ALM Newsletter Sept 2015

During last year's Budget announcement, the Chancellor introduced the prospect of pension changes. These changes were confirmed in the Taxation of Pensions Act 2014 and have now taken effect.The freedom granted by these changes is good news for all pension savers but could lead to many people making bad decisions and paying unnecessary tax. That’s why it’s important to understand what the changes mean to you and why professional financial advice can help you make the right decisions with your pension.

Greater freedom over how you take tax free cashMost people can now take up to 25% tax-free cash from their pension, either by:

• Taking your Pension Commencement Lump Sum in full, with subsequent withdrawals taxed as income; or

• Making a series of withdrawals over time, receiving 25% of each withdrawal tax free.

Flexible access from age 55People over the age of 55 will have greater power over how they invest their retirement savings and more choice in terms of the options available. You can now:

• Take the whole fund as cash in one go

• Take smaller lump sums as and when needed

• Take a regular income – via income drawdown, or an annuity

Choosing to take your pension in stages, rather than in one go, could help you manage your tax liability.

Restrictions on how much you can contribute to pensionsPension contributions are subject to a £40,000 annual allowance and specific contribution rules. This remains true under the new rules.

However, if after 6 April 2015 you make any withdrawals from your pension in addition to any tax-free cash, contributions to defined contribution plans will be restricted to £10,000.

55% pension “death tax” to be abolishedUp until April 2015, it was normally only possible to pass a pension on as a tax-free lump sum if you died before age 75 and you had not taken any tax-free cash or income. Otherwise, any lump sum paid from the fund was subject to a 55% tax charge.

From April 2015 this tax charge was abolished and the tax treatment of any pension you pass on will depend on your age when you die:

• If you die before age 75, your beneficiaries can take the whole pension fund as a lump sum or draw an income from it tax free, when using income drawdown.

• If you die after age 75, your beneficiaries can:

1. Take the whole fund as cash in one go: the pension fund will be subject to 45% tax. (From April 2016, lump sums will be taxed at the beneficiary's marginal rate).

2. Take a regular income through income drawdown or an annuity (option only available to dependants): the income will be subject to income tax at your beneficiary’s marginal rate.

3. Take periodical lump sums through income drawdown: the lump sum payments will be treated as income, and subject to income tax at your beneficiary’s marginal rate.

Pension Freedom: Making the right decision

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Income drawdown carries significant investment risk as your future income remains totally dependent on your pension fund performance.HM Revenue & Customs practice and the law relating to taxation are complex and subject to individual circumstances & charges which cannot be foreseen.

If you’re looking to access your pension in 2015, or you’d like advice on your new pension choices, please get in touch.

Andrews Loynton & McCulla Financial Planning [email protected] 028 3839 3050

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Financial Viewpoint

Issue 12 Summer 2015

Andrews Loynton & McCulla Financial Planning 028 3839 3050 [email protected]

Your latest newsletter from Andrews Loynton & McCulla Financial Planning

What’s the real value of financial advice?Financial advice is about what to do, and what not to do with your hard-earned money. It’s about planning and ongoing management, so that you can make the most of your income and any capital you’ve saved, in order to provide a certain lifestyle for yourself or your family.

At times this can be complicated - especially when it comes to investing. But with the help of a professional financial adviser, you can make the right choices with your financial planning.

Valuable, and accessible to everyoneThere may be times in your life when you are not sure what to do with your money. You may be buying your first home, looking to invest for the benefit of your children, or you may be approaching retirement.

The professional support and knowledge a financial adviser can provide will help you manage your finances more efficiently – and make sure you have protection in place that will maintain the lifestyle you’ve created if something unexpected happened.

Good financial advice will leave you knowing where you stand financially today, what goals you have for your money and greater confidence about the steps you must take to achieve them.

