Having joined Para-Sols team in Summer 2019 from a role in Insurance and having previously run his own wedding and events company before that, our Client Relations Manager, Dwight Scaife is well placed to empathise with our clients who run their own IFA firms.

We spoke to Dwight to find out about the parallels between his previous experiences and his current role at Para-Sols…

“I co-ran a wedding and event hire business for 5 years and then worked in insurance before joining Para-Sols. Both roles were very focused on client-facing and guiding clients through a journey.

At first, I thought that my previous experience of running an owner-managed business would be irrelevant, as it was in a different sector, liaising with hotels and engaged couples organising weddings and functions – weddings are a world away from Financial Services, or so I thought.

There are numerous similarities between the sectors in terms of business operations and it quickly became clear that the role of running my own business and liaising with financial advisers for Para-Sols are strikingly similar. When I’m speaking with the smaller adviser-owned businesses that contact Para-Sols, I find it extremely helpful to have had the experience of running my own business and of being self-employed. I can identify with the problems and struggles that they encounter.

What they are looking to achieve, by contacting Para-Sols, in terms of streamlining their process, saving money and generating time, or just having some additional support, are all positives that any business strives for. These same key themes appear in many of the conversations I have with them and are often the reason for the initial contact.

We’re approached by a new prospective client for various reasons, one of which being that they have experienced, or are anticipating, an increase in case volumes, so have too much work for their current resource levels and are struggling to service the client numbers. Their current process may have become slow and cumbersome, leaving them with a potential ‘bottleneck’ within the business, leading to inefficiencies. There may have been a change in staffing in terms of administrative support staff, or a current paraplanner change. It may simply be that the business has experienced a growth phase and so needs to bring in additional resources to cope with the increased client numbers, and to assist in maintaining that growth.

For larger firms, the reason for contact could be a merger with another firm to generate a spike in workflow, or a maternity cover scenario.”

 

Streamlining the process

At Para-Sols, we actively assist our clients by offering an Admin Service for sending off and chasing LOA’s and carrying out research. This part of our overall service is something that our smaller clients really benefit from, as we work with them to establish a process to ensure they get the most from being a Para-Sols client. We usually find that they don’t have the time or resources to complete this work themselves. Whether it be contacting providers on their behalf, or retrieving documents from their back-office system, we have processes and systems in place that can streamline the advice journey and really make life easier for them.

The equivalent of this in my previous capacity would be that we formed working relationships with hotels and event venues. This ensured the venues wouldn’t need to source their own suppliers for every function, as once the relationship with us had been established, then they became to rely on us and knew that we would provide the staff and services to cover their functions as needed. The process would be further streamlined if the couple were looking to book their own suppliers as the hotel would recommend us and as our Insurances and Documentation were already in place with them, then the whole process would be incredibly smooth and efficient. We know the venue and they know us, simple really!

 

Save Time to generate more clients

Previously in the wedding and event hire business, I was solely in charge of liaising with new enquiries, going out to client appointments and then co-ordinating the actual event hire logistics and maintaining those relationships with external suppliers and venues. Wearing this many ‘hats’ sometimes meant that new enquiries would be responded to slightly slower than hoped, due to the pressures of ensuring the existing client’s needs and function requirements were in place.

Having a service in place like Para-Sols would have been hugely beneficial (not that we had a lot of suitability reports to write!) in terms of co-ordinating the specifics of the event and completing the core function of the business once the client was on-board. Time was something I never had enough of and this often led to business development and potential company growth taking a back seat, as the actual core function and client care was carried out. The process worked well though, in terms of the clients already liaising with the same person throughout the journey, but was restrictive at times from a company perspective.

 

Reduce Costs

Sometimes an enquiry can be price-driven, there’s no getting away from it! Prospective clients are maybe already outsourcing but are looking to move purely to save money. We get it, we live in the real world! Whilst we strive to maintain a competitive fee structure, at Para-Sols we don’t use fees as the primary reason for clients to join us, as you ‘get what you pay for!’ That being said, our fixed fee case costs and 20% off CashCalc subscriptions deal, do mean clients are happy to join us. There’s also the added bonus for smaller firms that they can often cancel some subscriptions including Select A Pension, FE Analytics and Techlink, as we have our own accounts for them.

Cost driven enquiries also occur with our larger client enquiries as they cross the bridge of ‘hire or outsource’, but we’ll cover that in another blog.

 

General Support

In my previous role, I became the contact for clients to liaise with if they had any queries in terms of their function arrangements. Whether it was checking the times, dates, places, costs, people or services involved, it was important to be able to reassure them and provide the necessary details when required.

At Para-Sols, we take client care very seriously and pride ourselves on the long-term relationships we’ve forged with our clients over the past 11 years. It’s a reassuring voice at the end of the phone when a client contacts us that we find is a really valuable asset and one of the key areas of the positive feedback we receive. All of our 19 paraplanners are officed based and can be reached by phone during office hours every week. It’s that accessibility and the structure of our ‘teams within teams’ that our clients love. All our clients are assigned a ‘hub’, which is a small core team within that our larger team. This ensures consistency and that they liaise with the same staff repeatedly regarding cases and are able to build relationships with our team. We get to know their preferences and working style and they know who they will be working with, so it’s a win-win!

