Archive for February 2011

Clare Caswell

Couples who are going through divorce proceedings, and their solicitors, will know that if there are pension assets to be considered then the Cash Equivalent Transfer Value (CETV) of these assets must be obtained from the relevant pension scheme. If you or your (ex) spouse is a member of a final salary pension scheme then beware the dangers of not knowing the definition of “Final Pensionable Salary” (FPS) within the scheme. This is of particular importance to those members who have been “acting up” to a position for a period of time where they receive a higher salary than usual for that period, but return to their normal salary after the period of “acting up”.

If the definition of FPS contains any reference to “the best” or “highest of”, for example, 5 years, and you are close to retirement and/or implementing a pension sharing order then pay close attention! Read more »

Admin

My name is Daniel Melarkey and I’m a student at The Queen’s University of Belfast currently studying for my BSc in Actuarial Science and Risk Management. As part of my studies I have to complete one year in an industry placement, I was lucky enough to secure this placement at Spence & Partners. I encountered the company through the university placement office and a careers fair at the university.

Spence & Partners was a business I immediately identified as one I would like to work for. The company was a perfect size in that it was big enough that there would be plenty of interesting work and a variety of clients to interact with, but not so big that I would get stuck working in only one department, or doing only one task during my placement year.

I have to say that through the first 6 months of my placement here I have had many opportunities to engage with the business practice areas ,and I’ve definitely found the company size a huge advantage. I have been given a massive amount of freedom, respect and trust at times to go and really get stuck in to things myself. The company has some fantastic business developments in the pipeline and I’ve been welcomed with open arms into new and interesting projects; I’ve been given great opportunities to take my learning into my own hands. It really has been a case where I’ve been getting out of it what I’ve put into it, and I’ve learned skills and abilities in areas I never thought conceivable before starting the placement as a result.

I have been involved with work in every area of the business; gaining great insight into how a company in the financial industry typically operates day to day, whether it be an accounting process, business development, actuarial practice, administration practice or software development – the range in this insight is really fantastic and has given me a confidence where I am now comfortable in tackling any task coming my way.

Further to this, the people here are a fantastic bunch: greatly skilled, helpful, respectful, and there are no egos! Right from the bottom of the company structure to the top everyone makes time for you and have no qualms with lending a hand whatever the situation. I, and the other placement student even got the opportunity to complete a research project for Brian Spence himself within the first few months of our placement – what an opportunity!

Overall Spence & Partners is a fantastic place to work and learn, and it has been a great opportunity for me, giving me some of the skills essential for my final year of university and life beyond.

Browse our website and take a look at our careers page to find out more about working for or with Spence & Partners.

Sean Browes

I was sat in a pub with a friend recently and the conversation got round to pensions. It went something like this:

Friend – I’ve been thinking about putting some more money into my personal pension. Last time I looked into this, the maximum I could put in was 15% of my gross taxable earnings in any one tax year. Is this still the case?

Me – Ah! Things have changed. It’s all been simplified now. You can put in as much as you want …

Friend – Excellent!

Me – … except, if you go over your annual allowance, you’ll get hit for some pretty severe tax charges.

Friend – Oh … so how much ‘tax relieved’ contributions can I put in?

Me – Depends on your Pension Input Period.

Friend – My what?

Me – The actual Revenue definition is ‘the period over which you measure the amount of your pension saving’.

Friend – So not the same as a tax year?

Me – It could be … but not necessarily. In fact, it pretty certainly won’t be.

Friend – So what’s the maximum if my Pension Input Period ends after April 2011?

Me – Depends ….if it’s before 14th October, then, technically, £255,000 but the maximum contribution after 14th October 2010 is limited to £50,000. … unless.

Friend – Unless?

Me – you have unused relief from any of the three previous years. The Government has put in place some transitional arrangements which means you have a notional £50,000 for each of the last three years. If you haven’t used it all, you can carry it forward.

Friend – So, if I’ve put nothing into my pension in the last three years I could put in £150,000?

Me – Yes … except … how much do you earn?

Friend – £135,000 a year.

Me – Ah!

Friend – Ah?

Me – In that case you are deemed to be a high earner so the maximum contribution you could make before 5th April this year is £20,000.

Friend – £20,000?

