Investment & Retirement Focus - Issue 2

Investment & Retirement Focus - Issue 2

F CUS

INVESTMENT & RETIREMENT

A Tenet Group Publication Issue 2 | Summer 2018

A focus on… Flexible Investments

State pension age changes

Forcing 1.8 million over 50s to re-plan retirement Where now for the global economy?

ALSO IN THIS ISSUE: UK housing: Alternative lenders to plug the supply gap? How bonds could help navigate rising interest rates Mind the trust gap - The importance of trust cannot be overstated

Equity release referral service

F CUS

INVESTMENT & RETIREMENT

A Tenet Group Publication Issue 2 | Summer 2018

A focus on… Flexible Investments

State pension age changes

Forcing 1.8 million over 50s to re-plan retirement Where now for the global economy?

ALSO IN THIS ISSUE: UK housing: Alternative lenders to plug the supply gap? How bonds could help navigate rising interest rates Mind the trust gap - The importance of trust cannot be overstated

Equity release referral service

Foreword From the Editor

INVESTMENT & RETIREMENT FOCUS | 3

CONTENTS

Welcome to the summer edition of Investment & Retirement Focus Changes to the state pension age have forced huge numbers of people aged 50+ to rethink their retirement plans – leaving nearly 2 million people set to retire many years later than planned or with less income than they anticipated. Retirement Advantage’s research shows how getting advice now is one of the best ways of ensuring your retirement plans stay on track. We open this issue with an article from Gavin Hawdon from Tenet’s Technical Services & Research Team, covering the practicalities of breaching the Lifetime Allowance for pensions, and the questions you may be asked by clients. Martin Walker, Invesco Perpetual’s UK Equities Fund Manager, explores the bear case for global integrated oil majors, asking why the market has stubbornly resisted revaluing these companies despite a recovering oil price and fundamental cost savings within the sector. Rosalind Whitehead of Ingenious looks at how the challenges facing the UK real estate market have created a significant opportunity for alternative lenders and how this could benefit investors. The introduction of Pension Freedoms made pension saving even more compelling - giving clients the opportunity for a flexible retirement income strategy. With this in mind, Cicero, in conjunction with Sanlam, looks at how

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Technical Services & Research  The Taxman Cometh… and he’s after the Lifetime Allowance Charge! Aegon Investment outsourcing trend still on the rise Brewin Dolphin  Guy Foster explains why Tenet clients should remain invested

the retirement market has changed since this introduction and Julia Peake, Sanlam UK discusses the results and what it means for you and your clients. In this month’s article from Quilter Cheviot, David Elliott, Director at the business consultancy Flat Mountain, puts the case for why advisers should consider adopting a centralised retirement proposition as a distinct area of their business and part of their offer to clients. Advisers using a CIP have found that it is the key to delivering consistent, robust and repeatable client outcomes, alongside significant long-term business value. David believes the next step for adviser firms is the development of a centralised retirement proposition (CRP) that recognises the unique advice requirements arising in retirement, while driving the same positive outcomes for both the adviser’s clients and their business. Andrew Williams from the Schroders Value Investment Team discusses how to have no regrets as an investor by taking a probabilistic view as opposed to looking at the world in terms of black and white or right and wrong. I hope you find this edition informative and supportive and enjoy reading the excellent and varied selection of articles Kind Regards Cristina Marketing Consultant

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26-27 Prudential

 Make your money work harder

38-39 Sinfonia

 Ten out of ten – still going strong

Tenet Group Limited, 5 Lister Hill, Horsforth, Leeds, LS18 5AZ Tel 0113 239 0011 Fax 0113 239 5322 This publication is for internal purposes only and is not intended as an advertisement. As a result this should not be issued in any form to clients. Not all the products in this feature are the responsibility of the Tenet Group Limited. Terms and Conditions. Although every effort has been made to ensure the accuracy of the information contained in this publication, The Tenet Group cannot accept responsibility for any errors it may contain. The Tenet Group cannot be held responsible for the loss or damage of any material, solicited or unsolicited. No reproduction of any part of this publication, in any form or by any means, without prior written consent from The Tenet Group. The views expressed in this publication do not necessarily reflect those of the advertisers or the publishers.

