Plan now to avoid a big tax bill on your pension savings.

Are you building a fund for your retirement in a company pension scheme? If so, forthcoming changes to the taxation of pension savings could cost you dearly – unless you act swiftly.

From April, the maximum pensions saving that anyone is allowed to build, before it becomes subject to punitive taxation, reduces from £1.5m to £1.25m. This cap is called the Lifetime Allowance (LTA) and applies to an individual’s entire pension savings (apart from the state pension).

The figure may sound high but many thousands of people fall into the category – especially those in final-salary schemes who have built their entitlement through many years’ work.

But don’t despair, if you are affected, there are actions you can take before April to mitigate the potential tax charge down the line.

Saving into a pension scheme has for years attracted tax relief. However it was felt that wealthy people were getting too much tax relief and building up enormous pension pots and the LTA was introduced at £1.8m in 2012 reducing to £1.5 in 2013 and now to £1.25m in April this year.

It would be a brave man that did not anticipate further reductions in years to come.

When first introduced, the LTA used to apply only to a few thousand high earners in the UK who could afford to grow seven-figure pension pots. But the reduction in the limit, coupled with the increased costs of funding retirement promises for those who retire on final-salary-type pensions, has now pushed hundreds of thousands of people into the net.

There is some key information you need to know or find out quickly!

You need to find out what the total value of your pension savings will be, as at April 2014. This should include any legacy pension schemes with previous employers. If the total is already over £1.25m, or likely to grow beyond that sum before retirement, you can take action to retain the £1.5m LTA, subject to certain conditions.

If you are in a final salary scheme and expect to receive a pension in excess of £56,000 on retirement, this could take you over the LTA and should prompt you to take action now.

As ever HMRC have produced detailed guidance on the changes and impacts (see link below) but if you need assistance to understand the impact on you then please get in touch.



Changing the Weather

That’s it.

I’ve had about as much as I can stand of the Scottish Spring weather. Grey, overcast, wet, windy, freezing, sunny, & generally miserable.

With damp patches.

No amount of positive mental attitude will change the weather but a wee bit of planning might change where the weather I’m exposed to comes from…

It’s been very noticeable of late that the new enquires we have been getting are less concerned with the true nitty-gritty of what my pension/ISA/savings actually are but much more around the use of lifetime cash flow modelling to show me what’s going to happen.

The term peace of mind is often used in conversations with new clients and it’s very interesting that successful, well paid business men & women drive on without a real understanding of what their numbers actually might mean for them.

In other words, they have no peace of mind but rather a nagging doubt that it might not just be enough.

Using a complex powerful cash flow modelling tool like Voyant provides the framework to allow a little dreaming to take place and it’s a tremendous feeling to see people starting believe they might just be there financially or with a bit of further guidance they can get the life they want.

clear skiesOur job is then to become custodian of the wealth, provide sensible investment strategies and use the tax advantages of various “wrappers” to keep the clients in the style to which they’d like to become accustomed!

Malcolm Stewart will be expanding on the details on how, what and why lifetime cash flow modelling is so powerful in his next blog.

In the meantime, as I write the temperature in Sacramento, California is a sunny 33c.

Call me to arrange your retirement in a country and climate of your choosing.

Roland Oliver


Enhanced Annuities

We recently lost a client who, a few months ago, we had helped set up pension income for.

It was very important to our client that should anything happen to him, his wife would be looked after and continue to receive an income afterwards.

Setting their annuity up with the correct guarantee period and spouses benefit has allowed his widow to not worry about her income in this difficult period.

I mention this as getting the most (and most appropriate) income from your pension fund is crucial but often the various retirement options are not understood.

If we concentrate on annuities which are the “simplest” retirement option, there are many variations that need to be considered.

Simply put, an annuity is a type of insurance that guarantees you a regular secure income from your pension fund for the rest of your life no matter how long you live.

Often clients will opt to take the annuity offered with the company that they have saved with over the years.

This could be just fine but there are a wide variety of rates available and this could result in a much lower income than might be on offer by shopping around.

If you are in poor health when you come to take your pension fund, you could benefit from a higher income through an Enhanced Annuity.

These types of annuities take account of any health or lifestyle issues you may have which may affect your life expectancy.

If you qualify, this could lead to a higher starting income that you could expect from a normal annuity arrangement.

It is estimated that 40% of people retiring could qualify for an enhanced annuity giving them up to 30% more income*

Make sure you check all your options before you take you pension fund as the wrong option can be very costly. For more information please see our Guide to Retirement Options.



EU Gender Directive – 49 days to final deadline – will your pension be affected?

Well once again it’s time to note the fast approaching EU Gender Directive deadline – 21st December 2012.

Since we last covered this we’ve had a good response from clients in terms of reviewing their existing cover and in some cases getting cover in place which was always part of the overall financial plan but hadn’t been properly addressed.

There is certainly no time like the present to review your current cover or get cover in place if you have been thinking of doing so but just haven’t found the time. If you take out a policy now guaranteed gender specific rates will be available provided the policy is accepted before the 21st December 2012.

