Retirement Account A Guide for Customers
Contents
The changing pension landscape
02 The changing pension landscape 03
Important points to consider
04 The LV= Retirement Account - at a glance 06 Bringing it to life - some case studies 10 The LV= Retirement Account - the details 11 Product summaries 14 Understanding your options 15 Glossary
Our expectations from retirement are changing Improved healthcare, increased life expectancy and changing lifestyles mean that we can expect a longer and more active retirement than even our parent’s generation. Retirement is no longer a single event that just happens on one day. Either by choice, or from necessity, many people intend to continue working into later life, meaning that we are more likely to phase into retirement - perhaps with a more gradual reduction in working hours - or change direction and explore fresh opportunities. The pension landscape has changed The rules around pensions changed radically in April 2015 and the range of options available to people approaching or in retirement is now broader, with greater freedom over how and when to use your pension savings. Prior to this, the accepted route for many was simply to commit their pension funds to buy a guaranteed income for life through an annuity. Although security and the certainty of an income to cover essential costs will remain the key priority for most of us, the regulatory changes introduced from April 2015 have resulted in increased freedom and choice and make it easier to retain control over your pension fund so that you can access it more flexibly to suit your lifestyle in retirement.
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Your retirement plans need to be capable of adapting to the changes in your lifestyle With everything else changing, it makes sense that your retirement plans need to be flexible too. They need to help you build and grow your retirement savings in a tax-efficient way while you are working, while building in a combination of flexibility and security to match the changes to your life in retirement - even the ones you don’t know about yet - is essential. We believe that it’s also important to be able to combine these different options in one place, to make it easier to keep track and control over your plans. That’s why we have introduced the LV= Retirement Account.
The LV= Retirement Account As a leading retirement income specialist, LV= offers a range of retirement solutions to meet different needs. The concept of the LV= Retirement Account is very simple. It’s a convenient ‘umbrella’ account that brings together all the features of our retirement products in one place to offer you security and flexibility within one complete package.
Important points to consider Inflation - It’s important to remember that inflation can reduce the purchasing power of your income and the need to consider ways of preserving the real value. Your financial intermediary will be able to explain the options to you and help you make the right decisions based on your personal circumstances. Investment risk - The value of investments can go down. This can mean that you may get back less than you invested. Tax - Tax liability depends on your individual circumstances and can change in the future. -- A word about tax: In simple terms, you are normally allowed to withdraw up to 25% of the value of your pension fund tax free. Anything else that you withdraw, either as a lump sum or in the form of a regular income, is liable to income tax. The rate and amount of tax will depend on your total income during the tax year. It’s important to be aware that even someone who is normally a non-tax payer could find themselves paying tax at the highest rates if they withdraw a particularly large lump sum from their pension during a tax year and could find themselves handing over 40% of their money to the tax man. Changing circumstances - Significant events such as changes to health or divorce can be life-changing and may have a lasting impact on lifestyle and financial needs. Life Expectancy - Although we don’t know how long we will live, or what our health will be like, it’s a fact that people are now living longer. It’s important to be sure that we have the income needed when it is required.
The LV= Retirement Account makes it easy for you and your financial intermediary to plan ahead for the new retirement environment and conveniently combine retirement income products to precisely meet your individual needs - now and in the future.
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The LV= Retirement Account - at a glance The LV= Retirement Account is the easy way to create a retirement plan to precisely meet your individual needs for certainty and flexibility. It’s designed to help financial intermediaries and their clients to blend any combination of LV= retirement products under one umbrella.
Retirement Account Select any combination to qualify
The LV= Retirement Account
✔ Simple and uncomplicated -
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straightforward way of creating your retirement plan
✔ Flexible and Secure - to precisely meet individual needs
One application form | One annual statement One holistic view of how your retirement plans are performing.
✔ Versatile - can adapt to lifestyle and financial changes
✔ One consolidated income payment date - making budgeting easier and more predictable
✔ One annual statement - providing Retirement savings
Flexible income
Guaranteed Income for a Fixed Term
a convenient summary of your retirement plans in one place
✔ Comfort - underpinned by the financial strength and experience of LV=, a leading retirement income specialist and the UK’s largest friendly society
See pages 9 and 10 for information about these retirement products. Only products within the LV= retirement solutions range can be combined within the LV= Retirement Account. Although they are competitively positioned, it is possible that, for example, a higher income rate might be available from other providers. This is a consideration that should be balanced against the simplicity and convenience of having all of your pension options in one place.
