I listened with anger and frustration to a recent feature on Radio Four's “You and Yours” programme. Our profession is seemingly brought into disrepute yet again, by unregulated and unscrupulous individuals, who were cold calling individual pension scheme members to “unlock” their pension funds. One seriously ill man thought he was doing the right thing and responded to a cold call in order to unlock his pension.
There were quite a few things that got my hackles up. In part, I feared regulated professionals would be tarred with the same brush but also this practice and the disastrous consequences for individuals is, unfortunately, nothing new. The banking crisis of 2008, the slow road to recovery and the difficulty some businesses have in borrowing, has led to the targeting of pension funds as a way to release money, that in turn, can be diverted to organisations seeking working capital. Now it would seem, the forthcoming changes in pension legislation and the fact that not everyone is up to speed with the implications, are creating new opportunities for scams and criminal activity.
In 2013 the Pensions Regulator initiated a consumer campaign with a black scorpion, a creature with a sting in its tail, to raise awareness of various pension scams. Commonly they go something like this...
Members of pension schemes or those with personal pensions are cold called via text or telephone and promised that they can get their pension money early. They are promised that their pensions can be “unlocked” and they will either receive their pension money back or for it to be diverted into something else with better or guaranteed returns such as holiday lets, bio-tech start ups and in the case of this current radio programme, to apparently fund the construction of storage units. It's frighteningly easy to set up a glossy looking website and work out an 8% guarantee on the “back of a cigarette packet”. These alternative investments are not regulated and come with no guarantees or consumer protection.
What these unlocking organisations also fail to mention is their charges and any tax penalties. They will charge you 10-20% commission for their part of the process which will be deducted from the money. Taking pension money before the age of 55 is seen by HMRC as receiving an unauthorised payment so it will not be long before a brown envelope hits the doormat with a demand for 55% of the gross money received ( ie any unlocked money including any commissions deducted) as a tax charge by HMRC as they look to claw back the tax relief throughout the life of the pension. Even if you are unfortunate enough to lose all your money to these scams you will still be responsible for the tax charge.
Its been eighteen months since the black scorpion campaign was launched yet it was reported in August 2014 in a Money Marketing article that some £495 million of people's pension funds have been lost to pension scams despite the checks and measures put in place by HMRC, The Serious Fraud Squad, The Financial Conduct Authority and The Pensions Regulator. The same article reports that small self administered schemes are now the target of ever sophisticated organisations.
And as if matters couldn't get any more dramatic, the seriously ill man who has twice survived cancer, has had to chain himself to offices in Speke, near Liverpool, in order to try and get recompense.
So what's the answer. Education, education, education.
The government wants us to save more and is placing pensions at the heart of their strategies. Legislation has been introduced to make Auto Enrolment into workplace pensions compulsory and yet, so many people don't know the basic facts as to how pensions work.
Here's some basics......
1. Pension schemes registered with HMRC are eligible for tax relief on contributions. If you are an employer or running a business, pension contributions are a tax deductible expense. If you are an employee and you make a pension contribution you make a contribution net of basic rate tax relief . Pension funds grow free of income tax and capital gains tax.
2. Upon crystallisation of benefits a maximum of 25% of the crystallised funds can be taken as a tax free lump sum.
3. Taking money out of pension funds before the age of 55 is considered an unauthorised pension payment and subject to a 55% tax charge.
4. Special provision exists for people with serious illness, subject to the lifetime allowance and medical assessment the entire pension fund could be released as a serious ill health lump sum commutation with no tax charge.
Please please don't let fraudsters and scamsters benefit from your life time savings through ignorance. If in doubt contact the Financial Conduct Authority, HMRC or a trusted regulated financial adviser.
My name is Jill Turner and I work hard to make financial planning engaging. It might seem strange that an investment professional states, “that I care more about how my clients are doing than how the markets are doing”, but let me explain what I mean in this article, which is an expanded version of the latest sixty second presentation to my business referral group.
My inspiration came from what has affectionately become known as the patchwork quilt, to the left. Designed for investment professionals, it graphically represents the rise and fall of different asset classes, ( e.g Gold, UK Smaller Companies, Property, Large US companies etc. ) showing the percentage growth or loss in any given calendar year. If you're struggling to see the small print, it might be handy to download a full page version here and refer to as I go through two, possibly polar extreme examples, of investment journeys that both start at the beginning of 2005. At least you will be able to check my calculations.
