What emotion do you attach to your finances?

Darwin identified six basic human emotions; happiness, sadness, fear, anger, surprise and disgust; each one triggering a facial chain reaction.

 

More recently Glasgow University has identified only four basic emotions; with fear and surprise sharing the same initial wide eyed expression and a wrinkled nose being the starting point for either anger or disgust.

 

So what, if anything, has this got to do with investment and pension planning?

 

 You may well ask!

 

In truth financial planning is as much about the journey to reach your financial objectives as the development of human emotion is about evolution.

 

No one wants to have a wide eyed fear, preferring to have a wide eyed surprise, when it comes to their pension and investment planning outcomes.

 

Financial outcomes are the result of the route we choose to take at each review - unlike evolution where we get what we inherit!

 

The financial journey taken is defined by how we adapt to information and circumstances along the way; it is in the planning that we can determine the extent of the ‘feel good factor’ we gain.

 

So with physics stating that the two ends of a continuum are the farthest points apart and facial expression perhaps differing on this matter; we really hope “you laugh until you cry”, for all the right reasons, when it comes to your pension and investment planning outcomes.

 

After all: it’s all about the planned journey!

 

 

Helen Wilson

Consultant

 

Telephone:  +44 (0)20 7893 3456

Email:  getintouch [@] broadstoneltd.co.uk

 

Have employers gone AWOL on automatic enrolment?

April, May and July 2014 were supposed to see the first real test of automatic enrolment offerings in the market and legislation.  These are the months when the majority of the 35,000 employers that needed to comply with the new pension regulations this year were impacted. 

 

This figure dwarfs the 12,000 employers that have already had to put a Workplace Pension Scheme in place since the implementation of automatic enrolment.  However, commentary from many pension providers suggests that they haven't had the influx of schemes they expected (some less than half). Now this could be because employers are using postponement but according to the law a scheme still needs to be in place from the staging date. Worse, could some employers have gone AWOL and decided not to bother with these new requirements?

 

In some respects this is no surprise. Many businesses are finding it hard to dedicate the time and resources needed to automatic enrolment.  However, the first significant case where a company failed to comply with the rules has already been highlighted by the Regulator.

 

The Regulator is monitoring developments closely. As of the end of March 2014 they had issued 14 compliance notices, one unpaid contribution notice, two statutory inspection notices and one statutory demand.  The Regulator says a common cause of them having to use their statutory powers is insufficient time and resource being given to the planning and preparation for the new duties.

Employers should expect to properly plan for automatic enrolment and put aside a minimum period of between three to six months to deal with these changes. The actual lead in time for planning and implementing these changes will be very dependent on the company's knowledge in how to implement automatic enrolment, the complexity of the employee employment contracts, the assessment of the current employees and their eligibility along with a review of pay structures and payroll arrangements currently in place, in addition a review of any current pension arrangement should take place to ensure that it meets the Governments minimum requirements as a Qualifying Workplace Pension Scheme. 

 

The message therefore is clear. Although it may be a challenge to find time to deal these new rules, employers have no choice or they run the risk not only of fines from the Regulator but reputational damage if they do not fulfil their duties.  They also face the potentially higher costs of complying at short notice through not spending the time required to make the decisions on what is best for their business and their employees.

 

Nick Rudd
Corporate Benefits Director

Telephone:+44 (0)20 7893 3456

Email:  contactus [@] broadstoneltd.co.uk

 

A rethink on ‘face to face guarantee’ for pensions advice

There has been a lot of news and comment in relation to pensions in the last few days. Yesterday, the Government published a response on the “Freedom and Choice in Pensions” consultation.

 

Not only has the Government put more detail into their plans on how they intend to deliver the “free and impartial” advice to those people at retirement looking to draw their pensions, there has also been comment regarding some of the potential product innovations that we could see in the coming years.

 

Turning first to the “free and impartial” advice.  It is now clear that the Government is not going to look to the big insurers (with the biggest pockets) to fund the advice.  Whilst this might have been an obvious route for them, there were questions about the “impartiality” of those looking to sell products, who would therefore have a vested interest, advising those looking to retire and needing assistance with their choices.  With this in mind, it looks as though the financial planning advice will be driven through the Money Advice Service and The Pensions Advice Service who will direct pension savers to “retirement guides”.  This approach seems to be sensible and pragmatic.  However, it is clear that there has been a rethink of the guarantee of free “face to face” advice.

 

At the current time the detail on the guidance that will be received and what savers should expect from their guidance provider is still unclear.  However, the complex decisions that need to be made at retirement along with the expanding horizon of products and choices that are likely to be available, we would expect that a large majority of pension savers will still be recommended to seek face to face advice.

 

Duncan Wilson

Private Client Partner

Telephone: +44 (0)20 7893 3456
Email:  getintouch [@] broadstoneltd.co.uk

Advice in an ever changing financial world

Previous blogs have focused on the changes proposed in George Osborne’s recent budget, which have highlighted the importance of properly structured yet flexible financial planning for all. What has had less comments on is that the financial world of investments and pensions will always be evolving (for both good and bad depending on your and HMRC’s perspective), and there are still changes to come. 

