Pensions and Divorce

If you are currently going, or already have gone through a divorce and you and your ex-spouse are looking at dividing up your assets, then the Court will be required to take your pension rights into account.

The options that the court can offer are as follows:

• balance the pension rights against another asset, such as the matrimonial home (this is known as Pension Offsetting); or
• arrange that when one party’s pension eventually comes into payment, a portion of it will be paid to the other party (this is known as Pension Earmarking); or
• split the pension at the time of the divorce to give both parties their own pension pot for the future (this is known as Pension Sharing).

The first step after contacting a solicitor is generally finding out what both you and your former spouse’s pensions are approximately worth. This will mean contacting your pension providers for valuations of whatever pensions you may have. It should be noted that your former spouse will not have any right to know what your pension value is without your consent.

You should really attempt to understand what the implications of each of the three methods of taking pension rights into account in a divorce settlement.

 However one thing you should be aware of is that transferring from a final salary or career average scheme to a money purchase scheme (or personal pension plan) can carry a number of risks.  You should seriously consider taking independent financial advice before sharing a pension so that you understand whether you are likely to lose out financially.

The Court can issue a Court Order to the following types of pensions:-occupational pension schemes (funded and unfunded, approved or unapproved), personal pension schemes, retirement annuity contracts, and Section 32 Buy-out Plan.

The Court can consider pension plans that you and your former spouse are currently paying into, plans that have been frozen in the past and plans that are currently paying you an income.

Arrangements that are outside the scope of the processes covering pensions and divorce are state benefits, Equivalent Pension Benefits earned between 1961 and 1975, and any pension rights a person is in receipt of by virtue of being a widow, widower, or dependant.

Pension Offsetting

All the couple’s assets are taken into account and pension benefits are offset against other assets (e.g. the family home). The party with the pension rights keeps them for him/herself and the other party is given the benefit of other assets, such as the right to live in the matrimonial home or an equivalent lump sum.

Achieving a fair share of a couple’s total assets by offsetting a pension pot against other assets can often be a fraught process. This may be because pensions do fluctuate in value more often because they tend to invest in assets such as shares. If it turns out to be difficult to achieve offsetting, one or other of the alternative bases is then likely to be used.

Earmarking

Pension Earmarking was introduced by the 1995 Pensions Act, for divorce petitions filed on or after 1 July 1996 (or 19 August 1996 in Scotland).

The pension scheme, on instruction from the Court, pays a specified amount of the member’s pension and/or lump sum (in England, Wales and Northern Ireland) or a specified amount of the member’s lump sum only (in Scotland) to the ex-spouse. The amount is ascertained at the time of the divorce but as with all periodical payment orders, either party can apply to the Court to have the amount varied. The payment is made when the spouse with the pension pot decides to retire, say, or when they die.

Earmarking has not proved entirely satisfactory in practice. Mainly because it does not achieve a ‘clean break’ and does not enable the ex-spouse to receive retirement income until the spouse with the pension pot retires.  An additional drawback is that if the Divorce Order is for the regular payment of a pension, those payments will stop when the spouse with the pension pot dies or if the party receiving the earmarked pension remarries (for reference, the right to a lump sum under an Earmarking Divorce Order does not stop on remarriage).

Pension Sharing

The Welfare Reform & Pensions Act 1999 gave powers to the Court to split pension rights between husband and wife on divorce. This legislation is not retrospective and only applies to proceedings for divorce or annulment filed on or after 1 December 2000.

The basic concept is to separate the ex-spouse’s benefit entitlement (as specified in the Court Order) from the pension scheme member’s, so that there is a ‘clean break’. A Pension Sharing Order is issued that creates a Pension Credit Member (the ex-spouse) and a Pension Debit Member (the member).

The Pension Credit is based on the member’s Cash Equivalent Transfer Value (CETV). The Credit will be a percentage of the CETV, not a fixed sum of money. The CETV is calculated as of the day before the Pension Sharing Order takes effect, so it can be higher or lower than the value disclosed at the start of the divorce proceedings. The Pension Sharing Order takes effect from ‘the date on which the Decree Absolute of Divorce or nullity is pronounced or if later, either (a) 21 days from the date of this Order, unless an appeal has been lodged in time, in which case (b) the effective date of the Order determining that appeal’.

As you can see this is another area which is laden with pitfalls. If you are currently in this situation then please just get in touch and get some valuable advice.

Pension reform
There will be more pensioners in the future and those pensioners will live longer. This will put a massive strain on the State pension system.

To alleviate this burden, the Pensions Acts 2007 and 2008 make changes to the Basic State Pension, the State Second Pension and introduce new employer duties for pensions.

