Q. I work in local government and I am a member of the Local Government Pension Scheme. A colleague has told me that the pension scheme is set to change. Is this correct?
A. Yes. Regulations were introduced recently that will govern how benefits are accrued and administered under the Local Government Pension Scheme (“LGPS”), with effect from 1 April 2014. There are a number of changes to how members’ benefits will be calculated and when those benefits will be paid.
Perhaps the most fundamental change is that the new regime provides for pension benefits to accrue on a “career average re-valued earnings” (“CARE”) basis, rather than on a “final salary” basis (as is the case at present). However, the rate at which a member accrues benefits will improve from 1/60th of their final salary to 1/49th of their CARE for each year of pensionable service. Therefore, the change to CARE will, in many instances, mean that members are actually better off under the new scheme. This is likely to be the case for low earners in particular.
The normal retirement age – the point at which a member can begin to receive their pension without actuarial reduction – is set to change also, so that it mirrors the state pension age. Any future increases to the state pension age will be reflected automatically in an increase to the normal pension age for members of the LGPS (in respect of all post-2014 service, regardless of when any change to the state retirement age is implemented).
The average member contribution rate will be 6.5%, although contribution rates will be tiered according to a member’s salary (so that higher earners pay a greater percentage contribution). Arguably one of the most intriguing changes to the LGPS is the introduction of an optional “low-cost” arrangement, whereby members can accrue 50% of the main scheme benefits for 50% of their normal contribution rate.
It is anticipated that additional regulations will be brought forward to provide transitional protection for those members who have accrued benefits in the LGPS prior to 1 April 2014 and, in particular, those members who are close to retirement at that date.
If you require further information in respect of the forthcoming changes to the LGPS, I recommend that you contact the Pensions Office of the relevant LGPS fund and/or a chartered financial planner who specialises in retirement planning and who has experience of advising in respect of public sector pensions.
Q. I recently married. My wife and I are looking to purchase our first home. We want to take this opportunity to review our finances, not only to assess the amount of mortgage we are able to obtain/afford, but to ensure that we are saving enough for our retirement and we that have adequate protection in place. We have received a number of recommendations from friends and family, but it is hard to assess which adviser is most appropriate. Can you offer any guidance as to the factors we ought to consider in order to select an appropriate adviser, please?
A. First, congratulations on your recent marriage and all the best for your life together.
There are a number of factors that you ought to consider when selecting an adviser. It almost goes without saying that you ought to appoint someone who you trust to act in your best interests at all times and with whom you can envisage having a lasting relationship. There are a few factors that you ought to consider – and qualities that you should look for – when seeking to identify such an adviser.
Most important of these, in my opinion, is to ensure that you select an “independent” adviser, as opposed to a “restricted” one. An independent adviser must provide advice on products and services from the whole of the market and will need to provide unbiased and unrestricted advice based upon a comprehensive and fair analysis of that market.
In contrast, a restricted adviser may provide advice on a restricted number or type of products rather than from the whole of the market. For example, when advising a client they may have elected to exclude certain products or services from their considerations, e.g. advice in respect of pensions or EISs. The client cannot be certain therefore that the product or service recommended is the most appropriate one for them.
If an adviser has not confirmed to you that they are “independent”, chances are that they are restricted. However, in those circumstances, an adviser is required to confirm the type of advice they are offering before any such advice can even be provided. If this information has not been provided to you, this ought to set alarm bells ringing.
I recommend also that you seek to instruct an independent adviser who is “chartered”. This is a good indication of the quality of the advice you are likely to receive from an adviser. If a firm is Chartered it confirms that its advisers have attained high levels of qualifications, that the firm subscribes to the membership conditions of the Chartered Insurance Institute, and adheres to its Code of Ethics. Fewer than 2% of financial advisory firms have attained Chartered status, so selecting a Chartered firm ought to assure you that you are dealing with a company at the pinnacle of the financial services profession.
It is important also to ascertain whether a prospective adviser specialises in a particular area of advice. In this instance, I recommend that you seek to appoint an adviser who specialises in advising individuals/private clients, as they will be familiar with the issues likely to be of greatest concern to you. You ought also to consider the qualifications held by a prospective adviser. For example, in appointing a adviser who specialises in assisting individuals, one would expect that they advanced qualifications in taxation, protection and/or retirement planning
In addition, you ought to ensure also that a prospective adviser’s fee charging model is clear, transparent and disclosed at the outset. This ought to be accompanied by a service level proposition, so that you can be certain what the prospective adviser will do for you, how they will do it, how long it will take them and, importantly, how much it will cost you.
Finally, you may wish to consider the financial strength of the prospective adviser, their complaints history and the extent of their professional indemnity insurance. If you are able to conclude that an adviser has a financially sound business, they have few complaints and carry adequate insurance, you ought to be confident that the adviser has a sustainable business and that they will be around to advise you well into the future (as opposed to being “here today, gone tomorrow”).
If you are unable to obtain satisfactory answers to these questions or, more typically, a prospective adviser seeks to avoid providing the information requested, I suggest that the prospective adviser is not one with whom you ought to entrust your financial security and you ought to move on to identify an adviser who meets all of the requirements above.
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
