies are still very relevant despite the abolition of the lifetime allowance in April because of all the other tax advantages. Another thing that I wanted to just mention is some clients in the past may have taken out relevant life policy to provide lump sum benefits before age 75 as their pension funds were in excess of the lifetime allowance.

The relevant life policy plan would pay tax free lump sums whilst death whilst arranging death in service plan written under the pension rules, could have attracted a 55% tax charge from the 6th of April this year the lifetime allowance, as we know, is being abolished, although the 55% tax charge has been replaced by a marginal rate from the 6th of April 23.

But there still might be instances where a relevant life policy should be considered. The lifetime allowances been replaced by a lump sum and death benefit allowance, which for most will cap tax free lump sums on death before 75 and 1,073,100. So if clients are looking for tax free lump sums in excess of this relevant life policy could still be really appealing.

Now, this is something that's very real right now for your self-employed clients. Is now is the time to talk to self-employed clients about income protection? So my answer here is definitely yes. Many self-employed clients don't even know they can protect their income in the event of having to take time off work sick. But particularly right now, when some changes to national insurance will be happening on the 6th of April, it really is a great time and opportunity.

So let's recap briefly on these changes. From the 6th of April 2024, there is no requirement to pay Class two National Insurance for the self-employed, which in current tax years, which is when this current tax year rather, is £3.45 a week. And not only this, there's a percentage cut on the main class full rate of national insurance from 9% to 8%.

Now, admittedly, this doesn't change in generally mean hundreds and hundreds of extra pounds in your self-employed business owner pockets. But there is a saving and I think sharing your knowledge about this is a great and it's a great time to raise this conversation and start talking about what would happen if they became too ill to work. Now, my final question and one that we often get asks at the start of the new year is what do I see as opportunities or threats for protection advisers in 2024?

So I've just made a few points here of what I think the main factors are in the year ahead. So opportunities, mortgage product transfers, their UK finance projects, mortgage product transfers are going to be in excess of 2 billion in 2024. Now, historically, I think many mortgage borrowers will have just gone with their lender's offer of a new rate, particularly when that meant either a very similar rate or indeed a reduced monthly mortgage payment, but with higher interest rates, it's sort of hitting many I'm sure clients will be less likely to just agree and come to you for advice. And of course, you can pre-empt this at reviews. I think this will definitely be an opportunity to review their protection portfolio at the same time of looking at their new mortgage product.

Now, one stop shop. The more I talk to clients, I think they welcome the opportunity to keep everything under one roof. So ensuring they know all the services you offer, including signposting to other colleagues, will be really important to them, particularly at a time of vulnerability as we deal with post COVID and the cost of living crisis.

Now, the housing market pressures on the housing market with high interest rates and low confidence are really unlikely to ease significantly short term. So we can expect lending to remain weaker in 2024 before, I think, gradual improvement in 25. So for those advisors majoring in helping mortgage clients, could this be an ideal time to expand into other protection areas such as business protection or inheritance tax planning, or maybe even something as simple as increasing your knowledge and becoming really confident on a project such as Family Income Benefit and talking to your clients about this. And might it be a good time to look at segmenting your client bank into areas such as clients who are divorced, clients who are self-employed, have directors loans, or maybe were declined cover due to a medical condition.

I really think that this makes it much easier to focus on clients and contact them when a new product or a change may be in regulation occurs. And also, while we're talking about opportunities, could this be an ideal time to build relationships with other professionals who could really prove invaluable in referring new clients to you when maybe mortgages are a little quieter than you've been used to?

So, for example, family lawyers who deal with divorce and maintenance arrangements, local lettings agents to discuss what you can really offer to both their tenants and landlords, general insurance brokers who talk daily to their clients about the risk of fire, theft and flood. Could they refer to you to talk about the even bigger risk of dying prematurely or being diagnosed with a critical illness?

And of course, as always, accountants are a great source for business protection opportunities, including relevant life policy that we spoke about just a little while ago. And finally, challenges the cost of living crisis continues, as we all know. And I think staying close to your clients, who naturally will look really closely at their direct debits each month, inevitably needing to tighten their budgets.

