Capped Drawdown Report
For
XXXX
Produced XX/XX/XXXX
By [Enter Adviser Name Here]Fairey Associates Ltd
36 Church St
Great Baddow
Chelmsford
Essex CM2 7HY
Telephone: 0845 319 0005
Email:[Enter Adviser Email Here]
Table of Contents
Introduction
Section 1 - Your Current Situation
Personal Details
Employment & Income
Expenditure
Emergency Fund
Legal
Attitude to Risk
Capacity for Loss
Ethical Views
Net Worth Statement
Section 2 – Your Objectives
Section 3 – Meeting Your Needs
Lifetime Annuity
Investment Linked Annuity
Some Other Alternative Options Rejected
Lifetime Allowance Test
Full Capped Drawdown
Phased Drawdown
Critical Yield
Key Product Risks
Drawdown Provider
Fairey Associates Investment Management Service
Fund Composition – Fairey Associates 2014 Hybrid ‘XXXX’ Portfolio
Key Risks - Investments
Regular Reviews – Enhanced Service
Adviser Charges - Potential Tax Consequences
Initial Adviser Charge
Ongoing Adviser Charge
Compliance Declaration
Cancellation Rights
Conclusion
Appendices
Introduction
I have previously provided you with my Client Agreement letter and Fee Agreement for you to sign and return. I also explained to you the advice procedure and talked you through the initial disclosure documents.
Based on our discussions during the meeting it was mutually agreed that we should be remunerated for the advice and service provided via a fee as disclosed further in this report. This document is called a “Suitability Report”. It ensures that there are no misunderstandings regarding my recommendations and also gives you a permanent reference to keep in your files as to what has been recommended, the action we are taking on your behalf and the reasons behind the recommendations.
The recommendations are based on my understanding of the current legal, taxation and procedural position, which are all subject to change. You did not place any restrictions on me that might have affected the products and markets I considered for you as part of my recommendations. I can confirm that I am authorised to advise on the products mentioned in this letter.
You have been made aware that we offer an Independent advice service. We have therefore recommended products and services based on a comprehensive and fair analysis of the relevant market based on your needs and individual objectives.
Report Layout
My report is structured in three sections as follows:
- I have provided a summary of your current situation
- I have detailed your goals and needs as I understand them
- I have made recommendations in order to meet these.
As part of the process I have considered all of the information you have provided to me. If any of the details below are incorrect, or if your circumstances have changed, please let me know as this may affect my recommendation.
This report covers both of your/your financial position(s) only.
Section 1 - Your Current Situation
An important part of the planning process is that we form an impression of your current circumstances and objectives.
Personal Details
XXXX, you are a smoker/non-smoker aged XX years old and you are in poor/reasonable/good health.
You are single/married/in a civil partnership/widowed to/with XXXX who is a smoker/non-smoker, aged XX years old, and who is in poor/reasonable/good health.
You have X dependents.
Employment & Income
XXXX, you currently work part-time/full-time as a XXXX for XXXX
You earn approximately £XXXX (gross) per annum.
(Include details of partner’s employment & earnings if applicable and also details of where the income is derived e.g. employment/savings & investments/pension income etc)
Based on the above information you are a basic/higher/additional rate tax payer.
We estimate your current net monthly household income based on the information provided to be around £XXXX per month.
Expenditure
Your fixed outgoings are approximately £XXXX per month (i.e. £XXXX per annum).
Emergency Fund
When considering any form of financial planning, a key area to consider is having sufficient monies for emergencies. You confirmed to me that you do not have/have sufficient cash funds available for this purpose.
I would generally recommend that you retain 3 to 6 months net income in instant access funds as a suitable emergency fund.
Legal
You have confirmed to me that you do not have/have a valid will in place which remains in line with your wishes.
[DELETE THIS PARAGRAPH IF NOT RELEVANT] As you have not made a will I strongly advise you to do so. Should you die without having made a will then you will be deemed to have died 'intestate' and your estate will be distributed in accordance with the intestacy rules. This will mean that your assets will not necessarily pass to the people whom you would want to benefit (or, if so, not necessarily in the proportions you would wish) and, in addition, your estate may not be distributed in the most tax efficient manner.
For the purposes of this report you are deemed to be UK Resident and UK Domiciled for tax purposes.
Attitude to Risk
Your overall risk profile describes your general risk outlook and indicates the level of risk you are normally prepared to take, although you may decide to take more or less risk for any specific investment goals you may have.
As part of identifying your risk profile we discussed your answers to a psychometric questionnaire, the indicative risk score from which is enter risk profile here. However, this does not take into account other factors that will impact on the risk approach that is most suited to you.
