New intestacy rules aim to make things simpler and clearer

CouplejpgWhy the consequences could be far-reaching for you and your loved ones

Significant changes to existing intestacy rules came into force on 1 October 2014 in England and Wales, with the aim of making things simpler and clearer. The consequences could be far-reaching for you and your loved ones, and while there are increasing entitlements for surviving spouses and registered civil partners, the changes highlight the importance of making a Will to ensure your wishes are carried out.

Radical rule changes

From 1 October 2014, the Inheritance and Trustees Powers Act 2014 radically alters the way in which the assets of people who die intestate are shared among their relatives. The biggest change will affect married couples or registered civil partnerships where there are no children. In the past, the spouse received the first £450,000 from the estate, with the rest getting split between the deceased’s blood relatives. Under the new law, the surviving spouse will receive everything, with wider family members not receiving anything.

Life interest concept abolished

Couples who have children will also be affected by the changes. Previously, the spouse of the deceased received the first £250,000 and a ‘life interest’ in half of the remainder, with the children sharing the other half. Under the new rules, the life interest concept has been abolished, with the surviving married partner receiving the first £250,000 and also half of any remainder. The children will receive half of anything above £250,000 and will have to wait until they are 18 to access any funds.

No protection for couples

These changes go some way to improving the position for married couples and registered civil partners. However, they still leave couples who are not married or in a registered civil partnership with no protection. Where an individual in an unmarried couple dies without a Will, their partner is not entitled to receive any money from their estate.

Distributing assets tax-efficiently
The changes therefore highlight again how important it is to make a Will to ensure that your wishes are followed and that assets are distributed tax-efficiently. Wills are also often used to express a preference for who should act as guardians for minor children in the event that parents die.

If a person dies without leaving a Will, the chances are that the estate will be distributed in a way that the deceased would not have wanted. This can have very real and distressing consequences, as well as unanticipated inheritance tax costs.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE WILL WRITING OR TAXATION ADVICE, INCLUDING INHERITANCE TAX PLANNING.

The Triviality Limit is £18,000? – Well, not always!

I’ve been helping a client recently, who was looking to draw the benefits from his personal pension plan.CII-Chartered Financial Planner gold copy

He was hoping to draw it all out in one go, sometimes known as using the Trivial Lump Sum or Triviality option.  His problem is that the fund was worth £18,700 – which is more than the Triviality limit of £18,000.

He had visited his financial adviser at his bank, and was told there was no way he could get the lump sum out as a trivial lump sum.  His only choice, he was told, was to take 25% as tax-free cash, and then choose an annuity for the rest of his life with the balance.  The income he was quoted was around £680 each year.

My client was not happy.  He was extremely disappointed that HIS pension fund would take roughly 20 years to be returned to him, and he didn’t know whether he was going to live for 20 years.  He wanted his pension NOW!!

Now, this is where it pays to see a good Independent Financial Adviser.

The bank adviser was correct in many ways, but failed to explore my client’s circumstances sufficiently.

The pension was with Legal and General, and it turns out the pension was in their Managed Fund.  Upon contacting Legal and General, I identified that the fund was indeed worth now £18,900.  Too high for a Trivial Lump Sum?

However, I enquired with Legal and General whether there was any point within the last three months when the fund was valued below the £18,000 Triviality limit, as the Managed Fund is known to be quite volatile and can fluctuate widely.  I also knew that in June this year, there was quite a sharp fall in equity prices.

As I expected, on the 26th June, the fund value fell to £17,790.  The following days it increased again to beyond £18,000.  What my client had not been told by his bank adviser was that he was permitted to use a ‘nomination date‘.  The nomination date can be used to identify a point when the Triviality rules could have applied.  Thankfully, my client used the 26th June as his nominated date.  The result is that he could use the Triviality rules, as he wanted initially.

The result is one happy client.   Just last week he had just under £16,000 paid into his bank account (after HMRC had taken their bit!).  The fund had risen to £18,900 at the date that he eventually claimed his benefits, and the Triviality rules permitted him to keep the growth in the fund beyond the £18,000 limit.

My client was overjoyed by the advice he had received.  My fee, for this work, for this client, was £295.00.  Good value for money for some sound advice.

I would like to point out that this article is based on all the information presented to me by the client, and the research I undertook on his behalf.  It is my professional opinion on the matter, and I would be more than happy to discuss any similar offers.

If you need advice on this or a similar matter, please give me a call on 01554 770022, and I will explain how I may be able to offer professional independent financial advice.

Overseas property through SIPP – here’s what the FSA think

Here is an email I’ve just received from the FSA, which backs up a blog I posted last year on unregulated investment through SIPPs.