So reengage them with their protection policies. Remind them the importance of why you originally set it up in the first place, and maybe talk about the added value support services where we just touched on because they may be able to access support right now and remind them of the potential cost and implications of cancelling their cover. And the final point, claims management companies, they are still around and I think we remember recent claims in the past.

One of the areas they could well look at are mortgages that were arranged with no cover in place whatsoever or indeed mortgages that were arranged with just life cover and no documentation to say that there's a conversation take place about what happens Mr. or Mrs. Client, if you become very ill, or what happens if you become less ideal but still need to take some time off work.

So I'd urge you, if you have clients who may well be in this position now is an excellent time to get back in touch with them, to really discuss a robust protection solution for them and their family. So this brings me to the end of my protection segment. Thank you so much for taking the time to listen. And I'm going to hand over to Craig now to look at what advisers are asking us in the pension world.

Yeah, Thanks very much, Shelley. Yeah, As Shelley just says, we're going to talk about what advisors are asking us right now in the pensions world. And, you know, the majority the burning questions right now relate to the abolition of the lifetime allowance. But before we get onto that, I just want to remind you of some other changes which come into effect from the 6th of April 2024.

And these changes are refreshingly not about the removal of the lifetime allowance, but are very important when you're planning for the tax year ahead for your clients. First up, a couple of allowances are being reduced. The annual executive for capital gains tax and the dividend allowance. No capital gains tax as a tax on the profits when you sale or dispose of something that's increased in value and it's the gain you make that's tax, not the amount of money you receive.

So, for example, your client buys a painting for £5,000 sales at later about £25,000. That means they made a gain of £20,000. Some assets are tax free. You also don't have to pay capital gains tax off all your gains on a year out under your tax fields, which is called the annual exempt amount up until the 6th of April 24 over £6,000 but from April 2024, it reduces to just £3,000. There are different rates of capital gains tax depending on what the type of asset is like for a residential property, which isn't your main home it’s a higher rate of tax. Now that definition of residential property excludes your main home. Unless you rent out, it's very large or used for business and the rates of tax there are 18% for basic rate and 20% for higher rates for all other assets the rates of tax are 10% for a basic rate and 20% for a higher rate.

But what planning can be done, though? Well, so is the first thing to consider is whether a gain can be dealt with before April. Can an asset be sold and flipped into something more tax efficient before the CGT allowance halves when your client can make a saving of £300 If they pay 10% CGT or £600 of the pay 20%.

They move around the taxation of dividends from the 6th of April 24. The dividend allowances also halving and this time it's from £1,000 to just £500. And similar to CGT, can dividends be paid prior to 6th of April 24 to make use of the extra tax free allowance. And both these instances of CGT and dividend tax paying a pension contribution could help to reduce tax and of course help to fulfil a client retirement need.

And this is particularly helpful when salary uses most of a class basic rate band as the pension contribution will extend the basic rate band and could ensure a lower tax rate is applied. Next, I want to cover tax traps. So are tax systems progressive and the amount of tax should be and should increase as you earn more. But there are tax traps where more tax is paid than you'd expect.

And I'm referring to the personalized tax trap and also the high income child benefit tax trap. Now we actually covered the high income child benefit tax trap and the pension changes and tax year end webinar on January 2024. And you can still access that on our pension investment. CPD hub on the Royal London adviser say if you need a reminder of that. But both the high income child benefit tax drop and the personalized tax trap can be alleviated for some clients by paying a pension contribution. As a high income child benefit tax charge was covered last month I intend to focus just on the personalized tax trap, but they both work in very similar ways.

So for the personalized tax trap of adjusting net income is over £100,000 when a client starts to lose their personal life. So the two for one basis until it was completely at £125,140. Now, in this tax trap, the individual is effectively paying 60% tax instead of 40%.

So basically, adjusted net income is total taxable income, less pension contributions, gifted and trading losses. However, if a pensions contribution is made, then that 60% tax becomes 60% tax relief. And of course it's higher in Scotland due to the higher taxation though for clients in their fifties, paying a pension contribution can be very attractive as access to that money is close and it's really tax efficient.

