Buying a Commercial Property with your pension fund is an area of financial advice that we are often involved with. There are many reasons why this can be a good (and sometimes not good) thing to do.

To help you work out if this type of pension investment might be suitable for you take a look at the following short case study of actual cases we have advised on.

Case Study 1

Mr & Mrs Client each have a various pension funds adding up to about £75,000 each which they are no longer paying money into. They run a small retail business and rent premises for £20,000 per annum off Mr Landlord. Similar premises next door have been put up for sale for £200,000. They approached their business bankers for a business loan to buy the property but were put off by the need for a deposit of £70,000 (35%).

They decided to combine their pension funds giving themselves a combined pension pot of £150,000. Their pension funds then borrowed a further £50,000 from a High Street bank enabling their pension funds to buy the premises next door.

They served notice on Mr Landlord and then moved their business next door. They signed a new 6 year lease with their pension funds who are their businesses new landlord. They still had to pay £20,000 per annum rent but now it was being paid to their pension fund rather than a third party landlord.

There are some other potential benefits too such as pension fund assets being protected in the event of business bankruptcy.

There is a lot more to consider when considering this kind of pension investment. For instance, do you use a Small Self Administered Scheme (SSAS) or two Self Invested Personal Pensions (SIPP) as the pension vehicle? Which banks will lend to pension schemes and what is the best rate? How does the pension scheme pay retirement benefits? What happens in the event of death etc?

If you are interested in buying a commercial property with your pension fund please contact us for further guidance.

We are starting to see a increasing number of Employers realise the scale and complexity of dealing with the new Auto Enrolment legislation and while you can deal with it yourself the Nine Guides from The Pension Regulator is enough to put off even the most competent of firms.

At Simpson Financial Services we have been planning and preparing for this for over 4 years and are able to offer a full advisory service to Employers which will mean that you are able to deal with the rules compliantly and maintain your reputation with your staff as a quality Employer. We can help you in the following areas:

Find out your staging date

Review your current pension scheme(s)

Assess your workforce

Model different ways to comply with the Auto Enrolment Rules

Design a new pension scheme or amend your existing pension scheme

Create an Auto Enrolment Implementation Plan

Implement the changes required

Engage with your workers and deal with employee communications

Make sure your record keeping is compliant

Provide ongoing governance and advice

There is a lot to do and time is running out. If you would like to discuss how we might be able to help you then please call the office on 0845 0179 578 and ask to speak to Rob Simpson who is the pensions expert.

The four main factors in building up a good pension fund are quite simply:

  • How much money is being invested (monthly, annual, one off, transfers etc).
  • What level of investment performance is earned.
  • How much your pension provider charges you.
  • How long you invest for.

Many members of company pension schemes called Group Personal Pensions or Group Stakeholder Pension Schemes are often delighted with the low annual management charge that they pay. As long as you remain in the same employment you will continue to benefit from low pension scheme charges ranging from 0.3% per annum to 1% per annum. What many don’t realise is that when you leave employment and, by default, leave the company pension scheme your annual pension fund charges can shoot up!

This is known in the industry as the “Active Member Discount” but should probably be renamed “The Scheme Leaver Penalty”.

So, what is happening?

The Pensions Minister, Steve Webb, has today announced that it is the governments “intention” to bring about changes to this practice. This is being done via an amendment to the Pensions Bill 2011.

However, if I was a scheme leaver and thought I was being penalised through high pension charges I’d rather not wait for the legislation. The sooner you act the sooner you could be benefitting from lower charges. I wrote previously about BBC’s Panorama Exposes Need For Pension Fund Advice and if you would like us to check if you’re being penalised and what you can do about it then please call the office on 0845 0179 578 and ask for me personally.

Best wishes,

Rob Simpson

Last night I watched the BBC’s Panorama programme, Who Took My Pension, which highlighted the difference between different pension companies charges. As an Independent Financial Adviser (IFA) this is something which I have known about for some time. Indeed, rules on “Hard Disclosure” came into effect over 15 years ago which forced pension companies to detail their charges and show the effect of those charges on the possible future value of the pension fund. A good outcome of this disclosure has been that it allows IFAs to compare the costs of the numerous pension schemes when advising our clients. You can view an example of this research below:

Pension Provider Comparison Report

Of course, cost is not the only factor when taking into account which pension provider to recommend to our clients. We have to take into account a number of factors and features that each pension provider offers. For example, there is no point in having the lowest charging pension provider to administer you pension fund investment if, as a by-product, you end up with particularly bad investment performance. For example, the seemingly lowest charged pension fund in the above report is Aegon. I have researched their Global Equity Fund performance against the sector average and you can see below how it has faired.

