How long will my money last?

I had the pleasure of presenting to a group of financial adviser colleagues in London at the Retirement Planner seminar in London recently.

The topic of discussion was the new pension freedoms which will be available in the new tax year 2015/2016.

One key point that was considered was the issue of longevity, and the purpose of this blog is to consider how long an existing pension pot could last, given various assumptions including the amount invested, the amount withdrawn on a regular basis and investment growth into the future.

Although the graph below is based on assumptions only and is not guaranteed, it clearly demonstrates that an individual retiring at age 65 could find that their money runs out before they reach their 80th birthday.

Pension Fund Assumptions/ Illustration Only:

• Person age 65
• Income of £1,500 a month taken gross
• Growth illustrated post plan charges
• Income indexed in line with CPI
• CPI assumed at 2.5% pa
• Income taken monthly
• Growth rates are assumptions only
• £200,000 pension fund value after tax free cash has been taken
• NOT GUARANTEED

Taking into account the issue of long-term care and the pressures of inflation (both the headline rates and the amount you pay in the supermarkets) it is easy to see that, without careful planning, the scenario of individuals having to return to work in their mid to late 70s may become a reality if they draw too much from their pension pots.

On this website we have updated our Retirement Options Schedule to detail the new freedoms and you may wish to look at this here.

Careful planning in the way that you draw pension benefits is vital and if you would like advice in this area then please do not hesitate to contact Chapters Financial at the Guildford or Woking office.

No individual advice is provided during the course of this blog and as noted above the assumptions made in the illustration are not guaranteed.

Keith Churchouse BA Hons FPFS
Director, Chapters Financial Limited
Chartered Financial Planner
Certified Financial Planner
ISO22222 Personal Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

Drawing Pension Benefits. What happens if I want to continue to save into a pension?

The new pensions ‘freedoms’ planned for 06 April this year are, in our experience, having a significant impact on retirement decisions being made now. It is refreshing to see renewed interest in pensions, both in terms of saving for them as you will see in the paragraphs below and the way they are drawn.

This blog, we freely admit, is a bit technical, but has some important points for those considering changes to their pension arrangements shortly.

If you are 55 or over and thinking about taking an income from your money purchase (defined contribution or personal pension) pension plan, and you are considering making further pension contributions in the future, it is important to be aware of the implications of going into income drawdown before the end of this tax year, as opposed to post-06 April 2015.

Pension Contributions / Money Purchase Annual Allowance/ £40,000 Limit?

The annual allowance is an HMRC limit on the total gross amount that can be contributed into your pension savings each year from all sources, whilst still receiving tax relief. It is based on your earnings for the tax year and is currently capped at £40,000 gross (2014/15 and 2015/16 tax year).

If a new capped income drawdown plan is started before 06 April 2015, regardless of whether income is taken from the plan before or after 06 April, the £40,000 HMRC annual allowance will still apply providing that, when income is taken, it is within your capped drawdown limit. This limit is set with reference to the Government Actuary Department (GAD) limits for the tax year.

If income above the capped drawdown limit is taken from an existing capped drawdown scheme after 06 April, this will trigger the Money Purchase Annual Allowance (MPAA). The plan will automatically convert to a flexible access drawdown plan and the annual allowance for pension contributions will be reduced to £10,000 gross in the tax year from all sources.

For those who are currently in flexible drawdown plans, and who wish to continue making pension contributions, it may be prudent to consider moving into capped drawdown before 06 April to preserve your entitlement to the £40,000 annual allowance. This is a complex area and we would recommend that you seek independent financial advice from the team at Chapters Financial Limited before proceeding.

Income drawdown plans established after 06 April 2015

If a new income drawdown plan is established after 06 April 2015, this will automatically be deemed a flexible access drawdown plan. The option of capped drawdown will no longer exist. If any income is taken, the MPAA will be triggered and your annual allowance reduced to £10,000.

Once the MPAA is triggered, unused annual allowance brought forward from earlier tax years will not be available to increase the £10,000 annual allowance for money purchase pension savings.

It is important to note that the drawing of tax free cash alone (no income) will not trigger the MPAA.

Can I make pension contributions whilst drawing pension income?

Normally this is possible, although you should seek advice on whether this is an appropriate course of action in your circumstances. You may want to check this with your accountant as an example. If you are in a capped drawdown scheme before 06 April and the level of income you draw remains below your capped drawdown limit, you will retain the £40,000 annual allowance after 06 April. If you are drawing income from a flexible access plan, your annual allowance for pension contributions will reduce to £10,000.