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Combining all of your retirement needs within a single account The LV= Retirement Account can be adapted to suit different stages of your journey towards, at, and in retirement.
To conveniently consolidate pension funds built up from previous employments into a single place
Is it right for you? The LV= Retirement Account is designed to be attractive to clients who are approaching or have reached the ‘at retirement’ stage and might to be suitable for you if you:
To withdraw lump sums when you need them
✔ are looking to pull together your existing or past pensions into
To receive a guaranteed level of income for a fixed period to cover essential outgoings
✔ want a combination of flexibility and security of income
To continue to work and save into your pension while taking an income from it
✔ don’t want to use all of your pension fund to buy an income
To invest your pension fund and leave it uncommitted and accessible for future use To receive a selected level of income for a fixed period of time to supplement other income
one place as part of your retirement plans and/or capital right now and want to retain access and control over your money
✔ want the option of taking flexible income from your pension through a drawdown facility In broad terms, it is unlikely to be suitable for you if you:
To guarantee the availability of a capital sum at a known point in the future To make provision for providing an income to your dependants To preserve your pension fund for it to be passed on to your dependants in a tax-efficient way
Most importantly, the LV= Retirement Account makes it possible to combine any of these options to suit your individual circumstances.
✘ have a pension fund where the relatively low value would make the cost of advice and ongoing charges uneconomic
✘ only have a defined benefit (DB) pension scheme and are in reasonable health
✘ don’t require the flexibility offered by a combination of options The case studies on the following pages will help you and your financial intermediary to decide if the LV= Retirement Account might be appropriate for you and your circumstances.
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You may find it helpful to refer to the product summaries on the following pages
Bringing the Retirement Account to Life - Case study Dhan & Meenu - are both fit and healthy 65 year olds about to retire. Their ideal outcome will provide them with a guaranteed income, a secure investment for the future and easy access to a fund of money.
Dhan has a £5,000 a year income from an earlier pension scheme. Meenu has no pension provision. They have savings totalling £10,000 and own their house worth £250,000. Both are risk averse, Dhan has a pension fund valued at £66,670 from which he is entitled to take 25% as a tax free cash sum. They were going to use the pension fund to buy an income, but the availability of the new Pension Freedoms from April 2015 prompts them to speak to their financial intermediary, who outlines three potential options for them to consider.
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Create a retirement plan combining security and flexibility 01
Secure income for life but with no flexibility (not available through Retirement Account)
Use all of Dhan’s pension fund to buy a guaranteed income of £3,190 every year. Alternatively, they could take the 25% tax free cash and use the remaining fund of £50,000 to buy a guaranteed income of £2,380. In both instances the income is guaranteed to be paid for at least 10 years and on Dhan’s death half (50%) of the income would continue to be paid to Meenu. Of the three options, this one provides the highest degree of security and certainty, but would mean giving up all flexibility and any control over Dhan’s pension fund along with any prospect of an increase in the level of income - which would cease after their deaths. Of course, it’s important to remember that inflation can reduce the purchasing power of the income over time.
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Flexible access to fund - but with risk of capital loss
Invest all of the £66,670 into a flexible pension drawdown scheme. Alternatively, they could take some or all of the 25% tax free cash and invest the remainder. This would allow them to keep control over Dhan’s pension fund, which would be invested to achieve long-term growth, and to take an income out of it when they needed it. It would also leave the way open for them to buy an annuity with a guaranteed level of income in the future and to pass the value of the fund on to their dependants when they die. This option offers the most flexibility, but carries the risk that the value of the investment - and any income from it - could go down in value as well as up. This option doesn’t offer the guarantees provided by option 1 and would cease providing income once the fund is exhausted.