Our focus up to now has been on the life and critical illness considerations but this new ruling also has implications for pensions.

On retirement, most people will use all or some of their accumulated pension fund to purchase an annuity. This provides them with a guaranteed pension for life. The amount they receive depends on several factors, including how long they are likely to live.

From the EU Gender Deadline date of 21st December 2012, annuity providers will no longer be able to offer different pension rates for men and women. Traditionally, men have received a higher annual annuity income than women, due to their lower life expectancy. This will not be the case in future. The new Directive is likely to reduce the pension income of men retiring after 20 December this year.

It is estimated that male annuities will be reduced on average by 2% to 4%1 so if you’re male and are close to retirement, it is important you act now to secure your pension. Once the Directive comes into force, you could receive less income in retirement –a case of ‘use it or lose it’.

At a time of historically low annuity rates, it is essential that anyone close to retirement receives the maximum pension available – but annuities can vary widely, and many people find their current pension company may not offer the best deal.

If you are in this position then we can help you review your existing arrangements, search the entire market and recommend the most suitable annuity for you.

We’re pretty sure most pension companies will experience higher than usual levels of activity towards the end of the year as clients rush to get annuity funds released before the deadline, so by acting now, we can ensure you get the best available annuity rate in plenty of time.

If you would like more information on this or would appreciate a face to face discussion with an Adviser on how you may be affected by the deadline then please do not hesitate to get in touch.

You might also find it useful to visit the “Your Retirement Options” section on our home page as this also provides an extensive guide to retirement choices so even if you’re not likely to be affected by the Gender Directive but need to make some retirement decisions soon we can help.

Dr Claire Armstrong


Source: 1 Partnership: Figures are based on the general situation for male retirees at age 65. For enhancements due to lifestyle or ill health, the difference will depend on individual circumstances and could be higher or lower than these amounts.


Automatic Enrolment

In more recent months the trend in our new enquiries has been from small to medium business owners who are not only picking up on the need for business protection but are also now looking into alternative savings for the business liquid assets AND the requirement to provide a company pension scheme under the up and coming automatic enrolment.

If you follow our blogs you will know we’re no strangers to business protection in fact we feel quite passionate about it and more recently we have posted commentary on the structured deposit accounts as an alternative for business cash holdings.  We will no doubt continue to revisit these topics with regularity but for this week auto enrolment is the focus.

Although most employers won’t have their staging date until 2015/16, there’s a lot to do to plan and prepare for automatic enrolment. For example, employers will need to consider the cost implications and make sure the right systems and processes are in place to meet the new employer duties. On average, this could take up to two years so it is important employers start to prepare early and as I would say there is no time like the present.

Scottish Life* estimate there will be around 9 stages to the whole process starting off with Employers reviewing their current pension scheme and comparing it to the new requirements to identify any changes needed. If they don’t have a pension scheme, they’ll need to set one up.

Then it will be on to assessing the workforce to determine which types of worker they employ and the duties they have for each type of employee. Following this it will be time to consider the different scheme options available and how these will impact on the employer’s business and workforce.

When the right solution is designed there will need to be agreement on what this solution means for the business and one crucial factor will be ensuring the employer has the right balance between costs and administration of whatever scheme is to be put in place.

With the right scheme design ready and approved it will be important to then review internal processes, that is payroll and HR, as the employer will need to ensure they comply with the new requirements and can work to help keep the scheme compliant.

Depending on the nature of the business Unions may be involved and they will have to be consulted to ensure there is full agreement on the basis of the scheme or contracts of employment.

With all of these considerations covered it will then be time to implement the changes agreed and to ensure the scheme can run smoothly day to day, the workforce is engaged and provided with the right information at the right time.

The final stage will be to run the scheme and ensure the employers continue to meet their duties on an ongoing basis to remain compliant at all times.

It does seem like a lot of work and a long process but it doesn’t have to be daunting and we are already helping firms to make the first steps into the process so they are in a position to make the right decision for their company in good time without a deadline looming over them.

If you are interested in finding out more and would like to discuss the detail of how this could work for you we would be delighted if you got in touch, no time like the present to take a step in the right direction.

We look forward to your call.

Dr Claire Armstrong

*Scottish Life online resources published June 2012 (37W1107)


The Lost Generation

There have been two recent conversations of late that serve to illustrate the worrying lack of understanding of how much retirement might cost.

The first was from someone wondering how we might get more income from his retirement pot.  Put more money in I said, not entirely tongue-in-cheek.

Secondly, a young woman said she would save what was left of her income once her bills were paid and her “fun” money was set aside.

I’m not sure you can owe your pension plan the contributions, but you get the picture.

This from the MetLife 2011 Retirement IQ:

“2011 shows a significant increase of respondents who say that the greatest financial risk facing retirees is longevity. Sixty-two percent of respondents answered correctly in 2011, compared to 56% in 2008, and 23% in 2003.”

I’m genuinely concerned that our mighty Financial Services industry has not managed to get the message to the public that you need to plan to stop work and that you’ll need money to do it.

