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					           PENSION FUND RECYCLING-
           SHOULD I TAKE AN INCOME?
                                                                                                                                                                                                                         Annuities -
    Since the change in pension rules,                                 The rules only allow tax-free cash                                 4.     There is no element of pre-
                                                                                                                                                 planning.
                                                                                                                                                                                                                         Defer now and
    clients taking income withdrawal                                   sum recycling provided that:-
    as an unsecured pension can elect
    to take no income from their pen-
    sion fund. We have seen some of
                                                                       1.       The tax-free lump sum does
                                                                                not exceed 1% of the life
                                                                                                                                          Due to these rules there has been a
                                                                                                                                          move to keep things simple and
                                                                                                                                                                                                                         pay later?
                                                                                time allowance (currently                                 avoid recycling tax-free lump
    our clients choosing to do this. Is
                                                                                £1,650,000);                                              sums. Whilst this approach is                                                                                                            John S Eames - Managing Director
    taking zero income the right
                                                                                                                                          prudent, we have to remember that
    thing to do, even when there is                                    2.       Cumulative new contribu-                                  these rules only apply to tax-free
    no need for additional income?                                              tions do not exceed 30%                                                                                                            The   value of your pension For how long can you afford      Over the same period, from
                                                                                                                                          cash sums and the same
                                                                                of the cash sum taken;                                    restrictions do not apply to                                             fund may have fallen in the to forego your annuity           December 1999 to June
    We have covered the restrictions                                                                                                                                                                               past few months, making it income?                           2007,       annuity         rates
                                                                                                                                          recycling pension income. There
    on the recycling of tax-free lump                                  3.      Contributions are not “signif-                                                                                                      tempting to leave the fund                                   for single males declined by
                                                                                                                                          can be major inheritance tax and
    sums in a previous newsletter.                                              icantly greater” i.e. over                                                                                                         invested.                                                    almost 20%. Annuity rates
                                                                                                                                          tax-free lump sum advantages
                                                                               30% greater than the previ-                                                                                                                                       How certain are you that       can fall because of increasing
                                                                                                                                          available as shown in the example.
                                                                               ous contribution level.                                                                                                             Yet, with continued market your alternative sources of       life expectancy over the
    Example:-                                                                                                                                                                                                      uncertainty and clearly no income can continue for as        long-term. In the last 3
                                                                                                                                                                                                                   guarantee of the market long as is required? Are you         decades, life expectancy for
    Mr and Mrs Ferguson have just reached age 60 and decide to take the tax-free lump sum from Mr Ferguson’s pension fund, but                                                                                     making a quick return to at risk of being forced to          a male at age 65 has risen by
    take no income as they have ample income from other sources. This leaves a residual fund of £350,000 which is fully invested.                                                                                  2007 levels, appreciating all draw income at an even         3 years per decade. Annuity
    At age 75 the fund is worth £911,000, when the decision has to be made to take an Alternatively Secured Pension or an annuity.
                                                                                                                                                                                                                   the facts before delaying the worse time?                    rates can also fall because
                                                                                                                                                                                                                   purchase of an annuity is                                    interest rates are falling.
    If at age 60, he had chosen to take £7,200 each year as income from the pension fund and paid £3,600 each year into new                                                                                        critical.
    plans for himself and his wife – what difference would this make?                                                                                                                                                                            How certain are you that the   Defer now and pay later?
                                                                                                                                                                                                                   Deferral could be the right markets will recover within
                                                                                                                                                                                                                                                 this period?
    At age 75, the pension fund value of the existing plan is now only £724,000, but there is an additional £178,000 in the two new                                                                                decision, but you should                                     The example overleaf shows
    plans. The total value is £9,000 less, but they can take another £44,500 as tax-free lump sums from the new plans and we have                                                                                  consider the following ques-                                 the effect of deferring
    significantly improved the death benefits position.                                                                                                                                                            tions:                                                       annuity purchase by 1 year,
                                                                                                                                                                                                                                                 In December 1999, the FTSE
                                                                                                                                                                                                                                                                                from age 65 to 66.          It
    If Mr Ferguson dies just before age 75, a 35% tax charge would be raised against the whole fund. But if they choose to                                                                                         Can you afford to forego 100 peaked at 6930. The             assumes that the fund is
    establish new plans at age 60 the fund value of the new plans would normally be paid out tax-free on the death of either Mr or                                                                                 your annuity?                 latest peak was at 6752 in
                                                                                                                                                                                                                                                                                £50,000 at age 65 and, if left
    Mrs Ferguson before age 75, providing a potential tax saving of over £60,000 if they both die just before age 75.                                                                                                                            June 2007 – more than 7        invested, will grow by 7%
                                                                                                                                                                                                                   If you can continue to work years later.                     per year before charges and
    If either partner continues to work, contributions over £3,600 each year up to their annual earnings can be made which will                                                                                    or live off your assets, you                                 that you buy a standard
    improve the situation even further.                                                                                                                                                                            may be able to live without                                  annuity.
                                                                                                                                                                                                                   your pension for some time, How certain are you that
    These examples are based on Winterthur Life’s product charges and are based upon 7% annual growth and investment in a fund with a 0.35% annual management charge.                                                                            annuity rates will improve
                                                                                                                                                                                                                   but do you wish to continue
                                                                                                                                                                                                                                                 within this period?
                                                                                                                                                                                                                   working?                                                           Continued overleaf
It should be noted that the value of the underlying investments and the income from them can fall as well as rise and you may get back less than you invested, especially in the early years. The
past is not necessarily a guide to future performance. Levels and bases of, and reliefs from, taxation are subject to change. The tax reliefs referred to are those currently applying and their
value depends on individual circumstances. These investments are intended for the medium to long term. Investments in Venture Capital Trusts carry a greater risk than some other invest-


