Your Money Queries – 24th June

Q. I have heard a rumour that the government is set to reintroduce the married couples’ allowance. Is this correct?

A. Not exactly. David Gauke, the Treasury Minister, has written a letter to Conservative MPs insisting that tax breaks for married couples will be introduced before the next election (meaning that, if it is to happen, it will do so within the next two years).

The policy, which was originally outlined in the 2010 Conservative manifesto, would allow individuals not using all of their personal tax allowance to transfer up to £750 of this unused allowance to their spouse or civil partner, reducing the latter’s tax bill by up to £150.
However, it is anticipated that the tax-break will only apply to couples where the higher-income member is a basic rate taxpayer. This will mean that approximately 4 million out of the UK’s 12 million married couples will benefit, 1.5million of who are pensioners.

Q. My wife and I are in the process of getting divorced. We disagree about the value of our matrimonial assets. In particular, my wife has suggested that due to a change in the law she is able to include the value of my business assets, which are held outside the UK, when assessing the value of the financial remedy she believes she is owed. Can she do this?

A. First, your question is a legal one as much as it is financial. I recommend therefore that you seek advice from a solicitor who specialises in family and matrimonial law (if you haven’t already done so).

However, I suspect that your wife is relying upon the recent case of Prest v. Petrodel Resources Ltd which established that a company controlled by one spouse can, in certain circumstances, be used to satisfy financial claims by the other on divorce.

In that case, Michael Prest’s ex-wife sought to have the assets of her ex-husband’s wholly owned offshore companies counted as his personal property for the purposes of her financial remedy in divorce. Whilst Mrs Prest won her case on the facts of the particular case (the Court determined that the companies held their assets on trust for her ex-husband as beneficial owner), the circumstances were very unusual. The Supreme Court was unanimous in its judgement that only in extreme cases will a court be able to justify disrespecting the separate legal personality of a company by “piercing the corporate veil”.

Therefore, the unique facts of your case will determine whether your wife is able to argue successfully that overseas business assets ought to be transferred to her as part of your divorce settlement. I recommend therefore that you seek specialist advice from a solicitor, as well as a chartered financial planner (who specialises in divorce) and who will be able to assist you in valuing your divorce settlement and ensuring that assets are divided in a tax-efficient manner.

Q. I was a member of my employer’s final salary pension scheme until the company went into administration last year. I have received a letter from the trustees of the scheme stating that a proportion of my expected pension will be provided by the Pension Protection Fund (“PPF”). However, due to the cap on benefits imposed by the PPF, the compensation I am likely to receive is considerably less than I was expecting. I had been a member of my employer’s final salary scheme for almost 40 years and, as such, I have little time to make alternative provision for my and my wife’s retirement. A friend told me that the cap on benefits is due to be increased (which would be welcome news). Is this correct?

A. Yes, the Pensions Minister, Steve Webb, recently announced that the cap on benefits payable by the PPF is to be increased in respect of long-serving employees only.

At present, if a person is a member of a final salary pension scheme and their employer becomes insolvent, they are likely to receive compensation from the PPF (in lieu of their pension). Unless a person is already in receipt of their pension, that compensation is restricted to 90% of the anticipated pension (capped at £31,380). No allowance is made for a person’s length of service.

Steve Webb has announced that the government will increase the cap on compensation for those people with more than 20 years membership of a relevant pension scheme. The cap will be increased by 3% for each year of pensionable service beyond 20 years and, therefore, the revised cap on benefits will be approximately £63,000.

This will mean that, for example, a person who had accrued an expected pension of £50,000 per year having completed 40 years of pensionable service, will see the cap on the level of compensation they receive from the PPF increase from £31,380 to £45,000.

The government have not confirmed when the revised cap on benefits will be implemented, Mr Webb having stated that he will bring forward the relevant legislation “as soon as parliamentary time allows”. Whilst Mr Webb has confirmed that the amendment to the cap will not be retrospective (meaning that benefits already paid out will not be enhanced), he has indicated that it will apply to all members already in the PPF when the legislation is enacted. Therefore, people whose compensation payments have been less than 90% of their anticipated pension (because of the application of the cap on benefits) may see the level of compensation they receive in the future increase, once the new legislation is enacted.

If you require any further information on the PPF and how to calculate your anticipated compensation, I recommend you visit the PPF’s website at http://www.pensionprotectionfund.org.uk. Alternatively, you may wish to seek assistance from a chartered financial planner, who specialises in retirement planning.

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.

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