But action might need to be taken know before the end of the tax year as you might not have relevant earnings in the next tax year. It might be the case that these people also have carry forward available to support a large contribution to. But of course that would need to be checked. And at the same logic applies for bonuses as these often cause a spike in earnings and take them over one of these tax traps. And remember, the tax rates are higher for clients who reside in Scotland and of course they have been proposed that increase even further.

Okay, let's move on to look at the abolition of the lifetime allowance, because that is the hottest topic certainly in the pensions world at the moment, though, we covered the removal of the lifetime allowance in our webinar January 24 and again the one entitled Pension Changes in Tax Year End.

But we weren't able to cover what happens on death, nor did we have details of the transitional arrangements. So are briefly cover the removal and then move on to the impact on death benefits, then transitional arrangements. If you'd like to know more about this subject, please refer to our webinar from January, which covers such things as what happens to clients who have lifetime allowance protection and what's actually included in the two new allowances and we also had a number of case studies to highlight these changes to.

The removal of Lifetime Allowance was announced in the Budget on the 15th of March 2023 and clearly there wasn't enough time to remove it by April 23. So, we've got this limbo year between the 23/24 tax year where the lifetime allowance still exists.

So for all intents and purposes the lifetime allowance is exactly the same as it was, but there's no lifetime tax charge. But from the 6th of April 2024, the lifetime allowance will be abolished and it's been replaced by two new allowances the lump sum allowance and the lump sum death benefit allowance. Now we've displayed these allowances as setting one within the other and I think that's quite a good way of thinking about it, because the lump sum allowance will use up lump sum death benefit allowance.

So overall from your client's pensions, there's a potential for a tax free lump sum of £1,070,100 unless they've got some form of protection, which would mean that it'd be higher. But just to highlight, that's not what the member can take tax free, but what could be passed on to the beneficiary tax free. And we're talking about what can be taken as a pension, tax free, as a lump sum.

So eventually going into drawdown or buying an annuity, they aren't going to use up these new allowances on the client's death if they've taken a tax free lump sum during the lifetime, that will reduce their lump sum death benefit allowance. So the tax free amount to the beneficiaries will be reduced. And I'll show some examples a bit later on just explain this in a bit more detail.

So those are two important terms that I'm sure will become very familiar with the lump sum allowance. What can get a tax free year over your lifetime, and that includes pension commencement lump sum and the tax free element offered on crystallized funds, pension lump sum, so winding up lump sum, small pots and triviality payments they aren't included in that lump sum allowance.

And then the other one is the lump sum death benefit allowance, and that's what can be paid tax free as a lump sum on death. And you need to take off the lump sum allowance or any, again, pension commensurate lump sum, the tax free element of one slice once page a lump sum plus if there had been a serious ill health lump sum, that would also use up a proportion of the lump sum and death benefit allowance to.

And from the 6th April 2024 pension commencement lump sum or tax free cash, and I'm still talking about including the tax free cash element of an uncrystallized fund special lump sum it will be limited to £260,275. So that's changed from being a percentage to a number. And in the post-budget documentation it talked about there are no plans to increase that number.

So if you've got clients that have got any protection that will continue beyond the 6th of April 24 and they'd be able to continue to, of any rate, to higher than the 268,275 tax free lump sum if they've secured that. Okay moving on, we've covered what is included in the lump sum in lump sum death benefit allowance in our January webinar therefore, I've just included this slide for your reference.

And indeed the next slide as well. What's included in the lump sum death benefit allowance. But let's move on to look at the taxation of defined contribution death benefit, and we're going to look at that from 6th of April 2024 once the lifetime allowance has been abolished. Now in this slide, we're looking at death before age 75 and we'll think about how this will be different from the current year.

And really the reason why we're focused on death before age 75, as that's the complicated bit. Death after age 75 was never a benefit crystallization event for defined contribution schemes. So the removal of the lifetime allowance doesn't really impact it. So we're not focused on that and we're really mostly concerned with death before those 75 as that's what's changed.

