Cave & Sons News & Articles

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Cave & Sons - Investment Review Spring 2011

Previously we touched on the changes announced in December last year relating to accessing pension arrangements from April 2011 and beyond. These changes centre around the removal of the effective requirement to purchase an annuity at age 75, along with introducing some increased flexibility regarding how you may ultimately receive your pension benefits.

As you will be required to make such a decision at some point with regards to your accumulated pension ‘pot’ (even if that decision is to do nothing and remain as you are), it is worth familiarising yourself with the main features of the primary routes available, namely that of annuitising or income drawdown.

The established method of receiving a pension for the majority of people is through the purchase of an annuity. An annuity converts a pension fund into a guaranteed income for life. Alternatively, with a drawdown arrangement, income payments are taken directly from the pension fund, which itself remains invested (in those investments selected by yourself or your investment adviser).

With an annuity, your income will never run out, as it is secured for your lifetime, but with a drawdown it is possible that you may erode your capital and, as a result, end up with a lower level of income. The extent to which this may happen will be influenced most specifically by the performance of the underlying investments held within the drawdown and the actual level at which you are drawing (or have drawn) the income.

When you depart this world, your income dies with you under an annuity, although you do have the option when purchasing the annuity to elect to have income payments continue to your spouse if you have pre-deceased them. But with drawdown, when you die income payments can continue to your spouse or, if they are no longer alive, any remaining lump sum can be paid to your dependents.

An annuity therefore, buys you certainty and peace of mind, whilst drawdown gives you investment potential and risk, along with increased flexibility over both your income options and benefits on death. Clearly, the choice between which of these are of most benefit, will be very much down to your own circumstances. Whether you have income from other sources, your marital status and your individual risk profile, are all factors which will likely influence your decision at the time.

Should you be approaching your retirement date or merely wish to consider your pension options, Cave & Sons offer a full pension review service, alongside our wealth management and discretionary portfolio offerings.

It is always good to start the year off with a fresh start, and the recent announcement that the government has at long last bowed to pressure and removed the requirement for compulsory annuity purchase for pensions from April 2011 is hopefully a sign of a fresh and more sensible approach to pension regulation.

The previous government tried by offering the universally rejected Alternatively Secured Pension (ASP), reportedly for those aged 75 and above with a religious objection to annuities. However, the potential tax charge of up to 82% meant this option was never taken seriously.

In the draft legislation for the Finance Bill 2011 the confusingly named Unsecured Pension (USP) will revert back to being known as Drawdown as of 6^th April 2011 and be available in two options:

Capped Drawdown, which will be similar to the current rules whereby the member can draw down an income from the pension fund albeit restricted to the Government Actuary’s Department (GAD) rate, broadly equivalent to a single life level annuity rate applicable for the member’s age and gender.

The Flexible Drawdown option will provide the ability for unrestricted withdrawals so long as the individual has already secured for themselves a minimum income requirement (MIR) of £20,000 per annum (this can include state benefits). 

The ability to access the full value of these funds will be attractive for those retirees who have felt hamstrung by the current rules. Due care though will be required as many retirees significantly underestimate their long term income requirements, especially as life expectancy continues to increase. A dash to encash may not always be appropriate.

The government has also taken the opportunity to extend access to a pension commencement (lump sum tax free lump sum) beyond age 75.

The one detrimental change in the legislation is the proposed increase in the tax charge applicable to death benefits if withdrawn as a lump sum. Currently under USP rules the charge is 35% on the fund value which will increase to 55%. As a result proper advice on how best to take benefits is even more important.

All of the potential charges and their impact should be considered prior to any action being taken. Cave and Sons offer a full range of pension services and can help guide you through the various options and can be contacted on 01604 621421.

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Cave & Sons Investment Review - Summer 2010

Recent announcements by the new Government could allow unused pension benefits to be passed to relatives more tax efficiently, further enhancing the attraction of retirement planning through such schemes.  Peter Brydon, Associate at Wealth Management firm Cave & Sons provides further information regarding some of the proposals.

At present, when you retire you can typically elect to take 25% of your pension savings as a tax free lump sum with the rest being used to provide an income.  The vast majority of people buy an annuity which will pay an income for life, although some elect for an alternative route commonly known as Income Drawdown.  Through these structures you draw a portion of your pension fund each year as income, leaving the balance invested.

Under current rules, when you reach age 75 you are forced to either purchase an annuity or switch into an Alternatively Secured Pension (ASP).  The latter is broadly the same as Income Drawdown (with somewhat different income limits) and allows you to pass on assets to your spouse or beneficiaries on death but there is a tax charge of up to 82%.

The new proposals will do away with the requirement to purchase an annuity or take an Alternatively Secured Pension at age 75.  As a result it will be possible to defer taking benefits from your pension, including the tax free lump sum, beyond age 75.

Should you die before age 75 and have not withdrawn any money, your whole pension pot can be passed on to your spouse or beneficiaries tax free.  On death after age 75 a tax charge will apply on any lump sum death benefits at a likely rate of 55%, as will be the case on death at any time after benefits have been taken.  This tax charge is designed to broadly recoup the initial income tax relief given when investors place money into a pension and is significantly lower than the potential tax charge of 82% that currently applies.

