What do the changes to the State Pension mean for you?

Monday, 1st April 2013

What do the changes to the State Pension mean for you?

As part of its plan to give people clarity about what they can expect to receive when they retire or reach old age, the government is introducing a single-tier State Pension from 2016-17.

To qualify for the full entitlement, currently £144 per week, individuals will need to have made at least 35 years’ worth of National Insurance (NI) contributions. Anyone with less NI records will receive a proportion of the full rate, as long as they have between seven and ten years’ NIC (this threshold is yet to be clarified).

It is possible to buy extra NI years to ensure you qualify for the full entitlement, although this will need to be done within six years of the missing years.

The new rate will, however, only apply to those who reach state pension age in 2016 or beyond. Current pensioners will keep their existing entitlements, which will, in many cases, be less generous.

Furthermore, the changes mean that the second state pension – the successor to the state earnings-related pension scheme (SERPS) – will no longer exist from this date. While individuals who have built up an entitlement under this scheme will still receive their payments, they will not be able to accumulate any further benefits, as there will be nothing to contract out of.

As a result, members of final salary pension schemes and their employers will be required to make higher NI contributions – which could lead to the closure of many such schemes.

At  French & Associates Ltd, we can advise on all aspects of retirement planning, including making the most of your pension arrangements. Please contact us for further information and guidance.


Insurers pay out £6.7 million every day

New figures have highlighted the value of insurance in helping policyholders cope with the financial difficulties that can arise following a death, serious illness or injury.

The statistics from the Association of British Insurers (ABI) revealed that every day in 2011, insurers paid out £6.7 million, shared between nearly 170 individuals and families who made claims on life, critical illness and income protection insurance policies.

Other findings included:

  • The average pay-out on a life insurance policy was £46,000. A total of 97 per cent of life insurance claims were paid, with those declined due to customers failing to disclose relevant medical information to their insurer or fraud.
  • The average pay-out on a critical illness insurance policy was £59,000, with 92 per cent of claims paid, up from 80 per cent 2005.
  • The average claim in 2011 on income protection policies was for £14,000 annually, paying out on average for 260 weeks (five years) to help those unable to work.

Stephen Gay, the ABI’s director of savings and protection, said: “The insurance industry pays out £6.7 million every day in individual life, critical illness and income protection insurance claims, making a real difference to people’s lives at the most difficult of times.”

He added: “Insurance companies want to pay all valid claims. The ABI is always looking at ways to reduce the number of claims that are declined, for example because the customer has not provided all relevant information to their insurer, or has not understood that the claim they want to make is not covered by insurance.”

Working with an experienced insurance professional like our specialists at  French & Associates Ltd is a sensible step to ensure that your insurance policies are right for you, including in terms of the circumstances in which you will be able to make a claim. For more information, please contact us.


Making the most of the Seed Enterprise

Investment Scheme

If you have substantial assets you would like to sell, getting the timing right can be crucial in order to minimise your capital gains tax (CGT) liabilities.

One option available to achieve this goal is the Seed Enterprise Investment Scheme (SEIS), which enables individuals to invest up to £100,000 in a qualifying start-up business in return for attractive tax breaks.

In addition to 50 per cent income tax relief, the scheme also provides a capital gains tax exemption on gains realised in the 2012-13 tax year and then invested through SEIS in the same year. Investors can now carry back relief to avoid paying capital gains tax on such investments made before April 2014 – a year later than originally expected. However, there will be a limit on the amount that can be carried back.

Furthermore, the government confirmed in the Budget that it will legislate to provide relief for 50 per cent of capital gains realised in 2013-14 which are reinvested through SEIS in 2013-14 or 2014-15.

The income tax relief on investments in shares in companies that are two years old or less, with 25 or fewer employees and assets of up to £200,000 will still be available, as the legislation covering this does not expire until 2017.

However, this will not be available where the individual is an employee of the company (unless they are also a director), or has a greater than 30 per cent interest in it.

To find out more about how you can make the most of SEIS, please contact us.


The benefits of placing life insurance policies in trust

With the inheritance tax threshold set to be frozen at £325,000 until at least April 2018, it is imperative that individuals take action to minimise their liabilities.

One way to achieve this is by placing your life insurance policies in trust, and yet very few policies in the UK are set up in this way.

Without taking such action, the assured sum will be added to your other assets to determine the value of the estate. If this is over the £325,000 threshold, then your beneficiaries could lose 40 per cent of the value of the policy.

However, by placing such policies in trust, they are considered to be outside of your estate for inheritance tax purposes. Furthermore, as the proceeds of the policy can be paid immediately, your beneficiaries can benefit more quickly as the money will not go through probate.

