We come across some cases within the practice that highlight Personal Finance issues that clients may want to take a look at to ensure they have such issues covered off. These don’t really fall under any sort of category so we’ve termed this a “Mini Personal Finance Jamboree” – here are a few of the recent matters which hopefully will be of interest.
Many people have life assurance policies in place to protect their loved ones in the event of death. This could be to cover a mortgage amount on the main residence, an amount to cover other financial liabilities or just a lump sum to provide for loved ones in the event of the unthinkable happening.
One very important point with life assurance policies is that they need to be written in trust. This ensures that the life company can pay out policy proceeds on death without the need for Probate etc. and also ensures that the value of the policy does not form part of the estate and potentially liable to Inheritance tax (IHT), which could in certain circumstances reduce the policy proceeds by 40%.
With more and more people buying life assurance online based on the cheapest quote from some comparison site, it is easy to overlook the need to place the policy in trust and the life assurance company may not advise you on this.
So, check out any policies you have and make sure they are written in trust.
And if you are a business owner, consider relevant life policies rather than individual life policies as your company can pay the premiums and there is no Benefit in Kind charges that apply. Advice is needed for such policies (usually via an Independent Financial Adviser) so talk to us if you need assistance on such matters and our joint venture wealth management partners will be pleased to help.
Pension Nomination forms
Most Personal Pension Plans operate under what’s known as a Master Trust (of the pension provider) and this keeps the plan outside of the clutches of HMRC from an Inheritance Tax point of view.
One thing often overlooked or not regularly updated is the Nomination Form within the Pension Plan that tells the Pension Trustees who your nominated beneficiaries are in the event of death.
If there is no nominated beneficiary within the Plan the Pension Trustees have to make the decision as to whom any policy proceeds are to be paid – this can be a long winded process at a time when dependents may be in urgent need of cash.
We have also had cases of where the ex-spouse is still the nominated beneficiary on a pension policy despite the couple having divorced many, many years earlier!
So, take some time to check your pension policies to ensure the nominated beneficiaries are in place and that they represent your current wishes.
As we are constantly nagging clients about this – please make sure you have an up to date valid Will in place.
State Pension entitlement
There have been many changes to state pension entitlement over the past 10 years as successive Governments battle to work out ways to make them affordable in the many years to come.
The basic state pension is set at £164 per week for the 2018-19 fiscal year. To qualify for the full basic state pension, an individual must have 35 “qualifying years” during their working life. Those individuals that have less than 35 qualifying years (subject to a minimum of 10 years) get a scaled down basic pension entitlement.
Qualifying years are built up generally through the payment (or crediting) of national insurance contributions.
Employees need earnings of at least £116 per week for 2018-19 (and this usually increases slightly each year) to make a qualifying year. These are class 1 contributions.
Self-employed individuals must pay class 2 contributions to build up their entitlement to qualifying years for state pension purposes – these are currently paid at the rate of £2.95 per week where the annual earnings (profit) exceed the small earnings threshold of £6,205 for 2018-19.
A full year of contributions has to be made to make the year qualifying. If there is a gap in any particular year or indeed any years missing, voluntary contributions can be made to make up the gap – these voluntary contributions currently cost £14.65 per week.
There are provisions in place due to the changes in state pension amounts effective from 6 April 2016 to ensure the old National Insurance records are transferred to the new records but there is no substitute for checking out your own NI record to ensure you have the correct number of qualifying years.
This can be done online at the gov.uk website – this will give you an idea of your state pension amount – a forecast can also be requested by post by submitting a form BR19. HMRC (and formerly the DWP) do make mistakes in NI records so it is better to get it checked out well before you reach state pension age.
This concludes the first part of our “Mini Personal Finance Jamboree”, the next edition covers investment bonds. If you have any questions in relation to the matters mentioned and would like some advice on planning, please contact me on 020 8551 7200.
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