Pension Administration

Regardless of the promises made by all modern day institutions, form filling and information gathering is never easy, we have contacts with all pension providers to ensure that normal day-to-day administration of your pensions is not only simplified but presented in a way that is understandable.

Pension Audit

We have yet to undertake an audit of a client’s pension affairs and not find something about which they had either forgotten or were unaware. It is vital that everyone is fully aware not only of the benefits they have but the benefits they might not have. Many older policies contain substantial guarantees of great value, which are not given the prominence they should. This is particularly true of guaranteed annuity rates and bonus rates. In addition higher tax-free cash limits as we now move through pension simplification all need to be fully explained. Our pension audits service is simple and straightforward. After initial contact, authorities are provided to enable us to contact all pension providers. We will then undertake an audit of all the schemes of which we are made aware outlining the advantages and disadvantages in clear understandable terms. We often find that the pension audit is an excellent way to start our relationship with clients and many times we have heard the expression ‘No one has ever explained it to me like that before.’

The pension audit service does not only look at identifying what benefits are held now but will also make suggestions as to alternative ways forward. This might be as simple as suggesting a free movement of investment funds to a more suitable fund or more extreme measures such as the bringing together of all the pensions into a modern stakeholder or self invested contract.

Pension Investments

All too often it is thought that the only investments available for pension schemes are insurance company funds investment. There are many thousands of funds now available worldwide into which pension schemes can invest. In addition to this through self-invested personal pensions you have the ability to invest in all shares quoted on major stock markets throughout the world. Alternative investments such as commercial properties, home and abroad, loans, borrowing and shares in unquoted companies can all be considered.

At Richard Jacobs we provide advice to schemes whose value range from Ł100 to Ł100 million, all are treated with the same respect. What is most important is that the investments recommended and chosen suit the client’s risk profile and are not merely dumped with an insurance company without a thought. We have business relationships and connections with all leading investment houses, fund managers and stockbrokers throughout the world. Contact is made on a very regular basis with many of these to ensure that we are always at the forefront of investment advice. Creating an appropriate asset allocation and portfolio for a pension scheme can be a long procedure requiring several meetings taking into account attitudes to risk and other investments. Alternatively more straightforward portfolios can be constructed effectively after completion of a risk profile questionnaire.

A great deal of is made at the cost and charges of different pensions schemes, these charges become totally insignificant when the investment return of a good and bad pension scheme is compared. Yes charges are important but a fund that charges three times that available from a low charged fund can still provide significant advantages if the correct investment is chosen for the higher-charge scheme when compared with often poor-performing institutional based cheap funds.

State Pensions

The starting point with regards to all state pensions is to complete form BR19, which will allow a state pension forecast to be provided. This available from the government website www.thepensionservice.gov.uk. However, with graduated pension, old age pension, basic pension, state earnings rated pension, state second pension, and the additional pension it is no wonder that confusion reigns with regards to state benefits. Part of the advisory process at Richard Jacobs is to ensure that all clients are fully aware of their expectation from state benefits and to see whether there are areas where improvements can be made.

We all owe it to ourselves to ensure that we fully understand the benefits that are available for the large amounts of tax and national insurance we pay through our working life. It is a sad fact that many so-called professionals are not fully familiar with these benefits.

Self-Invested Personal Pensions

Having been involved with self-administered schemes since their inception in the late 1970’s, private funds and then SIPPs in the late 1980’s at Richard Jacobs we advise clients with all the many different types of SIPPs that are currently available. Where full investment powers are required particularly involving commercial property in the UK and abroad, the full-blown SIPP even with its higher charges is often the best way to move forward. We have very close relationships with all the major SIPP providers and are able to recommend the most suitable and appropriate vehicle comparable to our client’s needs. In recent years we have seen simpler and cheaper SIPPs particularly the new internet-based vehicles where investments are restricted to UK shares or funds. Again if these are appropriate we are only too happy to recommend the most appropriate.