 

Pensions and the tax reliefs applicable remain a large part of the focus, and it goes without saying that investors’ plans may be affected by any future change in tax reliefs.  It has been suggested that the current regime is unduly favourable to higher rate taxpayers, who receive relief on pension contributions at their highest marginal rate, but are often able to keep their income withdrawals (in whatever form) within the basic rate band after the 25% tax free cash lump sum is taken. The suggestion (not an official government or HMRC proposal yet)  has been made that relief should be standardised at 30%, which would give 20% taxpayers a 10% extra incentive to save, but at the same time, this could have a significant impact on the plans of 40% and 45% taxpayers.

 

The changes which are taking place, and those yet to come, mean that planning for retirement and drawing income in retirement has become an on-going process rather than a one-off event, and the associated tax planning is now an essential part of everybody’s wealth planning.

 

Duncan Wilson

Private Client Partner

 

Telephone: +44 (0)20 7893 3456

Email:  getintouch [@] broadstoneltd.co.uk

 

Call for Equality – Survivor Benefits in Occupational Pension Schemes

The controversial subject of same-sex marriage and pensions briefly resurfaced in recent weeks.

The Government published the findings of their review into survivor benefits in occupation pension schemes on 26 June 2014 as promised following the introduction of same-sex marriage last year. The problem is that even though same-sex marriage provides equality - survivor benefits from occupational pension schemes are a little more complicated.

One major issue is contracted out rights. These have had different rules since their introduction in 1978 such that survivor benefits were not equalised until 1988. This means that a man surviving his wife (who had been a member of a contracted out scheme between 1978 and 1988) would not receive a pension for this period of service. However, a woman surviving her husband would receive a pension. So with the introduction of same-sex marriage and the following calls to make it the same as for opposite sex couples, there are inherent differences in the system which would need to be corrected.

The review to examine these differences estimates that the cost of removing the inequalities (between same-sex and opposite sex marriages and between genders) could be £3bn. The lion’s share will fall on the public-sector as they have by far the most members and complexity. The Government is now considering these costs and the potential impact on pension schemes, before making a decision on whether the law should be changed.

I believe that ignoring these inequalities is not an option. The Government itself says that it believes that there should not be inequalities between same-sex and opposite sex couples in the pensions system and cost and complexity cannot be a valid reason for not amending the rules.

The Government should now, during this fallow period while we await the next election, take steps to draft and present the required legislation for consultation on its implementation. By continuing to do nothing, more individuals will be affected by the payment of unequal and unfair benefits following the death of a loved one.

David Brooks

Pensions Consultant

Telephone: +44 (0)20 7893 3456

Email:  contactus [@] broadstoneltd.co.uk

Partners in LLPs can also be "workers"

In the latest twist for the auto enrolment regulations it has now become clear the Partners of Limited Liability Partnerships can be classified as a "worker". This has come as something of a surprise. It came about from a recent Supreme Court case, Clyde and Co and another vs Bates van Winkelhof. Without going in to all the detail, the court found that an LLP Partner could be classified as a worker. Although the case was not about pensions, it has far reaching consequences.

 

All LLPs should now urgently be looking at whether their Partners are affected. There is no single test and not all Partners will necessarily be a worker. It is also retrospective, meaning that if you do find that some of your partners are workers you will need to backdate contributions to your staging date of when they first became eligible. Therefore we recommend you act as soon as possible as the longer you leave it, the more there will be to unravel.

 

Nick Rudd

Corporate Benefits Director

 

Telephone: +44 (0)20 7893 3456

Email: contactus [@] broadstoneltd.co.uk

Increased ISA allowance - Why we should be thanking George!

Since the age of austerity started, no budget has really given the UK population a reason to want to say “Thank you George Osborne”, as of 1 July the savers amongst us should be saying exactly that.

From 1 July, the ISA allowance will be increased to £15,000.  For the first time, the full allowance can be used for cash, not just stocks and shares.  In another change, Stocks and Shares ISAs can now be transferred into Cash ISAs, helping those with spending plans coming up be able to budget more effectively.

 

At a time when interest rates remain firmly in the doldrums, the ability to save a little tax and therefore boost overall returns is a welcome relief.

 

I am frequently asked, “Should I bother with an ISA?”  Although ISAs aren’t racy financial planning, they are - in my opinion - essential housekeeping for all of us.  A married couple fully utilising their ISA allowance each year for 10 years, earning 3%, could have a tax-free lump sum of c.£384,000 at the end of the period.

 

Pay off the mortgage? House deposit for the kids? Second property? Early retirement? Spend it how you want, but when you do, remember to say thank you to George.

 

Stuart Moss

Senior Consultant

Telephone: +44 (0)20 7893 3456
Email:  getintouch [at] broadstoneltd.co.uk

What is discretionary fund management?