The employer duties
From October 2012, employers will be required by law to:

• automatically enrol all their eligible employees not already in a good quality pension scheme into a Qualifying Workplace Pension Scheme (QWPS) on the day the employee becomes eligible, and
• pay contributions for every employee who does not opt-out of the QWPS.

Timetable
The employer duties will be staged in over 4 years from 2012. Larger employers will have their duties imposed first, smaller employers last. Any employer with less than 50 employees will have their staging date set depending on the last two digits of their PAYE reference number.

The costs
The amount of contributions that must be paid in order for a scheme to be treated as a QWPS is being phased in as follows:

The contributions will be based on a percentage of band earnings between £5,035 and £33,540 (qualifying earnings) at 2006/2007 levels. These amounts will be increased in line with earnings to 2012 and beyond.

*  The minimum difference includes tax relief available on employee contributions.

Quality Qualifying Workplace Pension Scheme (QQWPS)
Employers can avoid much of the administration burden associated with automatic enrolment by setting up a QQWPS where:

• the total minimum contribution is 11% of qualifying earnings, of which
• at least 6% must come from the employer,
• there is no option to phase in contributions, and
• automatic enrolment dates can be postponed up to 90 days allowing a ‘sweep up’ of eligible employees all at once at the employer’s convenience.

Eligible employees
All employees will have to be auto-enrolled unless:

• they are already in a qualifying workplace pension scheme,
• they are under the age of 22,
• they are over the State Pension Age, or
• they earn less than £5,035 a year (in 2006/2007 terms).

Employees can only ‘opt-out’ once they have been auto-enrolled.

Non-eligible employees must be given the option of opting in to pension saving.

Auto-enrolment is the responsibility of the employer, not the Government or the pensions industry. The Pensions Regulator will oversee employer compliance and has the power to fine employers for non-compliance.

National Employment Savings Trust (NEST)
Employers who do not have, or who will not set up, their own QWPS will have the option of using NEST. This scheme is designed to be low cost and is specifically aimed at low to medium earners. There will be certain restrictions applying to NEST:

• there will be a general ban on transfers in or out,
• there will be an upper contribution limit (currently £3,600 each year),
• limited retirement options and
• limited investment options.

Remember these reforms are less than 3 years away so it is important to start addressing this issue by getting sound advice as soon as you can.

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. The information provided is based on our current understanding of the Pensions Acts 2007 and 2008.

General questions about salary exchange
With the proposed increase in National Insurance contributions currently causing a political storm I thought it would be a good time to revisit one of my favourite subjects in relation to pensions. That of salary exchange. An already attractive proposition has just become even more so.

These questions and answers cover some of the most common issues on salary exchange. If there’s a question that you have that isn’t covered here, you can check HMRCs Salary Sacrifice Guidance or Salary Sacrifice Q & As Alternatively, you can e-mail me with your question. I’ll do my best to find out the answer and may post it on this website

What is salary exchange?
In basic terms:

• an employee agrees to give up some salary or bonus
• the amount given up is used by the employer to provide a non-cash benefit to the employee
• because the employee is being paid less salary or bonus:
  • the employer makes National Insurance Contribution (NIC) savings
  • the employee pays less tax and NICs.

What type of pension plan can salary exchange be used with?
It can be used with any type of UK registered pension plan – i.e. individual or group personal pension/stakeholder or occupational money purchase/final salary schemes. The main point to remember is that there must be an employer willing and able to make payments to the scheme after the exchange is made.

Can the self-employed use a salary exchange arrangement?
As there’s no employer to make a pension payment on their behalf, the self-employed cannot set up a salary exchange arrangement.

How can salary exchange be set up with a pension plan?
The employee exchanges an amount of salary that they would have otherwise paid to their pension plan. The employer then pays the amount exchanged to the pension plan as an employer payment. For example:

Employee earns £20,000 gross yearly
Employee currently pays 5% of salary to a pension plan – that’s £1,000 yearly
Employee exchanges £1,000 of gross salary
Employer pays this £1,000 (plus any employer payments) to the pension plan.

Can pension payments be increased just by using salary exchange?
Yes. Depending on how the NIC and tax savings generated are used, there are several options available. Our calculator can deal with the following four options:

1. None of the tax and NIC savings generated are used:

• Employer saves as they pay less NICs on a reduced salary.
• If it’s the current employee pension payment that’s being exchanged their take home pay increases as they are paying less tax and NICs, albeit on a reduced gross salary.
• Pension payments remain the same.

