Selling your pension annuity

The government has set out further details about the secondary annuity market.   

In last March’s Budget the Chancellor launched a consultation considering how existing pension annuity holders would be able to sell their annuity in return for a taxable lump sum.  The logic behind the idea was to give existing pensioners the same flexibility as is available to those now reaching retirement.

The creation of a secondary annuity market raised some complex issues and by the second Budget of 2015 the Chancellor had decided that implementation would be delayed until April 2017. Even then, the most obvious purchasers – the original annuity providers – will face restrictions on buying back their own annuities. In most instances sales will have to be arranged through intermediaries, adding to the costs.

The government will legislate to require that anyone planning to sell an annuity “above a certain [unspecified] value” will have to take advice first. One reason for this is that in the government’s view, “For most people, retaining an annuity will still be the best choice – it provides a regular, guaranteed income for life…”. Another reason is that the value placed on an existing annuity is likely to be relatively poor: any prospective buyer will be looking to cover their expenses and then receive a return better than current annuity rates imply. In any event, the option of a sale is not assured, as there will be no obligation on insurance companies to allow their policies to be traded.

One interesting aspect of the government’s proposals is that the sale option will apply to new annuities, not just those in being before pension flexibility was introduced. However, that could prove an expensive lifeline. If you are nearing retirement, it is far better to take advice before drawing benefits rather than hoping to unscramble an error at a later date.

The value of your investment can go down as well as up and you may not get back the full amount you invested.

Making a Will – or rather, what happens if you don’t!

Most people procrastinate when it comes to making a will, and yet if they really understood the implications of not having one, they would be straight off to see a solicitor!  Recent changes have again highlighted the importance of having a will or updating an old one.

Inheritance and Trustees’ Powers Act 2014

In May the Inheritance and Trustees’ Powers Act 2014 received Royal Assent. The Act contains important revisions to the intestacy rules in England and Wales, and took effect from 1st October 2014 (Statutory instrument SI 2014 No 2039)

The most significant changes cover two common situations where someone dies without a valid will.

1. Leaves a surviving spouse/civil partner but no issue (children, grandchildren, etc)  

   Under the current rules the spouse/civil partner is entitled to:

  • personal chattels (car, jewellery, etc);
  • £450,000 outright; and
  • A life interest (a right to income only) in half the residue.

The other half of the residue passes to parents, failing them brothers and sisters and, failing them, their issue.  They will also receive the capital from the life interest when the surviving spouse or civil partner dies.

The new rules will instead pass everything to the surviving spouse/civil partner, who will have an absolute interest.

2. Leaves a surviving spouse/civil partner and issue

Under the current rules the spouse/civil partner is entitled to:

  • personal chattels (car, jewellery, etc);
  • £250,000 outright; and
  • A life interest in half the residue (the right to income)

The other half of the residue passes to the child/children (under trust if under 18), with the remaining value of life interest half being paid on the surviving spouse or civil partner’s death.

The new rules will give the surviving spouse/civil partner half of the residue outright, rather than just the right to income.

These new rules will only apply in England and Wales; Northern Ireland and Scotland have their own intestacy rules, although history suggests Northern Ireland will soon copy the English reforms.

It is very important to us that our clients have a properly drafted and up to date will, and we always make sure that they consult a solicitor on a regular basis to keep this part of their financial planning up to date.

(N)ISAs and Lack of Interest

HMRC have published details of ISA investments for the last tax year and they tell a strange story.

ISAs, which became NISAs on 1 July 2014, have long been popular with savers, as the graph below demonstrates.

New Picture (18)

Source: HMRC Equity ISAs numbers include insurance ISAs before 2005/06

What is surprising is the heavy bias towards cash ISAs, despite the miserable, often sub-inflation, interest rates that have prevailed in recent years. While the amount invested in stocks and shares ISAs is not much increased from the level in the year ISAs were born, cash ISA contributions have more than tripled. However, in 2013/14 the new contributions to cash ISAs fell by about 5% and the number of contributors dropped by about 10%. Stocks and shares ISAs saw corresponding increases of 12% and 2%.

This might be a sign that ISA savers are growing more aware of the smallness of cash ISA tax benefits. Take, for example, the National Savings & Investments Direct NISA, which has one of the top instant access rates at 1.5%. Invest the maximum in 2014/15 of £15,000 – more than double last tax year’s maximum – and, if you are a higher rate taxpayer, your annual tax saving is just £90. The same amount invested in a stocks and shares NISA holding a typical corporate bond fund yielding 3.5% gives a tax saving of £210.

One of the arguments for not choosing a stocks and shares ISA used to be that it was impossible to switch a cash ISA at a later date (although the opposite move was available). Since the arrival of NISAs on 1 July 2014, transfers between cash and stocks and shares have been possible in either direction.

