What happens to my Self-Invested Personal Pension when I die? By Senior Consultant Chad Atwal

By | Financial Planning, Latest News

Frequently, I am asked about death benefits and Self Invested Personal Pensions (SIPPs). I detail a few pointers below and recommend you contact your adviser if you require further information on this area.

What happens to my SIPP if I die?
Death benefits can be paid to beneficiaries as a lump sum or used to generate an income through drawdown or by the purchase of an annuity.

Who are my beneficiaries?
Frequently, we note that SIPPs do not have a death benefit nomination form attached to them. We strongly recommend you complete a death benefit nomination form as this will advise your scheme administrator as to whom you would like benefits payable to in the event of your death.  The nomination is not usually legally binding but it tells your provider your wishes, which they must consider prior to allocating the death benefits.

Who can I nominate?
You can nominate whoever you like to receive your benefits on your death, which can also be split among several beneficiaries. These could be your spouse, children or grandchildren or you can nominate someone unrelated to you if you wish. You can also leave some, or all, of your SIPP to charity.

How are death benefits paid?
Beneficiaries of your pension will normally have the choice of taking the pension fund as a lump sum or leaving the fund invested and using it to provide an income. We suggest a beneficiary gets advice prior to deciding the best course of action to avoid any costly mistakes.

If they choose to leave the pension fund invested, they can take income as and when required. Any funds left invested will continue to benefit from being in a tax-advantaged pension wrapper.

What about tax?
This can be complex, but in summary, on death before age 75, the death benefits are normally paid tax free regardless of whether you have taken benefits from your pension or not.
Beyond age 75, any lump sum or income payments to beneficiaries will be liable for income tax at their own standard rates on any payments made.

Death benefit lump sums are usually free of Inheritance Tax (IHT) but can be subject to IHT in certain instances. HM Revenue & Customs reserve the right to subject a pension fund to an IHT charge if they feel it has been used for tax avoidance purposes.

What happens to the SIPP when the beneficiary dies?
If your beneficiary has not withdrawn the entire pension fund before their death, any remaining funds in the SIPP can be passed on to a further beneficiary. Your own beneficiary will be able to nominate their personal successors to whom they want the funds to go to following their death.

It is possible to have unlimited successors, so your pension fund could be passed on for generations, providing funds remain in the SIPP.  This can be a complex area and we strongly recommend you discuss these death benefits with your adviser to ensure you get the correct outcome for you.

The information in this article is correct as at 1 July 2019.

We’ve achieved champion status!

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We’re delighted to have recently achieved “Champion” status on Intelliflo’s eAdviser Index. Intelliflo provide our back office administration and this index was set up by them in 2018 to recognise advisers that are embracing the wide range of technology that Intelliflo provides, to positively impact their businesses.

The index essentially highlights that when a high score is achieved, that company is demonstrating a commitment to adopting the available technologies whilst advising a higher number of clients, managing more assets and generally becoming more efficient in their dealings.

For us, it recognises the efforts the administration teams from both NLP Financial Management and Birchwood Investment Management (part of the NLPFM group) have put into the system to streamline and maximise the client portal, valuations and document generation system. Dedicated administration personnel keep that important human touch in the advice process and allow us to keep excelling within our industry.

Woodford Equity Income fund

By | Financial Planning, Investment News, Latest News

A number of our clients have contacted us for reassurance that they are not affected by the suspension of the high profile Fund Manager’s flagship fund, and we are pleased to be able to confirm that this fund is not included in any of our model portfolios.

The fund was suspended on 3 June following a raft of redemptions as investors lost patience with the fund’s under-performance and the managers found it difficult to sell enough of their holdings to repurchase units from clients.

Neil Woodford had built a reputation as a star manager when he ran a number of income funds for Invesco Perpetual in the early 2000s and earned further praise for how he guided his clients through the financial crisis in 2008, so that both retail and institutional investors followed him in large numbers when he left Invesco Perpetual to set up his own management company in 2014.

Despite his reputation for always being on the right side of markets, our biggest concern was the unlisted part of his portfolios. These are companies that are not listed on any major stock exchange and therefore can prove difficult to obtain accurate valuations on, as well as the possibility of it proving difficult to sell them when you wish to do so. His initial allocation to these companies was 5% but we became increasingly concerned when it grew to around 10% of the portfolio towards the end of 2015. Further concerns were raised when it became clear that the valuations of these holdings had not been reduced when the markets experienced a significant dip around that time.

Since early 2016 the Woodford fund has fallen in value by almost 15% whilst the UK Equity Income sector is up 28% over the same period. In terms of funds under management, Woodford had £10 billion of assets two years ago but had fallen to £3.7 billion today. This was clearly unsustainable and the inevitable has now happened.

