Additional Voluntary Contributions

Transcription

1 Additional Voluntary Contributions Working in partnership with the Universities Superannuation Scheme to help you towards a more comfortable retirement

2 Will you have enough money for retirement? As a member of Universities Superannuation Scheme (USS) you need to make sure you re saving enough to provide the tax free cash or regular income you want in retirement. How much is enough? Most people say they hope to retire on two-thirds of what their salary is at retirement. Retirement may be a long way off for some, but the sooner you start saving the better your retirement could be. Top up with MPAVCs Money Purchase Additional Voluntary Contributions (MPAVCs) are additional payments made to top-up the benefits you will receive from your final salary pension arrangement. They can be a great way to catch up if you started paying into a pension late or plan to retire early. Even if you don t plan to retire for a long time, making extra payments can be of benefit should you retire earlier than planned. Even if you are closer to retirement MPAVCs are still a great way to provide extra funds for your future. You can potentially take all of your MPAVC pot as a tax-free lump sum when you draw your MPAVC benefits at the same time as your USS pension (as long as this isn't more than 25% of the total value of your USS pension benefits taken). Under the terms of the current contract you will need to do this by your 75th birthday. This means you can have an even bigger lump sum to get your retirement off to the best possible start. Remember, if you prefer you can use all of your plan value to provide a taxable retirement income instead or to buy extra service or extra benefits in USS subject to scheme rules. For more information visit the USS website at or speak to your employer. What are the benefits of making MPAVCs? > Choose how you want your benefits > Contributions qualify for tax relief > Contributions paid direct from your salary > Choose where you want to invest > Flexibility with your contributions > Potential to take 100% of your MPAVC fund as tax free cash This information is based on our understanding of current scheme rules, taxation, legislation and HM Revenue & Customs practice, as at February These tax rules could change in the future without notice. Call our dedicated support team on

3 How do you want your benefits? The good thing about topping up with MPAVCs is that you are in control of how you take your benefits. One option is to add your MPAVC pension pot to your main scheme, and purchase extra service from your USS main fund benefit. Keep in mind, however, that pension income you receive will be taxed as earned income. Up to 100% Tax Free Cash You can potentially take all of your MPAVC pot as a tax-free lump sum when you draw your MPAVC benefits at the same time as your USS pension (as long as this isn't more than 25% of the total value of your USS pension benefits taken). Working out how much scope you have can be fairly complex, however we can help you with this. The example below gives you the basic idea. Please note that the calculations on this page are only applicable for members who joined the USS pension scheme prior to 01/10/11. For all members who joined after this date, please contact your main scheme administrator for further details. Tom's main USS pension will pay him 15,000 per annum at his normal retirement date. In addition, a tax free lump sum of 45,000 will be made, three times his USS pension. He has never considered making MPAVC payments before, but he might be due a rethink! This is how the taxman will value his total pensions pot : Valuation of USS tax free cash benefits: Description Value Calculation USS pension value 300,000 ( 15,000 pension x 20) MPAVC pot nil USS tax free lump sum 45,000 ( 15,000 pension x 3) Total pensions pot 345,000 Potential total tax free cash 86,250 ( 345,000 x 25%) Less USS tax free lump sum 45,000 Additional tax free cash potential 41,250 ( 86,250 45,000)

4 So in the example, Tom could contribute into an MPAVC and take out up to 41,250 of this fund as extra tax free cash. In actual fact any money he puts into his MPAVC pot will increase his overall tax free cash allowance even further. In reality he needn't stop there as an MPAVC is also a great way to boost his income in retirement, never mind his tax free cash. This is just an example designed to represent a typical situation and does not relate to any particular individual. You should not look upon this as financial advice or a recommendation of a particular course of action. You should consider your own circumstances fully, and may wish to consult a Financial Adviser to help you make a decision. To provide a rough estimation of your own pension pot multiply your expected pension by 20, and add to it your USS tax free cash entitlement and then add your MPAVC pot if you have one. Multiplying this answer by 25% provides you with an indication of the maximum tax free cash sum that you can receive. Lifetime Allowance The Government limits the amount you can build up in all your pension plans before incurring a tax charge. This is called the Lifetime Allowance. If you exceed this amount, a tax charge may be payable on the excess. Tax Year Lifetime Allowance 2014/ million 2015/ million There is some protection available for those that may exceed the lifetime allowance. If you think you are affected you can get more information from the HMRC website at Tax rules require careful consideration and you should speak to a financial adviser. Annual Allowance The Government limits the amount that can be paid each year, to all your pensions, before incurring a tax charge. This is called the Annual Allowance. If this is exceeded, you may be liable to a tax charge and must inform HMRC through the completion of a tax return. Tax Year Annual Allowance 2014/ , / ,000 You may be able to carry forward unused allowance from the last three years to increase your limit for the current year. Your Annual Allowance includes all contributions from you, your employer, any third party and increases in the value of any salary related pension benefits you may have. If you think you are affected by this limit you can get more information from the HMRC website at Tax rules require careful consideration and you should speak to a financial adviser.