You are allowed to recycle pension income payments back into pension savings, should this be appropriate. However, it is important to ensure that you are only paying income back into a pension plan, and not tax free cash, as this would be treated as an unauthorised payment and taxed accordingly, normally at 40%-55% (and a tax sanction charge to the pension scheme).

Summary

Please note that the Chancellor, George Osborne’s budget is on 18^th March 2015 and could still make changes to pensions legislation going forward. The above is our understanding at this time, based on current planning and proposed legislation.

If you would like advice on your pension planning, whether this be saving for retirement, or drawing benefits of income and tax free cash, then please contact the team at Chapters Financial in either Guildford or Woking who will be able to help you further. No individual advice is provided during the course of this blog.

Vicky Fulcher Msc Dip PFS
Financial planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

When is advice not advice? When it’s guidance

The UK financial services industry is anticipating a busy year in 2015, with the changes to pensions legislation and the way that pension benefits can be drawn from April 2015.

The media has started to engage with these changes and with the opportunities they create for those over the age of 55.

As you may have seen from the other pages on Chapters Financial’s website, the headlines of these changes are as follows:

• Normally 25% of any unvested pension fund can be drawn as tax free cash.
• No restriction on income levels that you can draw from your plan.
• Income can be phased to meet your needs.
• Any income taken is still subject to income tax. You should be mindful of higher rate income tax charges if you take significant sums from your plan.
• The 55% tax charge on your pension fund on death before 75 will end, reducing to nil.
• Benefits available to estates for those over 75 will be taxed at a lower level of 45% or the recipient can take income from the fund at their highest marginal income tax rate.

One of the key issues and concerns with regards to these changes is ensuring that those who are considering drawing their pension benefits take suitable advice on the ways that benefits can be drawn, to ensure that any short-term objectives may be tempered, with the view that many individuals are now living to around the age of 90. The anticipated longevity of an individual may be 25 years from the age of 65, therefore, the short-term view of possibly replacing a car or taking a long cruise needs to be offset by the likelihood that if the money runs out in future years, they may suffer austerities or even the possibility of returning to work in later life to make ends meet.

To counter this, the Government has established and plans to roll out in the near future a Guidance Guarantee, which offers those considering drawing pension benefits the opportunity to gather information on the options that are available to them and some of the facts that they need to take into account when making a final decision on what they do with their pension fund.

We have to bear in mind also that one of the main benefactors of these changes may be the Government, who could easily see the tax they take from pension income increased significantly, as people do draw pension benefits early and suffer income tax charges on the amount above the 25% tax free cash.

The key point in this blog is that guidance is not advice.

The Collins English Dictionary’s definition of guidance is:

‘Leadership, instruction, or direction’.

The Collins English Dictionary's definition of advice is:

‘Recommendation as to appropriate choice of action’.

The differences between the two are clear in the fact that ‘guidance’ is simply a process of instruction / direction on the range of options open to a client, whereas ‘advice’ is actually a recommendation as to what should be achieved for a client based on their individual needs and circumstances. To me it is almost like going to see a doctor with an ailment and them telling you exactly what it could be, but not actually making any recommendations on what they should do to solve the problem.

I am sure we will see much more information on the ‘Guidance Guarantee’ over the course of the next few months, as we lead up to April 2015. It is good to see additional engagement with the UK public on the issues of their financial planning, particularly pensions focused in this example. However, we would urge caution to those considering drawing pension benefits, to take into account their immediate needs and also their longer term objectives, to ensure that they really do enjoy a prosperous retirement: probably the reason why they started paying into a pension in the first place.

If you would like to receive further information regarding your own situation and circumstances, please contact the Chapters Financial team in either Guildford or Woking.

No individual advice is provided during the course of this blog.

Keith Churchouse BA Hons FPFS
Director, Chapters Financial Limited
Chartered Financial Planner
Certified Financial Planner
ISO22222 Personal Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

Are you protected in 2015?

Chapters Financial has noted an increase in enquiries, from both new and existing clients, about providing protection in the event of ill health or death. Life Assurance enquiries range from family protection, protecting company assets in the event of the death of a director or key person, protecting against the effects of inheritance tax, to protecting maintenance payments in the event of a divorce. The needs are varied and we wanted to provide some notes for our blog readers to consider.

We appreciate that this is not a particularly happy subject to be blogging about in the early New Year, however, our experience shows that many people review their financial planning over this period.  
In reviewing your financial planning, it is important to look what protection you currently have and to review what is needed.