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Secure income with flexible access and control over pension fund
Blends a combination of different solutions within a single LV= Retirement Account to meet their concerns for security and flexibility. £24,000 is used to buy an income of £2,567 a year for 10 years. £32,000 is used to provide a taxfree cash sum of £8,000 with the remaining £24,000 placed in an LV= investment fund that will have a guaranteed, known minimum value in 10 years time, at which point it could be used to buy an income if required. The remaining £10,670 is to be placed in a low cost index-tracker investment with LV= where it will have the opportunity for growth and be readily accessible for emergencies or to purchase more income if needed. The value of the account is available to pass on to dependants on death.
Outcome Each option offers its own individual merits and risks - but their financial intermediary recommends Option 3 because the blend of solutions provides the combination of security and flexibility that best meets their needs and their attitude towards risk.
What option three offers Dhan and Meenu
✔ Secure guaranteed income ✔ Guaranteed capital sum in future ✔ Potential investment growth ✔ Access to capital if required ✔ Flexibility to review plans in future ✔ Access to emergency cash ✔ Convenience of a single account
Important: The annuity figures used in the examples shown in this leaflet are based on the best whole of market rates and LV= Fixed Term Annuity rates prevailing at 08/12/2016. Please remember that the value of pension benefits depends on individual circumstances and that the value of investments can go down in value. Source: comparison.moneyadviceservice.org.uk/en/Annuity/Quotes
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The LV= Retirement Account - the details The LV= Retirement Account is not a product in itself
It’s basically an easy way to buy a combination of LV= retirement products and to arrange them in a single account. This makes it easy to monitor and to adapt it as your life in retirement changes. We pride ourselves on our levels of customer service and have invested in technology to help us provide you with the information and service you need. This will include: Consolidated payment date
For convenience, and to help you budget more effectively, where an income is being taken from the Retirement Account, payments from all products will be made on the same day - wherever this is possible - and in the most tax-efficient manner.
Summary annual statement
To provide you with the convenience of an easy to follow statement of your retirement planning, we will provide you with a consolidated summary of all of the products within your LV= Retirement Account each year.
Qualifying criteria
A Retirement Account must combine two or more eligible LV= products.
Ownership
The Retirement Account will be owned by one person.
Charges
Existing individual product charges apply but there are no additional charges for the LV= Retirement Account. Your financial intermediary will give you full details of the cost of providing advice and we will show in your personal quote any intermediary charge you have asked us to deduct from your fund and pay your intermediary on your behalf.
The following pages give a brief summary of the products that can be combined within the LV= Retirement Account. These summaries are not intended to be comprehensive. Full details are in the relevant Key Features Documents, which are available on request from your financial intermediary or from the LV= website (www.lv.com/retirement-plan).
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Eligible LV= products At a glance
These are intended to be high-level summaries of the products. Full details are available in the Key Features Documents, which are available on request from your financial intermediary or can be downloaded from our website (www.lv.com/retirement-plan) Self Invested Personal Pension/Personal Pension (LV= Flexible Transitions Account) Pension Consolidation If you don’t want to commit to buying an annuity and are looking for the flexibility of a tax efficient pension plan designed to meet your changing needs throughout life, this can help you achieve this goal. Ideal for pulling together your other pension arrangements, it can be set up as a cost-effective Personal Pension (PP) or expanded to incorporate the ultimate flexibility of a Self Invested Personal Pension (SIPP) with an extremely wide range of investment options. A full range of drawdown options is available with either option. It’s important to remember that to achieve this flexibility, your pension fund remains invested and the value, along with the income from it, can go down as well as up. Not every provider is able to offer this flexibility within a single plan and LV= are specialists in this area. Here’s a summary of the key points: Minimum investment: £10,000/£250pm.
(Note: Minimum lump sum £22,500 after any tax-free cash is taken if drawdown selected)
Minimum/Max Age:
Birth/85 (75 if you intend to pay contributions).
Investment Options:
Extremely wide range of funds to choose from, including guaranteed funds, and other investment options to suit your objectives.
Death Benefit Options:
Provides the opportunity to pass on the value of the investment to dependants on death.
Charges:
Explicit, and dependent on size of fund and investment options selected. Ask your financial intermediary for details.
