PFP Summer 2024

Summer 2024 thepfs.org

PROFESSIONAL Raising standards HOW ADVISERS CAN GO BEYOND COMPLIANCE AND DELIVER EXCEPTIONAL SERVICE TO VULNERABLE CLIENTS

GO GREEN

POSITIVE SHIFT

HOME TRUTHS

Navigating the new Sustainability Disclosure Requirements

How the incoming UK government can engage with financial services

The UK mortgage market outlook for the rest of 2024

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BRITISH SAVINGS BONDS

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Find out more about British Savings Bonds at nsandi-adviser.com AER (Annual Equivalent Rate) illustrates what the annual rate of interest would be if the interest was compounded each time it was paid. Where interest is paid annually, the quoted rate and the AER are the same. Gross is the taxable rate of interest without the deduction of UK Income Tax.

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CONTENTS Summer 2024

Sector Focus

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10 Regulation Regulatory updates from across the UK 12-13 Advice process How firms can serve vulnerable clients following the FCA’s latest review

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16-17 Governance Areas of financial services which the incoming UK government should address 22-23 Retirement Responding to the thematic review of retirement income advice

Business Focus 14-15 Pensions What would advice experts do to improve the pensions system?

18 Events The PFS announces the 2024 National Conference

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30-31 ESG Guidance on applying the new Sustainability Disclosure Requirements 40-42 Funds The investment landscape for green and impact funds 46-47 Learning Continuing professional development resources available to members 50 The Big 10 Test your knowledge with our Q&A

19 Membership Guidance on using member designations correctly

Mortgage Special

20-21 Technology Potential risks of AI and managing them ethically

33-35 Advice process How advisers are supporting borrowers in a challenging economy

24-28 Tax planning Key tax planning opportunities following the spring Budget

36-37 Markets The outlook for the UK mortgage market for the rest of 2024

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News & Opinion 04-05 Opinion Don MacIntyre highlights the success of the PFS XCHANGE events programme 06-09 News UK and regional news from the PFS 44-45 Interview Rabeya Islam tells us why she became a fellow of the PFS

CONTACT US

Personal Finance Society 20 Fenchurch Street, London, EC3M 3BY Tel: (020) 8989 8464 Fax: (020) 8530 3052

Cover illustration: Nick Lowndes

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 Editor: Luke Holloway luke.holloway@cii.co.uk Contributing editor: Liz Booth DESIGN Senior Designer: Will Williams Picture Editor: Akin Falope Production: Jane Easterman Printing: The Manson Group

PUBLISHER Redactive Publishing Ltd, 9 Dallington St, London EC1V 0LN ISSN 1754-8055 © Personal Finance Society.

For sales and advertising please contact us on pfs-sales@redactive.co.uk or 020 7880 7661

29/05/2024 12:34

CEO OPINION

PFS CEO Don MacIntyre reflects on the successful launch of the new PFS XCHANGE series of events

STRIVING FOR EXCELLENCE 4

I

t has been a busy start to the year and has certainly posed a challenge for the profession and the PFS. I am pleased to share that our change in events delivery with a focus on contentspecific events was received positively and the team continues to make significant strides in optimising the way we deliver our events for 2024.

Our mission to support and advance the personal finance profession has been underscored by our PFS XCHANGE events held in London, Southampton, Glasgow and Manchester, with a theme of later-life planning. The changes were received well, with 98% of delegates attending stating they would attend again, as well as more than 16% of the delegates being first-time attendees and 23% having less than 10 years’ experience in the profession.

The new PFS XCHANGE events have been designed to be more interactive and forward-looking, addressing the evolving needs of our members.

Following the latest topic, we expect to introduce themes such as artificial intelligence in financial services, climate-resilient investing and the impact of global economic shifts on local markets.

We challenged ourselves to deliver more relevant and focused content and from the feedback received these changes were welcomed. We recognise there is room for improvement and we will be looking to expand the frequency of our events in the coming months.

We have welcomed the feedback and want to ensure members throughout the UK have access to more in-person events, alongside more of these events being made available digitally to those who are unable to attend.

Our upcoming PFS XCHANGE events will include our partners Fidelity International, JUST and King & Shaxson Asset Management. These events will take place in June, in Belfast, Leicester, Durham, Bristol and Epsom and I hope to see you there.

PARAPLANNING FOCUS In addition to the PFS XCHANGE events, a highlight of this period was the paraplanning one-day conference held in London in early May. Paraplanners are indispensable to the financial planning process, providing critical support to advisers and ensuring the delivery of highquality advice to clients. This conference was dedicated to enhancing

thepfs.org | Personal Finance Professional | summer 2024

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GETTY

CEO OPINION

the skills of paraplanners, fostering their professional development and recognising their vital contributions to the profession.

The conference featured a series of expert-led sessions covering a wide range of topics pertinent to paraplanners, including advanced technical analysis, effective report writing and enhanced client communication.

One of the standout sessions focused on the evolving role of paraplanners in the digital age, exploring how technology can boost their efficiency and effectiveness.

Attendees gained valuable insights into the latest software and tools available to support their work and improve client outcomes.

Another highlight of the conference was the networking opportunities it provided. Paraplanners from across the UK had the chance to connect with peers, share experiences and discuss common challenges. This sense of community and mutual support is vital for professional growth and development. The conference also

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featured an awards ceremony, celebrating the achievements of outstanding paraplanners who have demonstrated excellence in their roles.

LOOKING AHEAD As we move forward, the PFS remains committed to supporting its members through continuous learning, professional development and fostering a strong sense of community. The first half of 2024 has been marked by significant achievements and impactful events. We are excited to build on this momentum in the coming months.

We will continue to offer a diverse range of events and initiatives designed to meet the evolving needs of our members and to address the challenges and opportunities facing the

personal finance profession. Our goal is to empower our members with the knowledge, skills and resources they need to excel in their roles and to deliver the highest standards of service to their clients.

In conclusion, I would like to express my thanks to all our members, speakers and partners who have contributed to the success of our events. Your dedication and passion for the profession inspire us to continue striving for excellence. Together, we will continue to advance the personal finance profession and make a positive impact on the lives of the individuals and families we serve.

Thank you for your ongoing support and commitment to the Personal Finance Society. ● Don MacIntyre is CEO of the Personal Finance Society

summer 2024 | Personal Finance Professional | thepfs.org

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NEWS

L E A R N I NG

PFS LAUNCHES SDR AND ANTI-GREENWASHING COURSE The PFS has launched a new course designed to help financial advisers adapt to social and regulatory expectations around sustainable investment.

The course is aligned with the Financial Conduct Authority’s (FCA) recently issued sustainability disclosure requirements (SDR) and investment labels policy statement. This includes rules and guidance around the market for sustainable investment products which came into force on 31 May. It also recognises the increased demand from clients wanting to invest sustainably.

The 50-minute e-learning course will help advisers meet the FCA’s expectations around its anti-greenwashing rule and unpack the regulator’s new investment

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rt labels. This will support them in offering correctly labelled products that comply with the SDR and assistt customers to make informed decisions.

Ian Simons, director of content and capabilities for the PFS, said: “The current social and regulatory climate calls for financial advisers to possess a well-rounded, in-depth understanding of matters relating to sustainability, sustainable investments, greenwashing and SDRs. “T “The course is carefully designed to hhelp finance professionals feel confident in their ability to sup support clients and ensure their pra practice is aligned with the FCA’s rec guidance.” recent FFor more information, visit: ww www.t.ly/kT2_1 Rea our article on sustainable Read inv investment on page 30 of PFP

EVENTS

PFS TO SPONSOR NEXTGEN PLANNERS CONFERENCE The PFS has pledged to sponsor the 2024 NextGen Planners conference, an innovative celebration of the next generation of financial planning. The sponsorship marks the start of a closer working relationship between the two organisations, in an aligned effort to engage the next generation of financial planning talent and support their career journeys.

Don MacIntyre, PFS CEO, is set to speak at the conference, where around 400 financial planners are expected to gather from across the UK over the two days.

Taking place in July, at the Titanic Hotel in Liverpool, the event will feature four stages; Earth, Air, Fire and Water, each with a unique offering for attendees to

Tweet Tal k

choose from. To support this approach, the NextGen Planners conference offers

state-of-the-art, silent headset technology, which allows delegates to choose from simultaneous sessions in each of the stage areas.

The keynote speaker for the event will be Amy Williams MBE, a gold-medal-winning British Skeleton athlete, TV personality and motivational speaker. Williams won a gold medal at the Vancouver Winter Olympics in 2010, Great Britain’s first gold medal in an individual event for 30 years. The agenda also includes innovative and topical panel discussions, workshops, an awards ceremony and live music, as well as food, drinks and networking.

To find out more and register, visit: www.nextgenplanners.co.uk/conference

@LifeAtLonghurst

@AndrewGActive

@amgwealth120

We’re delighted to announce that we’ve successfully renewed our Associate Firm status with the @pfsconf, further demonstrating our commitment to professional excellence

Enlightening webinar ‘Later Life Planning Conundrums’ hosted by @pfsconf this morning. Covering later life planning, long term care and inheritance tax strategies

Podcast recording today! with the @pfsconf.

Delighted to take part in ‘The Personal Finance Professional Podcast’ discussing the value of Chartered status for firms along with Chartered financial planner, Jane Gow

thepfs.org | Personal Finance Professional | Summer 2024

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NEWS

EVENTS

PFS ANNOUNCES NATIONAL CONFERENCE 2024 The conference ‘Re-Wired: Planning for a Hybrid World’ will focus on serving clients in an increasingly hybrid world of face-to-face and digital advice.

The event will take place on 12 November 2024 in Manchester Central and will feature 15 dynamic sessions hosted by keynote speakers and across breakout theatres.

The PFS National Conference is renowned for bringing the profession together to share insight and inspiration. Personal finance professionals can expect insights and ideas

AWA R D S

relevant to their business and clients, high quality continuing professional development on a broad range of current topics, live debate on key issues, the sharing of good practice and opportunities for professional networking and collaboration.

The conference is free of charge for PFS members.

For more information and to book your place, visit: www.pfsnationalconference.org Read our article on this year’s PFS National Conference on page 18 of PFP

The PFS Personal Finance Awards 2024/25 are now open for entry.

Recognising excellence across the personal finance profession, the awards are an opportunity to showcase success and celebrate those striving to deliver exceptional consumer outcomes.

Entries close on 9 July and the winners will be announced in October. The judging processes include independent review from technical experts, alongside a panel of sector practitioners and experts appointed by the PFS, representing a breadth of knowledge and experience from across the industry. The Personal Finance News Outlet of the Year award is voted for

by PFS members.

Anthony Ward, PFS president, said: “The PFS Personal Finance Awards are a wonderful opportunity to recognise the remarkable firms and individuals who are driving our profession forwards with their continued commitment to excellence. It is a great 2023 PERSONAL FINANCE AWARDS WINNERS honour to celebrate the

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GETTY

ENTRIES OPEN FOR THE PFS PERSONAL FINANCE AWARDS 2024/25

exceptional work and achievements of PFS members and we look forward to receiving entries from across the country for this prestigious event.”

Established in 2009, the Personal Finance Awards offer winners the benefit of increased credibility across networks, stronger client relationships and the ability to attract new talent.

Then award categories are: ● Chartered Financial Planner of the Year ● Chartered Financial Planning Firm of the Year ● Retirement & Later Life Advice Specialist of the Year ● Investment Advice Specialist of the Year ● Equality, Diversity & Inclusion Champion of the Year ● Paraplanner of the Year ● Education Champion of the Year ● Media Award: Personal Finance News Outlet of the Year ● Mortgage and Protection Advice Specialist of the Year For full details of the awards, including information on how to enter, visit: www.thepfs.org/events/personalfinance-awards

@PrivateOfficeHQ

@philter66

Our congratulations to paraplanner Jade Spilsbury for achieving the designation of Fellow of the @pfsconf. As the highest accolade from the PFS, it reflects her dedication and expertise. Well done, Jade!

Great talk today at Insurance Institute of Leeds by Jamie Jones Buchanan MBE on culture, diversity and inclusivity. There are so many brilliant CPD events that local institutes deliver for @CIIGroup & @pfsconf

X (formally Twitter) followers

10,547 Find us on

linkedin.com/company/thepersonal-finance-society summer 2024 | Personal Finance Professional | thepfs.org

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NEWS

A P P OI N T M E N T S

PFS ANNOUNCES NEW BOARD MEMBER AND VICE PRESIDENTS The PFS board has announced the appointment of Ben Wright as a new director of the organisation. Wright, Chartered financial planner and fellow of the PFS, based in Sheffield, will serve for an initial four-year term.

The PFS board has also elected two of its existing directors, Carla Brown and Daniel Williams, as vice presidents of the professional membership body. Both Brown and Williams will act as vice president this year, with one of them to be elected (by the PFS board) to serve as president in 2025, subject to confirmation at this year’s AGM. The other individual will serve as president in 2026, again subject to confirmation at the next AGM.

Brown will additionally take on the role of chair of the PFS Power Panel, on which she has served as an active member for several years.

Wright said: “It is a real honour to be elected to the board of the professional body of which I have been a member for 20 years and it feels like the perfect time to help shape the next chapter of the PFS’s story. I will be heavily focused on what we can do to practically support our members as they deal with the challenges of today, while keeping an eye on preparing for their future. I am also keen to find new ways to bring through the next generation of financial planning professionals, cementing the future of our profession.”