One area where we always have difficulty making recommendations is for the insurance-based product, we have yet to find an insurance-based SIPP provider that can provide an acceptable level of service and understanding of our clients needs. SIPPs are the modern way forward for pension funds with sizeable contributions or funds in excess of Ł50,000. They are not always the most suitable and they are not the answer for everyone. For some the low-charged stakeholder pension with its restricted fund choice can be just as appropriate as the full-blown self-invested personal pension with access to all investment opportunities available under the law.

Commercial Property Management

Our experience of looking after clients with small self-administered schemes and self-invested personal pensions owning commercial property has lead us to our non-regulated Richard Jacobs Pensions Ltd Company offering a Property Management facility. Here we will undertake the role of property manager ensuring that all procedures are properly adopted and that the running of the property and the management of tenants not only conforms to our clients wishes but fits in with all appropriate pension requirements.

Employee Pensions

Our core skills at Richard Jacobs evolve from employee benefits in the mid-seventies’; this is an area where we believe we can offer a service second to none. Whether we are looking at the complicated area of winding up schemes or the introduction of new stakeholder arrangements, our experience dealing with all constituents from the directors in the boardroom through to the new employee in the workplace means we are able to satisfy and provide the best of advice and service for any type of pension scheme. We have been involved with the introduction and unfortunately closure of many employee arrangements and fully understand the needs and aspirations of all involved.

Annuity

An Annuity converts your pension fund into a pension income, which will be paid to you for the rest of your life.

When you are approaching retirement, your pension provider will write to you with details about your pension fund, and how you can use your pension fund to buy an annuity.

In the past annuities were purchased from the pension provider, but more recently it has become possible to shop around and approach other annuity providers to get the best deal, known as the Open Market Option.

Who can buy an annuity?

You can buy an annuity if you have one of the following pension types:

Personal Pension
Stakeholder Pension
Most Additional Voluntary Contribution (AVC) schemes
Free-Standing Additional Voluntary Contribution (FSAVC) scheme
Retirement Annuity Contract (RAC)
Section 32 Policy (buy-out bond)
Occupational money purchase scheme

If you have contracted out of the additional State Pension, you must use that part of your pension fund to buy a protected rights annuity. You have the same options as with your other pension funds except that you must buy a joint-life annuity paying a 50% spouse's pension if you are married or have a civil partner.

When do you take your annuity?

You can start to take pension benefits from age 50 (going up to age 55 in 2010), and you don't have to stop working to do this. However, with people living longer, some people are choosing to delay taking a pension income and continue working instead, thereby ensuring a larger pension income later in life. When to take an annuity is a decision based on a number of factors, primarily concerning your financial well-being for the remaining part of your life.

If you have a with-profits pension fund where you have stated an expected retirement age such as 60 or 65, you will usually only be allowed to take retirement benefits at set dates in the life of the policy, such as your selected retirement date. Some insurance companies may reduce your fund at retirement by making a market value reduction or other charge if you don't buy an annuity on this date.

How your pension income is calculated

The amount of pension income you get depends on a number of factors, such as:
The amount of money left in your fund if you choose to take a tax-free lump-sum
The annuity rate offered by the insurance company
The type of annuity you decide to buy
Your gender (women typically get a lower income because they are expected to live longer)
Your age (you typically get a lower income the younger you are as the annuity will have to fund more years)
Your health and lifestyle (you may get a higher income if you are a smoker, have high cholesterol or are in poor health. Where you live or your occupation can also make a difference)

Choosing the right annuity

There are different types of annuity to suit a range of circumstances. The main ones are:

Single Life: this covers just you because you don't have a spouse or partner, or because your partner has made their own arrangements
Joint Life: this will pay out to you and then to your spouse or partner after your death (normally at a reduced rate)
Level Income: this pays out the same amount of pension income throughout your life, but does not increase in line with inflation
Escalating Income: this pays out an increasing amount of pension income during you life, either at a fixed rate (for example 3%; or 5%) or a rate which is linked to inflation, known as RPI (Retail Prices Index). Although the escalating annuity pays out less than a level annuity initially, over time it will exceed the level annuity.
Guaranteed Period: You can guarantee your annuity for a specific number of years (usually 5 or 10) so it continues to pay the income for that time even if you die before then. The income is then usually paid to your spouse, partner or other dependent.
Annuity Protection Lump-sum Benefit: This ensures that if you die before the age of 75, your pension income does not stop. A lump sum equivalent to the pension fund you used to buy the annuity, minus the income you've already paid, will be paid to your estate or beneficiaries. There will be an income tax charge, and there may be an inheritance tax charge.