It’s rather long, but if you’ve been approached by someone about investing in some ‘exotic’ overseas investment, take heed, reading this may save you a fortune, and more importantly, save your retirement income from going pear shaped!

Dear Sir/Madam

Advising on pension transfers with a view to investing pension monies into unregulated products through a SIPP

It has been brought to the FSA’s attention that some financial advisers are giving advice to customers on pension transfers or pension switches without assessing the advantages and disadvantages of investments proposed to be held within the new pension. In particular, we have seen financial advisers moving customers’ retirement savings to self-invested personal pensions (SIPPs) that invest wholly or primarily in high risk, often highly illiquid unregulated investments (some which may be in Unregulated Collective Investment Schemes). Examples of these unregulated investments are diamonds, overseas property developments, store pods, forestry and film schemes, among other non-mainstream propositions.

The cases we have seen tend to operate under a similar advice model. An introducer will pass customer details to an unregulated firm, which markets an unregulated investment (e.g. an overseas property development). When the customer expresses an interest in the unregulated investment, the customer is introduced to a regulated financial adviser to provide advice on a SIPP capable of holding the unregulated investment. The financial adviser does not give advice on the unregulated investment, and says it is only providing advice on a SIPP capable of holding the unregulated investment. Sometimes the regulated financial adviser also assists the customer to access monies held in other investments (e.g. other pension arrangements) so that the customer is able to invest in the unregulated investment.

The FSA is investigating a number of firms and has secured a variation of their Part IV permission so that they are unable to continue operating in this way. The FSA is also considering taking enforcement action against these firms.

We have seen cases where, as a result of these advisory strategies involving unauthorised firms, customers have transferred out of more traditional pension schemes and invested their retirement savings wholly in unregulated assets via SIPPs, taking on very high and often entirely unsuitable levels of risk despite receiving advice on the pension transfer from regulated firms.

Depending on the circumstances, the customer may not be able to have recourse to the Financial Ombudsman Service or Financial Services Compensation Scheme should there be a problem with the unregulated investment.

Financial advisers using this advice model are under the mistaken impression that this process means they do not have to consider the unregulated investment as part of their advice to invest in the SIPP and that they only need to consider the suitability of the SIPP in the abstract. This is incorrect.

The FSA’s view is that the provision of suitable advice generally requires consideration of the other investments held by the customer or, when advice is given on a product which is a vehicle for investment in other products (such as SIPPs and other wrappers), consideration of the suitability of the overall proposition, that is, the wrapper and the expected underlying investments in unregulated schemes. It should be particularly clear to financial advisers that, where a customer seeks advice on a pension transfer in implementing a wider investment strategy, the advice on the pension transfer must take account of the overall investment strategy the customer is contemplating.

For example, where a financial adviser recommends a SIPP knowing that the customer will transfer out of a current pension arrangement to release funds to invest in an overseas property investment under a SIPP, then the suitability of the overseas property investment must form part of the advice about whether the customer should transfer into the SIPP. If, taking into account the individual circumstances of the customer, the original pension product, including its underlying holdings, is more suitable for the customer, then the SIPP is not suitable.

This is because if you give regulated advice and the recommendation will enable investment in unregulated items you cannot separate out the unregulated elements from the regulated elements.

There are clear requirements under the FSA Principles and Conduct of Business rules and also in established case law for any adviser, in the giving of advice, to first take time to familiarise themselves with the wider investment and financial circumstances. Unless the adviser has done so, they will not be in a position to make recommendations on new products.

The FSA asks regulated firms, in particular financial advisers and SIPP Operators to report to the FSA firms that are carrying on these activities in breach of the FSA requirements. You can do this by contacting our whistleblowing team on 020 7066 9200.

I would like to point out that this article is based on all the information presented to me by the client, and the research I undertook on his behalf.  It is my professional opinion on the matter, and I would be more than happy to discuss any similar offers.

If you need advice on this matter, please give me a call on 01554 770022, and I will explain how I may be able to offer professional independent financial advice.

Autumn statement 2012

TaxOn 5th December 2012, George Osborne gave his 2012 Autumn Statement to Parliament. The proposals are as follows:

FUEL

  • The 3p increase in fuel duty, planned for next January, is cancelled.

BENEFITS AND PENSIONS

  • From 2014/2015 lifetime allowance to fall from £1.5m to £1.25m.
  • From 2014/2015 annual allowance to fall from £50,000 pa to £40,000 pa.
  • Legislation will be introduced in Finance Bill 2013 to make these changes and will be published in draft on 11 December 2012. The Government also announced that they will discuss with interested parties whether to offer a personalised protection regime in addition to a fixed protection regime.
  • Maximum Government Actuary’s Department rate (GAD) to rise from 100% to 120%.