And you'll see we've made a distinction between crystallized and uncrystallized because they're different of what they've been. And we've also made a distinction between death benefits established or paid out within or after two years of death. So just to clarify, when someone dies before age 75, when the provider's informed of that death, a clock starts ticking. And if two years lapses between when the provider's informed of the death until it's been established, what's happened to those benefits, then they're taxed differently.

If two years elapses that broadly old tax that marginal rate and that was a benefit crystallization event and you don't get any sort of tax free really after that point. So that's not changed. So I'm just going to focus on the left hand side of the slide as those are the parts that will change. So firstly, the top left box there uncrystallized benefits on death when it's established within two years.

What's happening to those benefits? The beneficiaries marginal rate of income tax will apply to lump sums that exceed the deceased lump sum and death benefit allowance. But currently the beneficiaries marginal rate applies to lump sums which exceed the deceased life time allowance. Then you might remember when we had the lifetime abuse charge, it used to be 55%. Now if drawdown is used instead of a lump sum, you would hope that tax charges all the income and there's no income tax payable on beneficiary drawdown where the member dies under the age of 75.

So a lot of some death benefit allowances, 1,073,100. Then that kind of looks and feels and sounds like the lifetime allowance calling it the wave statement loans isn't right because the lifetime allowance was used up with one of 14 benefit crystallization events. So you're going into drawdown, buying an annuity, etc. would have used up the lifetime previously. However, the lump sum in death benefit allowance only gets used up by relevant benefit crystallization events in the future and those are benefit crystallization events where the clients taken tax free lump sums.

So again, it's a PCLS and the tax free element off your uncrystallized funds, pension lump sum and any other death benefit lump sum, so that's what we're talking about here. Now moving down and looking at crystallized benefits. This is this is different because now we have a liability to module income tax for the beneficiary that we didn't have before, although again, it's only on lump sums that exceed the lump sum death benefit allowance.

So you don't get that automatic tax free element that we do at the moment. In the future buying and drawdown is kind of like a benefit crystallization and if you want to think of it along those lines, because there will be a reference to that lump sum and death benefit allowance if your beneficiaries take as a lump sum rather than with some kind of drawdown option.

A couple of really important points to highlight here that firstly, if in that instance the beneficiary chose instead and was able to take beneficiary drawdown, then they will face any income tax on any drawdown, income or in fact lump sums that they take from that drawdown because technically speaking, it's not a lump sum. If it comes from drawdown, it's just income and there's no income tax payable and beneficiary drawdown where the member died under the age of 75 so that's a really important point.

So if you were advising a client in that situation, you'd probably be saying don't take a lump sum here, go into drawdown instead and then take anything you'll take from that, because that's a difference between paying a marginal rate of income tax and not. So for me, it really highlights the value of advice about that you guys can bring.

They making sure that the product that the original member is and not only offers the sort of options that they want, but also offers the options that the beneficiary wants as well or needs from a tax point of view. Secondly is the benefits and drawdown before the 6th of April 2024 will not be measured against that lump sum death benefit allowance.

So your HMRC thinking here is that when someone went into drawdown before the 6th of April 24, they'll be tested against a lifetime allowance. So it would be unfair to test them against the new lump sum and death benefit allowance in the future. So there will be people who've gone into drawdown years ago or even last year and face the lifetime allowance tax charge.

But there'll be people going into drawdown now who won't face a lifetime of those tax charge because there isn't one and they won't be referred against that lump sum and death benefit allowance after the 6th of April 24. So the potentially planning aspects or pros and cons to consider of crystallizing before the 6th of April 24. But remember, it's all irrelevant if the client is going to die before age 75 because after age 75 everything’s taxable anyway.

And for me it's vitally important to ensure your client's pension scheme allows for drawdown. Remember, scheme rules rule. So when pension freedoms were introduced, there was no requirement for schemes to change the rules to allow for drawdown. So some simply didn't. That would mean if your client had a scheme which doesn't allow for drawdown on their client's death, their beneficiary wouldn't have the option of drawdown and therefore must take the benefits as a lump sum, which may mean it will be taxed.

