Personal Finance Professional Summer 2020 by Redactive Media Group

Summer 2020 thepfs.org

PERSONAL FINANCE

PROFESSIONAL

Altered landscape HOW FINANCIAL ADVISERS CAN ASSIST CLIENTS DURING A GLOBAL PANDEMIC

WILLPOWER

DRAWDOWN

PROTECTION

Response to increased will and LPA requests

Reassuring clients concerned about pension income

Life and health cover in the time of Covid-19

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CONTENTS Summer 2020

12 Sector Focus

Business Focus

10 Regulatory radar The latest updates on legislation and regulation across the UK and Europe

13 Investments How ﬁnancial markets could aﬀect pensions savings

20-21 Compliance Examining FCA guidance in response to Covid-19

14-15 Wills The pandemic’s impact on wills and lasting powers of attorney

24-29 Technical Connection Key points from the spring Budget

16-17 Pensions How advisers can guide drawdown clients

32 Chartered Guidance on Chartered renewals during the coronavirus crisis

36 News & Opinion

22-23 Communication The importance of digital comms while working remotely

04-05 Opinion Keith Richards on how the advice sector is stepping up for its clients at a vital time

33 Tech Refresher 42 Tech Q&A

34-35 Investments The impact of Covid-19 on portfolios

44-45 Learning Professional Focus delivers digital CPD to members

36-37 Protection Life and health insurance protection cover

49 The Big 10 Test your knowledge with our Q&A

40-41 Remote working How professions are adapting

06-09 News National and regional news

50 President’s blog Adam Owen urges the profession to stay united

Personal Finance Society 21 Lombard Street, London, EC3V 9AH Tel: (020) 8989 8464 Fax: (020) 8530 3052 Chief executive: Keith Richards

Personal Finance Professional is the magazine of the Personal Finance Society (PFS). Members receive a copy as part of their membership. The cost to non-members is £7 per copy. Views expressed by contributors or advertisers are not necessarily those of the PFS. The PFS will accept no responsibility for any loss occasioned to any person acting or refraining from action as result of the material included in this publication. Reading issues of Personal Finance Professional can be included as part of members' CPD requirement (35 hours per year).

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EDITORIAL Communications director: Emma Ann Hughes Editor: Luke Holloway luke.holloway@cii.co.uk Contributing editor: Liz Booth DESIGN Art editor: Yvey Bailey Picture editor: Claire Echavarry Production: Jane Easterman Printing: GD Web Oﬀset For sales and advertising please contact us on pfs-sales@redactive.co.uk or 020 7880 7661

PUBLISHER Redactive Media Group, Level 5, 78 Chamber Street, London, E1 8BL Tel: (020) 7880 6200 ISSN 1754-8055 © Personal Finance Society. Average total net circulation: 37,000 Recycle your magazine’s plastic wrap – check your local LDPE facilities to ﬁnd out how

Cover illustration Napal Naps

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OPINION

STANDING TALL As the world struggles to come to terms with the Covid-19 crisis, Keith Richards outlines how the advice sector is stepping up for its clients 4

n the same day that we last went to press – 14 February – a 38-yearold man went to see his doctor in Codogno, a province in northern Italy. He was diagnosed with flu. He was later identified as the first known case of coronavirus in Lombardy. Just over a week later, Italy imposed a quarantine on 11 towns affected by Covid-19 and less than three weeks after the initial quarantine the whole of the country was in lockdown, followed quickly by almost all of western Europe. The economic impact of the crisis in the UK has been unprecedented. The sharp fall in markets at the end of February was followed by a six-fold increase in the number of people claiming universal credit and almost a quarter of employees being placed on furlough. With the Bank of England predicting a fall in economic output of 14% for 2020, it is clear that uncertainty and disruption will be with us for some time to come. In terms of personal finance, this leaves the UK with major challenges, including the way in which we manage retirement incomes. In the relatively benign markets following the introduction of pensions freedoms, we have seen many consumers become DIY investors, often without them having

a very strong sense of what is happening with their money. The Financial Conduct Authority (FCA) has found that about a third of non-advised investors go into drawdown, but 60% of them do not have a clear idea of what kind of assets they hold. During this period of economic turbulence, many DIY investors will only be engaging with their drawdown portfolio seriously for the ﬁrst time and they are very unlikely to make good decisions without professional advice.

POSITIVE RESPONSE To create as much capacity for high-quality financial advice as possible, we have been working closely with the FCA to reduce administrative burdens on firms. The FCA’s response has been very positive. It has temporarily suspended the requirement for advisers to write to their clients repeatedly, whenever there is a 10% fall in their portfolio, provided the firm is providing more generic information to clients through its website. This will both reduce the amount of time that advisers have to spend duplicating news that their clients will already be hearing through many different channels and reduce the amount of consumer harm that will come from hearing only about markets falling, without any context or any news about markets recovering. The FCA has also given guidance on client verification in a world of social distancing,

thepfs.org | Personal Finance Professional | SUMMER 2020

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OPINION

CEO

KEITH RICHARDS Personal Finance Society

It is at these moments that we really ﬁnd out what is strong and valuable

PROTECTING THE SECTOR At the PFS, we have responded to the coronavirus crisis by changing the way we share information and insights with members. Newsletters are now delivered to members weekly, rather than monthly and we have made this issue of your Personal Finance Professional magazine digital-only. Furthermore, we are developing webinars and online continuing professional development to replace the conferences that would have been staged in normal times. These have included special sessions on the impact of the government’s measures for business and what the options are for advice ﬁrms. This will be crucial in protecting our sector and the critical role it plays for clients in future.

These have been worrying times for everyone – most of us know someone who has suffered from Covid-19; and we all know people whose livelihood has been affected by the crisis. It is at these moments that we really ﬁnd out what is strong and valuable. I know that clients of professional ﬁnancial advisers will be discovering, or rediscovering, the invaluable service that they receive, in the form of information, reassurance and sound advice from the most professional advice sector in the world. ●

JOIN THE DISCUSSION For more information and to oﬀer your feedback, please visit: PFS member email: membership@thepfs.org Pension Transfer Gold Standard: thepfs.org/ptgs PFS ﬁnancial planning and good practice: pfspower.org Apprenticeships: thepfs.org/Apprenticeships ScamSmart: thepfs.org/scams Good practice hub: thepfs.org/good-practice Follow us on Twitter: @pfsconf

ILLUSTRATION: LUKE WALLER

saying that remote methods of verifying client identity, such as scanned documents, third-party corroboration (for example from an accountant or lawyer, or a ‘selfie’ or video provided by a client) are all acceptable forms of verification under its rules. The FCA has also pushed back the deadline for transfer specialists to achieve their qualifications, giving more time for people who are shielding or self-isolating to attain the new standards.

SUMMER 2020 | Personal Finance Professional | thepfs.org

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NEWS

P E N S ION S

PENSION TRANSFER GOLD STANDARD MARKS 1ST ANNIVERSARY More than 1,300 financial advisers have signed up to the Pension Transfer Gold Standard in the space of just 12 months, despite numbers offering advice falling. Launched in April 2019 by the Pensions Advice Taskforce, the Gold Standard centres around a consumer guide designed to help the public better understand the features of a defined benefit pension scheme and what to expect from a regulated financial adviser. Keith Richards, CEO of the PFS and chair of the Pension Advice Taskforce, said it was encouraging to see so many financial advisers choosing to align with this consumer guide and committing to nine key

principles of good practice for advising on pension transfers. However, while financial advisers continued to sign up to the standard in the last 12 months, Mr Richards pointed out that a significant number are unlikely to re-register this year due to problems in obtaining affordable professional indemnity insurance, forcing them to pull out of offering pension transfer advice. He said the PFS will continue to engage with policymakers to consider an alternative way to fund consumer compensation. To find out more, visit: thepfs.org/thepension-transfer-gold-standard

MEMBERS

PFS MEMBERS REVEAL HOW THEY ARE WORKING A Twitter poll of the PFS membership at the end of April showed that approximately 7% had been furloughed, 73% were okay working from home and roughly 12% were struggling with carrying out their roles from home. Of the 78 PFS members who took part in the poll, 6.4% reported they were still having to go into their oﬃce to continue to serve their clients during the coronavirus pandemic. PFS members revealed how they are continuing to work one month after the Financial Conduct Authority announced what steps the ﬁnancial advice profession should take to facilitate working from home, including providing suitable IT and equipment to enable remote working.

Tweet Tal k

@leerobertson64 A great start to today by interviewing @AskAdamOwen, current President of the PFS, for @octomembers. Chatted @pfsconf, @NxtGen_Progress, ﬁnancial planning, communities, professional behaviours and more

On 30 April, the professional body announced a 20% discount on digital learning materials for members who as a result of Covid-19 have been furloughed or seen an equivalent material reduction in their income, and whose learning and assessment costs are not funded or subsidised by their employer. Those who are facing financial hardship due to being made redundant or working for a business that has collapsed as a result of Covid-19 are also eligible for discounts and financial assistance on digital learning or membership. For more information, visit: cii.co.uk/ financial-assistance-during-covid-19 Read more about CII discounts for learners on page 11

@martinbamford Great to see @pfsconf POWER Podcast go live this morning, with a ﬁrst episode featuring @DareToSoarHQ and @AlanJLSmith, part of David’s Inspiring Leaders seriespoll in April

@DanMorganFP I am proud to be part of a Chartered ﬁrm and working toward @pfsconf @CIIGroup individual chartered ﬁnancial Planner status myself

thepfs.org | Personal Finance Professional | SUMMER 2020

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NEWS

T H E N EW S IN N UM B E R S L E A R N I NG

PFS LAUNCHES FINANCIAL EDUCATION WEBSITE FOR SCHOOLS The PFS has launched a dedicated website, to compliment its My Personal Finance Skills pro-bono financial awareness programme. The website means young people are able to learn more about money matters while they are unable to access educational workshops at school. The website features four free online sessions, which each last roughly 25 minutes, covering staying safe from scams, moving on from school, ‘my future finance’ and how to make financial decisions.

1,300

FINANCIAL ADVISERS HAVE SIGNED UP TO THE PENSION TRANSFER GOLD STANDARD IN ITS FIRST YEAR

The sessions are available on demand and are designed for students aged between 14- and 18-years-old who are studying key stage four and ﬁve material at school. All the learning material has been awarded the Financial Education Quality Mark by Young Money. It is hoped the new online sessions will complement the

face-to-face workshops, which will be held when government guidance to ‘stay at home, protect the NHS and save lives’ changes so that schools can once again reopen their doors to pupils. To ﬁnd out more, visit: mypersonalﬁnanceskills.org Read our My Personal Finance Skills article on page 46

900

PFS MEMBERS HAVE SIGNED UP TO BE AMBASSADORS OF ‘MY PERSONAL FINANCE SKILLS’ WHICH HAS SO FAR REACHED 12,000 STUDENTS

7 S U P P ORT

15,000

PFS RESPONDS TO SUPPORT SCHEMES In response to the government issuing further information on the Bounce Back Loans Scheme and Self-Employment Income Support Scheme, Keith Richards, chief executive of the PFS, said: “The Personal Finance Society welcomes the new measures the government has introduced to support businesses and the selfemployed who were not able to make use of the Coronavirus Business Interruption Loan

@StrategicSols Great initiative from @pfsconf - the professional body for the ﬁnancial planning profession in the UK. Click on this link and help educate the younger generation in ﬁnance (some older ‘students’ might enjoy it too!)

Scheme and the Job Retention Scheme launched last month. “The economic crisis we are in the middle of is unprecedented and has already aﬀected businesses and individuals signiﬁcantly, so we commend any measures that can ensure as few people as possible fall between the cracks and get access to much-needed support quickly. “We urge any of our members who are in need and

@ClaireMarkhamFH Young adults at home? Want them to gain important life skills. @pfsconf have launched online tools with videos & worksheets for 14-18 year olds. Share with anyone who may be interested - even a school

are eligible for these schemes to make full use of them to ensure the vital service they provide to the public continues. “The PFS will continue to work with the regulator and the government, to ensure our members are supported in meeting the needs of their clients and receive the most up to date guidance to do so,” concluded Mr Richards.

@SMW_Cii Well done to Gary and Robin and their team @matrixcapital @LoveBridgnorth - great to see the profession @pfsconf @CIIGroup providing much need help and support during these diﬃcult times

STUDENTS STUDYING THE BTEC ENHANCED DIPLOMA IN BUSINESS WILL NOW BE RECOGNISED BY THE CHARTERED INSURANCE INSTITUTE AS HAVING A LEVEL THREE QUALIFICATION

73%

OF PFS MEMBERS SURVEYED WERE OK WORKING FROM HOME ACCORDING TO A PFS TWITTER POLL IN APRIL

Twitter followers 9,197 PFS President’s Thinktank 3,829 members PFS Chartered Financial Planners 1,627 members

SUMMEr 2020 | Personal Finance Professional | thepfs.org

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NEWS

I N S U R I NG F U T U R E S

CII CALLS ON SECTOR TO IMPROVE FINANCIAL INDEPENDENCE IN LATER LIFE The next stage of the Chartered Insurance Institute’s (CII) Insuring Futures initiative will look at how people can better build and maintain ﬁnancial resilience for later life. The professional body wants to hear from anyone working in the insurance and personal ﬁnance profession who can help identify what people can do during every decade of their adult lives to build and maintain their independence. The CII’s Insuring Futures work will look at the kinds of conversations people need to have with their families, friends,

insurance professionals and financial advisers to create more financial resilience throughout their entire life. The insights on Insuring Women’s Futures will form the basis of a conversation with members of the insurance and financial advice profession, charities, policymakers and researchers that will lead to guidance and support for professionals around: ● How we design products and communications for older people that resonate with the way they live their lives. ● How professionals can structure

conversations with clients that are more relevant to the risks and aims they have. ● How advisers can give advice to their clients’ whole family, rather than just the individual, as they grow older and their plans become more entwined with the needs of their family. To ﬁnd out more about becoming part of the Insuring Futures working group, email: sophia.kleanthous@cii.co.uk Read our Insuring Futures article on page 30

I N T E R N AT ION A L

A WORLD OF PROMISE REPORT LAUNCHED The Chartered Insurance Institute (CII) has published the second annual edition of the A World Of… series – A World Of Promise – showcasing the work of regulators, employers, institutes, educationalists and individuals, in eight areas: ● Mainstream education – where universities and colleges are instilling a culture of continuous learning among tomorrow’s insurance leaders. ● Professional standards – competence, integrity and a duty of care are being embedded as core principles of our international profession. ● Insurance accessibility – new products and channels to enable those at the lower end of the earning spectrum to manage their risks in life. ● Cross-border experience – providing seamless, consistent experience for businesses and individuals that need to engage with the profession in diﬀerent countries.

