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Rickard Keen Financial Services – Newsletter, November 2013


Warning for employers on Auto Enrolment – act now!

A year in and Auto Enrolment is well under way as larger organisations settle in to life with workplace pension schemes. However, focus now turns to the smaller companies, and the seriousness of predictions of a ‘capacity crunch’ in 2014 and beyond.

An influx of firms could potentially cause problems due to increasing numbers of employers reaching their staging dates and rushing to satisfy their Auto Enrolment regulatory obligations.

Research suggests that more than half a million firms with between one and 49 employees will seek to employ an independent advisor when choosing a pension. According to the Financial Conduct Authority (FCA) there were 21,258 qualified financial advisers in operation in the UK at the end of July this year. With more than 30,000 companies with between 50 and 250 individuals requiring Auto Enrolment during the next 18 months, this suggests a large gap between the availability of quality advice and expected demand.

Time really is of the essence as leaving it late for Auto Enrolment could mean the difference between getting a good quality provider or being left with no choice and no time to do anything about it.

A number of areas which must be highlighted for attention by employers relates to resource, providers and software.

It cannot be stressed enough that businesses should aim to get their Auto Enrolment ready well before their staging dates in order to be prepared and also to have more choice of providers. Guides are available for employers on selecting a good quality pension scheme for Auto Enrolment, carrying an overall message of ‘keep it simple’.

Some providers (insurance companies) are being careful about who they take on in order to protect both their profits and their reputation. Many are requesting that employers meet strict criteria to prove their profitability to the providers.

For example, Scottish Life has said that it is unlikely to take on companies who are within 12 to 18 months of their staging dates, especially if they have done little preparation to comply with their statutory duties. Others are asking that companies have more than five scheme members each making an average contribution of £750 per year.

Another hurdle that small businesses may find themselves having to deal with is the unexpected cost of Auto Enrolment as advisers begin charging for their services. It is increasingly likely that these costs will rise as employers become more and more desperate to meet their staging date and end up paying over the odds for help (though this cost will probably be less than the penalties they will incur for failing to be ready for their staging date).

No employer should be left without a pension provider since the government introduced NEST (National Employment Savings Trust). It has a statutory obligation to take on any company irrespective of size or workforce demographic.

It is expected that a large number of businesses will call upon the expertise of NEST rather than finding an independent provider. However with only a minimal number of staff to meet expected rise in demand and no obligation to offer any administration, payroll or other essential Auto Enrolment services, there could be problems ahead.

Another potential headache for businesses are the software requirements that must be implemented in order for them to meet reporting and compliance requirements. At the very least, software will need updating and at worst, a whole new software system will need to be implemented.

Employees currently using a pension scheme with existing providers may find that some providers will charge them for implementing their Auto Enrolment software. Others may find that new software systems are included in the overall package provided.

2014 will be an important year as more than half a million businesses approach their staging date. Employers should start preparing their plans 12 months before their staging date and have chosen a scheme and software provider by six months before their staging date.

So don’t delay, start planning today.

At Rickard Keen Financial Services, we can provide advice and guidance on the introduction of a Auto Enrolment scheme for your business and can provide assessment of any existing pension schemes and suggest changes to comply with the new legislation. For more information, please contact us.


Preparing for death and other unfortunate events

Although we do not wish to dwell on the negatives of death or terminal illness, there are advantages to planning ahead and putting necessary arrangements in place for this eventuality.

Having a plan in place that deals with practical and financial aspects of life can save a lot of worry for family and give individuals peace of mind that such matters will be dealt with according to their wishes.


It makes sense to get finances in order to ensure that issues such as inheritance tax (IHT) and assets are dealt with properly and in the most tax efficient way.

There are a number of important areas to consider and some useful things to be aware of:

  • Individuals with personal pensions should ensure that a nomination of beneficiary form has been completed and submitted to the scheme trustees – this would enable a prompt payment to the beneficiary with no need for matters to go through probate.

  • For individuals with an unvested personal pension, it would be wise to leave it unvested as this will enable the pension pot to be paid out in its entirety, tax free and outside the client’s estate for IHT purposes. It is always worth considering the options available, one of which may be paying the monies into a trust rather than to the spouse or other beneficiary

  • For those holding a company pension with death in service benefits, it may be more beneficial to putting lump sums into a trust in order to maximise the benefits for the future financial security of loved ones.

  • Life insurance policies may also be better off in trust to avoid them being included with other assets when determining the value of an estate, which, if over £325,000 (the threshold set for IHT until April 2019) could mean a loss of 40 per cent of the value of the policy.

  • Having an up to date will is very important as it is one way to ensure that assets pass to chosen beneficiaries in the most suitable way possible. It also allows the appointment of guardians and/or trustees for children and management of money left to them. Additionally, without a will, a spouse will not necessarily inherit an entire estate and an unmarried partner (other than a Civil Partner) is not automatically entitled to share in an estate at all.