For our first journey, let's dust off our crystal ball and chase the investment returns. At the beginning of 2005, we invest £1,000 in Japan and benefit from a cracking return of 40.49%. It would be tempting to stay put and hope for a repeat of these gains but along with our crystal ball we have a nephew working in the City who gave us the inside track that markets were getting tricky. So we sell our Japan fund and invest everything into Gold where we remain until the end of 2008. We managed to keep our powder dry, ready to invest on the gun fire and surely enough as equity prices fall we sell our Gold funds and buy into a UK Smaller Company fund. We stay with this asset class until the end of 2013 and our £1000 has become £8,439 in nine years.
An extraordinary return, an average of 93.7% per annum but remember we were relying on our crystal ball.
But it could have been so different. It's the beginning of 2005 and we open the Sunday papers. There in the money section journalists tells us that Japanese funds are the winners for 2005 and as luck would have it, we get a good return. That's great we file the annual statement and look forward to similar returns next year and the next. As we haven't reviewed our arrangements we don't realise that our Japanese fund has gone down three years in a row. Okay its not too bad, we grit our teeth and hold out for a gain but after another year of losses we get impatient and sell our fund, keeping everything in cash where inertia takes hold and there we remain until the end of 2013. An overall loss of £118 or 1.3% each year and our £1,000 is now worth £882.
So where does this leave me as an adviser and my clients.
I can't influence the markets. My role as a financial planner is strategic planning. This includes working out how much volatility you can tolerate, why you are saving or investing, what timescales you have allowed, recommending an asset allocation and calculating the expected returns and therefore how much you need to save to achieve your goals. Can we second guess the markets or effectively time the markets and know where and when to invest? Maybe with the use of technology, information feeds, inside knowledge, constant monitoring of the markets, talking with politicians about impending changes in legislation and monetary policy. But do we have the time that all of this takes and can my clients in turn afford extra fees for all the extra time this takes? And if its that straightforward to chase returns by switching in and out of different asset classes, why aren't all funds chasing “the next big thing”?
High risk, that's why.
The majority of clients will have their needs satisfied with model portfolios or multi manager multi asset funds, where funds and assets are selected to work together, to create the broadest diversification and to harness expertise across the various asset classes as well as different market conditions. This in turn helps to reduce volatility and give a smoother client journey. Where my clients have more bespoke needs we work in partnership with a number of discretionary fund managers. With market monitoring and outsourced investment solutions taken care of I can devote my time and concentrate on what I do best, caring about how my clients are doing.
How easy do you find it to make investment decisions ? Get in touch and tell us about your investment successes and disasters or use the comment section below for a free copy of "Our Guide to Investing".
Jill Turner 26th June 2014
Up in smoke - is based on today's recent 60 second presentation to my local business referral group. It came about after reminiscing over my very first "proper" job, running the art department in a social services day centre for people with long term mental health challenges. Cigarettes became a type of currency, with an exchange rate pitched at 10 pence, designed in the main, to be a deterrent to smoking. On a personal level, quitting smoking was probably one of the best things I did and it all got me thinking, if you ever wanted a greater financial incentive to stop smoking, then read on.
Did you know..... that in 2014 the price of a pack of twenty Benson and Hedges is now a staggering £8.87 (according to the Tesco website). For someone who smokes twenty cigarettes a day that's £3,237.55 a year. Bear with me and my financial planning twist but if you gross that up by the basic rate of tax at 20% that will give a £4,406.25 annual pension contribution. For a higher rate tax payer this would become £5,395 per annum.
According to a recent report by a well known nicotine replacement patch manufacturer, the average age for someone quitting smoking is 27. So, imagine if you quit smoking twenty cigarettes a day and instead, the money that would have gone up in smoke was invested into a pension plan. By the age of 55 you could have a fund worth £301,000. This has been calculated based on contributions increasing by 2% per annum, investment growth of 5.4% and factoring in 1% for investment fees. Under current legislation, you could take 25% of that as a tax free lump sum giving £56,250 immediately, leaving the remainder to provide ongoing income. That's all due to change soon but that;s the subject of another blog.
So, for now, if you or anyone you know are trying to quit smoking please give them my contact details as this could be a huge financial incentive. Now, I did say at the beginning this was the basis of a 60 second presentation at a business referral group and not a technical blog, but if this has caught your attention please read on for details of how we can also help you to access the Allen Carr EasyWay to Stop Smoking programme at no charge to you, saving you even more money.