Technology disruption – digital learning is enabling learners to access the content they need, in the format they prefer, using the device of their choice, irrespective of time and place. ● Environmental impact – the profession is supporting the shift to a low-carbon economy, responding to the expectations of responsible customers. ● Social relevance – demonstrating that insurance can make a beneﬁcial impact on every aspect of modern life. The new edition includes contributions from 17 insurance leaders across AsiaPaciﬁc, central and south Asia, the Middle East, Africa and Europe. ●

Ecosystem partnerships – strengthening markets through customerorientated alignment between insurers, brokers and ﬁnancial planners. ●

A World Of Promise can be downloaded at: www.cii.co.uk/aworldof In addition, a limited number of hard copies are available at: aworldof@cii.co.uk

thepfs.org | Personal Finance Professional | SUMMER 2020

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NEWS

Q UA L I F IC AT ION S

MEMBER SERVICES

PFS CHIEF APPLAUDS LATEST GRADUATES

CII RADIO

The PFS’s latest graduation ceremony, which was due to take place in April, has been delayed to October but the makeup of the latest group that will pick up their awards later this year reflects the evolving make-up of the profession. The Financial Conduct Authority’s report on gender diversity in UK financial services, published in November 2019, found women only make up about 17% of individuals working in the profession. However, out of the 468 PFS graduates this April, three out of 10 (135) are women – demonstrating a change in the gender split as more women set their sights on a financial

The podcast series from the Chartered insurance Institute (CII) and PFS, CII Radio, is continuing to broadcast during the pandemic, with relevant content aimed at keeping both members and non-members up to date with the latest topics from across the sector, as well as giving listeners an insight into the work of the CII and the PFS. Every Wednesday a new episode is launched, with recent topics including what the Financial Conduct Authority expects of ﬁnancial advisers during the coronavirus outbreak; continuing professional development requirements for members during lockdown; and ensuring continuity of insurance cover during the pandemic. The podcasts are available to android users via SoundCloud and Stitcher Radio, or on Apple via Apple Podcasts. To listen, visit: thejournal.cii.co.uk/ podcasts

planning or paraplanning career. Keith Richards, CEO of the PFS, said: “The makeup of our current graduates is a pleasing sign that a growing number of women are pursuing a career in the personal finance profession as well as a noticeable change in young people choosing the sector as a first career of choice. “This is a rewarding profession where members make a positive difference to people’s lives and financial wellbeing, which is clearly being demonstrated at the present time of global crisis and uncertainty caused by the Covid-19 outbreak.

“It is naturally disappointing to have to cancel the graduation ceremony and while we had to follow the government’s instruction to ‘stay at home’, it is still important to recognise and celebrate the hard work and achievement of these 468 practitioners. “I look forward to presenting the April graduating class with their certificates at a ceremony later in the year, when we will be able to meet face to face once again,” added Mr Richards. For more information about qualifications for financial advisers, visit: thepfs.org/ learning/qualifications

TA L E N T

PFS WORKS WITH PEARSON TO ATTRACT NEXT GENERATION OF ADVISERS The PFS has teamed up with Pearson to create a pathway into a career in the financial advice profession. Pearson’s BTEC Enhanced Diploma in Business is now recognised by the Chartered Insurance Institute (CII) as a Level 3 qualification that can act as a bridge to the professional body’s qualifications such as CF1. This recognition means that 15,000 students studying the BTEC Enhanced Diploma in Business – which is equivalent to three A Levels – will learn how they

could go on to study to enter the personal finance profession. In the next academic year, the PFS and Pearson will target about five colleges with about 400 students, with information about how they can take their BTEC qualification, complete other CII examinations and get a job in the personal finance sector. Once this pilot is completed, the PFS and Pearson will look to roll out a career map into financial advice to all colleges offering the BTEC Enhanced Diploma in Business.

SUMMER 2020 | Personal Finance Professional | thepfs.org

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R E G U L AT I O N

WHAT’S ON THE RADAR? Amid the ongoing Covid-19 crisis, Shayne Halfpenny-Ray examines which ented – PFS suggestions the regulator has implemented and another crucial one it has not PI COVER

PFS ONLINE POLICY CONTENT Please be sure to visit our policy and research online content. Brieﬁngs, updates, research papers and much more are available for download at: www.thepfs.org/insight

Of course, not everything has been acted on swiftly enough. At the heart of the great work advisers are doing to support their customers in such difficult times lies an ever-present problem for the market. This of course refers to issues around professional indemnity (PI) insurance. The PFS has been collecting feedback from members about their experience of the PI market since before the current crisis, with many highlighting the huge increases in premiums they have faced from year to year and the impact this has had on the financial viability of their business. Amid the current crisis, financial advice is more important than ever and we cannot as a society afford to lose such valuable services. Therefore, in addition to the long-term reform of the Financial Services Compensation Scheme levy and the PI market that PFS CEO Keith Richards called for earlier this year, we have also been urging both the Financial Conduct Authority and HM Treasury to introduce temporary measures to relieve advisers of the pressures they face in this arena. These measures would mean a four-month waiver for advice firms searching for PI insurance. As part of this, we have also asked HM Treasury to consider acting as reinsurer of last resort for PI insurance. While these proposals have yet to be implemented, the PFS is in ongoing discussions with the Treasury on the options and how they could help the advice market continue to provide vital support to consumers across the UK. As ever, our Covid-19 and society resources are at our members disposal, with the latest information and guidance from across the profession and we will keep members updated of any and all developments across the regulatory and policy landscape. ● Shayne Halfpenny-Ray is policy and public affairs adviser of the PFS

ISTOCK

t is strange to think that only a few months ago we were talking about the upcoming Budget and our priorities for the long term. Now, we find ourselves in middle of a global pandemic and are very much focused on what it will bring today and tomorrow. In response to the impacts of the current crisis across the UK and on the economy, the government and the regulator have worked hard to respond to try to alleviate the burdens on people and businesses, both financially and from a health and wellbeing standpoint. It is within the context of alleviating burdens on firms that the PFS has been working closely with the regulator to ensure financial advice businesses are able to provide their much-needed services throughout and beyond this pandemic. We are therefore pleased that much of what we have urged the regulator to consider has been accepted. While not an exhaustive list, some of the successful measures we championed on behalf of our members included: suspending the requirement to repeatedly contact a client following a 10% fall in their portfolio; promising flexibility for regulated firms facing financial difficulty and allowing them to use capital and liquidity buffers; and accepting remote verification methods as valid forms of client verification. The regulator has also moved back the deadline for pension transfer specialists to achieve their qualifications, giving advisers more time to attain the new standards.

thepfs.org | Personal Finance Professional | SUMMER 2020

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MEMBERS

LOCKDOWN LEARNING How to add to your skillset during the coronavirus pandemic

ome conventional sources for qualiﬁcations and learning have been affected by the coronavirus lockdown, but the PFS and Chartered Insurance Institute (CII) are working hard to help members maintain a focus on their professional development. Clearly, some professionals are working harder than ever, keeping clients informed and managing day to day. For others, this may be the perfect time to focus on development and this is one of the reasons the government made it clear that while anyone furloughed must not engage in any work for their employer, they may invest in their own professional development. The situation is of course progressing rapidly, so while all the below is correct at the time of writing, please refer to the CII’s coronavirus hub for latest updates: cii.co.uk/coronavirus-updates

LOCKDOWN CPD Many of the face-toface CPD events that members would ordinarily beneﬁt from have had to be cancelled

or postponed. However, members are still expected to meet the CII’s CPD requirement of 35 hours per year – whether members are full-time or part-time workers. The good news is that there is lots of CPD content available through the PFS and CII websites as digital content. We have produced a set of FAQs on how to complete and record CPD while working remotely, at: cii.co.uk/faqs

FREE STUDY TEXT RENEWALS The CII is offering free digital study texts and revision aid updates to personal ﬁnance students worried they may be unable to sit their assessment before the end of August 2020. If a student is unable to take their assessment before the expiry of their 2019 to 2020 study text, we will add a 2020 to 2021 digital study text, together with any revision aids purchased, to their RevisionMate account along with an assessment extension. This guarantee also extends to study texts and revision aids for those enrolling between now and the current expiry date.

DISCOUNTS TO LEARNERS At the end of April, the CII began offering financial support to furloughed members of the insurance and personal finance profession and those facing financial hardship as a result of Covid-19. Our intent is that those financially affected by Covid-19 can continue to invest in their professional development at this time.

A 20% discount on digital learning materials is available for members and non-members who as a result of Covid-19 have been furloughed or seen an equivalent reduction in their income, and their learning and assessment costs are not funded or subsidised by their employer. Those who are facing ﬁnancial hardship due to being made redundant or working for a business that has collapsed as a result of Covid-19 are also eligible for ﬁnancial assistance on digital learning.

REMOTE EXAM INVIGILATION Lockdown makes it impossible to safely use test centres and exam halls to hold assessments, but we are encouraging all eligible candidates to consider taking exams remotely in a suitable location of their choice, using a PC or laptop with access to a webcam. Currently, the personal ﬁnance exams that can be undertaken this way are: Award in Financial Planning (non-UK) – AWF; Award in Investment Planning (non-UK) – AWP; and Healthcare insurance products – IF7. To see a full unit list and ﬁnd more information, visit: cii.co.uk/remote-invigilation

LEARNING HUB Don’t forget, there is a huge reservoir of third-party publications, databases, reports, recorded lectures and good practice guides available free to members to download from the learning content hub and knowledge services sections of the website. As government guidance develops and it becomes clearer how and when we can offer more services, we will keep the coronavirus hub updated on the website. ● Ian Simon is marketing director of the CII SUMMER 2020 | Personal Finance Professional | thepfs.org

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Connections made easier Introducing your new e-mentoring platform Whether youâ&#x20AC;&#x2122;re looking for career development support, or keen to share your experience to guide the next generation, Connect is designed to help.

Start your mentoring journey. Visit: cii.co.uk/connect PFP.Summer20.012.indd 12

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INVESTMENTS

COVID-19 AND THE CURRENT MARKET VOLATILITY As financial markets across the globe continue to suffer, Quantum Advisory’s Suraj Gandecha looks at the reasons and examines what the future might hold

fter the longest period of market growth in history, it now looks like we may be entering a period where greater volatility in the markets becomes the new norm. If you are a member of a defined contribution (DC) scheme, this can have a bearing on your savings as your pension at retirement is impacted by the performance of financial markets. It is important to remember though that while the impact of Covid-19 has been felt heavily during the past two months or so, some volatility in equities (stocks and shares) is to be expected. While it can be unnerving, it is very important to keep in mind that investing is a long-term game. If clients are far away from their retirement, fluctuations in the short term are less likely to have a lasting impact on the final value of their pension pot when they reach retirement. As has been seen in the past, markets can recover, for example following the Global Financial Crisis of 2008/2009.

LOWER RISK If clients are closer to retirement, many DC pension schemes have the option to invest in less volatile assets such as high-quality bonds. Additionally, many DC pension schemes have a ‘lifestyling’ strategy, which means their pension pot gradually moves into lower-risk funds as you approach retirement. Right now, the main thing is to assure clients not to panic and make any sudden decisions based on the short-term events, but rather to make informed decisions that appropriately consider their long-term retirement aims. For more information on Quantum Advisory, visit: quantumadvisory.co.uk ●

£2.5BN WITHDRAWN FROM PENSIONS FLEXIBLY THROUGH Q1 2020 - A 19% INCREASE 13 FROM £2.1 BILLION (Q1 2019) Source: HMRC – April 2020

Suraj Gandecha is associate consultant for Quantum Advisory

348,000 INDIVIDUALS WITHDREW FROM PENSIONS IN Q1 2020, A 23% INCREASE FROM 284,000 IN Q1 2019 ISTOCK

Source: HMRC – April 2020

Summer 2020 | Personal Finance Professional | thepfs.org

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W I L L S A N D L PA S

WHERE THERE’S A WILL, THERE’S A WAY 14

As the Covid-19 crisis continues, increasing numbers of people have been writing their wills and organising lasting powers of attorney, but as Liz Booth discovers, the process is not straightforward

300% INCREASE IN REQUESTS FOR NEW WILLS SINCE UK ‘LOCKDOWN’ IMPLEMENTED Source: Farewill, March 2020

ISTOCK

ovid-19 has brought the subject of mortality horribly close to home. So, it comes as no surprise that thousands of people have decided to do something about wills and powers of attorney for the first time. Online will writer, Farewill, reports that requests for new wills increased by almost 300% in early March – within days of the pandemic becoming a reality in the UK – totalling some 2,000 requests per week – and it is not alone. For many, however, rushing into the decision may not be the right answer and this is where financial advisers could have a significant role to play. The concern for advisers is that people are not taking advice before writing their wills and not sufficiently managing

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W I L L S A N D L PA S

their ﬁnances, which may cost them or their families dearly. Once lockdown was imposed, will-writing services remained in high demand, however, the lack of access created an unexpected hurdle. People could no longer pop next door to ﬁnd a witness to their signatures.