In addition, you have greater control over the policy, as you can specify how the proceeds should be paid out and who should benefit. Even if you are in debt at the time you die, the sum will be paid to your beneficiaries rather than your creditors.

However, it is important to bear in mind that once the trust has been created, the policy cannot be cancelled without the trustees’ permission.

At  French & Associates Ltd we have many years’ experience in advising on life insurance policies and setting up trusts, so we can provide dedicated guidance tailored to your individual circumstances.

Please contact us for more information.


UK retirees will use up savings in 7 years’

Figures show that the average UK retirement will last for 19 years – but that average retirement savings will be used up after just over a third (37 per cent) of that time.

The findings were revealed in HSBC’s The Future of Retirement: A new reality, which covered 15,000 people in 15 countries around the world.

This 12-year shortfall in retirement savings in Britain was the worst identified by the international study. In comparison, the average expected retirement for all countries surveyed was 18 years, with retirement savings lasting for ten years.

The best performing country was Malaysia, where the average expected retirement was 17 years with savings lasting for 12 years.

The survey also found that currently 56 per cent of the global working population was failing to prepare adequately for later life, rising to 66 per cent in the UK.

Of these, 19 per cent globally were not preparing at all, rising to one in three (34 per cent) in the UK – yet financial concerns were people’s greatest fear about living in retirement, with 63 per cent in the UK saying they feared financial hardship (compared to 57 per cent globally), and 31 per cent worrying that they would have to work longer than they want to.

The study also showed how vulnerable retirement savings were to being drawn on to meet shorter-term needs. In the UK, 14 per cent of those yet to retire said they would dip into their retirement pot to cope with major life events such as buying a home or paying for children’s education.

However, more than half (57 per cent) of those not yet fully retired in Britain would willingly put saving for a holiday ahead of saving for retirement (compared to 43 per cent globally).

Christine Foyster, head of wealth development at HSBC UK, said: “People throughout history have faced the question of how to provide for the future, and today’s savers are no exception. The solution is simple: the earlier you start to plan the better prepared you will be.

 “For some this may mean beginning to save more, whereas others will choose to work longer. The key is for everyone, regardless of age or income, to make small changes now to ensure they get the retirement they expect.”

At  French & Associates Ltd we offer a pensions review service, to help you understand any existing pension arrangements you may have and advise you on your options for achieving a more financially secure retirement.

We can also help you if you would like to take a first step towards planning for retirement.

To find out more about how we can help you, please contact us.


Pension thresholds set to drop

Significant changes to pension tax relief are set to be introduced in 2014-15.

The annual allowance for pension contributions eligible for tax relief will be reduced from £50,000 to £40,000, and the lifetime allowance from £1.5 million to £1.25 million.

Meanwhile, the government has said it will introduce a scheme called fixed protection 2014, which will work in the same way as the fixed protection regime introduced from April 2012, when the lifetime allowance was reduced to £1.5 million. That reduction followed a cut in the annual allowance from £255,000 to £50,000 in 2010.

Individuals who apply for fixed protection 2014 will have a lifetime allowance of the greater of £1.5 million and £1.25 million, subject to certain conditions being met. An individual protection regime will also be offered, with the government to consult on the details before introducing legislation in Finance Bill 2014.

It is anticipated that individual protection will provide a lifetime allowance of the greater of the value of their pension rights on 5th April 2014 (up to an overall maximum of £1.5 million) and the standard lifetime allowance (£1.25 million from April 2014). However, unlike with fixed protection 2014, people with individual protection can carry on saving in their pension scheme without losing their protection.

Any pension savings above the individual’s lifetime allowance will be subject to a lifetime allowance charge when benefits are taken. Individual protection will only be available to those with pension pots over £1.25 million on 5th April 2014.

Those who already have one of the existing protections (primary, enhanced or fixed protection) will not be affected by the changes.

Savers still have the 2013-14 tax year in which to make an annual £50,000 pension contribution. Unused allowance from the previous three years can also be brought forward to increase pension contributions and HMRC says the level of any unused allowances from tax years 2011-12 to 2013-14 that can be carried forward to 2014-15 and subsequently will be based on the £50,000 limit.

For more information on how the changes could affect your pension and what action you need to take, please contact us.


This newsletter has been produced by French & Associates Ltd. This company is authorised and regulated by the Financial Conduct Authority. The information contained herein is intended to be of a general nature and for information purposes only. Comments made should not be considered as advice. It is important that any action, or non action, should be taken only after contacting us for further information so we can evaluate your own specific requirements and provide tailored advice accordingly. The information provided is based on our understanding of the current rules and regulations. These may change in the future.