BEN WRIGHT

8 L E A R N I NG

CII AND SJP OFFER VIRTUAL REALITY TRAINING ON SUPPORTING VULNERABLE CLIENTS The Chartered Insurance Institute (CII) has partnered with wealth manager, St James’s Place (SJP), to offer SJP’s financial adviser virtual reality empathy training to non-SJP trainees.

The half-day workshop will be delivered in-person on 20 June, aiming to support the development of soft skills

and general awareness when dealing with clients in vulnerable circumstances.

Gill White, chief customer officer of the CII Group, said: “Developing new ways to understand and meet the needs of all consumers, especially those that are vulnerable, is a true sign of professionalism and helps to build client

trust. These sessions will help attendees stand out in their profession for their ability to support the widest range of clients, including those encountering cognitive decline.”

For more information, visit: www.t.ly/IRmW-

thepfs.org | Personal Finance Professional | Summer 2024

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NEWS

C H A RT E R E D

NEW CHARTERED FINANCIAL PLANNING FIRMS ANNOUNCED The CII is delighted to announce nine financial planning firms have recently gained corporate Chartered status.

Chartered status is a symbol of technical competence and signifies a public commitment to professional standards.

Charlotte Ferson, professional standards manager at the CII Group,

said: “We are pleased and proud to welcome these nine firms into our Chartered community. In achieving corporate Chartered status, they have each made a public declaration to professional standards and committed to upholding the Chartered Ethos

of nurturing knowledge, client centricity and serving society.

Corporate Chartered status is a key component in building public trust and a true mark of professionalism.”

Firms that gained Chartered status: January – April 2024 include HCI Financial Services, Celtic Financial Planning, Little & Georgiou (IFA), Self Invested Portfolios, Miller James Financial Planning, Craven Street Financial Planning, Concept Wealth, Sylvan Financial Management and Chetwood Private Wealth.

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G U I DA NC E

ISTOCK / SHUTTERSTOCK

PFS LAUNCHES SUITABILITY REPORT WRITING GUIDE The PFS has published a new guide to support members in ort. writing a suitability report.

Launched at the ng PFS Purely Paraplanning Conference in May, thee new anners guide offers all paraplanners best practice guidancee around what to include in a suitability report so that a client can make an informed decision.

Chapters of the report cover language and layout; content; recommendations, reasons why and disadvantages; risks; investment strategy; charges; and replacement business.

Laura Royle, member of the PFS Paraplanning Panel and co-author of the report said:

“The guide goes back to basics to provide practical guidance for writing suitability reports.

The aim is to help paraplanners write clear and concise reports that are compliant, inclusive and engaging – reports that clients will want to read.”

To download the guide for free, visit: www.thepfs.org/109497

MEMBERSHIP

BECOME A MEMBER VOLUNTEER Th PFS’s 26 regions are run by a dedicated The gro group of member volunteers, providing access to career support and personal development op opportunities close to home.

W With our new approach to local events in 2024, the PFS is looking to recruit new member volunteers in our Regional Committees across the UK. If you are passionate about shaping the future of our community and want to contribute to positive change, the PFS would love to hear from you. For an updated list of some of the roles available, visit: www.thepfs.org/108933 To express your interest or learn more about these roles, please contact Shelley O’Rourke at shelley.o'rourke@cii.co.uk

summer 2024 | Personal Finance Professional | thepfs.org

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R E G U L AT I O N

POST-RETIREMENT ADVICE

Risk profiling was not evidenced, was inconsistent with objectives and customer knowledge and experience, or lacked consideration of capacity for loss. ● Failure to get necessary information about customers to demonstrate advice suitability, including expenditure or other financial provision, or not exploring future objectives or circumstances, including income needs or lifestyle changes. ● Periodic review of suitability, where relevant, was not always delivered to customers that had paid for ongoing advice. ● Inaccurate or insufficient records held as the control framework to enable customer outcomes to be assessed and track whether periodic review services were delivered.

Despite this list of long-standing concerns, the FCA has not taken the approach its forerunner, the FSA, took at the beginning of the Retail Distribution Review, with the then-chair talking about the whole business model being “broken”.

Instead, this time around, the FCA has acknowledged good practice, saying: “We recognise that the picture across different firms varies… Some firms showed they had considered their customers’ needs and had designed their advice model in a way likely to lead to good outcomes.”

It has also met criticisms about a lack of clarity around expectations with its Retirement Income Advice Assessment Tool, – available at: www.fca.org. uk/firms/retirement-income-advice-assessmenttool-riaat. It has also produced an article on cash flow modelling, also available on the FCA website.

While opinions may differ over the details of the FCA’s findings and the design of its tools, there is no doubt that this package is a very constructive definition of what good looks like in the retirement advice market. ● ●

A

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t the end of March, the Financial Conduct Authority (FCA) published a key thematic review on post-retirement advice. It is the first major piece of supervisory work published since the introduction of the Consumer Duty and because of this it gives a strong sense of the standards that were being applied within the sector as it headed into the new regime.

The FCA has stressed that the “review did not consider files against the requirements of the Consumer Duty since it was not in force at the time”.

However, the FCA went on to say, “we note that it is unlikely that most firms would comply with some requirements of the Duty without taking appropriate action to address our concerns”.

In particular, firms must assure themselves that they are complying with: ● Principle 12 which requires firms to act to deliver good outcomes for retail customers. ● The cross-cutting obligations for firms to act in good faith towards retail customers, avoid causing foreseeable harm to retail customers and enable and support retail customers to pursue their financial objectives. ● The retail outcomes rules and guidance on firms’ conduct in relation to products and services, price and value, consumer understanding and consumer support.

While these observations are set at a very high level, the FCA did furnish more detail in a ‘Dear CEO’ letter, listing key areas for improvement in many firms as: ● The approach to determining income withdrawals was applied without taking account of individual circumstances, or based on methods and assumptions that were not justified or recorded.

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

PFS ONLINE POLICY CONTENT Briefings, updates, research papers and much more are available for download at: www.thepfs.org/insight

ISTOCK

Dr Matthew Connell examines the key thematic review published by the FCA

thepfs.org | Personal Finance Professional | summer 2024

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We are living in an increasingly hybrid world, with greater blending between physical and digital reality.

Our profession is under pressure to innovate and the great wealth transfer from the affluent babyboomers to the millennials and Gen Xers has begun. But to continue to influence this wealth we need to be relevant to traditional clients and digital natives alike. This will require a little proposition rewiring and developing new ways of communicating across generations.

PFS National Conference 2024

Tuesday 12 November 2024 Manchester Central

Featured speakers

Tony Fields, The Katalyst Coach Rosalia Lazzara, Manuka Media Leon McQuade, Think Cloud Rob Macdonald, Fundhouse Amira Norris, Wealthtime Mark Polson, the lang cat

t! iss oau Dong’tistem t r for free

Re nce.org alconfere pfsnation

Jason Bates: Keynote speaker Iona Bain: Keynote speaker

5 theatres • 20+ great sessions of content • 4 hours’ CPD

#pfsrewired

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A DV IC E P RO C E S S

A HELPING HAND

Following the FCA’s recent review of clients in vulnerable circumstances, Dr Matthew Connell reveals how firms can ensure compliance and improve service

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I

n March, the Financial Conduct Authority (FCA) announced a review of clients in vulnerable circumstances, paying particular attention to older clients.

The review will look at a wide range of issues, including: ● Understanding of consumer needs ● The skills and capability of staff ● Product and service design ● Communications and client service.

and whether they are as good as the outcomes of other consumers.”

A glance through this list (see below) shows that the FCA’s work is closely linked to its work on the Consumer Duty and, in particular, the Consumer Duty outcomes relating to products and services, consumer support and consumer understanding.

their finances. As experience teaches us, the best answer to this challenge is professional advice.

Take the issue of vulnerability and age, for example. A review of cognitive decline commissioned by AgeUK in 2014 states: “Age-related declines in mental abilities are highly variable between different people and whereas average declines may be seen across the population, this reflects considerable decline in some, a little in most and none at all in others.”

This shows straight away that any top-down, industrialised approach to vulnerability is unlikely to be effective on its own. Only an advised approach can treat each client on their own terms, ensuring their interests are properly served without any unnecessary reductions to their freedom of choice.

However, there are still challenges around delivering the best approach for vulnerable clients.

Research by St James’s Place (SJP) and Technical Connection shows that advisers are still concerned about

THE ROLE OF ADVICE The FCA’s initiatives on vulnerability and the Consumer Duty are about finding the best way for millions of people to make good decisions about

The FCA has said: “We will also look at the outcomes consumers in vulnerable circumstances receive

TABLE 1 Vulnerablity vs Consumer Duty outcomes

Vulnerability topics

Consumer Duty outcomes

● Communications and client service

Consumers should get:

● Understanding of consumer needs

● Communications they can understand

● The skills and capability of staff ● Product and service design.

● Products and services that meet

their needs and offer fair value ● The customer support they need,

when they need it.

thepfs.org | Personal Finance Professional | Summer 2024

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A DV IC E P RO C E S S

“the width of vulnerability, how to identify it without offending people and general management of affairs with someone considered vulnerable”.

Given these challenges, it is not surprising that research by SJP among advisers shows that while 76% of advisers say, ‘we always do our best to ensure that we take into account individual circumstances’, only 38% say they have procedures for anticipating and dealing with vulnerability ‘formally hardwired into our processes’.

TABLE 2 Actions to meet the FCA vulnerability model Monitor

Analyse

Learn

Refine proposition

Carrying out a vulnerability audit – review current propositions, processes and client communications.

Producing a vulnerability gap analysis for your firm.

Appointing a vulnerability champion at a senior level.

Developing more detailed lower-level policies that relate to specific individual roles and responsibilities.

Creating a definition of what vulnerability means for your business.

Beginning to evaluate performance against key success indicators.

Developing a training programme to embed appropriate behaviour within all relevant staff.

Producing a written approach (to propositions, processes, markets, etc) via a policy for working with vulnerable clients.

Establishing key vulnerability success indicators.

Having a process to formally capture management information and feedback.

Review and update key vulnerability success indicators.

Ensuring all staff are aware of the strategy and have access to the written approach.

MODEL FOR CONTINUOUS IMPROVEMENT

NICK LOWNDES / IKON IMAGES

Developing a high-level strategy to ensure a consistent approach is embedded across all operations and staff.

The FCA has developed a model that can be used to demonstrate both compliance with the Consumer Duty and the regulator’s guidance for clients in vulnerable circumstances.

This is a dynamic model that requires firms to monitor the effect their proposition is having on client outcomes, which can then be analysed, learnt from and used to refine a firm’s proposition. Once the cycle is completed, it can begin again, with the proposition being monitored and analysed.

The key to this model is that it allows for continuing learning as we all become aware of new factors that can create the potential for vulnerability. There is no expectation that firms will ever

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reach a perfect state, but if they can show that they are tracking outcomes and making efforts to improve them, they can show that they are taking the issue seriously and that there is no immediate need for intervention.

SJP offers a list of actions that can be used within this model (see table above).

Where professionals can implement this model for clients in vulnerable circumstances, they will be in a stronger position to show that they are compliant with the Consumer Duty and vulnerability guidance. More significantly, they can be confident that they are improving their service for every potential client, year after year. ● Dr Matthew Connell is policy and public affairs director of the CII Group

summer 2024 | Personal Finance Professional | thepfs.org

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PENSIONS

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eremy Hunt has made no secret of his ambition to remove National Insurance (NI) contributions in full, so we asked three pension and later-life specialists to hear what they would do in the same position.

ZOE TAYLOR, CHARTERED FINANCIAL PLANNER AT LAWRENCE NEIL WEALTH MANAGEMENT: “Firstly, I wish the Chancellor would talk to the experts in the industry.

We see first-hand what is happening

and have to manage the processes for our clients. There is so much change at the moment, it simply puts people off saving. The government has no idea of the ripple effect of any change.

It is massive, so it would be hugely beneficial to have a conversation.

“If it were up to me, I would change the indexation to average earnings or similar, which would reduce costs massively long term and enable the age to remain consistent. Everyone should also get a guaranteed age and forecast within a decade of their retirement age (which allows for appropriate tweaks without ruining people’s imminent retirement plans). It would also reduce inertia and uncertainty, so people feel confident enough to make plans.

“I would then means-test the winter fuel payments (apparently Peter Stringfellow actually tried to give his back and they wouldn’t let him!)

– and I would also do the opposite of scrapping the NI system and extend the principles, then actually increase the mandatory income tax contributions to create an additional pot to allow a basic level of social care to be provided for, which can be topped up by private wealth if desired but provides basic safe universal level care in later life for everyone.

This would then also mean that attendance allowance would no longer be required, saving from there also.

“All of which would reduce the ‘postcode lottery’ of local authority funding and decision-making around social care, which is incredibly subjective and one could suspect may be biased against granting continuing healthcare (CHC) to individuals. I think it was Damian Green, MP for Ashford, who suggested this initially but nothing was done – someone’s going to have to take control somewhere down the line.

“But in the meantime, we shall have to wait and see what else they come up with – and hope they ask some finance folks first.”

JEANNIE BOYLE, CHARTERED FINANCIAL PLANNER AT EQ INVESTORS: “Could it be merged with income tax and then you receive a reduction in income tax when you reach retirement

CHANCE OF A LIFETIME At a time when pensions change in the UK is critical, Liz Booth speaks to a trio of experts to find out what they would do to take positive steps thepfs.org | Personal Finance Professional | Summer 2024

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PENSIONS

age? After all, with National Insurance contributions you are really putting into the general tax system anyway.