Enter details of other considerations here, if appropriate, and agreed risk profile if different from FE ATR
Capacity for Loss
Investment Horizon
A longer investment horizon helps support capacity for loss as this gives more time for markets to recover and more scope to save to make up for past investment losses. However, this is generally less pertinent for retired people as they have less scope to save more.
Following completion of our Capacity for Loss Questionnaire, we assessed your capacity to be low/medium/high.
(Delete as appropriate)
Low -We discussed your ‘capacity for loss’ and given your level of income and the value of your other assets we agreed that you have low capacity for investment loss. This means that should your investments go down in value at any point and you choose to crystallise such a loss by gaining access to your investments it would greatly disadvantage you.
Medium -We discussed your ‘capacity for loss’ and given your level of income and the value of your other assets we agreed that you have medium capacity for investment loss. This means that should your investments go down in value at any point and you choose to crystallise such a loss by gaining access to your investments it would somewhat disadvantage you.
High -We discussed your ‘capacity for loss’ and given your level of income and the value of your other assets we agreed that you have high capacity for investment loss. This means that should your investments go down in value at any point and you choose to crystallise such a loss by gaining access to your investments it would not materially disadvantage you.
You understand that the value of your investments can go down as well as up and you are comfortable with the level of risk that you are taking with your investments.
[or enter your own wording here in relation to the discussion you had with the client around capacity for loss]
[DELETE THE FOLLOWING AS APPROPRIATE]
Cautious Attitude to Risk
The most conservative portfolio aiming to protect capital from the effects of the inflation over the long term.
Cautious to ModerateAttitude to Risk
Aimed at providing an element of capital growth over the effects of inflation over the long term consistent with low levels of risk.
ModerateAttitude to Risk
Aimed at providing rates of growth in excess of inflation over the long term and consistent with moderate levels of risk.
Moderateto AdventurousAttitude to Risk
A portfolio suitable for an experienced investor seeking returns which are significantly over inflation rates over the long term and able to tolerate higher levels of risk.
AdventurousAttitude to Risk
A portfolio suitable for very experienced investors looking for high levels of growth over the long term. This portfolio presents a very significant level of risk.
Ethical Views
You have/have not expressed any ethical preferences in relation to your investments.Include details of ethical preferences here, if applicable.
Net Worth Statement
Assets / XXXX / XXXX / Joint / TotalUsed Assets
Main Residence / £
2nd Property / £
Contents/Personal Effects / £
Cars / £
Investments
OEICs/Unit Trusts / £
Directly Held Shares / £
Bonds / £
Endowments / £
Stocks & Shares ISAs / £
SIPP (In Drawdown) / £
Cash & Cash Type
Bank Accounts / £
Building Society Accounts / £
Cash ISAs / £
Premium Bonds / £
Total Assets / £ / £ / £ / £
Liabilities
Mortgage / £
Loans / £
Credit Card / £
Other Committed Funds / £
Total Liabilities / £ / £ / £ / £
Total Net Assets / £ / £ / £ / £
Section 2 – Your Objectives
You are retired/intend to retire at age XX and now wish to draw benefits from your pension plan(s).
You have requested advice on how best to achieve this objective only. You did not wish to discuss any other objectives at this time, even though you may have other needs, and by not covering these, this could be to your detriment.
I have based my advice on what I believe to be complete information in relation to this objective and I therefore believe my recommendation to be suitable advice. If complete information has not been provided you should be aware that my advice may have been different.
Section 3 – Meeting Your Needs
I have obtained valuations of your pension plan(s) as detailed below.
Provider / Policy Type / Policy Number / Retirement Age / Guarantee (Yes/No)* / Fund Value (£) / Transfer Value (£) / Tax Free Cash Available* The guarantee if applicable could relate to the a guaranteed minimum fund value, a guaranteed annuity rate, a guaranteed basic annuity or a guaranteed minimum pension (GMP)
[Enter details of any guarantees here]
There is no penalty for transferring your existing pension(s) away from your current provider(s).
[Enter details here if there are any penalties on transfer]
The tax free cash currently available from your existing plan is £XXXX (based on a valuation of £XXXX). This equates to approximately XX% of the total value of the plan.
This may well change slightly before the process is complete as fund values can fluctuate.
Lifetime Annuity
The conventional route would be for you to take an income in the form of an annuity payable throughout your lifetime. We have discussed the key factors that determine the amount of annuity payable as-well as the advantages and disadvantages of purchasing an annuity.
