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ISSN 1461-3158

Issue 178 August 2012

The key monthly digest of information and analysis for busy financial advisers

Income tax relief cap – the Government’s new proposals

In this issue... Income tax relief cap – the Government’s new proposals John Housden


New code on pension transfers Ian Naismith

HMRC and the Treasury have published a joint consultation on capping income tax relief following the contentious 2012 Budget proposal.


HMRC and adviser charges John Housden


Dilnot – the Government response


UK equity markets – The Kay Report John Housden


Pension charges controversy Ian Naismith



Suitability of replacement business and CIPs David Smith 6 New Government initiatives against tax avoidance David Harrowven 8 In brief You may have missed…


Markets Cormorant Capital Strategies


Test Self-test questions

For more information on this and other publications please contact Taxbriefs Ltd: 79 Wells Street, London W1T 3QN T: 020 7970 4142 F: 0870 238 4073 E: W:


©urban cow

Andy Couchman

One of the most controversial aspects of Mr Osborne’s March Budget was the proposal to cap income available for tax relief from 2013/14 at the greater of £50,000 and 25% of income. A wave of protests from charities appeared almost instantly and by the end of May the Chancellor had excluded gift aid and associated charitable reliefs from the cap. However, the Treasury stood by the principle of capping income tax relief. How this can be achieved has now been set out in a joint HMRC/Treasury consultation paper. The paper lists ten income tax reliefs which will be within the cap, the main ones being trade loss relief against general income, early trade losses relief and qualifying loan interest. Income tax reliefs that are already capped are excluded, such as VCT and EIS new share purchase. The income on which the 25% will be calculated is an adjusted version of the normal ‘total income’ figure (s23 ITA 2007). The adjustment is a reduction by the gross amount of any personally made pension contribution where relief is given either at source or through self assessment. Pension contributions made under the ‘net pay’ system are already excluded from the total income figure. If a taxpayer makes payroll gifts, the adjustment is an increase in the total income figure equal to the gross gift. Other charity reliefs do not affect the ‘total income’ number. The cap will apply to the tax year of the claim and any other earlier or later tax year in which the relief claimed is allocated. Thus relief for a loss claimed in 2013/14 will still suffer a cap if part of it is carried back to the current tax year. The limit on qualifying loan interest could create problems for selfemployed farmers and unincorporated owners of large buy-to-let portfolios. John Housden


“This process largely reflects many advisers’ existing good practice...”

New code on pension transfers The new Code of Good Practice for Incentive Exercises on Pensions (Financial timesaver issue 177), includes transfers from defined benefit schemes. The practitioners’ notes accompanying the Code include an illustrative advisory process for ‘Member Advisers’ who are appointed to provide recommendations to individuals. The advisory process has four main stages: 1. The benefits given up must be investigated. The adviser should study the scheme rules and member booklets, clarifying any unclear aspects and consulting the employer and/or trustees on the likelihood of future discretionary increases or changes to member options such as early retirement terms. It is suggested that the Member Adviser might agree a written summary of all aspects of benefits with the employer and/or trustees before circulation to members.

For the notes see:

2. The Member Adviser should conduct a similar investigatory exercise for the replacement benefits being offered, including charges and investment options. There should be a suitable range of investment funds available to provide defaults for several different categories of member risk attitude. Default investments should not

require future member involvement and so, for example, they might well include ‘lifestyle’ switching before retirement. 3. The Member Adviser must consider the employer covenant, and whether the employer’s financial strength and scheme funding level are relevant to their advice. Again, a written summary of the position might help, but the Member Adviser could simply say to members that the issue has been ignored and explain the role of the Pension Protection Fund. 4. The Member Adviser must have a robust process for assessing suitability, in line with FSA’s COBS rules. This includes Know Your Client, dealing with vulnerable clients and maintaining evidence that the Member Adviser has considered the client’s capacity for loss, attitude to risk and ability to manage risk. This process largely reflects many advisers’ existing good practice, but it highlights the sensitivity of incentive exercises and the importance of any transfer being in the member’s best interests. Ian Naismith