“I am sure every tax system has its quirks but I am not sure there is a solution out there that works 100%. There is an issue with triple-lock but I don’t think that the fact it has taken pensioners into the tax bracket is really the problem.

I don’t have a problem with pensioners paying a little bit of tax but the tax freezes have had a detrimental impact for many more people than pensioners. You can’t call someone earning £50,000 rich and yet they are now in a higher tax bracket.

The personal allowance must be raised with inflation for everyone, not just pensioners. And the triple-lock should go. In a civilised country, I don’t think we should expect anyone to live on less than £12,000.

“It is a big topic of conversation with my clients – both those who are retired and those who are still working. How do we ensure people have a decent level of income through old age, which is sustainable? The state pension alone is simply not enough. People have

to save quite hard if they are to ensure a comfortable retirement and people are worried that they can’t do that at the moment.”

LIZZY HOLLIDAY, DIRECTOR OF PUBLIC AFFAIRS AND POLICY AT NOW: PENSIONS: “Policymakers, like savers, need to take a long-term approach to pensions.

Pensions are a significant and essential part of all of our individual lives and the wider UK economy. The best way for government to get the best out the system for savers and economic growth is to build consensus on a longer-term strategy – to provide sufficient clarity for savers and employers to plan; and for schemes to innovate.

“To have the greatest impact on millions of savers, we must capitalise on the good progress that has already been made with auto-enrolment (AE). AE has been hugely successful in bringing millions more people into pension savings. But for some, pension poverty still exists and it disproportionally affects women.

Our Gender Pension Gap report showed that women retire with average pension pots of £69,000, compared to £205,000 for men.

“We believe strongly in targeted policy changes to bring more people into meaningful pension saving. Policies to evolve AE will be more beneficial to member outcomes than policies such as lifetime provider that undo the greater fairness that AE has achieved. This means tackling challenges such as pensions adequacy, contribution levels and the scope of AE. It’s a difficult time to talk about these topics – that is why developing a longer-term roadmap in collaboration with savers, employers and schemes to look at the future policy horizon is such a critical first step.” ●

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G OV E R N M E N T

Alex St John asks: what does the financial advice profession need to see from the next government?

POLITICAL PRIORITIES

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ollowing the announcement that the UK general election will be held on 4 July, now is the time to reflect on what potential changes the financial advice profession would like to see from the next government.

Whichever party leads the next government, it is important that they understand the benefits of financial advice. It is in everyone’s interests for politicians to take this seriously, to acknowledge the significant role financial

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G OV E R N M E N T

advice has for consumers and identify areas where improvements can be made.

The full range of benefits to consumers who receive financial advice can often be overlooked.

Politicians will no doubt be aware of the fundamentals: how advisers will select suitable investment or insurance products and maintain portfolios for their clients. Yet, advisers offer much more than the basics.

The additional benefits include: Setting clear and relevant financial goals. The International Longevity Centre has found that people who take financial advice are, on average, £47,000 better off in retirement than people who don’t. If people know what they are aiming for, they are much more likely to achieve it.

Giving reassurance during periods of short-term market turbulence.

Advisers will provide confident handling during challenging times, such as sticking to a long-term business plan during periods of short-term instability, despite the average investor’s inclination to buy high and sell low.

Giving advice on taxation, such as writing life insurance in trust to manage inheritance tax liabilities, or on withdrawing pension income from different accounts in the right order.

Long-term cashflow planning, which is vital in the relatively new environment of pension freedoms – this is increasingly based on sophisticated models of how to adjust income in the light of investment volatility, so is harder for the individual to manage alone.

Helping clients to avoid scams.

Ongoing advice gives clients a trusted expert to turn to if they are targeted by investment scams.

Altogether, these offer major benefits to the vast majority of consumers, who would be unlikely to achieve all of this without support.

Getting financial advice should lead to an increase in confidence, security and outcomes; all of which result in smarter investing and a stronger economy. Therefore, the next government should quickly and clearly acknowledge this, especially during a time of economic uncertainty.

INCREASING ACCESS Raising awareness of the benefits is key to improving the landscape. It remains the case that many consumers are holding money in cash rather than investing to provide potentially higher returns. Seeking financial advice would help a lot of consumers make better investment decisions. There are ways to encourage people who can invest to do so and efforts towards this can be aided considerably by the new government.

Although, as evidenced already, the benefits of financial advice are well documented, not everyone has access to an adviser and there are ways the government can help increase access.

We would like to see the government initiate greater access to advice through the workplace, perhaps by providing incentives for employers to offer financial advice services. This would be an investment and not a cost. The current government recently expanded its ‘mid-life MOT’ initiative, which allowed workers in their 40s and 50s to take stock of their finances, by encouraging employers to support their staff’s financial resilience. This is a first step that the next government should build on.

ADVISER LIABILITIES The next government should also examine current liabilities in the financial advice world along with the fact that the whole profession pays for a small minority of those who give poor advice. With the Financial Services Compensation Scheme and professional indemnity insurance,

good advisers are paying for the liabilities of bad advisers. The system itself was inherited from European legislation and now could be the right time for change, to help impose fewer volatile costs on advisers.

The FCA is looking to address that deficiency and has undertaken a review. The next government should use the basis of that to carry out its own wider review, with the aim to reform primary legislation.

BUILDING RESILIENCE Another area that requires urgent attention from the government is financial resilience.

The Building Resilient Households Group recently published a report on the issue of low financial resilience among UK households, finding that a third of adults in the UK could not currently meet an unexpected bill of £850.

It recommends the establishment of an independent ‘Commission on Household Financial Security’, following a similar model to the Pensions Commission. It would examine the current and likely future state of household financial security in the UK and make recommendations about how improvement can be brought about. The next government should strongly consider setting up the proposed commission.

Whichever party wins the election and leads the next government will have the mandate to be ambitious from the get-go. Among its priorities, ensuring the financial stability of its people is vital.

Whether encouraging those who are able to invest to do so, or making the compensation system fairer for all, or exploring ways to make households financially stronger and more stable, the government will have plenty of opportunity to make a difference. ●

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Alex St John is policy and content adviser of the CII Group

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P F S N AT I O N A L C O N F E R E N C E

● Opportunities for professional networking and collaboration. ● Career development insights.

KEYNOTE SPEAKERS

PLANNING FOR A HYBRID WORLD Simon Webster on what members can expect from this year’s flagship PFS event

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oday, we live in an increasingly hybrid world: greater blending between physical and digital is a virtual reality. Financial planning is no different and the profession is under pressure to innovate. In parallel, we are on the cusp of the great wealth transfer from the affluent babyboomers of today to the millennials and Gen Xers of tomorrow. But to continue to influence this wealth we will have to meet the needs of both traditional clients and digital natives.

This will require a little proposition re-wiring, building real infrastructure efficiencies, and new ways of communicating across generations.

● How to book: Tickets are free of charge for PFS members at: www.pfsnationalconference.org

WHY ATTEND? The conference is renowned for bringing the profession together to share insight and inspiration. You can expect: ● Insights and ideas relevant to your business and clients. ● High quality continuing professional development on a broad range of current topics. ● A platform for live debate on key issues. ● To share and promote good practice.

SAVE THE DATE AND BOOK YOUR PLACE

QUICK FACTS ● Where: Manchester Central ● When: Tuesday 12 November 2024 ● What: 15 sessions across the keynote and breakout theatres. ● Who can attend: financial planners, paraplanners, compliance specialists, back office heroes are all welcome.

Save the date – Tuesday 12 November – to your calendar now.

Visit www.pfsnationalconference.org to find out more and register today.

Look out for the full programme reveal in mid-July.

Jason Bates – tech entrepreneur, co-founder of Monzo and Starling banks Bates is a tech entrepreneur who co-founded Monzo and Starling banks. He runs a fintech consultancy and the FinTech Insider podcast that covers everything from digital banking and consumer behaviour to the future of blockchain and cryptocurrencies.

Monzo established a new way of interacting with clients and getting younger people more interested in their finances. Bates now guides financial services on driving digital transformation and how to process and implement change successfully.

Iona Bain – founder of Young Money Blog Bain is a financial journalist and broadcaster who founded the pioneering Young Money Blog in 2011 and is the go-to voice for millennial money in the UK. She is the resident financial expert on BBC Morning Live.

Bain is an ambassador of National Numeracy and a charity that encourages women to consider careers in finance. She is well-placed to help advisers understand how to communication with the next generation of clients and to tailor their proposition accordingly.

Other speakers include Mark Polson, chief executive and founder of The Lang Cat; Rosalia Lazzara, CEO of Manuka Media; Leon McQuade, co-founder and chief AI officer of Think Cloud; and Amira Morris, head of sales and strategic partnerships at Wealthtime.

Look out for further speaker announcements in the coming weeks. ● Simon Webster is member marketing manager of the PFS

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MEMBERSHIP

DISPLAY OF PROFESSIONALISM PFS membership designations help you stand out from the crowd – Chris Shadforth explains how

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ow do you convey your technical and professional expertise to your clients and the wider professional community? Hopefully, most PFS members will immediately answer, ‘by using my PFS membership designatory letters’.

The ability of our members to distinguish themselves by using our post-nominals – CertPFS, DipPFS, APFS and FPFS – is something that we consider an important member benefit. The power of these letters to signal technical competence as well as an ongoing commitment to professional development and high ethical standards is essential to achieving our mission of building and maintaining public trust in the financial planning profession.

However, we know there are individuals who have misunderstood their meaning and are using them erroneously. We can also anticipate that there may be nonmembers using them for nefarious reasons.

That’s why we have embarked on a major communications campaign to build awareness and understanding around the use of these PFS trademarks and to stop individuals using them where they have no right to do so.

LACK OF UNDERSTANDING We conducted a scenario-based survey in early March this year to get a sense of the scale of the challenge. We received 678 member responses and found a good level of awareness of some of the circumstances of when our membership designations can be used, but a lack of full understanding.

For example, when asked how a

non-member who had passed their final Certificate assessment could reflect their achievement on LinkedIn, 74% of respondents correctly said the recipient should wait until they had received confirmation of their PFS membership before using the designatory letters, CertPFS. A further 38% of respondents also correctly said the individual could list their qualification achievement without adding the postnominals CertPFS to their name.

However, 8% of respondents incorrectly said that this individual could immediately use the designation CertPFS without being a member of the PFS. We also looked at current behaviours on LinkedIn, where many individuals deploy post-nominals, to verify the potential extent of misuse. We conducted a random poll of 200 individuals using our membership designations and found that one third of them (65) were not current members of the PFS or Chartered Insurance Institute.

It is apparent from this research that some individuals who have passed a PFS qualification believe this is the only criteria for using our post-nominals, much in the same way as a gaining a degree.

Of course, being able to evidence technical competence gained through one of our world-class qualifications is essential to being regarded as a financial services professional. However, membership of the PFS – like other professional bodies – is not the same as gaining some other forms of qualification. The clear difference lies in the ongoing commitments our members additionally make to high ethical standards and continuing professional development.

To emphasise this distinction, we began a major social media campaign in March to raise general levels of awareness among professionals and wider stakeholders of what our designatory letters mean, as well as who can use them. A second phase of the campaign will start in the early summer, directly targeting non-members who continue to use our designatory letters.

We are taking a proportionate and necessary response for the benefit of all our members and hope that many individuals who have already gained a PFS qualification will join us, or rejoin us, while we stop those who are breaching our intellectual property. ●

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Chris Shadforth is communications director of the CII Group

USING YOUR DESIGNATION To use a PFS membership designation, an individual must: ● Be an active member of the PFS. ● Have met the qualification requirements for that particular designation.

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TECHNOLOGY

KEEPING AN EYE ON AI 20

With AI increasingly being used in business, Liz Booth examines the potential risks and how they should be managed

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ome 59% of respondents to a recent survey by Airmic, the UK’s risk management association, believe organisations are treating ethical risks from the use of artificial intelligence (AI) together with other ethical risks.

However, respondents to the survey were almost evenly split as to whether they thought AI ethical risks ought to be treated separately.

The survey polled a range of different UK businesses but the considerations are equally relevant to financial

advisers and their operations.

So, do those across the personal finance profession consider AI ethics in a different way to other ethical questions? And should they?

AI BIASES The risks around AI have been aired for a number of years and are summed up by the Council of Europe, which warns that “discrimination against individuals and groups can arise from biases in AI systems”, adding:

“Discriminatory analytics can contribute to self-fulfilling prophecies and stigmatisation in targeted groups, undermining their autonomy and participation in society.”

In late 2023, The United Nations Educational, Scientific and Cultural Organization gave a graphic example of how such bias works: “Type ‘greatest leaders of all time’ in your favourite search engine and you will probably see a list of the world’s prominent male personalities.

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ISTOCK

TECHNOLOGY

How many women do you count?

“An image search for ‘schoolgirl’ will most probably reveal a page filled with women and girls in all sorts of sexualised costumes. Surprisingly, if you type ‘schoolboy’, results will mostly show ordinary young school boys. No men in sexualised costumes, or very few.

“These are examples of gender bias in AI, originating from stereotypical representations deeply rooted in our societies.”

And even platforms offering AI-driven solutions are aware of these types of risks becoming embedded in AI systems.