It’s a pretty simple concept and to take more from the MetLife’s Mature Market Institute research, even if people are prudent, sensible and save for retirement, longevity and market risk are leading to generations that will run out of cash before they have the good grace to die.

Whichever way you slice it, a large dose of reality has to be brought to bear when doing retirement planning for clients.

Wealth modelling plays a great part in determining the numbers, (Voyant is our system of choice) but it has really struck me that we, as financial planners, have a huge burden of responsibility to make clients aware of what’s involved in getting to your “number”

Taking this a stage further I got to thinking about whether we work with our clients, for our clients or do we take orders?

I’m sure we are more in category one and two rather than three, but it requires a genuine want to get involved at much more personal level.

David Jones of Dimensional Fund Advisers recently mentioned to me the idea of the one number on the fridge door that should anything happen to the couple, the family could ring the phone number and person on the other end of the phone would understand and be able to sort out the financials.

Does your current financial adviser educate you, train you and make you do what you need to get to retirement in the shape you need to be?

And is he or she your trusted number on the fridge door?

I know Shane Mullins of Fiscal Engineers of Nottingham is rightly focussing on the “trust” part of the relationship between client and adviser and I too believe that this is the key part of our makeup.

I await his tweets with further interest.

So what am I saying?

Guiding clients to retirement requires reality, discipline and commitment from clients and a desire from the adviser to understand the client and their family’s needs and be seen as someone who can be trusted to deliver the plan.

We can’t get to the numbers until we put the time in to establish a relationship with the client that’s based on mutual respect and understanding.

So when your adviser tells you to put more money into your retirement plans because he thinks it is a good idea and it will benefit you and not him, you know you’ve got the right man and can post his number on your fridge.

We need to make the public understand that there is a big difference between going to see someone who will sell you a pension (insert you own local favourite or bank here) to working with trusted adviser who will have a genuine interest in helping you retire in good shape.

One final point; MetLife research would point to income guarantees being very important in retirement for clients and with the continued erosion of annuity purchasing power, is this the way forward?

0131 273 5202 – Cut out and stick on fridge.

Roland Oliver


Do You Have A Large Pension?

Urgent Action Needed by the Deadline – 5th April 2012 

Who does this concern?

Anyone who expects their overall pension value to be above £1.5m by the time it is crystallised.

Individuals in final salary pensions schemes who are expecting pensions of £65,000-£75,000p.a.

What is happening?

From April 6 2012, the Lifetime Allowance (LTA) – the overall maximum that can be drawn from a pension fund before tax penalties are imposed – will fall from £1.8m to £1.5m. Any pension benefits over and above the LTA will incur a tax charge of 55% for a lump sum and 25% plus income tax for regular payments.

However, the government has softened the blow for those currently expecting their benefits to be worth more than £1.5m by allowing individuals to lock into the current £1.8m limit.


They must apply for fixed protection with HMRC.


  • You cannot start a new arrangement other than to accept a transfer of existing pension rights
  • You cannot have benefit accrual
  • You will be subject to restrictions on where and how you can transfer benefits

What are the consequences of not having fixed protection?

If you take a lump sum having exceeded the LTA, the tax charge is 55%. If you take the benefits as income, the charge is 25% plus income tax at the member’s marginal rate.

For more details please contact us forthwith!


National Employment Savings Trust (NEST) – implications for small businesses

Talking with an accountant this week reminded me that the proposed NEST pension reforms had not really filtered through or even hit the radar in some cases yet.
Small businesses owners can be forgiven in the current economic climate for having other things on their collective minds, but a start to understanding what NEST might mean for their businesses should be addressed sooner rather than later.
I’ve laid out the absolute basic details of the NEST proposals and would encourage you or your employer to give me a call to discuss the implications for your own businesses.
• The UK Government has agreed that all UK businesses, regardless of size, should offer a company pension scheme or enrol their staff into the new National Employment Savings Trust (NEST).

• From October 2012 UK employers will be required to automatically enrol employees into a ‘qualifying workplace pension scheme’. This auto enrolment could be to your existing company pension scheme if it meets certain criteria. If it does not meet the criteria or if you do not operate a company pension scheme then your employees will be enrolled into NEST, a low-cost pension scheme being introduced by the Government.

• Staff who are aged 22 or more and currently earning more than £7,475 a year will qualify.

• NEST is due to start in October 2012, with the largest employers joining first and the smallest joining by September 2016. Contributions from staff and employers will also be phased in. Until October 2016, the minimum overall level of contributions will be just 2%, with 1% coming from employers. From October 2016 to September 2017, total contributions will be 5% with 2% coming from employers. And from October 2017, the total minimum contribution level will be 8%, with employers contributing at least 3%.

• As well as the phasing in of compulsory contributions, legislation designed to minimise the burden on employers includes simple qualifying criteria for existing pension schemes and a simple compliance regime for new employer duties such as automatic enrolment.

Please find a more detailed factsheet here.

Roland Oliver