So please, please, please check to see if drawdown is available. And I also I just want to highlight something which hasn't changed in the policy statement. It came with the first set of draft regulations. It suggested that beneficiary drawdown would be taxed at the beneficiaries marginal rate, even when the member died under the age of 75 and benefits were being drawn as income.

But we now know this will not be the case or where the member dies under age 75. Drawdown benefits will be income tax free. So this is just confirmation of death after age 75. The removal of lifetime allowance hasn't affected how they're taxed until death after age 75. It was never a benefit Crystallization events or whether it's crystallized or uncrystallized or benefits are in drawdown or lump sum in death after age 75, everything is subject to that marginal rate of income tax.

So let's have a look at a quick case study here. It's a pretty straightforward example, first of all. So here we have Fiona. She has a pension fund of one and a half million pounds, no form of lifetime allowance protection, and she wasn't eligible for that in April 2016 or any of the previous date. And she hasn't crystallize any for benefits as yet.

So Fiona then unfortunately dies aged 60 in September, 24. They haven't taken any benefits. She only has one beneficiary and they want to take the benefits as a lump sum. Well, as we know from a previous slide, there's still a limit on the maximum lump sum death benefit. It can be paid tax free, and that's the lump sum death benefit allowance and it's £1,073,100.

So the lump sum of 1,073,100 can be paid tax free and the remainder 426,900 is taxed at the beneficiaries marginal rate. Remember if this was taken as drawdown, then as Fiona died under age 75, it would be tax free. And just to clarify as well, if there was more than one beneficiary, let's just say there's two beneficiaries then that tax free allowance of 1,073,100 would be split proportionately between the two of them.

Okay. A very similar scenario here. But this time Fiona decided that she wanted a tax free lump sum in May 2024, and she took her maximum lump sum of 260,275 and moved that 804,825 remainder into drawdown. But Fiona still dies aged 60 in September 2024 without having taken any further benefits. She still has just one beneficiary and they want all the remaining fund as a lump sum.

So there's 804,825 pays a drawdown, 426,800 crystallizing a personal pension. What would be the tax position for that beneficiary? So Fiona has a lump sum death benefit allowance of 1,073,100. But she's used up £260,275 that lump sum allowance of that during her lifetime by taking her lump sum. So she has £804,825 of that allowance remaining, meaning her beneficiary can take that as a tax free lump sum but they'll face a tax charge at the marginal rate on the remaining 426,900, if they take that as a lump sum.

So in both circumstances, £1,073,100 has been paid tax free as a lump sum and in the first example, the beneficiary got it all because Fiona hadn't taken any of it. And in the second example, Fiona takes it or maximum so that reduced what was left for her beneficiaries to take. Do remember though only applies to lump sums of the beneficiary to the excess income. They wouldn't face that marginal rate tax charge.

Okay, I want to move on to talk about the transitional arrangements as this is the detail we've been waiting on. It outlines how the old and the new rules interact, though those who've used all their lifetime allowance prior to 6th of April 2024 won't have any lump sum allowance or lump sum death benefit allowance left.

Those who haven't used any of the relief networks prior to 6th of April 24 will have their full lump sum allowance and lump sum death benefit allowance. For those who have taken some but not all of the benefits prior to 6th of April 24th the actual calculation for the remaining lump sum is £260,275 minus 25% times previously use lifetime allowance on the 5th of April 2024. Now to work out the remaining lump sum death benefit allowance, you start with 1,073,100 similar to what you did with the lump sum allowance.

You take 25% times a previous used the lifetime allowance on the 5th of April 2024, but you also add on any serious health lump sum paid prior to 6th of April 2024. And don't worry, I'm going to give you some examples to explain how this works. And broadly, you're looking at your lifetime allowance less then what you've previously taken and divided by four and deduct that from your lump sum allowance or your lump sum death benefit allowance to arrive at your remaining amounts.

But where the actual amount of tax free amounts received is lower than the default amount, a scheme member can apply for a transition annual tax free amount certificate. Where certificates held, then the lump sum reduction is based on the certified amount, not the default calculation amount. And these certificates are provided by a registered pension scheme and are used to prove that scheme members entitled to a lower reduction in their lump sum allowance and lump sum death benefit allowance than that provided for by the standard default calculation.