I work closely with Pru Protect, one of the world's leading providers of life insurance, income protection and serious illness cover for my clients. They are the only provider who actively offer incentives and rewards to improve your health. Now that's actually quite sensible of them really because the healthier their policyholders are, the less claims they will pay and in return they will reduce your premiums as you get fitter. Its the only life insurance product that I know where premiums can reduce and stay reduced over the term of the policy.
Pru Protect do this through their Vitality programme, designed to engage you with improving your health and rewarding you. Not only do your premiums go down as you achieve your health targets, you can also benefit with discounts various things including, gym membership, health checks, special offers on bicycles, free cinema tickets and what got me started on this, the free quit smoking course.
Here's the link to the Allen Carr EasyWay to Stop Smoking courtesy of Pru Protect. Yes, you have to be a policyholder but life insurance, income protection or serious illness cover its pretty helpful in its own right and once you've been free of nicotine for twelve months, your premiums will come down in price and you will benefit from non smoker rates, a saving of 30-40% on rates charged to smokers for the extra risk they pose in making a claim on their policy.
Most importantly you will be adding 10 years to your life according to a recent reports from the NHS.
If you want some local motivation in Sheffield we are pleased to recommend Suzy Newson of Train with Suzy.
Its not everyday that lawyers open their doors, provide refreshments, showcase videos and invite you to discuss your divorce concerns for free, but it seems as if SSB Law are not your everyday lawyers.
January is always a tricky month, a bit of a downer after the Christmas and holiday festivities, a cashflow drought after paying lots of bills compounded by the holiday overspend and tax payments for the self employed. Maybe as a consequence, it also happens to be the month when cracks in relationships start to show and the number of divorce enquiries received by solicitors increases.
With this in mind the family team at SSB Law launched a series of free coffee mornings where anyone can meet professionals and discuss those niggling questions running around in your mind. Danielle Barbereau, an experienced relationship and crisis coach was available to discuss any emotional issues and Angela Lally, Head of Family was there to share her knowledge and expert legal advice.
As a financial professional it was a priviledge to be invited to be part of the team, on hand to answer any queries people may have regarding pensions, financial assets, mortgages and life cover. I was quite nervous, wondering if someone might ask me a question that I wouldn't immediately know the answer to. There is of course so much we have to retain and after a disturbed night with my daughter teething I worried if my powers of recall would be sufficient. But this wasn't Question Time or Mastermind and what I learnt, is that people don't generally have the day to day knowledge of financial products and financial planning, that I perhaps take forgranted. It is easy for what I consider to be a relatively "simple to solve" problem, to occupy someone's thoughts and create sleepless nights.
I left the coffee morning feeling pleased that we didn't need to engage in conversations concerning reductions in yields, cash equivalent transfers, projected benefits and annuity rates, all the issues that fill my head and are the subject of current client reports. Instead, it was the simplest of questions, " Will I be able to afford the mortgage on my own" and it was the answer, Yes, that gave the greatest peace of mind.
So next time I am networking or someone asks me what I do, I'll keep it simple and say, I help people sleep at night.
Having a few days away during the school holidays gave me the luxury to read a Sunday paper, goodness knows who has the time to read such a wedge of paper. As I still had my financial planner head on, I turned to the money section first.
There on the back page was an interview with Luisa Zissman, the runner up from the 2013 season of the Apprentice. Whilst she's not the usual suspect that I would expect to be commenting on the UK tax system, her simplification of inheritance tax was both succinct and to the point. Quite right.
The Pharaohs made elaborate efforts to take their wealth to the next world but as Howard Carter and all of us know you can't take it with you. We work hard all our lives in our jobs or businesses hoping that our families will benefit, but if our individual estates are over £325K, the current nil rate band or £650K where a spouse or civil partner is utilising the transferable nil rate band, H.M.R.C. could take 40% of the amount over these figures to Inheritance Tax. Ouch!
It has been said that Inheritance Tax is a voluntary tax and there is a well developed advice sector often targeting the high net worth client but there are some simple steps everyone can take, here's three of them.
Keep it in the family.
The Benefits of using a Financial Planner
Whilst reading the blog articles please be aware of the following:
Welcome to the blog curated by Jill Turner. The pages are not intended to give advice, they are just the real life stories from a real life financial planner and the wonderful people I get to meet.
I want the pages to be engaging, informative and purposeful.
The information contained within this blog is based on our understanding of current government proposals and tax
law, both are liable to change in the future.
Jill Turner is a member of the Personal Financial Society