HMRC and adviser charges With the retail distribution review (RDR) less than five months away, the tax issues around adviser charging ought to have been settled, but that is not the case. The financial services industry had two home wins over HMRC in July and one away defeat in Europe. Adviser charging and at retirement benefits The issue of how to allow for adviser charging when calculating the pension commencement lump sum (PCLS) has been immersed in HMRC/industry consultation for some time. In January 2012, HMRC proposed that the PCLS should be calculated on the 2

fund net of adviser charges. Thus a £100,000 fund with £2,000 advice charges would yield a PCLS of £24,500, i.e. less than a quarter of the fund. After cries of anguish, HMRC then suggested that for annuity purchase, the cost of advice on annuities alone would be ignored in PCLS calculations. Any non-annuity advice Issue 178 August 2012

“Not surprisingly, the proposal to apportion fees met with some derision.”

For more see: and

fees (e.g. reviewing other income options) would have to be separated out and allowed for. For drawdown, HMRC said that all pension advice charges could be ignored, but only if fees were deducted after designating the drawdown funds. Not surprisingly, the proposal to apportion fees met with some derision. It would have meant that all advice cost would have been pushed onto the annuity element. In July, HMRC gave in to the inevitable and agreed that for annuity purchase, the PCLS would be 25% of fund with fees ignored unless they did not relate to at-retirement pension income advice. On drawdown, HMRC maintained their stance that fees deducted after drawdown designation should not affect the PCLS calculation. However, fees deducted before or at the same time as designation would need to be taken into account. The new HMRC position is reflected in a revised RPSM09106040. Advice and VAT HMRC issued its final RDR VAT guidance in March, but in July it lost a long running battle with Bloomsbury Wealth Management in the First Tier Tribunal on the issue of VAT exemption. Bloomsbury had claimed repayment for VAT levied in error on

advice fees between 2005 and 2009. HMRC argued that Bloomsbury’s services were VATable because they were predominantly the introduction of clients to fund managers, with a view to the clients receiving fund management services. The Tribunal disagreed, saying that although Bloomsbury introduced clients to fund managers, it primarily acted as an intermediary between the two parties with the purpose of acquiring and maintaining investment portfolios on behalf of the clients. HMRC had tried and failed to have the Tribunal hearing deferred until a judgement from the European Court of Justice (ECJ) on the VAT treatment of discretionary fund management (DFM) fees was given. That case, involving Deutsche Bank, addressed the issue of whether the various fees associated with DFM could be individually treated for VAT purposes. The ECJ decision, which emerged shortly after the Bloomsbury hearing, was (against expectations) that all DFM fees are VATable. HMRC will now review its guidance in this area. For IFAs hitherto untouched by VAT, the Tribunal and European judgements are a reminder of the complexities of financial advice and indirect tax. John Housden


Dilnot – the Government response The Government’s long awaited response to last July’s Dilnot Commission on long-term care funding is finally here with publication of its White Paper Caring for our future: reforming care and support.

For the full report see:

Issue 178 August 2012

A key element of the July’s Paper was a broad acceptance of the Dilnot proposals, which support a greater partnership between the individual and the State. How much the individual should pay and how much the Government should is not finalised, but individuals may end up having to pay more than the economist and academic Andrew Dilnot would ideally like.

improved quality of care and regulation and also more local initiatives. But what is lacking is any commitment to find new money. Given the country’s (world’s?) financial situation, that is hardly surprising, but it is disappointing nevertheless that the vital funding issue has been put off until at least the next spending review in 2013/14.

The White Paper also included many new and revamped initiatives and a draft Care and Support Bill. Media headlines focused on the proposed wider availability of secured loans from local authorities. Overall, the focus is on better information for those needing care and for their families and carers, together with

One potential solution for ‘middle England’ is insurance. Pre-funded long-term care insurance was heavily promoted in the mid 90s but the market never really took off and there were ultimately few winners across the whole experience. To change that, the insurance industry needs certainty of policy going 3

forward, regardless of the flavour of the Government of the day. As the Daily Telegraph put it on 12 July: “…the core of a workable social care system must be

personal insurance cover”. It looks probable we may have to wait a little longer for that though. Andy Couchman


UK equity markets – The Kay Report Professor John Kay issued his main report on ‘UK equity markets and long-term decision making’ in July. The report was commissioned last year by Vince Cable, in his role of Secretary of State for Business, Innovation and Skills. Kay is highly regarded on all sides and his main findings were: I

“The classic role of equity markets – to provide companies with funding for new investment – is no longer a reality in the UK.”