                                                                                                                                                                                                                            SEE OUR NEW WEBSITE
ments and the investment is classified as “not readily realisable”. All information contained in this issue is based on our understanding of current legislation. We have taken reasonable care
to ensure statements of fact and opinion contained in this newsletter are fair and accurate in all material respects but cannot guarantee such accuracy.



                                                             John Eames Limited
                                                 19 Britton Street London EC1M 5NZ
                                                                                                                                                                                                    John Eames                               www.jeames.co.uk
                                          Telephone: 020-7608-1455 Facsimile: 020-7608-1450                                                                                                            Limited       visit our website to access information about our services
                                               enquiries@jeames.co.uk     www.jeames.co.uk                                                                                                             July 2008
             Authorised and regulated by the Financial Services Authority. Registered in England and Wales No. 3014273                                                                              Issue No.19      For further details please email us at enquiries@jeames.co.uk or call on 020 7608 1455
                            . . . . . Defer now and pay later ?                                                                        A GUIDE
    Age
         Annuity purchase at age 65
                  Annual        Total income            Annual
                                                                          Annuity purchase at age 66
                                                                              Total income            Difference in total
                                                                                                                                           TO THE
    65
    70
                 income
                £3,683.04
                £3,683.04
                                 received
                                £3,683.04
                                £22,098.24
                                                        income
                                                        £0.00
                                                        £3,981.48
                                                                              received
                                                                               £0.00
                                                                               £19,907.40
                                                                                                            income
                                                                                                        -£3,683.04
                                                                                                        -£2,190.84
                                                                                                                                               ISA CHANGES
     75         £3,683.04       £40,513.44              £3,981.48              £39,814.80               -£698.64
    78          £3,683.04       £51,562.56              £3,981.48              £51,759.24                £196.68
                                                                                                                                  Fro m 6 t h A p r i l t h e r e w e r e s i g n i f i c a n t c h a n g e s t o h o w I S A s w o r k .
     80         £3,683.04       £58,928.64              £3,981.48              £59,722.20                £793.56