If you hold cash NISAs, there are two things to do now:

  • Check the interest rates you are being paid. Providers have been cutting NISA rates of late and if you have a chart-topping NISA from a few years ago, you could find it is now paying no more than 0.5%.
  • Talk to us about your NISA options. It may be better for you to pay tax on deposit interest and shelter your investment income and gains in a NISA.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.


The year end starts here

We may just have started 2013, but one aspect of tax year end planning is already well underway.

Venture capital trusts (VCTs) have three important tax benefits.

  • Investment in newly issued shares will normally qualify for income tax relief at 30%.
  • Dividends paid by VCTs are generally free of personal tax (although dividend tax credits cannot be reclaimed).
  • Capital gains, both within VCTs and realised by investors, are generally free of UK tax.

Such tax generosity is not given lightly: VCTs are high-risk investments, focused on small unlisted companies. They may not suit your investment risk profile and, even if they do, VCTs should form only a small part of your overall portfolio.

Around the turn of the calendar year, the first crop of VCT offerings starts to appear. The VCT promoters all want to be at the front of the queue, so that they are not left scrabbling for investors’ funds in late March. One of the most successful VCT managers had three of its five trusts on offer fully subscribed before Christmas.

Many of the issues now on offer, or due to arrive soon, are top-ups to existing trusts. This can mean that you buy in to a ready-made portfolio, depending upon the structure of the offering. It also helps to avoid the risk of choosing a new VCT that has limited success in raising funds and either returns your money just as the tax year ends, or starts life with disproportionately high fixed costs.

In 2011/12, 76 VCTs sought to raise funds according to HMRC, a number that has changed little in recent years.  Picking the wheat from the chaff among all the prospectuses is no easy matter. If you think VCTs might suit you, taking advice should be your starting point.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Services Authority does not regulate tax advice.

HFS Milbourne outperforms industry benchmark

HFS Milbourne, the Guildford based financial specialists has released new figures which show that the company’s Strategic Portfolio Service  (SPS), which helps clients maintain and grow investments whilst minimizing their exposure to risk,  is outperforming it’s industry benchmark by an impressive 18%.

SPS was launched in November 08 and now has a full three year performance history to draw on.  During the period from Nov 08 to Jul 12 clients with a medium attitude to risk and funds managed under SPS (equivalent to an insurance company’s managed fund) have enjoyed an impressive 47.66% return, which compares very favourably to the industry benchmark of 29.57%.

When assessed against some of the UK’s leading insurance companies, HFS Milbourne’s SPS also fares extremely well.  For example managed funds from Standard Life, Scottish Widows and Friends Life generated returns of 41.78%, 39.73% and 38.72% respectively.

As part of the service, HFS Milbourne selects a range of investment options best suited to the client’s needs, based on financial goals and attitude to risk.  The portfolio is automatically reviewed on a quarterly basis to ensure that funds under management are performing as expected. This process of continuous assessment ensures that the mix of investments and level of risk remain appropriate for the client and allows timely changes to be made where necessary.

SPS is ideal for clients who have consolidated a number of pension funds or ISAs who are looking for a more pro-active management of their investments, especially in light of the recent fluctuations in the financial markets. SPS provides the level of control that clients are looking for,” said Iain Halket, director HFS Milbourne.

“Clients receive our advice electronically together with our market commentary and updated fund fact sheet, with additional performance data available to view online.  This seems to satisfy our clients’ needs perfectly.”

HFS Milbourne has funds under management under SPS of £91m, an increase of 20% over the year.  “Some of the private banks have introduced new pricing structures as a way to cull less profitable clients, especially those with assets of less than £500k.  Our SPS is of great interest to this type of client as they really appreciate the close eye we keep on their funds and the personal service we are able to provide them with,” says Iain.

HFS Milbourne Financial Services is authorised and regulated by the FSA, and specialises in wealth management; pensions; finance on divorce; employee benefits and corporate financial planning. For further information, visit  or call 01483 468888.

Iain Halket – Director HFS Milbourne


Strategic Portfolio Service (SPS)

Quarter ending 31st March 2012

We are happy to report some excellent results for SPS this quarter, as a result of general improvements in market conditions.

Our unique SPS system provides automated quarterly reviews for clients with investments in pensions, unit trusts and ISAs.  All 10 risk-graded funds showed positive increases, ranging from +4.47% for Risk Level 3 (Cautious) to +9.03% for Risk Level 10 (Highly Speculative).

Most of the gains have come via our holdings in international funds, notably Far East, Emerging Markets and the US, supporting our view that it is these areas that will provide the recovery in the markets this year.

In our view the outlook is positive, but there will be periods of volatility, and we see these periods as buying opportunities.

Iain Halket – Chairman, Investment Committee