Financial Ombudsman issues guidance on Powers of Attorney

Registering a power of attorney can often be a stressful time for all those involved but recent reports have revealed that the situation may be further exacerbated by financial institutions failing to recognise powers of attorney at critical times, particularly when a loved one has lost their mental capacity.  In response, the Financial Ombudsman has issued guidance, tips and information about handling difficult situations.  The information is intended for consumers and banks and can be accessed via the Financial Ombudsman website.

A key focus of the resources designed by the Ombudsman for financial institutions is on helping banks understand the stress that a Donee (the person registering a power of attorney) could be under and how they can avoid issues that may lead to complaints against the bank.  The informative website also explains what a power of attorney is and when it might be used.

Consumers can also refer to the website to better understand the requirements of their bank to enable a power of attorney to be registered.

The aim is to resolve many of the misunderstandings around powers of attorney which tend to be at the root of the problems that arise.  Although some situations will still require further help from the Ombudsman, the Office of the Public Guardian and the Courts, it is hoped that this new guidance will help bank staff talk through the options with customers and their loved ones, helping them to better serve the interests of a Donee dealing with dementia or other conditions that may affect their mental capacity.

BLM Blogs are not meant, or designed, to offer personal advice; for advice in relation to your own situation, please contact us.

New Pension Freedoms – how you can you use your pension fund to pass money to your children.

The new pension rules, which came into force in early April 2015, have received a great deal of attention in the last few months with the main focus being on people being able to access their funds in new and exciting ways. For example, the couple who have been in the news recently who have sold up and set off on a round-the-world voyage in a small boat…all on the strength of being able to access her pension fund!

However, there is another significant change that has been less publicised – the ability to pass a pension fund on to children or other beneficiaries i.e. intergenerational planning.

For some, a pension fund is now seen as a good way of passing wealth onto their children, rather than providing an income for themselves. Those who are able to live off other means, rather than their pension, could use the pension as a very tax efficient way of passing their wealth to their beneficiaries.

Broadly speaking the death benefit changes can be split into 3 categories:

  1. Death before the age of 75: Your pension fund can be passed on tax-free.
  2. Death after the age of 75: Your pension fund can be passed on but is taxable at a lower rate of 45% (rather than 55%), although there are ways to reduce this.
  3. On death the fund can be passed to an individual, a pension fund of an individual, a trust or a charity.

With the introduction of the new pensions freedoms a whole new world of flexibility has been opened up and we are already seeing a shift in terms of how pensions are perceived; from inflexible often maligned financial products to dynamic and exciting products offering a multitude of possibilities.

As a starting point anyone with an existing pension should review their death benefit nomination. Moving on from there, clients should consider whether their pension really is ‘their’ pension or something else entirely!

BLM offers a pension review service offering to review existing arrangements to optimise them for a client’s situation and ongoing requirements. To contact us click here.

There could be adverse consequences in taking or re-arranging your pension benefits and you should always seek advice from a suitably qualified and able financial adviser.

BLM Blogs are not meant, or designed, to offer personal advice; for advice in relation to your own situation, please contact us.

Can I cash all my pension in (and buy a Lamborghini)?

The biggest changes to pensions in a 100 years came into effect this week, on what is now being referred to as ‘Pension Freedom Day.’ If you have been following our series of blog posts on the 2015 pension reforms we hope you have found it useful so far. This week we’re focusing one big question that is on many people’s minds: Can I cash all my pension in (and buy a Lamborghini)?

In short, the answer is yes and, in case you’re interested, the reference to the Lamborghini was made by Pensions Minister Steve Webb who said that people could indeed choose to spend their entire pension pot on a sports car if they wished.

Having greater freedom over your pension fund brings with it greater responsibility. If you have other sources of income that can support your lifestyle throughout retirement then you may decide to cash in your pension fund and spend a lump sum. An important point to consider here is that only 25% of your pension will be tax-free – the rest is subject to tax at your marginal income-tax rate.

We would however urge caution; the DWP (Department for Work and Pensions) has said that for anyone applying for means-tested benefits they will be assessed on the basis that the pension exists, even if all the money has been spent. This could mean that people who spend the lot may not be entitled to housing benefit, jobseeker’s allowance or pension credit in the future.