STATE BENEFITS

  • Basic state pension to rise by 2.5% next year to £110.15 a week.Most working-age benefits to rise by 1% for each of next three years.
  • Child benefit to rise by 1% for two years from April 2014.
  • Local housing allowance rates to rise in line with existing policy next April but increases in the following two years capped at 1%.
  • Changes to welfare to save £3.7bn by 2015/16.

TAXES AND ALLOWANCES

  • Basic income tax threshold to be raised by £235 more than previously announced next year, to £9,440.
  • Threshold for 40% rate of income tax to rise by 1% in 2014 and 2015, from £41,450 to £41,865 and then £42,285.
  • Main rate of corporation tax to be cut by extra 1% to 21% from April 2014.
  • Inheritance tax threshold to be increased by 1% next year.
  • Bank levy rate to be increased to 0.130% next year.
  • £5bn over six years expected from treaty with Switzerland to deal with undisclosed bank accounts.
  • HM Revenue and Customs budget will not be cut.
  • ISA contribution limit to be raised to £11,520 from next April.
  • No new tax on property value.
  • No net rise in taxes in Autumn Statement.

ECONOMIC GROWTH

  • Predicted to be -0.1% in 2012, down from 0.8% predicted in the Budget.
  • Forecasts for next few years are: 1.2% in 2013, 2% in 2014, 2.3% 2015, 2.7% in 2016 and 2.8% in 2017.

GOVERNMENT BORROWING/SPENDING

  • Point at which debt predicted to begin falling delayed by a year to 2016/17.
  • Deficit is forecast to fall this year, as is cash borrowing.
  • Deficit to fall from 7.9% to 6.9% of GDP this year, and to continue falling to 1.6% by 2017/18.
  • Borrowing forecast to fall from £108bn this year to £31bn in 2017/18.
  • £33bn saving to be made on interest debt payment predicted two years ago.
  • Deficit fallen by a quarter in last two years.
  • Government spending as share of GDP predicted to fall from 48% in 2009/10 to 39.5% in 2017/18.
  • Spending review to take place in first half of next year.
  • Departments to reduce spending by 1% next year and 2% year after.

JOBS AND TRAINING

  • Unemployment expected to peak at 8.3%.
  • Employment set to rise in each year of the parliament.

TRANSPORT

  • Extra £1bn to roads, including upgrading A1, A30, and M25.
  • £1bn loan to extend London’s Northern Line to Battersea.

EDUCATION AND FAMILIES

  • £1bn to improve good schools and build 100 new free schools and academies.
  • £270m for further education colleges.

INFRASTRUCTURE

  • Ultra-fast broadband expansion in 12 cities.
  • £600m for scientific research.
  • Annual infrastructure investment now £33bn.
  • £1bn extra capital for Business Bank.
  • Gas Strategy to include consultation on incentives for shale gas.

OVERSEAS AID

Promise to spend 0.7% on development to be honoured next year, but not exceeded.

Thank you to the Compliance Services of SimplyBiz plc for putting together this summary of the Autumn statement 2012

If you need advice on the changes and how they may affect you, please give me a call on 01554 770022, and I will explain how I may be able to offer professional independent financial advice.

Act now to get the pension income you deserve

At retirement, many people will use all or some of their accumulated pension fund to purchase an annuity.

This provides them with a guaranteed pension for life. The amount they receive depends on several factors, including how long they are likely to live.

On 21 December 2012, the EU Gender Directive comes into force for individual pensions. From this date, annuity providers will no longer be able to offer different pension rates for men and women. Traditionally, men have received a higher annual annuity income than women, due to their lower life expectancy. This will not be the case in future. The new Directive is likely to reduce the pension income of men retiring after 20 December this year.

What this could mean for men due to retire:

It is estimated by leading annuity provider Partnership Assurance that male annuities will be reduced on average by 2% to 4% . This could directly affect men (and their spouse or partner, if it is planned to take out a joint life annuity).

How seeking Independent Financial Advice can help

At a time of historically low annuity rates, it is essential that retirees receive the maximum pension available – but annuities can vary widely, and your current pension company may not offer the best deal.

As your local Chartered Financial Planner, Jeremy Phelps is able to search the entire market, review all the options and recommend the most suitable annuity for you.

Jeremy and his firm, Financial Solutions Wales offer up to one hour’s complimentary consultation and the purpose of this is to identify needs and objectives, establish what benefits would result from using their services, outline any associated costs and give you the opportunity to appoint a financial adviser.

