Our ...May Newsletter 2013
During conversations with new clients it’s often noted that selecting your IFA can be a real leap of faith. Certainly in our experience, our client relationships are longstanding and our new clients have often moved to us from equally long-standing relationships and will not have taken the decision lightly.
Our new regulator the Financial Conduct Authority has provided 10 tips on their brand new website to help people spot and avoid unauthorised financial services firms. With this in mind, if you are thinking of moving from your existing adviser or have been approached by an unknown firm about a new financial product, we have provided a link to these tips so at least you can be sure that the adviser is properly authorised and you’ll have some insight as to what you should be looking out for.
Please see the list below for the rest of our articles in this edition and we hope you find them useful.
In this issue:
- Does your spouse/partner know your passwords?
- Your 8 step countdown to auto enrolment
- Changes to pension allowances that may affect you
- Should you put your death benefits in trust?
- 10 tips to spot and avoid unauthorised financial services firms
If you use online banking or have online accounts for other financial products or services, have you considered how your spouse, next of kin or even your executor, would be able to access these if you were taken seriously ill or in the event of your sudden death?
In fact, how much of your family, household or your own personal paperwork and accounts would be easily accessible following an emergency or crisis?
If the answer to the above is ‘no’ or ‘not much’ then it’s worth investing a little time in creating an emergency master file of all your important documents so that they can easily be recovered if disaster strikes. This doesn’t have to be overly complicated but should contain all the essential information relating to your personal, financial and household matters. It can be in hard copy or electronic format, depending on your preference, and can then be kept safely at home (a fireproof safe would be ideal if you’re keeping original documents) or lodged with a professional adviser e.g. your Financial Planner or solicitor, or held by a trusted friend or family member.
So what should you include in your emergency file? Below we have listed examples of the type of documents that could be included but this is by no means an exhaustive list and you can tailor it to your own circumstances, making it as comprehensive as you like.
Personal and Household Documents:
- Emergency contact list of friends or family
- Copy of your birth certificate
- Copy of your passport
- Copy of your driving licence (both photo card and paper sections)
- Your National Insurance number
- Details of all your health insurances including private medical, critical illness, life insurance, etc (plan name and policy number for each)
- Details of your mortgage account and provider (or rental agreement and landlord contact details)
- The location of your house deeds
- Copy of your car insurance and house/contents policies
- Details of any specialist policies covering your property/contents
- Copy of your car registration document
- Name and contact details of utility suppliers
- Login details of your email and online accounts* (social media accounts, clubs, memberships, subscriptions, etc). Email account details are especially important as these are the vehicle through which all your online accounts will be run
- Location and contents of your safe deposit box and location of the keys/keyholder
- Details of your bank and savings accounts (the front page of each of your statements will provide most details)
- List of online banking details for each bank and savings account *
- Details of each of your credit cards (card number, security code, contact details of card provider)
- Details of your investment plans and accounts
- Copies of your estate planning documents (wills, trusts, health care directives and powers of attorney)
- Up to date list and contact details of professional advisers, including your accountant, IFA and solicitor
- Details of current loans
- Details of additional properties and location of deeds
- Details of your pension (plan provider and plan details)
- Any additional sources of income besides your employment/business income
You could extend this list to your business if you are a sole trader or consultant, especially if you run your business from home. In this case your emergency file would need to contain critical business information including business insurances, agreements, loans, business accounts (both online and offline) and details of your suppliers and clients.
* A note about passwords. If you wish to keep a list of your passwords electronically there are several online encrypting tools available to ensure your list is secure.
Finally, once you have created your emergency master file, remember to keep it regularly updated as your details and passwords will change over time. A little organisation and forethought will go a long way to providing quicker access to all your important documents which would otherwise be very time consuming and expensive to track down. This is the last thing you need in a time of crisis.
The Government’s pension reform regulations are now in force, requiring employers to automatically enrol eligible employees into a pension scheme and to pay a minimum pension contribution for those employees.
In addition, even if you have an existing workplace pension scheme you may have to make changes to ensure that it complies with the new laws. Alternatively you can use the Government’s new National Employment Savings Trust (NEST) scheme.
Although the requirements are being introduced gradually via staging dates, it still adds an additional layer of cost, administration and bureaucracy so planning ahead is crucial.Below is a useful 8 step guide which we are using with our clients to guide them through the process as their staging date approaches. Following these steps will help ensure you are well prepared and in compliance with your new duties when your staging date arrives.
Step 1 – Know your staging date
Identify the exact staging date for your organisation so that you know how much time you have to prepare and can set your timetable. These dates vary according to the number of employees on your PAYE scheme, and will continue until April 2017 when the last tranche will be small businesses with less than 30 employees. To find out your exact staging date,click here.
Step 2 – Assess your workforce
The new legislation creates 3 types of eligibility/entitlement:
- Staff entitled to join/become active in a registered pension scheme if they so request, but for whom you do not have to pay a contribution
- Staff entitled to opt in to your auto-enrolment scheme, but are not entitled to be automatically enrolled – and for whom you must pay the minimum contribution
- Staff eligible for automatic enrolment into your auto-enrolment scheme – and for whom you must pay the minimum contribution
Assess which of your staff fall into which category, so that you know the extent of your obligations.
Step 3 – Review your existing pension provision
Carry out a strategic analysis of your current pension provision to see if it meets the qualifying criteria as set down in the legislation. Consider these questions:
- What kind of scheme are you going to have? Does your current scheme qualify?
- How many employees are currently enrolled and how many are likely to be eligible and enrolled when your staging date arrives?