1. Employee take home pay remains the same:

• Employer saves as they pay less NICs on a reduced salary.
• If it’s the current employee pension payment that’s being exchanged, they can exchange slightly more so that their take home pay remains the same.
• The pension payment increases by the extra amount the employee exchanges.

1. The employer reinvests their NIC savings into the pension plan:

• Employer reinvests their NIC saving into the pension plan.
• If it’s the current employee pension payment that’s being exchanged their take home pay increases as they are paying less tax and NICs, albeit on a reduced gross salary.
• The pension payment increases by the amount of the NICs savings that the employer makes.

1. Employee take home pay remains the same and the employer reinvests their NIC savings into the pension plan:

• Employer reinvests their NIC saving into the pension plan.
• If it’s the current employee pension payment that’s being exchanged, they can exchange slightly more so that their take home pay remains the same.
• The pension payment increases by the extra amount the employee exchanges plus the amount of the NICs savings that the employer makes.

Higher rate and additional rate taxpayers can claim additional tax relief. Does this affect the salary exchange calculation?
This depends on whether the exchange is being set up in a personal pension/stakeholder pension plan or an occupational pension scheme:

Personal pension/stakeholder pension (relief at source)
In the vast majority of these plans, pension payments are deducted from net pay – i.e. after tax has been deducted. These pension payments are then grossed up by the pension provider at basic rate only. The amount that can be claimed back depends on the individual’s tax position and their total taxable earnings.

Occupational pension scheme (net pay arrangement)
In these schemes, payments are normally deducted from gross pay i.e. – before tax – this has the effect of giving full tax relief on any pension payments paid. Our calculator will show this where the individual is a higher rate or additional rate tax payer by showing the payment before the exchange as being deducted from gross pay.

Will HMRC restrict or remove salary exchange arrangements in the future?
Whilst there’s no straight answer to this as it’ll depend on Government attitudes going forward, HMRC have published guidance together with questions and answers on salary exchange. So it seems likely that at least in the short term, salary exchange will continue to be available.

How can any employer NIC savings generated through salary exchange be used?
The NIC savings the employer makes can be used in many ways. For example they can be used to provide other employee benefits, increase pension payments, shore up deficits in a defined benefit schemes, or the employer may simply keep the savings. Remember however that the actual amount of salary that the employee exchanges MUST be used to provide a non-cash benefit to the employee, such as childcare vouchers, or pension plan payments.

Setting up a pension salary exchange arrangement

Can salary exchange be used with existing pension plans?
Yes, salary exchange can be introduced into existing plan as well as new plans.

How do employers set up a salary exchange arrangement?
Salary exchange is a change to the contract of employment and so there’ll be some paperwork required to set up an arrangement. We can provide guides to salary exchange, guide for employees and personal calculator have more detail on this. Also, more information can be found in HMRCs Salary Sacrifice Q & As.

We’ve also produced a sample joiner pack where the employer can introduce salary exchange for all employees, however employees are given the option to opt-out of the salary sacrifice arrangement.

It’s important that any salary exchange arrangement is set up before the right to the salary actually arises to the employee. As an example of how this may be done:

November
Employer advises employees that they’re introducing a salary exchange arrangement and gives them the option to join or opt-out.

December
Employer deadline for receiving all completed joining or opt-out forms.

January
Salary exchange arrangement starts.

Is salary exchange suitable for all employees?
As salary exchange reduces gross salary, this can affect certain state and other benefits. I can cover this in more detail on request  and further information is available from HMRC’s salary exchange guidance.

HMRC guidance on salary exchange states:

“For most employees paying less NICs may not adversely affect your benefit entitlement…”

However there are potentially two groups of employees who may be more adversely affected by salary exchange than others. We would recommend that the employer considers carefully:

• Employees who earn less than the NIC lower earnings limit (LEL) – £5,044 p.a. for 2010/2011 tax year. Those earning below this level will not accrue certain state benefits. Employers may want to restrict salary exchange to those employees earning over a certain amount. This is sometimes known as a Pay Protection Limit. There’s no hard and fast rule as to what level of salary should be set as the Pay Protection Limit – it’s up to the employer to decide. Note that it’s not possible to reduce an employee’s salary to a level which after the exchange is lower than the National Minimum Wage.
• Women who are pregnant and about to take maternity leave. Because some maternity benefits are based on the salary after exchange, employers may want to restrict pregnant women from entering the salary exchange arrangement. Note however that it’s possible for the employer to top-up any loss of benefits due to salary sacrifice so that pregnant women can still benefit from the arrangement.