Pension Fund Performance

There can be merit in switching your historic pension funds from one provider to another as indicated in the BBC Panorama programme last night but extreme caution should be taken and I would recommend that you speak to your IFA about his. If you do not have an IFA then please contact us as we could carry this analysis out for you. Under no circumstances should you attempt to do this on your own. Some of the older and more expensive pension funds do have some valuable features such as Guaranteed Annuity Rate Clauses and it could be a real disadvantage if you were to give up these.

Call us now to discuss how a pension healthcheck will identify if which pension provider is likely to be best for you.

The government has decided to abolish contracting out of the State Second Pension (S2P) through money purchase pension schemes. This is likely to happen from 6 April 2012, but it could be later.

Most money purchase pension annual statements contain a Statutory Money Purchase Illustration (SMPI). By law, from 1 September 2009, these will have to assume that protected rights contributions will stop from no later than 2012.

What this means for our customers
For contracted-out plan holders we’ll now assume no more rebates will be payable after 5 April 2012, which may result in lower values for their SMPI retirement fund values and pension in their annual statement compared to previous years’ statements.

This will be a more realistic projection of the future benefits from their policy, and although the values may reduce, it has to be remembered that their overall benefits at retirement could include S2P benefits from the government.

Whenever I begin to advise a client on their retirement planning it is important that I fully understand their current circumstances. This often involves dealing with various historic pension funds and benefits all (hopefully) packaged together in a tidy manner for me. However, there is always one omission and that is details of the State Pension.

The State Pension is the foundation block of your retirement plans. Whether it forms the majority or minority of potential retirement income it is still valuable. It can vary quite significantly based on your level of earnings and your employment status (employed, self employed, not employed etc). I’ve seen State Pensions for this year vary from £91 per week to £164 per week.

Also, you may have noticed a lot of press about State Pensions and extending the retirement age from when you can draw your pension. This bad news is offset by the return of the link between the State Pension yearly increases and earnings increases.

If you would like to find out the details of your own State Pension then you can request a forecast online here for free. It will tell you what you have built up so far, when you forecasted State Pension age is and how many more years of contribution you need to do in order to get the maximum basic pension is. It will also confirm if you have any entitlement to The Graduated Pension Scheme, SERPS or the more newer State Second Pension (S2P). It’s only 4 pages long and it is something you should read well before you plan to retire.

If you would like any advice on State pensions or your retirement planning then please get it touch.

At last! Safeguarded Rights are now only a distant memory in the world of pensions. This badly thought out and inappropriately named type of pension fund is now to be brought in line with the rest of Contracted Out pensions funds.

The Pensions Act 2008 (Abolition of Safeguarded Rights) (Consequential) Order 2009 (SI 2009/598) removes references in pensions secondary legislation to safeguarded rights – eleven SIs in total are modified. Safeguarded rights arise when a member’s rights in an occupational or personal pension scheme which is contracted-out of the state second pension are shared on divorce or dissolution of a civil partnership. PA 2008 s.100 and the related repeals in Schedule 11 Part 2 abolish safeguarded rights altogether with effect from 6 April 2009. From that date, shared rights that derive from contracted-out rights will be treated in the same way as other shared rights.

And the best news is that if you are a policy holder who owned a Safeguarded Rights fund or were about to receive such a pension fund through your divorce then you are now able to take 25% of the fund as a tax free cash lump sum. This is subject to the normal rules surrounding all pension such has a earliest retirement age of 50.

Call me now if you want to discuss your Safeguarded Rights in more detail.

There has been an awful amount of publicity surrounding pensions this week. Sir Fred Goodwin and The Royal Mail have been getting pension pelters. Goodwin’s was agreed, presumably when he decided whether to take the job or not, so it forms part of his contract and must be paid.

The same goes for the Royal Mail. One of the factors of interview candidates being offered a job must have been the pension entitlement. So that must stand also.

Not so long ago we have had strikes in both Council offices and the Fire Service. Ok, these have been about pay, or equipment, but the amount of public funds that has to go into their pension scheme means there just isn’t enough money left over to give these folk a pay rise which, at an absolute minimum, must equal inflation.