We have also discussed the options you have of purchasing an annuity with your existing provider(s) or utilising the open market option and purchasing an annuity with another provider in order to hopefully obtain a higher annuity.
If you were to purchase an annuity with your existing provider you could obtain the following benefits:
Option / Yearly Pension / Spouse’s Pension / Guarantee Period / Yearly Escalation / Lump Sum / Lifetime Allowance Charge / Annuity RateYou have confirmed that you do/do not have a medical condition that reduces your life expectancy so the option of an impaired life annuity will/will not apply.
You have confirmed that you do/do not smoke, so an enhanced smokers annuity will/will not apply.
Having reviewed the market, the best annuity which I can find for you is with XXXX who will provide a level/X% increasing, single/XX% joint life annuity of £XXXX per annum.
Following our discussions however, we have agreed that a conventional annuity that either remains level in payment or increases at a pre determined rate each year would not be the most suitable option for you because:
[EXAMPLE REASONS]
- You have no need for any income from your pension plans at this stage
- You would like to leave your funds invested and linked to equities in order to give you the opportunity to receive a higher income than could be paid under a conventional annuity
- Whilst you would like to leave your funds invested for the foreseeable future, you are hopeful that conventional annuity rates will improve as you get older and may consider converting to a conventional annuity at a later date.
Investment Linked Annuity
An alternative to a conventional annuity is an investment linked annuity. Investment linked annuities can either be With Profits or Unit Linked and, unlike conventional annuities, the level of income is not fixed but depends on the performance of the underlying fund of the chosen provider. Broadly, if a target growth rate is achieved, the annuity remains level. If exceeded, the annuity payments increase, but annuity payments fall if the growth rate is not achieved.
We have agreed that an investment linked annuity would not be the most appropriate option for you in your circumstances because XXXX
Some Other Alternative Options Rejected
Value Protected Annuities
Also known as 'capital protected' annuities, these are available from money purchase arrangements and will offer a return of fund on death. The lump sum payable will be the original purchase price (net of tax free cash) less the gross annuity instalments already paid and less a flat rate 55% tax charge.
I have not recommended a value protected annuity because XXXXXXX.
Flexible Annuities
These are reviewed every 3 years. The maximum payment is 120% of a conventional level annuity and the minimum payment is 50%.
I have not recommended a Flexible Annuity because XXXXXXX.
The option that I have decided is most appropriate for you is CappedIncome Drawdown.
Lifetime Allowance Test
[Delete Appropriate Paragraph Below]
Because you are currently under age 75 there will be a lifetime allowance test when taking the tax free cash sum and designating the residual fund to income drawdown. This benefit crystallisation event will use up XX% of your available lifetime allowance, and you will still have XX% available.
Note:- If taking benefits now will exceed their available lifetime allowance and they do not have enhanced protection, confirm here whether the excess would be paid as a lump sum or income and the relevant tax charges that will apply.
OR
Because you have already passed your 75th birthday there will not be a lifetime allowance test when taking the tax free cash sum and designating your residual fund to income drawdown because these rights will have already been tested against your available lifetime allowance test on attaining age 75.
The fund which you have built up, currently valued at £XXXX, less the tax free cash of £XXX would remain invested in a pension fund where it would grow free of tax (apart from the 10% tax on UK dividend income) until such time (if at all) that you decide to purchase an annuity and any income required would be provided by encashing units in your fund.
The rules relating to flexible drawdown are explained in more detail below but you have the flexibility to draw unlimited amounts of income from your drawdown pension fund whenever you like.
Full Capped Drawdown[Delete entire section below if using phased drawdown]
You are particularly interested in obtaining the tax free cash sum from your pension funds. You want to obtain the maximum available tax free cash because XXXX.
We determined that while you did require a lump sum you also need/do not need an income from the balance of your fund because XXXXXXXXX
We discussed the option of borrowing and/or utilising your existing investments in order to provide you with the capital sum that you require but this was not deemed appropriate in your circumstances because XXXX.
We also discussed the concept of phased retirement but, since you require the maximum tax free cash sum at outset, this option is not suitable.
The fund which you have built up, currently valued at £XXXX, less the tax free cash of £XXX would remain invested in a pension fund where it would grow free of tax (apart from the 10% tax on UK dividend income) until such time (if at all) that you decide to purchase an annuity, and any income if required would then be provided by encashing units in your fund.
The rules and limits relating to capped drawdown are explained in more detail in the retirement options appendix that I have given you, but for any capped drawdown arrangements entered into on or after 27 March 2014 you have the flexibility to draw an annual income of between 0% and 150% of the single life, level annuity, payable monthly in advance, without guarantee, based on the GAD tables.