Do HMRC have to be told about salary exchange arrangements?
The only occasion where HMRC would want to look at a salary exchange arrangement is where it’s set up for less than one year. Otherwise, as salary exchange constitutes a change to an employee’s contract of employment, it’s not within the remit of HMRC and they do not have to be advised.

However HMRC are concerned that tax and NICs are deducted correctly. Employers have the option to contact HMRC if they want to make sure that they’re deducting tax and NICs properly after the salary exchange arrangement is in place. Details of how they can do this can be found in the Salary Sacrifice Q & As.

Can a salary exchange agreement be altered or terminated?
Not normally. The change to the employee’s contract of employment will normally last for the duration detailed in the agreement letter, usually 12 months, although this may be longer depending on how the agreement letter is drafted. A sample agreement letter is available in our guide to salary exchange.

However, certain ‘lifestyle events’ may allow the agreement to be terminated earlier than this. Lifestyle events are significant changes to an employee’s circumstance and are defined by the employer. Examples may include the birth of a child, divorce, a change to working hours or starting maternity leave.

Importantly, an employer can insist that the salary exchange continue until the end of the agreement even if a ‘lifestyle event’ occurs.

In addition, an employer may stipulate that exercising a lifestyle event within a certain period, say 3 months, from the agreement review date is prohibited.

Can salary exchange reduce state and other benefits?
Yes, salary exchange can affect certain employer, state and other benefits, some of which are listed below – note that this list is not exhaustive. The impact on benefits can however be mitigated in certain circumstances.

More information on how salary exchange can affect benefits can be found in our guide to salary exchange, guide for employees and sample joiner pack. Also, more information can be found in HMRCs Salary Sacrifice Guidance.

Salary, overtime, bonuses and other employer related benefits
Although salary exchange is a reduction in gross salary, the agreement can be constructed so that salary increases, bonuses and overtime for example are based on the salary before the exchange. This is commonly known as “notional” or “shadow” pay.

Mortgages and other borrowing
Mortgage and other lenders may base the amount that they’re willing to lend on either a multiple of salary or affordability. Employers can provide lenders with details of an employee’s pre-exchanged salary however this may not be accepted. Employees considering borrowing should therefore discuss this with their lender.

Student loans
Repayments of student loans are triggered where earnings are currently above £15,000. If a salary exchange reduces earnings to below this threshold then repayments may reduce or stop. This may mean that it’ll take longer to repay any student loan.

Basic State Pension (BSP)
The BSP is dependent on the number of contributions made in an individual’s working life rather than the amount of NICs. So provided an individual has at least 30 years of contributions, exchanging salary will not affect the level of BSP as long as the exchanged amount doesn’t reduce the individual’s earnings below the Lower Earnings Limit (LEL) for NICs.

State Second Pension (S2P)
S2P is an earnings-related benefit so you’d expect the S2P entitlement to reduce where an employee sacrifices salary. But that doesn’t apply in all cases:

• Those earning less than the NIC LEL – £5,044 p.a. for 2010/2011 – accrue no entitlement to S2P.
• Those earning between the LEL and the NIC primary threshold – £5,715 for 2010/2011 – pay no NICs but get S2P benefits as though they were earning the Lower Earnings Threshold (LET) – £14,100 for 2010/2011.
• Those earning between £5,044 and £14,100 get S2P as though they were earning £14,100.
• Those earning between £14,100 and £43,875 Upper Earnings Limit (UEL) get benefits based on actual earnings.
• Those earning above £43,875 get S2P based on £43,875.

Statutory Maternity/Adoption Pay (SMP/SAP)
SMP/SAP are based on gross earnings that are subject to Class 1 NICs and tax. As these earnings will reduce as a result of salary exchange, there’ll be an impact on SMP/SAP and they may also reduce.

It’s possible to avoid a reduction in SMP/SAP if an employee comes out of the salary exchange arrangement at least 23 weeks before maternity (or adoption) leave starts. The actual number of weeks will depend on the dates used by the individual’s employer. This would usually be done by exercising a ‘lifestyle event’.

If starting/stopping maternity or adoption leave is not an employer listed ‘lifestyle event’, SMP/SAP will be calculated using post-sacrifice earnings.

If the employer operates an occupational Maternity or Adoption Pay policy, they may increase payments up to or above the statutory amount to ensure the individual does not lose out.

Statutory Paternity Pay (SPP)
If earnings are reduced to less than LEL, there’s no entitlement to SPP.

Statutory Sick Pay (SSP)
SSP is a work-related payment which employees are entitled to by law and is not connected to their contract of employment.

If earnings fall below LEL then there’s no right to receive SSP. If this happens employees may still be entitled to income support based on incapacity or incapacity benefit, if they meet the qualifying conditions.