Once lockdown was imposed, will-writing services remained in high demand, however, the lack of access created an unexpected hurdle

TEMPORARY MEASURES

must meet all of the requirements of section nine of the Wills Act 1837. Among those is a need for the testator to sign or acknowledge his signature in the presence of at least two witnesses, together at the same time. “It is also valid for someone else to sign on the testator’s behalf, but again this must be done not just at the testator’s direction but in his presence and in the presence of the witnesses.” It explains: “The problem word is ‘presence’. The Law Commission looked at this issue in its consultation paper ‘Making a Will’ in 2017 and conﬁrmed that, as the law currently stands, witnesses must be physically present. “The commission concluded: ‘Whether the parties are in each other’s presence is currently decided with reference to whether they are in the same room and whether there is a line of sight. That rule would be diﬃcult to apply where a witness is said to have had a line of sight to the testator via an online videoconference (there has been no such case). However, it is unlikely that the current law governing witnessing extends to witnessing via videoconferencing because presence has been held to involve physical presence (In the goods of Chalcraft [1948] P222).’”

As a result, the Law Society and other groups have been meeting with government to see if the 200-year-old rules governing will writing could be relaxed. The Society of Trust and Estate Practitioners (STEP), is one of those and speaking in April, Emily Deane, technical counsel at STEP, said: “We are hopeful that the Ministry of Justice (MoJ) will implement temporary legislative measures to facilitate will writing, while remaining mindful of the potential scope for abuse in these situations. Now, more than ever, it is important for people to be attentive when putting together or updating their will, to ensure that it will be valid.” Among the MoJ’s options is to change the law to give judges greater ﬂexibility in assessing what constitutes a valid will, including emergency measures already used by the armed forces. An 1837 Act allows for “privileged wills” for members of the armed forces to make either a written or an oral will and, if written, there is no requirement for witnesses. Another solution could be moving to a continental model, where only one witness or no witness is required to verify a will, while other options include allowing wills to be witnessed via videoconferencing. However, reports quote a MoJ spokesman as saying: “This is a delicate area of law and we absolutely must continue to protect the elderly and vulnerable against potential fraud. While there are no current plans to change the law, we will consider all options and keep this under review during the Covid-19 pandemic.” As we go to press, the Society of Will Writers says: “To be valid, a will

Other practitioners have been relying on some old case law, Casson v Dade (1781), where the ruling was that a will was valid where the witnessing had taken place through a window. The Society suggests, on that basis, the following might work: ● Passing the will through the letterbox for the testator to sign while the witnesses watch from outside. Then having the testator pass the will back through the letterbox for the witnesses to sign while the testator watches. ● Avoiding passing the document to the testator at all. Reading over the terms of the will to the testator and having the testator ask the drafter to sign the will on their behalf. ● Alternatively, lawyers can bind the wills and post them to the clients with very clear instructions on what they must do to sign them properly – arranging suitable witnesses while complying with the current restrictions. Either way, ﬁnancial advisers have an important role to play in guiding their clients. ●

PRACTICAL SUGGESTIONS The Society of Will Writers does have some practical suggestions, however, including delaying the signing of the will until a later date. However, it admits: “We feel this is risky. We have no idea when this epidemic will end so this would mean leaving vulnerable people without a valid will in place.”

Liz Booth is contributing editor of PFP

SUMMER 2020 | Personal Finance Professional | thepfs.org

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PENSIONS

DRAWDOWN DILEMMAS Fiona Tait outlines three ways advisers can assist clients worried about their pension income during the Covid-19 crisis

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ince the introduction of pension freedoms, the number of people choosing to access their pension via income drawdown has rocketed, leaving many reliant on income from a pension plan that is still invested in the market. In the long term this can be a considerable advantage, but things do not look so good when markets crash. It is all very well saying that clients should have known this could happen, but they still need reassurance amid the grim reality of a FSTE market that fell by more than 25% in two months between January and March this year.

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PENSIONS

INVESTMENT PERFORMANCE

Clients should have known that the value of investments can fall as well as rise. For most individuals entering drawdown, their pension is still a medium- to long-term investment. This means that investing in equities is required to offset the effects of withdrawals, charges and inﬂation and avoid running out of money too soon. As a result, the client can expect to experience a severe market shock at least once every ten years or so. Carrying out a crash test will help to prepare them for this.

The grim reality is that clients with equity-based portfolios will have experienced signiﬁcant reductions in fund value in the last two months. It is important to emphasise that unless these funds are withdrawn or converted to cash, these are only paper losses and it should be possible to mitigate the worst of the impact by leaving as much as possible still invested and ‘sitting it out’ until markets improve.

There is no getting away from the fact that the most effective way to preserve the value of the fund is to reduce the amount that is being taken out of it

The grim reality is that the shortterm performance of pension plans is likely to look very poor in comparison with cash and deposit accounts. Clients may well be tempted to move their money away from what looks like a bad situation into one that looks better. This is a natural behavioural response and a chance for advisers to add value by preventing them from making emotionally driven decisions.

You can help clients by suggesting they use their non-pension assets, particularly cash and deposit investments, to provide income and wait for pension funds to recover. While it is impossible to state when this will be, most commentators believe the coronavirus effect is likely to be temporary and underlying market conditions are sound.

WITHDRAWAL RATE

OTHER ASSETS

Clients should have known that under income drawdown the fund has to last as long as they need income. This means that it is good practice to estimate a sustainable withdrawal rate (SWR), based on the size of their initial fund and the length of time it needs to last. While many people believe that an SWR of about 3.5% a year should be achievable, in most circumstances a more individual approach may be taken using cashﬂow modelling. This also has the advantage of providing a visual illustration of how much clients can afford to spend on an ongoing basis.

You can help clients by suggesting they meet income needs from the cash account or ‘short-term pot’ within their pension plan. Explain that withdrawing money from equity and bond funds would only consolidate the paper loss and could result in the client missing out on any ‘bounce back’ in market performance.

Clients should have known that pensions are very tax-eﬃcient investments and it may be more effective to meet current income needs using other assets and leaving the pension funds until last. This is especially true if the client is looking to pass on beneﬁts to family members on death, and even more so when pension funds perform badly.

The grim reality is that reduced fund values mean that any revised cashﬂow analysis carried out at the

present time will show a much lower SWR than in previous annual reviews. Assuming a capacity for loss test was carried out, this could mean that some clients have to give up some of their lifestyle expenses but should still be able to cover essential spending.

You can help clients by suggesting they temporarily reduce their current withdrawals. There is no getting away from the fact that the most effective way to preserve the value of the fund is to reduce the amount that is being taken out of it. Reassure those who absolutely need ongoing income, or lump sums to compensate for other losses; they will still have access to it but should be aware that future investment performance on the reduced pension fund value may not be suﬃcient to offset these withdrawals and their future cashﬂow will have to be remodelled.

SUMMARY These are testing times for anyone who is reliant on their pension to provide income. In theory, those who have been through a robust advice process should have been prepared for this eventuality, however clients’ views can change when they are faced with the grim reality. This is a genuine opportunity for advisers to demonstrate their value to clients by keeping them informed, helping them to overcome their natural fears and preventing them from taking actions that could make the situation worse. ● Fiona Tait is technical director of Intelligent Pensions SUMMER 2020 | Personal Finance Professional | thepfs.org

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CORONAVIRUS

LESSONS FROM HONG KONG A

Kenny Siu reviews the recent pandemic in Asia and reflects on how the profession has reacted

sia was the first region to bear the brunt of Covid-19 and virtually all businesses have been impacted by the virus. However, important lessons were learned from the SARS epidemic that hit Asia in 2003. Many small businesses seemed to understand the situation, were ready to adjust and were determined to survive. Dreadful memories of that last outbreak meant people did not take precautionary measures lightly and reacted quickly to reduce the chances of the disease spreading. One key factor has been to have in place a robust business continuity plan to protect business, employees and customers. These plans should come with both short-term and longer-term strategies for companies to continue to operate during a virus outbreak, as we ultimately have no idea how long a pandemic will last. During the Covid-19 outbreak, many financial services companies in Asia successfully implemented business continuity plans swiftly, arranging staff to work from home, stopping non-essential travel and applying flexible working hours to minimise the risk of virus infection.

HONG KONG At the CII Hong Kong, our top priority is to ensure the health and safety of our staff and members. We encouraged our staff to work from home with flexible hours, as well as supplying masks and hand sanitiser where required. We rescheduled our paper-based examinations to later dates to avoid group gatherings. No action was required from members for this as the CII automatically transferred candidates across to the October sitting. We also organised online continuing professional development (CPD) webinars and have produced new digital content for the wider profession. I expect there may be ways in which we adapt and update working methods that stay with us after the pandemic is over. I think the profession will continue to further utilise digital platforms to operate its business; it will further enhance business continuity plans in more detail; and digitalisation development will remain one of the top priorities for insurance companies. CII Hong Kong will continue to offer more learning content such as online webinars to cope with the demand from members and the wider profession. Of course, this has been a difficult time for all of us, but we must continue to serve our customers with openness and honesty during a period when they need us the most. This will be a critical time in showing the standards and professionalism of our sector and building trust with the public. â&#x2014;? Kenny Siu is regional director of CII Hong Kong and Asia PaciďŹ c

GETTY

To sustain business in the longer term, many companies have switched their distribution and communications to online digital platforms to cope with the change in customer behaviour during the coming months. Despite best efforts, however, economic recession is threatening many businesses in the Asia-Pacific region and we fully understand that all professions are facing uncertainty and increased risks.

thepfs.org | Personal Finance Professional | SUMMER 2020

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20/05/2020 10:47

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18/05/2020 13:55

R E G U L AT I O N

RESPONDING TO COVID-19 During this unprecedented period, how has the Financial Conduct Authority reacted and what does it expect of advisory firms? 20

he Financial Conduct Authority (FCA) was reasonably swift in coordinating its response to the coronavirus pandemic and soon had a dedicated area on its website (www.fca.org.uk/coronavirus) to provide information for firms and consumers. In many respects, it has taken a sensible, pragmatic approach, recognising the difficulties firms are facing, while balancing this with the need to maintain consumer protection.

PORTRAIT BY LUKE WALLER

SENIOR MANAGERS AND CERTIFICATION REGIME (SM&CR) One of the main areas the FCA highlights is firms’ senior managers’ responsibilities – a core part of SM&CR. This is a further indication of the FCA’s focus on the way firms operate and how firms demonstrate they are professional at a firm level in addition to being professional at an individual adviser level. It talks about some practical steps firms need to take. The overarching requirement is for a firm’s senior managers to take responsibility for the risks in their areas of responsibility and to consider what new risks may arise and how existing risks may be affected, along with the controls used to manage them. The FCA does not require firms to

have a single senior manager responsible for the coronavirus response but firms should allocate these responsibilities appropriately. This risk management and mitigation process is something you should be undertaking explicitly in relation to the pandemic. The FCA also offers some additional flexibility and simplification if firms need to cover absences or change senior manager responsibilities in direct response to the pandemic, including furloughing a senior manager.

DEFINED BENEFIT TRANSFERS It appears that the supervisory work on defined benefit (DB) transfers is continuing, although the policy statement following CP19/25 that was due in Q1 has been deferred until Q2 or Q3 2020. This deferral is useful as changes to firms’ advisory processes would be an unwelcome imposition at this time. However, the FCA has issued some guidance on advising clients on DB transfers in the current climate. It reminds firms about the need to give suitable advice and gather adequate know-yourclient information to be able to do so; and that there are no shortcuts if it is difficult to get this information.

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20/05/2020 11:23

R E G U L AT I O N

●

The FCA also flags that firms should: Not assume that changes in circumstances due to the coronavirus make a transfer more likely to be suitable for some clients. Address any misconceptions clients may have as a result of the crisis – for example, clients thinking “cash-equivalent transfers (CETVs) are at an alltime high” (this may also apply to some advisers). Not assume that increases in CETVs automatically improve client outcomes if a transfer proceeds; suitability is down to the individual client’s needs and circumstances. Not necessarily consider death benefits will be better in a defined contribution scheme – this should be assessed and alternatives considered.

10% FALL NOTICES Discretionary services must notify clients where there is a 10% fall in the portfolio from its last periodic statement. Although you may not hold discretionary

In the FCA’s words, it “expects ﬁrms to be taking reasonable steps to ensure they are prepared to meet the challenges coronavirus could pose to customers and staff”

permissions yourself, if you recommend clients use discretionary services, including managed portfolio services, then the chances are you will need to forward these notices to clients (within 24 hours), particularly if they are held on a platform. The FCA has introduced some supervisory flexibility around these notices until the end of September. However, the easement applies if the client has received already received a 10% fall notice in the current reporting period. As this easement came out in early April, for many a new reporting period started on 1 April, so firms would still need to send out a further 10% fall notice despite the clients getting one or more notices in Q1. It is only after the clients have received a further notice that the easement applies. There are some other changes and flexibility: ● Anti-money laundering: The FCA is clear that firms still need to comply with client identity verification but has suggested some options such as accepting scanned documentation sent by email and asking clients to submit ‘selfies’ or videos, then seeking additional verification once the restrictions on movement are lifted. ● Reporting: If firms experience difficulties in submitting their regulatory data, they should maintain appropriate records during this period and submit the data as soon as possible. ● Assessing Suitability Review 2: This review started in Q1 but has been put on hold for the time being.

CONCLUSION It is important to note that this is a summary of some of the flexibility introduced by the FCA. Where you are making use of any of these, please make sure you read the detail in the coronavirus section of the FCA website (it’s not long), as there are usually additional steps you need to take. First and foremost, this is about good management of your firm and doing the best you can under the circumstances. In the FCA’s words, it “expects firms to be taking reasonable steps to ensure they are prepared to meet the challenges coronavirus could pose to customers and staff”. ● Rory Percival of Rory Percival Training & Consultancy Ltd

SUMMER 2020 | Personal Finance Professional | thepfs.org

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20/05/2020 11:23

C O M M U N I C AT I O N S

DIGITAL LIFELINE A recent report examines the heightened importance of digital communications in a remoteworking environment

s companies get used to workingfrom-home policies amid the coronavirus pandemic, the behaviours and methods in which stakeholders, associates, partners and clients access information have been changing as people adapt to new workﬂows. In the transition to remote working, digital media played a key role as the primary method of communication. Communications and market research group, Cicero/AMO, published a report outlining key digital media strategies and tactics that can be practically implemented, minimising disruption of key communications and wider company activity. Even after lockdown measures have been eased, these trends are expected to continue as agile working becomes more commonplace.

