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.



What would you do with £381m?

The news over the past day has informed us of the largest ever undivided lottery win the United States of $590m (£381m), going to an 84-year old widow.dollars

Talk of the lottery is nearly always accompanied by a discussion of what you would do with the winnings…

But after you have stopped considering how to furnish the gatehouse, it is worth remembering that it doesn’t have to be a massive lottery win for your money to require due consideration.

Using our cash flow modelling tool, Voyant, we can create a wide variety of what if scenarios that project forward how different choices today can affect your financial outlook tomorrow.

Assets detailed for websiteWe can enter in information such as your incomes, expenses, assets and liabilities and model forward projections, such as those seen on the right.

Being at the age Gloria, the 84 year old jackpot winner, is she chose to take her winnings as a lump sum rather than 30 annual payments of £12m. Taking it in this manner reduced the sum to £240million.

This type of situation is similar to those faced by retirees and those made redundant every day as they must decide how best to take their benefits. This is exactly the situation where cash flow modelling can shine.

lotterywinCombining this with expert advice that guides you through an all encompassing view of your current circumstances, maybe you can generate some of your own luck.

Of course, if you are feeling lucky, we can even model a scenario where you win big…



How we can change your life this week

Much of human understanding of the world is built on models that attempt to recreate complex systems in a simpler form. This ranges from the reactions of the economy to a reduction in government expenditure to the effect of CO2 on climate change.

No model will ever be perfect as there are too many intricate relationships at play, but I am sure that most would agree that we are better to have some understanding of how these systems work than nothing at all.

Now let’s consider financial planning. It is one of those disciplines that, whether you are interested or not, it still applies to you. Every single person reading this blog will, in the simplest sense, have things they want to do, a number of years ahead of them, and an exhaustible amount of money flowing in and out.

timelineThere are different attitudes to this problem. Apathy is one. Some may not want to think about it because it will stop all of today’s fun.  Some may have a vague idea it will all work out. Some people may have fashioned a rudimentary spreadsheet in Excel to try and boil the situation down into hard numbers, but once the projections involve discounted values of future contributions and the timescale stretches out, things can get complicated very quickly.

At OAM, equipped with the market leading cash flow modelling software, Voyant, we can produce charts, projections, balance sheets and inheritance tax ledgers. We can put in key events such as weddings and the sale of a business. We can even kill you off next year, just to see what happens. We can tweak every assumption that lies behind the model to make it as realistic to your circumstances, and the wider economy, as is possible.

The level of detail is quite astonishing. Every change from HMRC on future tax rates are factored into models automatically, within days of announcement.

This week we made a big difference to a couple’s life, confirming that which they suspected: they don’t actually need to work anymore. They have accumulated more than enough to last comfortably until their assumed mortality age (itself selected by the client on the grounds of family history and the Office of National Statistics).

assetsIn the past we have helped clients assess their inheritance tax liability, choose between different redundancy options, set the amount of savings contributions required to pay for their children’s education and more.

As stated above, every model has its limitations, but it is worth coming to see us to gain some understanding of how your future looks rather than earning and spending money in the dark. And as we see confirmed every day when small tweaks are made to client’s plans, a change today can make life quite different in 20 years.

Malcolm Stewart


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


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.


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


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