If the employer operates an occupational sick pay scheme, sick pay could still be paid through that scheme even if earnings are less than LEL to ensure employees are not worse off.

Tax Credits
The Working Tax Credit (WTC) and Child Tax Credit (CTC) were introduced in April 2003 to help families on middle incomes. The amount of WTC depends on a number of factors including the number of hours worked, how many children the employee has and the amount of eligible childcare costs.

Working Tax Credit is calculated on actual taxable earnings, so if these are reduced by a salary sacrifice, an individual’s WTC entitlement may increase.

As you can see Salary Exchange offers a way to increase pension contributions at little or no cost to both employer and employee but may not be for everybody. To find out if this can benefit you or your company please just drop me a line.

You can also apply for one of my guides on this subject by following this link:-  http://www.williamgeorgeifa.co.uk/downloads/

Hi everyone,

since 1995 significant changes have been instituted regarding State Pensions. These were followed by changes brought in by the Pensions Acts of 2007 and 2008. The Act of 2008, whilst mainly focusing on Private Pensions, did also introduce changes to the State Pension as well.

The Government wishes to build on this earlier work along the following principles…

To try and make the State Pension fairer and more widely available

To simplify the State Pension simpler while making it more generous, ensuring it’s a solid vehicle that people can use to save with.

By introducing automatic enrollment into workplace pensions and the creation of personal accounts the Government hope to make saving for retirement much easier. Their hope is that those who don’t have access to occupational schemes actually start saving towards the day when they will retire – and won’t bury their heads in the sand instead.

The final principle is to “support and encourage extended working lives”… yep, it looks as though many, many people will have no choice but to work long into their old age.

Here are the key elements of the current pension reform package that you need to be aware of…

1. The State Pension age (SPa) for women is increasing from 60 to 65. This will be the same as for men. (This change comes into effect from 2010).
2. From 2024 the SPa for men and women will gradually increase from 65 to 68.
3. The number of qualifying years required to get a full basic State Pension is being reduced
4. The current minimum National Insurance contribution conditions required to obtain a basic State Pension will be removed.
5. New weekly credits for parents and carers will be introduced.
6. Adult Dependency Increases (ADIs) will be abolished.
7. New rules will allow husbands and civil partners (as well as wives) will be able to get a State Pension based on a spouse’s or civil partner’s National Insurance contribution.

There are important changes to age thresholds and qualifying ages for other Pensioner and Working Age benefits. They cover…

– Up-rating the basic State Pension in line with earnings.

– Increasing the number of people eligible for State Second Pension (S2P), which will also become flat-rated in the future.

– Allowing certain customers to buy additional voluntary National Insurance contributions.

There we are then, that’s a snapshot of what’s coming to us all very shortly. I’ll be doing more on these State Pension Reforms over these next few weeks, so stay tuned and please… start saving for a rainy day, and then hopefully, when you do retire, it’ll all be sunshine and ease for you.

Until next time, take good care.

]]> http://www.williamgeorgeifa.co.uk/2009/10/23/state-pension-reform-what-you-should-know-now/feed/ 0 http://www.williamgeorgeifa.co.uk/2009/10/09/your-free-2010-pension-age-change-pdf/ http://www.williamgeorgeifa.co.uk/2009/10/09/your-free-2010-pension-age-change-pdf/#comments Fri, 09 Oct 2009 12:52:45 +0000 William http://www.williamgeorgeifa.co.uk/?p=297

Hi everyone,

following on from my last article covering the new Pension Age Change that comes into effect from April 6th 2010, I’ve got a great PDF for you that will explain the issues involved.

From this date you will not be able to receive an income or a tax-free lump sum from any private pension before your 55th birthday, unless your health is very poor. I highly recommend you download and read what it covers if you were banking on accessing your pension income in this manner and are approaching 50 years old.

It covers thing like…

• Do I buy an annuity?
• Do I transfer to an income drawdown plan?
• Should I just do nothing instead?

The case studies are also very clear and the whole read only takes 20 minutes or so, but in terms of you accessing the right retirement income it could be a very valuable 20 minutes spent indeed.

Thanks again and let me know if you’ve any questions you like answered on 0800 321 3508.

I’ll be happy to help.

Here is the direct link to download the Pension Age Change PDF 2010

Until next time take good care.