As people work from home, their online habits change to find alternative means of accessing information through smartphones, tablets and laptops. Using findings provided by communications group Havas Media, the report analyses the behavioural switch of China’s online users during the Covid-19 outbreak and identifies key trends allowing UK and EU companies to prepare communication strategies in line with online user behavioural expectations.

SHUTTERSTOCK

BEHAVIOUR SHIFTS

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C O M M U N I C AT I O N S

SOCIAL MEDIA Research suggests that social media channels will maintain higher daily usage than before the outbreak. This is to be expected as people look to online networks to stay up to date with news and community updates. However, social media usage time (the time a user spends per session) is much lower compared to previous behaviour, suggesting that even though people

107.0

108.5

108.7

382

394

130.0

115.0 110.0 105.0

-0 2

-2 24

2 /0 17

100.0

458

02 -1 2 /0

3 /0 02

are checking social feeds more regularly, they are engaging less with the content that they see. To utilise the higher social usage and counter the trend for lower time usage, a more targeted approach is required to ensure that audiences see relevant posts. Prioritise key social channels: LinkedIn and Twitter are key channels for professional and media audiences. Focus resource on crafting content that reaches communities where your audience will be. Use video: All posts should include multimedia graphics or video where

461

9/ -0

2/ -0 1 /0

Average daily active user scale

473

467

01 -2 1

-1 1 /0

452

01 9/

01 2/

5/ -0 2 /1

408

387

As digital media becomes the primary source of information, content should be developed with the end user in mind and reflect a more digital-led approach. Content should be syndicated and packaged in ways that are optimised for appropriate digital channels. The underlying challenge of a digital-first strategy is that technology cannot match the personal approach of face-to-face meetings and events. Therefore, all measures must be addressed to provide streamlined and efficient communications that utilise all tools available and deliver messaging in an engaging manner. The report recommends creating and adapting content for the following mediums to maximise engagement through digital media: ● Animation and video. ● Graphics/infographics. ● Webinars. ● Podcasts. ● Downloadable whitepapers. ● Personalised email newsletters based on affiliation segmentation.

129.2

113.3

CONTENT CREATION

132.3

120.0

●

Unit: Mins 135.0

125.0

-1

●

133.3

133.0

130.2

●

2019 Feb average Daily Active User Scale: 376 million 2019 Feb average use time: 110.8 minutes

Unit: Mil 480 470 460 450 440 430 420 410 400 390 380

●

2020 ONLINE USER BEHAVIOUR

Key ﬁndings include: Time spent on digital channels continues to increase. Video usage and viewing time remains above January 2020 levels. Daily active usage of video has increased signiﬁcantly. Short video has skyrocketed and maintains elevated daily active users and viewing times. Social maintains higher daily usage, however, use time has dropped to pre-Covid-19 level.

Average use time

possible. Videos and GIFs receive ten times more engagement than textbased posts. Quality over quantity: Switch to a ‘less is more’ approach, focusing resource on engaging materials that are syndicated into multiple posts, optimised for different segments of your audience. Pay to play: Maximise the opportunity for audiences to view posts by using targeted advertising to reach key demographics that organic posts struggle to reach. To read the full report, visit: cicero-group.com ●

STRATEGIC RECOMMENDATIONS Plan and prepare: Ensure that digital communication is at the heart of your strategy as your associates and stakeholders move to a more agile working model. Maintain brand exposure: It is important to continue communication with your network and transition usual workﬂows to relevant digital technology. Be careful with messaging around epidemic: Audiences are naturally concerned about the epidemic and therefore brands should be sensitive with any messaging that refers to Covid-19; messaging should be centred around meaningful and authentic content.

Tactical recommendations Design content with news feeds in mind: As digital media becomes the primary source of information, social and news feeds will occupy most of the online user time. Utilise wider tools: The downside of digital media is that it can be relatively anonymous; embrace more personal apps and technology such as WhatsApp and videoconferencing to maintain relationships. ‘Digitalise’ content: Format content to suit digital communities by creating videos, creative content and targeted adverts to communicate with your audience online.

SUMMER 2020 | Personal Finance Professional | thepfs.org

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20/05/2020 10:52

BUDGET

BUDGET John Woolley analyses the changes announced in March’s Budget and examines the impact and planning opportunities for advisers ILLUSTRATIONS: NAPAL NAPS

he Budget on 11 March 2020 was an unbelievable 500 days since the last Budget in October 2018. The chancellor, Rishi Sunak, had still only been in the job a matter of weeks and to say the Budget represented a challenge for him is a massive understatement. Even more so given the current world events which led to this Budget being dubbed by some as the “Corona Budget”. The chancellor promised the government would help people during the diﬃcult coronavirus days ahead by making sick pay available in a speedy and effective manner for all. In what amounted to a series of subsequent Budget announcements, the government also did its best to support small businesses and the self-employed by deferring VAT and selfassessment payment dates. The chancellor also announced a raft of further provisions to help small businesses and secure the jobs of millions of employees during the current crisis.

In many ways, the tax measures revealed on 11 March (total cost about £30bn) were dwarfed by the wider health and economic changes announced subsequently (cost at least £50bn plus up to £330bn of loan guarantees). No wonder the chancellor confirmed that the government would hold another Budget in the Autumn. As far as changes to fiscal policy were concerned, the main highlights for financial planners were as follows: ● a reduction in the lifetime allowance for entrepreneurs’ relief from £10m to £1m; ● a £90,000 increase in the threshold income and adjusted income limits for pension annual allowance taper to £200,000 and £240,000 respectively, with the minimum annual allowance falling from £10,000 to £4,000; ● an increase in the junior individual savings account (JISA) contribution limit to £9,000 from £4,368;

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20/05/2020 10:54

BUDGET

BREAKDOWN 25

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TECHNICAL BUDGET CONNECTION

a clarification of the rules on top-slicing relief when chargeable event gains from a life policy cause adjusted net income to exceed £100,000; ● an increase in the employee’s primary threshold limit (and the Class 4 lower profits limit) to £9,500; ● an increase in the employer’s national insurance contributions (NIC) employment allowance to £4,000; ● an increase in the capital gains tax (CGT) annual exemption to £12,300; ● the announcement of a review of the taxation of UK funds; ● the announcement of an intention to review how nontaxpaying employees in net pay pension schemes can be treated in the same way as those who pay contributions direct and so give basic rate tax relief to both types of saver; ● a continued commitment to combat perceived aggressive tax avoidance. Surprisingly, and despite considerable speculation, there was no announcement of any changes to inheritance tax or even a review of the current system. We will now look at the proposals that most affect the clients of financial advisers and highlight any planning opportunities that arise. ●

CORPORATION TAX The government conﬁrmed that corporation tax will remain at 19% from 1 April 2020 and not reduce to 17% as previously scheduled and legislated for. This is not a surprise as the current rate of corporation tax is still one of the lowest in G20 countries. It also means that companies will still beneﬁt from tax relief at 19% on pension contributions.

INCOME TAX No changes were announced to: - the personal allowance (£12,500); - the higher rate tax threshold (total income £50,000; taxable income £37,500); - the dividend tax allowance (£2,000), personal savings allowance (up to £1,000;) and zero rate savings band (£5,000). In 2015, the government made a commitment that, by 2020, the higher rate tax threshold would be £50,000 and to keep everyone with income of less than £12,500 out of tax. They achieved both of these last year and legislated for a freeze in the Finance Act 2019. Of course, in Scotland, a different system of rates and bands apply to earned income and rental income and changes were made here to the starter, basic and intermediate tax bands. The threshold for higher rate (41% in Scotland) taxable income stayed at £30,930 (total income £43,430) and the threshold for additional rate tax (46%) was unchanged at £150,000.

NATIONAL INSURANCE CONTRIBUTIONS (i) Employment allowance The employment allowance gives a reduction in the NICs paid by an employer and is given as a credit against the other NIC liability. In 2020/21 this will increase from £3,000 to £4,000 and is available provided the business did not have a Class 1 employer NIC liability of £100,000 or more in the previous tax year. As before, the allowance is not available if a company’s sole employee is a director. This is a welcome improvement on an employer’s liability to NICs which will help small businesses. (ii) NIC rates and bands As promised in the Conservative manifesto, the primary employee’s NIC threshold increases from £8,632 to £9,500 in 2020/21. Employees pay 12% on excess earnings up to £50,000 with 2% thereafter. The government’s intention is to eventually increase the primary threshold to £12,500. In 2020/21, the employer’s secondary NIC threshold increases to £8,788 from the current £8,632. Earnings over and above this are generally subject to NICs at 13.8%. Because there is a mismatch between the employee’s primary and the employer’s secondary NIC limit, this means that where an employee takes salary of £9,500 there will be no employee liability but an employer NIC liability of £98. The lower earnings limit is the minimum level of earnings that need to be paid to qualify for state benefits. This increased in 2020/21 by £2 a week to £120 a week (£6,240 a year). Planning points: Because NIC thresholds have changed, people who trade as a director/shareholder through a profitable private limited company will need to consider how remuneration should be drawn out of the company in the most tax efficient way. Usually the options will be between taking drawings from a company as either: - remuneration/salary; or - salary up to the employee’s primary threshold (£9,500) with the balance as dividends. When making this decision it will now be necessary for the director/shareholder to take account of the following key financial data. Primary threshold (employees) £9,500 Secondary threshold (employers) £8,788 Employer Class 1 NIC rate 13.8% Employee Class 1 NIC rate 12% Corporation tax rate 19% Personal allowance £12,500 Basic rate income tax threshold £37,500 (outside Scotland) Income tax rate on earnings – basic rate 20%, higher rate 40% (outside Scotland), additional rate 45%. Income tax rate on dividend income – basic rate 7.5%,

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BUDGET

higher rate 32.5%, additional rate 38.1%. If a salary of £9,500 is taken (no employee’s NICs but employer’s NICs of £98) with a dividend top-up, the company will pay corporation tax on the net proﬁt in the company (after deduction of salary and employer’s NICs of £98). Assuming that the dividend allowance is fully available, but the employment allowance is already used, if cash of £60,000, £125,000 and £200,000 is available in the company and all of this is to be drawn by the director/shareholder either totally as salary/bonus or partially as salary with the balance as dividends, the results are as follows:

Amount available (precorporation tax) in company

Net income - All taken as salary

Net income - £9,500 salary with excess as dividend

Additional net income as a result of dividend

£60,000

£39,838

£47,557

£7,719

£125,000

£70,785

£82,612

£11,827

£200,000

£104,851

£118,084

£13,233

The tax eﬃciency of the extraction of the excess funds over £9,500 as dividends is due to the fact that they are not subject to NICs. However, the freedom from NICs totalling up to 25.8% comes with costs: ● As the Government has made clear in guidance on its Self-Employed Income Support Scheme (SEISS), individuals who operate via a company are employees, not self-employed. Their employer/company can only claim under the Job Retention Scheme (JRS) on the basis of 80% of the salary paid to the employee/ director (capped at £2,500 a month). Dividends may look like remuneration and be spent as such, but they are not covered by the JRS. In presenting the SEISS, the Chancellor hinted that there could be changes to NICs in the future to bring all employment options into line in terms of contributions paid. This needs to carefully be borne in mind. ● In an effort to recoup some of the lost NIC income, changes made from 2016/17 mean that dividends are subject to a higher rates of income tax than they were previously. There is a case to be made for director/shareholders with unused basic rate tax band to draw dividends and pay 7.5% basic rate tax on them rather than leave money in the company where the undistributed proﬁts will potentially be liable to capital gains tax of 20% and (perhaps even 10%) when the company is sold. Indeed, if retained amounts are not needed by the shareholder/director such

sums should be extracted by way of a pension contribution with all of the tax reliefs and advantages this generates. Any surplus sums can be kept in the company.

CAPITAL GAINS TAX We need to consider CGT in terms of Budget changes that affect investments and business assets. Investments The government have announced that the CGT annual exemption will increase to £12,300 in 2020/21. The trustee exemption will similarly increase to £6,150 (subject to dilution when the same settlor has created more than one trust). A number of planning opportunities arise out of the CGT annual exemption, as follows: - investors should use the exemption in a tax year. If they do not use it, they will lose it – carry forward is not available; - the exemption is available to all investors. Married couples/civil partners should, if possible, distribute wealth between them so both can use it; and -minor children are also entitled to the annual exemption. Parents and grandparents can effectively arrange to utilise a child’s CGT annual exemption by establishing a bare trust or designated account for them. Where the settlor is the parent, the £100 per annum income tax anti-avoidance rule will apply so, in such cases, any investment in the trust should be made with a view to generating capital growth rather than income.

Business Entrepreneurs’ relief is a very attractive relief for business owners who sell their business. It applies where a business consists of a trade and an individual has owned the business interest for at least two years. Also, in the case of a company, the shareholder must have basically owned and had the right to dividends/distributions on at least 5% of the share capital. In such cases, the lifetime allowance for entrepreneurs’ relief was £10m. This meant that capital gains arising on the disposal of a business interest of up to this threshold throughout the individual’s lifetime would only be taxed at a CGT rate e of 10%. As was expected from their Election manifesto, the Government reduced the lifetime e allowance for entrepreneurs’ relief (now known as Business Asset Disposal Relief) to £1m with effect from 11 March. The Finance Bill 2020 includes antiforestalling measures aimed at, for example, conditional contracts put in place before the Budget. → SUMMER 2020 | Personal Finance Professional | thepfs.org

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BUDGET

Planning The owners of businesses could clearly suffer higher CGT in the future. Some of the tax planning they should consider to offset this change will include: - a consideration of bringing spouses/partners into the business ownership as they will qualify for their own entrepreneur’s relief lifetime allowance; and - using pension contributions as a means of reducing the value of a company for CGT purposes in a very tax-efficient way whilst building up a tax-efficient fund outside of the company which cannot be accessed by the company’s creditors. This planning also uses company profits now whilst profitability is hopefully good as circumstances can rapidly change before the date of an intended business sale (something those who say “my business is my pension” should bear in mind).

