ILLUMINATE Welcome to the second edition of our regular communication to our private and corporate clients, pension scheme trustees and our professional introducers.
Andrew Rodgers looks at questions you should ask when taking out or renewing your general insurance policies. Kathy Cowan’s piece expands on the impact of the Retail Distribution Review and how financial services will change from January 2013. Stephen McCleary comments on the main points of the Chancellor's Autumn Statement and the importance of ensuring that you maximise your various tax-advantaged allowances.
On the corporate side, Brian Jackson addresses the requirement for employers to begin automatically enrolling their eligible employees into a pension scheme from October this year. M axwell Buc hanan, Managing Dir ector, Ker r Henderson (Financial Ser vic es) Ltd
F e br uar y 20 12
Inside this issue... “My broker never told me!” The Retail Distribution Review Autumn Statement 2011 Compulsory Pension Provision - 2012
“MY BROKER NEVER TOLD ME!” In nearly 30 years in the General Insurance industry I must have heard those words hundreds of times from potential new clients who expressed dissatisfaction with their current insurance broker. The problem here is fundamental: education. To be fair, the insurance industry has enjoyed a measure of success in educating the majority of people as to the necessity for certain types of insurance – and indeed some insurance arrangements (such as Motor and Employers’ Liability insurance) are compulsory. I’m sure that many millions of people who have had claims paid by their insurers in the past would accept that they were glad that they had sought the advice of an insurance broker and protected themselves against the loss that they suffered. However, with ever-increasing competition from existing insurers wanting to grow their business and from new entrants wanting to establish themselves in the market place, advertisers have peddled a notion amongst the insurance-buying public that insurance policies are a commodity, essentially all the same and that their buying strategy should all be about saving money. Regrettably many insurance brokers have fallen into the same trap and advertise their services in the same way. Where does the question of advice and suitability fit into all this? The Financial Services Authority requires all insurance brokers to know their clients, to carry out a proper assessment of their requirements, and to explain the products that they are recommending in such a way that a client can readily understand the terms and conditions
that apply. It is now all too common an occurrence that an enquiry from a new client (or indeed the renewal discussion with an existing client) focuses around the premium that is required rather than the quality of the cover provided, the suitability of the product to that client’s needs, or the claims service and financial standing of the insurer being recommended. A decision to buy an insurance product is not one that you should take lightly. An insurance policy will only be of use to you if, in the event of a loss, the insurers accept that you have fulfilled your side of the bargain and have complied with all the terms and conditions of the policy. All too often a claim is refused by an insurer because certain obligations on the policyholder’s part have not been met. To give a few of the more common examples: the requirement in some household insurance policies that you always set your intruder alarm when you leave your home unattended; the requirement in some holiday home insurance policies that, in the winter months, you either drain the water system when the property is unoccupied or leave the heating on permanently at a certain temperature to prevent pipes from freezing; and the requirement in most private car policies that you never leave your vehicle unattended with the keys either in or on the vehicle. I have met many people who have had claims refused for not complying with such requirements and, when this happens, the finger tends to be pointed at their insurance broker. We, as insurance professionals, have a duty of care to our clients at
the point of sale for new business and at renewal for existing business to point out that cover is as important (if not more important) than price, and to satisfy ourselves that our clients are aware of their obligations under the terms of the policies that they are buying. All relevant details are confirmed in writing, but one fears that all too often this may be simply filed away in a drawer only to see the light of day again when a loss has occurred - and that is when you really find out what you are covered (or not covered) for. Next time you buy insurance or renew an existing policy, don’t just ask what the premium is – make a point of asking what you are actually covered for, is the product really suitable for your needs, are there any specific terms and conditions that you need to be aware of, and why that particular insurer has been recommended – don’t forget to read the terms and conditions and exclusions carefully so there aren’t any nasty surprises if you happen to make a claim. If you do this, then you won’t have cause to say “My broker never told me” and more importantly, you might find yourself covered after all … Andrew Rodgers is Managing Director of Kerr Henderson (General Insurance Services) Limited. If you would like some General Insurance advice then please telephone Andrew on 028 9068 0612 or alternatively e-mail him using email@example.com
The Retail Distribution Review What has been billed as the biggest shake-up in retail financial services is now less than one year away. Despite regulatory initiatives and sheaves of disclosure documentation in the past few years, there is no doubt that the Retail Distribution Review (‘RDR’) will be a game-changer for the financial advice industry.