Enhanced and impaired life

Some companies specialise in offering annuities that pay a higher than normal income if you have health problems that threaten to reduce your lifespan. These are called Impaired Life Annuities, and the relevant health problems might include cancer, chronic asthma, diabetes, heart attack, high blood pressure, kidney failure, multiple sclerosis or stroke.

You may be able to get an Enhanced Annuity if you smoke regularly or are overweight. Some companies offer higher rates to people who have followed certain occupations or people who live in certain parts of the country. It is always worth checking if you may be eligible for either of these options.

Open market option

When you decide to purchase an annuity you are not required to stay with the same provider. An alternative provider may offer more favourable rates. At Richard Jacobs Pension & Trustee Services we are able to obtain quotes from the whole of the market to see which provider is able to offer the best rates. You are then able to transfer your monies to this new provider using the Open Market Option.

In some cases we can obtain significantly better annuties than those quoted by your existing provider.

Income Drawdown

Income drawdown, income withdrawal, drawdown, pension fund withdrawal are all different names for the same product. This is a method of taking pension benefits without buying an annuity. Slightly different rules apply depending on your age. If you're under 75 then an income drawdown contract is a form of unsecured pension, and if you're age 75 or older then it is a type of alternatively secured pension.

Income drawdown - the basics

The basics of an income drawdown contract are relatively simple. Just like an annuity you can take the tax-free cash from the pension, but rather than buying a fixed income with the remaining funds, you just withdraw money each year from the drawdown contract. If the pension fund grows by more than you're withdrawing, then the fund will increase in value.

The amount you can withdraw from an income drawdown contract can be varied between a lower and upper limit. The maximum is based on your age, and rates set by the Government Actuary Department. These rates are known as GAD rates, and these also depend on Gilt yields.

The advantages of an income drawdown

The tax-free lump sum can be taken
Income drawdown allows the income to be varied each year to suit your circumstances
Income drawdown permits you to just take the lump sum and no income if you want, (if you're under age 75)
Income drawdown avoids buying an annuity completely
Your don’t have to decide on whether to include spouse’s benefits or other such options with an income drawdown contract
The fund stays in a favourable tax environment within the drawdown contract
The fund remains invested so it could grow further

The death benefits of an income drawdown contract are for many people more attractive than through an annuity, since the fund is not lost on death. Instead the fund can be passed on. How it is passed on depends on whether you're under 75, and in Unsecured Pension or older than 75 and in Alternatively Secured Pension.

There are of course disadvantages to an income drawdown plan:

Annuity rates could go down, if you later decide you want to buy an annuity with your remaining income drawdown funds
The income drawdown contract could fall in value
The income is not guaranteed and could go down
Income drawdown requires ongoing monitoring of the plan
Charges are higher for income drawdown than annuity purchase

There is also a loss of the what is known as mortality cross subsidy which is gained through annuity purchase. This cross subsidy is the additional income you effectively receive when you buy an annuity, since the funds of people who die earlier than anticipated are in part used to provide income to those who live longer.

The main disadvantage is that the value of the fund may be eroded, especially if investment returns are poor and a high level of income is taken; this could result in a lower income in the future.

Personal Accounts

The legislation for the Government’s new compulsory pension, the Personal Account, is in place.

The Pensions Act 2008 imposes a duty on all employers to automatically enrol their employees, without their permission, into a pension scheme and pay contributions.

All eligible employees will need to be automatically enrolled into the Personal Account, unless the employee individually opts-out, or the employer opts out using their own qualifying scheme.

Compulsory Contributions:

Employer Minimum 3%
Employee Minimum 4%
With tax-relief of 1% total contribution is 8%

The law is in place. This is going to happen.
Act now to remain in control.

Employer and employee contributions must be paid into the Government Scheme from 2012 if no action is taken.

However, should you wish to make your own informed decision as to which pension provider to use, or give your employees a wider choice of investments and have access to advice, then now is the time to look at all the options.