Take Qdeck, for example, a cloud-based adviser-asa-service platform. It warns: “Search-engine technology is not neutral as it processes big data and prioritises results with the most clicks relying both on user preferences and location.

Thus, a search engine can become an echo chamber that upholds biases of the real world and further entrenches these prejudices and stereotypes online.”

It goes onto to say: “The algorithms that govern robo-advisers and AI can perpetuate biases – especially when left unchecked.

Wealth managers must ensure transparency and fairness in AIdriven decision making and in the ways they leverage AI to support wealth management services. As robo-advisers are more widely adopted, wealth managers must learn to embrace AI solutions and simultaneously balance the relationship-driven experiences that connect them to their clients.”

It says one of the main concerns with robo-advice and AI is data privacy, suggesting that the same security requirements that exist in the context of banks and other financial institutions must apply to the use of robo-advisers.

“Where robo-advisers alleviate some of the administrative burden that rests on wealth managers – by

AI systems in financial services offer many opportunities, but also raise real concerns about bias, privacy and moral considerations automating essential processes – wealth managers must reinvest that time to ensure that advisers are acting properly and in the best interest of clients,” it stresses.

Transparency and visibility are key, says Qdeck, if advisers are going to have the confidence of their clients going forward.

“Educate clients about the merits of robo-advising – how the technology was built and trained, and how it functions – so that it is clear how their finances are managed,” it suggests.

While robo-advisers are engineered to manage investment portfolios based on individuals’ long- and short-term goals, as well as their risk tolerance and investment horizons, wealth managers cannot simply hand off a client to a robo-adviser, it warns.

TRANSPARENCY IS KEY Polly Tsang, financial services manager at the Institute of Chartered Accountants in England and Wales, agrees transparency will be “key in this respect, to demonstrate trustworthiness, which in turn is a key factor for the adoption and public acceptance of AI systems”.

She goes on to say: “Transparency can enable customers to understand and, where appropriate, challenge the basis of particular outcomes. For example, allowing a customer to challenge an unfavourable loan decision based on an algorithmic creditworthiness assessment that involved factually incorrect information.

“However, transparency will naturally need to be balanced with proprietary intellectual property.

How can we ensure fairness, transparency and accountability in AI-driven financial services?”

The problem, she says, is that no one really understands exactly how decisions are arrived at. Tsang gives the example of the founders of ChatGPT, who cannot explain exactly how the technology arrives at a given answer.

EXTRA VISIBILITY Meanwhile, the Airmic member survey referenced earlier, concluded it would be sensible to give AI ethical risks extra visibility and attention within the risk management frameworks and processes.

Julia Graham, CEO of Airmic, says: “The ethical risks of AI are not yet well understood and additional attention could be spent understanding them, although in time, our members expect these risks to be considered alongside other ethical risks.”

Hoe-Yeong Loke, head of research at Airmic, adds: “What this calls for is more debate on how AI ethical risks are managed. Regardless, organisations should carefully consider the implications of potentially overlapping risk management and governance structures.”

And as Tsang concludes: “AI systems in financial services offer many opportunities, but also raise real concerns about bias, privacy and moral considerations. As the technology advances and becomes more integrated with financial systems, new systemic risks may become apparent. The key is to balance the promise of AI with an assessment of the risks, and for financial institutions and regulators be ready to adapt.” ●

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Liz Booth is contributing editor of PFP

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R E G U L AT I O N

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n May, Mel Holman and Alan Whittle, along with fellow compliance professional, Nick Hunt, came together at the Purely Paraplanning Conference in London to talk to PFS paraplanners about the Financial Conduct Authority’s (FCA) thematic review of retirement income advice.

Here are some of the key ideas that paraplanners and advice firms in general need to consider to better serve clients.

CLIENT UNDERSTANDING Clients need to understand what you are showing them. The saying goes that ‘a picture is worth a thousand words’, but in the case of a cashflow model this isn’t always the case – sometimes these tools can confuse clients rather

Following the FCA’s recent thematic review of retirement income advice, we consider the key elements that paraplanners and advice firms should be aware of

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R E G U L AT I O N

than help them. A cashflow model is a tool for the adviser, not the client, which should help form and shape the recommendation.

Linking to the Consumer Duty Customer Understanding outcome, if we want to help clients understand our recommendations, we need them to understand the cashflow models we show them. To a client who is not familiar with charts and graphs, a cashflow model might resemble a Rorschach ink-blot test. Therefore, we need to think about what a cashflow model means to the person viewing it.

For example, market falls may have significant implications for income sustainability and the likelihood of the fund being exhausted if income is not adjusted. Simply showing a client the possible scenarios is insufficient – they need to know what it means for them.

Stochastic models can be useful as they help show a range of outcomes.

However, they can be confusing to some and rely on understanding probability. This may lead firms to making recommendations based on the ‘highest probability’. Arguably, a financial plan should respond to all probabilities, not just the most likely outcome.

While clients have to be responsible for their own decisions, we need to ensure they have the necessary information to enable them to understand the risks and implications of those decisions. A cashflow chart is largely meaningless if it doesn’t contain an explanation of what the chart shows, in plain English.

MAKING ASSUMPTIONS It is not just the way we present the information; it is how we develop it.

Tools cannot be used in isolation and need to be well researched. In the FCA’s thematic review, it found half of firms did not do this routinely. If we are using a tool, we need to consider why and how we are using it, as well as

Of the files the FCA reviewed as part of its thematic review, about a third were noncompliant either because the advice was unsuitable or because they had information gaps

whether it is the right tool for the job.

It’s not just the tools but also the assumptions used in them that should be researched. We would suggest these ‘Four Cs’ when it comes to using assumptions – they need to be: ‘considered’, ‘conservative’, ‘centrally agreed’ and ‘consistently applied’. Don’t assume that the default assumptions are the right ones to use; a standard growth rate not linked to a client’s risk profile might not be very helpful. The same applies to using averages – they can be mean!

Consider an average mortality age of 85: This does not mean that all clients will live until age 85, it means half are likely to die before age 85 and the other half after.

instrumental in helping to research and document a firm’s CRP. This should set out how the firm approaches the client’s need for income in retirement holistically, not just using traditional pension products. It should consider a wide range of factors, such as taxation, health, long-term care and state benefits.

Also, in developing the firm’s CRP, consider the benefit of different investment approaches, the value of guaranteed income and ‘multi-bucket’ strategies. Be sure to factor in the need for accessible income and plan for continued growth where appropriate, but don’t forget the potential opportunities for succession planning.

MIND THE GAP Finally, we need to be aware of the risk of information gap. This is a regulatory ‘elephant trap’ and of significant concern to the FCA. Of the files the FCA reviewed as part of its thematic review, about a third were non-compliant either because the advice was unsuitable, or because they had information gaps. Before a recommendation is made, it is vital to ensure that all necessary material information is held. If you don’t know what you need to know, check out the Retirement Income Advice Assessment Tool, which can be found on the FCA’s website. ●

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Mel Holman is director at Compliance and Training Solutions, and a Chartered financial planner, while Alan Whittle is director at Unburdened, a Chartered financial planner and Fellow of the PFS

CENTRALISED RETIREMENT PROPOSITIONS (CRP) A key finding from the FCA’s thematic review is the need to recognise that moving into decumulation requires a shift in investment strategy, from ‘building value’ to ‘creating a sustainable income’ for the rest of a person’s normal life. Paraplanners are

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TA X P L A N N I N G

BUDGET BREAKDOWN

Technical Connection’s Niki Patel examines the key tax changes affecting individuals following the Spring Budget

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TA X P L A N N I N G

n this article I provide an overview of some of the key tax changes announced in the Spring Budget that are relevant to individuals, the impact that these changes may have and outline some aspects that clients may wish to consider going forward.

NATIONAL INSURANCE The employee rate of National Insurance contributions (NICs) was reduced from 10% to 8% from 6 April 2024. This reduction means that someone on an average salary (say £35,070) would be £450 better off.

This reduction was on top of the 2% reduction in January this year. This combined reduction means an average working person is about £900 better off than last year.

From 6 April 2024, payments of Class 2 NICs are no longer required, potentially saving the self-employed £179.40 during the tax year. The selfemployed main rate of Class 4 NICs has also reduced from 9% to 6%. All of this means about £650 extra for an average self-employed person with an assessable profit of, say, £28,250 a year.

Employees should continue to consider salary sacrifice for pension contributions. Using salary sacrifice means that both the employee and the employer will pay less NICs. For those who already have salary sacrifice in place, they may wish to review the agreement to ensure the desired outcome is maintained.

DONNA GRETHEN / IKON IMAGES

HIGH INCOME CHILD BENEFIT CHARGE From 6 April 2024, the starting limit of the high income benefit charge (HICBC) has increased from £50,000 to £60,000, and the upper limit increased from £60,000 to £80,000. Before 6 April, individuals were expected to pay back 1% of child benefit for every £100 of adjusted net income that they had over £50,000, whereas now this will be based on 1% of child benefit for every £200 of adjusted net income that they have of more than £60,000.

This is a welcome increase to these

limits. The higher threshold may mean that households who have previously opted to not receive child benefit but have income of below £80,000 should consider whether they now wish to claim child benefit in the current tax year. Also remember that any changes in circumstances must be reported to HMRC by the person claiming the benefit. This can be done online, or by writing to or calling HMRC. Remember that as these thresholds are based on the individual’s adjusted net income, this still provides an opportunity for planning, for example by making pension contributions and/ or gift aid donations.

In addition, by April 2026 the government plans to administer the HICBC on a household income-based system rather than on an individual basis. The charge currently applies to the partner with the higher income and has thus been criticised for not being very fair – as you could, for example, have two people earning say £59,000 each and not be subject to the charge, compared to one person earning £80,000 with their partner not working, where the full child benefit would effectively be lost.

A consultation will be launched in due course.

CAPITAL GAINS TAX The higher capital gains tax (CGT) rate payable on gains arising from residential property, which is not covered by the private residence relief exemption, reduced to 24% from 28% from 6 April 2024 (though the 28% rate still remains and applies in respect of carried interest).

The 24% rate is therefore payable by higher/additional rate taxpayers on gains made on buy-to-let properties and holiday/second homes, and is higher than the rate of CGT payable on gains made on other assets such as stocks and shares, where higher/ additional rate taxpayers pay 20%.

For property gains falling within the basic rate band, the CGT rate remains at 18% for residential property and 10% for gains on other assets.

Generally, with a reduced annual exemption of only £3,000, more and more individuals will find themselves being brought into the scope of CGT, so a 4% reduction in the higher rate is welcomed to reduce the overall amount of tax payable. This may also encourage second homeowners or those with buy-to-let properties to dispose of these properties earlier than they might have otherwise, especially if there are accrued capital gains on those properties that won’t qualify for the private residence relief exemption and they wish to carry out alternative planning. It should, however, be borne in mind that a return in respect of the disposal of a residential property (such as a buy-to-let property) has to be delivered to HMRC within 60 days following the completion of the disposal, and a payment on account has to be made at the same time.

The latest reduction of the annual exempt amount makes capital withdrawals from open-ended investment companies (OEICs) or unit trusts, particularly automatic encashments (for example, to fund an ISA), more dangerous after 5 April 2024.

With a £3,000 annual CGT exemption, ignoring any expenses, the exercise can create a tax charge if the funds being sold have a base cost of less than £17,000 (£20,000 minus £3,000), i.e. they have capital appreciation of just under 18% (£3,000/£17,000). That growth could be just one good year. The thresholds for CGT reporting are: if gains (before any losses) exceed the annual exempt amount; and/or total disposals are valued at more than £50,000.

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FURNISHED HOLIDAY LETTINGS TAX The Chancellor announced that the furnished holiday let (FHL) regime, which offers tax advantages to those who let out a property as a holiday home, will be abolished in April 2025.

He said this is because holiday lets reduce the availability of long-term rentals for residents. To qualify as a FHL, the property is let on a short-term basis and certain conditions need to be met in relation to the days the property is available and the days it is let. 5 summer 2024 | Personal Finance Professional | thepfs.org

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TA X P L A N N I N G

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Historically, FHL businesses have benefited from a number of income tax and CGT reliefs that are typically only available to trading businesses. This change will therefore have a significant impact on FHL property owners as they will no longer benefit from certain reliefs.

Currently, those who use the FHL regime can deduct the full cost of their mortgage interest payments from their rental income, so this deduction will no longer be available. Instead, this will have to be claimed as a tax reducer, at 20% of the mortgage interest costs.

This will therefore exclude these costs from being eligible for higher rate tax relief.

Business asset disposal relief is currently available on the disposal of some qualifying FHL properties. This means that gains that would have qualified for this relief, at a CGT rate of 10% on the first £1m of gains, will now be subject to standard residential CGT rates – 18% for gains within the basic rate band and 24% for gains taxable at the higher residential CGT rate. This is quite an increase, so it will be interesting to see whether this will result in an increase of sales in relation to these properties.

In addition, business asset rollover relief will no longer be available to reduce the gain liable to CGT (potentially to nil) where the proceeds from the sale of a FHL are rolled over into another qualifying business asset.

Further, it will no longer be possible to claim gift holdover relief to reduce the CGT liability arising on the gift of a qualifying FHL property, which was beneficial where someone did not wish to sell the property but carry out some succession planning.

FHL property owners will also lose the right to deduct costs of fixtures and fittings from their income, as capital allowances will no longer be available.

Instead, relief may be available for the replacement of domestic items in line with the rules for long-term property lets.