There are a number of other options now available, including:

  • Draw from your pension fund gradually, taking a regular income or withdrawing money as and when you need it.
  • Buy an annuity which will provide a guaranteed lifetime income.
  • Leave your pension untouched and pass on to your children, grand-children or spouse when you die.

What is clear, is that it’s now more important than ever to seek advice before making decisions about your pension.

Our advisors are on hand to advice on your individual circumstances and our At Retirement services will guide you through the options available to you, so feel free to get in touch.

Keep an eye out for the next post in our series, which will consider how a pension can be used for intergenerational planning.

BLM Blogs are not meant, or designed, to offer personal advice; for advice in relation to your own situation, please contact us.

Help to Buy ISA

The Government has recently introduced a new scheme that will help first-time buyers get a step on the property ladder. The new Help to Buy ISA will be launched in autumn 2015 (exact dates to be confirmed) and offers savers a cash boost towards the cost of buying their first home.

If you or someone you know are considering saving into a Help to Buy ISA, here’s what you need to know:

How does the Help to Buy ISA work?

Save up to £200 per month and the Government will add a 25% bonus. It will also be possible to start the ISA off with an initial deposit up to £1,000, on top of which the Government will contribute 25% (£250 in this instance).

The scheme is open to first-time buyers and account holders must be over the age of 16. There is no income criteria so anyone can open a Help to Buy ISA providing they have never owned a house before.

Is there a minimum saving limit?

The minimum you need to save into the ISA is £1,600. The maximum contribution that the Government will make is £3,000 (on a £12,000 balance).

How can I open a Help to Buy ISA?

The new ISA will be made available through high-street banks and building societies, which will each set their own rates, as they do with normal cash ISAs. This means that you can also earn interest on your savings, as well as receiving the Government bonus.

You can only open one Help to Buy ISA, unlike a cash ISA which allows you to open one each tax year. You will, however, be allowed to continue saving into the ISA each tax year. You will also be permitted to transfer an existing Help to Buy ISA to a new provider, for example if interest rates drop with your current provider.

As the ‘one account’ rule applies per person, if you are a couple you could both open a Help to Buy ISA as individuals.

It’s important to note, you cannot save into a cash ISA and a Help to Buy ISA in the same tax year. So, if you’re thinking of opening a Help to Buy ISA when they are launched in the autumn, you would not be able to open a new cash ISA or deposit cash into an existing ISA after 6th April 2015.

When and how will I receive the bonus?

You will receive the bonus, in the form of a voucher that is sent directly to your mortgage lender, when you purchase your first home.

You will be able to use the voucher towards any residential mortgage deal, it does not necessarily have to be a Help to Buy mortgage.

Opening a Help to Buy ISA for your children

The minimum age for a Help to Buy ISA is 16 so you cannot open one for children under this age. If your child is over 16, you can encourage them to open one which you are then free to deposit cash into.

BLM Blogs are not meant, or designed, to offer personal advice; for advice in relation to your own situation, please contact us.

Who stands to benefit most from the changes to pensions?

Welcome to the second in our series of blog posts which aims to explain the upcoming pension reforms (due to come into effect April 2015) and the varied implications they might have. If you haven’t read our introduction to the 2015 pension changes yet, you can do so by following the link.

Up until recently people with Personal Pensions or Money Purchase Pensions reaching retirement age were faced with a decision of either taking an Annuity or leaving their money invested and taking income using a Drawdown type of arrangement. From April 2015 both methods will remain available but those not wanting to use either route can access the fund directly by taking a series of withdrawals.

Unlike an annuity, or a drawdown scheme whose income was capped, the new ways of accessing the pension fund will mean that people can make a conscious decision to run their fund down. For example, someone with a pension fund of £30,000 could opt to take £5,000 or thereabouts a year over 6 years thus fully exhausting the fund over that period. Some of this could be taken Tax free and some will be subject to Tax at the marginal rate.

It can be argued that those who have smaller pension funds will stand to gain the most, at least in the short term. The problem these people will have to overcome is the big question of ‘what happens after my pension fund runs out?’

Politicians seem to be suggesting that the new guaranteed minimum pension (to be introduced in the future) of around £148 per week will be enough for people to live on. But will it?