Getting to know youEveryone’s current situation and future objectives are different, so we'll start by finding out about your financial circumstances today, and what you want to achieve with your money in the future. We'll look at products such as mortgages, life insurance, savings accounts, investments and pensions and recommend what best suits you and your particular circumstances. Our recommendations will take into account:

● How much you can afford

● Whether you’re comfortable taking any risk with your money

● What tax you may be liable for

● Whether you want to save for the long or short term

The benefitsIt's hard to put a value on the peace of mind you get from knowing you have a dedicated professional to support you through some difficult and complex choices. But, with sound financial advice you can be confident the recommendations you receive will be the right ones for you.

If you'd like help making the right choice with your money, please get in touch.


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Pension freedoms to be extended to annuitiesThe Chancellor has announced that the government will extend its pension freedoms to around 5 million people who have already bought an annuity.From April 2016, the government will remove the restrictions on buying and selling existing annuities to allow pensioners to sell the income they receive from their annuity without unwinding the original annuity contract.

Pensioners will then have the freedom to use that capital as they wish – just as those who reach retirement with a pension pot can do under the pension freedoms announced in the 2014 Budget. This means they can either take it as a lump sum, or place it into drawdown to use the proceeds more gradually.

Pension reform: The next chapterThe new flexibilities build on the radical pension reforms that came into effect on 6 April, which allow people to make their own, informed choice about what they do with their savings in retirement.

Currently people wanting to sell their annuity income to a willing buyer face a 55% tax charge, or up to 70% in some cases. The government will remove this charge, so people are taxed only at their marginal rate.

Consultation underwayThe government has launched a consultation on the measures that are needed to establish a market to sell and buy annuities. It is expected that for the great majority of customers, selling an annuity will not be the right decision. However a minority of individuals may want to sell an annuity to:

• provide a lump sum for relatives or dependants

• pay off debts

• respond to a change in circumstances (eg. getting divorced or remarried)

• purchase a more flexible pension income product instead

To ensure people are in a position to make an informed decision, the government will be working with the Financial Conduct Authority (FCA) to introduce appropriate guidance and other consumer protection measures. This may include extending Pension Wise, the free service that helps consumers understand how to use their pension pot at the point of retirement.

Contains public sector information licensed under the Open Government Licence v3.0.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

If you’re saving for retirement, or considering taking your retirement benefits in the near future, please get in touch to discuss your options.

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In late January, The Pensions Regulator (TPR) released its latest quarterly figures showing how effectively employers are complying with the auto enrolment pension regime.

Its report1 showed a rise in notices issued to non-compliant employers, as more medium-sized businesses reached their ‘staging date’.

Why are more employers being affected?Auto enrolment is being phased, or ‘staged’, depending on an employer’s size. The first staging date for the largest employers (120,000+ employees) was 1 October 2012. Over the past two years, more businesses have gradually been required to meet the new rules and on 1 August 2015, the staging date for smaller employers (with between 30-49 employees) begins.

Action taken against non-compliant employersFor the two-month period between October 2014 to December 2014, TPR issued 1,139 compliance notices - a 500% increase compared to the 177 compliance notices it issued for the two-year period between October 2012 to September 2014.

There was a sharp increase in fines too: 166 £400 fixed penalty notices were issued for the period between October 2014 to December 2014, compared to just three between October 2012 to September 2014.

The jump in notices issued reflects more medium-sized employers being affected by auto enrolment. Around 30,000 employers (with approximately 62 to 149 workers) reached their auto enrolment staging date in April 2014 to July 2014 and completed their declaration of compliance with auto enrolment law by the start of December 2014.

Plan ahead to avoid being penalisedTPR has repeated its warning that employers should start the process of auto enrolment planning a year before their staging date. It also added that “failing to declare within five months of your staging date means you risk being fined.”

If your business is yet to enter the automatic enrolment process, do not leave things until the last moment. The sooner you start, the more likely you are to meet your obligations – and avoid a potential fine.

Small businesses face auto enrolment deadline

1Automatic enrolment: Compliance and enforcement, Quarterly Bulletin, 1 October – 31 December 2014

To discuss the auto enrolment options we can offer you and your business, please get in touch.