Okay, now we're going to look at some case studies so we can see how this all fits together for transitional arrangements with a client as crystallized some benefits prior to 6th of April 2024 and how this will interact with a lump sum allowance and lump sum death benefit loans after the 6th of April 2024. So first up, we have Paul and he doesn't have any lifetime loans potentially to benefits from a SIPP in 2022, which used up 100% of his lifetime allowances, got £200,000 left on uncrystallized.

What is this lump sum allowance and lump sum death benefit loans from the 6th of April 2024. So as Paul has used up 100% of his lifetime allowance prior to 6th April 2024, he won’t have any lump sum death benefit loans or lump sum loans. So they're both reduced to zero. That means Paul will not be able to take any tax free lump sum from his remaining a fund of £200,000 as he's used his lump sum allowance and if he does crystallize it, this will be subject to Paul's marginal rate of tax. As I mentioned earlier, of interest and benefits against the lump sum death benefit allowance. Any drawdown fund set out before April 2024 are ignored. Therefore, in Paul's death after six of April 24, and let's assume he's under 75 when he dies, only the uncrystallized amount of £200,000 is tested against Paul's lump sum death benefit allowance, which is actually zero if his beneficiary takes as a lump sum. His beneficiaries will therefore be able to take the crystallized pot pre 6th of April 2024 tax free either as a lump sum or as income, but will pay marginal rate on the uncrystallised pot if they take it as a lump sum. Okay, we're going to move on and we shall look at Justin.

And in this example here, Justin is the same as Paul he has no lifetime allowance protection. He took benefits from his personal pension in 2021, which used up 50% of his lifetime allowance. He's got 600,000 pairs left uncrystallized what is these lump sum allowance and lump sum death benefit allowance from the 6th of April 2024. So to establish how much a lump sum allowance, Justin has, we look at how much the lifetime allowances used up from 6th April 2024.

For him it was 50%. Can you move on, please, Shelley? And we then apply this 50% to 1,073,100, and that equates to £536,500. And we then reduces lump sum allowance going forward by 25% of this

536,550, leaving him with £134,130. Now his lump sum death benefit allowance will also be reduced by the same amount, leaving him with £938,962 remaining.

The lump sum death benefit loads. So you probably worked this out yourself. But there is a big difference in the lump sum death benefit allowance between someone who's used up 100% of the lifetime of allowance and another who used up 99%. As we just saw with Paul, he used up 100% of his lifetime allowance and had no lump sum allowance or lump sum death benefit allowance.

If someone used up 99% of their lifetime allowance, they would still have a lump sum allowance, not much, but it would still be £2,682.75. And the big difference here is they would have a lump sum death benefit allowance of £807,507.75 I mentioned Justin didn't have any lifetime allowance protection, but if for example, he had fixed protection 2016, you'll remember this is 1.25 million, then this would be his starting lump sum death benefit allowance that he starting lump sum allowance would be 25% for this, which is £312,500.

So both these lump sum death benefit allowance and his lump sum allowance would still be reduced by the 134,138. And instead it would leave him with a lump sum death benefit allowance of 1.15 million and a lump sum allowance of £170,362. Again, let me just highlight the any benefits crystallized before 6th April 24 will not be tested against the lump sum death benefit loans for deaths occurring after 6th of April 2024.

So his uncrystallised benefits are the only ones which could reduce those allowances going forward. So let's look at another example. Notice this example's almost identical to the sample I just showed you, but this time Meera benefits in July 2016. So it's the date or taking the benefits, which is significant as this can produce a different result.

Meera benefits from a personal pension in July 2016, which used up 50% of a lifetime allowance. She has 600,000 purchased uncrystallized what is a lump sum allowance and lump sum death benefit loans from 6th of April 2024. If Meera didn't apply for a transitional certificate, our lump sum death benefit allowance and our lump sum allowance would be the same as Justin's.

However, the lifetime allowance was £1 million back in 2016 and not £1,073,100. When Justin used up his lifetime allowance. So Meera's adviser realized that a tax free lump sum in 2016 would have been less than she could receive currently. So ask me to apply for a transitional certificate.