For those who seek to pass down their pension fund to their spouse, children or grand-children, the new rules will certainly help them achieve this goal but only when a suitable product is put into place.

From April 2015 the choices will be more varied. With choice comes complexity. With complexity comes risk; risk that the wrong decision could be made and in some cases this may be irreversible or at least costly.

For those seeking help and guidance with the options available to them when taking their pension, BLM’s ‘At Retirement’ service offers to guide clients through the options and complexities. Contact us for advice based on your individual circumstances.

The next post in our series of blogs about the 2015 pension changes will consider whether you can cash all your pension in (and buy a Lamborghini).

BLM Blogs are not meant, or designed, to offer personal advice; for advice in relation to your own situation, please contact us.

Changes to the rules that govern how you can take your pension

In April 2015, new pension rules come into force. These changes, based around the Chancellors budget of 2014, will have a wide ranging impact on many people taking money out of their pensions.

The rules affect those with a defined contribution pension; usually referred to as a Personal Pension Plan. The change of rules could also apply to those who have a funded defined benefit pension scheme but not those who have an unfunded scheme.

The changes to pensions have been hailed as being revolutionary; ground-breaking and even exciting!

There are so many changes and implications that it is impossible to cover them in one blog.

We therefore intend to issue a series of blogs and updates with each one dedicated to a particular strand of change to the rules. For example, we will look at

  • Who stands to benefit from the proposed pension changes of 2015
  • Can I cash all my pension in (and buy a Lamborghini)
  • How a pension can be used for intergenerational planning
  • How a pension can be made to provide a higher level of income than would have been available under the old rules and what impact this might have overall
  • Why making the right decision at the outset is so important and the dangers of making a wrong decision
  • How to be smart about accessing a pension to take maximum advantage of the 2015 changes
  • Why it is so important to check who is nominated as your beneficiary when you die
  • Why a pension may be a better proposition than an ISA.

Another strand to the changes is that everyone is now to be provided with free guidance on what their options are. Supplied primarily by the Citizens Advice Bureau and the Pensions Advisory service, those who are reaching their selected retirement age will be able to get guidance on what their options are. It is important to understand that guidance differs from advice. Advice is usually based on your own situation and requirements taking into account all the options available whereas guidance is more generic and not necessarily tailored to your own situation.

The need for advice has never been so great; a wrong decision could be costly and irreversible. There is more choice but also an added complexity to the whole situation and could lead to more questions than answers.

BLM will continue to offer its ‘pensions options at retirement’ advice service and expects high demand from existing and new clients faced with more options than ever before.

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If you require advice rather than guidance, BLM can assist you by clicking here

Care Fees Cap

A summary of how the care fees cap will work and how you can find out how much you might pay overall.

In a news item on Wednesday 28th of January 2015, the BBC highlighted the issue of care costs and in particular the ‘cap’ on care costs that will come into force in April 2016.

The cap, which has been set at £72,000 [and is far higher than was proposed by Andrew Dilnot, the author of an independent report on funding for care costs], only applies to the cost of care. Most notably, it does not apply to so called ‘Hotel Costs’; the costs of providing accommodation and general living expenses.

The result of this is that, rather than paying a maximum of £72,000 for care, an individual could be faced with much higher overall costs to include ‘Hotel Costs.’

It is important to understand that the cap will not apply to everyone – only those who qualify will benefit from the cap. For example:

  • they have to be over the age of 65;
  • if a person is living at home, they must be struggling with daily tasks such as washing, dressing and eating.

Most people in care homes are likely to qualify, however, there are a great many people living at home who are just about managing to get along and they may find it hard to qualify. This means that they could have been effectively paying for assistance themselves but this won’t qualify towards the cap because they were not deemed to have been ‘struggling.’

Another contentious issue is that cap only commences in April 2016 and any costs spent prior to that will not be counted in the cap.

Because the cap only applies to the actual cost of care, those moving into a long-term care home will not have the full cost of the care accruing towards the cap. For example, the average cost of a care home in England is £574 per week. However, £230 of that cost will not count towards the cap because this is deemed as the ‘hotel cost’ i.e. the cost of accommodation and food.

