Your Money Queries – 27th May

Q. I am in my mid-fifties and I have recently inherited a significant amount of money following the death of my mother. I have decided to purchase an investment bond, as I have no immediate need for the money and I would like to provide for my grandchildren’s’ further education. A friend has suggested that I ought to use as many segments as possible. I don’t understand what he means and I really don’t want to increase the number of bonds I hold (and therefore the amount of paperwork with which I have to deal). Can you offer any assistance, please?

A. An investment bond is technically a life assurance policy for tax purposes, meaning it has a specific tax regime when money is withdrawn.
Whilst it is possible to make partial withdrawals from the policy, if these exceed a level of 5% of the initial investment per year, any excess is taxed as income, whether the plan is in profit or not.

It can be much more tax efficient to make a full surrender of a “segment” policy, but this is only possible if the initial investment has been set up as a number of segments at the outset. The paperwork burden need not be much greater than ticking the appropriate box on the application form.

A further advantage is that any tax liability would be at the marginal rate of the owner of the policy or segment at the date of surrender. It is therefore possible to assign ownership of individual segments to your grandchildren prior to surrender, to use their tax allowances at that time. This is possible if they are over 18 at the time, making it ideal for further education planning as most students are basic rate taxpayers at most.

A segmented bond therefore gives you much greater flexibility later on, but the choice of provider is important as not all segmented policies offer full flexibility. I would strongly recommend consulting a chartered financial planner specialising in investment for advice in this matter.

As an aside, as you have recently inherited the money, have you considered a deed of variation of the will of the person who has left you the money, to create a trust. This would keep the fund out of your own estate for inheritance tax, but must be done within two years of the death of the person concerned. For advice on the pros and cons of such an arrangement, I would recommend a solicitor specialising in probate, such as a member of the Society of Trust and Estate Practitioners.

Q. I am a member of my employer’s group personal pension. I wish to make a complaint regarding the administration of my pension, as contributions that were deducted from my salary were not credited to my pension in a timely manner. I had assumed that my complaint should be addressed to the Pensions Regulator, but a friend has told me that to do so would be inappropriate. Can you offer some assistance, please?

A. Yes. First, a pension contribution that is deducted from your salary must be paid across to the pension provider no later than the 19th day of the month following the month in which it was deducted. Therefore, if, for example, a pension contribution was deducted from your May salary, it must be received by the pension provider (and applied to you pension) no later than the 19th of June.

You ought to be forgiven for assuming that the Pensions Regulator (“TPR”) is the correct entity to whom you ought to address your complaint. However, regardless of whether your employer or the scheme’s insurer is at fault for failing to apply your pension contributions in a timely fashion, it would be inappropriate for you to address your complaint to TPR. TPR is responsible for protecting occupational pensions and overseeing companies’ compliance with the new “auto-enrolment” regime. However, responsibility for regulating personal pensions, including group personal pension schemes, rests with the Financial Conduct Authority (“FCA”).

If you wish to make a complaint regarding the administration of your group personal pension, in the first instance you should direct your complaint to the insurer and/or your employer in writing (depending upon who you consider to be at fault). If you do not receive a satisfactory response, I suggest that you direct your complaint to the Pensions Advisory Service (“TPAS”). TPAS is an independent, non-profit organization that provides free advice and guidance regarding occupational and personal pensions and can seek to resolve disputes regarding those pensions. TPAS’ services are free to the end user and therefore you will not be charged if you seek their assistance. Further information regarding their services can be found at www.pensionsadvisoryservice.org.uk/when-things-go-wrong.

If your complaint is not resolved following TPAS’ intervention (which, in my opinion, is unlikely provided that your complaint is a valid one), then you may direct your complain to the Pensions Ombudsman. There is an expectation that you will have sought TPAS’ assistance in resolving your complaint before you direct it to the Pensions Ombudsman. Further information regarding the Pensions Ombudsman’s powers and processes can be found at www.pensions-ombudsman.org.uk.

The Work and Pensions select committee recommended recently that the number of institutions responsible for regulating pensions and dealing with such complaints is reduced and that all relevant powers be consolidated within one regulatory body (the Pensions Regulator being the most suitable such body), suggesting that the current system results in “gaps” in the regulatory framework.. However, the Pensions Minster, Steve Webb, has stated that the coalition government will not bring about such changes to the regulatory framework (particularly given the recent fundamental changes introduced by the introduction of the FCA and the Prudential Regulation Authority, both of which were born out of the now disbanded Financial Services Authority).

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.

Rutherford Wilkinson Ltd is authorised and regulated by the Financial Conduct Authority.