Date: 21st November 2014
Portsmouth, UK, 21st November 2014 – Dunstan Thomas, the retirement software and services provider, will be rolling out capability for Uncrystallised Funds Pensions Lump Sum (UFPLS) withdrawal application processing. Dunstan Thomas’ UFPLS capability is being built into its Imago Back Office pensions administration suite. Because the capability comes as a separate module, new users can elect to switch on and pay for only that single module within Imago Back Office– considerably reducing costs to deliver the capability. UFPLS is allowed from 6th April 2015 on Freedom Day.
Dunstan Thomas anticipates strong demand for this capability to come from providers which do not plan to offer Income Drawdown policies ahead of Freedom Day. Many of these firms want to be able to offer customers greater flexibility to access retirement funds through UFPLS without going through the much larger and more expensive process of designing and rolling out income drawdown products and processing capability.
The UFLPS capability will be available to existing and new Imago Back Office licensees from January 2015. Dunstan Thomas guarantees seamless integration of the module with existing systems.
The tax rules for UFPLS were first published in the Draft Taxation of Pensions Bill which came out on 6th August 2014. From 6th April 2015 UFPLS allows pension savings to be accessed without designating all or part of the fund to a drawdown contract.
There are several administrative complexities to offering UFPLS, not least of which is the fact that any UFPLS withdrawal must be treated as Benefit Crystallisation Event (BCE) which requires a Life Time Allowance (LTA) test to be conducted and an up-to date valuation of the scheme-holders portfolio to be calculated. In other words these lump sum withdrawals need to be deducted from the LTA which is now fixed at £1.25m (unless protected at the pre-April 2014 level of £1.5m).
In addition, there is an impact in terms of Tax Free Cash (TFC) as 25% of the lump sum taken under this new arrangement will be tax free provided payments into the uncrystallised policy do not exceed the Money Purchase Annual Allowance (MPAA) which is being reduced from £40,000 to £10,000, also effective on 6th April 2015. So any tax benefit from UFPLS withdrawals must be based on total contributions of no more than £10,000. Non-tax free money will need to be routed via existing payroll systems.
Dunstan Thomas estimates that there will be a spike of requests to change input periods to take advantage of the higher outgoing MPAA pre-6 April 2015. The retirement market software firm is monitoring this in discussion with its customers.
Natanje Holt, managing director, Dunstan Thomas, commented on UFPLS: “UFPLS looks very straight forward from the customer’s point of view but for providers it’s just as complex as any other benefit crystallisation event as LTA impact needs to be considered, TFC sums calculated and any tax impact reported on and sums passed through to payroll. The fact that a good many money purchase policy holders will also be moving their input periods (to take advantage of the existing higher MPAA before it drops) adds increased administration workload at a time when product providers are already struggling to make all the changes required for operating successfully post-Freedom Day.
“We wanted to offer a cost effective and seamlessly integrate-able solution to a wider cross-section of providers including those not offering drawdown policies today and not planning to do so in the near future. Some providers just want to offer policy holders more flexible access to retirement funds once they have reached the age of 55. By offering UFLPS they get to make a step into the post-Freedom Day world – a step that might lead them to offer income drawdown policies and processing further down the road.”
It is estimated that the Taxation of Pensions Bill will pass into law by July 2015.
About Dunstan Thomas:
Dunstan Thomas is a leading retirement software and services provider offering a fully integrated range of components under the Imago brand. These components together provide the key back and front office administration tools needed by pension providers, third party administrators and financial advisers. Imago’s Front Office administration components include Illustrations, Reviews and stochastic models in Adviser Tools. Imago’s Back Office tools include Administration and Property.
Dunstan Thomas’ Imago is now establishing itself as a highly functional platform for servicing not only pre, at and post-retirement products but also supporting wrap platforms to help them find increased efficiencies - automating calculations, illustrations and providing all relevant reporting capabilities.
For further information about Dunstan Thomas please contact:
Natanje Holt, Managing Director
Tel: 0239 282 2254
For Dunstan Thomas UK media enquiries please contact:
Miles Clayton Agility PR
Tel: 01992 587439
To join industry debates and discussions with Dunstan Thomas please go to: Twitter: @DTImago.