If you have any questions about this article, and how it may affect you, call Jeremy Phelps at Financial Solutions Wales on 01554 770022.

Pension investment in overseas property

I am aware as a practicing IFA in Llanelli of some serious, possibly misleading advice being offered to pension savers who risk losing all of their pension savings.

This blog has been inspired after listening to the BBC Moneybox programme of 24th July, titled ‘Pension scams under investigation’.  I urge anyone offered a scheme of the type I describe below to listen to the programme or download the transcript.

My concerns are described as follows:

Earlier this year a new client approached our firm, saying that he had attended a local business club dinner and been approached by someone (not a regulated financial adviser) who offered ‘free pension reviews’, with a view to moving the fund to a Self Invested Personal Pension (SIPP), which allegedly offer some fantastic, guaranteed rates of return of 8-9% per annum.

The offer certainly looks attractive,  and I could not contain my clients enthusiasm, although I was immediately on my guard, by such an offer of a guarantee.

However, he had come to my firm for a second opinion.  You’d think he must be suspicious?

We reviewed his needs, and they were basically as follows:

  • He is aged late 50’s
  • He has circa £100,000 in his personal pension
  • He has a low (cautious) attitude to investment risk
  • He needs the income to start around age 62 (around 6 years away).
  • His pension is presently invested in fixed interest and equity based funds with a well known pension provider.

Following a comprehensive fact find, my advice was to stick with his existing pension, but review the funds due to his cautious attitude to risk.  We would charge him a nominal fee for our time and advice on this matter.

The client asked for our opinion on the SIPP (with guarantees), that he had been offered.  Upon investigation, the investment was to be made into Barbados properties.  It was through an unregulated investment, which basically means that there is no Financial Services Compensation Scheme protection, and is in a scheme which is on the radar of FSA officials who are concerned with transactions of this type.  Click the link here, for what the FSA say about these types of schemes.

My advice to the potential client was that the SIPP scheme offered did not match his risk profile, timescale for investment and need for income in the future.  In my honest opinion, it is quite possible he could lose all of his £100,000 pension fund, or at the very least, find it incredibly difficult to liquidate his pension when the time comes to start taking an income in the future.

The client had been made aware of my concerns, but had gone ahead with the SIPP investment anyway!

If you have been offered a similar scheme, please be cautious.  If it seems too good to be true, it probably is!

I would like to point out that this article is based on all the information presented to me by the client, and the research I undertook on his behalf.  It is my professional opinion on the matter, and I would be more than happy to discuss any similar offers.

If you need advice on this matter, please give me a call on 01554 770022, and I will explain how I may be able to offer professional independent financial advice.

Protecting your income

We all like to think the same way – it will never happen to me!

But have you ever considered how would cope financially if your were to suffer an illness or disability, leaving you unable to work?

How would you pay the bills? Could you survive on state benefits?

Income Protection (also known as Permanent Health Insurance) is an insurance policy that helps you cope financially if you can’t work due to illness, a disability or an accidental injury. It can provide you with tax free income if you make an eligible claim, which can then be payable through to retirement age.

The pricing of income protection usually depends on your occupation – the bigger the risk of sickness, then the higher the amount you pay. Premiums can be lowered if you choose to support yourself financially through the early months of a claim, as you can decide when you would like payments to start.

At my firm Financial Solutions Wales, we can discuss your exact income replacement requirements, the level of cover required, along with how you could support yourself in the event of needing to claim. As we are independent, we can look at all the providers of income protection and make a recommendation to meet your unique circumstances.

Please feel free to download the ‘Protecting Your Income‘ guide*. It contains plenty of information on what you should consider when thinking of taking out an Income Protection plan.

If you require independent financial advice on Income Protection, feel free to call on 01554 770022 and we can arrange a no obligation appointment.

*Brochure provided courtesy of http://www.adviser-hub.co.uk

Our short guide to Annuities

It takes many years of planning, saving and sacrifice to build up a significant pension – and, after all those years, you want to be sure you are making the most of it.

However, as you near retirement, your pension company will send you a variety of options to choose from.  Many of my clients find the choice a bit daunting, as they do not understand the choices and declarations that need to be signed.

There are alternatives to annuities, such as income drawdown, asset backed or short-term annuities.  It is usual that the pack that you receive will only provide a choice on straightforward annuity purchase, which is not always the best for everyone.

All pension providers must now recommend that you seek independent financial advice when they send you your annuity pack, quoting the ‘open market option‘.  I would comfortably state that whenever we  provide annuity advice, we are usually able to shape the annuity to suit your circumstances and obtain a higher income using the open market option.