                                                                                                                                  Individual Savings Accounts           saved in cash with one provider.      You will need to select the
                                                                                   Annuity rates could get better if,             (ISAs) are a simple way to            The remainder of the £7,200           Stocks & Shares ISA provider
So if you defer now, at age 65, for      Again if interest rates were to fall by
                                                                                   interest rates, or bond yields rise,           minimise the tax payable on           can be invested in stocks and         with whom you want to have
just one year, it could be 13 years      1% over the period, the income
                                                                                                                                  investments.                          shares with either the same or        your ISA. This can be your
before you get your money back.          from the annuity purchased at 66          overall life expectancy decreases or
                                         could fall to £3,460 per annum. In        your health deteriorates and you                                                     another provider.                     existing provider if it offers a
                                                                                                                                  From 6 April there were
If interest rates were to fall by 1%     this case you would never get your        qualify for an enhanced annuity.                                                                                           Stocks & Shares ISA, or you
                                                                                                                                  significant changes to how
over the period, the income from         money back.                               Strong fund performances could                                                       For example, you can choose to        can appoint a new provider.
                                                                                                                                  ISAs work. Below we aim to
the annuity purchased at 66 could                                                  improve the value of the fund,                                                       save £1,000 in a Cash ISA with        Please contact us for advice.
                                                                                                                                  outline the general changes.
fall to £3,703 per annum. In this        If you are in a With Profits fund, you    increase the tax-free cash sum that                                                  one provider and £6,200 in a
case you would only get your             should remember it may be subject         can be taken, with more money                                                        Stocks & Shares ISA with a            You must not withdraw the
                                                                                                                                  PEPs became         Stocks     &
money back if you lived 184 years        to a Market Value Adjustment (MVA)        being available to buy an annuity. If                                                different provider.                   money and invest it in a
                                                                                                                                  Shares ISAs
after age 65!                            if benefits are not taken at the
                                                                                   you die before taking benefits, the
                                                                                                                                                                                                              Stocks & Shares ISA yourself,
                                         selected retirement age. Even if you                                                     Existing PEP accounts auto-           Can Cash ISAs be transferred          as it will count against your
                                                                                   whole of the fund may be available
The table below shows what would         switch to a cash fund, sufficient                                                        matically became Stocks &                                                   annual      ISA   investment
                                                                                   as cash to your heirs. Additionally,                                                 to Stocks & Shares ISAs?
happen if the fund didn’t rise at all.   growth may not be achieved to                                                            Shares ISAs on 6 April 2008.                                                allowance.
                                                                                   any guarantee period under an                                                        Yes. Under the new rules you
In this case, you would have to wait     make up for the loss of income.                                                          No action is required by you.
                                                                                   annuity would finish later as a result                                               will be able to transfer some or
100 years until you were age 165 to
                                                                                   of the later purchase.                         New ISA structure            and      all the value of the renamed          Can I save money in a Cash
get your money back.                     What benefits          are   there   in
                                         deferring?                                         Figures provided by Just Retirement   investment limits                     Cash ISAs from previous tax           ISA and transfer it into a
                                                                                                                                                                        years into Stocks & Shares            Stocks & Shares ISA in the
                                                                                                                                  Mini and Maxi ISAs no longer                                                same year?
                                                                                                                                                                        ISAs without affecting your
                                                                                                                                  exist. They have been replaced
                                                                                                                                                                        annual      ISA      investment       Yes. Such transfers must be the
         Annuity purchase at age 65                                       Annuity purchase at age 66                              under the new rules by Cash
                                                                                                                                                                        allowance.                            whole amount saved in that tax
   Age            Annual       Total income             Annual                Total income            Difference in total
                                                                                                                                  ISAs and Stocks & Shares ISAs.
                                                                                                                                  Mini Cash ISAs and the cash                                                 year in that Cash ISA up to the
                 income         received                income                received                      income
                                                                                                                                  components of Maxi ISAs have          How do I transfer the money           day of the transfer. Once the
    65          £3,683.04       £3,683.04               £0.00                  £0.00                     -£3,683.04                                                                                           money saved in that tax year is
                                                                                                                                  automatically become Cash             in my Cash ISA to a Stocks &
    70          £3,683.04       £22,098.24              £3,720.24              £18,601.20                -£3,497.04               ISAs.                                 Shares ISA?                           transferred from a Cash ISA to a
    75          £3,683.04       £40,513.44              £3,720.24              £37,202.40                -£3,311.04                                                                                           Stocks & Shares ISA, it is treat-
                                                                                                                                                                        Exactly the same way as you
    80          £3,683.04       £51,562.56              £3,720.24              £55,803.60                -£3,125.04               The annual ISA investment                                                   ed as if it had been invested
                                                                                                                                                                        would transfer your ISA to
    90          £3,683.04       £58,928.64              £3,720.24              £93,006.00                -£2,753.04               allowance is now £7,200. Up to                                              directly into a Stocks & Shares
                                                                                                                                                                        another provider.
    165         £3,683.04       £371,987.04             £3,720.24              £372,024.00               £39.96                   £3,600 of this allowance can be                                             ISA in that tax year.




   For further details please email us at enquiries@jeames.co.uk or call on 020 7608 1455 www.jeames.co.uk                            For further details please email us at enquiries@jeames.co.uk or call on 020 7608 1455 www.jeames.co.uk

				
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