PENSIONS

The plight of NHS doctors and clinicians has been well publicised. Simply put, many have had to pay additional income tax bills because the calculated contributions have infringed the annual allowance rules, particularly those that apply to taper reduction where adjusted income exceeds £150,000. The government has taken a bold decision in solving this problem by introducing the following provisions. (a) an increase in threshold income (income less individual pension contributions) from £110,000 to £200,000. (b) an increase in adjusted income (income including employer contributions) from £150,000 to £240,000. (c) a reduction in the maximum contribution for persons with adjusted income of more than £300,000 as a result of allowing the taper to be extended to produce a new minimum annual allowance of £4,000 (reached at £312,000 of adjusted income). Previously this was £10,000 reached at adjusted income of £210,000. Whilst there are mainly winners, there are some losers as the table below (which ignores carry-forward relief) demonstrates.

Adjusted income

Maximum contribution Before 6 April 2020 *

Maximum contribution After 5 April 2020 *

Joe, adjusted income £180,000

£25,000

£40,000

Sally, adjusted income £250,000

£10,000

£35,000

Bob, adjusted income £320,000

£10,000

£4,000

Planning It is estimated that these changes will lift 250,000 people out of the pensions taper tax threshold with around 98% of consultants and 96% of GPs out of the taper altogether. Advisers should therefore approach clients who were caught by these taper restrictions to ascertain whether there is scope for further contributions to be paid – given that in tax year 2020/21 many will now have a full £40,000 annual allowance. However, remember that when calculating the carry forward relief from previous years, the rules that then existed will apply and so clients may well be subject to the restrictions that applied in those years.

INVESTMENTS There were no announced changes to the annual ISA contribution limit of £20,000 per annum per person (unchanged since 2017/18). Remember, unused allowances cannot be carried forward. Surprisingly, from 6 April 2020, the annual allowance for a JISA has increased from £4,368 to £9,000. Funding a JISA for the full £9,000 each year from the birth of a child with underlying investment growth of 5% pa, could produce more than £265,000 at age 18. Such a fund could then be used to assist with the costs of university education or help with house purchase. The average size of an annual JISA contribution in 2017/18 was about £1,000 so £9,000 will be beyond the means of most. Also, of course, the child will have full access to the ISA at the age of 18 and the parent/ grandparent would need to be comfortable with this. Also, as announced from 1 September 2020, maturing child trust funds can be moved into adult ISAs. If no action is taken, the CTF will continue to enjoy ISA-type tax benefits in a ‘protected account’, pending further instructions. Previously only cash could be taken at maturity. This gives advisers the perfect opportunity to discuss with children (and their parents) any maturing CTFs and the scope to continue tax-efficient investment inside an ISA from age 18 years. Indeed, some children may like to consider encashing their CTF and starting an investment in a Lifetime ISA (LISA – maximum investment £4,000 per tax year) in order to benefit from the 25% Government bonus that is on offer.

LIFE POLICY TAXATION Two important changes were announced in the way the chargeable event rules apply in calculating tax on chargeable event gains that arise under life policies. (1) Order of offset of tax allowances and reliefs In general, in calculating an income tax liability, the taxpayer has the right to choose the income against which he will offset tax allowances and reliefs, in order to produce the lowest tax liability. In future, for the purposes of calculating top-slicing relief:

thepfs.org | Personal Finance Professional | SUMMER 2020

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TECHNICAL BUDGET CONNECTION

- the rules that require reliefs and allowances to be set off in the most beneﬁcial way for the taxpayer will no longer apply; and - an individual’s reliefs and allowances must be deducted from other income before being deducted from a chargeable event gain. This means that the personal savings allowance (PSA) must be set against other savings income in priority to a chargeable event gain. (2)Top-sliced gains and the personal allowance As is well known, when a person’s adjusted net income (ANI) exceeds £100,000, the personal allowance is gradually eroded by £1 for every £2 of excess income. So, on the basis of a personal allowance of £12,500, this is totally lost when adjusted net income (ANI) is £125,000 or more. In the past, in calculating top-slicing relief under a life policy (say an investment bond) HM Revenue and Customs (HMRC) has always taken the view that it is the full chargeable event gain that is included in adjusted net income – and not the top-sliced gain. This view was challenged in the Silver case where Mrs Silver maintained that only the top-sliced gain should be taken into account and the First-tier Tribunal upheld her claim. HMRC has now dropped its appeal to this decision to the Upper Tax Tribunal. Proposals in the Budget, in effect, now bring in provisions that mean that in future, when calculating top-slicing relief, it will be only the top-sliced gain that is taken into account as ANI for the purposes of entitlement to a personal allowance. However, in general terms, this only applies on chargeable event gains that arise on or after 11 March 2020. Following HMRC’s decision to drop their appeal in the Silver case, and because FTT decisions are not binding on others, this will mean that where chargeable event gains were realised before March 11 2020, tax liabilities will be dealt with on a case by case basis. Going forward this will be very important for the taxpayer

‘Old’ (pre-11.3.2020) rules

‘New’ (post-10.3.2020) rules

ANI for PA purposes £130,000

ANI for PA purposes £60,000

Personal allowance £0

Personal allowance £12,500

Taxable income £50,000

Taxable income £37,500

Tax on chargeable event gain+ £16,000

Tax on chargeable event gain+ £16,000 *

Tax on income from loss of PA £5,000

Tax on income from loss of PA -

Total additional tax due to CEG £21,000

Total additional tax due to CEG £16,000

* Ignores impact of PSA +Allowing for 20% tax credit

as a good number have, in the past, been caught in this trap. Example – Rachel Rachel, who has gross earnings of £50,000 pa, owns a UK investment bond. She purchased the investment bond for £100,000, 8½ years ago. Its current value is £180,000 and she is considering encashing the bond. She has made no previous surrenders or withdrawals. The chargeable event gain is £80,000 and the proﬁt slice for top-slicing relief purposes is £10,000. The tax position on the encashment of the bond under the old and new rules is shown in the table in the previous column. So, Rachel is £5,000 better off by encashing the bond on or after 11 March 2020. And because her other income is equal to (or just above) the higher rate tax threshold if she was able to further reduce her adjusted net income, she could save income tax on the chargeable event gain. For example, a pension contribution of £4,000 net (£5,000 gross) would save income tax of £8,000 on the chargeable event gain and a contribution of £8,000 net (£10,000 gross) would mean that no tax was payable on the chargeable event gain. So clearly, for those higher rate taxpayers who are contemplating encashing a single premium investment bond, the new rules may considerably ease the position. Of course, all the individual circumstances of the investor and the investment will need to be considered before encashment takes place.

AREAS WHERE NO CHANGES WERE ANNOUNCED There were three areas where changes were expected to be announced but none were: (i) The reform of inheritance tax where the Office of Tax Simplification (OTS) made a number of suggestions for reform in 2018 and 2019. (ii) The operation of the high income child benefit tax charge. Many commentators (including the OTS) feel reform is overdue. (iii) An amendment to the rules for non-taxpayers so that such persons who are in net pay pension arrangements (including thousands of auto-enrollers) can benefit from some form of a basic rate tax pension credit. The Government have acknowledged the unfairness of this issue and promised to address it. We may see more announcement in these areas in the 2020 Autumn Budget. We live in difficult times. But clients need financial advice – perhaps now more than ever. The Budget announcements give rise to a number of areas advisers should discuss with clients. This article is based on the provisions in the Finance Bill 2020 which can change during its passage through parliament. ● John Woolley of Technical Connection / St. James’s Place SUMMER 2020 | Personal Finance Professional | thepfs.org

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INSURING FUTURES

GUIDING AN AGEING POPULATION 30

nyone who has worked in a clientfacing role will be familiar with this scenario: they are talking to an elderly client, who is unsure of what they need to ask for or even how to navigate the client verification process. In the background, a helpful voice is prompting them with information and helping them frame their questions. Is this financial abuse? Is the elderly person being exploited? Or are they being given vital help, without which they would not be able to manage their finances? What is the legal and regulatory situation? How can the client’s data be protected, while still facilitating their request?

A wrong move, such as not treating the security implications seriously enough, or not being suﬃciently helpful to the client, will result in a serious loss of trust between the client and ﬁnancial services professionals. This is only the most basic challenge facing the profession as it learns how to serve an increasingly ageing population. Overcoming each one of

these challenges requires a strong act of imagination and empathy on the part of professionals to achieve a good outcome for their client. The kind of knowledge and skills that are needed to service an ageing population rely not so much on technical knowledge, but rather on empathy and awareness of how other people live their lives.

IKON IMAGES

The CII’s Matthew Connell reveals plans for Insuring Futures and improving later life financial resilience

thepfs.org | Personal Finance Professional | SUMMER 2020

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INSURING FUTURES

INSURING FUTURES This kind of insight is at the heart of the CII’s Insuring Futures initiative. It aims to build a picture of all the risks that people face in their lives, and how the services that are provided by financial advisers, insurers and the wider community are relevant to these wider risks. The first phase of Insuring Futures looked at the lives of women in the UK and how their financial futures were affected by the career choices and caring responsibilities that they took on, as well as how they were saving for retirement and how family life affected their ability to save and protect themselves. Our next stage of insuring futures will look at the ageing population and how people build and maintain independence throughout their lives. Considering not only financial independence, but also health, mental and social wellbeing. For many people, retirement can be a time of unparalleled independence – they may have enough savings to afford not to work for the first time, giving them a huge amount of leisure time that they can use to encounter new challenges and experiences, deepen bonds with their family and widen their social circle. Of course, levels of independence are

closely linked to health, but changes in health can also be managed to preserve independence. For example, as we encounter losses in mobility or even in cognitive ability as our lives go on, there are many ways that we can access help or reshape our environment to preserve our independence and increase our quality of life. Usually, we build this independence in a tactical and unstructured way. We embark on a career based on opportunities that present themselves when we leave education, we amass assets like houses and pension pots along the way, and pick up caring responsibilities too. All the time, we are bombarded by advice and expectations around health and mental wellbeing that is sometimes sound but sometimes misleading. Our work on insightful leadership will look at what people can do during every decade of their adult lives to build and maintain their independence, and look at the kind of conversations people need to have with their families, friends and mentors to create more resilience throughout their lives, right into later life.

DIVERSE NEEDS

groups to better understand the diverse needs of people in retirement and later life. These insights will form the basis of a conversation with members, which will lead to guidance and support for professionals around: ● How we design products and communications for older people that resonate with the way they live their lives; ● How professionals can structure conversations with clients that are more relevant to the risks and aims they have; ● How advisers can give advice to their clients’ whole family, rather than just the individual, as they grow older and their plans become more entwined with the needs of their family. We will be working with experienced insurance and ﬁnancial services professionals, charities, policymakers and researchers throughout the process, and looking to produce guidance that puts consumers and professionals in direct touch with each other in innovative and engaging ways. We would love to hear from anyone wanting to contribute to this work, so if this is an area you are interested in, please email: sophia.kleanthous@cii.co.uk ●

The work will build on the insights from Insuring Women’s Futures, and it will be supported by work with focus

Matthew Connell is director of policy and public affairs of the CII

Our work on insightful leadership will look at what people can do during every decade of their adult lives to build and maintain their independence SUMMER 2020 | Personal Finance Professional | thepfs.org

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20/05/2020 12:29

CHARTERED

REDUCING THE BURDEN Melissa Collett explains how the CII is helping Chartered firms with status renewals during the coronavirus crisis

RESPONSIBLE MEMBER As a board director of a Chartered firm, the Responsible Member takes on the role of ensuring that the Corporate Chartered firm complies with the CCS terms and conditions

at all times, and undertakes to notify the CII if there is any material change in the firm’s details or ability to meet the criteria for CCS. The current crisis does not change this obligation. Indeed, it is the strength of this that allows the CII to help Chartered firms complete the renewal process with minimal administrative burden during this period. It should be emphasised that this modified process will not in any way relax the required standards for Corporate Chartered hartered status, which are still required equired to be met. This recognises the trust we place in Chartered firms’ ms’ and Responsible Members’ ongoing ing compliance with the CCS rules and nd criteria. We are aware that our members’ priority is to follow low government guidance to slow w the spread of the coronavirus and help clients concerned about ut the impact of these unprecedented ented times on their financial circumstances. ircumstances. Given this unique ique and challenging time me for us all, we believe that, as a professional body, one of the e ways we can offer support rt to the profession is by temporarily reducing administrative nistrative requirements, allowing members to focus us on continuing to serve erve clients as effectively ively as possible. If your corporate rate Chartered statuss is due for renewal during the

next few months and you require the temporary CCS renewal form, please get in touch with our Corporate Chartered customer service team via telephone or email: Tel: 020 8989 8464 Email: charteredfirm@cii.co.uk ● Melissa Collett is professional standards director of the CII

IMAGE: IKON

s the coronavirus crisis affects our members’ personal as well as professional lives, the Chartered Insurance Institute (CII) has taken a decision to make the renewal process for Chartered financial planners as efficient as possible, while still maintaining the necessary standards and demonstrating the trust we have in our Chartered firms. The CII’s aim is to ensure existing Corporate Chartered firms are given extra support to maintain their Corporate Chartered status (CCS) during this difficult time, when firms’ resources are stretched with helping customers deal with the impact of the economic downturn. Firms are also under pressure at this time to support staff with remote working and maintaining financial resilience. For these reasons, Corporate Chartered firms facing the renewal process during this period of lockdown have been given the option for a Responsible Member to read and sign a temporary renewal declaration form. By confirming key information, the Responsible Member is giving the CII assurance that the firm continues to meet the criteria for Chartered status and therefore the renewal can proceed without the need for a complete review.

thepfs.org | Personal Finance Professional | SUMMER 2020

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20/05/2020 12:32

TECH REFRESHER

CHILD TRUST FUNDS In this month’s technical refresher, we look at the state of play for legacy CTFs

hild Trust Funds (CTFs) are no longer available but may still be held by eligible children born before 3 January 2011. A CTF is a tax-free savings account for children born between 1 September 2002 and 2 January 2011. Under the scheme, vouchers for speciﬁed amounts of up to £500 were provided by the government and had to be invested in a CTF account in the beneﬁcial ownership of the child, but the parent could choose the account provider. The CTF subscription limit for 2020/2021 is £9,000, having increased from £4,368 in 2019/2020 as announced in the Spring Budget. The limit applies for the period starting with the child’s birthday and ending on the day before their next birthday. There is no scope to carry forward any unused allowance. However, individuals could (and still can) top up the CTF until the child reaches age 18. It should be noted that any amounts paid by a parent to a CTF for their child will not be subject to the parental settlement provisions (so would not be taxed on the parent if income exceeds £100 gross in a tax year). From April 2015, it has been possible to transfer a CTF account to a Junior ISA.