]]> http://www.williamgeorgeifa.co.uk/2009/10/09/your-free-2010-pension-age-change-pdf/feed/ 0 http://www.williamgeorgeifa.co.uk/2009/09/29/pension-age-change-official-%e2%80%93-ignore-it-and-you-could-lose-out/ http://www.williamgeorgeifa.co.uk/2009/09/29/pension-age-change-official-%e2%80%93-ignore-it-and-you-could-lose-out/#comments Tue, 29 Sep 2009 11:37:17 +0000 William http://www.williamgeorgeifa.co.uk/?p=294

Hi everyone,

Did you know the minimum retirement age increases from 50 to 55 on 6 April 2010? As a result you may be adversely affected by this important change.

At the moment it’s possible to use your pension to provide a tax-free lump sum and/or an income at any time after you reach the current minimum retirement age of 50. You don’t even need to stop working to do this.

However, if you are over 50, or will be by 5 April 2010 – and you do not access your pension benefits by 6 April 2010 – you will not be able to take out any money from your pension fund until you are 55, up to five years away. Which means…

This simple fact could have significant consequences for you, in particular if you need funds for a specific purpose before your 55th birthday; for example to help a child going off to university, finally taking that dream holiday, or paying off the mortgage.

The good news is that you still have options that let you retain this financial flexibility.

Alerting you to this change now, means you have ample time to take financial advice and make any necessary changes to your financial plans before the 5 April 2010 deadline.

In these tough economic times I understand that you will be looking to keep as many of your options open as possible. You may be concerned about the security of future employment, or are simply seeking alternative income sources (due to the rapidly decreasing interest rates available), but this change in legislation could potentially get in the way of those plans.

So what to do?

Well, here are two ideas for you to consider..

You could choose to buy an annuity, a financial product that would provide you with a regular income for life in exchange for a lump sum payment. If you buy an annuity before the end of this tax year you can avoid being affected by the increase in retirement age. But if you aren’t ready to swap your pension fund for a guaranteed income just yet, there is a more flexible alternative.

The Income Drawdown option: Income or Tax Free Lump Sum – or both?

An income drawdown plan allows you to take an income from all, or part, of your pension fund while leaving the remaining funds invested. On top of this you can take up to a quarter of the money as a tax-free lump sum. The income can be increased or decreased, within set limits, to suit your requirements. It allows you to retain the right to draw an income from your pension before your 55th birthday without having to commit to an annuity just yet.

If you think you might need a tax-free lump sum or an income from your pension fund before your 55th birthday, taking action now to pre-empt the increasing minimum retirement age could be the solution. However, it is vital that you also consider the impact this will have on your income later in retirement when the possibility of earning is no longer an option.

If you wish to make an appointment to discuss any of the issues in this letter, please contact me on the free phone number 0800 321 3508 to arrange an appointment. I look forward to hearing from you soon.

]]> http://www.williamgeorgeifa.co.uk/2009/09/29/pension-age-change-official-%e2%80%93-ignore-it-and-you-could-lose-out/feed/ 2 http://www.williamgeorgeifa.co.uk/2009/07/16/auto-enrolment-and-personal-accounts-are-employers-all-set-for-20012/ http://www.williamgeorgeifa.co.uk/2009/07/16/auto-enrolment-and-personal-accounts-are-employers-all-set-for-20012/#comments Thu, 16 Jul 2009 13:52:37 +0000 William http://www.williamgeorgeifa.co.uk/?p=242

Hi everyone,

When the recently announced auto-enrolment requirements hit employers in 2012 they will have to enrol all their eligible employees into a workplace pension scheme. As it stands at the moment, if they don’t set up their own scheme they will have to use Personal Accounts instead.

Personal Accounts use a one size fits all approach. This means that employers will have no say in how the pension is set up and run. The risk that competitors will be offering more attractive pensions could therefore make it more difficult to attract and retain quality employees.

So the big decision for employers is very clear. Should they simply satisfy the regulator or do they position themselves as an employer of choice by offering a tailored pension that suits the needs of their workforce and their industry?

One thing is for sure though. If employers are to be ready for the impact of auto-enrolment on their businesses, they need to take action sooner, rather than later.

What Exactly are Personal Accounts?

To help encourage saving for retirement, the Government is introducing a new low-cost saving scheme – it’s currently called Personal Accounts. This will be introduced from 2012 and employees who do not offer access to a suitable alternative pension arrangement will be able to use personal accounts for their employees.

Employees will be automatically enrolled in the scheme but will have the opportunity to say they do not want to join. They will also be able to come out again at a later date if they want to.

Contributions will be paid by employees and employers and invested in a range of funds. At retirement, the accumulated fund will be used to provide an income for the member’s lifetime.

Members of the scheme and their employers can pay additional contributions above the specified levels if they so desire. However, there will be an overall limit of £3600 on the total amount that can be invested in the scheme each year.