All of the above points just help to highlight that we’re all just people (obvious I know!), but when there’s a business need to be identified and that need can be met through collaboration with another business to achieve mutually beneficial gains, then it’s the ideal scenario. If the need happens to be outsourced paraplanning then Para-Sols are the perfect solution, feel free to contact us and it’ll be me that you’ll chat with. If you’re looking for a photo booth or some car insurance, however, unfortunately, I’m no longer the right person to speak to!

 

Wondering where all the good paraplanners are? You’re not the only one.

 

Most advisers I speak to are struggling with recruitment and retention, and not just of paraplanners. The dearth of people coming into financial services means many firms are finding it difficult to grow, not through lack of demand but because they are unable to find good-quality advisers, administrators and operational support to build the supply.

So, what to do? If you are determined to find someone with experience, rather than train a newbie from scratch, here are some things to consider:

Review your job advert.

Ours are written quite colloquially, and are ever so slightly tongue in cheek, and we get candidates raving about them all the time. They always say they applied for our role because the job advert jumped out at them against so many other bland ones. It really doesn’t take much to stand out, and therefore get the best people applying for your role.

Use the interview as the opportunity to properly get under their skin. 

Find out what makes them tick, and work out whether they’ll fit with your team. Don’t do this by intimidating them, but by putting them as much at ease as possible.

Think through their experience.

Are they welcomed warmly? Given a hot drink? Sat somewhere comfortable, with table dynamics not overly intense? You want them to relax and open up, not crumble from nerves.

Ask them to do a trial.

It can be a full day, or a few hours. Have a good task ready that will help assess their key skills. Not only does this enable you to test what they’ve told you at interview, but it allows them to see your environment and make sure it’s the right one for them. It’s easy to view your company through your eyes and sell it as the best place ever – only for them to start work and find it not what they were expecting. You want to prevent this from happening and save a difficult conversation six months down the line.

So, those are some tips for recruiting experienced people, but if you can’t even find them to begin with, then what?

I eventually settled on ‘growing my own’ as the way to scale Para-Sols because I just couldn’t find the right paraplanners to help build my business. And I’ve expanded that into compliance and now operations. So ‘grow your own’ can work phenomenally well – but you need to be prepared to put the work in, and accept it isn’t a super-quick fix.

Plot out the role, both at outset and for the career path.

People joining fresh from outside finance, in a trainee role, will want to know what opportunities are available for them to progress into, not just the initial role they will start in

Consider your age range.

We mostly recruit graduates. We tried college leavers; had an assessment day booked for 10 of them, and only one turned up. Of the other nine, one got in touch to apologise for not being able to make it, and the others disappeared, seemingly off the face of the earth.

Success rates with graduates have, in our experience, been far, far higher.

Think about how you will assess them. 

A traditional interview is unlikely to work as they won’t have much, if any, relevant experience for you to draw on. Likewise, a trial day can be difficult to manage if they can’t yet do the tasks that you are hoping to train them in.

We run assessment days instead, but ones that mirror our recruitment ethos of putting them completely at ease, so we can truly see their personalities and work out whether they’ll fit in with the existing team.

Be prepared to be flexible.

We’ve found that the majority of our graduates are sponges for information and want to learn and develop really quickly – so we need to be able to support that. Some, however, will want to pace their studies so they have a better work/life balance, and that’s just as important. We have a structure that enables them to go at their own pace.

Check out our recruitment tool, The Grad Scheme here.

Cathi Harrison – Founder & Director

After speaking at a seminar recently, it became scarily apparent to our Founder and Director, Cathi Harrison, how little notice adviser firms had taken of the FCA’s PROD (Product Intervention and Product Governance) regime. 

She spoke to Money Marketing about the issue in this article.

It’s a full-time job keeping up with the changes and developments in any one area of financial planning, let alone all the major areas. We tend to find that people focusing on one particular type of planning can mean forgetting about more niche aspects that can have quite an impact in other areas.

We’ve considered what might be some of the ‘forgotten’ areas in planning and created a small list. This first one will focus on estate planning. People are by now familiar with the complexities of the Nil Rate Band (and especially the RNRB) and the use of trusts/insurance/gifts and business relief (BR) to mitigate tax. There are three things, however, that we have identified as either causing an unintended problem for clients, or being aspects not always accounted for in inheritance tax planning.

  1. Annuity guarantee periods and value protected lump sums can form part of the estate for inheritance tax purposes

Unless the beneficiary of a guaranteed period under an annuity is the legal spouse, a value needs to be attributed to the estate for inheritance tax purposes. HMRC provide a calculator for calculating the ‘open market value’ of the outstanding income. This figure would be included in the individual’s estate for inheritance tax purposes.