If the government is really serious about following the private sector and abolishing these long term, under funded state promises then it must begin with axing its own MP scheme. This, amongst all public sector pension schemes, is one of the most generous.

Go on Gordon. Put your pension where your mouth is!

There are many reasons to start a pension scheme for all or some of your members of staff.

  • Your duty as a caring employer to assist in the longer term care of your staff.
  • To help attract quality individuals to work in your business.
  • To help retain quality individuals who already work for you.
  • The Income Tax and National Insurance benefits on contributions you make.

However, there is none more so than you legal obligation to provide a pension scheme if you have 5 or more employees in your business. Currently there is no legal obligation for the company to contribute but that is changing.

Personal Accounts are expected to appear in 2012 with the likely contribution basis to be set as follows:

Employer 4%

Member of Staff 3%

Government 1%

This creates an opportunity for you, the employer, to begin to start contributing now and been seen as a good employer, rather than wait until 2012 when your staff will believe your only doing it because you have to.

Careful advice is required when implementing a new scheme and you should consider the future change in legislation, how you announce the scheme, how you administer the scheme and so on. Simpson Financial Services are experts in guiding you through all the relevant aspects of setting up a new pension scheme.

If you wish to arrange an informal discussion please contact us here.

So you are reaching your intended retirement age and you are beginning to receive your maturity options from your various pension providers. What do you do now? How do you decide on which style of annuity is best for you. Level in payment or increasing? A spouses pension or single life? Take the tax free cash or not? Or even is buying an annuity the best way for you to provide income in retirement?

For the purpose of this article, lets assume that a single life, escalating annuity is best for you. The next part of our advice process now involves finding which Pension Provider is going to offer you the highest income for your fund. This ability to shop around for the best annuity rate is called The Open Market Option.

The Pension Providers base their annuity rates on their own experiences of average life expectancy. Don’t be fooled by there warm brochures covered with pictures of a happy pensioners. They want you to die prematurely so they don’t have to pay your annuity out for long. In fact, a number of Pension Companies will now offer enhanced annuity rates for smokers and retirees who have serious medical conditions such as high blood pressure, historical heart attacks, diabetics etc.

We don’t advocate you start smoking just before you retire but if you do, or you take medication, then contact us to see how much extra pension income you might get.

You only get one chance to buy your annuity so make sure you contact us to get the correct advice on both style of annuity and the Pension Provider offering the highest rate.

Then all you have to do is live a long and happy retirement!

Women aged 53 to 60 will soon be able to pay a further six years worth of national insurance (NI) contributions to boost their state pensions.

It raises to 12 the number of extra years of contributions that can be topped up, going back to 1975.

The government’s decision is included in an amendment to the Pensions Bill currently going through Parliament.

The change is aimed at helping some women who left the workforce to raise families or care for other relatives.
The extra six years of contributions will generate extra pension of about £18 a week from 2010.

In 2010 the number of years of NI contributions needed to qualify for a full basic state pension will come down to 30 for both men and women.

Currently the number of years needed are 39 for women and 44 for men.

New weekly credits will also come in to help people caring for children or disabled people build up their contribution records in the same way as if they had been working.

People who want to take advantage of the ability to buy six extra year’s worth of contributions will have to have paid for a minimum of 20 years already.

The cost of buying those extra contributions will also go up, from the current rate of £8.10 per week.

But is it a good thing to do. Well, compared to what it would cost to buy that level of income from a private annuity, it represents some good value. But one factor you will never know is how long your going to live for.

If you die soon after retiring, any annuity represents poor value for money. But, live until your 100 and they are the best investment you are likely to make.

Still confused? A good starting point to asses you own situation is to request a free State Pension Forecast online.

It is only two more months to wait until the latest Pension Bill comes into force and brings and end to the lack of equality for divorcees receiving pensions sharing orders.

Safeguarded Rights is the name given to the part of the pension fund built up by National Insurance rebates, usually called Protected Rights. But as soon as these Protected Rights are subject to a Pensions Sharing Order and transferred into a private fund of a divorcee they become known as Safeguarded Rights. The only snag is you can’t currently take 25% of this fund as a tax free cash lump sum at retirement.

However, by the end of October 2008 the anomaly will be gone. This will have a significant impact on people who have Safeguarded Rights in their pension portfolio and have had to use other means to fund a future cash lump sum at retirement.

If you feel you might be affected by this you should contact us for further information