Rickard Keen


Rickard Keen Financial Services – Newsletter, September 2014

Pension changes: an update

On 21 July 2014, Chancellor George Osborne confirmed that what he described as “the most radical change to how people can access their pension in almost a century” would take effect from April 2015, with the government introducing new legislation during the autumn to deliver the reforms.

The changes, first announced in the March 2014 Budget, mean that everyone over the age of 55 with defined contribution pension savings will be able to access them as they wish, regardless of their total pension wealth, subject to their marginal tax rate from April next year.

Mr Osborne’s July statement came as the government published its response to a consultation on the planned changes, which he said had been “overwhelmingly” positively received.

The following Q&A briefing provides a general overview of the pension changes but Mr Osborne also confirmed on 21 July that:

  • a new override will be introduced to ensure that pension schemes are able to offer members flexible access to their savings and tax rules will be amended to allow providers to develop new retirement income products tailored to the needs of individual consumers
  • the government will continue to allow transfers from private sector defined benefit pension schemes into defined contribution schemes, excluding pensions already in payment. Transfers from funded public service defined benefit schemes to defined contribution schemes will also be allowed
  • the government will consult further on allowing full or partial withdrawals from a defined benefit scheme without the saver first needing to transfer to a defined contribution scheme.

What do the pension changes mean for me?

Very simply, the reforms mean that from April 2015 you will be able to access your defined contribution pension savings as you wish from the point of retirement (from age 55) with no obligation to buy an annuity. Instead, you will have complete freedom to draw down as much or as little of your pension pot as you wish, anytime you wish.

What will my pension options be?

The new arrangements mean that from April 2015, you will have the following options:

  • buying an annuity
  • taking out all your pension savings in a lump sum
  • keeping your pension pot invested and accessing it over time.

Will I pay a lot of tax if I take money out of my pension?

Under the current tax system, you can take a quarter of your pension tax-free on retirement but you will pay 55 per cent if you choose to withdraw all your defined contribution pension savings at the point of retirement.

From April 2015, you’ll still be able to take a quarter of your pension pot tax-free on retirement, as at present.

But instead of paying 55 per cent tax on the rest, any other funds taken out will be taxed at normal marginal rates of income tax – 20 per cent for most pensioners.

However, if you take out a substantial lump sum in the same year tax year that you are still earning, you could find that your income would push you into the higher, or possibly additional, rate band for income tax.

What happens if I retire before April 2015?

New rules were introduced from 27 March 2014 to give people greater and choice over how to access defined contribution pension now. The changes include:

  • the amount someone can take of their total pension savings as a lump sum has increased from £18,000 to £30,000 if they are aged 60 or over (reducing to 55 from April 2015)
  • the size of a small pension pot that can be taken as a  lump sum, regardless of total pension wealth, has risen from £2,000 to £10,000 if they are 60 or over (reducing to 55 from April 2015)
  • the number of personal pension pots that can be taken as a lump sum under the small pot rules, rose from two to three.

While the new pensions regime will offer new freedoms, people approaching retirement will face more complex choices about the best way forward. Rickard Keen Financial Services can provide expert advice on all aspects of pensions planning – for more information, please contact us.

State pensions deferral benefits to be slashed

The government has announced a significant change to the financial benefits of deferring the State pension.

It is not mandatory to claim the State pension when it becomes due. Delaying drawing the pension currently means that the pension paid increases by 10.4 per cent for every full year that the claim is deferred.

But on 22 July, Pensions Minister Steve Webb announced that for anyone reaching State pension age on or after 6 April 2016 and who chooses to defer their State pension, the rate of increase will reduce to 5.8 per cent for each full year – an increment rate he described as “actuarially fair”.

The changes mean that someone receiving the new State pension of an estimated £155 a week– which will take effect from 6 April 2016 – would see their annual pension increase by £467 if they deferred for a year, in comparison to £838 at the current 10.4 per cent rate. It is also estimated that the move will save the government £300 million a year by 2030.

Hargreaves Lansdown’s head of pensions research Tom McPhail said: "“With the population living longer and more people staying in the workforce later, it is hardly surprising that the government has chosen to cut back on this generous rate of return".

“The reduced rate of increase now means that someone choosing to defer for one year will now have to live for around 19 years to benefit from the decision; this compares to only around ten years under the current rate of increase of 10.4 per cent. This might still be an attractive proposition for someone in good health with substantial private savings or who is willing to carry on working.”

Ongoing changes to pension rules and the greatly enhanced accessibility to funds that will take effect from April 2015 are likely to create new challenges for people thinking about retirement options, which is why seeking expert advice is essential.

If you are approaching retirement, and need to make decisions about maximising the value of your pension savings, Rickard Keen Financial Services’ advisers will help you make informed decisions about the best way forward.

If retirement is still some way off, we can review your current pension arrangements and what they are forecast to provide, establish the contributions you need to make to achieve your preferred income and help you put in place a plan for a sound financial future. For more information, please contact us.

ISAs just got NISA

The world of investments can seem confusing if you’re not an expert. But there some aspects of investment that make sense to everyone.

One of the simplest tax-efficient investments is the Individual Savings Account or ISA, which allow you to invest up to a certain amount each year without paying income tax on the interest or any increase in the value of the investment.