The certificate will show that Meera would have only received £125,000 as PCLS back in 2016. 50% of that then left. Millions of 1 million is 500,000. Of course, 25% of this is £125,000. So both Meera’s lump sum death benefit allowance and lump sum allowance should only be reduced by £125,000 rather than £134,138. So our lump sum death benefit allowance will therefore be 948,100 and lump sum allowance £143,275.

Let's have a look at another case study and this example here we have someone who has a combination of defined benefit and defined contribution benefits, and this example. John receives 60,000 defined benefit pension in 2022, but didn't receive any PCLS. Now that 60,000 defined benefit pension used up 100% off his lifetime allowance, but he still got one and a half million left uncrystallized in a personal pension with no protection.

What is this lump sum allowance and lump sum death benefit allowance from 6th April 2024. Well although John had used up 100% of his lifetime allowance. He didn't take any PCLS. Therefore, if he applies for a transitional certificate, this will show he didn't take any PCLS and he's still entitled to his full lump sum allowance of £260,275, and he's a lump sum death benefit allowance will be £1,073,100.

So just a couple of other points about this. Firstly, the maximum pension tax free cash will be the lower of 25% of the available uncrystallized fund or £268,275 unless someone has a lifetime protection, in which case the lump sum allowance could be higher. So if, for example, John's pension pot had only been £500,000, then as lump sum claimed to be 25% of this, so it would be 125,000.

And secondly, if John didn't apply for the certificate, he wouldn't be entitled to any lump sum allowance or lump sum death benefit allowance. And this just highlights that taken and becomes no longer a benefit crystallization event and therefore doesn't use up any of the lump sum loans or lump sum death benefit allowance. And so there's an opportunity to look for clients who have both DB and DC benefits to see if they can take advantage of this.

I've talked quite a lot about this over the last few slides, so I thought it'd be useful to clarify a few things about this transitional tax free amount certificate as the certificate from an individual provided or an application that shows the amount of the individual's lump sum, transitional tax free amount and amount of the individual's lump sum and death benefit, transitional tax free amount.

Now the application must be made before the first relevant benefit crystallization event and the application must be made by the individual and it must apply to the scheme from which the first lump sum is being paid after 6th of April 24. Well, this was what was in the finance bill, but HMRC have informed us that although they do expect applications to be made to the scheme for which the first lump sum is paid after sixth April 2024, their claim can apply to any scheme of which that a member.

But potentially this only leaves a few weeks to get organized. You will think of any clients who are planning to take tax free lump sums early in the new tax year, and perhaps you have some clients that are receiving this via drip feed drawdown. Though the first relevant benefit crystallization event after 6th of April 24 will then prevent a transitional tax year amount certificate application if had not been made.

So identifying these clients you could be impacted is crucial to avoid foreseeable harm. As we've seen, benefits crystallized prior to 6th April 24 are valued and adopted from the two new allowances. Now, in most cases we have 25% tax free cash was paid out. The valuation will give a reasonably accurate figure. However, in certain situations the valuation may not be accurate and could result in the remaining lump sum allowance and lump sum and death benefit allowance being reduced more.

The need to be where that is the case. Applying for a transitional tax year certificate will ensure the reduction in the available remaining allowances is for the correct amount. Though some of the circumstances where a transitional tax year certificate will help the individual are. Firstly, if any benefits were crystallized when the lifetime allowance was below £1,073,100 as we saw in the Meera example.

Secondly, where there's been a transfer to qualifying recognized overseas pension. Thirdly, if less than 25% tax free cash was paid because perhaps GMP restricted the tax free cash or the crystallize benefits included a disqualifying pension credit, or it was a defined benefit scheme and a tax free cash taken was not 25% of the benefits value as we saw in our final example with John.

And fourthly, anyone with post age 75 on crystallized benefits or PCLS entitlement who reached 75 before 6th of April 24, may benefit from applying for a certificate. Now our Technical Central part of the Royal London Adviser hub. There's lots more information on the abolition of the lifetime allowance, including what I've covered today, and also provides further detail of when it's likely clients would benefit from applying for this transitional tax free certificate and when it's likely to wouldn't benefit, so well worth having to look for that.