For those aiming to minimise Inheritance Tax and with Defined Benefit/Annuity pensions and no spouse, this is something to consider. For example, if an individual died 5 years into the guarantee period, and the annual income was £25,000 per annum (increasing at 2.50% per annum), the HMRC calculator yields a figure to be included in their estate of £83,738.

What this means is that it is not simply a case of the assets in the estate that need considering for inheritance tax planning, but also the ‘notional value’ of a guaranteed income.

Value protection is another popular form of annuity protection available. This is more straightforward and represents the net payment to the estate. The ‘net’ aspect is due to whether the benefit is taxed or not (death before or after 75). As much as value protection aids in annuity purchase planning, potentially 40% of the ‘tax-free’ benefit paid back can be lost to IHT which would otherwise have not been the case within a pension! Again, this supposes there is no spouse to receive the value protection lump sum.

  1. The two-year IHT rule on pension switches does not benefit from the spousal exemption

Pension death benefits and IHT again. The calculation of the ‘transfer of value’ has been somewhat simplified by the ability to use UFPLS in place of a 10-year guarantee period, but it’s worth noting that even if the spouse receives the value of the pension death benefits from the new scheme, the ‘transfer of value’ is not exempt.

This is because the transfer of value is between two trust (pension) schemes.

Some good news to counteract this though, the calculation of the ‘transfer of value’ is usually a LOT lower than the fund value or CETV.

Essentially, you are working out the net UFPLS value (based on the individual’s actual tax rate) and subtracting this from the Fund Value/CETV to find the ‘transfer of value’

You can also discount the original value to reflect the time of life expectancy – though this is unlikely to be by more than 5% / 10% based on the 2-year aspect.

A very simple example of this is if an individual had no taxable income and accepted a CETV of £170,000, the net UFPLS could be:

£42,500 is tax-free as 25% of the fund

£127,500 is taxed as:

  • £37,500 at basic rate = £7,500
  • £90,000 at higher rate (no Personal Allowance) = £36,000

Net value = £170,000 minus £43,500 tax = £126,500

The transfer of value, before considering any ‘discount’ factor, is £43,500 as this is the ‘loss to the estate’ in this calculation. This is despite that in reality, this isn’t a loss to the estate as the calculation uses the CETV in both instances, instead of the actual Defined Benefit death benefit structure!

The two-year rule, and the calculation to check the value is ultimately something to be aware though, in reality, it is unlikely to be a significant figure relative to the CETV that a client is securing for their estate by transferring.

  1. Too much cash (or investments) within a business can impact eligibility for Business Relief

Successful companies can end up with quite large retained profits on deposit, particularly if the proprietor is not drawing much of the profit as remuneration or reinvesting into the company. Whether this cash is invested on the company’s behalf or retained on deposit, there can be tax issues down the line for the owner(s).

In terms of Business Relief, and hence efficiency for inheritance tax planning, excess cash in the company can all foul of ‘excepted assets’ rules. This seeks to prevent personal assets held within a company to provide shelter from inheritance tax.

While many businesses’ legitimately keep reserves in place for a variety of reasons, including not least as a buffer against a future economic downturn, HMRC takes the view that this is not sufficient reason for cash to be retained with the company.

What HMRC appear to look for is evidence of business planning for the funds and this could take the form of written plans for future cash use.

The ultimate implication is that the value of the business assets made up by this proportion may not qualify for Business Relief. This could introduce a potentially large amount of assets in the estate value and derail some of the planning otherwise made!

The same is potentially true of general corporate investments. There is no general distinction between cash or investments in this manner so if cash held by a business is deemed not to be for legitimate business use, investments will likely be so too (it would probably be harder to prove legitimate business use for an investment).

This obviously doesn’t mean a business should not hold surplus cash or invest, but it does mean business owners cannot necessarily be assumed as having 100% exception to IHT.

Grant Callaghan – Head of Paraplanning

Next up: Forgotten planning points around pensions (unrelated to Inheritance tax this time).

 

You may have seen recent articles and statements on slight changes to the way HMRC deal with bond chargeable events. You may, or may not, have also heard about a tribunal ruling in April which HMRC lost (but are appealing) about the way in which an investor’s Personal Allowance is dealt with when surrendering a bond. This article covers how bond gains are assessed for tax and considers the Personal Allowance aspect.

Top slicing and surrenders

The development here is accounting for the Personal Savings Allowance (PSA) when dealing with surrenders of both Onshore and Offshore bonds. A significant number of clients are likely to have some or all of entitlement to a PSA. As a reminder, these rates for 2019/20 are:

  • PSA is £1,000 if total income (which includes the gross bond gain) is below the higher rate tax threshold.
  • PSA is £500 if total income (again including the gross bond gain) is above the higher rate tax threshold but below the additional rate threshold.
  • No PSA if income (including gross bond gain) is above the additional rate threshold.

Scotland; the PSA is set and covers the whole of the UK and so for the purposes of entitlement to PSA, the tax bands used in England, Wales and Northern Ireland should be used (note, this could create a quirk where a Scottish Higher Rate taxpayer is entitled to the Basic Rate PSA).