The Financial Services Authority’s expressed aims are that consumers are offered a transparent and fair charging system for the advice they receive, are clear about the service they receive and that advice is provided by highly respected professionals. In short, this means that from 1 January 2013, commission payments by insurers will be banned and advisers will be required to agree with their clients exactly what they pay for what service provided. Qualification-wise, the bar is being raised to at least diploma standard (from the current certificate minimum standard) as the FSA wants to put the financial advisory industry on a similar professional standing to that of law and accountancy respectively. Even at this stage it is difficult to overestimate the impact that the new rules will have on firms (both provider firms and advisers). Financial advisory firms are currently busying themselves with redefining their business models and developing their menus and costs of services, and the back office implications that these
changes bring; exams are being notched up and Statements of Professional Standing (the prerequisite for giving advice post-January 2013) are being applied for. From a client’s perspective, they will already be having a different conversation with their advisers and, over the course of the next few months, should be much clearer in terms of exactly what services they want and are getting for their money. One of the likely main industry ramifications of the RDR is that there will be a significant contraction in the number of advisers who will be able (or willing) to meet the new requirements for ‘independence’. Already several major networks of advisory firms have announced that they will be ‘restricted’; advisers who want to continue calling themselves independent will have to meet the RDR’s wholeof-market requirements, which are much more challenging and wide-ranging than is currently the case. This status will be essential for introductions from solicitor firms as the Law Society position is that solicitors can only refer clients to advisers who are independent. At Kerr Henderson, we already have three
Chartered Financial Planners, others qualified to diploma level and a team of specialist paraplanners. We will be retaining our independent status which means that we will be seeking to build on our already strong relationship with our professional introducer firms as we already work alongside, and complement the services provided by, such firms for their clients. Such clients (including their families and businesses) require strategic and practical advice on all aspects of their financial planning needs, which may include business and inheritance tax planning, specialist retirement and investment requirements. We are well positioned to continue to be able to provide these services into 2013 and beyond and if you feel that we can assist in any way, please do get in touch with Maxwell Buchanan, Nikki Rodgers or Stephen McCleary on 0845 247 7777 to discuss further. This article was written by Kathy Cowan, Director of Compliance at the Kerr Henderson Group
Autumn Statement 2011 The Autumn Statement contained a range of new provisions relating to tax and government expenditure together with a reminder of some previously announced measures. Given the current state of government finances, it is hardly surprising that there were no headline-grabbing tax cuts, but there was a number of interesting measures aimed at individual taxpayers. The key points to come out of the statement were as follows:
• The State Pension Age will rise to age 67 from 2026, eight years earlier than originally planned; • The annual capital gains tax (CGT) exemption will remain at £10,600 for the 2012/13 tax year; • The investment limit for ISAs will increase from £10,680 this year to £11,280 for the 2012/13 tax year (£5,640 for cash ISAs); • The introduction of a new tax-advantaged investment scheme to encourage investment into start-up companies. The Seed Enterprise Investment Scheme (SEIS) will be introduced from April 2012 and will provide income tax relief of up to 50% for an investment of up to £100,000, carried out by an individual into shares in a qualifying company. Additionally, where an individual realises a capital gain in the 2012/13 tax year, this gain will be exempt from CGT if the proceeds are invested into a qualifying SEIS (this is a one-off exemption); and • Also in the area of tax-advantaged investment, the rules for Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT) are to be reviewed in order to ensure that investment is reaching the intended recipients, i.e. small trading companies in need of capital. In an interesting move, it is intended to exclude from relief any companies set up to access the relief ! This is clearly targeting the popularity of lower risk schemes which are engineered to take minimal risk.
Compulsory Pension Provision - 2012 Auto-enrolment is, quite simply, the biggest single change to the UK pensions system in our lifetime. It can be seen as the first step towards compulsory pensions savings and it will affect the vast majority of UK employers and employees.
The starting date is 2012. Employers with at least one worker will be obliged to automatically enrol their workers into their pension scheme. The key word here is “automatically” – in other words, the employee will not need to make any active decision to join and the onus instead will be on the employer to join the employee to their scheme. Quite the reverse, of the current situation where there is an active decision on the part of the employee, they don’t join. The employee, thereafter, can elect to “opt out”, with the monies paid being refunded to the respective parties but inactivity on the part of the employee will now mean membership – and hence contributions will be due from both the employee and employer. However, that’s not the end of it - the process has to be repeated every three years with the “opt outs” being automatically re-enrolled and offered the opportunity to opt-out again. Meanwhile, new employees and current employees who pass certain age or pay thresholds throughout the year will also need to be automatically enrolled. We expect that automatic enrolment will overcome the two key areas which currently hold employees back from initiating retirement savings, by (a) forcing employers to provide a monetary pension provision and (b) by removing the inertia to joining a scheme by making the default option membership. There will clearly be a cost involved which employers need to take into consideration now. Although initially contributions will be phased in the final minimum cost will be 5% gross employee contribution and 3% employer. Whilst the starting date is October 2012, the new obligations will be phased in between then and October 2016, depending on the size of the employer, with the larger employers coming first. You can check the date (referred to as the “Staging Date”) that applies to your own organisation at http://www.dwp.gov.uk/docs/staging-dates-byemployer.pdf but make sure you consider how this date applies to your current business model. For example, if your business is seasonal and your official staging date coincides with the busiest time of your year, you may want to give consideration to bringing forward your staging date to a period which you are better resourced to deal with the challenge.
