Step-by-Step - How to enter a money purchase

1. Select Pensions > Money Purchase in the left navigation.

2. People: Start by selecting the owner of the pension in the People panel, located on the right side of the screen.

3. Type: Select the category that best describes the money purchase.

- The type is used largely for informational purposes only. The type of money purchase does not appear in reports or on the Let's See charts or general Overviews. There is a difference, however, between personal pensions (PPP/GPP/SIPP) and occupational schemes (COMP/CIMP schemes, grouped together under the moniker 'Occupational Pension', and Small Self-Administered Schemes), in terms of how tax relief is granted. Read more >>

4. Account Name: Enter a name for the pension. The name you enter must be unique within the plan.  

5. Account Balance £: Enter the current balance of the pension at the beginning of the plan.

- If this is a hypothetical new pension, one that will be funded in the future through regular contributions or transfers, enter a starting balance of £0. The pension is therefore an empty account awaiting future funding.

6. Annual Contribution £: If your client plans to make contributions to the pension, enter these either as a total annual amount or as a percentage of salary. For example, an entry of 8% would mean that the client plans to contribute eight per cent of his future salary to this pension.

- This annual contribution amount should always be a gross figure, which the software will net down annually by 20% when applying tax relief. Contributions will also provide income relief as the software calculates annual taxes. Read more >>

- The software will check for earnings and enforces the current annual contribution allowance on money purchases. Read more >>

- Special settings are also available for linking percentage-based contributions to a specific income source. This may only be necessary in cases where a client has multiple income sources. In such a case you might link a money purchase to a specific income in order to indicate percentage of which salary. Read more >>

6. Employer Contribution: Select Yes if your client’s employer or company also makes contributions to his pension. These are contributions that are not deducted from the client’s annual income.

7. Specify whether these employer contributions are Matching those made by your client or are Fixed, meaning that they are made independently of any contributions made by your client.

 

If contributions are Matching:

% of Ind [Individual Contribution]:Specify the percentage of the employee’s contribution that the employer is willing to match. For example, enter 100% to indicate that one hundred per cent of John's contributions are matched by his company.

Up to % of Salary: As a percentage of income, what is the maximum amount the employer is willing to match. For example, enter 10% to indicate that your client’s company would match up to a maximum of 10% his salary.

 

If contributions are Fixed:

Enter the employer’s contributions either as a total annual amount or as a percentage of your client’s salary. For example, an entry of 10% would mean that the employer plans to contribute eight per cent of your client’s future salary to this pension.

- Again, special settings are also available for linking percentage-based contributions to a specific income source. This may only be necessary in cases where a client has multiple income sources. In such a case you might link a money purchase to a specific income in order to indicate percentage of which salary. Read more >>

 

Timing contributions

In most cases you may leave the events on the Time panel unselected. Time panel selections for money purchases are used to set the timespan over which contributions will be made to the pension. The software will assume contributions begin and end with the owner’s employment income, unless set otherwise on the Time panel.

With this said, alternative start and end events could be selected to indicate that contributions to the pension are to begin later or end earlier than the start and end of your client’s employment.

Also, if your client does not have employment related earnings, entered on the Employment screen, you will be required to set the timing of any contributions if these contributions are to be made. Contributions without supportive earnings will be limited to a lower annual allowance. 

If you do need to set the timing of money purchase contributions.

Go to the Time panel located on the right side of the screen.  Selections on this panel will be used to set the time span over which the contributions are to be made to the account.

Select the Event tab.

- Select a start event - an event to schedule the beginning of these contributions. A green dot will appear next to this event indicating that contributions will begin at this point in the timeline. If contributions are to begin as of the start of the plan (e.g. your client is already making regular contributions), simply select the Start event.

- Select an end event - an event to indicate when these contributions will end. A red dot will appear next to his retirement event, indicating that contributions will end at this point in the timeline. If contributions are to occur until the very end of the plan, select the final Mortality event as the end event.