Calculating the gain and tax payable is governed by a 5-step process. For the purposes of this calculation, we will assume an investor has an offshore bond valued at £80,000 which was bought for £60,000 five years ago. The client’s income (non-Scottish taxpayer) is £43,000.

Step 1: Calculate total income for the client, considering where the gain falls

Client total income: £43,000.

Bond gain: £20,000.

No savings income or dividend income.

Total: £63,000.

PSA entitlement is the full £500 based on the above total income.

Step 2: Calculate the overall tax liability on the bond gain – Deduct a basic rate tax credit from the total gain (even with an offshore bond)

Bond gain: £20,000.

Amount in basic rate threshold: £7,000.

Tax at 20%: £1,400.

Amount in higher rate threshold: £13,000.

Tax at 40%: £5,200.

Total: £6,600.

–  Basic rate tax credit on full bond gain: £4,000.

–  Tax of £6,600 minus credit of £4,000 = £2,600 liability.

Step 3: Calculate the annual equivalent (top-slice)

Full gain of £20,000.

Divided by 5 years.

Annual equivalent: £4,000.

Step 4: Calculate liability to tax on the annual equivalent. Note: use any PSA available here to reduce the gain. Reduce the tax figure by a basic rate tax credit previously used (even though this is an offshore bond)

Annual equivalent: £4,000.

Minus Higher rate PSA of £500 = £3,500.

Taxed at 20% = £700.

Minus basic rate credit of 20% on the whole slice = £800.

£700 – £800 = nil.

The above figure is the ‘relieved liability’ which will be negative if all of the slice is within the basic rate band (due to the PSA).

Step 5: Deduct the figure in ‘Step 4’ from ‘Step 2’ to find the top-slicing relief provided

£2,600 liability minus £0 = £2,600.

The overall tax charge of £6,600 can be relieved through top-slicing by £2,600. This gives a charge of £4,000.

The charge of £4,000 is also simply the result of applying basic rate tax to the whole gain of £20,000 which reflects the more traditional approach of noting that the top slice will be below the higher rate threshold and applying basic rate tax to the gain as a whole.

Where the ‘annual equivalent’ (the top slice) straddles the basic and higher rate bands, however, the steps here will ensure the correct process is used.

This can be shown by changing the client’s income to £48,000 per annum and running through the steps again:

Step 1: Calculate total income

Total Income (£48,000) plus bond gain (£20,000) = £68,000.

PSA is again, £500.

Step 2: Calculate total tax liability

Bond gain: £20,000

Amount in basic rate threshold: £2,000

Tax at 20%: £400

Amount in higher rate threshold: £18,000

Tax at 40%: £7,200

Total: £7,600

–  Basic rate tax credit on full bond gain: £4,000

–  Tax of £7,600 minus credit of £4,000 = £3,600 liability

Step 3: Calculate the annual equivalent – as before £4,000

Step 4: Calculate liability to tax on the annual equivalent

Annual equivalent: £4,000

Minus Higher rate PSA of £500 = £3,500

£2,000 within Basic $ate tax band charged at 20%: £400

£1,500 within Higher Rate tax band charge at 40% = £600

= £1,000

Minus basic rate credit of 20% on whole slice = £800

£1,000 – £800 = £200

Step 5: Deduct the figure in ‘Step 4’ from ‘Step 2’ to find the top slicing relief provided

£3,600 liability minus £200 = £3,200

The overall tax charge of £7,600 can be relieved through top-slicing by £3,200. This gives a charge of £4,400.
The Personal Savings Allowance provided relief against tax and the use of the remaining basic rate tax band provided relief against the whole gain being taxed at 40%.

If the above bond were Onshore, a basic rate tax credit of 20% on the whole gain (again £4,000) would be used at the very end to reduce the tax payable to £400.

Personal Allowance

The background of this is a bond surrender case in which HMRC lost a claim brought by an individual. The summary can be found here or here.

For years, individuals have been basing entitlement to Personal Allowance on the full gain on the bond (i.e. no accounting for top slicing for this test) and this has had the unwelcome effect of a large bond gain being untaxable in itself (due to top slicing) but causing other earned income to suffer tax.

The main implication of this is that we see income earned elsewhere now subject to Basic Rate tax. This has the effect of incurring an extra £2,500 in income tax in cases (based on 2019/20 Personal Allowance of £12,500).

The more damaging implication for clients will be where the loss of the Personal Allowance results in the top sliced gain crossing the (now reduced) threshold for higher rate tax.

With a full Personal Allowance, an individual can have an income of £50,000 (£12,500 Personal Allowance and £37,500 Basic Rate bracket) before Higher Rate tax is an issue.

If the Personal Allowance is lost through the gross bond gain being of sufficient value, the top sliced bond gain and all other income will need to be below £37,500 to avoid the double whammy of creating tax charges on the bond surrender.

As an example, if a bond that started at £200,000 was invested for 20 years and had a surrender value of £350,000, the gain would be £150,000. Top sliced, this would be £7,500.