Another interesting potential change is that provided you have secured a sufficient minimum income requirement, you will be able to take as much of your pension fund as income as you want, allowing you to maximise your income at the expense of capital.

All in all, the proposed changes bring some relatively positive news to the already hot topic of retirement planning.

Previous budgets have promised ‘something for everyone’. In delivering the first Conservative/Lib Dem budget, George Osborne promised something from everyone in his ‘progressive budget’ speech to balance the books by 2016.

Capital spending totals would be maintained but ‘careful choices’ would have to be made about how it would be spent.

Mr Osborne said the government would cut the structural budget deficit - borrowing not caused by the recession - to zero in the next six years. To achieve this VAT will be increased to 20%.

Capital Gains Tax (CGT) for higher rate tax payers will rise to 28% with immediate effect but there is no change to the rate of CGT for basic rate tax-payers.

The government is also to look at how to limit higher rate pension allowances and will also accelerate the increase in state pension age to 66.

For full details please see our full Budget Summary here.

Cave & Sons stockbroker Paul Murray joined family, friends and clients to cycle 103 miles from Neville Holt in Leicestershire to Brancaster on the east coast of Norfolk, in aid of the Teenage Cancer Trust.

Paul, who opened the company’s first Leicestershire office in the town’s Friar Lane last year, said: “I have been doing this annual cycle ride for a few years now and what started as a small group of us aiming to raise a few hundred pounds has grown into a well known event, Century Cycle Challenge, which raises thousands. Thanks to the generosity of Cave & Sons clients, my colleagues and an awful lot of my friends we have raised a staggering amount, over £120,000.

“Every day in the UK, six teenagers are told they have cancer. This is a rising figure and there are already more young people than children with the disease. These young people often get a raw deal, receiving hospital treatment in inappropriate facilities catering for children or the elderly. These funds will help the Teenage Cancer Trust make a real difference to young people’s lives.”

Cave & Sons offered the event additional support by sponsoring a pitstop on route, on the Sandringham estate. “I managed to get some training in before the event,” said Paul, “but the aches and pains I have now would imply I could have done a little more!” Paul now plans to get in training for another challenge, and is considering climbing Mount Kilimanjaro next year.

You can contact Paul on (0116) 271 7210, email paulm@caves.co.uk.

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investment-review-spring-2010

More than 30 businesses from Northamptonshire battled it out this month in a bid to be crowned the 2010 Hearts and Minds Challenge. The corporate quiz, compered by Heart FM DJ Murray J, raised more than £4,000 for Northamptonshire Community Foundation - a grant giving charity which supports grassroots community and voluntary groups.

Stockbroking and investment management company, Cave & Sons, were crowned the evening’s winners. A Herald & Post team finished 12th out of the 37 teams taking part.

Cave & Sons director Simon Harvey said: “What a fantastic event. “We were delighted to win, if a little surprised. However, the focus must be on the worthy causes that will benefit from the generosity of all the local firms who took the time out to participate, and on the team and volunteers at the Foundation whose hard work made the event such a success.”

Victoria Miles, chief executive of Northamptonshire Community Foundation, added: “The Park Inn proved a wonderful venue and our 38 teams of six were treated to a fantastic and interactive quiz papers and pens weren’t even necessary with everyone using their hand-held consoles to answer eight rounds of questions.”

Stockbroker Cave & Sons continues to receive alarming calls for help from local people apparently conned by ‘boiler room’ salesmen. The conmen, who earned their nickname from the high pressure sales techniques they use, trick the public out of millions of pounds each year by persuading them to buy shares in non-existent or worthless companies.

Cave & Sons’ warning comes as industry regulator, the Financial Services Authority (FSA), looks to crack down on ‘boiler room’ salesmen.  Over the last 12 months the FSA has suspended eleven firms from trading, accusing them of deliberately targeting more vulnerable sectors of society, such as older, retired people and failing to explain the risks associated with risky and complex products.  Unfortunately though, many of these scams are operated from abroad where the FSA has no jurisdiction.

In a typical scenario, an investor may receive an unsolicited call from a stockbroker purportedly based in the UK or the US, though usually they are based wherever the local law enforcement is most lax. Convincing and persuasive, the caller will encourage you to invest in a high-growth smaller company, often in advance of a major announcement or stockmarket listing that is likely to ‘double your money’. They may offer guaranteed profits but almost always fail to deliver. In many cases the companies you are investing in don’t even exist!  Sophisticated boiler rooms often use names very similar to legitimate companies and have been known to set up dummy websites to con the unsuspecting investor.

Paul Murray, who heads up the Leicester office of Cave & Sons, said: “As is generally the case, if it seems too good to be true, it usually is. Be very careful when receiving unsolicited calls about investment. It is surprisingly easy to be duped by a convincing sales call and the promise of riches for very little risk.”

So how do you know if you’re being conned? According to Paul, the best advice is to check if the company selling you the shares is regulated by the FSA by calling their consumer helpline on 0300 500 5000 or by visiting www.fsa.gov.uk/register.

If they’re not regulated, even if they say they don’t need to be, then it’s likely that they’re committing an offence by trying to sell you shares and whatever happens you won’t be covered by any of the UK compensation schemes.