See the full report at:


Short-term behaviour is prevalent. Kay says that this is not just a “superficial” level of algorithm-based computerised high frequency trading, but is also inherent in the approach taken by listed companies generally. Under-investment in physical assets, product development, employee skills and reputation with customers are a result of the focus on short-term results over long-term business development. The equity market currently encourages exit (investors selling their shares) rather than dialogue with companies in which they have invested, thereby “replacing the concerned investor with the anonymous trader”. The classic role of equity markets – to provide companies with funding for new investment – is no longer a reality in the UK. Most listed UK companies generate sufficient cash internally to fund their corporate projects. Kay concludes that as a consequence “the principal role of equity markets in the allocation of capital relates to the oversight of capital allocation within companies rather than the allocation of capital between companies”. Foreign shareholdings in UK companies have increased as a result of the run-down of their equity holdings by large UK insurance companies and pension funds, combined with the impact of globalisation. Share ownership has thus fragmented, reducing the incentives for investor engagement and the amount of control that each shareholder enjoys. “There has been an explosion of intermediation in equity investment, driven both by a desire for greater professionalism and efficiency and by a decline in trust and confidence in the investment chain”. This has increased costs for investors, heightened the “potential for misaligned incentives” and created “a tendency to view market effectiveness through the eyes of intermediaries rather than companies or end investors”. “Regulatory philosophy influenced by the efficient market hypothesis has placed undue reliance on information disclosure”. Kay says this has led to the “provision of large quantities of data, much of which is of little value to users”, and could encourage investors to take excessively short-term decisions. Asset managers have become “the dominant players in the investment chain”, but the appointment and monitoring of active managers is “too often based on short-term relative performance”. “Regulatory policy has given little attention to issues of market structure and the nature and effectiveness of competition, instead developing detailed and often prescriptive rules governing market conduct, with substantial cost and limited success”.

The report puts forward 17 recommendations to improve matters, ranging from new governance approaches to a review of the concept of fiduciary duty by the Law Commission. Initial reactions to the report have been mixed, with some commentators saying Professor Kay is trying return to a bygone era. John Housden

Issue 178 August 2012


Pension charges controversy Pension charges hit have the headlines recently, with Labour leader Ed Miliband saying they could be the next scandal after banking, and Pensions Minister Steve Webb suggesting that the industry should seek to enhance its “battered reputation” by improving terms for expensive back-books of pensions and by reducing exit charges. Three highly critical papers highlighting the lack of transparency of pension charges have been published this summer. I

“As the particular fund highlighted by Labour demonstrates, high fees can be justified by stellar performance.”



Michael Johnston’s ‘Put the Saver First’ for the Centre for Policy Studies contains 104 wide-ranging recommendations for pensions reform, including a proposal to replace the Total Expense Ratio (TER) with a Total Cost of Investment (TCI). This would cover all the costs, including bid-offer spreads and stamp duty. David Pitt-Watson picks up this theme in ‘Seeing Through British Pensions’ for the Royal Society for the Arts, suggesting that providers are deliberately hiding the true cost and should adopt standards of transparency such as those shown in Danish pension schemes. A survey of defined contribution pension schemes by consultants Lane Clark & Peacock found that the true costs for diversified growth funds, which are often used as default investments, can be 50% above the headline annual management charge. Interestingly, it revealed higher average charges for stakeholder pensions than for group personal pensions.

