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    Managing Market Volatility

    Diversification is key in uncertain times

    The outbreak of coronavirus (COVID-19) has understandably been dominating the news headlines. Market fear over the escalating global spread of coronavirus has seen a sell-off across many asset classes. This period of market stress further emphasises the importance of diversification within portfolios. Investorsobjectives can rarely be met by investing in a single asset class.

    If you would like any further information please do not hesitate to book a meeting with Lawsons Equity to discuss how we can help.

    Diversification means making sure your portfolio has varied investments: investing in bonds and stocks, in different industries, and in small and large companies. Whilst dont put all your eggs in one basketis a well-used phrase, it is still relevant today and means: dont have all your money in one place, as you could lose it all in one go.

    Range of assets

    During the early weeks of the coronavirus outbreak, the response from financial markets was somewhat muted. However, as the virus has continued to spread, markets have reacted in a more pronounced way to the impact on global demand, supply chains and tourism

    This further strengthens the case to invest across several asset classes to provide greater diversification potential. Therefore, if one asset class performs less favourably, it can potentially offset another that is performing favourably, providing more balance to your portfolio when market shifts occur. Investment returns vary significantly between different asset classes or investment basketsyear-to-year.

    Return profile

    By holding well-diversified assets at both asset-class and geographical level, our portfolios experience a relatively smoother return profile because risk exposure is less concentrated.

    Investment options span every sector of the property, stock and bond markets, but allocating your assets based on performance alone is often ill-advised because the market is a moving target. One year, a particular type of security can be a star performer, only to severely underperform the very next year.

    Life stages

    Different investors are at different stages in their lives. Older investors may have a shorter time horizon for their investing than younger investors. Risk tolerance is a personal choice, but its good to keep perspective on personal time horizons and manage risk according to when access to funds from different assets is needed. If cash is needed in the near term, it is better to sell an asset when you want to sell it rather than when you have to sell it.

    Under normal market conditions, diversification is an effective way to reduce risk. If you hold a diversified portfolio with a variety of different investments, its much less likely that all of your investments will perform badly at the same time.If you hold just one investment and it performs badly, you could lose all of your money. The profits you earn on the investments that perform well offset the losses on those that perform poorly.

    Reducing risk

    While it cannot guarantee against losses, diversifying your portfolio effectively and holding a blend of assets to help you navigate the volatility of markets is vital to achieving your long-term financial goals while reducing risk.

    As well as investing across asset classes, you can further diversify by spreading your investments within asset classes. For instance, government bonds and corporate bonds can offer very different propositions, with the latter tending to offer higher possible returns but with a higher risk of defaults, or bond repayments not being met by the issuer.

    However, although you can diversify within one asset class for instance, by holding equities in several companies that operate in different sectors this will fail to protect you from systemic risks, such as international stock market volatility.

    Timing the market

    Resist the temptation to change your portfolio in response to short-term market movement. Timingthe markets rarely works in practice and can make it too easy to miss out on any gains.

    Over the long term, investors will experience market falls which happen periodically. Generally, the wrong thing to do when markets fall by a reasonable margin is to panic and sell out of the market – this just means you have taken the loss. Its important to remember why youre invested in the first place and make sure that rationale hasnt changed.

    Optimal balance of risk and return

    Whatever your approach, diversification can help to manage your investment risk. If you would like further information or to discuss your requirements, please contact Lawsons Equity on +44 (0) 2033 935 920 or email info@lawsonsequity.com

    Lawsons Equity is licensed by the Malta Financial Services Authority as Enrolled Insurance Brokers under the Insurance Intermediaries Act 2006, and to provide Investment Services under the Investment Services Act, 1994.

    Information is based on out current understanding of taxation legislation and regulations. Ant levels and bases of, and reliefs from, taxation are subject to change. The value of investments and income from them may go down. You may not get back the original amount invested. Past performance is not a reliable
    indicator of future performance

    Income Protection Insurance

    There is a growing unease about the economic fallout of coronavirus (COVID-19), with many businesses laying off contractors and putting staff on extended leave, as well as natural worries about contacting the disease.

    What this crisis has shown is that being unable to work can quickly turn our world upside down. No one likes to think that something bad will happen to them, but if you can’t work due to a serious illness, how would you manage financially? Could you survive on savings or sick pay from work? If not, you may need some other way to keep paying the bills – and income protection insurance is an option to consider.

    You might think this may not happen to you, and of course we hope it doesn’t, but it’s important to recognise that no one is immune to the risk of illness and accidents. No one can guarantee that they will not be the victim of an unfortunate accident or be diagnosed with a serious illness. This won’t stop the bills arriving or the mortgage payments from being deducted from your bank account, so forgoing income protection insurance could be tempting fate.