Whilst we are pleased that our due diligence on the funds we hold in our portfolios means that we have avoided the direct problems with the Woodford funds, their announcement that they were suspending dealings raised concerns about liquidity across the market with the prices of some of the Woodford holdings being heavily marked down. This could impact the performance of other funds and we are closely monitoring any potential issues that could arise as a result.

Government backs pension flexibility to stop taxes undermining NHS workforce by Senior Consultant Chad Atwal

By | Financial Planning, Latest News

The government is looking to make pensions more flexible for senior doctors and will consult on this matter.

In recent months, fears over staff attrition in the NHS have increased due to the tax implications of breaching the lifetime or annual allowance.

Under the proposals now put forward, known as a 50:50 plan, the government argues high-earning clinicians would be able to take better advantage of pension provision and working patterns by building their NHS pension more gradually, with steadier contributions to avoiding significant tax charges on a regular basis. By halving pension contributions in exchange for half the rate of pension growth, the government argues that doctors would be able to take on additional shifts or fill rota gaps with less concerns over the tax implications.

Health and social care secretary Matt Hancock said: ‘Each and every senior consultant, nurse or GP is crucial to the future of our NHS, yet we are losing too many of our most experienced people early because of frustrations over pensions.

“We have listened to the concerns of hardworking staff across the country and are determined to find a solution that better supports our senior clinicians so we can continue to attract and keep the best people.”

The government said the new pension flexibility would be available to ‘senior clinicians who can demonstrate they expect to face an annual allowance charge’, which would mean doctors who have built up more than £40,000 of benefit in their NHS pension in a year, or those who have an adjusted income of over £150,000.

If you are concerned about the impact of tax charges on your Public Sector pension, please get in touch to discuss with one of our consultants.

Jacob Schmidt completed his tenth marathon!

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Our Chief Investment Analyst Dr Jacob Schmidt completed his tenth marathon in London on 28 April, having run his first one back in 1989. His passion for running has seen him finish marathons in New York, Vienna and previous ones in London, however this year was significantly more challenging due to health problems that prevented him from training for the past three months.

Despite this, he finished the race in 5 hours and 46 mins versus his standard time of 4 hours or less, which is still an excellent result.

He was proudly supported by his family, friends and business colleagues in his efforts to raise money for Kisharon, a charity who since 1976, have provided an education for children with learning disabilities and support for their families (http://www.kisharon.org.uk/).

This charity is very dear to Jacob, who will be volunteering with them during the summer months and he has, so far, raised a total of £3,500.

Donations can still be made via this link: https://uk.virginmoneygiving.com/fundraiser-display/showROFundraiserPage?pageId=1014859

From all of us at NLP Financial Management congratulations on a fantastic achievement.

The Benefits of a Regular Savings Plan by Consultant Elliot Gothold

By | Financial Planning, Latest News

Establishing a regular savings plan using  surplus income can be an extremely effective route to building wealth and achieving your financial goals over the medium to longer term.

There are a number of benefits to “drip-feeding” even modest sums  into an investment portfolio each month via a direct debit, as outlined below.

First, regular contributions can help in achieving smoother returns and mitigate timing  risk.  Part and parcel of investing is the fact that investments go up and down in value.  Investing after prices have fallen means buying into your portfolio at a lower level and bringing down the average price you have paid since the start of the investment.  This is known as “pound-cost averaging” and through regular investing, the peaks and troughs will be ironed out or ‘smoothed’ over the longer term.

Second, market timing is extremely difficult and even investment professionals do not have a crystal ball and cannot predict, with any certainty, which direction markets will move in the short term.  Regular investing helps take the guess work out of when to invest, as investments will be made automatically on a given date each month.  Empirical evidence indicates that the average investor tends to follow the crowd – allowing the herding instinct to displace rational thinking – investing more when the markets rise and disinvesting when it falls; this can lead to inferior long term rewards.

Third, investing smaller sums on a regular basis could enable you to start investing sooner than if you were to wait for a lump sum to build up.  This gives you more time to take advantage of the growth potential of compounding investment returns.

Fourth, you  do not have to commit to a fixed amount each month; you can change the amount invested as required, to suit your circumstances.  Even investing a relatively modest sum each month can lead to a significant pot over the long term, as shown in the following table, which assumes net investment returns of 4% per annum.

Monthly Investment 10 Years 20 Years 30 Years
£50 £7,359 £18,252 £34,376
£100 £14,718 £36,504 £68,752
£250 £36,795 £91,260 £171,880

Fifth, and finally,  you will not forget to invest, as the investments are made automatically and you will come to view the contributions as part of your regular monthly spending.  Indeed, after time, the regular debits will become of no consequence – and when that happens, it is possibly time to raise the ante!

When it comes to investing, we highly recommend that you seek financial advice and we are happy to discuss your requirements with you.

By Elliot Gothold, Consultant.