    A will also litigates the potential effect of inheritance tax and/or care fees on an estate and strikes a balance between expectant beneficiaries and reduces the possibility of a potential dispute after death.

    If a person dies ‘intestate’ (without leaving a valid will disposing of the whole of his or her property) the distribution of any money and other assets among surviving family members is governed by a set of legal intestacy rules which leave a person’s estate to their next of kin in a fixed order – this may not be the order that would have been intended by the deceased.

  • Beneficiaries of a will may choose not to receive their entire share, for example if they are older in years and decide they do not need the inheritance but would like to pass it on to someone else. If this occurs, they could wait until they receive their share of the estate before passing it over to someone else through a deed of variation.

Please contact the Rickard Keen Financial Services team for more information and guidance on these and other matters relating to tax efficient planning.


Planning ahead can ease inheritance tax headaches

HM Revenue and Customs (HMRC) collected more than £3 billion in inheritance tax in 2012-13 – the biggest sum since the beginning of the financial downturn.

According to figures from the Office of National Statistics, families paid £3.1bn in inheritance tax in the last year, up from £2.9bn in 2011-12. However, this is still not as high as the £3.8bn collected in 2007-08.


The increase is being attributed to rising share and property prices, as well as HMRC’s heightened focus on the collection of inheritance tax.

The recovery of the housing market, alongside the freezing of the tax-free threshold until at least 2019, means that more families are more likely to be caught out by inheritance tax.

The threshold currently stands at £325,000 per person, which means that married / civil partnership couples can bequeath up to £650,000 tax-free. Tax is levied at 40 per cent on anything above this threshold.

This makes it all the more important to seek professional advice at the earliest opportunity in order to mitigate any inheritance tax liabilities. Traditionally most IHT mitigation schemes require seven years for the gift to fall outside of one’s estate to work. The client also faces the insecurity of losing access to capital and/or income. For those who want to consider this late in life or who are in poor health, there are other schemes which invest in qualifying companies that qualify for Business Property Relief (BPR) – here the investment could be outside their estate after only two years, whilst maintaining full control of capital and income.

With the right planning, sizeable tax bills can be avoided and in some cases, individuals can even avoid paying anything at all.

In addition to this, many people may have accumulated substantial sums in ISAs which, although tax efficient, will be liable for IHT on their demise unless they act now to avoid this happening.

There is now the option to invest in an ISA that would invest in companies that qualify for BPR and therefore be potentially IHT exempt after two years of continued investment. Qualifying companies tend to be relatively small and pose a high investment risk so it is always worth seeking expert advice before making any commitments.

At Rickard Keen, we can help you make the most of the opportunities available to you, which can make a real difference to your financial future. For more information on the services we provide, please contact us.


Equitable Life payments deadline extended

The government has announced that it is extending its Equitable Life Payments Scheme (ELPS) to mid-2015 and is to run a national advertising campaign to identify more policyholders covered by the scheme.

The scheme, set up to compensate Equitable Life policyholders who suffered financial losses as a result of government maladministration in the regulation of Equitable Life, had been due to close in April 2014.


Policyholders have already received £734 million in payments and latest figures show payments are being made at a rate of more than £1 million a day. The government has allocated up to £1.5 billion to help Equitable Life policyholders.

Announcing the extension on 9 October, HM Treasury said it wanted to maximise the number of people who would eventually receive payments.

It added: “Because the address information the ELPS received from Equitable Life itself is up to 20 years old or non-existent in some cases, the scheme is unable to trace some policyholders. Over 400,000 policies were supplied without contact addresses.

“That is why the government will shortly run a national advertising scheme to encourage any eligible policyholders who have not been contacted by the scheme to come forward, and claim any payment due to them.

“This work will complement the existing tracing methods the scheme uses, which include electronic address checking (of credit histories, the electoral roll and the phone book) and writing to the last known address the scheme holds.

These measures will all help to maximise the number of people who receive their payment from ELPS.”


Spotlight shines on duty to act in savers’ best interests

The Law Commission has launched a consultation designed to strengthen the legal duty of financial professionals to act in the best interests of savers.

The consultation document, published on 22 October, will focus on how fiduciary duties – the legal duty to act solely in another party's interests – apply to investment intermediaries. The consultation will close on 22 January 2014.


It traces a chain of intermediaries extending from an individual saving for a pension to a registered shareholder of a UK company and looks at the obligations of those in the chain to act in the interests of savers.

In trust-based pensions, trustees must act in the interests of savers. The Law Commission’s initial view is that trustees should be mindful that the investment is intended to provide a pension for the saver and not attempt “to make ethically motivated decisions or improve the world in some general sense, possibly at the expense of future pensioners”.