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The Taxman Cometh (…and he’s after the Lifetime Allowance Charge!)

So, you’ve helped your client apply for various forms of protection down the years and you’ve diverted their contributions into other forms of tax efficient investment, where felt necessary. As they approached retirement, you’ve sensibly advised your client to take a defensive approach to investing to avoid last minute fund value falls and switched them to lower volatility/return funds. However, although the clients have planned carefully with your help, they have still overshot their Lifetime Allowance (LTA) for pensions and they are going have to pay some tax on the excess fund/benefits. That’s so unfair! If your clients think the Lifetime Allowance Charge is unfair, here’s some perspective. If they have a pension fund that is valued over the current LTA of £1,030,000 (…or higher amounts where protection was put in place) then they are looking at retirement

is unaware of a liability, or is provided incorrect information, the liability falls completely on the member to pay the charge via their self-assessment for tax. It is much more convenient for the client that the charge is determined within the pension scheme, to ensure no unwanted tax bills are received further down the line. In practical terms, it is the responsibility of the Scheme Administrator to check the amount crystallising each time there is a Benefit Crystallisation Event (BCE) to ensure that the appropriate tax is paid on any funds taken above the LTA. It is also their responsibility to calculate the ‘capital’ value of the benefits coming into payment, to verify exactly what percentage of the LTA being used. If the percentage of the LTA crystallised is greater than the percentage available, then it is the excess value that becomes the ‘chargeable amount’ and the LTA is applied. So, it is normally the Scheme Administrator who is obliged to deduct the tax charge before a ‘retirement’ payment (this being either a lump sum or income) is made. There is an exception to this - where the charge arises on a member’s death. In this instance, the recipient of the payment is liable.

benefits well in excess of the average man on the street 1 . Additionally, the tax charges themselves are not designed to be punitive, more to reclaim the tax relief given with a moderate additional allowance for growth on the pension assets. How much?! The Lifetime Allowance Charge rate that is due will depend on whether the excess is paid as a lump sum or regular income. If paid as a lump sum, called the ‘Lifetime Allowance Excess Lump Sum’, the charge is at 55% of the excess value. If the excess is retained to pay pension benefits, the rate is charged at 25%, with the member then paying income tax in addition at their marginal rate. Who? What? When? So, we are aware of the charge and the rates however, you may face questions from your client about when and how this charge is paid? Let’s look at the practicalities. Technically, the member and the scheme administrator are liable to pay the lifetime allowance excess tax charge. HMRC state that they are jointly and severally liable and if the scheme, in good faith,

INVESTMENT & RETIREMENT FOCUS | 5

Gavin Hawdon Technical Services & Research Consultant, Tenet Group

thing for those with defined contribution benefits, as it suggests their funds may have grown at a rate less than the current rate of CPI. Any amount above the Lifetime Allowance less a 55% tax charge is, in most people’s view, better than nothing at all! Of course, it is important to remember that just because there is an LTA excess charge doesn’t mean that pension contributions no longer represent value to the individual member, especially where somebody else is paying! The net return after tax may still be very attractive, for example if the contributions were from an employer with no personal contributions. Many industry professionals and politicians have called for the Lifetime Allowance to be scrapped as it can be perceived as a disincentive to saving for retirement. Some have called for this to be in conjunction with the introduction of flat rate of tax relief for pension contributions to simplify the pension savings landscape. Despite rumours swirling around the time of each budget, successive chancellors have done little to change the Lifetime Allowance regime since its introduction in 2006/07 other than to reduce the allowance itself, so don’t hold your breath and plan for the status quo. In the short term it is likely that Parliament, and the Chancellor, have bigger issues to distract them!