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Income Drawdown
LV= Fixed term annuity
Drawdown
Guaranteed income for a fixed term
If you want to withdraw money directly from your pension when you need it while still leaving it invested and keeping access and control over it. This is known as drawdown and we can support the full range of options.
If you’re looking for the certainty of a known level of income over a specific period and/or the guarantee of a known lump sum in the future, a fixed term annuity can help achieve this. You can choose whether or not to receive an income and whether to have a guaranteed return at the end of the term. Ideal if you need to supplement your income and/or want to keep your access options open. It’s important to remember that the level of income that might be provided in the future will depend on economic and investment conditions and annuity rates available at that time. This means that the amount of income you may be able to buy in the future could be lower.
It’s important to remember that to achieve this flexibility, your pension fund remains invested and the value, along with the income from it, can go down as well as up. Not every provider is able to offer this flexibility within a single plan and LV= are specialists in this area. Key points: Charges:
Underlying Investment:
SIPP: Nil PP: An explicit, one-off fee applies each time funds are moved into drawdown. This is dependent on size of fund: £175 for cases of £50,000 or more or £295 for cases under £50,000.
Not every annuity provider offers a fixed term annuity and LV= are specialists in this area. Here’s a summary of the key points:
Includes low-risk and guaranteed funds to help reduce the effects of stockmarket movements, mitigate the risk to capital and make the planning of income withdrawals more predictable.
Term:
Minimum investment: £10,000 Minimum Age: 55 3-25 years
Indexation/increase Options?: Yes Dependant options?: Yes Guarantees available?: Yes
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Investment Option:
None (Not investment-linked)
Charges:
Implicit within annuity rate and guaranteed maturity value.
A blended solution LV= Flexible Guarantee Funds Bridge SIPP wrapper Secure Income: LV= Protected Retirement Plan Investment Growth: LV= Flexible Guarantee Funds This solution is suited for clients who are in the early stages of retirement and want a guaranteed income over a fixed period, but not forever. If your client is concerned about their pension pot running out and would like the opportunity for the rest of their pension savings to grow. This retirement choice is suited to bridge the gap between early retirement and the more stable later years.
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Understanding your options Want to know more?
Pension Wise - guidance to help you explore your options Pension Wise is a free and impartial government service that is available from 6th April 2015 to help you understand your new pension options. It was set up as part of the Government’s ‘guidance guarantee’ to provide information about the new pension options available from April 2015. More information can be obtained from www.pensionwise.gov.uk. The aim of the Pension Wise service is to provide guidance on your pension options. It won’t recommend any products or tell you what to do with your money. The importance of professional financial advice LV= are firmly committed to the value of professional financial advice. Any decisions you make are likely to have long-term implications for your life in retirement. The new options offer attractive flexibility. However the cost of this flexibility and wider access to your pension fund is an increase in the risks to your income in retirement which you need to consider. Pensions can be complex and we recommend that you speak to your financial intermediary to discuss your individual circumstances and your plans before taking any action that might have unexpected repercussions.
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Glossary The world of financial services is full of jargon and technical terms that have been developed over the years. Many terms are self-explanatory but some can be confusing. We’ve tried to keep the language used in this guide as straightforward and clear as possible, but this short glossary might help you to understand some of the more common terms that you are likely to come across during your retirement journey.
Defined Benefit scheme - A type of pension scheme provided by an employer for its staff. The benefits from the scheme are defined at outset and are normally based on an employee’s length of service and salary. Sometimes referred to as a ‘final salary scheme’.
Defined Contribution Scheme - A type of pension scheme where the benefits depend on how much is paid into the scheme, the investment returns and annuity rates when the benefits are taken. Sometimes referred to as ‘money purchase schemes’. All personal pensions and some occupational pension schemes are defined contribution schemes.
Annuity - You use some or all of your pension pot to buy this. It gives you a known amount of income for life or for a fixed amount of time. The level/amount of income you buy will depend on a number of different factors such as the size of your pension pot, your age and state of health. The economic conditions at the time you buy the annuity may also affect the amount of income you get.
Lifetime Annuity - This pays you a set income for the rest of your life. There are three main types of lifetime annuity:
Pension Income Drawdown - A way of taking money out of your pension when you need it while leaving your pension pot invested and still keeping access and control over it.