Criticism of charges has often been sensationalist and sometimes misleading, and could do some damage to automatic enrolment. However, it raises important issues. Charges for prestakeholder pensions were higher overall than those in recent years, reflecting an era of largely manual servicing when costs were typically swamped by high investment returns. These charges are now largely historic, but Steve Webb’s comments will make insurers review their back-books. Value for money? A second issue is whether higher-charging investment funds offer value for money. Default investments for automatic enrolment, including the National Employment and Savings Trust (NEST), are likely to feature active asset class allocation overlaid onto index-tracking investments to minimise costs. That will be the benchmark and more expensive managers will need to justify their charges through performance. As the particular fund highlighted by Labour demonstrates, high fees can be justified by stellar performance. However, there might be increasing pressure to adopt a system proposed by Michael Johnson, where basic fund manager fees are modest and additional payments must be justified by outperformance. Finally, there will be increasing focus on transparency of charges. Dealing costs, which have traditionally been incorporated into investment returns, will have to be publicly available. Yearly statements of charges may also become common, and the National Association of Pension Funds initiative on presenting charges to employers may well be adapted for individual pensions.

For more see: and

Issue 178 August 2012

Advisers will be well aware that choices on contribution levels and investments are generally much more significant than charges in determining retirement outcomes. However, it is increasingly important that they understand all the costs involved, and can put them into context for clients. This may involve becoming more demanding of pension providers and investment managers. Demonstrating good value is essential. Ian Naismith


Suitability of replacement business and CIPs


The FSA have published guidance on assessing the suitability of replacement business and centralised investment propositions (CIPs).

In response to changes firms are making to their business models and advice processes, the FSA undertook a thematic review in 2011. The results raised concerns about the suitability of replacement business and CIPs, although the FSA acknowledged that this reflected firms’ reviewing and changing their service propositions before implementation of the retail distribution review (RDR). Some of the key findings about adviser behaviour were: I I I I I I

Firms failing to consider the effects of charges when recommending replacement business. Insufficient evidence to support recommendations to switch investments where the objective is to generate improved performance. Inadequate information being gathered about existing arrangements, and advisers not properly assessing the features and benefits of financial products and services. File reviewers failing to challenge advisers about various suitability issues. Firms using CIPs as the automatic solutions for all clients. Lack of adviser competency in identifying when a CIP may be unsuitable for a client.

The FSA define replacement business as a switch or transfer of client assets from one investment solution to another. The regulator defines a CIP as a standardised approach to providing investment advice, using model portfolios, discretionary management services, or distributor influenced funds.

This new guidance reinforces the FSA’s view that firms should take ‘reasonable steps’ to ensure that recommendations to switch existing investments are suitable for clients, and meet their specific needs and objectives. They expect firms to consider charges, performance, and tax treatment, and clearly explain to clients the benefits and disadvantages of any new proposition. Advisers should also take into account the flexibility of existing investments and any guarantees associated with them. The FSA will challenge firms that recommend replacing clients’ existing investments in order to access a wider investment choice, if the changes involve additional costs and firms fail to demonstrate that the client will actually make use of the wider choice. Charges Firms should consider the costs of their replacement solutions and justify any increase. The FSA expects firms to undertake a cost comparison exercise when recommending a switch or transfer of existing investments. This should include all costs and account for the effects of any trading charges. Additional costs may be justified if they relate to a benefit that has value for the client and meets their needs and objectives. Performance Firms that recommend switching existing investments to increase the potential for improved performance should provide specific justification. Any additional switching costs for the client must also be taken into account when quantifying the overall potential for improved returns.

Tax treatment Advisers should review clients’ existing investments to establish whether they are more tax-efficient than the recommended solution, taking into account the clients’ financial circumstances, needs and objectives. The tax implications of the switching itself should also be analysed, e.g. CGT on a disposal. Know your client Firms should gather all necessary information to assess the suitability of existing investments and demonstrate how they meet the clients’ specific needs and objectives. They should provide personalised recommendations.


Issue 178 August 2012

Risk profile If the justification for switching an existing investment is to manage assets in line with the client’s risk profile, the firm should consider whether it is possible to reorganise the existing portfolio to achieve a similar outcome in a more cost-effective way. Controls and oversight Firms should continue to operate suitable risk management systems and controls to mitigate the risks of unsuitable advice when recommending the replacement of existing business. The FSA consider that the “effectiveness of any control is down to its robust operation rather than the nature of the control itself”. The guidance also identified a number of key questions that firms should consider when designing or adopting a CIP: I I I

Have we thought about the specific needs and objectives of the target clients for whom this proposition is being designed? Is the CIP suitable for each client on an individual basis? Do we have robust controls to mitigate the risks of using CIPs?

