Q. I am becoming a little frustrated with the lack of action from my current financial adviser. I have a Final Salary Pension scheme from the Local Government and I want to transfer this to a personal pension so I can access the new flexibilities and cash it in. Although he has been my adviser for many years he says he simply can’t help and he has a responsibility to me to make sure I don’t spend my retirement income. Whilst I appreciate his sentiment, it’s my money so why can’t I do what I want with it?
A. The simple answer is “of course it is your money and of course you should be able to do what you want with it”. That being said however, if you are asking for professional advice and your adviser is advising you not to transfer, that is likely to be because the value you get on transfer may not reflect the valuable benefits you give up and he has a duty to advise you in that way. Your adviser could treat you as an “Insistent Client“ i.e. where you go against his advice, but even this is not free of risk for the adviser, and there is no guarantee that they would be immune from any future complaint you wished to bring.
Advisers are currently “between a rock and a hard place”. On the one hand the government is saying “go spend your pensions on Lamborghinis” and on the other the regulator is saying “we will crucify you if you dare let clients spend money they need later in life”.
This is a thorny problem at the moment and one which looks like will get bigger as time goes on. Hopefully clear guidance will be issued before too long to help both adviser and client alike.
Q. I am 72, and I have a pension drawdown plan. I understand that the tax charge on death has now been abolished. What has changed?
A. Before April, in the event of your death, the drawdown fund could either be paid out as a lump sum, less a 55% tax charge, or be used to pay a taxable income to any dependant you left behind. Usually this would be a spouse or other partner, as it is relatively unusual for children to be financially dependant once someone is old enough to have funds in drawdown. There are a number of changes in the new rules. Firstly, an income can be paid to anyone you have nominated, not just a financial dependant. Your nominated beneficiary/ beneficiaries can also nominate a successor on their own death, so the fund can pass down the generations. Alternatively, it can still be paid out as a lump sum. The other big change is to the taxation of the benefit. If you die before the age of 75, any lump sum or income paid out is now free from tax. However if you die at or after age 75, the lump sum or income is subject to the recipient’s marginal rate of income tax. If it is a large fund, therefore, it is worth ensuring that the correct beneficiaries have been nominated, and that they have the flexibility to draw the fund as an income, in order to be able to manage the potential tax liability. I recommend that you discuss this with your financial adviser at your next review, and ensure that the nominations and expression of wishes are up to date. If your adviser does not offer a proper review process to advise on this, find a chartered financial planner who can offer this service.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
0191 217 3340