In these circumstances, specific information must be provided to HMRC within certain time limits. If they consider that the scheme administrator acted in good faith, then the member becomes solely liable for the charge. This is not the end of the reporting process for the client, even if the appropriate LTA charge has been paid. Where a client is required to complete a Self-Assessment tax return, then the client will still need to complete the relevant sections of the self-assessment form, with the exception of death benefits. More details of tax return completion in respect of the LTA charge can be found in the HMRC Guidance Document HS345 which is updated annually at the start of the new tax year. Make it go away! As signposted by previous budgets, from 2018 the LTA will be index linked so should increase gradually over time. This will be based on the Consumer Price Index (CPI), from the previous September each year. The figure for September 2017 was 3%, so the standard LTA has increased to £1.03m from April 2018. Those who already have transitional protection, or those who are still eligible to apply for protection, may be able to mitigate the impact of the standard LTA. For some with pension benefits on the margin of the Lifetime Allowance, the increases may mean that their crystallisation events fall below the Lifetime Allowance entirely – although it could be argued this is not a positive

For all members, the scheme administrator should pay, and account for, the LTA charge to HMRC on a quarterly basis (through the Accounting for Tax Return). Where a chargeable amount applies, the scheme administrator must send the member a notice showing the following: • The value of the chargeable amount • How the chargeable amount was calculated • The value of the LTA charge deducted In addition, the scheme administrator must give a BCE statement to the member or, if the member has died, to their personal representatives under the following circumstances: • At least once every tax year if the member is receiving a pension from the scheme (including funds designated for drawdown) • Where there is no pension income payment being made, then within three months of a BCE that has occurred under the scheme in respect of the member (except in respect of a BCE 5C or BCE 7, as the scheme administrator is required to notify the member’s personal representatives with regard to death benefits) So I’m in the clear then? The scheme administrator may become liable for any LTA charge not paid. The scheme administrator may also be liable for additional charges and fines, unless they have evidence that they acted on information from the member that was believed to be reliable.

1 Average retirement income in 2018 of £19,900 - nationwide survey of 1,000 people by Prudential

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There are many reasons to attend our events as they provide you with an excellent insight in current markets and legislation, a chance to network with your colleagues, the product providers and, notwithstanding, 3-4 hours CPD that is awarded at each event and collated for you. They are free to attend and are open to advisers, paraplanners and support staff.

TENET EVENTS 2018 Supporting your development

GET AHEAD AND BOOK YOUR PLACE AT OUR UPCOMING EVENTS... Cycle Three Professional Development Meetings The Professional Development Meetings (PDMs) are our flagship events and have always received the best attendance and feedback. These events are designed with the main aim to meet advisers’ development needs and provide a valuable insight into key industry issues. The PDMs offer a variety of important information from both our provider partners and Tenet’s senior management. They also provide an opportunity for advisers to network and meet key staff from Tenet and our strategic partner providers Target Audience: Investment, Pension and Protection advisers Timings: 8.45am arrival 9.15am start - 3.30pm finish CPD: Approx. 3hrs 30 minutes structured To book your place on Cycle Three PDMs, visit: https://events.tenetgroup.co.uk/cyclethreepdms2018

Business Focus Events These events, run in conjunction with our provider partners, will provide you with key updates on the market and the industry as a whole, new products, product changes and improvements. There will be no theme to these events, so each provider will be able to showcase their expertise in their relevant markets, providing you with a minimum of three hours of CPD. They differ to our other events, as we limit the groups to 20 advisers. This offers a lot more opportunity for interaction with other advisers. We find the sessions generate a lot of discussion, debate and the sharing of ideas. The additional benefit to these events is the social aspect of dinner in the evening, plus accommodation, which is included complimentary. Target Audience: Investment, Pension and Protection advisers Timings: 12.30pm – 5.30pm plus evening dinner/ breakfast meeting CPD: Approx. 3hrs 45 minutes structured To book your place on a Business Focus Group visit: https://events.tenetgroup.co.uk/businessfocuevents2018

Date

Location

Venue

Date

Event Name Location Venue

04/09/2018 Manchester (Merseyside)

Haydock Park Racecourse

13/09/2018 Business Focus Event 5

Bristol

Doubletree Cadbury House (South)

05/09/2018 Gloucester

Stonehouse Court

06/09/2018 Birmingham Village Solihull

11/10/2018 Business Focus Event 6

Edinburgh Norton House

11/09/2018 Maidstone

Hilton Maidstone

12/09/2018 London

Millennium Hotel London Knightsbridge

13/09/2018 Bishops Stortford

Down Hall

18/09/2018 Exeter

Sandy Park Conference Centre

19/09/2018 Southampton Hilton at the Ageas Bowl

Date for your diary 2018 TENET ADVISER FORUM Date: 6 th December 2018 Location: Queen’s Hotel, Leeds Gala Dinner Theme: Masquerade Ball Book your place today https://events.tenetgroup.co.uk/ adviserforum2018

