Protecting Your Legacy

Last Wednesday (23rd September, 2015) saw our Team gather together with an audience of around 40 guests at Quorn Country Hotel to consider how to ‘Protect your Legacy’.

Over the course of the morning Nelissa explained why it’s so important to make a Will, Rebecca told us how Inheritance Tax works, how much you’re likely to pay, and various ideas for how to avoid it.

Richard went on to explain how valuable tax reliefs can help reduce your IHT bill, especially in the area of Business Property Relief. Dave went on to cover a range of planning possibilities using trusts to reduce your tax whilst still keeping control over your cash.

We asked the attendees how useful they found the Seminar, and the praise was high. They told us that the morning had been clear and informative, and had given them a new insight into planning for the future. There was also a wide appreciation that everyone’s circumstances are different, and that there is no single solution that works for everyone. You can view some of their comments in this short video.

The final session of the morning gathered a number of the ideas together in the form of a ‘real-life’ case study, the story of one particular Chesterton House client with a long relationship with the firm. Richard and Rebecca explained how, using a combination of financial planning, investing and legal strategies it had been possible to reduce this couple’s eventual tax bill to a tiny fraction of the amount that would have been payable without taking any action, whilst still ensuring that there were ample funds to pay for the care and support that was required for several years towards the end of their lives.

The case study was a great example of how a long-term professional relationship, focused on a person’s needs, goals and objectives, implemented and adjusted regularly over the years as those needs and circumstances change, can bring not only great peace of mind but also real financial benefit. It also highlighted the advantage of financial, legal and accounting professionals working together to get the best outcome for clients – a hallmark of our service at Chesterton House.

If these are topics in which you have an interest, you can start by having a word with our Team. They would be very pleased to discuss your situation with you.

Two Types of Financial Freedom

There are two types of financial freedom.

Firstly, there is having enough money or passive income (pensions, royalties, dividends,) to not need to work.

But then there is the financial freedom that comes from knowing that you can work, whenever you want, for as long as you want, to meet your needs at this moment. It isn’t the same as having a job.

Typically the first requires years of effort, careful stewardship and ongoing maintenance.

The second works best if you travel light, and it’s available immediately.

Both can be rewarding.

But be careful trying to do both at once.


Lamborghinis for Pensioners?

The Chancellor’s surprising Budget changes to the pensions regime obviously caught the opposition on the back foot. Given the complexity of current pensions legislation that’s probably understandable.
It was refreshing, though, to see some move away from the ever tightening grip of the state on the way we conduct our affairs towards a greater degree of freedom and choice. As a pension specialist, I certainly welcome this change which should make life easier for many and help rebuild some long lost faith in using pensions for retirement saving.


The idea of allowing people to choose how they use their own money was a radical one, but it hasn’t come before time. There’s a long history of government initiatives in the area of savings and investment that either didn’t work at all or resulted in unintended consequences. Indeed, the whole minefield of pensions legislation is an example of good ideas spoiled by excessive meddling.


So what has actually changed?

The new freedoms are not really new. We’ve had ‘Flexible Drawdown’ for a while now, which allows anyone with total guaranteed pension income of over £20,000 a year to take as much as they like from their accumulated funds. The Budget brought this figure down to £12,000 a year, meaning that someone with a full basic state pension plus at least £6,200 from a final salary scheme or annuity can now withdraw any amount they like from any additional ‘money purchase’ funds – such as a personal pension plan  – that they own.
As from next April, this lower minimum will be cast aside, and anyone over the minimum age for withdrawal, currently 55, will have full unfettered access to their funds at any time.


So what’s the catch, you may well ask? Why are the Government being so generous with your own money?


There’s a simple, one-word answer to this. Tax.
Any amount you draw out will be treated as taxable pension income in the year of withdrawal, so if you are already a taxpayer you’ll immediately lose 20% in tax. And if your other taxable income plus the withdrawal takes you into the higher tax band, that could become 40% or even 45% if you breach the top tax rate threshold.


Steve Webb, the Liberal Democrat Pensions Minister, was widely reported for commenting that anyone could use their pension fund “to buy a Lamborghini,” if that was their wont.


But queues at Lamborghini dealerships seem unlikely to appear. With a price of at least £135,000 for the cheapest model, an individual would need to withdraw at least £180,000 and probably much more to afford their dream car, even taking into account that a quarter of the fund could be taken tax free, in order to have enough left for the car after deduction of income tax. That’s why the Chancellor has forecast a bulge in tax receipts after the changes come into effect.


This kind of spending is likely to be well beyond the means of most pensioners. According to reports, the size of the average pension pot stands at around £25,000. However even this figure takes into account the significantly fewer but statistically important number with funds worth hundreds of thousands. One estimate suggests that a large segment of the population has less than £4,000 in their pension fund.


This low reliance on pensions could be to do with the law of unintended consequences I mentioned earlier. Successive governments have appeared hell-bent  on a witch-hunt against the entire pensions industry, with decades of negative publicity and oppressive legislation. Is it any wonder that the average man or woman is now completely antipathetic towards the whole subject?


Now more than ever people need good advice, if no longer about which annuity to buy (although that will remain the best option for a minority) then about how to make the most of their fund and pay least tax. For very many people, carefully investing and managing their withdrawals over time to match their tax and personal circumstances – something we at Chesterton House have been doing for our clients for years – will be easily their best option as a way to make their funds last into advanced age.


The Chancellor’s changes may just have ushered in a new era of personal responsibility for your own  retirement planning. If so, that would in my view be a Very Good Thing. What it does require, though, is a new breed of professional, independent advisers who can help people to negotiate this complex minefield with confidence. Frankly the personal financial advice industry hasn’t been in a fit state to deliver this before, but recent changes to the minimum qualifications required and the way in which advisers are remunerated are already having an impact and consumer confidence in advice should begin to rise.


With the future financial wellbeing of millions at stake, this is too important an issue to get wrong. Let’s hope that the Budget changes are just the first step into a brave new world of personal freedoms and the inevitable responsibilities that go with them.