If a client had earnings above £30,000 from elsewhere, the top slice would fall within the Higher Rate threshold and create a greater tax liability for the bond surrender. It would also result in £12,500 of those earnings elsewhere being taxed at 20% rather than a zero rate.

The ruling could, however, change this. If this is upheld, it could be a case that the top slice is added to earnings with the Personal Allowance still in place. In this scenario, £30,000 + £7,500 is well within the £50,000 limit to avoid Higher Rate tax. It would seem that the Personal Allowance remains lost for the purposes of taxing other income, but this would at least avoid two elements coming into tax at once.

Regardless of the development of the ruling, it still makes sense to keep a gross bond gain below £100,000 when added to other income. If a bond has more than one segment, it is relatively straightforward to surrender across segments to create the level of gain needed. With only a single segment bond, however, partial surrender (i.e. an excess event) is required and more care is needed here (as the chargeable gain is not necessarily related to economic performance of the investment).

Grant Callaghan – Head of Paraplanning

 

 

Due to the recent collapse of Thomas Cook and their entering liquidation, I think now would be a good time to highlight how this could impact on a defined benefit pension.

 

Britain’s Pension Protection Fund (PPF) said it would assess the funding levels of Thomas Cook’s retirement schemes, following the collapse of the world’s oldest travel firm. PPF is an industry-funded scheme set up to protect the pensions of employees in failing companies.

If the defined benefits scheme is unable to pay the liabilities, and the sponsoring employer runs into financial difficulties, the benefits can be paid by the PPF.

The PPF, however, has rules relating to both the maximum benefits payable and the way in which benefits are increased, pre and post-retirement.

If you have retired

If you have been receiving a pension from your scheme before your former employer went bust or if you were beyond the scheme’s normal retirement age when your employer went bust, the Pension Protection Fund will generally pay 100 per cent level of compensation. This means they will generally pay you the same amount in compensation when your scheme enters the PPF.

Your payments relating to pensionable service from 5 April 1997 will then rise in line with inflation each year, subject to a maximum of 2.5 per cent a year. Payments relating to service before that date will not increase. This information may also apply if you retired through ill-health or if you are receiving a pension in relation to someone who has died.

If you retired early or have yet to retire 

If you retired early and had not yet reached your scheme’s normal pension age when your employer went bust, then you will generally receive 90% compensation based on what your pension was worth at the time, this is capped to a certain level.

The annual benefits payable are capped at age 65 at £39,006.18 per annum. Benefits are, however, limited to 90% of the entitlement for deferred members and those retiring before the scheme retirement age. This means the true maximum is reduced to £35,105.56 per annum.

There is provision for members with ‘long service’ and those who were members of their scheme for more than 20 years, the cap is increased by 3% for each additional year up to a maximum of double the standard cap.

If you die

After your death, the PPF will pay compensation to any children you may have who are under 18 years old, or under 23 if they are in full-time education or have a disability. They also generally pay compensation to any legal spouse, civil partner or other relevant partner. However, individual circumstances may differ depending on the rules of the former pension scheme.

Summary

Therefore, there is potential that members of the scheme could suffer a reduction in their pensions. The PPF could take up to 18/24 months to assess the scheme. The scheme confirmed recently that it has surplus assets in the scheme so we are yet to see what the timescale of possibly entering the PPF will be. It is certainly something to be aware of as this could apply to other schemes if the sponsoring employer goes into liquidation.

As a result, this could lead to an increase in members of defined benefit schemes looking for advice with regards to their pension and if it remains suitable for them.

Peter Rhoden – Lead Paraplanner

You would be forgiven if you had chosen to ignore the recent FCA paper with the catchy title CP19/25. It seemed to pertain only to defined benefit advice.

Therefore, if you do not usually get involved in this area, reading it may have seemed like a solid few hours you wouldn’t get back. And we all need that time for sunbathing in this tropical weather, right?

Well as I have no life and I couldn’t find any tropical weather up north, I did read it and there was one part that set off my spidey senses, which keenly detect situations that may create more work for me.

The defined benefit market is the current focus for the FCA, but it stands to reason that what it looks at as suitable for that level of advice, may eventually bleed into the wider, pension switch market and beyond. So these guidance papers are often a good indicator of the future.

The main area which I think will affect all of us, is the focus the FCA is putting on eliminating other options when considering a pension transfer. A few years ago, the emphasis was on stating the reason why a stakeholder was not appropriate for a transfer and, at the same time, you should also discount the client’s workplace pension and alternative pension contracts. As a reminder, pension business is the only area of advice where you are encouraged to state reasons why something is NOT suitable as well as reasons why it is.

CP19/25 goes a little bit further, setting its sights on workplace pensions and inferring you should no longer give lip service to discounting a workplace pension as a suitable holder for pension transfer monies. You can no longer use generic terms such as ‘limited fund range’ or ‘restrictive retirement options’ and may God have mercy on your soul if you state that it’s not suitable as it ‘does not allow adviser charging.’