INVESTMENT OPTIONS With regard to investment options, there are three main types of CTF accounts available – ‘stakeholder’, share or cash account. Existing accounts are managed by the child’s ‘registered contact’ (usually the parent) who has certain responsibilities until the child is 18, or until the child takes over the responsibility for management of the

account. Broadly, once the child turns 16, they can either: ● Take over the account by contacting the CTF provider. ● Leave the ‘registered contact’ in charge of the account until they turn 18, at which point they take over the account. During the child’s minority, the parent (or other registered contact) is able to change the investments within the existing account via the provider, move the account to an alternative provider or change the type of account, for example from cash to stakeholder. The ﬁrst CTF accounts will mature in September 2020 and the account holder will have the ability to transfer the investments to a cash ISA or a stocks-and-shares ISA without the transfer counting as a new ISA subscription. Where the CTF provider has received no instructions on the future of the investments from the account holder, those investments must be placed, at maturity and “at the option of the account provider”, in a ‘protected account’ pending instructions. The ‘protected account’ can be a ‘matured account’ or a cash ISA or stocks-and-shares ISA offered by the current CTF provider, thereby ensuring that the funds continue to grow in a tax-free environment. ●

ALAMY

Technical Connection

SUMMER 2020 | Personal Finance Professional | thepfs.org

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20/05/2020 11:17

PENSIONS

DRAWDOWN IN TH 34

inancial markets have taken a battering across the globe due to the Covid-19 pandemic. By the ﬁrst week of the UK’s lockdown, on 23 March, European equities had fallen 34% from their peak. This was, according to FT Alphaville: “Close to the average bear market fall of 40%, but this has happened 20 times faster than usual.” Additionally, there has been a global suppression of dividend payments as corporate earnings come under strain and, to top it all, we had a price war between Saudi Arabia and Russia, sending the price of oil plummeting.

Understandably, people are worried about their investments, not least those diligently saving into a pension. Those still in accumulation with many years to go before retirement can better afford to wait out the market downturns, but many of those appearing most worried are those about to retire with a drawdown plan, or those who have retired, started drawdown and are taking income from their portfolio. Others with sizeable pension pots and a robustly diversiﬁed portfolio may also feel more conﬁdent, especially if they have other sources of income and low expenditure.

But those relying on drawdown will face a tougher decision: do they carry on taking that income and risk depleting their pot sooner? Quilter’s head of retirement policy, Jon Greer, says of the indiscriminate sell-offs: “This is especially troubling for people either in drawdown or approaching retirement due to the potentially damaging impact on retirement income plans.” This is because of sequencing risk, a double erosion effect of taking an income from a portfolio that has fallen in line with market downturns. Because of market falls, more investment units have to be sold to

ISTOCK

Clients in drawdown are facing some very difficult decisions as a result of the Covid-19 disruption, as Simoney Kyriakou reports

thepfs.org | Personal Finance Professional | SUMMER 2020

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PENSIONS

THE DOWNTURN PLANS IN PLACE

generate the client’s desired income level, thus depleting the portfolio size during the early years of drawdown – the so-called ‘pound-cost ravaging’ of being a forced seller in a bad market. Even if markets start to perform well later on, they may never recoup the losses. The table below from Quilter shows how a portfolio could be 22% worse off if it experiences losses in the first two years of retirement, compared to having those same losses in years four and five. The assumption is they are taking just 4% income a year, which is the guideline ‘safe withdrawal rate’. As Ryan Medlock, senior investment development and technical manager at Royal London, stresses: “Financial markets across the globe are very volatile and it is difficult to predict how this will play out in the coming months. “As markets swing on a seemingly daily basis, the impact of sequencing risk and volatility drag for those clients in drawdown and taking a regular income is massive. This can have a significant impact not only on capital generated but also on a client’s ability to generate further income.”

What can be done to protect portfolios? For those on the cusp of retirement, they may choose not to retire immediately, or to phase it out during a longer-than-anticipated period. Sir Steve Webb, partner at LCP, comments: “I guess newly retired people still potentially have longer time horizons, but they will be feeling pretty risk averse. I don’t know if it’s an option, but some people may ‘unretire’ just to boost their ﬁnances and slow the call on their pension.” Others may still retire, but rely on other forms of income – ISAs, cash savings, perhaps even NS&I bonds – to tide them over and keep the pension invested in the hope of growth. Steven Cameron, pensions director at Aegon, explains: “Another option would be to consider taking an income from any cash savings outside of pensions, while avoiding using up all liquid assets. “Advisers have always been able to add value by considering an individual’s broader investment and savings portfolio in retirement, and where best to take income from ﬁrst, allowing for tax and inheritance implications, as well as market conditions.”

Portfolio 1 Year

Withdrawal

Annual returns

Portfolio 2 Annual portfolio value (£)

Annual returns

Annual portfolio value (£)

£5,000

25%

£120,000

-25%

£70,000

£5,000

15%

£133,000

-15%

£54,500

£5,000

£128,000

£49,500

£5,000

-15%

£103,800

15%

£51,925

£5,000

-25%

£72,850

25%

£59,906

One could also reduce the level of income being drawn down, if that is feasible. Mr Carter comments: “In conditions such as we are experiencing now, it is important to consider the level of income being drawn and whether it might possibly be reduced.”

THINK LONG TERM Brian Henderson, director of consulting at Mercer, says it is important for people making plans to consider what they need from a pension before they start spending. As the Financial Conduct Authority has noted, many are taking their 25% lump sum and living off that without drawing down – perhaps this trend will increase. But flexibility after retirement is also key, he says: “This is where advice is important. Most people don’t want complicated portfolios – they just want an income for life. “There will be people who, for various reasons, may still be forced to draw down on their money now and that will mean retirement plans have to change.” However, it is important to think long term. Mr Henderson adds: “Right now, the world has turned upside down and savings have taken an absolute pummelling. Eventually there will be a new norm and we will have to work in different ways. And don’t forget we’ve got Brexit to go through.” Clearly, clients will need a robust, flexible financial plan in place as they consider what their next, tentative step might be. ●

Simoney Kyriakou is editor of the FT’s Financial Adviser newspaper SUMMER 2020 | Personal Finance Professional | thepfs.org

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PROTECTION

MAKING A CLAIM Claim notiﬁcations are only just beginning to arrive but, for those with a life insurance claim, broker Cavendish Online says: “Claims against existing plans should not be impacted at all as the underwriting at the time of placing the policy would not have known of this coming risk. Coronavirus claims will be made against the terms and conditions of the existing plan and the usual claims terms. We do not know of any plans that have contained exclusions in relation to pandemics or the contraction of a virus in a foreign country.” On income protection policy claims, the insurer would usually get written conﬁrmation from a GP that the client is unable to work due to accident or illness. Insurers are working hard on alternatives to pay such claims quickly, says the broker.

MAINTAINING COVER In a world where private health hospitals are handing over their space to the NHS, some are questioning the value of policies. However, the Association of British Insurers has been reminding clients: ● Health insurance provides a range of beneﬁts, which can continue to be accessed including virtual and telephone (24hr) contact with GPs and consultants, as well as specialist help for physiotherapy or mental health matters. ● Cancer care for customers is crucial and insurers and private hospitals are working to ensure minimal impact on services. ● Insurers are ensuring that deferred treatments remain authorised so they can be accessed as swiftly as possible when services return. ● If customers are hospitalised with Covid-19, they will be treated through the public health system. With no private health option, some insurers are offering a cash beneﬁt to customers. Ian Sawyer, commercial director at life and health insurance intermediary Assured Futures, lists the arguments that advisers can use to persuade clients against cancelling policies:

PRIVATE MEDICAL INSURANCE ●

●

Health/medical insurance excludes conditions before the client first bought the policy, so on a five-year old policy, any condition prior to five years is excluded but any condition since then is covered. Those with health insurance are still at risk from becoming ill, aside from the virus; if an individual keeps their cover and develops cancer, an unknown lump or even a sore joint, their policy will continue to help. Other positives include NHS cash benefits if a client is admitted to hospital, virtual GP appointments, digital physiotherapy and even mental health support. When this pandemic is over, there

●

is no doubt the NHS will take some time to recover, meaning that nonessential operations will continue to be delayed. Insurers are looking at ways of helping their customers – reducing cover, increasing excess, changing plan types and even offering payment holidays – such changes can be implemented midterm and policies can be changed back when required.

GETTY

he consequences of the Covid-19 pandemic, particularly for the life and health insurance sectors, are still unknown and as Laura Hay, global head of insurance at KPMG, says: “The impact on health insurance is hard to determine at a global level because the impacts will be very different country by country.” However, she believes the crisis may have a number of longer-term and more positive effects on the sector. Firstly, as the pressure on health services increases there is likely to be greater use of telehealth services, helping healthcare reach more remote and less aﬄuent parts of the populations including the underinsured or uninsured. Secondly, Ms Hay notes: “In the wake of the SARS epidemic, for example, we saw a temporary spike in critical illness policy sales in Asia. We may see a similar phenomenon postcoronavirus, with rising sales of health insurance, critical illness and even life cover across the world.”

thepfs.org | Personal Finance Professional | SUMMER 2020

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PROTECTION

INCOME PROTECTION INSURANCE ●

●

Clients remain at risk of being involved in an accident or developing a separate illness, so there is still a need to keep the income protection (IP) policy on risk. Many policies go hand in hand with mortgages, so those thinking of cancelling their policy should be extremely wary. Those who have an IP policy in place with a guaranteed premium amount should be aware that they are unlikely to ever ﬁnd a price that low in the future. Those with unemployment insurance must keep this cover at all costs as this type of insurance is no longer available. Some IP policies also come with a plethora of beneﬁts such as digital GPs and health MOTs, so customers may not be aware of exactly what they are cancelling.

●

ACCIDENT, SICKNESS AND UNEMPLOYMENT COVER ●

●

As we age, life insurance premiums become more expensive, so keeping an existing policy will protect a currently low premium. Life insurance will ensure that a policyholder’s family will receive a lump sum that can help pay off the mortgage, cover funeral expenses or support them during a time of ﬁnancial need.

Unemployment cover is currently unavailable on the market, so anyone with this should not be cancelling. Those with a longstanding redundancy should avoid cancellation at the present time. Many employers will face some ﬁnancial struggle. The younger a client is when they purchase cover, the better.

OVER-50S COVER ●

●

LIFE INSURANCE ●

Policyholders are covered should they pass away due to the Covid-19 virus.

●

If those with over-50s cover decide to cancel a policy, they will lose their agreement and all premiums paid so far. It could help with funeral costs or to leave some money to a loved one. As a client ages, the monthly cover costs will rise, so keeping a policy in place will protect a monthly premium. These plans ask no medical questions, meaning a client will be covered should they pass away due to coronavirus. Policies can come with added beneﬁts such as digital GPs, counselling and bereavement support services. ●

Liz Booth is contributing editor at the PFS

LIFE LESSONS Liz Booth examines life and health insurance protection available in light of the coronavirus pandemic

SUMMER 2020 | Personal Finance Professional | thepfs.org

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MEMBERS

POWER HITS 38

Luke Holloway reveals how a series of short videos on the PFS Power website feature advisers sharing good practice on how to serve clients during a global pandemic

he coronavirus outbreak has presented some unique challenges for financial planning practitioners: working from home long term; adapting client meetings; communication; and maintaining healthy wellbeing. These have all been tests that advisers have had to overcome. During this unprecedented time, the PFS Power website has been a platform where personal finance professionals can share ideas about what has worked for them and offer advice on a variety of subjects to help fellow advisers work more efficiently and focus on achieving greater outcomes for clients.

thepfs.org | Personal Finance Professional | SUMMER 2020

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MEMBERS

RELEVANT The multimedia section includes ‘Power 5-Minutes’ videos, where practitioners share their thoughts in five-minute ‘hits’. One such video is from Garry Hale, owner of HK Wealth and a past president of the PFS, who talks about the lessons he has learned during his 18 years in business that are relevant in the current health crisis. Mr Hales says: “My business is small and I’m a sole adviser with less than 90 clients. I think small businesses can be profitable and successful, and are well placed to handle a variety of situations, just like that we are now faced with.” Mr Hale says that choosing firstrate companies to work alongside has proved its worth during the pandemic. “I use Dimensional and Vanguard [fund and asset management platforms, respectively] and their support has been excellent. “I also use Nucleus as my main client platform and their service has been great throughout this period. It has been business as usual, even with the whole company working from home, which I think has been incredible.” With regard to dealing with clients, Mr Hale stresses the importance of transparency, even at a time when you cannot meet face to face. “Be honest with people,” he says. “Always tell the truth, admit when you make mistakes and resolve them quickly. Also, admit when you don’t know something, but get back to them as soon as you possibly can with an answer. “I have maintained strong contact with clients through emails, newsletter and individual calls – and I think that is key. “Like many people, I’m enjoying doing virtual calls and video chats – and they serve a purpose at this point in time – but once this is all over I am looking forward to getting back to meeting real people in the real world, face to face,” adds Mr Hale.

