Q. I am approaching retirement but I do not feel ready to give up working just yet. I had planned to continue working beyond my normal retirement age, deferring both my occupational and state pensions in order to receive a higher pension when I do decide to retire. However, my wife has suggested that, due to a change in the way in which the state pension is administered, it might not be in my best interests to defer my state pension. Can you offer any assistance, please?
A. Yes. At present, there are two ways in which a person can benefit from deferring their state pension beyond their normal retirement age. A person may chose to receive an increased pension for each year of deferment or, alternatively, a lump sum payment.
However, the Pensions Minister, Steve Webb, has announced that the government intends to revise the benefits provided to people who defer taking their state pension. The forthcoming Pensions Bill will, if enacted, remove the lump sum benefit and reduce the annual uplift.
Whether it will be in your best interests to defer taking your state pension will depend upon a number of factors. I recommend therefore that you seek advice from a chartered financial planner, who specialises in at retirement planning, before making a decision.
Q. I am one of four director/shareholders in my business. I am keen to ensure that, should one of us die or suffer a serious illness, the remaining director/shareholders retain control and ownership of the business (and shares are not inherited by people who know little about our business and the industry in which it operates). Is it possible to insure against such an eventuality?
A. Yes. Each shareholder could take out a life assurance policy (on their own life) which is written in trust for the other shareholders. In the event of the insured’s death (or critical illness, if that is covered also) this provides the insured’s fellow director/shareholders with the funds with which to purchase his shares.
It is essential that a cross-option agreement – providing each party an option to buy or sell the shares at the appropriate time – is entered into. It is important also that the relevant insurance policies are written into trust for the fellow director/shareholders. It is not uncommon for people to mistakenly provide that the life assurance benefit be paid to their spouse/family. However they are not the people who require the benefit – it is the remaining shareholders who require the funds with which to purchase the ill or deceased director’s shares (a spouse will, ordinarily and unless a relevant will provides otherwise, inherit the shares and therefore will receive the insurance proceeds in the event that the shares, inherited from the deceased, are purchased by the remaining director/shareholders).
There are other, less common, alternatives available also. Ensuring that appropriate shareholder protection is in place is often difficult and mistakes can be made (for example, by providing the insurance proceeds to the wrong person). I recommend therefore that you seek advice from a chartered financial planner, who specialises in advising companies, before proceeding.
Q. I am the HR Director of a medium-sized employer. I am making preparations for our “staging date” in October of this year, when we will have to comply with the requirements of the auto enrolment regime. Our usual benefit consultant has warned us that we are at a significantly greater risk of being scrutinised by the Pensions Regulator due to the industry in which we operate (manufacturing). Is this correct?
A. Possibly. The Pensions Regulator (the body responsible for monitoring companies’ compliance with the auto enrolment regime) is expanding significantly its compliance unit in order to enable it to “proactively investigate” companies and industries that are more likely to fail to comply with the obligations imposed upon them.
Speaking at a recent pensions industry conference, TPR’s head of industry liaison announced that TPR would identify its targets based upon the risk and potential impact of non-compliance. He stated that, where TPR has reasonable suspicion or grounds to investigate, TPR would audit companies – demanding sight of records going back up to six years – and would not hesitate to use its powers to impose fines (of up to £10,000 per day for larger employers and £5,000 per day for smaller employers) or pursue a criminal prosecution.
However, TPR has not identified specific industries or sectors that it considers to be of the greatest risk. Instead, it has acknowledged that it will respond to evidence suggesting that employees in a particular company or industry are being enrolled automatically at a rate significantly below the national average.
The safest means therefore to ensure that TPR does not audit your company or, if it does, that that audit is successful is to ensure that you comply with your obligations under the auto enrolment regime and, in particular, that you communicate with your employees in a clear and appropriate manner.
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