Pension Regulation Action Oct 2012- Sept 2014

Oct 2014- Dec 2014

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Compliance notices issued Where there has been a contravention of one or more automatic enrolment employer duty provisions which must be remedied

177 1,139

Unpaid contributions notices issued Sent to employers who have not made the required pension contributions on time

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Fixed penalty notices issued A flat £400 penalty for failure to comply with a statutory notice or a specific employer duty

3 166

Insuring your estate against an IHT billWhole of Life policies can offer an alternative to ‘gifting’, allowing you to preserve your family home for the next generation.

If you’re seeking to reduce or eliminate the burden of Inheritance Tax (IHT) on your death, ‘gifting’ while still alive can often be the simplest and most obvious solution.

Gifting involves giving away some or all of your estate to your intended beneficiaries prior to your death. Limitations of giftingGiven the huge rise in house prices in the last 20 years, gifting can be invaluable in terms of reducing the tax exposure of an estate. But there are limitations.

For instance, gifting your home may not be viable as you may plan on living there well into your later life.

Even an informal arrangement with the beneficiaries that allows you to continue living there indefinitely will remove its ‘gift’ status and make the property liable to IHT.

An alternative solutionAn alternative to gifting is to take out a Whole of Life insurance policy. As the name suggests, rather than covering your life for a fixed period of time, the policy lasts until death, with a payment at the end.

The policy could be set up to pay an amount equivalent to the IHT liability, thus preserving the estate.

What's more, in normal circumstances, a life insurance policy payout would itself add to the estate and be liable to IHT. However, a policy ‘written in trust’ does not count as part of the estate. This is because a trust is a distinct entity that can keep assets in its own right, and needs no human ‘owner’.

Other benefitsWhole of Life policies are often written on a ‘joint life, second death’ basis. Given the estate will pass tax-free to the surviving spouse, this potentially results in a lower overall cost than a ‘joint life, first death’ plan would do.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

Writing a Whole of Life policy in trust is a reasonably simple process, but will require professional guidance. If you’d like to discuss this with us, please get in touch.

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Would you lose your home if you lost your income?

Buying a new home is probably one of life’s biggest and most exciting events. It’s also a big financial commitment – one that could be with you for 25 years or more.

Your ability to maintain your mortgage payments relies on a constant income, so how would you continue to make your mortgage repayments if your income was reduced – or stopped?

Why gamble on your future? You are far more likely to suffer a serious illness than see your numbers come up.

Winning national lottery jackpot: 1 in 14 million chance1

Thinking about the bad things that could happen – death, serious illness, injury – isn’t pleasant, especially when we feel fit and healthy.

But by confronting the reality that it could happen to you, and putting plans in place to deal with it, you can give yourself extra peace of mind today and make sure you and your family are financially protected if the unthinkable ever happens.

A report by Macmillian Cancer Support showed that 4 in 5 people with cancer are affected financially.4

There are a range of products available that can provide a lump sum or a regular income on death, or diagnosis of a critical illness, and they could cost less than you think.

Choosing the right plan is important – especially if you already have some cover in place. This can be reviewed and we can determine if the cover is still appropriate. Please get in touch so that we can assess your circumstances and the cover options available to you.

1http://www.theguardian.com/uk-news/2014/nov/17/national-lottery-numbers-20-years- katie-price-win-jackpot2http://www.worldstrokecampaign.org/learn/the-facts-behind-1-in-6.html3http://www.cancerresearchuk.org/cancer-info/cancerstats/incidence/risk/statistics-on-the-risk-of-developing-cancer4Macmillan Cancer Support – Cancer hidden price tag report (2012)

Having a stroke: 1 in 6 chance2

Getting diagnosed with cancer: 1 in 2 chance if born after 19603


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If you have a pet, you’ll know how expensive vet bills can be.

And, like 6.6 million other pet owners in the UK, you may have bought an insurance policy to prevent Fido’s latest mishap, or Mr Tibbs’ unexpected op, causing you serious financial hardship in the future.