Me – … or maybe £30,000.

Friend – Sorry?

Me – This is your Special Annual Allowance – it was introduced as an anti-forestalling measure by the previous Government when they attempted to restrict the tax relief for high earners. If you can demonstrate that you have made irregular contributions in any of the last three years with an aggregate value of £30,000 or more … your Special Annual Allowance is £30,000. Otherwise, it’s £20,000 … or, in some cases, between £20,000 and £30,000.

But, you see, the new Government then decided to stop messing around with tax relief and just limit the amount of tax advantaged contribution you could put in. So, the anti-forestalling measures are no longer required and have been removed under legislation, effective from the start of the next tax year.

Friend – But they still apply to this tax year?

Me – Oh yes! By the way, the tax charge is slightly different if you were to exceed the Special Annual Allowance –the Special Annual Allowance Charge effectively arises by restrciting the tax relief available on contributions in excess of the Special Annual Allowance to your basic rate so, in your case, it amounts to 20%. The Annual Allowance Charge is 40%.

Friend – (adopting glazed expression) I see (not really seeing at all). What about after April?

Me – Assuming you pay £20,000 before April 2011, between £30,000 and £130,000, depending on how much unused relief you’ve got available.

Friend – I’m not sure when my Pension Input Period runs from or to. What if my current Input Period ends before the 5th April? What would the maximum [tax relieved] contribution be?

Me – Hey, fill your boots, £255,000! Except ….

Friend – Except?

Me – You’re a higher earner so ….

Friend – I’m restricted to £20,000?

Me – Yep, anything over that would be subject to the Special Annual Allowance Charge.

Friend (with a hint of irony) – Well, thanks for clarifying that. I have another friend who’s in a defined benefit scheme – he asked me to ask you the same question.

Me – (Pause to reflect on the question) … did you see the football last night?

As the saying goes ‘you couldn’t make it up’. Actually, that’s not true, this is clearly a made up conversation (those of you who know me will know that I don’t go to pubs very often these days and I don’t have any friends).

The message, sadly, is not made up. There is a great deal of complexity around the reduction in the Annual Allowance from April this year and associated transitional arrangements. As intimated, there are added complications for Defined Benefit arrangements.

Up to now, the annual contribution limits have been generous and unlikely to be infringed except by all but the highest earners or those making large, one-off contributions. However, there is now significant potential for large numbers of active members to get tripped up by these legislative changes. For any type of scheme, trustees and/or employers should be communicating to members/employees, certainly in advance of April.

Individuals might want to seek the advice of their scheme administrator if they are a high earner (earning in excess of £135,000 per annum) and/or are making significant contributions. Alternatively, feel free to contact me or your usual Spence & Partners contact.

David Davison

Professional Pensions reported my concerns about the promotion of defined benefit schemes to 3rd sector employers and my view that any such promotion which failed to ensure that the employer fully understood the attendant risks and uncertainties, was irresponsible and totally inappropriate. This elicited some interesting responses and I wanted to thank everyone for their comments on this important issue. There did seem to be a bit of confusion however, which I wanted to clear up.

My comments are clearly focused on DB provision in the third sector. Stephen Nichols, the Chief Executive of the Pensions Trust, was given a 2 page platform and a video to share his views on “Saving DB” and I thought it completely fair and balanced of PP to carry an alternative view and I thank them for that. Other senior staff within TPT have espoused similar views recently around DB so it wasn’t unreasonable to assume it was something of a ‘house view.’ The Trust is a highly regarded and respected organisation marketing primarily defined benefit pension scheme services to third sector employers and I was concerned that some of these employers may accept such a suggestion as being right for them and I wanted to ensure that they were totally aware of the risks involved.

In my experience of advising 3rd sector organisations they are ill-equipped to deal with defined benefit pension arrangements and certainly with ‘multi-employer’ DB arrangements where there is a supplementary risk that the strong will be required to pay for the weak as well as for themselves. The funding position of TPT schemes is not unique, you only have to consider schemes like PNPF and MNOPF to name but two, but their target market is. One respondent accused me of having a binary view and perhaps I do – DB Schemes should be left to organisations who can afford the contributions now and in the future and can deal with the volatility of liabilities and costs. Is anyone seriously contesting that view? Read more »

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