Contract-based pension schemes do not have trustees and there are no clear legal duties on pension providers to act in the best interests of members or review the suitability of investment strategies over time. The commission is seeking responses to its view that the rules requiring contract-based pension providers to regularly reassess investment strategies and their suitability should be clarified and strengthened.

The consultation paper also considers the duties of other intermediaries in the chain, including investment consultants and investment managers. It says that in most cases, the law is uncertain.

David Hertzell, the Law Commissioner leading the project, said: “We think that there may be gaps in the way that investment consultants and custodians are regulated, and ask whether there is a need to review these areas.”

The National Association of Pension Funds said that it welcomed “any efforts to increase the clarity and understanding of the legal obligations arising from fiduciary duties and looks forward to engaging with the Law Commission’s review”.


Government proposes new ‘defined ambition’ pensions

The government have proposed a new defined contribution scheme called the ‘defined ambition’ scheme.

Most employees in the UK will have a defined contribution (DC) pension scheme whereby they save part of their earnings into a fund along with a financial contribution from their employer. This money is then invested in stocks and shares.


With a DC scheme there is no promise of a specific income upon retirement and the size of your pension very much depends on how much you pay into the scheme and how well the investments perform. With these schemes, you may take some of your pension as a cash lump sum and use the rest to arrange an income upon retirement.

The government proposes to bring in ‘defined ambition’ pensions which would be a mix of both defined benefit (DB) and DC schemes. This should ensure that any risk is spread more evenly across employers and employees.

There are three main options for the pensions:

  • new flexible defined benefit schemes
  • adding guarantees to existing defined contribution schemes
  • introducing a new type of pension called collective defined contribution schemes

Employees of large companies whose employer decides to switch from a defined contribution scheme to a flexible defined benefit scheme would see their retirement income tied to their salary so their pension would not be dependent on how well their investments fared on the stock market.

The government has suggested that these changes would appeal to companies that want to offer their employees a quality pension scheme and this may lead on to them offering more generous pension contributions.

Some of these new defined ambition schemes could be arranged in such a way that the scheme pays retirement income directly to its members. This would mean that members would not need to buy an annuity when they retire, however, only employees whose company signs up to a defined ambition scheme would get this option.

Consultation on these new government proposals is open until 19 December. Individuals and companies are invited to respond formally before the publication of a report summarising the responses and the action to be taken. Pensions Minister Steve Webb said if the feedback is positive, he will then look at the necessary legislative changes during this parliament, which ends in May 2015.

At Rickard Keen Financial Services, we can provide advice and guidance on maximising the efficiency of pension arrangements. For more information, please contact us.


Auto Enrolment – are Group Personal Pensions (GPPs) making the grade?

With new UK regulations around increased employer responsibilities through Auto Enrolment, Group Personal Pensions (GPPs) are enjoying increased popularity among employers.

A GPP is a collection of tax efficient personal pension plans which are offered to employees by an employer. Group Personal Pensions (GPPs) are among the most popular forms of workplace pensions. They are usually contract based DC (defined contribution) savings where an employer pays a contribution into each employee’s account.


According to research in 2012, the GPP market grew by 16 per cent while stakeholder pensions saw a decline of 25 per cent since 2006. GPP schemes were seen as a good replacement for final salary schemes which are now few and far between.

One of the benefits of GPPs is that they give employers the cost effective answer they want; low charges and access to a wide range of funds. They are easier to set up and run, with employers not required to sign trust deeds. This works for insurers who are keen to make the process of auto-enrolment as simple as possible. GPPs are also competitive and contain no liability risk.

The roll out of Auto Enrolment back in October 2012 means that many employers who have existing pension schemes in place must ensure they are compliant with the new legislation – and if not, make the relevant changes before their staging date. This includes GPPs.

Compliance involves meeting the guidelines set out by The Pensions Regulator (TPR) which are outlined in a code of practice for all businesses. The code of practice for trust-based DC pensions like GPPs was published in July 2013 and is expected to come into force in November 2013.

These include a number of areas including ensuring compliance with automatic enrolment duties, understanding the pension scheme, awareness of and implementing controls surrounding risk management and meeting administrative and payment goals to deal with contributions to employees.

A recent survey of companies found that around a quarter (25 per cent) revealed that they do not believe their pension schemes are fully compliant with the code.

Approximately 40 per cent of those surveyed reported that they felt that meeting investment requirements was their biggest challenge, closely followed by getting to grips with increased administrative tasks and risk management.

Trustees that are unsure of their scheme’s ability to fully comply are advised to seek professional advice as soon as possible in order to make the necessary changes and comply fully with the code set out by TPR.

The team at Rickard Keen Financial Services we can provide expert advice and guidance on any Auto Enrolment issues including compliance and understanding your new duties. For more information on how we can help, please contact us.


© Rickard Keen Financial Services.
Rickard Keen Financial Services Ltd. is an appointed representative of French & Associates Ltd. which is authorised and regulated by the Financial Conduct Authority.

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