If you don't already have events on the timeline that are positioned appropriately to be used as start or end events, new ones can be easily added by clicking the New Event button, located in the bottom-right corner of the Time panel, Event tab.

Events can be positioned on the timeline based on future year or owner age. Events can also be repositioned, renamed, deleted or added on the Time screen. 

 

 

Job Done

And that completes all that is required to enter a money purchase in Voyant. You may now click the Add button to save the money purchase into the plan,. However, before finishing, a word about the advanced settings, should you need them. 

 

Crystallisation, Annutisation and Tax Free Cash Withdrawals - Scheduling future retirement income

The software is set with default assumptions about how retirement income is taken from a money purchase. Learn about the software’s default assumptions related to crystallisation, tax free cash, and drawdown income. Read more >>

You can revisit these settings later; however, if you wish to check the software’s schedule for crystallising the money purchase, withdrawing tax free cash, and starting drawdown income, these can be found under Withdrawals and Annuity > Drawdown Strategy / Drawdown Pensions.

Alternatively, the money purchase could be scheduled to be annuitised in the future. Annuitisation can be set on the Withdrawals and Annuity > Annuity panel. Read more >>

 

Advanced Settings

Additional settings and options are available under Advanced Settings. We roll these special settings “beneath the fold” so as not to make entering a money purchase appear too daunting. Everything you must consider is above, but these advanced settings are available whenever you might need to set the software to handle things in a special way and trust us, at some point you will.

Growth, Asset Allocation - Probably the most important of these advanced settings are the Growth and (if used) the Asset Allocation settings. You might consider reviewing these two panels to ensure that the pension’s assumptions for future growth and account fees are set appropriately. Read more >>

Other advanced settings are:

Contributions – Specify the income source that is to be associated with money purchase contributions. Read more >>

Step Up / Step Down – Use events or in some cases stages to schedule future increases or decreases (steps) in employee and employer contributions, growth rates, as well as future changes to asset allocations (and hence, derived growth rates). Read more >>

Transfers / Additional Contributions – Set future transfers of funds into a money purchase from other accounts or in years where there are large lump sum inflows, from surplus income. Don’t confuse transfers with regular contributions, which are set using the contribution fields. This feature is also not intended to be used for crystallisations – i.e. transfers into drawdown pensions. Crystallisations are scheduled on the Money Purchase screen under Withdrawals and Annuity > Drawdown Strategy / Drawdown Pension. Read more >>

Lifetime Allowance Options – Funds that exceed the lifetime allowance will be taxed. Specify whether the overage will be taxed and the remainder placed into drawdown (the system’s default) or whether the amount over the lifetime allowance will be taken as cash, not placed into drawdown, and taxed at a higher rate. Read more >>

Beneficiary Designation - Specify the beneficiaries who would receive the lump sum proceeds from the money purchase if the owner dies before benefits are crystallised. It is here that you could set the distribution to go into a spousal bypass trust. Read more >>

 

Save Your Work!

Click the Add button to save the money purchase into the plan.

Your client’s money purchase now appears in the ledger, located on the right side of the screen. To view or edit the pension, select it first in the ledger. To move on to another entry after viewing details, click Clear.

Notice that a link icon is shown next to the pension in the ledger, indicating that there are items in the plan linked directly to the money purchase.

You may click this icon to view what this linked item is.

The software has automatically created a future drawdown pension -- for brevity’s sake, we use the old acronym for unsecured pension “USP” -- to receive funds from the money purchase when it will be crystallised, by default, at the owner’s retirement.

This is pop-up label is active link that can be clicked to jump directly to details about the future drawdown, which are found on the Pensions > Drawdown Pension screen. Additional settings are available for the future drawdown on this screen including drawdown income options, settings to schedule the future annuitisation of the drawdown, if desired.

Read more >> about the default crystallisation and draw down settings and how they can be set differently for phased drawdowns, deferred drawdown income, or annuitisation.

 

Videos

Retirement Income (Webinar 2)