    Cover monthly payments

    Income protection insurance is a long-term insurance policy that provides a monthly payment if you can’t work because you’re ill or injured, and typically pays out until you can start working again, or until you retire, die or the end of the policy term – whichever is sooner.

    Keep your finances healthy as you recover from illness or injury:

    Income protection insurance replaces part of your income if you become ill or disabled
    It pays out until you can start working again, or until you retire, die or the end of the policy term – whichever is sooner
    There’s a waiting period before the payments start, so you generally set payments to start after your sick pay ends, or after any other insurance stops covering you. The longer you wait, the lower the monthly payments
    It covers most illnesses that leave you unable to work, either in the short or long term (depending on the type of policy and its definition of incapacity)
    You can claim as many times as you need to while the policy is in force

    Generous sickness benefits

    Some people receive generous sickness benefits through their workplace, and these can extend right up until the date upon which they had intended to retire. However, some employees with long-term health problems could find themselves having to rely on the state, which is likely to prove hard.

    Tax-free monthly income

    We’re already seeing, as a consequence of COVID-19, how many people are finding it a struggle financially without a regular income. Even if you were ill for only a short period, you could end up using your savings to pay the bills, but how long would they last? In the event that you suffered from a serious illness, medical condition or accident, you could even find that you are never able to return to work. Few of us could cope financially if we were off work for more than six months. Income protection insurance provides a tax-free monthly income for as long as required, up to your nominated retirement age, should you be unable to work due to long-term sickness or injury.

    Profiting from misfortune

    Income protection insurance aims to put you back to the position you were in before you were unable to work. It does not allow you to make a profit out of your misfortune. So the maximum amount of income you can replace through insurance is broadly the after-tax earnings you have lost, less an adjustment for state benefits you can claim. This is typically translated into a percentage of your salary before tax, but the actual amount will depend on the company that provides your cover.

    Self-employment

    If you are self-employed, then no work is also likely to mean no income. However, depending on what you do, you may have income coming in from earlier work, even if you are ill for several months. Self-employed people can take out individual policies rather than business ones, but you need to ascertain on what basis the insurer will pay out. A typical basis for payment is your pre-tax share of the gross profit, after deduction of trading expenses, in the 12 months immediately prior to the date of your incapacity. Some policies operate an average over the last three years, as they understand that self-employed people often have a fluctuating income.

    Cost of cover

    The cost of your cover will depend on your occupation, age, state of health and whether or not you smoke. The ‘occupation class’ is used by insurers to decide whether a policyholder is able to return to work. If a policy will pay out only if a policyholder is unable to work in ‘any occupation’, it might not pay benefits for long – or indeed at all. The most comprehensive definitions are ‘Own Occupation’ or ‘Suited Occupation’. ‘Own Occupation’ means you can make a claim if you are unable to perform your own job. However, being covered under ‘Any Occupation’ means that you have to be unable to perform any job, with equivalent earnings to the job you were doing before not taken into account.

    You can also usually choose for your cover to remain the same (level cover) or increase in line with inflation (inflation-linked cover):

     Level cover – with this cover, if you made a claim, the monthly income would be fixed at the start of your plan and does not change in the future. You should remember that this means if inflation eventually starts to rise, the buying power of your monthly income payments may be reduced over time

     Inflation-linked cover – with this cover, if you made a claim, the monthly income would go up in line with the Retail Prices Index (RPI)

    When you take out cover, you usually have the choice of:

     Guaranteed premiums – the premiums remain the same all the way throughout the term of your plan. If you have chosen inflation-linked cover, your premiums and cover will automatically go up each year in line with RPI

     Reviewable premiums – this means the premiums you pay can increase or decrease in the future. The premiums will not typically increase or decrease for the first five years of your plan, but they may do so at any time after that. If your premiums do go up or down, they will not change again for the next 12 months

    Making a claim

    How long you have to wait after making a claim will depend on the waiting period. You can typically choose from between 1, 2, 3, 6, 12 or 24 months. The longer the waiting period you choose, the lower the premium for your cover will be, but you’ll have to wait longer after you become unable to work before the payments from the policy are paid to you. Premiums must be paid for the entire term of the plan, including the waiting period.

    Innovative new products

    Depending on your circumstances, it is possible that the payments from the plan may affect any state benefits due to you. This will depend on your individual situation and what state benefits you are claiming or intending to claim. This market is subject to constant change in terms of the innovative new products that are being launched. If you would like further information or to discuss your requirements, please contact Lawsons Equity on ++356 2157 6666 or email info@lawssonsequity.com

    The Coronavirus Budget – 2020 Summary

    Chancellor Pumps Billions Into Economy To Combat Coronavirus

    In this Government’s first budget and the first since the UK left the EU, the Chancellor, just four weeks into his role, was faced with a number of challenges.   