Points you may want to consider first:

• Are your existing protection policies nominated to the correct beneficiaries and written in trust? Writing a policy in trust is valuable in placing the funds outside your estate for inheritance tax purposes and also means that the beneficiaries will receive the funds directly, without recourse to probate. If your spouse/partner also has benefits, do they know where they are nominated to?
• Does your employer offer Death-in-Service benefits and to what level? If so, would they know where you would want your benefits paid in the event of your death?
• Does your employer protect your income in the event of ill health, and do you know how this works? You might want to check your employment contract or speak to your HR department / manager. This is normally in the form of income replacement, rather than Critical Illness type plans.
• Make a Will to ensure that your wishes are detailed.

Existing Cover:

• What type of cover do you have and how long will it protect you for?
• Are your existing policies still suited to your needs? Life does not stand still and changes in your circumstances over time may mean that your protection cover needs to be adjusted.
• Is the life policy you have written in trust? It is usually worthwhile achieving this and can normally be achieved at nil/low cost.

New Cover:

As examples, there are various types of life cover you might want to consider to meet your needs, such as:

• Level Term Assurance: pays a single lump sum in the event of death within a set term.
• Decreasing Term Assurance: pays a single lump sum (decreasing in value each year) in the event of death within a set term. This would usually be used for an outstanding repayment mortgage.
• Gift Inter Vivos policy: usually applied for to cover an Inheritance Tax liability on a gift made from an estate.
• Family Protection plan: pays an agreed lump sum each year for a set period.

This is not an exhaustive list, however, it does provide a flavour of the varying covers that might be considered, to suit circumstances and budgets.

Medical details:

Medical underwriting is usually applicable when cover is applied for. This means that the provider of the policy may write to your doctor to obtain your health records or may ask your doctor to provide a written report following a medical examination. This is not always the case, and some applications will be accepted without the need for medical underwriting. However, it is worth bearing in mind that the majority of cases will require medical underwriting and to be aware that this can take some weeks to achieve.

Summary:

As noted at the start of this blog, our experience shows that each protection enquiry is different and specific to a client’s needs.

If you would like advice on the ways in which you can protect your family in the event of death or ill health then please contact the team at Chapters Financial, who will be able to help you further. No individual advice is provided during the course of this blog.

If you would like to receive further information regarding your own situation and circumstances, please contact the Chapters Financial team in either Guildford or Woking.

Keith Churchouse BA Hons FPFS
Director, Chapters Financial Limited
Chartered Financial Planner
Certified Financial Planner
ISO22222 Personal Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

Geo-Political situations /Investment Markets 2015

The investment markets of 2014 saw significant volatility during the year, particularly the last 6 months. With a General Election in May 2015, I am sure we will see some effects on UK growth whilst the UK heads to the polls as we exercise our democratic rights.

From a global perspective, the two issues that grabbed my attention were the significant thaw in relations between America and Cuba and the decline in Oil values.

I am sure the cigar smoking fraternity of the US will be delighted by the new alliance between the nations, with the potential prospects of better economic days ahead for many Cubans. Having visited Cuba many years ago, I was well aware of the significant effect of sanctions by the US on the country and this effect might provide a flavour of the discomfort that the Rouble and Russia are feeling at the time of writing.

Economically, North America as a trading area is performing well and its prospects for the future are positive (Not guaranteed).  The dollar as a currency also remains firm (again not guaranteed). We might even see the investment opportunity with the acronym ‘BRIC’s (Brazil, Russia, India and China) being renamed ‘BIC’s (Brazil, India and now Cuba).

The fall in the Oil price is more of a concern in the longer term. Although the full effects of the price reduction (about $60 a barrel at the time of writing) have not been felt at the pumps by consumers, these should filter through in the next few months.

One effect is the likely fall in inflation (as fuel costs continue to fall) to a level of Stagflation or Deflation. We have covered the details of these points off in our January Newsletter. If you would like a copy then please let us know. As Japan as a trading area knows only too well, deflation is not good for an economy, especially when sustained. (see our Blog from November 2014).

The other issue is that most oil production in the western world relies on an oil price per barrel of around $100 a barrel as a minimum. With market prices now well below that level, the profitability of production is bought into question. If sustained, some facilities will be closed or mothballed. It is expensive to restore these facilities and this cost will only be passed on.  Therefore, in the short term, the cost reduction that we pay for fuel is good news, but in the longer term, the consequences and cost could be significant. This could also see the investment markets suffering volatility because of the uncertainty of the future oil price.