There a further dimension to take into account too; an individual’s bill only accrues at the rate a council would pay for a place in the care home. Many care home providers say this does not cover the true cost of care so they charge people who are funding themselves more. Sometimes these fees can be twice as high.

The last two factors explain why by the time a person reaches the cap they may have paid far more than the £72,000 it is set at.

For example, say an individual is charged £1,000 for a care home place, but the council has negotiated a rate of £730 for the people it places (those people with low means who get help before they reach the cap), only £500 (£730 – £230 living costs) of the individual’s weekly bill will count towards their cap.  It means they will have paid out £144,000 by the time they reach the £72,000 figure.

It is reported that very few people will actually benefit from the cap. Government estimates put it at about one in eight people. This is perhaps because the average length of stay in a care home is just over two years. Yet in many parts of the country it will take longer than that to reach the cap. In short, most people will be dead before the state helps out.

As well as producing the news report, the BBC have also launched a calculator so that an individual can estimate how much they (or their relative) might end up paying before the cap comes into effect. The calculator can be found by clicking on the following link:
http://www.bbc.co.uk/news/health-30990913

As a SOLLA accredited adviser, Stephen Sale can give advice to people and families facing the reality of paying for care costs. Contact us to discuss your individual circumstances by telephoning 0113 282 5017 or email info@blm-group.co.uk

Source: BBC news

The Inheritance and Trustees’ Power Act 2014

Last year we saw significant changes to intestacy rules and trustee’s powers introduced by The Inheritance and Trustees’ Power Act 2014.  Whilst the changes have been welcomed in the main, a client’s intentions may not come to fruition without a thorough and regular will review and, in many cases, this should be done in coincidence with independent financial advice.

Now, more so than ever, it’s vital for clients to have a will in place to ensure that their assets are dealt with according to their wishes when they pass away.  Whilst spouses stand to benefit from the new rules, co-habiting partners and step-children, in particular, will receive nothing if a will is not in place.

What has changed?

Intestacy rules govern how a deceased’s estate will be divided if a valid will is not in place.  In summary, the changes mean that:

  • If the deceased has no children, then their spouse or civil partner will receive 100% of their estate outright. Prior to the changes, parents or siblings may have been able to claim a share of the estate.
  • If the deceased has children, then their spouse will receive;
    i) all ‘personal chattels’
    ii) £250,000 outright (or the entire estate if the value is less than this amount)
    iii) 50% of the remaining balanceThe remaining 50% will be inherited by the deceased’s biological or adopted children.  If under the age of 18, their share will be held in trust until they reach the age of 18.
  • The £250,000 level will be reviewed at regular intervals to keep pace with inflation.
  • The definition of ‘personal chattels’ has been simplified to include any tangible moveable property, such as jewellery or furniture. This definition has three key exceptions:
    i) money and securities
    ii) assets used solely or mainly for business
    iii) assets held solely or mainly for investment purposes

Whilst these changes benefit spouses, they may not always reflect the wishes of the deceased.  For example, they may prefer their children to inherit only when both parents have passed or they may wish for step-children to receive a share of their assets.  These kind of specific requests must be dealt with by a will as they are not accommodated under current intestacy rules.

Pension Death Benefits

Alongside a will review, your client’s pension death benefit instructions should also be reassessed, particularly in light of the Government’s recent abolishment of the 55% tax charge upon death.  These changes have made it possible for savers to pass on their pension as inheritance, making it a more attractive investment proposition.

Case Study: Working with Solicitors who are acting as Deputy

We were introduced to a firm of Solicitors who were seeking professional advice prior to investing their client’s financial assets on her behalf.  The Solicitors had been appointed as Deputy and approached BLM Partnership for an assessment of the client’s savings and investments.

It was important that we gained a thorough understanding of the client’s circumstances before making a recommendation:

  • The client, Mrs G, had dementia and had been deemed unable to make decisions for herself.
  • Mrs G had children and family but they did not wish to be involved with the care of her affairs.
  • The Solicitors were, therefore, appointed to act as Deputy.
  • Mrs G had savings which was mainly being held in deposit accounts. This money was being used to fund her long term care.

The Solicitors wished to ensure that Mrs G’s money was dealt with in the best possible way and that they fulfilled their duty as Deputy, as they may be held accountable.  It was, therefore, essential that they seek professional advice about where to deposit and how to invest Mrs G’s money in order to make it last as long as possible.