From 1 July this year, ISAs were rebranded as New ISAs, or NISAs, reflecting a significant increase in investment limits and greater flexibility.

You can now split the amount you pay into a NISA between a cash NISA and a stocks and shares NISA as you wish, up a new overall annual NISA limit of £15,000. Previously, it was only possible to save up to half the annual ISA subscription limit into a cash ISA. 

NISAs are just one of many investment options that can help you get more from your money.

At Rickard Keen Financial Services, we understand that the choices on offer can seem confusing, which is why our expert advice is tailored to helping you make decisions about saving and investment options that are right for your circumstances, goals and tolerance to risk.

Whether you are looking to invest as part of a monthly savings plan or would prefer to invest a substantial capital lump sum, we will work with you to identify the best way forward, tailoring your investment portfolio to your individual requirements. For more information, please contact us.

Brits benefit from £3bn in insurance payouts

New figures have revealed that thousands of people benefited from more than £3 billion paid out following a serious illness, injury or death last year.

The latest data from the Association of British Insurers (ABI) revealed that in 2013, £3.1 billion was paid to 99,000 policyholders or their families.

Helen White, the ABI’s head of protection, said: "The insurance industry pays out £8.4 million every day in individual life, critical illness and income protection insurance claims, making a real difference to people’s lives at some of the most difficult of times, with 97 per cent of all claims paid in 2013.”

The ABI’s analysis of insurance claims paid in 2013 also revealed that:

  • the average claim paid in 2013 for individual income protection policies was £11,500, paying out on average for 230 weeks – more than four years – to people unable to work
  • the average pay-out on a term life insurance policy (cover for a specific period of time) was £51,500 with 98.4 per cent of claims paid. Total claim payments were £1.3 billion
  • for whole life insurance, the average claim payment was £10,300 with 99.9 per cent of claims paid. In total, £449 million was paid out
  • the average pay-out on a critical illness insurance policy was £60,400
  • total permanent disability claims averaged £66,700.

At Rickard Keen Financial Services, we can provide expert advice to help clients plan and prepare for the future, by providing offering advice on a wide range of protection products.

We will review existing arrangements to help you decide on the right level of insurance and the appropriate types of cover, including life assurance, critical illness cover and payment protection cover, to meet mortgage repayments if you suffer an accident, sickness or unemployment or are unable to work. For more information, please contact us.

Thousands Helped to Buy

Latest figures from the Council of Mortgage Lenders (CML) have shown that the rate of increase in lending to first time buyers is outstripping that for other purchasers.

The figures, released on 11 August, showed there were 28,600 first-time buyer loans in June, up by seven per cent on May and by 19 per cent on the same month last year. In contrast, although there were 31,900 loans to home movers, the increase on May was only four per cent and 11 per cent on June 2013.

Paul Smee, director general of the CML, said that the impact of tougher affordability checks by lenders on mortgage applicants – introduced as a result of the Mortgage Market Review (MMR) implemented earlier this year – was not hitting borrowers as hard as had been feared.

He said: “We now feel confident that, as we would hope, the MMR effect is more gentle dampener than hard brake.”

Meanwhile, new government statistics have shown that thousands of purchasers have been helped by its Help to Buy initiative.

Data published on 31 July revealed that more than 32,500 purchasers have bought new build homes through Help to Buy equity loans – of up to 20 per cent of the property value – and NewBuy options, with a further 7,300 sales supported by the Help to Buy mortgage guarantee for new build and older homes. More than 80 per cent of sales have involved first time buyers.

Help to Buy equity loans are available to first time buyers and home movers with a deposit of at least five per cent of the value of new build homes with a purchase price of up to £600,000. Mortgage guarantees of up to 15 per cent are available on new build and older homes worth up to £600,000, where the buyer is contributing at least five per cent of the property price as a deposit.

At Rickard Keen Financial Services, our experienced mortgage advisors are ideally placed to help find the right mortgage for you. We have access to dozens of different lenders, to maximise your options, and can also assist with Help to Buy purchases. For more information, please contact us.

IHT total hits six-year high

The amount families are paying in inheritance tax (IHT) has hit its highest level in six years, according to new government figures.

Data released by the Office for National Statistics on 31 July showed that inheritance tax receipts totalled £3.4 billion in 2013-14, up by 8.6 per cent on the receipts figure for 2012-13.

The 2013-14 IHT total is the highest since the £3.8 billion collected in the 2007-08 financial year.

The report setting out the figures said: “Residential property makes up approximately a third of the total value of taxpaying estates and the ongoing rise in property prices has contributed to a rise in overall tax take.

“At the same time as the average value of estates rises, an increasing number of estates will now be valued over the IHT threshold (or nil rate band), which has been frozen at £325,000 since April 2009.”

Inheritance tax is levied at 40 per cent on the value of estates above the £325,000 threshold and, as the new report acknowledges, the value of a home – or a future inheritance – could easily push someone with fairly modest assets into the IHT bracket.

Rickard Keen Financial Services offers comprehensive estate planning services, which include drawing up a tax-efficient will and maximising opportunities to reduce inheritance tax, for example through the exemption on annual and lifetime gifts.

We can also advise on the use of trusts as a tax-efficient way to pass assets on to protect assets and pass them on to beneficiaries. For more information, please contact us.



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