Currently, profits from FHLs are treated as relevant earnings for

pension contributions. Tax relief for personal contributions is limited to contributions of the higher of £3,600 or 100% of relevant UK earnings. FHL income will therefore no longer be considered for this purpose.

The inheritance tax (IHT) position of FHL business owners is unlikely to be substantially affected by the abolition of this regime. This is because FHL businesses do not generally benefit from IHT business relief, unless the property owner spends a significant proportion of their time providing numerous additional services, over and above those that would typically be expected of a landlord.

Given these changes, FHL owners may wish to consider the options available to them before these rules are abolished in April 2025.

This may involve plans to make gifts of properties or sell properties.

However, the government has also confirmed that anti-forestalling rules will be applied from the date of the Budget to block methods that obtain CGT relief under the current rules, by utilising unconditional contracts ahead of the new rules coming in in April 2025. Draft legislation is expected to be published later this year, so more information will be available at that time.

MULTIPLE DWELLINGS RELIEF The government announced that, from 1 June 2024, multiple dwellings relief (MDR) will be abolished.

Property transactions with contracts that were exchanged on or before 6 March 2024 will continue to benefit from the relief regardless of when they complete, as will any other purchases that are completed before 1 June 2024.

For transactions that are linked and include the purchase of dwellings both before and after the change, those preand post-change transactions will be treated as unlinked for the purposes of MDR. This relief has enabled purchasers of multiple properties to pay stamp duty land tax (SDLT) based on the average value of multiple dwellings purchased

in the same transaction or in linked transactions. MDR, therefore, reduces the overall liability, by applying a lower rate to the total amount paid.

It is essentially a bulk purchase relief in the SDLT regime, which is likely to affect large property portfolio owners the most.

The government intends to engage with the agricultural industry to determine if there are any particular impacts for the sector that should be considered further.

Note this does not affect the position in Scotland or Wales, where devolved land transaction taxes apply.

FIRST-TIME BUYERS’ RELIEF The SDLT first-time buyers’ relief rules for transactions involving the grant of a new lease via a nominee or a bare trust are to be amended by new legislation.

First-time buyers’ relief will apply to the beneficiary of the arrangements, instead of the trustee or nominee purchaser for land transactions involving the grant of a new lease.

Individuals previously granted with a new lease over a dwelling via a nominee or bare trust arrangement will no longer be considered first-time buyers for the purposes of the relief.

This applies to transactions with an effective date (usually the date of completion) on or after 6 March 2024, although where contracts were exchanged prior to 6 March 2024, but completed on or after that date, transitional rules apply. Again, note that this does not affect the position in Scotland or Wales, where devolved land transaction taxes apply.

NON-UK-DOMICILED INDIVIDUALS The Chancellor announced that the current remittance basis of taxation will be abolished for UK-resident non-domiciled individuals from 6 April 2025, as will the determination of the scope of a person’s chargeability to UK IHT based on domicile. This will be replaced with a new foreign income and gains (FIG) regime. From 6 April 2025, individuals in their first four years of UK residence that were

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TA X P L A N N I N G

non-UK resident in the 10 years prior to commencing UK residency should qualify for the new regime.

Qualifying individuals will not pay tax on FIGs arising in the first four tax years after becoming UK tax resident and will be able to bring these funds to the UK free from any additional charges. Under the new regime, individuals will not be required to track the movement of their FIGs through investments in the way they are required to do now under the current regime, hopefully making the new four-year FIG regime much simpler than the current remittance basis of taxation.

Individuals who, on 6 April 2025, have been tax resident in the UK for less than four years (after 10 years of

non-UK tax residence) will be able to use this new regime for any tax year of UK residence in the remainder of those four years. Claims to use the new fouryear FIG regime will have to be made for each year to which it is to apply.

If an individual chooses to be taxed under the new four-year FIG regime, they will lose entitlement to personal allowances and the CGT annual exempt amount – so in the same way as those currently claiming the remittance basis of taxation.

From 6 April 2025, an individual who has been UK resident for four years or more will be subject to UK tax on their worldwide income and gains.

The government will introduce transitional relief provisions effective from 6 April 2025, for some individuals

that are adversely affected by the abolishment of the non-dom regime: ● For the 2025/26 tax year, individuals who have claimed the remittance basis and are neither UK domiciled nor deemed UK domiciled on 6 April 2025 will only be subject to UK income tax on 50% of their non-UK income arising during the tax year.

This will only apply for one year, so from 6 April 2026 the full amount of non-UK income will be subject to UK income tax. These individuals will also be able to elect to rebase any non-UK assets held personally on 5 April 2019 to their market value on this date. Although this rebasing will be subject to other conditions, which are yet to be set out. ● For the 2025/26 and 2026/27 tax years, individuals who claimed the remittance basis in earlier years (whether deemed UK domiciled or not) will be able to remit personally arising non-UK income and gains protected under the remittance basis to 5 April 2025 at a flat rate of 12%.

There will be some relaxation of the mixed fund ordering rules to make this simpler for individuals, but the details of this are yet to be published.

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It is understood that individuals that have been UK tax resident for more than 10 years will be subject to UK IHT on their worldwide assets, with a provision to keep the individual within the UK IHT net for 10 years after leaving the UK. An individual’s UK-situated assets will continue to be subject to IHT regardless of residence or domicile.

Offshore trusts created by non-UK-domiciled settlors From 6 April 2025, the protection from taxation on future income and gains as they arise within trust structures (whenever established) will be removed for all current non-UK-domiciled and deemed UK-domiciled individuals who do not qualify for the new four-year FIG regime. FIGs arising in non-UK resident trust structures from 6 April 2025 will be taxed on the settlor or transferor (if 5 summer 2024 | Personal Finance Professional | thepfs.org

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they have been UK resident for more than four tax years) on the arising basis.

This is the same basis on which trust income and gains are taxed on UKdomiciled settlors or transferors under the current regime. What this means, in practice, is that a settlor of a non-UK resident trust could have a significant UK tax liability on that trust’s assets if they remain resident from 6 April 2025.

The chargeability to UK IHT of nonUK assets within settlements created after 5 April 2025 will depend on whether the settlor meets the 10-year UK residence criteria or is within the 10-year tail provisions having left the UK when the assets are settled or when charges occur, such as 10-year anniversary charges or exit charges.

The good news is that the treatment of non-UK assets settled into a trust by a non-UK-domiciled settlor prior to 6 April 2025 will remain excluded property. This presents a window of opportunity for non-UK domiciles who have currently been living in the UK

Payment of IHT The government announced an administrative change to ease the payment of IHT before probate (confirmation in Scotland) has been obtained.

Remember that IHT has to be paid before executors can obtain probate.

While it is possible to use certain assets, for example funds held in the deceased’s account, this may not be sufficient. If executors were unable to raise funds to pay the IHT but could provide evidence that they have explored all possible avenues, including commercial loans, HMRC may allow a grant on credit, although this was only in “exceptional circumstances”.

From 1 April 2024, the executors of an estate will no longer need to have

sought a commercial loan to pay IHT before applying to obtain a grant on credit from HMRC. With interest rates on such loans being relatively high compared to, say, a mortgage loan, this is a welcome change.

It should also be noted that the standard probate fee is being raised by £27 to £300 in May 2024.

Consultation on new UK ISA The government proposed the introduction of an additional individual savings account (ISA), where individuals would be able to invest £5,000 per year tax-free in UKbased assets, in addition to the current £20,000 subscription limit for existing ISAs. This new UK ISA is an ISA that is therefore designed to provide individual investors with an additional opportunity to save while supporting investment in the UK and benefiting from its growth.

At the time of writing, this proposal is subject to consultation with no firm timeframe for whether this product will hit the market. From a general financial planning perspective, it appears that it would be advisable to initially maximise the current £20,000 subscription limit before using the more restrictive £5,000 allowance.

If a new UK ISA is launched, then it will provide alternative investment options to those who have already used their £20,000 ISA subscription limit. So essentially enabling high earners that may be restricted in terms of pension contributions to carry out efficient tax and investment planning.

While many of these changes are subject to consultation, the announcement of any Budget tax changes, especially at the end of one tax year and the start of another, represents an excellent opportunity for advisers to engage with their clients to review their financial plan and make any necessary adjustments to ensure that everything is in place to achieve their desired objectives. ● Niki Patel is a tax and trusts specialist at Technical Connection

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for fewer than 15 years or who are planning to move to the UK in the imminent future and remain UK resident for longer than four tax years.

These individuals may wish to act promptly to take advantage of these transitional provisions to set up an excluded property trust, as these trusts will continue to be outside the scope of IHT. However, reports in the press suggest that an incoming Labour government would scrap two relieving elements of these Budget proposals: the first year (2025/26) temporary 50% exemption for the taxation of foreign income; and the IHT exemption for excluded property trusts settled before 6 April 2025.

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ESG

Ian Simons reveals a new course focused on the Sustainability Disclosure Requirements and the new anti-greenwashing rule

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STAYING SUSTAINABLE

T

he Financial Conduct Authority (FCA) issued the Sustainability Disclosure Requirements (SDR) and investment labels policy statement in November 2023, which brought new antigreenwashing rules into force from 31 May 2024. The statement contains “rules and guidance to help consumers navigate the market for sustainable investment products”.

These are wide-reaching and affect most firms and individuals to a degree.

The FCA expects all authorised firms to: ● Prepare for the new antigreenwashing rule if they make claims about the sustainability of their products or services, to ensure claims are fair, clear and not misleading. ● Read accompanying consultation

(GC23/3) on further guidance to the anti-greenwashing rule.

(Firms should note that this consultation is now closed and the final nonhandbook guidance has been published in FG24-3) And specifically, the FCA expects distributors to: ● Prepare to make the labels and consumer-facing disclosures available as soon as reasonably practicable to retail investors and to keep them up to date following changes made by the firm. ● Where relevant, prepare to add a notice on overseas funds to inform consumers that they are not subject to the regime.

To bring to life and expand upon the FCA’s own published guidance, Rebecca

Kowalski FPFS and Alan Whittle MSC FPFS, both members of the PFS Sustainable Financial Advice Panel, worked with the CII to create a concise e-learning course comprising an overview of the anti-greenwashing rule and the four investment labels.

This builds on the wider ESG and Sustainable Financial Advice Spotlight course launched in 2023.

While a good awareness of the rules is expected of anyone working for a regulated firm, this course is particularly focused on personal finance professionals in financial advisory and paraplanning roles.

The FCA expects firms to correctly apply one of four labels to any sustainable investment products (or explain why if they are not going to).

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in practice is advisable for all practitioners.

MINDFUL AND MEASURED

sustainability goal is; the approach to achieving it; annual updates on progress towards the goal.

The direction of travel is clear, and with the latest FCA consultation proposing bringing model portfolio solutions under the labelling and disclosure rules, a strong understanding of how the rules apply

MATT KENYON / IKON IMAGES

IMPLEMENTATION TIMES The four new investment labels are: ● Sustainability focus: Invests mainly in assets that focus on sustainability for people or the planet. ● Sustainability improvers: Invests mainly in assets that may not be sustainable now, with an aim to improve their sustainability. ● Sustainability impact: Invests mainly in solutions to sustainability problems with an aim to achieve a positive impact for people or the planet. ● Sustainability mixed goals: Invests mainly in a mix of assets that either focus on sustainability, aim to improve their sustainability over time, or aim to achieve a positive impact for people or the planet.

Funds that have labels will also need to give you clear and simple information, including: what the

Publication 28 November 2023

Anti-greenwashing rule and guidance comes into force 31 May 2024

Firms can begin to use labels with accompanying disclosures 31 May 2024

Naming and marketing rules come into force, with accompanying disclosures 2 December 2024

Ongoing product-level and entity-level disclosures for firms with AUM > £50bn 2 December 2025

Entity-level disclosure rules extended to firms with AUM > £5bn 2 December 2026

Kowalski comments: “The FCA focus on greenwashing invites us all to reflect on what we say, as well as what we do. It is very easy, some might say necessary, to get enthusiastic about the need to invest sustainably. When describing sustainable investment solutions however, we need to be mindful and measured. This will help clients understand the positive environmental and social outcomes they can achieve, as a different type of return on their investment.”

Whittle adds: “Research from the FCA and other sources shows investing sustainably is important to a great many people. Firms should already be talking to clients about whether they want to invest sustainably. As noted in Personal Finance Professional in 2023, this is a matter of professional integrity. SDR requires a comprehensive approach.

If firms are not yet prepared for SDR, then they should take the opportunity to consider how they are going to approach this regulation now.”

The course has been designed to be as succinct as possible at 50 minutes study time, delivered digitally via the RevisionMate platform, and uses four brand new case studies to illustrate real-life situations concerning how the labels and anti-greenwashing rules could be dealt with.

PFS members benefit from a discounted price of £30 (nonmembers’ price £40). To find the course, visit: www.cii.co.uk/learning/ spotlight-focus-sdrs-and-antigreenwashing-rule ●

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Ian Simons is content and capabilities director of the CII summer 2024 | Personal Finance Professional | thepfs.org

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M ORTG AG E S

THE END OF THE BORROWING BLUES? Rates may have stabilised but mortgage holders are not out of the woods yet, finds Fiona Nicolson

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M ortgage rates have skyrocketed in the last few years, testing the nerves and bank balances of many homeowners.

While the base rate finally stabilised in August 2023, at 5.25%, this followed a streak of 14 rate rises in a row, from a level of just 0.1% in November 2021 – 5

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and the outlook remains uncertain.