The choices you usually get are:

  • Taking a tax free cash lump sum.
  • Purchasing a spouse’s/civil partner’s pension.
  • Inflation proofing the annuity.
  • Building in a guaranteed period.
The choices you usually do not get are:
  • Building in capital/value protection.
  • Basing the annuity on your personal/spouse’s health situation.
  • Taking into account your smoking/lifestyle circumstances.
  • Choosing an asset-backed annuity.
  • Including overlap (where the annuity continues through the guarantee period AND a spouse’s pension is paid)

Our downloadable annuity guide* is designed to provide you with the basic information you need to start thinking about your retirement opportunities. It cannot make any recommendations or decisions for you but, armed with the information it provides, you can start to ask questions and, with our help, make sure your retirement is as well-funded as possible.

Alternatively, if you require independent financial advice on retirement income options, feel free to call on 01554 770022 and we can arrange a no obligation appointment.

*Brochure provided courtesy of http://www.adviser-hub.co.uk

Long term care funding

The good news is that we are all living a little bit longer. Mortality rates are rising.

However, it is also expected that more of us will need residential or nursing care in our later years.

The cost of care is an issue that many older people feel that it is impossible to avoid. The cost of care in Wales averages between £419 and £589 per week*, depending on whether residential care or nursing care is required. The standard of care also differs widely, depending on the care home selected.

The family and person entering care will often desire the best care home, but have reservations about long term costs. It is also possible that some people entering care will qualify for some state help with the cost of care, but are unsure about what financial assistance is available. Some costs of care may be met by the local health board, and some by the local authority.

It is important to also consider assets which may be exempt from any financial assessment for care costs.

It is also important to know what state benefits you are entitled to when entering care.  Entitlement to state benefits such as Attendance Allowance will also depend on whether you are self funding, or in local authority funded care.

There has also been a lot of news recently about people paying for care when it should have been provided free through continuing care by the NHS.

There are several fears for people entering care, such as:

  • If self funding, how long will the money last?
  • The intended inheritance could disappear after many years paying for care.
  • Having to move a settled relative out of a care home if the available funding runs out.
  • Local Authority funding not meeting the costs of the desired care home.
  • The family may have to top-up funding to meet the costs of the care home.

How can we help?

As a specialist adviser on financing long-term care, we can discuss and put in place the most appropriate funding solutions for paying for long term care costs.

This will include discussing your entitlement to local authority support, as well as whether there is a need to pay for your own care, or whether it could it be provided free by the NHS.

Our knowledge in this area will assist when considering the long term funding options.

Our service.

We will offer you a no obligation initial meeting, provided entirely at our own cost, to see whether you need advice, and agree how we can work together.

If you decide that you need financial advice, then we can develop a plan, and discuss the advantages and disadvantages of the options available.

We are able to provide professional independent financial advice on the choices available for care funding, and would be delighted to meet with you and your family to discuss all the options available. The costs of such advice will be made clear if you appoint us as advisers.

If you require independent financial advice on Long Term Care funding, feel free to call on 01554 770022 and we can arrange a no obligation appointment.

*Source: Partnership Assurance research 2009/10

Our short guide to ISAs

‘ISA’ stands for Individual Savings Account, a tax-efficient wrapper offered under Government legislation as a way of encouraging you to save. An ISA sits over your choice of a number of different investments to shelter them from further tax on any income or gains earned.

There are now just two types of ISA – the Cash ISA and the Stocks and Shares ISA – and the combined allowance for both in 2012/13 is £11,280.

Within this, the limit for Cash ISAs – or for the cash element within a Stocks and Shares ISA – is £5,640.

However, there is flexibility over how these limits can be used – you can, for example, put the maximum £5,640 in a cash account and £5,640 in a stocks and shares account. Alternatively, though, if you place just £2,000 in cash, you can use the entire remaining balance – £9,280 in this case – to invest in stocks and shares. If you wish, you may put the full £11,280 into a Stocks and Shares ISA.

In addition, you can transfer existing Cash ISA holdings to a Stocks and Shares ISA without impacting on your current tax year allowance. So, if you have £10,000 already sitting in existing cash ISA plans then this amount can be moved to a Stocks and Shares ISA, yet leave your entire current tax year allowance.

Finally, if you already have an ISA, you are permitted to transfer it to a new plan manager, without using any of your annual allowance.

Please feel free to download the ‘Guide to ISAs‘ brochure*. It contains plenty of information on what you should consider when considering investing in an ISA.

Alternatively, if you require independent financial advice on ISAs, feel free to call on 01554 770022 and we can arrange a no obligation appointment.

*Guide provided courtesy of http://www.adviser-hub.co.uk