Pick up the phone to clients – just because the phone isn’t ringing, it doesn’t mean they don’t want to hear from you COMMUNICATION Ruth Sturkey, client director at Paradigm Norton, offers her take on both team and client communication during the coronavirus crisis, via her video on the PFS Power website. In terms of internal communication, Ms Sturkey tells professionals that continued dialogue across the organisation is paramount. “You really cannot communicate with team members and colleagues enough at this stage,” she says. “We know people are coping with getting used to new technology, home schooling, caring for relatives, concerns about their partners’ jobs – we all have things we are having to deal with.” Ms Sturkey gives several examples of ways of keeping in touch, including a weekly company ‘huddle’ led by senior staff, giving business updates and answering any concerns employees may have around work practices and job security. “We want to make sure our team remain in the best health they possibly can while going through this anxious time. This also includes a call from our people team to every single member of staff to check in on their individual circumstances,” she says. On a daily basis, her team members have a morning call discussing how people are feeling day to day, tasks and workﬂows. In the afternoon, the team gets together socially for a cup of tea and virtual chat away from anything ﬁnance-related. “Externally, it is so important we continue to pick up the phone and talk to our clients,” says Ms Strukey.

“This is a time when they really need us. In my experience, they are not worried about what is going on with their portfolios, they are more interested in hearing from us and being assured that we are there to guide them through the crisis if they need advice around cashflows, cash levels, savings, whatever it may be. “We sent a mailer to clients, including a Q&A on what we are doing as a firm during the crisis and the measures we’ve put in place to make sure our team and clients remain in a good place as we navigate this. “We are also using video conferencing to make sure we have our normal annual planning meetings with clients. We give them a call beforehand, talk them through the technology we will be using, explain how we will share screens and make sure it is just as interactive as a meeting in the office. “The clients are really appreciating that sense of normality and the opportunity to air their concerns. “Just communicate. Listen to the concerns people may have internally, make sure people aren’t working too hard, they are getting rest and they are coping. And pick up the phone to clients – just because the phone isn’t ringing, it doesn’t mean they don’t want to hear from you,” she concludes. You can find these videos and offer your own ‘Power 5-Minutes’ at: pfspower.org/power5-minutes” ●

Luke Holloway is the editor of PFP

SUMMER 2020 | Personal Finance Professional | thepfs.org

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R E M OT E WOR K I NG

LESSONS FOR ADVISERS

ON COPING WITH CORONAVIRUS 40

Laura Miller on how the Covid-19 crisis has made it necessary for firms across many professions to adapt

olicitors, accountants and financial advisers have sometimes kept a strange truce in business, jostling in clients’ priority list of who to call first when the worst happens. Turns out, terrible events are a great leveller. Describing the depth of recession likely to follow a near total 12-week lockdown of Britain, the Office for Budget Responsibility said it may be the worst for three centuries. Who, when their client called in recent weeks, could say hand on heart they had planned for that? “There will be fundamental changes in the way we work arising from this experience,” says Nick Paterno, managing partner at McBrides Chartered accountants. “I think it is too early to say how these will evolve but they undoubtedly will. When you are faced with a crisis or a challenge, you are forced to innovate.”

thepfs.org | Personal Finance Professional | SUMMER 2020

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R E M OT E WOR K I NG

BORROWING IDEAS Clients have never needed guidance more, while many advisers must now also adapt their business model and way of delivering services at breakneck speed. No one is immune – other professions are learning too, and what works for them could work for advisers. Solicitor Jodie Hill, managing director at Thrive Law, says she would encourage advice ﬁrms not already doing so to give their clients free stuff, because it has worked with hers. “Where you can share free information and updates, it is important that you do. It adds value to what you are doing and people will really remember those leaders who stepped up,” she says. In quick succession, the government announced the Coronavirus Business Interruption Loan Scheme, the Coronavirus Job Retention Scheme, and then an alternative version of support for some self-employed people. Everything was new and everyone had questions. Ms Hill co-created content using the Champion Health tool to issue regular emails with advice on the day changes came out. “They went directly to clients, linking any new blogs to provide more context and discussion on some of the grey areas,” she says. Professional services can rely on face-to-face communications but in a world of social distancing, Mr Paterno targeted the next best thing. “We have been constantly on the phone to clients helping them react ﬁnancially to the lockdown,” he says. “This is particularly for those at the immediate and sharp end – retail, leisure and hospitality, whose businesses have effectively been brought to a halt.” Pivoting staff to deal with a new

The coronavirus lockdown is forcing employers to confront the truth that home life and work life are intrinsically linked, and it is possible to be equally effective at your job away from the office way of working – forget client chats once every six months, or even monthly – was crucial. “With government announcements coming out at any time of the day including weekends, our comms team had to react immediately so we could update clients at the earliest opportunity,” says Mr Paterno. An urgent response to the onslaught of new assistance programmes, Herculean at the best of times, could only be achieved by first massively accelerating remote working. Financial companies have been slow to promote flexible working as a viable alternative to the traditional nine to five, a policy that especially affects women who disproportionately do the majority of childcare. Across employment, that does seem to be changing. Three quarters of workers polled by Aviva last year said they were offered options like increasing or decreasing hours, working remotely or job sharing. A year earlier, just 64% said they had such choices. The coronavirus lockdown is forcing employers to confront the truth that home life and work life are intrinsically linked, and it is possible to be equally effective at your job away from the office. “We’ve learnt working from home for the whole team really works, and that using tech in the right way can improve productivity too,” says Ms Hill. Staff connectivity in the age of coronavirus cannot be overlooked. Mr Paterno arranged weekly partner

meetings – nicknamed McCobra – to discuss planning and implementation. “Our HR team sprung into action,” he says, “talking to employees, ﬁne tuning working arrangements, making everyone feel included despite the remote working and isolation.”

EXTREME CIRCUMSTANCES Ex-SAS commandos do a good trade selling books on management techniques to everyone from tech entrepreneurs to Prime Ministers in waiting, because sometimes the best lessons come from extreme circumstances far from your own profession. No sector has had to adapt more quickly to the effects of coronavirus than hospitality. The ﬁrst forced to shut down, restaurants, cafes and bars saw their revenue disappear literally overnight on a warm March day. Conor McCarthy, CEO of online ordering company Flipdish, has been helping them survive, by transforming in situ operations into online takeaway businesses, doing in days what normally takes weeks. His advice to ﬁnancial advisers is the same to restaurateurs: “Don’t be afraid to ask for support.” He adds: “Stakeholders, clients and even the public, want to see you succeed. This is unchartered territory for everyone so, when you make mistakes, learn from them and share your experiences with others. Widespread cooperation is essential to survive this crisis.” ●

Laura Miller is a freelance journalist

SUMMER 2020 | Personal Finance Professional | thepfs.org

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20/05/2020 12:04

TECHNICAL Q&A

GETTINGG TTECHNICALL Technical Connection respond to questions on capital gains tax and pension drawdown

My client inherited assets within the last 12 months and is considering a deed of variation to pass some assets to his brother. The value of one asset has increased signiﬁcantly since death. Can you explain what the capital gains tax (CGT) position is?

It is possible for the client to enter into a deed of variation within two years of death. For inheritance tax purposes, it is vital that the necessary conditions are satisfied for the variation to be treated as having been made by the deceased – broadly, the variation must be made within two years of death, it must be in writing, it must contain a statement that section 142 of the Inheritance Tax Act 1984 applies and it must not be for consideration. One implication of executing a deed of variation is that the original owner will be treated as making a disposal and if the gain arising since death exceeds the annual exemption, CGT can become payable. To avoid an immediate CGT liability, it is possible for the variation to contain an election for CGT purposes, which broadly would shift the gain to the recipient beneficiary. For example, let us say shares in a collective investment were worth £200,000 at the date of death but are now worth £250,000. If no election is made, this could trigger a disposal of the collectives with CGT based on a capital gain of £50,000. Alternatively, by including an election for CGT in the variation, the acquiring beneficiary could secure an acquisition cost of £200,000 (the value at the date of death) with no immediate CGT liability. However, that original gain would stay within the collective investment portfolio. It is important to note that the client will need to seek professional legal advice in respect of carrying out this planning, so all of these options will be explained to them at that time.

In 2019/2020, £20,000 was paid into a personal pension by my client’s employer. Following this payment, the client took some income (above the PCLS) using ﬂexi-access drawdown. He has some unused annual allowance from all three of the preceding tax years. Can he still utilise the unused annual allowance from the previous tax years, or will the employer contributions be subject to an annual allowance charge?

Once the money purchase annual allowance (MPAA) is triggered, carry-forward is not available for further defined contribution payments, so the previous years’ allowances have now been lost. The MPAA is triggered at the point the first flexible income payment is paid. Therefore, assuming the client is not subject to tapering, as all the employer contributions were paid before the MPAA was triggered there would still be scope for £4,000 of contributions in the remainder of the tax year before an annual allowance charge would apply. ● → These are actual questions and answers taken from the Technical Connection Techlink Professional question bank. Chartered financial planners can find out more about a trial subscription to TechWise by visiting: www.techlink.co.uk/techwise

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thepfs.org | Personal Finance Professional | SUMMER 2020

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20/05/2020 11:18

MENTORING

THE POWER OF MENTORING To mark the one-year anniversary of PFS mentoring platform Connect’s launch, Sabrina Toofanny talks to one mentor about her journey

entoring can open doors, inspire, support and encourage people to realise their potential and achieve their goals. Here at the PFS, it is our belief that by investing in the next generation we are helping to shape the advisers of a better tomorrow. As we approach the oneyear anniversary since the PFS mentoring platform Connect launched, we met with Heather Singleton to discuss her journey as a mentor.

IMAGE:IKON

What led you to becoming a mentor? I had recently left work and felt it was time to give something back. I used to mentor younger staff at work and saw the beneﬁts when they went on to win national awards. I’d also had a brief mentoring session myself when I ﬁrst started taking CII exams many years ago, which set me on track initially. What has been the most memorable part of being a mentor? Looking forward to speaking with my mentees and then discovering they were looking forward to speaking with me too! Also, agreeing to keep in touch after the mentoring has concluded, as an interested observer of their career progression and seeing their achievements.

to learn and progress their career, and who recognise that a mentor can be a positive influence. What do you feel you have gained from your experience? An insight into the next generation of financial planners, how qualified they are and want to be, and how much they are looking forward to the future.

Connect was designed with the goal of being a flexible programme, meaning professionals would not always have to meet physically, but have the option of virtual meetings. In these testing times we rely on digital forms of communication. Do you feel Connect has achieved its flexibility goal? I am in the process of moving 300 miles from the midlands to the southernmost point of mainland Britain, so I always needed flexibility. Boundaries were established at the outset with telephone meetings only, which works well for me, and is very flexible. What is your one key takeaway from your mentoring experience so far? The people most looking for mentoring are those who are keen, bright, eager

What would be your tips for others considering joining Connect, both as a mentee and a mentor? Mentors – treat your mentees with the same respect that you treat your clients. When you speak with them, they are the most important part of the conversation. Trust and confidentiality are paramount. Mentees – make sure you are in an environment for the phone call where you can speak freely. I’ve asked some direct questions of my mentees and look for total honesty back. You can’t speak freely if other people in the office might be able to hear you. Also, recognise the value of the mentor’s time – they are choosing to do this and their time is as valuable as yours. To anyone considering Connect – only do this for the right reasons, not just for the CPD. To find out more about become a mentor or a mentee, visit: thepfs.org/connect ●

Sabrina Toofanny is marketing executive of member development at the PFS Summer 2020 | Personal Finance Professional | thepfs.org

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20/05/2020 10:57

LEARNING

hile the Covid-19 pandemic and subsequent lockdown have meant that face-to-face events have been postponed for now, the CIIâ&#x20AC;&#x2122;s Professional Focus programme continues to deliver valuable insight and guidance from across the profession. Featuring a diverse range of highly skilled subject matter experts, the programme offers key continuing professional development (CPD), meaning you can increase your knowledge and learn new skills, while improving the behaviours that will help you secure the best outcomes for customers and clients â&#x20AC;&#x201C; and all free of charge to PFS members. All of the presentations from the original Professional Focus agenda are available via our digital platform, as ensuring your professional skills are up to date is crucial during this challenging and unusual time. We appreciate your support and will continue to deliver a programme of CPD relevant to your needs. Some of the video and webinar highlights from content now available include:

Against the background of the coronavirus pandemic, the Professional Focus programme is continuing to prove its worth to advisers

thepfs.org | Personal Finance Professional | SUMMER 2020

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LEARNING

VIDEO

WEBINAR

An introduction to behaviour in business

Make your communication stick

Robin Hills, Ei4Change

Melissa Kidd, Motem Ltd

Discover the psychology behind what really motivates and influences your clients, colleagues and customers. Discover what makes people tick, how they react to situations and why they behave the way they do. You will learn how to inspire top performance, gain trust, win confidence and build lasting relationships – more effectively and with great results. Learning outcomes: ● You can explain why self-awareness is important and describe the benefits of good levels of self-awareness. ● You can recognise how emotional data shapes your professional behavioural responses. ● You can determine the needs and psychology of the four behavioural styles that influence relationships. ● You can examine how to adapt your communication style to professionally engage with people at a deeper level. ● You can describe ways to demonstrate empathy.