CIP design and diligence Clients’ needs should be of foremost concern to firms offering CIP solutions. They should consider the clients’ knowledge and experience, financial position, investment objectives and required level of service. Segmenting clients Firms with diverse client banks may decide to segment their clients and offer a range of CIP solutions to the different segments. It is important to explain the differences between types of service and the associated costs to clients. Choosing a CIP Firms should use the following main criteria when carrying out due diligence on third party CIP providers: terms and conditions of use; charges; provider’s reputation and financial position; range of tax wrappers that can use the CIP; type of underlying assets the CIP invests in; flexibility to adapt to changes in clients’ requirements; provider’s approach to due diligence when selecting underlying investments. Where investment management is outsourced to a discretionary manager, both firms have an obligation to ensure that the investment decisions meet clients’ needs. Clients should understand each firm’s roles and responsibilities, which need to be carefully defined to ensure that clients receive appropriate advice and their portfolios are correctly managed.

“Clients’ needs should be of foremost concern to firms offering CIP solutions.”

Portfolio construction Firms that choose to use a range of risk-rated portfolios for different risk categories must ensure that the portfolios align accurately with the risk profile description agreed with the client. If advisers use asset allocation models, they should also ensure that they can ensure that clients’ portfolios remain aligned to the agreed allocation through a process of regular reviews. Suitability As CIPs may not be suitable for all clients, firms should offer an alternative. The guidance states that it would not be acceptable to transfer all client investments systematically into a CIP without assessing each individual’s needs and objectives. Controls and oversight Firms must ensure their advisers are competent, understand the CIP proposition and able to identify circumstances where it might not be suitable. They should also identify and manage any potential conflicts of interest. File reviewers should be trained to identify when a CIP is unsuitable and to challenge advisers accordingly. The guidance warns that the FSA will continue to take tough action where it identifies poor practice. Firms therefore need to remain vigilant when assessing the suitability of replacement business. David Smith

Issue 178 August 2012

For the FSA report see:



New Government initiatives against tax avoidance The Government has started several important initiatives this year in its continuing war against tax avoidance. Where there are several legitimate ways of arranging a transaction it is acceptable for a taxpayer to choose the one that results in the least amount of tax being payable. But if avoidance is taken too far then HMRC will respond by pursuing the matter through the Courts or by introducing legislative changes.

“There has therefore been something of an arms race, with the emergence of ever more complex taxsaving schemes…”

There has therefore been something of an arms race, with the emergence of ever more complex tax-saving schemes, and targeted anti-avoidance legislation, invariably failing to plug every loophole. One example is the IR35 legislation, which was introduced to counter the widespread use of personal service companies. A key element of HMRC’s anti-avoidance strategy is the disclosure of tax avoidance schemes (DOTAS) legislation, introduced in 2004. Disclosure allows HMRC to keep up-to-date with the tax schemes in circulation, and to take action against the ones it considers particularly aggressive or unfair. Promoters must register their schemes with HMRC, which then issues a reference number. Anyone using a scheme must then provide the reference number on their tax return. and promoters have to provide HMRC with quarterly client lists. In July HMRC issued a consultation document aimed at enhancing the DOTAS regime, and improving the information to the public about the risks associated with using tax avoidance arrangements. The proposals are wide ranging, and require promoters to provide more detailed information about how schemes work. HMRC proposes asking for more information on client lists, imposing a reporting requirement on clients as well as the one that applies to promoters, and extending the circumstances in which disclosure is needed. HMRC has said that it wants to work cooperatively with representative bodies and reputable tax agents. In line with this, the latest guidance from the Institute of Chartered Accountants in England and Wales (ICAEW) says that its members could be subject to disciplinary proceedings if they become involved in aggressive tax avoidance schemes. The ICAEW guidance explains that although tax avoidance may be legal, this is not the only consideration. Members should consider the public interest, uphold the reputation of the accountancy profession and do nothing to bring it into disrepute. The other accountancy bodies have so far not followed suit. Given the limitations of targeted anti-avoidance legislation, HMRC is also consulting on the introduction of a general anti-abuse rule (GAAR) from 1 April 2013 (‘Tax, politics, morality and confusion’ issue 177). HMRC hopes that this will act as a deterrent, as well as being an additional tool that can be used where it needs to mount a challenge. The aim is to counteract certain abusive tax advantages – such as increasing a deduction or loss, decreasing income, or exploiting a timing advantage. The aim will be to exclude arrangements that taxpayers enter into without intending to avoid tax.