Summary

As we move into the New Year of 2015, I hope these thoughts and views help in focussing the investors mind as to what could be ahead. Obviously, past performance is not a guarantee of future performance.

No individual pension/ financial advice is provided during the course of this blog.

If you would like guidance and advice on your income planning for the future then please contact the team at Chapters Financial at either our Guildford (01483 578800) or Woking (01483 330800) offices.
We wish you a happy and prosperous 2015.

Keith Churchouse BA Hons FPFS
Director, Chapters Financial Limited
Chartered Financial Planner
Certified Financial Planner
ISO22222 Personal Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

A Financial Planner is for the long term….not just for Christmas….or a transaction

Some seven or so years ago, an elderly retired client was referred to me by their accountant to undertake financial, pension and investment planning. They had taken an active stance to investing, running various types of investment, including direct equity holdings, and had enjoyed the process. However, they were beginning to find the complexities of investment overwhelming and realised that as they were not getting any younger, their ability to manage their finances, both for themselves and for their spouse and family into the future was likely to diminish. We were pleased to help them at this time to clarify their position and where appropriate to simplify this as they grew older.

Regular financial reviews have been undertaken over the years and the process of ensuring that everything is tied down and in order has continued.

Now, as they have moved into later life, their short-term memory is becoming a significant issue and the family are now involved to ensure that they understand where all of the assets are held, what benefits and income they can provide and most importantly that their parents are protected in their later life to ensure that they are happy, financially secure and have the ability to have some fun.

With the written authorities in place, I received a call from one of the children to ask a few investment related questions with regards to the taxation of plans. They noted that they, along with the family, were so pleased that Chapters Financial took over the financial affairs of their parents some seven or eight years ago because everything is now running smoothly and that they are able to concentrate on the most important point of financial planning, which is looking after the owner of the assets for their needs. The striking point of the conversation was that the clients were happy. We have noted that the clients’ lifestyle is unlikely to allow them to ‘outspend’ their assets (even if long term care is needed) and they can afford to purchase luxuries to make their life more comfortable as they become less mobile. This is not an uncommon occurrence when dealing with those who grew up in a thrifty society in the 1940s and 1950s and maintain a long-held savings mentality.

They referred to the purchase of a new additional TV as a “Chapters moment” where they can hear me suggesting that if they have a need, go and purchase the item that they need to meet their objectives. A new vacuum cleaner was purchased and that was quite heavy, so when it was taken upstairs they struggled to get it down the stairs. I suggested that they may want to purchase another one for downstairs leaving the heavier one upstairs to ensure that they don't have the physical burden of moving such machines around the property when they really don't need to.

Above all, the client was happy and secure and it is the longevity of advice that has been provided over the years that gives both the client and their children the security of knowing that there is a third party that has been involved in the financial planning for many years and understands the intricacies of the situation and has solutions to meet needs when required.

No individual advice is provided during the course of this blog.

As suggested in the title, a Financial Planner is for the longer term, not just for Christmas…..or just a financial transaction.

If you would like advice on long-term financial planning and all of its aspects including a provision of long-term care, then please do speak to the team at Chapters Financial Limited in either Guildford or Woking.

We wish all our clients, enquirers and professional contacts a peaceful Christmas and a prosperous 2015. Thank you for your support during 2014.

Keith Churchouse BA Hons FPFS
Director, Chapters Financial Limited
Chartered Financial Planner
Certified Financial Planner
ISO22222 Personal Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

Auto-Enrolment Staging Dates can be moved forward….and it may give you control!

2015 is going to be a big year for the enrolment of many employees by their employers into qualifying pension schemes. The Pensions Regulator is likely to write to many thousands of Small to Medium Sized Enterprises (SMEs) in 2015 to note that they are six months away from complying with the regulations and ensuring that the staff are notified, the scheme is in place to accept pension contributions and that it starts by the deadline. 2015 and 2016 are likely to see the largest volume of employers going through the system, mainly those with staff numbers at approximately 30-80 employees.

In our experience, many employers have had a good understanding of the legislation for some time, preparing for the extra costs in their budgets and embracing the change. With this in mind we ask….’Why wait?’

The Staging Date provided is usually matched to the company’s circumstances, based on staff numbers within the company on 01 April 2012. There is no reason why an employer cannot bring their Staging Date forward to a date that suits them if they are ready to start earlier. Indeed, this is an added benefit to the staff and may encourage greater loyalty to the business.

A list of dates that can be authorised by The Pensions Regulator for bringing Staging Dates forward is noted here:

http://www.thepensionsregulator.gov.uk/employers/bringing-your-staging-date-forward.aspx

Chapters Financial Limited is not responsible for the content of external webpages.