- Will you offer one scheme to one set of employees and rely on NEST for another?
Step 4 – Analyse the cost
Once you know the extent of your obligations and the suitability of your existing provision you can start thinking about how to structure your scheme(s) and how much it is going to cost. You need to work out how many employees will be eligible, what your employee levels will be at your staging date, and what, if any, changes need to be made to your existing systems and processes to administer these obligations.
Step 5 – Clean your existing data
At this stage you should ensure your existing employee data is correct and contains all the relevant information required for auto-enrolment.
Step 6 – Develop your employee communications plan
You are responsible for giving clear and comprehensive information to your employees so that they are fully aware of their new entitlements and eligibility. You must inform them in writing of what’s happening and how they will be affected by the changes. Consider raising their awareness in the months prior to your staging date so that they know what’s coming before your auto enrolment process actually begins.
Step 7 – Issue your pre-staging communications
Keeping your employees informed of the changes and timetable will give them sufficient time to consider the arrangements and make an informed choice. Clear communication and consultation will help to increase employee buy-in.
Step 8 – Auto-enrolment begins
Your staging date has arrived and you must now comply with your new duties which include:
- registering with the Pensions Regulator
- auto-enroling, opting-in and opting-out all relevant staff
- adhering to your recordkeeping obligations
- paying employer contributions according to the legislation
If you have followed the step by step process above, you will be organised, prepared and able to meet your new obligations with minimal disruption to your organisation.
For a more detailed guide to auto enrolment for employers, click here to download our Employers Q&A Factsheet
If you have any questions regarding this please contact us on 01926 651122 or email:firstname.lastname@example.org
In its continued efforts to reduce the deficit and limit the amount of reliefs going to higher earners, the Government has reduced both the annual allowance for tax relief on pension contributions as well as the standard lifetime allowance.
The annual allowance
Currently the annual allowance is £50,000 but this will be reduced to £40,000 from 2014. To check whether you’re reaching the annual allowance limit, you need to add up all your annual contributions including any tax relief that is added separately by HMRC. Remember that you only have one annual allowance, regardless of how many schemes you may have.
If you are on a defined benefit pension linked to your salary the calculation is not so simple and you should ask your employer, pension scheme provider or IFA to check your position.
Bear in mind that future wage increases could take you over the limit if you are already on a high salary.
The standard lifetime allowance
The standard lifetime allowance was reduced to £1.5m this year and will reduce further to £1.25m from April 2014. Amounts over these limits are taxable, currently 25% for draw down or 55% for lump sum.
You have less than 12 months to plan ahead and one option is to apply for a fixed protection. This protection allows you to exceed the lifetime allowance but in return you will be unable to make further contributions to your scheme. Even if your pension pot is below the lifetime allowance but a reasonable size nonetheless, you may still need to consider fixed protection as inflation and investment growth could tip you over the limit in the future.
In addition, any unused allowances from the previous three tax years can be carried forward to this year to off-set any excess pension savings and avoid paying the tax penalty.
A word of caution though. In some circumstances it may be worth continuing your pension contributions and paying the tax penalty anyway, for instance where your contributions are largely or entirely financed by your employer. However you should seek professional advice and check all the implications carefully before taking any action.
You probably already have an up to date death benefit nomination form detailing the beneficiaries of your pension scheme and life insurance policies in the event of your death. However, you may not have considered putting these benefits into a trust. This is known as a bypass trust (often referred to as a spousal bypass trust) and provides a number of advantages over simply nominating your beneficiaries and lodging this with the scheme or policy provider.
1. You have control over who receives the proceeds and how. In many cases you are unable to direct exactly how your death benefit funds will be distributed via the terms of your Will, but with a trust you can*. You may include several beneficiaries if you wish and even arrange for the funds to be distributed in stages. This is particularly useful in the case of a young beneficiary who would potentially have unfettered access to a lump sum.
2. The funds will not form part of the beneficiary’s estate. The beneficiary would not own the funds as they would be held in trust. They would therefore not form part of the beneficiary’s estate and would not be included when assessing the beneficiary’s assets for long term care costs.
3. IHT planning. You can direct the trustees to distribute the proceeds as periodic tax free loans to your beneficiary. These loans would need to be repaid from the beneficiary’s estate on their death which would have the effect of reducing the value of their estate when calculating their IHT liability.
4. Flexibility. You can change the beneficiaries and the terms of the trust during your lifetime in order to reflect your changing circumstances.
By-pass trusts can only be used to receive the proceeds of a pension scheme or life assurance policy, and you’ll need to check whether it is allowable per the scheme/policy rules. However, as long as you take professional advice before making the arrangements, particularly where there are IHT implications, setting up a trust can be a very efficient way of distributing funds and will give you peace of mind that your wishes are carried out exactly as you had intended.
Please note these arrangements are allowable under current legislation but may be subject to change in the future.
From 1st April this year our former regulator, the FSA, was replaced by two new bodies, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). Both of these organisations are in place to regulate the financial industry, protect the consumer and provide credible deterrence against abuse of the industry’s regulations and standards.
As financial Planners/Advisers we come under the specific governance of the FCA which holds the official register of all financial organisations authorised to operate in the UK. Unauthorised firms are not covered by the financial ombudsman or the financial compensation scheme and the FCA will issue a warning on their website and through the media if it becomes aware of an unauthorised firm operating in the UK.
The FCA has put together a very useful list of 10 tips to help consumers spot and avoid these unauthorised organisations and you can read these here:
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