How we helped

We familiarised ourselves with Mrs G’s situation and requirements including the cost of her care and her state of health.

We then looked at a range of options from maximising deposit account returns to the purchase of an immediate care annuity.  An annual review was arranged so that the situation could be reviewed periodically, taking into account any changes to Mrs G’s situation.

The Solicitors main concern was that they could be held accountable by the family if they were deemed to have somehow squandered Mrs G’s money. By taking advice and acting on it, they would be able to demonstrate that they had taken all reasonable care to ensure the longevity of Mrs G’s savings.

As Mrs G’s savings reduce and go through the upper limit of £23,250 to the lower limit of £14,250, further advice will be needed as this is the sum that likely passes to her beneficiaries.

Our case studies are designed to give you an insight into how we have advised a variety of clients on their specific financial needs.  It is intended for information and illustration only and should not be taken as individual advice.

If you have any questions relating to your own circumstances, please contact us.

* In order to protect the confidentiality of our client’s, we have changed the names in our case studies.  They are, however, all based on the real life experiences of our clients.

Is your money stuck in a Zombie Fund?

There has been much talk about so called ‘zombie funds’ of late, with the Financial Conduct Authority launching an enquiry into them as part of a wider enquiry into the possible mistreatment of longstanding customers.

The pension and investment policies under scrutiny date back to the 1980s and, although the FCAs enquiry is focused on the high penalty charges that some of these policies incur if the investor wishes to move their money, this is not the only reason why ‘zombie fund’ customers should be concerned, particularly as many will now be approaching retirement.

What is a Zombie Fund?

The terminology may mean different things to different people but the general ethos is that many funds have lost direction and focus with some charging high fees to stay in and high fees to get out. Commonly these funds will be closed to new business and with no new money going into them, one could be forgiven for thinking that the fund managers have little incentive to produce a good return for their investors.

Pension Review Service

If you have a pension, and have had it for some time:

  • Do you know what it is invested in?
  • Do you know how it is performing?
  • Is the fund still suitable and does it reflect your attitude to risk?
  • Are you paying high charges?
  • In the event of your death, will the right people inherit the pension fund?

Our pension review service will answer these questions for you.

An example where our Pension Review Service has helped answer these questions:

Our client was 51 years old and intended to retire at the age of 65. He had arranged his pension in the early 1990’s at a time when he was self-employed. He had latterly become employed and joined his employer’s pension scheme at which point he stopped paying into his own personal pension. Since he started paying into his pension he had divorced.

As part of our Pension Review Service we talked to our client about his attitude to risk, expected retirement age and personal situation as well as his expectations from his pensions.

We made contact with his pension provider in order to establish the facts surrounding the plan and identified a number of concerns such as:

  • The pension fund had grown to ~£200,000 but was wholly invested in one fund.
  • We had assessed our client to have a medium risk approach but in isolation the investment fund was suitable for higher risk investors.
  • The nominated beneficiary, who would receive the pension fund should he die before retirement, was his ex-wife.
  • The selected retirement age, i.e. the age the provider was expecting him to take his benefits, was 55 as opposed to his expected retirement age of 65.

We considered a range of options including re-aligning the funds to reflect the client’s attitude to risk and diversification through selection of multiple funds. We established that the provider only had a few dozen funds available and many were unsuitable or unattractive.

One of the options was to transfer to a new Pension Provider and invest in a wide range of funds through an Asset Allocation Model suited to their risk profile. The overall charges were marginally higher than was being paid but the client felt that these were worthwhile given that he would receive a range of additional benefits including:

  • Funds that are monitored on a regular basis and switched if necessary;
  • Diversification by investing in a range of funds;
  • A regular review strategy that would facilitate changes to his situation and requirements;
  • Alignment of the pension to reflect his intended retirement age and overall retirement strategy.

As part of the process of arranging the new pension the client was able to set new beneficiaries. These people would receive the pension fund should he die before retirement.

If you’re concerned about the performance of your pension fund or you just want to check that your investment is performing as best it can, then get in touch with us today.

The value of your investments can go down as well as up, so you could get back less that you invested