Waiting until the last minute to implement and meet this legislation may create an unnecessary burden from an administrative perspective, when taking into account the factors that need to be achieved such as selecting and presenting a scheme to the staff, including reporting to The Pensions Regulator that the business has complied with the various requirements. Getting it wrong could incur fines.

If your business would like advice and guidance on implementing your Pensions Auto-Enrolment scheme and to manage the implications and costs to your business then please do not hesitate to contact the team at Chapters Financial at our Guildford or Woking offices.

No individual advice is provided during the course of this blog.

Keith Churchouse FPFS
Director
Chartered Financial Planner
ISO 22222 Personal Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

What to think about over the festive season/ 2014

Christmas, as the retailers will tell you, is just around the corner and many are starting to plan the festive season….with its associated costs.

Christmas is a time for family, and many think about what they can do for their families. With oil and associated petrol prices falling, the cost of getting around should be lower this year, and inflation is falling, seeing other increases being moderate.

As always, be careful on those credit cards, with Black Friday in late November (deals galore!) as you start your Christmas shopping, to ensure that you are not suffering with the effects of debt for the rest of 2015, especially if interest rates do rise.

But what else should you be thinking about as the year comes to a close?.......

1. Gift allowances are often considered by those that can afford to gift to their family at this time of year. The gift allowance can be helpful in gifting money away efficiently and reducing inheritance tax liabilities. You can give away £3,000 in this tax year, and if you did not give away last year’s allowance, you can go back one year, making the total gift allowance available £6,000. If you are a couple, this could mean you could give away £12,000 in total.

2. The Bank of England is now indicating that bank base rates may only increase in the 3^rd quarter of 2015, although not guaranteed. Good for those with variable rate mortgages and disappointing for those who rely on savings for income. Be ready for this increased cost if you have loans and mortgages in 2015.

3. Some relief will be available for savers over 65, who will be able to apply for Pensioner Bonds from very early January 2015. Two types of Bond should be available: 

• Fixed Rate 2.8% pa Gross Annual Equivalent Rate (AER) 1 year
• Fixed Rate 4.0% pa Gross AER 3 years (annual interest only)

Be quick, the allocation will not last long and remember to review your savings and the rates of return regularly.

4. Some of the devil may be in the detail for the above savings arrangements and more financial information will be made available from The Chancellor, George Osborne, in his Autumn Statement on 03^rd December. With an election only five or so months away, the cupboard is quite bare at this time so it will be interesting to see if he can provide any ‘giveaways’ to the public before the May 2015 elections.

5. Inflation (Consumer Prices Index/CPI) hit 1.3% pa (a slight rise from September of 1.2% pa in October). Inflation may be a good thing, because the alternatives of stagflation and deflation are worse, as our previous blog has already noted.   

6. Retirement benefits and the ways they can be accessed are likely to be the financial story of 2015. Much is changing in the pension world in April 2015. The government will be offering some support on information on the changes and some of the issues that a person drawing their pension benefits should consider. This will be called guidance, but will not be advice. So if you are thinking about re-arranging your pension funds next year and need advice, and most should, we would urge you to speak to an independent financial adviser early and plan accordingly.

7. In recent times some have found it harder to get advice on their finances because of changes in regulation.  The financial services regulator, The Financial Conduct Authority (FCA), is now encouraging alternative delivery of financial advice. The FCA published a guidance consultation paper in July 2014 focusing on retail investment advice and its future delivery. As we have seen in many other areas, digital delivery may be one solution, and there are some providers working on this proposition, with sites like www.Saidso.co.uk due to be available by the end of 2014.

Summary

2014 has been a busy year in financial services and most markets have experienced volatility from the end of the summer onwards. With the geo-political situation remaining tense in various areas, I am sure we will see more of this in 2015 and beyond.

Regulation has also had a significant impact on financial planning, particularly for companies that need to meet their pension Auto-Enrolment requirements. Many more small and medium-sized enterprises (SMEs) will reach their staging dates in 2015 and we can offer support to meet these needs.

No individual pension/ financial advice is provided during the course of this blog.

If you would like financial planning advice for your individual circumstances for 2015 then please contact the team at Chapters Financial at either our Guildford (01483 578800) or Woking (01483 330800) offices.

Keith Churchouse BA Hons FPFS
Director, Chapters Financial Limited
Chartered Financial Planner
Certified Financial Planner
ISO22222 Personal Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.