How effective is the communication you experience every day? How often have you been bored during a presentation or meeting? Have you had a tedious networking conversation or failed to win a piece of business that you know you should have won? Experts can struggle to communicate in ways that are interesting and memorable, because once we know something it is hard to imagine what it was like not to know it. This can result in irrelevant boring messages that are often ignored or forgotten. This session will lift the lid on how our mind absorbs information, so that you can craft and deliver messages that stick. Learning objectives: ● Use effective communication techniques so that your audience will act rather than switch off and glaze over. ● Recognise six principles to help communication stick. ● Apply the three components of charisma so that you increase your personal impact.

VIDEO

WEBINAR

Mental health in the workplace – should I be worried?

Coronavirus – business interruption

ISTOCK

Every day we are seeing the number of coronavirus cases increase in the UK, while other areas of the world are also struggling to control the epidemic. The UK remains in a state of lockdown and businesses across the country are struggling. What, therefore, are the issues likely to impact on claims submitted in respect of coronavirus? What will it mean for ongoing business interruption claims that pre-date the pandemic? Damian Glynn, an industry-recognised expert in the field of business interruption, highlights issues that may need to be considered. Topics covered: ● Damage at the premises. ● Notifiable disease at the premises (or within the policy prescribed radius). ● Act of competent authority. ● Suppliers’/customers’ extensions.

ISTOCK

Damian Glynn

Peter Freeth Mental health is getting a lot of coverage in the media but is it a real issue that you should be worried about or just a passing fad? Better mental health support in the workplace can save UK businesses, in total, up to £8bn a year, while about one in eight days taken off sick are due to mental health issues. Clearly, this is more than a wellbeing issue – this is a business risk. In this session, Peter Freeth shares some truths and revealing some myths about mental health – enabling you to navigate this complex and increasingly important area to create a better working environment for you, your colleagues and your employees. Supporting good mental health in the workplace creates a better working culture, reduces stress, increases productivity and gives you one less thing to worry about. Learning objectives: ● Understand what ‘mental health’ is. ● Understand the role and responsibilities of the employer. ● Recognise the signs of mental health problems. ● Learn some simple ways that you can improve your own mental wellbeing.

To watch Professional Focus videos and webinars, visit:

ciiprofessionalfocus.co.uk

SUMMER 2020 | Personal Finance Professional | thepfs.org

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20/05/2020 11:50

ONLINE SKILLS George Tsounias discusses how the My Personal Finance Skills programme is going online and catches up with an Education Champion

he My Personal Finance Skills initiative delivers free financial education workshops to schools and colleges across the UK through a network of more than 900 PFS members (Education Champions) who are committed to giving something back to the local communities they serve. The programme was on course to conduct more than 700 workshops nationally, reaching more than 21,000 students by the end of the year. Due to recent developments with Covid-19 and subsequent school closures, we have had to postpone all scheduled workshops to a time when it is safe to resume in-school workshops once again. The delivery of our free in-school workshops would not be possible without our growing network of Education Champions, who have taken time out of their working day to help students have a better understanding of personal finance. To adapt to current circumstances, we have adapted our in-school material into online financial education sessions on our recently launched My Personal Finance Skills website. This will ensure that free financial education is still available while students are at home. As well as the initial 4 financial education sessions, we are working on bitesize learning videos as well as other content to supplement learning. The PFS is committed to helping students have better financial awareness and providing support to teachers who are passionate about students’ understanding of money and

who are looking for free external support from professionals. Thank you to all our Education Champions for your support, enthusiasm and commitment to the programme this year. We hope that our financial education workshops will be up and running in schools as soon as possible and always in line with government guidelines. To find out more, visit: www.mypersonalfinanceskills.org George Tsounias is relationships manager of education at the PFS

EDUCATION CHAMPION PROFILE We recently met with Dan Haylett of TFP Financial Planning, who has conducted several of our free ﬁnancial education workshops at a local school.

each of the four workshops. It has been amazing – the students are so engaged with the messaging and really interested in their future ﬁnances. It has led to some great and slightly oﬀ-piste conversations about wider money topics, which has been brilliant to be part of.

Why did you volunteer as an Education Champion? It is vital that we can teach and educate our next generation of school leavers about the real world of money. I know from speaking with friends who are teachers that schools struggle to ﬁt these important topics into an already packed curriculum.

What response did you receive from students and staﬀ ? Feedback has been great. Many of the students are not that well versed in even the simplest of money areas and it has opened their eyes to the real world and how to start thinking about their life after school. The teachers have been fantastic and have been fully supportive within the lessons.

How did you organise the workshops? I ﬁrst approached the school that my daughter attends – Sandon School – to see if there was an appetite for me to deliver the workshops. I arranged a meeting with the head of business and economics to discuss the topics covered in the workshops and she loved it. She has built it into lessons that she delivers to year 11-13 students and I have gone through a programme of delivering

What advice would you give others considering volunteering? If you can spare a couple of hours a month, then just do it! The workshops are easy to deliver and the support of the team at the PFS is brilliant. It is so worthwhile and you know you are helping bridge a huge gap in knowledge and resource that the schools and students desperately need.

thepfs.org | Personal Finance Professional | SUMMER 2020

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20/05/2020 11:18

A DV E RTOR I A L

INVEST IN THE SUSTAINABILITY LEADERS OF TOMORROW OUR CARBON EMISSIONS PROBLEM

SUSTAINABILITY CREDENTIALS

uman induced carbon emissions are the leading cause of global climate change. These include the burning of fossil fuels (such as coal) for heat and electricity, agriculture (livestock, rice patties and unhealthy soils), land use changes and some chemical and industrial processes (like cement production). On top of this, there are natural feedback loops that intensify this (releases from oceans, ice caps and forests). It is up to all of us to stop the current trajectory. A concerted effort to tackle the climate crisis was ﬁnally embraced by 195 governments in the form of the Paris agreement in 2016. Yet, that isn’t enough. The private sector also needs to realise its responsibility in this global issue and the threat to business as normal.

INTRODUCING THE EQ FUTURE LEADERS PORTFOLIOS As a B Corp (committed to both shareholder and stakeholder success) wealth manager, we have highlighted our commitment to sustainability with the launch of a new range of low-cost responsible investment portfolios. Our aim is to provide a sustainable investment solution for everyone who wants to invest: ● Low cost: These portfolios are built using efficient passive funds with low fund charges. All our portfolios are globally diversified and regularly rebalanced to reflect our views on the potential returns from different markets. ● Sustainable: The EQ Future Leaders portfolios select the most sustainable companies based on published Environmental, Social and Governance (‘ESG’) data. ● Low carbon: All this means that Future Leaders portfolios have a lower carbon footprint than market benchmarks. Based on our scenario analysis, they are compatible with limiting global warming to 1.5 degrees. ● Tailored to you: available for ISAs, SIPPs and GIAs.

Passive investing lends itself well to a best-in-class approach and can also incorporate negative screening. With this in mind, we have designed the EQ Future Leaders Portfolios around the Impact Management Project’s ABC framework: ● Avoiding harm: We use passive funds that screen out the most harmful sectors: • No tobacco • No armaments • No alcohol • No gambling ● Beneﬁting stakeholders: We use tracker funds based on the MSCI Socially Responsible Investing (SRI) Indexes. These target the most responsible companies based on their disclosed ESG data. This biases portfolio exposure towards companies that are managing their social and environmental impacts well and demonstrating good corporate governance. ● Contributing to solutions: Future Leaders uses thematic ETFs to increase portfolio exposure to sectors that are helping to solve global problems, including healthcare, clean energy and green bonds. We’ve been a pioneer in the impact investing space over the last eight years. The launch of the EQ Future Leaders Portfolios sees us building on that reputation whilst responding to the changing market we work in to deliver a competitively priced multi-asset passive solution. Going forward, our ambition is to evolve the portfolios as the universe of passive strategies increases.●

Damien Lardoux is Head of Impact Investing at EQ Investors damien.lardoux@eqinvestors.co.uk

FIND OUT MORE If you have a question about the EQ Future Leaders Portfolios or our DFM service, please get in touch.

EQ Investors Limited is authorised and regulated by the Financial Conduct Authority (Ref. 539422). The value of your investments can go up or down and you may get back less than your initial investment.

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Things change year-on-year. With the ever-evolving nature of retail investment, it’s hard to keep up to speed with new developments. Our ‘Regulated Retail Investment Adviser Re-evaluation’ tests your current technical knowledge on everything from investment principles to tax planning. It helps identify your strengths and areas you need to improve on. Pass the test and you’ll not only maintain your skills, but also gain 35 hours of CPD.

Annual Review Rediscovery

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18/05/2020 13:58

STUDY ROOM

The CII Financial Assess training package tests your knowledge of key financial topics

QUESTION 1

QUESTION 5

QUESTION 9

What is the purpose of the stakeholder pension decision tree? A To be kept on file by financial advisers to show that the RU64 rules have been met B To be used by an employee of a retailer that provides non-advised financial products through its stores C To be used by financial advisers when discussing the pension options open to their client D To be used by individuals when deciding if a stakeholder pension is suitable for them

If someone fears no longer being able to act for themselves, what can they take out to cover that situation? A A last will and testament B A lasting power of attorney C A life insurance policy D An enduring power of attorney

What are split trusts sometimes called? A Carve out trusts B CIC trusts C Discretionary trusts D Gift trusts

QUESTION 2 How often can an individual access the pensions advice allowance? A Four times B Once C Three times D Twice

QUESTION 3 What beneﬁt of annuities is lost by those investing in drawdown? A Mortality drag B Mortality gain C Natural income generation D Pound cost averaging

QUESTION 4 Which of these investments would be classed as ‘taxable property’? A Gold bullion B Hedge funds C Unquoted company shares D Vintage cars

QUESTION 6 Which of the following trusts, if any, can be revoked? A Discretionary trust B Life interest trust C Trustee trust D Will trust

QUESTION 10 What is the level of the alternative annual allowance for tax year 2020/21? A £30,000 B £36,000 C £40,000 minus any deﬁned contribution (DC) plan contributions D The higher of £30,000 and £40,000 minus any DC plan contributions

QUESTION 7 Which taxpayers are entitled to the dividend allowance of £2,000? A All taxpayers B Only additional rate taxpayers C Only basic and higher rate taxpayers D Only basic rate taxpayers

YOUR SCORE » 1–3 POOR 4–6 GOOD

7–8 VERY GOOD 9-10 EXCELLENT

QUESTION 8 How often is Universal Credit usually paid? A Every 28 days B Every two weeks C Monthly D Weekly

ANSWERS 1D. Although ﬁnancial advisers may use it to discuss pension options with their clients, its purpose is to help consumers who do not wish to seek ﬁnancial advice. 2C. The allowance can be used a total of three times at any age (but only once in any tax year).

3B. Drawdown does not beneﬁt from mortality gain. 4D Cars, like ﬁne wine, are considered taxable property, and are subject to high tax charges. 5B. An individual can take out a lasting power of attorney (LPA) to ensure someone will

act on their behalf if they can no longer do so. 6D. A will trust does not come into force until the testator has died. The testator could, at any time, destroy or execute a new will which would revoke any previous wills.

7A. The £2,000 dividend allowance is available to all taxpayers. 8C. Universal Credit is paid monthly, on the same day each month, usually directly into your bank, building society or credit union account. 9A. Split trusts are sometimes

called carve out trusts because beneﬁts are carved out for the settlor. 10B. The alternative annual allowance is equal to the standard annual allowance (£40,000) minus the money purchase annual allowance (MPAA £4,000).

SUMMER 2020 | Personal Finance Professional | thepfs.org

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20/05/2020 10:58

PRESIDENT’S BLOG

During the ongoing coronavirus crisis, Adam Owen explains why a little empathy goes a long way

TIME TO RESERVE

JUDGEMENT

We are all at different stages of a shared experience and people will react and behave differently

wasted this time. Others responded saying that with three kids and home schooling they are just about keeping things together.

PERSONAL PERSPECTIVE

This is just one example that shows us we are all experiencing the lockdown based on our own perspective. For some people who initially felt threatened at the lowest level of Maslow’s pyramid, physiological, they sought comfort in buying toilet roll and pasta. Those whose jobs or business are under threat, covered in the safety layer on Maslow’s model, will be able to focus on little else right now. Others who have satisﬁed the ﬁrst two layers may be feeling isolated and will be seeking what Maslow referred to as belonging. The explosion of virtual quizzes is a good example of this. The model goes on, but my point here isn’t really about Maslow’s theory. It is simply a tool that can explain that we are all at different stages of a shared experience and that people will react and behave differently. When all of this is over, people will remember, above everything else, how you made them feel. Rather than rushing to judgement I would urge everyone to step back and allow for the possibility that the other person’s motivation is not what you have applied to their action. Ask: “What else can this mean?” The answer you come up with won’t change the other person’s behaviour but it may create space for more compassion in your reaction. ● Adam Owen is president of the Personal Finance Society

ILLUSTRATION: LUKE WALLER

n many ways everything has changed since I last wrote for Personal Finance Professional magazine but equally, many things have stayed the same. Plenty has been written about Covid-19 and I would not presume to know any more about it or what will happen in the coming months than anyone else outside of the scientific community. What I would like to talk about is what I have seen in the first few weeks through the prism of a well-known behavioural model. It is almost impossible to have attended any type of management or team-building course during the past 30 years and not come into contact with Maslow’s hierarchy of needs. If you have, you will know that there are five layers of Maslow’s pyramid. Each layer represents a basic human need that must be satisfied to at least 80% before a person will be motivated to tackle the next layer. If any of the lower layers are threatened, the model suggests that we abandon what we are doing to focus on that lower layer. This model has, as with many similar models, been contested, but for me it is not about whether it can be applied to all situations that is important. I am more interested in how the model can be used to make sense of people’s behaviour in the current situation and if so, will it help us to avoid rushing to judgement? I ask this because, particularly on social media, there has been a lot of judgement about. In one example, a widely circulated post said that if you don’t learn something new or do something amazing during lockdown you will have

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