But mortgage holders in difficulty have not been left unaided. Lenders, the Financial Conduct Authority (FCA) and the government threw beleaguered borrowers a lifeline in the form of the Mortgage Charter, launched in June 2023. This introduced the opportunity to switch to interestonly payments for six months or to extend the mortgage term to reduce monthly payments. Some mortgage products also offer the option of taking a break from paying the mortgage.

And borrowers are making use of these facilities. According to the results of the FCA’s Financial Lives survey, published in April, there has now been a jump in the proportion of struggling mortgage holders asking their lender for support. While 0.4% made a request in the six months to January 2023, this rose to 1.6% in the 12 months to January 2024.

“The past two years have been extremely tough for borrowers, who have struggled to make ends meet in the face of decades-high inflation and the fastest escalation in borrowing costs in a generation,” says Marie Grundy, managing director of West One Loans and board member of the Society of Mortgage Professionals (SMP).

She adds: “Those most affected by the current economic environment will be those who have suffered a change in circumstances. They may have gone through a divorce, lost their jobs or been forced to work fewer hours because of illness. Often, people in these situations find it difficult to bring down their outgoings to match the reduction in their income.”

This recent increase in the volume of mortgage holders seeking help may not be the last. “If the economic picture worsens, inflation picks up again and rates don’t budge, we could see a rise in the number of borrowers looking to reduce their mortgage repayments or take payment holidays,” says Paula John, director of Paula John Communications and board member of the SMP.

Other repercussions could ensue, she observes: “If rates stay higher for longer than anticipated, we could see significant falls in property prices.

More buy-to-let lenders might exit a sector already undersupplied, pushing rents in the private sector up even further.”

IS THE SUPPORT HELPING? Considering whether the support available could make a difference, John says: “If a borrower who has reduced their payments can switch to a lower interest-rate mortgage in 12 months’ time, that could make a material difference to their finances.

The ‘reduced’ payment might even become the full monthly repayment on a lower rate. Reducing payments or taking a payment holiday can be a lifeline when homeowners have exhausted all other routes for cutting their spending, but the debt has to be repaid at some point.”

There can be another heavy price to pay, on top of the debt, for those in a worsening financial situation. Phil Anderson, director at Phil Anderson Financial Services, says: “Mortgage arrears and affordability struggles can lead to mental health issues, such as stress, anxiety and depression.”

There are signs that for many mortgage holders, the strain is already too much. In its mortgage market forecast for 2024-25, UK Finance says: “We expect the pressure on mortgage payments to continue, and for arrears to reach 128,800 cases by the end of 2024.”

There was also gloomy news about arrears in the Bank of England’s (BoE) Mortgage Lenders and Administrators Statistics report for Q4 2023, published in March. It reveals that “the value of outstanding mortgage balances with arrears increased by 9.2% from the previous quarter, to £20.3bn, and was 50.3% higher than a year earlier”. The report also notes: “The proportion of the total loan balances with arrears,

The past two years have been tough for borrowers, who have struggled to make ends meet in the face of decades-long inflation relative to all outstanding mortgage balances, increased on the quarter from 1.12% to 1.23%, the highest since Q4 2016.”

THE NEXT GOVERNMENT The mortgage misery of the last few years was attributed by some to the Truss government’s ‘mini-Budget’ of 2022. In its wake, rates were hiked seven times in the space of less than a year.

With a potential change in UK government in the not-too-distant future, struggling mortgage holders might be wondering if a different political party could make a difference.

“I cannot see that it will,” says Alec Wimbleton, SMP board member.

“As long as ‘UK plc’ spends more than it is bringing in, something has to give.

Either taxes rise to service running the country or the costs of running the country have to come down. No political party will be able to do the latter and it will never be elected if the former is in their manifesto.”

There may be some glimmers of hope, however, amid the challenges.

“The current political infighting and general economic uncertainty are not

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helpful to the wider economy or the mortgage sector. The money markets, which price fixed-rate funds, hate uncertainty. So, just getting past the general election might help in terms of rates,” says John.

David Hollingworth, associate director, communications at L&C Mortgages, comments: “Interest rates are at the heart of most borrowers’ concerns and a change in government is unlikely to make an instant difference to the movement of rates.

“Of course, policy changes could have a bearing on the future direction of travel and could also see more resource for those finding the squeeze on income the hardest. However, any change is likely to take time to embed.”

Considering what needs to happen for things to improve, Anderson says: “Increased competition from lenders offering better mortgage deals would help the situation a bit. However, for things to improve, the main thing required is for the BoE to reduce the base rate.”

mortgage rates to continue falling for the next five years.”

Reflecting on when borrowers’ troubles might ease, Grundy says: “The good news is that there is light at the end of the tunnel. Inflation has eased considerably; real wages are once again growing; and the BoE governor recently said that interest-rate cuts were ‘on the way’.

“We believe that there is still scope for mortgage rates to come down, which should happen once the BoE indicates its intention to lower borrowing cost later this year. Once that happens, it will relieve a lot of pressure on household finances.”

But borrowers may be wise to keep their expectations realistic: “The cost of mortgage borrowing is set to fall as the base rate reduces in the next 12 months, but we are not going to see a return to the ultra-low interest-rate environment we experienced for a decade pre-2023,” says John. ●

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Fiona Nicolson is a freelance journalist

HENDRIK DAHL / IKON IMAGES

A BETTER OUTLOOK While times have been tough for many borrowers, there are signs of improvement on the horizon.

In its forecast for mortgage rates in 2024 and beyond, published in February, real estate specialist CBRE comments: “By Q4 2024, we expect the average mortgage rate on a 75% five-year-fixed product to fall to 3.82%, down from 4.86% in Q4 2023.

Following on from this, we expect

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he mortgage industry is keeping its fingers crossed for cuts in interest rates later this year.

Paula John, board member of the Society of Mortgage Professionals (SMP), says industry experts are predicting cuts in the Bank Base Rate (BBR) in the second half of 2024.

“Most mortgage industry observers expect to see a couple of cuts in the BBR in the second half of 2024, provided inflation continues to fall from the double digits we experienced in 2023, towards the 2% target,” says John. “The anticipation of BBR reductions should result in lower fixed rates being available to mortgage borrowers ahead of any cuts themselves. But the future remains uncertain. Global tensions and UK domestic jitters about the upcoming general election continue to impact the markets. The path to 2% inflation is not guaranteed, so the possibility of the overall cost of borrowing staying higher for longer is real.”

The prediction of rate reductions will be a relief to homeowners, who have seen their monthly mortgage payments increase with the rise in inflation.

This optimistic outlook is echoed by Stephanie Thayer, mortgage adviser at Progeny, who says: “Looking longer term, the expectation is that the Bank of England will start to cut rates in the second half of 2024 and this should filter through to lowering fixed

mortgage rates. We should expect to see more fixed rates starting with a ‘3’ in 2025. Of course, external factors such as political unrest and war can massively impact the global economy and predictions could shift.”

The mortgage market may soon pick up further pace if the government offers political sweeteners in the run-up to the general election.

Charlotte Grimshaw, head of intermediary relations at Suffolk Building Society, says: “I don’t think we have seen the full impact of the impending general election. And the Chancellor may well introduce some pre-election sweeteners in his Autumn Statement, such as raising stamp duty thresholds, which would also inject pace into the market.”

The path to 2% inflation is not guaranteed, so the possibility of the overall cost of borrowing staying higher for longer is real

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HOME COMFORT With interest rate cuts expected later this year, Aamina Zafar takes the temperature of the mortgage market

JENS MAGNUSSON / IKON IMAGES

BUY-TO-LET The rising cost of mortgages has meant that buy-to-let (BTL) landlords have had a tough time during the past 18 months, with many coming off low five-year fixed rates and onto much higher rates.The SMP’s John warns that many will continue to see their profit margins reduce, or even disappear in some cases.

However, she adds that demand for rental property remains extremely high and some landlords will pass on their increased borrowing costs in the form of higher rents.

She adds: “Given the cost-of-living crisis, there is a ceiling on how high rents can go before they are simply unaffordable for tenants, so some landlords may have to live with their investment making little or no day-today profit for some time. Anecdotally,

we are hearing of smaller landlords in particular either quitting the market or selling one or two properties, though a much-discussed ‘exodus’ has not yet materialised.

“In the longer term, capital appreciation means that property remains an attractive investment, while higher borrowing costs keeping first-time buyers (FTBs) out of the purchase market only boost the number of renters in need of a roof.

And those BTL investors in a position to expand their portfolios may be able to strike bargains, given softening property prices in some areas.”

On the subject of FTBs, rises in interest rates in recent years have also been extremely challenging for this group. According to a recent survey by the Building Societies Association, becoming a FTB is now the most

expensive it has been for the last 70 years and 32% of people who want to buy their own home fear they will not be able to.

One of the biggest hurdles FTBs face is saving for a deposit.According to data from Nationwide, nearly half of all FTBs in 2022 and 2023 had help from family or friends with their deposit. This has risen from 27% needing help in the mid-1990s.

However, Thayer says, moving forward there are now many options available to people looking to get on the property ladder.

“The good news is that there are options available to FTBs with small deposits, such as Accord’s current ‘5K Deposit’ mortgage product,” says Thayer. “Furthermore, many lenders now offer a boosted loan amount specifically for FTBs. The caveat here, however, is that borrowers must pick a rate fixed for at least five years, due to FCA rules.”

These uncertain times mean it can be hard to secure the best mortgage rate. However, Scott Gallacher, Chartered financial planner and director at Rowley Turton, says brokers are in the best place to help buyers because they have access to the entire market and can factor in their client’s financial goals.

He adds: “With access to independent research tools and being able to access the entire market, independent mortgage brokers are in a much better position than clients in terms of being able to secure a good deal in an uncertain time. For those concerned about future rate moves, even downwards, I generally prefer the certainty of a five-year fixed rate deal. Of course, this isn’t right for everyone and that certainty ties you into what might eventually be a higher rate. That is unless the client is concerned that they may wish to move or sell up within that time period. Then they might need a more flexible or shorter-term deal.” ●

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Aamina Zafar is a freelance journalist

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MENTORING

IS SILENCE GOLDEN? Simon Webster explains why staying quiet can play a positive role in a mentoring relationship

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SHUTTERSTOCK

“S

peech is silver, silence is golden” is a proverb thought to originate in Arabic culture from as early as the ninth century.

As children, we are taught this proverb – encouraging us to embrace silence. In this article, we consider different people’s perception of silence and its value in relation to mentoring.

Silence during conversations is normal but if the silence is too long we can start to feel uncomfortable.

Researchers have found that English speakers rarely last longer than four seconds in silence; and there is rarely more than a fraction of a second of silence between speakers in a conversation. When this becomes longer, people start to feel uncomfortable or break the natural flow of conversation. Once the pause has lasted too long, people have an overwhelming need to just say something – and in some cases, anything.

It is important to understand that discomfort with silence is natural and varies among individuals. It is also important to understand the power of silence, which in a mentoring relationship can include: ● The mentee feels listened to – when a mentor remains silent, they are demonstrating active listening. It demonstrates that the mentor is fully present and focused on the mentee’s words and emotions.

This encourages a sense of trust and openness in the mentoring relationship and helps the mentee feel more comfortable sharing their thoughts and feelings. ● Empowering the mentee – silence allows the mentee to take ownership of the conversation and gives them space to express themselves fully. This encourages self-reliance and builds their confidence in their own abilities to find solutions. ● Encouraging reflection – silence provides space for the mentee to

reflect on their thoughts, feelings and experiences, allowing them to process information and consider others’ perspectives. ● Enabling deeper insights – silence allows the mentee to think deeper, explore their feelings and not provide a knee-jerk response.

Here are some guidelines on using silence as a mentor: ● Provide a supportive environment, letting the mentee know that silence allows the mentee space to think. ● Listen actively without interrupting, maintaining eye contact, nodding and using other non-verbal cues to show that you are engaged and interested in what they have to say. ● Pause after open-ended questions, allowing the mentee time to think before they respond; and resist the urge to fill the silence by rephrasing the question or even answering the question yourself. ● Be patient – don’t jump in immediately to fill the silence.

There is a fine balance in using silence in a positive way to help and support the mentee. For the mentee to benefit from the silence, it should be used at the right moments and if it’s not working for the mentee or indeed you, as the mentor, then don’t force its use. Key to this is watching the mentee’s body language.

Using silence as part of the mentoring armoury takes confidence on the part of the mentor and practice. If it doesn’t appear to be having a positive impact in one session, don’t worry – everyone’s tolerance for silence is different. Do not be defeated, just try again in the next session. ● Simon Webster is member marketing manager of the PFS

CONNECT – THE PFS DIGITAL MENTORING PLATFORM Head to www.thepfs.org/connect to participate in our mentoring platform and put this learning into practice.

Connect is ready to welcome: ● New users: looking for their first mentee or mentor ● Returning users: to update their profile and be involved again.

thepfs.org | Personal Finance Professional | Summer 2024

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TA X P L A N N I N G

GIFT WRAP This issue, Technical Refresher examines lifetime gifts and the availability of any transferable nil rate band

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hargeable lifetime transfers that exceed an individual’s available nil rate band are subject to inheritance tax (IHT) at the lifetime rate. The available nil rate band is broadly the standard nil rate band – currently £325,000 reduced by earlier chargeable lifetime transfers made in the previous seven years.

