Q. I am approaching retirement and I have received a letter from my pension provider detailing the level of income I am likely to receive in retirement (depending upon which of the options, detailed in their letter, I prefer). I had intended simply to take the retirement income offered by my existing pension provider; however, I have noticed a significant amount of press coverage recently that seems to discourage people from taking this option. Can you offer any assistance, please?
A. You are correct that the “at retirement” market has been the subject of a significant amount of press coverage in recent weeks. In part, this is due to the Financial Conduct Authority (“FCA”) commencing a 12-month review of competition in the annuities market.
Many UK workers who save for their retirement do so through a Personal Pension Plan (that is often sponsored by the employer). The money that they accumulate during their working life is, often, used to purchase an annuity (a contract with an insurer whereby the insurer receives the individual’s pension savings and undertakes to provide an income for the remainder of the individual’s life).
The review by the FCA has suggested that 4 out of every 5 people who purchase an annuity with the same insurer with whom they have accumulated their retirement savings, would have secured a greater retirement income (in some cases, a significantly higher income) if they had “shopped around” and purchased the annuity with an alternative provider. This is no surprise to us, as we have known this for many years.
I recommend therefore that you seek advice from a dedicated professional. The decisions you make at retirement regarding how to receive your retirement income are some of the most important of your lifetime and can have a significant affect upon the level of income you receive in retirement.
I suggest that you seek assistance from a chartered financial planner who specialises in at retirement planning. I recommend also that you ensure that that adviser is Independent and able to consider all providers for you.
Q. I have heard a rumour that two of the main high street banks (one of whom I bank with) will have to relocate to England in the event that Scotland votes in favour of independence. Is this correct and, if so, how is it likely to impact upon me?
A. It has been reported that two major high street banks, both of whom are based in Edinburgh, will have to change their domicile to England in the event that Scotland votes in favour of independence.
The reason for this is an EU law – introduced following the collapse of BCCI in the early 1990s – that requires banks to be domiciled and regulated in the country where they have the greatest proportion of their operations.
Both banks in question have the majority of their UK operations in England, Wales and Northern Ireland, so may be forced to shift their domicile out of an independent Scotland, as the EU law stipulate that a bank must have its head office in the same member state as its registered office.
One of the banks warned in its annual report that Scottish independence “could have a material impact on compliance costs, the tax position and costs of funding the group” although it stated also that the relevant law is relatively untested.
However, regardless of whether Scotland votes in favour of independence and, as a consequence, the banks in question are obliged to change their domicile, it is unlikely to have a material impact upon you and the operation of your banks accounts.
Q. I have read with interest a number of answers you have provided to questions in recent months that have considered the use of trusts and I had been considering establishing a discretionary trust, for the benefit of my grandchildren in the event that I die in service. However, a good friend of mine has said that they are obsolete, as the previous government changed the tax system so as to make them unattractive. What do you think?
A. First, it would be inappropriate for me to recommend that you utilise a trust, as part of an effective tax planning strategy, without understanding your personal financial circumstances (and, in any event, this would not be the appropriate forum for such a recommendation).
Your friend is correct that the previous government made significant changes to the tax system as it applies to trusts. In particular, the Finance Act 2006 removed the availability of the “accumulation and maintenance trust” and the majority of lifetime trusts became chargeable transfers for the purpose of inheritance tax. Also, the introduction of the ability for spouses and civil partners to transfer their nil-rate bands between one another meant that the popular “nil-rate band discretionary trust” became obsolete.
However, despite this, there remain a number of reasons why the use of a trust may be a relevant consideration in the appropriate circumstances. For example, a trust can be an effective means of making a gift whilst protecting the recipients and/or trust assets (i.e. in the event of a relationship breakdown), it can make provision for unknown beneficiaries (such as unborn grandchildren) and can be an effective means of mitigating a potential tax liability (for example, an outright gift may trigger a charge to capital gains tax for the donor, whereas the use of a relevant property trust may avoid such a charge being payable immediately).
I recommend therefore that, in the event that you wish to structure you financial affairs in a tax-efficient manner, you seek advice from a solicitor and/or a chartered financial planner who specialises in tax, trusts and estate planning. Such a professional will consider your circumstances and is best placed to advise you whether a trust is appropriate.
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