Now, it is instead proposed a cost comparison MUST be completed showing the cost a client would pay had they moved funds into the workplace pension against the recommended pension. And if there is an increase in costs then a full explanation should be given to justify the costs. This then must be signed by the client as part of a new, multi-signature page which shows the client understands a variety of things around the transfer, including costs, the recommendation, the transfer risk warning and the ongoing advice service. Each element must be signed.

So one extra page, not much extra work really… but, where I foresee some issues are simply getting that data from the client in order to determine the suitability of the workplace pension, and doing all of the additional analysis. Obtaining authority on workplace pensions can be tricky and getting transparent charges even trickier. Once completed, advisers could look at a scheme and see immediately it would not be suitable to receive £2m in defined benefit transfer monies but beforehand, it cannot be assumed. It should be built in as an option to your cashflow. You will need to obtain projections or calculate reduction in yields and ensure all analysis is clear and transparently provided to the client.

A significant fall in gilt yields during August outweighed the impact of a small fall in inflation expectations to drive transfer values up.

As I stated at the outset, this is not yet a requirement for all pensions, but I have a feeling it might be at some point. And as with all things from the FCA papers, it may be best to get ahead of the curve and start working on it sooner rather than later. Making friends with group pension administration teams now may well be a good investment for the future.

Jo Campbell – Director of Operations & Quality.

As a follow up from my previous blog covering Letter of Authority Hints & Tips, I thought it would be great to delve a little deeper. The aim of this blog, as you may have established from the title, is to give you some tips on combatting those Defined benefit (DB) schemes!

Now, we all know how hot DB schemes are in financial services at the moment and most of us would rather hide in a darkened room than get involved, but fear not, I am here to shed some light on those dark corners…

I’m here to give you the tools required to ensure that we prod those DB schemes for all of the information that they don’t hand to us on a plate. Because, generally speaking, it’s that hidden bit of vital information which, when missed, could have the biggest impact on the client, when you’re producing the initial TVC & APTA pack. The TVC & APTA pack which helps form the basis of the advice your client is to take… So, I don’t think I need to stress how important it is that there are no ambiguous question marks around the scheme information.

Benefit equalisation

The first thing to look out for is the equalisation of benefits. This may apply to anyone with servicing during 17th May 1990 and 5th April 1997. This is known as the Barber period, which was aptly named after the court case ‘Barber and Allonby’.

Following this case, the European Court of Justice ruled that “benefits should be equalised even in instances where there was no comparator of the opposite sex”. Without delving too deep (I appreciate we’ve already taken it back almost 30 years… stay with me) the main focus around Barber benefits is to ensure that you are confident as to whether they apply to your client. If they do, they’re usually broken down separately to the main scheme benefits, due to Barber benefits being payable at an earlier than normal retirement age (NRA).

Believe it or not, we’ve had multiple schemes provide us with what looks like full scheme information and a full benefit breakdown – only for us to run a TVC, see that the figures don’t quite add up and upon questioning the scheme, establish that there is a group of Barber benefits which they hadn’t disclosed to us.

Hopefully, this blog will help to prevent a delay for you and your client in future. Our recommendation would be to request confirmation of Barber benefits within your initial information request, depending on your clients’ service period.

Late retirement factors

Quite often, a scheme may have an NRA which applies to all benefits -however, they may allow the member to take unreduced benefits from an earlier age, i.e. NRA of 65 and unreduced benefits available from age 60.

Generally speaking, the NRA would be the age at which the benefits would become payable at their expected rate based on scheme revaluation. On occasion, using the example above, the scheme may apply a late retirement to the benefits from age 60 (therefore seemingly for analysis purpose, the NRA becomes age 60).

The scheme may not provide these late retirement factors from the outset and it may not become clear unless you have an age 65 quote from the scheme and are able to compare the benefits with TVC output. For ease, we would recommend you include a request for late retirement factors and the ages they apply to/from in any initial information requests.

Guaranteed Minimum Pension (GMP) increases pre-GMP age

This one will be applicable if you are aware that your client has GMP benefits within their DB scheme, and they’re looking to retire on those benefits before the GMP payable age (65 for males and 60 for females).

Standard increases, whether that be fixed, S148, or limited, are always applicable to GMP. However, the benefits are only tested against these increases at GMP payable age. If the client chooses to enter retirement before this time, they may receive only a proportion of their GMP or on occasion, the scheme may not pay any at all until the client reaches GMP age.

Clarifying how the GMP benefits are increased pre-GMP age, both pre and post-retirement, is vital when providing the client with their estimated benefits at retirement. It will also provide a more accurate picture when including these benefits in cashflow when providing the TVC & APTA pack to your client.

I hope this helps! If you have any questions regarding DB schemes and how Para-Sols can help – please get in touch!

Cheryl Lunn – Operations Coordinator.