Even in cases where an individual may be able to benefit from a transferable nil rate band, this cannot be used for the purposes of chargeable lifetime transfers that they choose to make.

ISTOCK

EXAMPLE: Brian’s wife died eight years ago, leaving all of her assets to him. She had not made any lifetime gifts.

Having sought some advice, Brian decides he would like to carry out some estate planning.

Brian decides to set up a discretionary trust for £180,000 on 1 July 2019. A couple of months later, he decides to set up another discretionary trust for £160,000.

Ignoring any available annual exemptions, because the total

of these two gifts amount to £340,000, the excess of £15,000 over the standard nil rate band of £325,000 would immediately be subject to IHT at 20% (or grossed up to 25% if Brian were to pay the tax).

If Brian had settled £145,000 into the second trust, no lifetime IHT would have been payable.

Even though there is 100% nil rate band available for transfer, as his wife died leaving her entire estate to him, he can only use his own nil rate band for the purposes of chargeable lifetime transfers before any lifetime IHT would become payable.

On 2 March 2020, Brian decides to make an outright gift of £100,000 in favour of his adult grandson. No lifetime IHT is payable as the gift is a potentially exempt transfer.

A few years later, on 12 May 2024, Brian dies. As this is over four years from the first gift, all three gifts fail and become chargeable.

Brian’s executors make a claim to use 100% of his late wife’s unused nil rate band.

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The total gifts made by Brian amount to £440,000 and would be covered by his own nil rate band and his late wife’s unused nil rate band, leaving £210,000 to be used against his death estate.

If Brian had made larger gifts, on his death up to £650,000 would still have been covered by his own nil rate band and his late wife’s transferable nil rate band, with any excess being chargeable. Although it is important to note that, once the nil rate band has been fully used, taper relief would apply to reduce the IHT payable on any gifts that are chargeable, if they were made just over three years before death.

Essentially, gifts made three to seven years before death, which are in excess of any available nil rate band, are taxed on a sliding scale.

In practice, this means that the IHT payable by the recipient on a failed gift reduces over time. ● Technical Connection SPRING 2024 | Personal Finance Professional | thepfs.org

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INVESTMENTS

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With the UK about to roll its Sustainability Disclosure Requirement, Dewi John takes a look at the landscape for green and impact funds

GROWING

GREEN

ith the UK investment industry about to roll out its Sustainability Disclosure Requirements (SDR), it seems an opportune time to look at the country’s ‘green’ fund landscape.

After considerable dialogue between regulator and industry, fund management companies can start using SDR labels from 31 July.

This should assist transparency and investor choice in the often opaque world of sustainable funds. After all, it’s a lot easier to monitor outcomes when all providers are at last singing from the same hymn sheet.

Long seen as the terrain of the institutional investor, sustainability is increasingly a retail interest. In 2012, institutional investors held 89% of sustainable assets, compared with just 11% held by retail investors. By 2018, the retail portion had grown to one quarter, according to the Global Sustainable Investment Alliance. And, while ESG has become something of a political football, this doesn’t seem to have negatively impacted the adoption of sustainable investing within the UK market (see Chart 1).

During this period, the percentage of sustainable assets has risen from fluctuating between 2.5% and 3% from 2014 to 2018, from whence it gathered momentum, reaching 10.76% by April 2024. Some 71.9% of

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INVESTMENTS

this is in equity funds. This is perhaps counterintuitive, as the ‘doldrums period’ is slap-bang in the middle of when there was deemed to be an ‘ESG premium’ – although what drove that, other than specific factor exposures, is open to question. We see sustainable assets accelerate towards the end of this period and, importantly, into the past few years, when sustainable equity funds in particular have generally underperformed their conventional peers.

That persistence of sustainable flows has been the case into 2024. Despite negative flows for equities overall (-£1.17bn), sustainable equity funds took in £6.1bn during the first quarter – making it the most successful ‘green’ asset class. This was followed by bonds, where sustainable funds netted £1.91bn compared to £2.64bn for conventional bond funds.

The rotation to sustainable from conventional equity has been embedded for some time, but there’s now also a definite shift taking place in sustainable bond fund markets.

Contrast the take of sustainable bond flows as a percentage of the whole over FY 2023 (28.1%) with the same for Q1 2024 (41.9% [Chart 2]). This tallies with other indicators of investor sentiment. According to FTSE Russell’s 2023 Sustainable Investment Asset Owner Report: “An equal number (73%) of asset owners are implementing passive and active sustainable investment strategies, further highlighting the mainstream characteristics of sustainable investment being part of the flight to passive investment strategies.”

In November 2022, when sustainable bond funds were losing assets hand over fist, I pondered as to whether “these strategies have been a victim of the dearth of ethical fixed income passive funds, which represents an opportunity for those able to address the demand”.

Six out of the top 10 bond money takers for the quarter are index trackers, netting £1.74bn between them. In total, index-tracking 5

CHART 1 UK sustainable fund market AUM (£bn), 2014 to year to date 250

200

150

100

50

0 Alternatives

Bond

Equity

Mixed Assets

Money Market

Real Estate

Source: LSEG Lipper

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Note: This uses a relatively tight universe of sustainable funds, defined as all SFDR Article 9 funds plus Lipper Responsible Investment Attribute funds reduced to those containing indicative sustainable keywords in the fund name.

CHART 2 UK asset class flows, passive and active mutual funds and ETFs, 2022 (£bn) 8 6 4 2 0 -2 -4 -6 -8 Alternatives

Bond

Equity

Sustainable

Mixed Assets

Money Market

Real Estate

Conventional

Source: LSEG Lipper

summer 2024 | Personal Finance Professional | thepfs.org

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INVESTMENTS

Largest positive sustainable flows by LSEG Lipper Global Classification, Q1 2024 (£bn) Versus conventional equivalents 10 5 0 -5 -10 -15 -20 Equity US

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Equity Europe ex UK

Bond Global Corporates LC

Bond Global Corporates EUR

Bond Global USD

Equity UK

Equity Emerging Mkts Global

Sustainable

Equity Sector Real Est Global Bond Global GBP

Bond Global Corporates USD

Conventional

Source: LSEG Lipper

sustainable bond funds took 61.36% of sustainable bond flows during the quarter. Is this because of a broadening of sustainable passive bond fund offerings? Of the 542 share classes that saw flows during Q1, 107 were launched in 2023 or 2024. However, less than a quarter of those were passive vehicles (24). So, while new issuance is likely part of the answer, it doesn’t look like it’s all of it – or even likely to be the main driving factor.

That said, it’s still these asset classes making all the running in sustainable markets: all other sustainable asset classes were in negative territory during Q1 2024, albeit relatively modestly: alternatives (-£24m), mixed-assets (-£151m), money market (-£205m) and real estate (-£2m).

The changes have also been rung in terms of best-selling classifications between 2023 and Q1 this year. The top

three last year were, in order: Equity Global, Equity US and Equity Emerging Markets Global. Equity Global flows have moved to the red. The three top sellers are: Equity US (£5.8bn/£1.45bn conventional); Bond Global Corporates LC (£706m/£2.07bn); and Equity Europe ex UK (£577m/£94m). This reflects a similar rotation from broadbased global equity allocations to a more specific focus on the US: while the ‘Magnificent Seven’ narrative may be chipping at the edges, investors in general seem to be backing it more strongly than ever.

Four classifications see positive sustainable flows alongside negative conventional ones, most notably Equity UK (£295m/-£15.04bn). While the largest seller is a passive product, most of the others in positive territory are active funds. That’s an interesting development, as the UK equity market

has long been unloved – especially by UK investors. One swallow doesn’t make a summer and I’m wary of reading too much in to one quarter’s results, but perhaps we’re starting to see sustainable UK equity funds make a showing. The global equity rally faltered in April and the UK market outperformed, so it’ll be worth seeing how the domestic sustainable equity market performs should this pattern persist.

It is notable that there are no mixed-assets classifications on Chart 3. Balanced, Conservative and Flexible are generally out of favour, although conventional Aggressive sees significant inflows. Nevertheless, this hasn’t translated into sustainable flows for the classification, which saw outflows of £22m during the quarter.

As we’ve noted before, this would indicate that investors continue to tread cautiously around sustainable offerings in this space.

Overall, despite reports of ESG’s death, this is still a growing proportion of the asset mix in the UK. What’s more, this summer’s rollout of SDR will likely add impetus to this, particularly for retail investors. ● Dewi John is head of research in UK and Ireland at LSEG Lipper

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CHART 3

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PA R A P L A N N I N G

(INTER)STELLAR ADVICE Philip Greenwood explains how building trust in the advice profession can help your clients’ financial independence reach new heights

GETTY

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t started with a rare planetary alignment, which sparked an idea.

Jupiter, Saturn, Neptune and Uranus align about every 175 years in such a way that could accelerate a spacecraft, swinging from one planet to the next, reducing the time to get to Neptune from 30 years to just 12.

A once-in-a-lifetime opportunity was spotted, an idea formed and a plan was made.

Voyagers 1 and 2 were launched in 1977 and have been in space for almost 47 years. Voyager 1 is 15 billion miles from Earth. It entered interstellar space in 2012.

This was never the main objective, however. The mission was to make fly-bys of Jupiter and Saturn, collecting data and images. The spacecraft were built to ensure they survived for five years to do this. The more ambitious aim of reaching Neptune and Uranus was considered too expensive to build at the outset.

The initial objectives were achieved, so NASA had to set new ones. As they have got older and further away from Earth, plans have had to adapt. They have been remotely reprogrammed to give them greater capabilities and achieve far more than was

thought possible at the outset. There have been some rocky patches, loss of contact, instruments not performing as expected, but these were predicted and overcome due to upfront planning and flexibility built into the plan.

The success of the Voyager mission is not an accident. It has succeeded because there were clear objectives, they planned meticulously, considered different scenarios, did stress-testing, collaborated between specialist teams, had ambition and creativity, understood the limitations and built in flexibility. They also built in safeguards to protect against anomalies, ensuring these did not derail the mission.

NASA is still checking in regularly, receiving feedback on the condition of the probes, making alterations and issuing new instructions to keep them on track to meet their new objectives.

After nearly 47 years, they are still exploring. They have come a long way and things look quite different from when they started out. Things have changed and evolved, so the goals have had to evolve and adapt as well.

INTO THE UNKNOWN Your clients are on their own voyage through the unknown. We, in this industry, have an opportunity to help people achieve their goals and possibly fly out far beyond them. Part of that is

building trust, which we can only do if we show the right behaviours – having integrity, championing inclusivity and focusing on the client – but also staying curious, exploring the unknown ourselves. These are equally as important as technical expertise, understanding our own limitations, willingness to collaborate and seeking out the knowledge of those around us.

These are the standards we should be expecting of our profession. How we act, behave and conduct ourselves will determine whether or not we can build up enough trust with clients, whether they will allow us the privilege of supporting them on their journey.

We need to take responsibility for this individually and collectively.

Giving clients guidance, intelligent planning, helping them understand what they want to achieve, creating a roadmap, checking in on them, making alterations, adapting, mitigating risks, giving peace of mind – by giving them stellar advice, they too can travel far beyond their initial expectations; and who knows what they will find? ●

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Philip Greenwood is head of technical consulting at EQ Investors

summer 2024 | Personal Finance Professional | thepfs.org

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PROFESSIONAL DEVELOPMENT

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RISING TO THE CHALLENGE Aamina Zafar speaks to Rabeya Islam, who has capped off a career of breaking glass ceilings by becoming a Fellow of the PFS at age 57

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t’s never too late to achieve big things.

Just ask 57-year-old Rabeya Islam. She was gearing up to retire from financial planning but a chance meeting two years ago with another female British Bengali adviser led her to embark on a whole new journey to becoming a Fellow of the PFS. The pair were seated together at a graduation ceremony where Rabeya was collecting her certificate for achieving Chartered status. The same ceremony was also awarding certificates to those who had reached the pinnacle status of Fellowship. But the two women noticed that nobody from an ethnic minority background had achieved the status.

“We both sat in the audience and watched people going up for their Fellowship,” Rabeya tells us. “There were a lot of men, only a handful of females and they were all white.

“I sat there and said, ‘there is not one person of colour here receiving a

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PROFESSIONAL DEVELOPMENT

Fellowship’. The young lady seated next to me looked at me and said: ‘Why don’t you go for fellowship?’ I replied, ‘don’t be silly, not at my age’, because I was in my mid-50s and I was actually looking at retirement. ‘Think about it’ she said, ‘and think how much it would inspire others’. Later on, I looked up the syllabus and I realised it was something I could achieve.”

Her accreditation for being a member of the Society of Later Life Advisers counted towards a significant amount of credits. This meant she achieved Fellowship by summer 2023 after sitting a few additional exams.

She is now gearing up for her own Fellowship ceremony in October and Rabeya hopes her story will inspire others to not be daunted by the idea of trying to become a Fellow.

“The PFS was so helpful in providing support,” says Rabeya. “There are lots of exam centres, so I found something local and chose the months that I wanted to sit the exams in, which made it easy. The revision guides were helpful and I read those on the train to work. It was so easy to do but it has meant a lot for my career.”

Rabeya is no stranger to success and has many accolades to her name, including being named Financial Adviser of the Year – London, by Professional Adviser in 2022.

Interestingly, her journey into the financial advice profession also started by chance after she graduated from King’s College in London with a degree in physiology in 1989. She soon started training as an accountant but saw a job advert looking for advisers, which changed the trajectory of her career as she decided to enter the world of financial advice in 1992.