For more see:

Although a GAAR should not affect ‘the centre ground of tax planning’, there is concern that it could catch more targets than intended, and will bring uncertainty into the tax system. David Harrowven


Issue 178 August 2012

You may have missed... HMRC has issued a raft of revisions to the Registered Pensions Schemes Manual (RPSM). These cover their new stance on adviser charging (see ‘HMRC and Adviser Charges’) and a range of other topics, including the knock-on effects from the new £2,000 rule on small money purchase pots commutation.

£8,385 average university fee The Office for Fair Access (OFFA) has published its final data on 2012/13 university fee in England. These show that the average is £8,385 – £615 off the maximum – before fee waivers and other financial support. For the Russell Group of 16 leading English universities, the average fee is £8,975. Earlier UCAS had reported a fall of 1% in the application rate to universities of 18 year olds from England, reversing a previous trend of 1% annual increases. For older age groups in England, UCAS said demand was down 15% to 20%.

JISA take up slow to catch on HMRC have published their latest ISA statistics. These show that only 72,000 Junior ISAs were opened in the period from 1 November 2011 to 5 April 2012, with an average investment of £1,614. In contrast, the JISA’s unloved predecessor, the Child Trust Fund, now has over 6.3 million account holders.

Finance Act 2012 If you are still in need of holiday reading, then you may be glad to know the Finance Bill 2012 received Royal Assent on 17 July. The Finance Act 2012 may have had an inauspicious start in the March Budget, but it still runs out at 687 pages.

Tax return amnesty HMRC has launched yet another not-quite-amnesty, encouraging higher rate taxpayers who have not submitted their returns for 2009/10 or earlier years to do so. HMRC says that those who voluntarily submit completed returns and pay the tax and NICs due by 2 October 2012 “will receive better terms, and any penalty they pay will be lower than if HMRC comes to them first”.



More RPSM revisions

The Treasury has issued a response to its 2011 consultation paper on the impact of the Test Achats ECJ judgement, which banned sex discrimination in the setting of individual insurance premiums. Unfortunately the Treasury sidestepped the question raised by many respondents about whether the ruling extended to annuities arising from workplace money purchase schemes. Answers: 1A, 2A, 3C, 4D, 5B, 6D, 7B, 8C, 9D, 10B

Issue 178 August 2012


The on-going recession


If the preliminary estimate is accurate – and they are often revised – gross domestic product (GDP) declined a further 0.7% in the second quarter this year, according to the Office for National Statistics (ONS). Three consecutive quarters of contraction have brought a deepened recession, leaving aggregate output some 4.5% lower than it was in 2008.

In the most recent period, the construction sector fared worst, falling 5.1% quarter-onquarter and almost 10% compared with last year. The months from April to June 2012 saw extraordinary rainfall and the ONS do acknowledge the impact of the bad weather along with the additional public holiday in celebration of the Diamond Jubilee. But we also saw falls in both the production and services sectors (-1.3% and -0.2% respectively).

Some commentators consider the weak outlook described by the GDP figures somewhat at odds with recent trends in employment. From a high of 8.4% unemployment (on the ILO definition) at the beginning of the year, we have seen a steady decline to a current rate of 8.1%. Underlying this trend though, is a huge increase in the number of people in government-supported training and employment programmes along with large increases in part-time, as opposed to full-time, employment. These are not symptoms of fundamental improvements in the labour market. There are good reasons to expect some growth in the remainder of 2012. Beyond a positive, though perhaps muted, boost from the Olympics, falling inflation will ease the pressure on household budgets. Retail sales have stood up well in recent months too. But we do face strong headwinds in the form of fiscal austerity and euro-zone contagion. Expect to see further unconventional monetary policy measures in the months ahead. Cornorant Capital Strategies