20/09/2018 Glamorgan

The Vale Hotel

25/09/2018 Cumbernauld The Westerwood Hotel

26/09/2018 Durham

Ramside Hall

27/09/2018 Leeds

Village Leeds South

02/10/2018 Reading

Hilton Reading

03/10/2018 Nottingham Nottingham Belfry

04/10/2018 Sheffield

Tankersley Manor

09/10/2018 Belfast

Stormont Hotel

HOW TO BOOK

You can book our events online- simply visit: https://events.tenetgroup.co.uk/ADP2018 If you have any queries, please call the events team on 0113 2395334 or email [email protected]

INVESTMENT & RETIREMENT FOCUS | 7

Andrew Tully Pensions technical director at Retirement Advantage

State pension age changes forcing 1.8 million over 50s to re-plan retirement

• 1 in 4 people aged 50 and over and yet to retire have changed retirement plans in light of changes to state pension age (35% of women vs 21% of men) • 61% of people aged 50 and over say they will retire 1-5 years later than they planned (55% of women vs 70% of men) • 23% of people aged 50 and over say they will retire 6-10 years later than they planned (29% of women vs 13% of men) Changes to the state pension age have forced huge numbers of people aged 50+ to rethink their retirement plans – leaving nearly 2 million people set to retire many years later than planned or with less income than they anticipated – according to new research 1 by retirement income provider Retirement Advantage. The research found that two thirds (66%) of people aged 50 and over are aware of the changes being made to equalise state pension age, with more than 1 in 4 (28%) of them having altered their retirement plans as a result.

The trend of women being more likely to change their plans than men also remains where people have received state pension forecasts. More than 1 in 4 (28%) women who have received a state pension forecast have changed their plans as a result, compared to 1 in 6 (16%) men. However, nearly two thirds of women (59%) either haven’t requested a state pension forecast, don’t know what it is, or how to get one. 1. Source: Censuswide polling on behalf of Retirement Advantage, conducted online between 6-9 March 2018, surveying 1,003 UK adults aged 50 and over who are not retired, and have a defined contribution or individual pension in place. State pension age is increasing for women and rising between April 2010 and November 2018 from 60 to 65. It will increase to 66 for both men and women between December 2018 and October 2020. It will then increase to 67 for both men and women between 2026 and 2028. Finally, it will increase to 68 which has been suggested to be between 2037 and 2039, however the Government has not yet included this in legislation.

But the impact is starker for women than men. Only 1 in 5 (21%) of men have changed their plans, but more than 1 in 3 (35%) women are doing so. Importantly, the shift is also hitting women much more acutely in terms of how much they are altering their plans. Nearly 1 in 3 (29%) women who are changing their plans say they will retire six to ten years later than they planned – more than double the proportion of men (13%) doing so. Additionally, 1 in 5 women (20%) say they will retire with less income than they had planned, compared to 1 in 7 men (15%). In contrast, 69% of men who are changing their plans think they will retire 1-5 years later, compared with 55% of women.

Andrew Tully, pensions technical director at Retirement Advantage, said: These findings make clear the significant impact the changes to the state pension age are having on retirement plans. It’s also clear the equalisation of state pension age is changing women’s plans to a greater degree than men. Many over 50s are telling us they have heard there are changes to state pension ages but don’t know the details. It’s important that everybody approaching retirement requests a state pension forecast and consults a professional financial adviser to get a better idea of how the changes may affect them. Getting advice now is one of the best ways of ensuring your retirement plans stay on track.

Visit www.retirementadvantage.com/adviser to order or download a copy of the latest ‘Retirement Sentiment Index: Surviving Market Volatility’.

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Where now for the global economy?

In its latest World Economic Outlook published in mid-April, the International Monetary Fund (IMF) predicted that 2018 will be the strongest year for global growth since 2011. Fast-forward a couple of weeks to the release of the first quarter economic growth >Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 38 Page 39 Page 40 Page 41 Page 42 Page 43 Page 44

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