Personal Accounts will be run by a board of trustees. The trustees will run the scheme independent of Government and the scheme will be regulated by The Pensions Regulator in common with all other occupational pension schemes.

What is Auto- enrolment?

This is basically a situation where employees are automatically entered into a pension scheme without any need for them to apply. Many employees fail to join valuable pension schemes when there is a need for them to go through an application process first. Auto-enrolment is meant to overcome this obstacle.

When the pension reforms are introduced in 2012, all eligible employees will have to be auto-enrolled into a qualifying pension scheme. Employers will be able to choose which qualifying scheme to use, including the new personal accounts scheme.

All qualifying schemes must meet minimum standards, either of the benefits it provides or the amount of contributions paid to it, and must also provide auto-enrolment for all eligible employees who have not already joined the arrangement and for all new employees when they become eligible.

If you are an employer or a concerned employee and want to find out more about the implications and possible solutions relating to these legislative changes then please drop me a line and help explain your obligations.

Until next time….

]]> http://www.williamgeorgeifa.co.uk/2009/07/16/auto-enrolment-and-personal-accounts-are-employers-all-set-for-20012/feed/ 0 http://www.williamgeorgeifa.co.uk/2009/05/28/is-a-flexible-annuity-better-than-an-usecured-pension/ http://www.williamgeorgeifa.co.uk/2009/05/28/is-a-flexible-annuity-better-than-an-usecured-pension/#comments Thu, 28 May 2009 13:34:48 +0000 William http://www.williamgeorgeifa.co.uk/?p=231

With many more options available now to provide you with income in retirement it really is important that you get proper independent financial advice to help you choose wisely the best product suited to you.

One product which has been around for some time and is maybe just now getting due prominence is the Flexible Annuity – and it’s certainly worth considering it as you begin your retirement planning.

The definition of a Flexible Annuity is really quite straightforward:

• It is an annuity and not an Unsecured Pension (sometimes also known as drawdown), so it falls under annuity regulation.
• It is flexible, which means that your income can be set and varied between a minimum and maximum level income limit, generally at a timing to suit you.

So Why Use a Flexible Annuity?

This retirement product is sometimes misunderstood. This is because it can appear very similar to an Unsecured Pension contract in that the standard model allows you to stay invested. Critically however, these Flexible Annuity contracts are subject to annuity rules. Which means:-

• There is no need to take a conventional annuity by age 75 because you are already in an annuity.
• The income levels are not based on GAD (Government Actuarial Department) rates, but by prevailing annuity rates.
• A minimum level of income must be taken, equivalent to 50% of the annuity rate at that time
• A maximum income can be taken which is equivalent to 120% of the prevailing annuity rate.
• You can take income between minimum and maximum levels as you choose like with an Unsecured Pension.
• There is no lump sum death benefit, however the contract can be guaranteed for up to ten years.
• There is usually no need to ever purchase a conventional lifetime annuity (Prudential appear to still insist on clients doing this by age 90 though).

As well as choosing an income between minimum and maximum levels you also have the option to vary income each month although it would obviously be more practical to do this on an annual basis.

Ad hoc payments from the annuity fund are also allowed. This offers you greater flexibility. For example you could withdraw your holiday fund each year as an ad hoc amount. For many however, simply having peace of mind that you could draw upon a reserve cash boost whenever needed is also a great comfort.

Some companies (such as Lincoln) also provide a guarantee which underpins the minimum income level at a certain level as long as you are prepared to pay the premium for the guarantee.

Flexible Annuity v Unsecured Pension – so which is best?

So what advantage if any does the Flexible Annuity give you over an Unsecured Pension, particularly when the Unsecured Pension seems to offer greater income flexibility plus the advantage of a lump sum benefit?

I think the answer lies in the original concept of a Flexible Annuity.

Remember, it is designed for a lifetime and not a fixed or limited term. The concept is to utilise the fund to provide an income for the rest of your life. This is important because an Unsecured Pension is designed to retain the annuity purchasing power of the fund i.e. to ensure that there is enough in your fund to purchase an annuity at least equal to that which could have been purchased when you started. The difference is that the Flexible Annuity simply aims to retain the ability of the fund to provide an income for your whole life.

In Conclusion

A Flexible Annuity does offer some significant advantages when doing your retirement planning.
As a retiree you can create a highly tax efficient income for even average sized funds for yourself. Add mortality credit, investment opportunity, minimum guaranteed incomes and death benefits to the mix and you have a solid option to consider.