This really is an age-old question, alongside legends such as “why is the sky blue?” and “in the land of Cinderella, why did she have such unique feet that she was the only size in the village, yet the shoe was such a perfect fit, it still managed to fall off?”. I digress, sorry. So, the question of “just what is a paraplanner?” has haunted me at dinner parties, the occupation box on ANY application form and even in my own industry. It’s not one that is easily answered but SM&CR (Senior Management & Certification Regime) has dictated that we give it another bash.

For those not familiar with the new SM&CR proposal, in a nutshell, it is new FCA legislation around ensuring the people in your business who can impact upon the client are properly regulated and appropriate for that role. Senior Managers and Certified People. (Learn more about how our sister company, Apricity, can help you in your SM&CR preparations here).

The Senior Management side of things is pretty easy to define, but the second area; the Certified personnel is slightly more obscure. The relevant factors that firms would be required to consider in assessing individuals include whether the role is simple or largely automated, or involves exercising discretion or judgement.

In essence, the FCA has said it is up to advice firms to conclude whether paraplanners should be considered to hold the Client Dealing Function. The FCA rule has been drafted in a way “that provides firms with the flexibility to exercise judgement on whether a role requires certification” Helpful.

Therefore, it may seem quite obvious for the majority of people in your business. You know yourself who has what impact (planners/advisers) and those who have less impact (administrators etc), but what about that weird hybrid we call the lesser spotted Paraplanner?

In general, there are three species of paraplanner.

The in-house paraplanner.

Usually found around the same watering hole and highly skilled in client relations, business models and specific investment propositions. They tend to have the larger impact on your business and depending on the genus of your particular paraplanner, are the most likely to be needing certification. This is especially important if they are involved at any decision level of the advice process or if they contribute to any investment proposition choices.

The outsourced paraplanner.

These tend to roam around the habitat and are curious creatures. They taste a lot of different foods and specialise in a number of different providers, investment strategies, tax areas and financial planning solutions. They tend to be less involved with the client, interacting more with the adviser and thus tend to have less impact upon the decision making of the business and are less likely to require certification.

The third is the middle ground. The Liger, if you will. Those paraplanners who are either inhouse but make no decisions and perform more administrative duties or are just essentially report writers; or the outsourced paraplanners who have such a strong relationship with the adviser they do assist in decision making and can impact upon the end client. 

Essentially, it will be up to adviser firms to decide whether your chosen paraplanner should be considered a certified employee and whether or not they should be included in the second tier level of the SM&CR rules. My advice is to use discretion, but to err on the side of caution. If you think they may have any impact, have them certified. It can’t hurt. Unlike Ligers which apparently can hurt you. (I appreciate I’ve stretched this metaphor really far now and am going to leave before I turn full Attenborough and start preaching about how we should recycle paraplanners to stop turtles getting their noses stuck in them).

Jo Campbell – Director of Quality & Operations. 

The introduction of the Appropriate Pension Transfer Analysis (APTA) has made the inclusion of cash flow forecasting an all but mandatory part of Defined Benefit reviews. Obviously, this is the higher risk area in advice but we see cash flow being used in more and more areas of planning.

The FCA asks that advisers know how their cash flow tools work and are, in particular, aware of the limitations of these. We know cash flow forecasting can never be an exact answer or provide definitive overviews of the suitability of a particular piece of advice but I just wanted to use this to highlight a couple of areas where a very small change in the behind the scenes inputs can have a dramatic effect on the projected financial position.

Surplus income

There are always clients and individuals who are able to save as much of their surplus income as possible while there are also those who have little in the way of savings despite having a much lower committed expenditure relative to net income. Catering for each in a cash flow forecast can provide a much better visualisation of a client�s potential future position.

If we take the following (highly simplistic) client scenario:

  • Single individual age 55 and looking to retire at 65
  • Earns an income of �2,000 per month net
  • Has �7,500 on deposit and �100,000 in a Personal Pension
  • Has committed the expenditure of �1,500 pre-retirement
  • Is aiming to spend �1,850 per month from 65 to age 85 with this than reducing to the �core/essential� spending requirement of �1,100 per month
  • Has a Defined Benefit pension projected to pay �650 per month from age 65
  • Investment returns are based on the historical returns of the IA Mixed Investment 0% – 35% sector.

If the assumption is that this client is able to save all surplus income, which represents the period from age 55 to age 65, liquid assets are forecast to last through to age 100:

On the basis surplus income is saved, the client appears here to have enough cash and pension funds to last their lifetime. Retirees are able to calculate this themselves thanks to IRA calculator services from the likes of SoFi and similar, to see if they will be financially stable for their lifetime.

If we assume that only 50% is saved, which allows for more unforeseen expenditure, liquid assets reduce substantially:

If it seems more likely that the client cannot or is simply unable to save, and we, therefore, go with a zero surplus being saved rate, the client has no liquid assets after age 80:

On a 100% saving rate, it would seem that the level of core and discretionary spending required in retirement could be met quite comfortably. With no surplus income being saved, the position is reversed.