Tax free cash - This can also be referred to as the Pension Commencement Lump Sum - and is the amount of money that you are allowed to take from your pension pot as a lump sum free of tax. This is normally equal to 25% of the pension pot. You don’t have to take all, or any, of this. You can also take out more, but this will be liable to tax.
The rules around Income Drawdown changed from 6th April 2015 and are now far simpler than previously. There are now no restrictions over how much you can take out.
Personal Pension Plan - A defined contribution pension, owned by you, into which you and/or your employer make contributions. Stakeholder pensions are a type of personal pension.
Occupational Pension Scheme - This is a pension made available through, and sponsored by, your employer. Such schemes are set up under trust and may operate on either a defined benefit or defined contribution basis.
1 Standard or conventional annuity - pays a guaranteed income for life that can never be less than the initial amount. In other words, you’ll get the same income for the rest of your life. 2 Enhanced annuity - pays a higher income to people whose life expectancy may be reduced due to health conditions and/or lifestyle (e.g. smokers or overweight) 3 Investment-linked annuity - pays an income for life, which could potentially increase in value, but also carries some degree of investment risk that may see the level of the income you receive go down. Fixed Term Annuity - This pays you a set amount of income for a chosen period of time. At the end of the period a known, guaranteed, amount may be paid back to you. The amount of income and the amount you get back at the end of the period are connected. In general, the more income you take, the smaller the amount paid back at the end of the period and vice versa.
Inflation Linked - The amount of income paid by an annuity can be linked to inflation to help preserve its real value. The two most common measures of inflation are RPI (Retail Price Index) and CPI (Consumer Price Index). These figures are announced monthly by the Government Office for National Statistics (ONS).
Uncrystallised Funds Pension Lump Sum This option was introduced following the 2014 Budget Pension reforms. It is available from age 55 and allows you to take as much money as you like out of your pension pot without committing to what you are going to do with the rest of the pension pot. There are implications for the amount of tax you might pay and the amount that can be paid into your pension in the future.
Guaranteed Value - The minimum amount that your pension pot will be worth at a known point in time in the future, whatever happens to the stockmarket. There may be conditions attached to this and the amount might be reduced by any money that you take out in the meantime.
Lifetime Allowance - This is the total value that can be built up in your pension schemes without triggering an extra tax charge. This does not include the State Pension. The Lifetime Allowance for most people is £1.25m in the tax year 2015-16, reducing to £1m from 2016-17 after which it will be linked to inflation.
Annual Allowance - In general terms, you can pay any amount up to your annual earnings into your pension each year. The Annual Allowance is the maximum you can pay in that will get tax relief. Normally, the first £40,000 is eligible, but if you have started taking any money out of your pension it can be reduced to £10,000.
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Why LV? LV= is the largest friendly society in the UK and a leading financial mutual with 5.8 million customers and members and 6,000 employees*.
As a mutual, we don’t have the distraction of demands and expectations from shareholders, and are wholly focused on putting our members and customers first and ensuring that they benefit from everything we do. We began in 1843 and our success over the past 170+ years has been down to the guiding principles laid down by our founders, which can still be recognised in our desire to deliver value for our members and the different and distinctive way we do business. Our aim is to offer great value, be easy to do business with, and have a caring approach. As a mutual friendly society our primary purpose is to meet the needs of our members. The range of accolades and awards we have received over the years illustrate our success, as does our enviable financial strength which has also been independently recognised. *as at 8/12/2016
Liverpool Victoria Friendly Society Limited, Keynes House, Tilehouse Street, Hitchin, Herts SG5 2DX. LV= is a registered trade mark of Liverpool Victoria Friendly Society Limited (LVFS) and a trading style of the Liverpool Victoria group of companies. LVFS is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, register number 110035. NM Pensions Trustees Limited, (registered in England No. 4299742), acts as trustee, and is authorised and regulated by the Financial Conduct Authority, register number 463402. Registered address for all companies: County Gates, Bournemouth BH1 2NF. 0012241-2016 12/16 Tel: 01202 292333