Have you ever considered handing over complete control of your investment portfolio to a professional including important asset allocation decisions?  If so, are you equipped with the right information to make a choice?

You may have received an inheritance, proceeds from a business sale or a lottery win.  It may be hard to get on top of the options available to you and you may be looking for a way to access a professional service to invest and manage your wealth.

A discretionary fund manager (DFM) is a professional third party manager working to set parameters in terms of portfolio choices (risk profile, client preferences etc.).  The manager will create and maintain a portfolio that is specifically designed for you and tailored towards helping you achieve your objectives under a pre-agreed risk profile.  The manager will take full responsibility for all investment decisions set against a risk profile and capacity for loss that you have both agreed in advance.

The discretionary route might appeal to those who, perhaps, don’t have the time or knowledge to run their own portfolio and are unsure how to create a balanced spread of asset classes and review them regularly.  It avoids a large pile of paperwork and accounting for each transaction when it comes to HMRC reporting.

If you are looking to hand over control of your investment portfolio to a third party and not worry about it on a daily basis then this could be the option for you.

Mike Batchelor

Private Office

Telephone: +44 (0)20 7893 3456
Email:  getintouch [at] broadstoneltd.co.uk

Ways for you and your family to avoid paying inheritance tax on your life assurance policies and pension arrangements

Following the theme of my last blog, where I talked about the effective use of a Will and the services of a professional financial planner, today’s blog outlines some basic thoughts to help avoid the need to pay inheritance tax on life policies and pension plans.

In the case of life policies, these can and should usually be written in trust, as if they aren’t, the death benefits will be paid to the policyholder’s taxable estate, and be subject to inheritance tax. In this situation, a discretionary trust is often suitable, with the policyholder’s partner as the principal potential beneficiary, together if appropriate with any children. This generally brings an additional layer of flexibility and avoids further Inheritance Tax problems in the event of the policyholder’s partner/spouse dying.

In the case of pension plans, an expression of wish in the form of a ‘letter of wishes’ should always be written by the planholder to the scheme trustees indicating the person or persons to whom they would wish the value to be paid in the event of their death – indeed these often form part of the original application process. Some scheme trustees who are unwilling to follow expressions of wishes, insist on paying plan proceeds to the planholder’s estate. Consideration might be given in these cases to switching to a more accommodating pension scheme.

As an alternative to an expression of wish, a formal pilot trust (or ‘spousal by-pass trust’) might be established – especially for larger pension arrangements. This would give the trustees discretion to pay the proceeds to a wide range of potential beneficiaries, including the surviving spouse, but would enable them to ensure that the surviving spouse received only what he or she needed, so that the balance of the fund would not be held in their taxable estate on their death, and therefore avoid inheritance tax.

 

Duncan Wilson

Private Client Partner

Telephone: +44 (0)20 7893 3456

Email:  getintouch [@] broadstoneltd.co.uk

Will Collective Defined Contribution plans get out of first gear?

The new Collective Defined Contribution (CDC) plans, which were announced in the Queen’s speech today, may offer cost savings for pension savers.  We are sceptical whether they will ever get off the ground in the UK.

We live in a post-Defined Benefit (DB) world, where many FDs continue to rue the day their predecessors agreed to the open ended pension commitment of such schemes, and, where behind the scenes they continue to place considerable financial strain on many of the country’s employers. Most private sector employers closed their DB schemes over the last ten to fifteen years replacing them with DC arrangements, with comparatively lower levels of contributions.

While the industry discusses the merits of the system the elements that smell of with-profits, the cross generational subsidy, whether pensioners will be 30% or 50% better off, the real issue is: will employers want to adopt these systems? For three major reasons we think they won’t:

 

1.  It isn’t DB but it is a bit like DB.

 

A feature of Collective DC is an “aspiration” of a benefit at retirement which could be perceived as a defined benefit by members. With those expectations could come moral imperatives for some employers. It is unlikely that employers that bear the scars of DB would embrace these new risks with open arms.

 

2.  What about the flexibilities to be introduced from April 2015?

 

Which employer wants to explain to their employees that they are entering into an arrangement that removes all the new flexibilities that have been trumpeted by the press and have just come into force for an ‘aspiration’ they will be better off in retirement.

 

3.  Auto enrolment has already made DC the pension scheme of choice.

 

Many employers have been forced to review their provision and put something into place to meet their auto enrolment requirements. Will they want to undo that work and adopt a CDC approach? It is unlikely.

 

I am not against CDC and believe that we will come full circle and reappraise defined benefit provision in the future (perhaps long into the future) but fear that CDC has come too late. The Government should ensure their focus remains on repairing the active membership phase of DC provision to keep charges competitive, improving governance and ensuring knowledge and financial education is as good as possible to give individuals the skills to make informed choices.

David Brooks

Pensions Consultant

Telephone: +44 (0)20 7893 3456

Email:  contactus [@] broadstoneltd.co.uk