Right let's look at some opportunities. And I'm sure you've recognized the removal of the lifetime allowance and the introduction of its replacement has been and is really quite complicated. So it's imperative that you, as advisers, get this right to avoid foreseeable harm for your clients. But as I say, there are also some opportunities here.

So for example, for clients to crystallize benefits prior to 6th of April 24 and may find they're entitled to more tax free cash than they were previously. The 14 benefit crystallization rates are being removed, replaced with the relevant benefit crystallization events which only apply when tax free lump sums are taken, whereas previously lifetime allowance would have been used up by taken income.

The new lump sum and death benefit allowance only gets used up by relevant benefit crystallization events in the future. You might have DB clients who have used up 100% of the lifetime allowance previously but hadn't taken any tax free cash and have gone from the benefits to crystallize. Though if they apply for a transitional tax free of certificate, they may now be entitled to a lump sum allowance of up to £260,275 tax free.

For the applicable clients individual expectation can still be applied for up until 5th of April 2025 and they could benefit from a higher lump sum death benefit allowance and lump sum allowance. The annual executor mode for capital gains or dividend allowance are both reduced sum from 6th April 24. Therefore, can your clients take their gains or dividends prior to the introduced their tax? And don't forget how a pension contribution could help reduce CGT and dividend tax, which is particularly helpful when salary uses up most of a client's basic rate band as the pension contribution will extend the basic rate band and could ensure a lower tax rate is applied.

Finally, a pension contribution can also get clients out of tax traps such as the personal loans and high income child benefit tax traps by reducing their adjusted net income while at the same time it will help to fulfil the client's retirement needs.

Okay, before we finish up, I appreciate a lot of what you've heard. This presentation is quite specific to clients in a certain circumstance or with a particular need, but I also appreciate the need to sometimes take a step back and take a look at the bigger picture of what we want to achieve and how we want to go about achieving it.

But you as financial professionals aren't just running a financial problem solving shop, might feel like that sometimes, but you've got a relationship business. And for that business to be successful, that requires trust to be built up over a period of time. Not surprisingly, given the title on the screen for clients to feel they're getting value out of the relationship, this can be easy to lose sight of, especially when you're busy and the individual tasks mount up.

But at Royal London, we've also been considering the price and value outcome from the consumer duty and we've completed research on the second part of this outcome value because we need to be mindful of what value actually means. And does it mean something different to advisors and clients nearer the value of getting ready, for example. So we know across both advisor and consumer research that themes of trust and providing peace of mind come out strongly when asking the respective audiences what represents value to them.

You advisors appear to know that with peace of mind coming out as the top aspect, you believe your clients value. But there are other aspects highlighted in this paper where advisors and consumers aren't as aligned on what represents value. So I feel this is a must read report for the advice industry.

So thank you for joining us on this webinar. We hope your knowledge has been enhanced, or at very least we've provided confirmation of what you already know and here are our learning outcomes. Again, hopefully we have achieved achieve this and of course the legals, of course you won't want to miss these, just leaves me to say thank you very much for your time. I hope this was useful to you.

As mentioned by Shelley at the start, if you've got any comments or questions, please leave these in the feedback section. We'll get back to you as soon as we possibly can. And once this session finishes, there'll be some CPD questions for you to answer. And once these have been answered correctly, your CPD certificate will be generated. And thanks once again for listening.

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1. What will be the CGT annual exempt amount from 6 April 2024?
2. Harry dies age 70 on 1 May 2024 with an uncrystallised pension pot of £1.5m and his only beneficiary would like his pension benefits as a lump sum.  Which of the following is true?
3. Mike used up 50% of his lifetime allowance in 2022. What is the maximum tax free lump sum he can take if he crystallises the remainder of his pension pot of £300,000 in June 2024?
4. The risk profile of a client with no protection could be described as?
5. Writing a protection plan in trust means the proceeds can be paid?
6. Which statement is not true about Relevant Life Policies?

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