As ever though it’s important that you speak to a professional adviser who asks the right questions before making any recommendations about how you take your income in retirement. Your own personal requirements and circumstances will always be unique. I’m only a phone call away!

Until next, take good care…

]]> http://www.williamgeorgeifa.co.uk/2009/05/28/is-a-flexible-annuity-better-than-an-usecured-pension/feed/ 0 http://www.williamgeorgeifa.co.uk/2009/04/22/5-surprising-retirement-myths/ http://www.williamgeorgeifa.co.uk/2009/04/22/5-surprising-retirement-myths/#comments Wed, 22 Apr 2009 10:39:35 +0000 William http://www.williamgeorgeifa.co.uk/?p=217

It is a surprising fact that some people spend more time planning a holiday than they do for their own retirement. However my many years in financial planning have taught me that those who take the journey to retirement more seriously, usually have a smoother trip and much more fun as a result.

When I speak to clients who have already retired what comes across is that happily they often dispel many of the pre-conceptions associated with life in retirement. Many of these myths are often stated as fact in pre-retirement seminars, literature, press etc

I thought it would be a good idea to share some of these with you today.

Surprising Retirement Myth 1: Only Men Retire

Some people including women still believe this to be true. Not only does this misconception ignore the huge amount of career women active in modern Britain, but it also falsely assumes that women holding down 9-5 jobs don’t need retirement planning. That’s just plain wrong in my view.

Furthermore women who have been homemakers often have a more difficult voyage than those who retire from a job. Women must insist on being a full partner when they and their spouse retires. I’ve always stressed that women must give the same thought to retirement that their spouse does (sometimes even when husbands and partners may disagree!).

Surprising Retirement Myth 2: It’s a Piece of Cake

Many people are so determined to get out of the workplace or a career that they’ve loathed almost all their lives that they assume retirement will be the answer to all their problems. The day they walk out of the office for the last time they imagine being able to shove all their problems in a briefcase for one last time and then throw them in the river on the way home. At last they’ll be free… or so the thinking goes.

Whilst that may be true for some, sometimes people just see retirement through rose tinted spectacles without getting to grips with the nitty gritty aspects of what will make it truly special for them.

Very often they simply end up going back into work because they have no idea how to spend their new found leisure time. They’d never planned what to replace their work time with, no matter how much they may have despised it at the time… and therefore end up at a complete loss as to what to do with their days once the initial euphoria is over. Planning to get the balance right regarding your use of time is a paramount concern you are wise to address early on.

Surprising Retirement Myth 3: Retirement = Early Death

Whilst for some retirement can be tough it’s not often fatal!

Yes, we’ve all heard the stories of people who unfortunately die just after retiring, but the statistics bear solid witness that average life expectancy is very much on the increase. As long as you keep active and look after your health wisely there is no reason why you or your body should self-destruct early. Equally there is no point putting off retirement planning just because you fear retirement itself. That would be just as likely to contribute to your early demise.

Suprising Retirement Myth 4: Prior Success = Easy Passage

You would think it would stand to reason that people who find success in life prior to retirement would find it a breeze after retiring as well. So does the company director find it easier than the cleaner for instance? Surprisingly evidence suggests that the answer is very often no. Those who earn huge psychological benefits from a successful career often find it difficult to replace those feelings within their new non work environment. All retirees can build a better lifestyle, but it helps if you take time to think carefully about retirement planning well in advance to anticipate the above.

Suprising Retirement Myth 5: I’ll Downsize

One of the most common things I hear is that people say…

“my home is my pension. When I get to retirement I’ll just sell my property and get a nice wee flat somewhere and live of the profit.”

Laying aside the current property crisis, this attitude is often flawed because after all a home isn’t just an investment. It is just that… a home. It carries huge emotional attachment, is often where you raised your children, watched your grand-children play, built friendships and shared many memories. When it comes to giving all that up it’s not always easy.

Summary

Both men and women have their own retirement considerations, but knowing the myths and misconceptions about retirement and retirement planning will help you avoid foolish and very often needless mistakes.

Possibly one of the biggest challenges in retirement is knowing what to do with your time – besides of course ensuring that the pension you will live on is sufficient and ample enough to afford you the type of life you want to pursue in your latter years. Give careful consideration and planning to your future retirement now and you’ll be sure to avoid some of the myths that are still so prevalent.

A final tip? Well start planning now of course – prepare well and your plans will reward you well in return. Time has a funny habit of slipping by so quietly and speedily that before you know it your gold watch will be in your clutches and you’ll be clearing your desk for the last time, so be ready.

And above all just enjoy yourself when you get there – you’ve earned it!

Until next time…

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