Market facts

FTSE All-Share FTSE 100 Nikkei 225 S&P 500 Dow Jones industrials NASDAQ Composite FTSE All-World Asia Pacific (Ex-Japan) FTSE All-Word Europe (Ex-UK) Sterling Trade-Weighted Index £/$ Exchange Rate £/Euro Exchange Rate £/Yen Exchange Rate RPI (07/12) CPI (07/12 Long-Term Gilt Yield Unsecured Income Gilt Yield (09/12) Base Rate Halifax Mortgage Rate Best £10,000 Instant Access Rate Nationwide Avge House Price (07/12)


31 May 2012

Year-on-Year Change %

2927.27 5635.28 8695.06 1379.32 13008.68 2939.52 410.97 173.12 84.1 1.5668 1.2722 122.367 242.1 122.5 2.88% 2.00% 0.50% 3.99% 3.06% £164,389

-3.3 -3.1 -11.6 6.7 7.1 6.6 -8.6 -16.8 5.8 -4.6 11.4 -3.4 3.2 2.6


Issue 176 July 2012

The following self-test questions are intended to help you evaluate your use of Financial Timesaver for maintaining and developing your knowledge in line with FSA requirements. Circle the correct answer, add up your score out of ten and file in your knowledge maintenance and developments records. The answers are shown on page 9. 1. Member Advisers for pension schemes have to consider a range of factors in advising clients about incentivised transfer exercises following the new Code of Good Practice. Which factor do they NOT need to take into account under the Code? a) The size of any cash-in-hand incentive for members b) The strength of the employer covenant c) The likelihood of future discretionary increases to pensions d) The range of default investment options available 2. What guidance has the Institute of Chartered Accountants in England and Wales issued to its members in 2012 about their involvement in tax-avoidance schemes? a) Members could be subject to disciplinary action if they are involved in aggressive tax avoidance schemes b) Members could be subject to disciplinary action if they are involved in tax evasion c) Members should continue to provide their clients with advice on legal arrangements to save tax d) Members should warn their clients against the possible consequences of undertaking aggressive tax schemes but become involved if clients ask for help 3. John’s SIPP had a fund of £400,000 at retirement. Fees of £4,000 were deducted from the plan to cover advice on retirement income options, including drawdown and annuities. What would be the maximum amount of John’s PCLS? a) £100,000 in all circumstances b) £99,000 in all circumstances c) £100,000 if John chose to take an annuity d) £99,000 if John chose to take drawdown and the fee had been deducted before designation of the funds 4. What has the European Court of Justice decided about discretionary management fees in the Deutsche Bank case? a) All fees are VAT exempt b) Fees are VAT exempt in respect of advice only c) Fees are VAT exempt provided they are deducted directly from the investments d) All fees are subject to VAT 5. What is the proposed new cap on income tax relief expected to cover, according to HMRC and HM Treasury joint consultative document? a) Pension contributions b) Qualifying loan interest c) Charitable gifts d) Venture capital trust investment

Issue 178 August 2012


August 2012



6. What does the Kay Review say has influenced regulators to rely excessively on disclosure of information by companies? a) The impact of EU legislation b) The influence of US legislation c) The spread of passive investment strategies d) Belief in the efficient market hypothesis 7. Jeff has £500,000 total income in 2013/14 and makes a contribution to a personal pension with tax relief at source of £40,000 gross. What would be his proposed maximum relievable income cap? a) £50,000 b) £115,000 c) £125,000 d) £135,000

8. a) b) c) d)

What should be of foremost concern to firms when offering CIPs to their clients? The impact of charges The flexibility of the CIP solution The needs of the target clients The range of underlying investments

9. What did the Pensions Minister Steve Webb suggest could enhance the pensions industry’s ‘battered’ reputation? a) Agreeing a maximum charge for automatic enrolment schemes b) Directing more employers towards NEST as their default investment c) Replacing contract-based pensions with trust-based schemes d) Reducing charges for legacy pensions business 10.Which costs do pension providers generally excluded from disclosing to pension investors? a) Investment manager fees b) Dealing costs for investments c) Bonuses paid to provider sales staff d) Commission paid to advisers

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Issue 178 August 2012

Financial Timesaver - August 2012  

Financial Timesaver is a monthly digest (available in PDF format as part of a digital subscription) which gives financial professionals a ro...