Since then, she has worked for many firms, including Alliance and Leicester IFA, Saga and Origen. She is now a partner at St James’ Place Wealth Management.

Despite her success, it has not been an easy journey as a woman working in the advice industry.

Rabeya says: “Women may worry if they fit the mould because the image

of the profession has been very maledominated. I am only 4 feet 10 inches tall, so going into organisations where I have been the only woman adviser has not been easy. You have to walk in and stand tall.”

Despite her confidence and charisma, the married mum-oftwo has had to shatter many glass ceilings while juggling family life. When she became pregnant with her first child 25 years ago, male colleagues took bets on the

I went back to work when my son was just three months old and within a year, I became one of the top advisers

probability of her returning to work.

“I was angry, but that anger spurred me on,” she tells us. “I went back to work when my son was just three months old and within a year, I became one of the top advisers.”

She attributes her success to her resilience in facing challenges head on, which has included fighting prejudice due to her race and religion.

Rabeya says: “When I started in the industry, people found it difficult to remember my name. I used to be called things like Ribena. The worst one I got called was Rubella and I had to turn around and say ‘excuse me but Rubella is actually German measles’. I look back now and think wow, that was very offensive.”

After the 9/11 attack on the twin towers in the US, she also faced Islamophobia.

“Some potential clients refused to see me because of my surname,” she says. “The call centre contacted me and said: ‘We have a problem – people don’t want to see you. As soon as they heard your name, they just said no.’ I said: ‘What about my experience, doesn’t that count? Go back to those people and say: Have an appointment and just see. If after that you feel that she is not for you, then by all means we will get another adviser.’ And after that, nobody came back and said they wanted to change adviser. That spurred me on.

If somebody doesn’t want to see me for whatever reason, then that’s their loss,” says Rabeya. “Every time I’ve faced a challenge, I’ve come back stronger.”

As Rabeya looks forward to attending the PFS graduation ceremony once more, this time it will be her who receives the Fellowship award.

“I am really excited to attend the ceremony,” she says proudly.

“Chartered status and the Fellowship award have provided a lot of confidence both to me and to my clients. They understand that with me they have an adviser who is professional, knowledgeable and a safe pair of hands.” ●

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Aamina Zafar is a freelance journalist summer 2024 | Personal Finance Professional | thepfs.org

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PROFESSIONAL DEVELOPMENT

The CII’s Charlotte Ferson provides a refresher on the what, how and why of CPD

HOLDING UP A MIRROR TO YOUR DEVELOPMENT

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ontinuing professional development (CPD) is a cornerstone of professionalism and sets CII members apart from those who do not hold professional membership. It not only provides a hallmark of quality but also a reassurance to clients that the professionals with whom they engage are committed to a process of ongoing learning and professional development, so they are fully

Structured CPD is usually CPD that’s led by a third party and is formal in nature, such as internal or external training or webinars. Unstructured CPD will likely be knowledge gained incidentally, such as general reading, discussions or meetings.

All CPD activities have to be at least 30 minutes (unless bitesize).

CPD RECORDING TOOL The CII has developed a CPD recording tool, which is free to all members.

This allows you to record your CPD and includes labelled boxes that set out the required information. We recommended that you record your CPD on a rolling basis via this tool, so you have an easily accessible single snapshot of your CPD, which means you can better plan your CPD during

equipped to meet all their needs.

On an individual level, it allows members to develop their careers, respond to the fast-changing world, facilitate specialisation and refresh their learning. While it is a regulatory requirement for those CII members who hold a Statement of Professional Standing, the obligations and benefits of CPD apply to all CII qualified members and it is enshrined in the CII’s Code of Ethics: 1.4 You must comply with this Code and all relevant laws and regulations.

This includes but is not limited to: meeting any continuing professional development requirements.

A crucial element of CPD is the reflection that must accompany each CPD activity. This reflection allows for the solidification of all the benefits of CPD for both yourself and the reputation of CII members as self-reflective and considered professionals.

REFRESHING THE BASICS All CII members are required to complete a minimum of 35 hours of CPD over a 12-month period, of which a minimum of 21 must be structured.

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the year. You can access the tool at: www.cpdscheme.cii.co.uk

BITESIZE LEARNING

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EXAMPLE – CPD RECORD These specific elements must be included in a CPD record, for example: Name and description of the activity: Cyber risk training (webinar) Date and duration of the activity: 09/04/2024, 60 minutes Structured or Unstructured: Structured Development need: To ensure I am aware of cyber risks in our new IT system and to reduce the risk of loss of sensitive client data.

Learning outcomes: Describe the nature of cyber risks in new technology; explain the processes and procedures to reduce loss risk; summarise the escalation process for data breaches.

Activities of less than 30 minutes that share a common learning outcome can be grouped together.

Example – six five-minute mini tests that all relate to updates in regulatory changes.

Reflective statement: This webinar met my development need and I now understand the new technology, the risks and, more importantly, how to mitigate those risks. I found the task on data breach reporting interesting and gained a greater understanding of the organisation’s internal processes.

It was a good introduction to the subject and I will consider taking a longer course on the wider issue.

All CPD activities you record require a reflective statement and it is perhaps this element that poses the greatest challenge to members. It may feel like an add-on, particularly where you are clear that the CPD activity has been understood or even where you

have been tested. Yet reflection is key to the integration of the knowledge into practise and to allow for future planning. It turns a CPD event that may be organisation-wide, attended by the new recruit alongside the partner, into a personal event that can be transferred to the workplace.

The reflection allows you to draw out the knowledge relevant to your client base and your career. It can help solidify your learning into tangible actions and facilitate forward planning for future CPD where an activity has sparked an interest or highlighted an area for growth. Your reflective statements need not be long but should be specific and relevant to you to get the most benefit.

MAINTAINING HIGH STANDARDS The CII audits members each year to ensure compliance with the minimum requirements. If you are selected for audit, you will receive an email and request to provide your CPD record.

Unfortunately, members who fail to appropriately engage with the audit or who are unable to demonstrate that they have met minimum CPD requirements will be referred to the CII’s legal team and may be subject to disciplinary processes. This allows CII members to stand with confidence behind their membership, knowing that they are part of a collective committed to ongoing learning.

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FURTHER RESOURCES The CII has a dedicated CPD page on its website at www.cii.co.uk/cpd This includes the CPD Scheme Rules, guidance on CPD and a practical guide to submitting your CPD record. If you have any further questions about CPD, you can email CPDReport@cii.co.uk and a member of the team will be happy to answer your queries.

The CII accredits CPD training programmes – for more information, visit: www.ciigroup.org/ cpd-accreditation ● Charlotte Ferson is professional standards manager of the CII summer 2024 | Personal Finance Professional | thepfs.org

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TAX PLANNING

MAKING GAINS Technical Connection answers key questions on Discretionary Loan Trusts and Civil Service pensions

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A

→ Taken from the Technical Connection Techlink Professional question bank.

To find out more, visit: www.techlink.co.uk/techwise

accordance with their rate(s) of income tax, subject to any top-slicing relief.

An assignment of the segments/bond to a beneficiary will not trigger a chargeable event for income tax purposes but would give rise to an inheritance tax exit charge, although there may not be any inheritance tax to pay depending on the precise facts.

Also remember, when all of the trust assets have been distributed, the trust must be closed on the Trust Registration Service.

Q

My client took benefits from their deferred Civil Service pension in Sept 2021. They received an annual pension of £21,000 and tax-free cash of £63,000. They still have an uncrystallised personal pension fund worth more than £1m. Will they benefit from applying for a Transitional Tax-Free Amount Certificate (TTFAC) and, if so, how? They have no lifetime allowance protection.

The client will have used up 37.18% of their lifetime allowance with their Civil Service benefits. Under the standard transitional calculation basis, this will be converted to lump sum and lump sum and death benefits usage, based on 25% of this. With 37.18% of £1,073,100 × 25%, this equates to £99,744. The client would then have £168,531 of lump sum allowance (£268,275 minus £99,744) and £973,356 of lump sum and death benefit allowance (£1,073,100 minus £99,744) remaining.

However, if they apply for the TTFAC, the lump sum and lump sum and death benefit allowances used will be based on the actual cash taken, i.e. £63.000. With the TTFAC, the client therefore has £205,275 of lump sum allowance and £1,010,100 of lump and death benefit allowance remaining. ●

A

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Q

My client set up a Discretionary Loan Trust 18 years ago and wants to bring it to an end.

The trust asset is an insurance bond. Iff th the he client takes full repayment of the loan via partial withdrawal across all segments, there is only 18 years of unused 5% cumulative tax deferred allowance. This means there will be a chargeable event on the bond. Will the chargeable gain be assessed on the settlor or on the trustees in this situation? When the loan has been repaid, will it be possible to assign the bond to a beneficiary, thus ending the trust?

If the donor/settlor wishes to have the full loan repaid, then as you say this could be taken as a partial withdrawal across all segments, thereby using 18 years’ worth of the cumulative tax deferred allowance. However, anything over the cumulative allowance (effectively two years’ worth) will be taxable on the settlor (your client) while alive and UK resident in accordance with their income tax position, subject to top-slicing relief, if applicable.

Alternatively, the trustees could surrender sufficient segments to repay any outstanding loan. Here, the chargeable gain depending on the number of segments surrendered will also be taxed on the settlor. However, as it is the actual gain on each segment encashed that would be chargeable, this may be a lower figure than the excess over the cumulative allowance.

Once the loan has been fully repaid, the trustees can assign the remaining segments/bond to any of the beneficiaries. When they ultimately surrender the segments/bond, they will be taxable to income tax in

thepfs.org | Personal Finance Professional | Summer 2024

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Enhance Your Financial Planning Skills with PFS POWER Content by Practitioners for Practitioners including…

Duncan Parkes

Mike Hawthorne

Learn about the Creating a Capacity Consumer Focused for Life’s Perks Financial Planning Framework

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Evolving Fees and Income Streams

Framing Client Conversations for Long-term success

How to Explain Fees and Investment Performance

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Melissa Kidd Finessing Your First Meeting

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8 Keys to Doing a Developing Fruitful What I’ve Learned How to Attract and Brilliant Fact Find Partnerships with In 10 Years of Engage with High Other Professionals Teaching Owner Value Clients Advisers

pfspower.org

STUDY ROOM

The CII Financial Assess training package tests your knowledge of key financial topics QUESTION 1

QUESTION 5

QUESTION 9

What is the weekly amount of the maximum single-tier state pension in 2024/25? £156.20 £185.15 £203.85 £221.20

Which commonly used income protection incapacity definition provides the widest cover?

Activities of daily working based definition Any w Own occupation Suited occupation

A foreign currency mortgage is most beneficial when: Foreign currency markets are volatile Interest rates are set to rise in the UK The borrower is not a UK citizen The borrower is paid in the foreign currency

QUESTION 6

QUESTION 10

What is the maximum proportion of earned income that can normally be insured under an individual income protection policy?

100% 120% 30% 60%

What is currently the highest age limit as regards obtaining a lifetime mortgage in the UK? 70 80 85 There is no maximum age

QUESTION 2 Simone is 46 and plans to retire at 65. What will her state pension age be (based on the government's current position)?

60 68 70 75

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QUESTION 7

QUESTION 3 What is the minimum age to be a pension scheme trustee?

16 18 21 25

The most popular trust used with offshore bonds is: A discounted gift trust A gift trust A loan trust An excluded property trust

YOUR SCORE »

1–3 POOR 4–6 GOOD

7–8 VERY GOOD 9-10 EXCELLENT

QUESTION 8

QUESTION 4 What type of benefit does an income protection policy pay out?

A cash sum if income stops for any reason A cash sum on becoming unemployed or ill A regular payment for a limited period on absence from work because of illness or injury A regular payment for a limited period on diagnosis of a critical illness

What is the maximum amount that can be invested in a Junior ISA during 2024/25? £15,240 £20,000 £4,368 £9,000

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ANSWERS 1D £221.20 2B 68 years old 3B 18 years old 4C The plan helps compensate against loss of income.

5C A claim will be paid if the customer is unable to do their own occupation.

6D If the client has a very high income or no earned income, a lower maximum figure could apply.

7A Discounted gift trust is the most popular 8D Up to £9,000 can be contributed to a Junior ISA for 2024/25

9C This mortgage would suit an expatriate who retains a home in the UK. 10D Some lenders have no maximum age, while others impose a high age, e.g. age 90.

thepfs.org | Personal Finance Professional | SUMMER 2024

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The Personal Finance Awards are back, recognising excellence across the financial planning community.

There are many benefits to winning; find out more, view the award categories and the entry criteria at pfsawards.org

Entries close on 9 July #pfsawards

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BRITISH SAVINGS BONDS

Giving your clients guaranteed returns and 100% security Z¢ðõäÎè ĖĆ¢ for 3 years Investments from £500 up to £1 million Your clients can choose from two options: growth at 4.15% gross/AER or income at 4.07% gross/4.15% AER Money can only be withdrawn at the end of the 3-year term.

Find out more about British Savings Bonds at nsandi-adviser.com AER (Annual Equivalent Rate) illustrates what the annual rate of interest would be if the interest was compounded each time it was paid. Where interest is paid annually, the quoted rate and the AER are the same. Gross is the taxable rate of interest without the deduction of UK Income Tax.

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29/05/2024 09:20