MAXIMISING YOUR STATE PENSION

In order to get the maximum State Pension you need to have paid National Insurance premiums (or received credits when raising children, for example) for a certain number of years. The new State Pension which came into force in April 2016 requires 35 years of National Insurance credits. Those who have had years credited from before 2016 will need to consult HMRC to find out what is required for them. Where there is a shortfall it is possible in some cases to make additional payments which will increase what will be received at State Pension Age. The changes in the State Pension Age has also affected the requirements. This can be of particular relevance to low earners generally, and women who have had breaks in their employment record. Recently we had two women clients who only found out that they were falling short of their National Insurance requirements because they consulted HMRC. By making these additional payments they were able to substantially increase the State Pension they will receive. One found it successful to consult www.gov.uk/personal-tax-account. We also suggest using the State Pension Forecast site – www.nidirect.gov.uk/articles/check-your-state-pension.
Note: Some good news about State Pensions – they have a guaranteed increase of 3.9% from April 2020. Under current rules the State Pension is increased by what is called the “triple lock”, which is the highest of the three indices – earnings growth, price inflation or 2.5% per annum.

GETTING OLDER

It happens. It is a bit hard to avoid! A useful checklist for putting matters in order along the way could be as follows:

1. Get a Will made, if you have not already done so. Dying without a will leaves a problem for those left behind. If the will was made more than 5 or 10 years ago, review it.

2. Get a Lasting Power of Attorney done. Most people have had the experience with a family member or friend where they reached a point where they could not deal confidently with key decisions regarding their health or finances and would benefit from help from someone they can trust. The Lasting Power of Attorney (LPA) puts an arrangement in place so that the named person or persons can act on their behalf.

3. If you are single and your possessions, including your property, are worth in excess of £325,000, or if you are married and the value of your joint estate exceeds £650,000, find out how Inheritance Tax affects you and see if there are some simple actions you can take to minimise or avoid gifting Inland Revenue 40% of part of your estate.

PASSING PENSIONS DOWN THE GENERATIONS

Having sent that letter to nominate your beneficiaries, it is worth looking further at the range of options that may be available with the new Flexi-Access Drawdown Pension schemes (and older style pensions can be transferred to the new Flexi-Access pensions) which provide more choices of how you can choose to pass the money on when you die. The majority of older pensions will simply pay out a lump sum to the named beneficiary(s). This lump sum is tax-free if the person concerned is younger than 75 when he dies. If they are 75 or over when they pass away, the lump sum is taxed as if the beneficiary had earned it as income. This can result in a substantial tax charge.

If your pension is a new style Flexi-Access Drawdown, or if you transfer your existing pension to one, you can nominate anyone you want as a beneficiary, regardless of whether they are family or not. It is also possible to pass the pension, or part of it, to a beneficiary as a pension, as opposed to just a cash lump sum. Thus a person could pass his pension as a pension to a child or even grandchild and the child or grandchild would be able to access it immediately regardless of their age. And the pension benefit could be passed down the generations even further.

This opportunity won’t be of use to everyone, but it can have substantial income tax and inheritance
tax benefits so it is important to know what your options are. If you have a question on this, please
contact your pension provider or contact us.

MONEY PURCHASE PENSIONS

With Money Purchase / Defined Contribution pensions (those that the majority of people have now where the value of the pension is based on the value of the fund(s) in which it is invested) there are more choices. It is worth finding out what you can do so you can make the choice that best suits your wishes. The first thing to do in all cases is to work out who you want the money to go to and write a letter to the pension provider to this effect, and keep a copy of the letter in your files.

You can always change this at any time by writing a new letter to cancel the old one and lay out new beneficiaries.

FINAL SALARY PENSIONS

Final Salary/Defined Benefit pensions (those based on the number of years worked and the salary)
usually only allow for a pension after your death to be paid to a dependant. If your wishes are different to that you should make contact with the pension provider and discuss the matter.

WHAT HAPPENS TO YOUR PENSION WHEN YOU DIE?

There are a few points about dealing with pensions in the event of a death that we want to explain in case they may apply to you or someone you know. We have had a few cases recently where an understanding of pension options on death was vital to achieving the best results. It is worth avoiding future problems by taking a bit of time now to make sure you have the best possible arrangements.