5 Money Purchase Annual Allowance In addition to the standard annual allowance mentioned earlier under Annual Allowance, there is a new form of this called the Money Purchase Annual Allowance (MPAA). The MPAA may apply to you if you have flexibly accessed pension benefits on or after 6th April Your pension scheme or provider will have informed you if you have flexibly accessed your pension benefits. Examples of these include taking income from flexi-access drawdown or a cash lump sum (Uncrystallised Funds Pensions Lump Sum). The MPAA is 10,000 from 6 April 2015 and would apply from when you first flexibly accessed benefits. If this is the case you will incur a tax charge on any contributions to a money purchase pensions which exceed this level. Also, in a year when you exceed the MPAA the standard annual allowance for your other defined benefit pensions, such as a final salary or career average pension scheme, will reduce to 30,000. This is a complicated subject and you may wish to speak to a financial adviser or further information may be obtained from HMRC. The Universities Superannuation Scheme currently restricts the maximum you can pay (gross contributions before tax relief) into your Money Purchase AVC facility between 1st April and the following 31st March to the lower of: > 100% of salary, or > 50,000 per annum There is a limit on the tax relief you receive on your contributions. Tax-efficient and Simple Why don t you let the tax man help you save towards retirement? An MPAVC is one of the most tax-efficient ways to save for retirement. For every 100 you put in, the cost to you is 80 if you are a basic rate tax payer, as the 20 that would normally go to the tax man goes to the MPAVC instead. If you pay tax above the basic rate you may be entitled to further tax savings. Contributions will be taken directly from your salary, so there is no need to fill out any complicated tax forms. 100 into your pension pot Tax relief 20 Actual cost to you 80 Basic rate tax payer The above is based on our understanding, as at February 2015, of current taxation legislation and HM Revenue & Customs practice, all of which are liable to change without notice. The impact of taxation (and any tax savings) depends on an individual s personal circumstances.

6 Flexible You can increase, decrease, stop and start payments as required, if your personal circumstances change. This is particularly important as you get closer to retirement when you may be able to afford a higher contribution in order to boost your benefits. Call our dedicated support team on Choice of investments You can choose where you want to invest your MPAVC pot. There are lots of funds to choose from, each with their own levels of risk, so whether you are a high risk taker or prefer to be a bit more cautious there is something there for you. You can even spread your investments so they are not all exposed to the same level of risk. The funds available have been chosen with the long term aim of providing inflation beating returns. Your MPAVCs are also invested in funds which are largely tax free so they have the potential to grow much faster than they would if the fund was subject to tax. You also have the option to move your funds; this could be beneficial, for example, if you want to move to lower risk funds as you are nearing retirement. To find out more about the funds, what funds are available, please refer to your Pension Scheme s Guide to Fund Options, or log on to The value of your investment may go down as well as up and the fund value at retirement may be less than the payments you have made. Please bear in mind that inflation will reduce the value of your MPAVC pot and any growth from it. Prudential A name you can trust! Prudential plc is an international financial services group with significant operations in Asia, the US and the UK. We serve over 23 million insurance customers and have 443 billion of assets under management (at 31 December 2013). We are listed on stock exchanges in London, Hong Kong, Singapore and New York. Prudential UK is a leading life and pensions provider to approximately 7 million customers in the United Kingdom. Understanding and responding to our customers' needs is at the heart of our business. It is something we have been doing for 165 years. You also have the option of buying Added Years within your pension scheme and you should contact your main scheme administrator for more details. You may also be able to contribute to another registered pension scheme if you meet the relevant criteria.

7 What next? Whether you want to join, top up or restart we're here to help. Our dedicated support team will be happy to help, and can even complete all the paperwork over the telephone. Please call us on quoting UAPB. Prudential s trained and professional staff are ready to answer your MPAVC questions with factual information. Lines are open 9.00am to 6.00pm weekdays.

8 Prudential is a trading name of The Prudential Assurance Company Limited, which is registered in England and Wales. This name is also used by other companies within the Prudential Group, which between them provide a range of financial products including life assurance, pensions, savings and investment products. Registered Office at Laurence Pountney Hill, London EC4R 0HH. Registered number AVCM /2015