Q. I am a member of the University Superannuation Scheme, which has recently been changed. Part of my contribution is now going to go into an “Investment Builder” plan, which is invested in a fund I have to choose. I also have the option to make an extra contribution of 1% of salary, which will be matched by the University. Is this worth selecting, and what fund should I choose?
A. The USS now has two parts to it effective from 1st October 2016. Salary up to £55,000pa attracts a “Career Revalued Benefit” of 1/75 of salary in each year of membership, with a lump sum of 3 times this level. Contributions relating to earnings over this level are paid into the Investment Builder part of the scheme, where your contributions buy units in one or more funds. Unless you are likely to be subject to both Lifetime Allowance (Total benefits over £1m) and Annual Allowance (based on USS, this will only affect those with salary over £125,000 or so) it is likely to be worth making the extra contribution if you can afford to lock the money up until retirement age. You can make further extra contributions, but these do not attract the matching contribution from your employer. When it comes to investment, the best returns over the longer term are likely to come from funds investing in equities. However these can fluctuate over shorter periods and if you are due to retire soon, and are relying on the money, a more secure fund might be better. The new USS fund choices includes a “Lifestyle” option, where funds start of in the riskier type of fund, where there is longer to retirement for the fund to recover from the shorter term ups and downs, and the fund is gradually moved into more secure funds closer to retirement, specifically the last ten years. This is likely to suit most people and has been chosen as the “default” option for those who make no decision. However, there are some individual funds including ethical investment options and a Sharia fund for those who want to make their own choices. An independent financial adviser can help you find the option for your circumstances and risk profile if you wish, but have a look at the USS literature first.
Q. I am setting up a company with some colleagues and would like some advice as to what we need to consider in the event of one of the directors dying. What would you suggest?
A. This is in fact a very complex area and the implications of getting it wrong can be catastrophic, so you need good advice. Fundamentally, however, there are four ingredients. Firstly you need to have wills in place that deal with the shares upon death. Secondly, there then needs to be an appropriate well drafted agreement for the sale and purchase of the shares in the event of any of the directors’ death. Thirdly, life assurance is likely to be required to ensure that there is money available for the surviving shareholders to purchase the deceased’s shares. Finally there needs to be a trust arrangement for the life insurance to ensure that the money goes to the appropriate people and is outside of the deceased’s estate for inheritance tax purposes.
You will need to be guided through this by an independent financial adviser who specialises in corporate financial planning, as getting it wrong can lead to significant inheritance tax for the deceased’s estate and for the potential of the surviving directors to end up sharing a seat on the board with the beneficiary of the deceased’s estate.
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.
