Q. I caught the end of a radio segment recently that seemed to be stating that the rise in the state pension age was being brought forward. Is the correct and, if so, can you elaborate please?
A. Certainly. It has been known for some time that the state pension age will rise to 66 in 2020 and 67 in 2028. The Chancellor announced recently that the rise in the state pension age to 68 will be brought forward from 2046 to the mid-2030s. It will then rise to 69 by the late 2040s.
Furthermore, the Pensions Bill provides for a statutory review of the state pension age every five years, in order to assess whether further increases are justified.
The measures are designed to take account of improving life expectancy and to ensure that “the basic state pension is affordable in the future”. The Chancellor stated that British citizens’ should not expect to spend more than one-third of their adult lives in retirement.
Q. I read with interest last week’s Q&A regarding the taxation of trusts. My wife and I have been giving some consideration to placing a significant proportion of our assets into trust for the benefit of our grandchildren. However, we are keen to ensure that they cannot “blow” the funds when they reach 18 years of age. Is it possible to restrict their ability to spend the funds and, if so, is the use of a trust for this purpose a good idea?
A. First, I can appreciate why you and your wife might wish to consider financially supporting your grandchildren. In my experience, an increasing number of grandparents are seeking to establish trusts to provide for their grandchildren, due in particular to the increasing costs of higher education and the costs of becoming a homeowner.
I can understand also why you might wish to limit your grandchildren’s ability to access the funds you have set aside for them. It is possible to restrict a person’s ability to spend funds held within a trust, but you must take care to ensure that you establish the correct type of trust in the first instance and that you are clear as to the level of benefits to be provided and when a beneficiary can access those funds. It is important also to ensure that the powers of the trustees are clear and drafted in such a way as to ensure that your intentions are realised.
If you were to establish a discretionary trust, this would enable the trustees to make ad hoc payments to beneficiaries to meet certain expenses of which you approve (such as university fees, a house purchase or a wedding dress for a granddaughter). However, the use of a discretionary trust prevents the beneficiaries from owning the trust’s assets absolutely and thus “blowing” the funds upon reaching majority.
Whether it is appropriate for you and your wife to transfer assets into trust will depend upon your personal financial circumstances. I recommend therefore that you seek assistance from a chartered financial planner, who specialises in trusts and estate planning. They will consider your financial circumstances in their totality, your future requirements and whether it is sensible for you to put assets beyond your reach.
If, having sought that advice, you wish to establish a trust for the benefit of your grandchildren, you should consult a solicitor (who specialises in tax and trusts) to ensure that that trust is established correctly and that it reflects accurately your wishes.
Q. I was gifted some money recently by my gran, which I wish to invest. A friend has recommended that I invest in an OEIC or a unit trust, but I don’t understand the differences between the two. Can you offer any assistance, please?
A. Yes. The first unit trust was created in the UK in 1931 and was designed to mimic mutual funds (which were prevalent in the USA). In contrast, OEICs (pronounced oiks) were not introduced until 2001. Both are forms of open-ended investments, which means that the funds are divided into units of equal value, which vary in price depending upon their net asset value.
The main difference between the two investments is that a unit trust is established under trust and is administered by trustees. Investments are made and realised by buying and selling units in the trust. However, an OEIC is a public limited company, whose shares are traded on a recognised exchange.
Whilst there are technical, legal and structural differences between the two types of investments, the practical implications are minimal. Both forms of investment afford an individual investor the opportunity to invest in a collective investment scheme and both are treated the same for tax purposes.
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