In this case, the client has a surplus income of �6,000 each year but only �7,500 on deposit. If the annual surplus were due to a recent change in income or expenditure, it might make sense to consider further what an appropriate savings rate should be. If the income and expenditure has been relatively stable for a number of years, then clearly something closer to zero would give a much better reflection of what is actually happening.

This kind of analysis can spur action. With these charts in hand, a savings plan of �200 net per month to the pension immediately and until age 65 might be agreed. Dedicating some of the �500 per month surplus to this, and leaving the remainder as �unsaved excess income� can provide a much better outcome:

Charges

Another important aspect is accounting for and including charges. As mentioned the IA Mixed Investment 0% – 30% sector historical returns have been used in these forecasts

These returns should reflect any underlying fund costs but would not take into account provider/platform costs or ongoing adviser fees. If we factor in a 1.25% ongoing charge to account for these, we�re back at a shortfall after age 80:

Accounting for the extra charges as well as realistic saving rates should provide a more reliable indicator of a client�s forecast, which can provide more certainty in what is recommended and more security in terms of taking action to remedy any shortfalls.

To recap, we can compare the results of the first forecast with an identical version but one which includes ongoing charges and one which has no surplus income being saved:

100% of surplus income saved, no additional charges added

No surplus income saved, 1.25% product and adviser charges included

Summary

Assumptions over how much surplus income is saved, and accounting for charges in the forecast, are things we see sometimes overlooked. Accurately representing both, particularly as part of the APTA, should give a much greater indication over the potential sustainability of the aims and objectives of the client.

Grant Callaghan – Head of Paraplanning.

Having previously worked for a financial adviser’s practice and now as an outsourced paraplanner, I know that there are many benefits for outsourced paraplanning.  

Working on an outsourced basis, I believe, requires far greater knowledge and understanding of the industry as a whole. Why? Well generally, I feel an in-house paraplanner will focus on working on cases that are part of a centralised investment proposition or have had some sort of platform due diligence carried out, meaning you generally use the same providers and strategies regularly.

However, being outsourced allows us to work for a wide range of advisers up and down the country that specialise in all areas of financial advice. This means that on any given day we could be working on a case where a new SSAS is being set up, monies are being invested into VCT/EIS investments or dealing with defined benefit pensions, including running TVC reports and cash flow analysis. This would be in addition to your more standard mortgage, life cover, pension and investment cases.

This allows you to build up extensive knowledge and experience which advisers can find very helpful. I am often asked for my thoughts on their cases, even running them by me before they decide how they wish to proceed with the case/advice.

Given the knowledge and experience we hold, we are able to push back on advisers if we think there are issues with the case or if we feel the advice is unsuitable for the client. This could be invaluable to an adviser to help them get a third party perspective.

As we deal with so many providers, we are quick to find out the latest offerings or updates to products which can help advisers who maybe are not as aware of developments in the market.     

Outsourcing can help to save advisers a lot of time, which they can use to see more clients (or spend more time on the golf course!) – due to us having a top-quality data gathering team, that can deal with providers and chase all the required information on cases from start to finish. Therefore, given the adviser provides sufficient information about the client, we can take care of the full process providing them with a suitability report at the end.

Peter Rohden – Lead Paraplanner.

For more details on outsourcing your paraplanning, click here.

I recently worked on a case that covered one of the quirks of legislation surrounding Fixed Protection, and the circumstances under which it can be lost.

To briefly recap on Fixed Protection, there are three types:

  • Fixed Protection 2012, which protects the Lifetime Allowance at £1,800,000.
  • Fixed Protection 2014, which protects the Lifetime Allowance at £1,500,000.
  • Fixed Protection 2016, which protects the Lifetime Allowance at £1,250,000.

Of these, Fixed Protection 2016 is the only one that is still open for applications. The main restrictions on applications are that you cannot have Primary or Enhanced Protection, or an earlier form of Fixed Protection. Unlike in the case of Individual Protection, there is no minimum pension value needed to apply.

There are several ways that Fixed Protection can be lost:

  • Making further contributions into a money purchase pension.
  • Having further benefit accrual via a defined benefits pension (note that standard revaluation of deferred benefits does not usually cause an issue).
  • Breaking transfer restrictions (this is in relation to making sure any transfers are made into a registered pension scheme).
  • Starting a new pension other than to accept a transfer of existing pension rights.

This last point is where we come to the issue surrounding pension sharing orders. Receiving a pension credit under a Pension Sharing Order (PSO) does not automatically cause a loss of Fixed Protection, unless you have set up a new pension to receive it.

Essentially, transferring funds awarded under a PSO to a brand new plan causes Fixed Protection to be lost. However, transferring the funds to an existing plan do not.

So for example, the only plan a client may have is a clunky old Personal Pension from the 1990s….in most cases, it may be tempting to source a more flexible and modern plan to receive the PSO, but this could cause a client substantial tax charges further down the line.

In these cases, make use of that clunky old Personal Pension. If at a later time, it is appropriate to review and transfer all of the benefits to something more modern, this will not affect Fixed Protection; it is the first destination of the PSO that matters!

Kate Hall – Paraplanner