The first point about pensions and death benefits is to ensure that the value of your pensions pass to the people that you want to have them, and also that they are done in the most tax-efficient way. Nominating beneficiaries for pensions can usually be done by simply writing to your pension providers and putting in writing what your wishes are in this regard. If you do not do that, you run the risk of the money ending up where you did not want it to go, perhaps even, the Government! It is important to understand, however, that if you nominate beneficiaries, it does not guarantee that the pension scheme administrators will pay the pension to them. The pension trustees/administrators have a responsibility to look into the deceased’s situation and have a right to use their discretion. However, they normally would act according to the deceased’s written wishes unless there is a good reason not to.

39 years!

Sovereign Finance enters its 39th year of trading in 2020. With the new Government it looks like it will be a year of changes although BREXIT is likely to still remain the focus of political attention for some time to come. As regards personal finances, our view continues to be Stay Calm and Carry On. We will need to wait and see what changes will be made in tax and personal allowances but they are unlikely to be altered before the new tax year.

STRIVING TO MEET EXPECTATIONS

Here are a few recent client comments:

“Thank you so much for all your help and patience.” - Mr & Mrs I S of Heathfield

“We know you and trust you and you have helped us in the past.” - Mr & Mrs M C of East Sussex

“Thank you for all your help and advice over the years (it must be 25-30 years).” - Mr & Mrs R J of Kent


By survey what our clients value and why they continue to come back to us, is our efficient, independent and unbiased advice – utilising our extensive knowledge and know-how gained over the last 38 years.

INSURING YOURSELF

If you have no one dependant on you and your income, there is little sense in taking out life assurance. However, if you have children or a spouse depending on you, or a business partner, you might wish to take out life assurance.

The simple form of life assurance – term assurance – can be very inexpensive. Do feel free to ring us for a quote. We do not charge for providing quotes and, if you then wish us to arrange the life assurance, normally there is also no charge for doing that.

TAKING THE BENEFITS – THE RETIREMENT MENU Minimum Age 55

Cash please: You can take a maximum of 25% of the value of your pension funds. For example, if you had a pension with a value of £50,000, you could take £12,500 free of tax. (Note: this applies to personal pensions; the rules are different for Final Salary Schemes where the benefit is based on the salary and years of service.)

All as cash please! In fact you can withdraw the total value of your pensions as cash. The downside is that the amount you take, over and above your 25% tax-free element, is subject to tax as if you earned it in the Tax Year you take out the cash. This can result in a very substantial tax bill so do check out the tax ramifications before acting!

Income please (after you have taken your tax-free cash) Option 1: Take a guaranteed income for life (Lifetime Annuity). Option 2: Take a guaranteed income for life but at a higher level if you have a serious medical condition or problematic medical history, or history of smoking (Enhanced Annuity). Option 3: Take a fixed income for a period of time (usually 5 years) and have a guaranteed amount left at the end of the term so you can then review your options again (Temporary Annuity). Option 4: Transfer your pension fund into a Flexi-Drawdown Pension. You can then leave the money invested at any risk level that suits you and you have the option to withdraw a regular amount of income or take an occasional lump sum. (Note: For all of the income or cash withdrawals listed above, once you have had your tax-free cash, will be taxed as earned income.)

INVESTMENT BOND – A USEFUL FINANCIAL TOOL

If you are willing to take risk with some of your savings, one useful and historically successful tool, is an Investment Bond. Within the wrapper of the Investment Bond your money is invested in funds that invest in stocks and shares and bonds and property, etc.. The Investment Bond has special features. One of the most attractive one is that you can withdraw up to 5% (of the amount you originally invested) in each 12 month period free of tax in the year you withdraw it. It is considered a partial return of capital, i.e. of your original investment. Note: Ultimately there is a tax reckoning when the bond is cashed in but usually tax would only be chargeable on the profits made with the bond if the person concerned is a higher-rate taxpayer when he encashes it. Another feature is that the monies held in an investment bond currently are excluded in the calculations of savings when local authorities work out eligibility for funding nursing home care.