All employers are going to be affected by this change in legislation so it is important that they prepare well in advance for the associated increases in cost and administration. A number of options are available
The most eye-catching of the above announcements is the proposed new tax relief for investing in start-up companies via the SEIS. With the income tax relief set at 50% of the amount invested (irrespective of the rate of tax payable by the investor), together with the potential for CGT relief at 28%, total relief of 78% could be achieved. Whilst the reliefs are doubtless exciting, it must be remembered that investment in start-up companies carries a very high level of risk and, from the proposals relating to EIS, it is likely that the rules for SEIS will be tightly drawn.
Although not announced in the Autumn Statement, in the preceding days a significant change was announced in relation to the “carry forward” rules for pension contributions. As background to this rule change, from April 2011 the maximum allowable pension contribution was reduced from £255,000 to £50,000. However, an individual is able to carry forward any unused element of their notional £50,000 entitlement from the 2008/09, 2009/10 and 20010/11 years (provided that he/she was a member of a
to employers to help meet their obligations and include the creation of a new, low-cost, national pension scheme, NEST (National Employment Savings Trust). However many current schemes can be amended so that they allow them to meet the qualifying requirements. Businesses will need to audit their current arrangements and decide what approach best suits their financial model. The solution may well involve an incorporation of current arrangements and/or the inclusion of NEST for a tier of the workforce.
The Kerr Henderson Corporate Pensions team has developed an Automatic Enrolment Audit to assist employers in identifying their obligations and to design the most relevant response. The audit involves the following seven steps:
Assess the workforce and who to enrol
Audit the existing pension provision
Audit existing group risk benefits
Audit legal processes
Audit the HR system
Audit the payroll system
Design a compliant strategy
Should you wish to consider the audit for your own organisation or you simply want more information on how automatic enrolment could affect you, please contact Brian Jackson at firstname.lastname@example.org or 028 9068 0621.
UK Registered Pension Scheme in those years) and make a higher contribution in the current year (subject to earnings). Previous HMRC guidance required unused allowances in the 2008/09 or 2009/10 years to be reduced by contributions in excess of £50,000 in the subsequent 2009/10 or 2010/11 years. This is no longer the case and excess contributions over £50,000 are ignored for the carry forward calculation for the three transitional years only. For example, under the old rules an individual who had contributed £20,000, £100,000 and £100,000 in the previous three years respectively would not have had any unused allowance to carry forward (as the unused allowance in the earlier year is used up by the over contribution in the later years), whereas under the new rules £30,000 would be available for carry forward from the 2008/09 year. This new interpretation by HMRC should act as a reminder that individuals should review their pension contribution history in order to assess their ability to maximise contributions and tax reliefs in the current year.
The Group comprises Kerr Henderson (General Insurance Services) Ltd, Kerr Henderson (Financial Services) Ltd and Kerr Henderson (Consultants and Actuaries) Ltd. We are an independent financial advisory firm and employee benefit consultancy providing whole of market advice to corporate and private clients.
We employ 70+ specialist staff among whom are scheme actuaries, Fellows of the Pensions Management Institute, Chartered Financial Planners, Fellows and Associates of the Chartered Insurance Institute. We provide a comprehensive range of services, as follows:
Services f or B usines se s • • • • • • • • • • • •
Commercial Insurances: Employers Liability, Public Liability, Motor Fleet and Property Professional Indemnity insurance Death-in-service, sickness and disability benefits Private Medical Insurance Critical Illness Insurance Keyman, business and partnership insurance Total remuneration planning (including flexible benefits) Pension disclosures for company/partnership accounts Pension strategy and change Pensions and benefits for executives Pension aspects of mergers and acquisitions Group Personal Pensions
Services f or P rivate Clients • • • • • • • • •
Personal Insurances: Motor, Household, Holiday Home and Pleasure Craft Strategic and tactical financial planning advice Personal investment advice and administration Wealth management Pensions and retirement advice and administration Inheritance tax planning Trust advice and administration Advice in respect of pensions and divorce Protection: life, medical, critical illness, income
Services f or P ens ion Sche me Trus te es • • • • • • • • • •
Actuarial consulting Investment consulting Pensions administration Pensions consulting Secretarial services for trustees Trustee training Trustee governance Scheme and member communication Insurance of group risk benefits. Trustee indemnity insurance
Investments | Pensions | Insurance WE LISTEN, WE ADVISE, WE DELIVER
29-32 College Gardens, Belfast BT9 6BT 08452 47 77 77 www.kerrhenderson.com Kerr Henderson (Financial Services) Limited (registered in Northern Ireland No. NI5131) is authorised and regulated by the Financial Services Authority, FSA Register number 125322. Kerr Henderson (General Insurance Services) Limited (registered in Northern Ireland No. 28521) is authorised and regulated by the Financial Services Authority, FSA Register number 309312. Kerr Henderson (Consultants and Actuaries) Limited (registered in Northern Ireland No. 34514) is an Appointed Representative of Kerr Henderson (Financial Services) Limited, FSA Register number 188411.