But surprisingly, it seems many of us don’t apply the same care and consideration to ourselves.

It’s estimated that around 7 million people lack insurance that would help their loved ones avoid financial hardship in the event of their own unexpected death.

How life insurance can make a differenceManaging unexpected vet’s bills without appropriate insurance can be a real struggle, but it’s nothing compared to the risks that under-insured homeowners – and their families – might face. The following real-life examples illustrate how dying without life insurance can have a catastrophic effect on those left behind.

Why your pet may be better insured than you

Example: Mrs Brown

Mr Smith and Mrs Brown were business partners who jointly owned a Buy to Let property. They had purchased it with a £70,000 Buy to Let mortgage.

Mr Smith was diagnosed with cancer and died shortly afterwards. He had no life cover. Solicitors arranged the estate, transferring the property to Mrs Brown and arranging for Mr Smith’s widow to receive half of the rent from the property.

The solicitors informed the mortgage lender of the transfer of property. The mortgage lenders said the death of Mr Smith represented a ‘Material Change’ to the mortgage contract and as a result demanded the full loan amount be paid immediately.

Mrs Brown had to remortgage the property to pay off the £70,000 mortgage. She also had to cover additional administrative and legal costs.

Example: Mr and Mrs Jones

Mr and Mrs Jones were married, and living together, with a residential mortgage. The property was solely in Mr Jones’ name.

Mr Jones was killed in an accident. Although he had no life cover, he had left a detailed Will. His two children from a previous marriage disputed the Will, meaning the estate was left unsettled for several years. The mortgage lender became aware there was no life cover in place and therefore no immediate way to pay off the mortgage. They then started proceedings to repossess the property.

Mrs Jones was forced to remortgage in order to pay the lender. She also had to cover additional administrative and legal costs and stamp duty.

Have you insured what matters most? If the unexpected happens, the right insurance can make all the difference. Appropriate protection, such as life or critical illness cover (written in trust) can help you, your business partners or your loved ones avoid financial difficulty at an already traumatic time.

If you are among the 7 million UK homeowners that don’t have any life insurance in place, or simply want to review your existing cover, please talk to us.

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Business survival planningIf something happened to you,your co-owners or employees,could your business survive?

A study by Legal and General1 shows:

● 40% of businesses would fold within 12 months after the death or critical illness of a key person

● 46% of new SMEs would fold immediately after the death or critical illness of a key person

The loss of a key person within a small or medium-sized business can cause unexpected costs at what would be a difficult time. Not only would the business have to fund the cost of recruiting and training a replacement, but it would also risk suffering:

● Loss of profits

● Loss of important business contacts

● Loss of knowledge/expertise

The role of business protectionBusiness protection insurance can help mitigate or prevent these risks altogether. As a business owner, you should know there are three main types of business protection:

● Key Person Insurance – provides a lump sum on the death of an important member of the business

● Shareholder Protection Insurance – provides a lump sum that will allow remaining shareholders to buy the shares of a deceased shareholder

● Business Loan Protection – provides a lump sum to help a business pay any outstanding business loans

There is also the option of relevant life insurance, placed in trust. Although this is not technically business protection, an agreement can be made which specifies the terms on which proceeds can be used.

Critical illness cover should also be a consideration. Research from MetLife in 20122 showed 21% of people have suffered long-term ill health for more than four weeks at some point in their working life.

Protect your biggest assetPeople are the biggest asset to any business. Business Protection Insurance can help to keep your business trading should the worst happen.

1http://www.legalandgeneral.com/library/protection/sales-aid/W13220.pdf2http://www.metlife.co.uk/uk/Press_Room/20120517-EB_Health_Insurance.pdf

Andrews Loynton & McCulla Financial Planning 49 Church Street Portadown BT62 3EU

028 3839 3050 [email protected] www.andrewsloyntonmcculla.com

For further information or advice on setting up a business protection policy please get in touch.

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ALM Newsletter Sept 2015