Q. I am a member of the NHS Pension scheme, and I am 56. I intend to retire when I am 60, but I have a personal pension plan which I want to draw upon next year, when the rules governing personal pensions change. Is there anything I should be aware of?
A. You could draw your personal pension now, if you wish, as you are over age 55. You could either draw the lump sum of 25% of the fund, and then the two main choices with the balance of the fund are to buy an annuity, which remains the only option to guarantee an income for life, or “income drawdown”. Under drawdown your fund remains invested, and you draw taxable income up to a limited amount each year. The government proposes to allow people to exceed this limit from April 2015, however doing so has several effects. Firstly, you will deplete the fund faster, meaning it will not last as long in your retirement. The income you draw will be taxed at your marginal rate, which is likely to be higher while you are still working. The other effect, announced recently, is that your Annual Allowance, the amount of pension you are allowed to accrue in the NHS pension scheme, will be reduced from £40,000 each year to £10,000. For a member of the 1995 NHS Pension scheme this is equivalent to just £526pa extra pension over inflation, rather than £2,105pa currently. I strongly recommend you take advice from a Chartered Financial Planner and consider the full consequences before taking advantage of the new flexibility, as it could mean having to pay a lot more tax!
Q. My boyfriend and I are buying a house together, and want to put in place life cover to ensure that the mortgage can be repaid if either of us were to die. Is it best to have one joint life policy or two single life plans?
A. The cost of two single life policies is often not much different to a joint policy, and has the advantage that if both of you were to die, there would be two pay-outs. It is also means that if you separate in future, it is more straightforward. However it is important to ensure that if you set the policies up in this way, the sum assured is paid to the person you intend it to go to. If you die without making a will, the default beneficiaries, if you are unmarried and do not have children, would be your parents, or possibly brothers and sisters. They would not necessarily have to use the proceeds to repay the mortgage. The answer can be to write the policies in trust for the benefit of each other, and/or ensure that you write a will. I would recommend you consult a solicitor, who may also suggest a co-habitation agreement. Whilst this may seem like additional expense at a time when you need every penny, it can save a great deal of heartache later.
Q. I have been dealing with the winding up of my uncle’s estate, who died earlier this year, as the executor named in his will. He was single and had never married. There are several beneficiaries to his estate including me. I thought his estate was quite simple with a total value of about £150,000. I have discovered that he placed an investment into a trust many years ago which is worth about £30,000 and whilst the beneficiaries are the same as named in his will he is the only trustee. How do I deal with this and are there likely to be any tax implications?
A. First of all assuming the trust was made in England or Wales as executor to your uncle’s estate you would be responsible for dealing with the trust. Based on the fact that you have told me that your uncles estate is worth £150,000 it falls well short of the Inheritance Tax (IHT) threshold of £325,000 so unless he had made substantial gifts within the last 7 years it is unlikely that IHT would be an issue. You say that the trust he created was done many years ago and so if this was more than 7 years ago it should fall outside of his estate for IHT purposes anyway. Depending on what type of investments are held within the trust it is possible that there may be income or capital gains tax issues on selling the investments, and you will need to complete a trust tax return so before you do anything I would suggest that you take professional advice from an Accountant, Solicitor or Independent Financial Adviser.
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