    A lot of the material content of this Budget had been in respect of existing areas that had been foreseen. However the global economic effect that the current Coronavirus outbreak, combined with the devastating effect that flooding has had on certain areas of the UK has led to the need for all of these issues to also be incorporated, whilst ensuring this is a Budget that delivers on the promises made by the government to lay foundations for the UK’s future prosperity.

    What will be greeted with a sigh of relief for the financial services industry is there has only been a minimal amount of tinkering. It is widely hoped that the current uncertain economic climate will only be temporary in nature and that the situation will be a little more settled by the time the Autumn Budget comes around.

    Key Announcements Made by Mr. Sunak in his First Budget: 

    Income Tax

    • The tax-free personal allowance will remain at £12,500 for 2020/2021.
    • The higher and additional rate tax thresholds remain unchanged as do the starting rate for savings income, dividend allowance and personal savings allowance.
    • The Scottish Government presented its Budget for 2020/2021 on 6th February and set the starter and basic rate thresholds at £2,085 and £12,658 respectively. All other thresholds remain unchanged.
    • Top Slicing Relief (TSR) on life insurance policy gains – Following a recent First‑Tier Tribunal case, the government will legislate in Finance Bill 2020 to put beyond doubt the calculation of TSR by specifying how income tax allowances and reliefs can be set against life insurance policy gains. This measure will apply to all relevant gains occurring on or after 11 March 2020.

    Capital Gains Tax (CGT)

    • Effective from 11 March 2020, the lifetime limit on gains eligible for Entrepreneurs’ Relief (which offers a reduced 10% rate of Capital Gains Tax on qualifying disposals) will be reduced from £10 million to £1 million.
    • The annual exempt amount increases to £12,300 from 6 April 2020.
    • Trustees will benefit from an annual exempt amount of £6,150 although this amount will be diluted where the settlor has created more than one trust subject to a minimum of £1,230 per trust.

    Inheritance Tax (IHT)

    • The only IHT related change is the already known raising of the residential nil rate band to £175,000.

    Corporation Tax

    • The main corporation tax rate will remain at 19% rather than pressing ahead with the previously planned reduction to 17%.

    Pensions

    • The lifetime allowance will increase to £1,073,100 from 6 April 2020.
    • Changes to the tapered annual allowance from 6 April 2020.
    • Following the proposals to compensate senior NHS clinicians who have been subject to the annual allowance charge, the two tapered annual allowance thresholds are being raised by £90,000. This means that those whose “threshold income” is £200,000 or less will not be affected by the taper at all, while those whose “adjusted income” is between £240,000 and £300,000 will have a reduced annual allowance of between £40,000 and £10,000.
    • For those with total income (including pension savings /accrual) over £300,000, the tapered annual allowance will reduce further, to a minimum of £4,000. For example, someone with total income of £312,000 or more will have a tapered annual allowance of £4,000.
    • In view of the revision in the tapered annual allowance thresholds, the proposals to offer greater pay in lieu of pensions for senior clinicians in the NHS pension scheme are not being adopted.
    • The government will shortly be publishing a call for evidence regarding the disparity in the tax relief position for low earners making pension contributions dependent on the method of tax relief adopted by the pension arrangement.
    • Following the Civil Partnerships (Opposite-sex Couples) Regulations 2019, individuals can derive or inherit a State Pension from an opposite-sex civil partner.

    ISAs

    • The ISA annual subscription limit will be £20,000, while the Lifetime ISA annual limit will remain £4,000, for the 2020/21 tax year.
    • However JISA and Child Trust Fund subscription limits will be significantly increased from £4,368 to £9,000 for 2020/2021.

    National Insurance

    • The National Insurance contributions (NICs) Primary Threshold and Lower Profits Limit, for employees and the self-employed respectively, will increase to £9,500 from April 2020.

    Stamp Duty

    • Non-UK resident Stamp Duty Land Tax (SDLT) surcharge – The government will introduce a 2% SDLT surcharge on non-UK residents purchasing residential property in England and Northern Ireland from 1 April 2021.

    Coronavirus support

    • To support the NHS and other public services, there will be a £5bn emergency response fund.
    • A £500 million hardship will help vulnerable people.
    • Support with sick pay will be available with statutory sick pay paid to all those who choose to self-isolate, and Contributory Employment Support Allowance benefit claimants will be able to claim sick pay from day one.
    • Sick pay payments will be refunded for two weeks for firms with fewer than 250 staff.
    • Business interruption loans of up to £1.2m will be available for small firms.
    • Business rates will be abolished for firms with a rateable value below £51,000 in the retail, leisure and hospitality sectors.
    • The Science Institute in Weybridge, Surrey which is analysing coronavirus samples will get a £1.4 billion funding boost.

    Consultations and Other Forthcoming Legislation

    The Government:

    • is legislating to clarify when fund management services are exempt from VAT and will set up an industry working group to review how financial services are treated for VAT purposes.
    • will publish an evaluation of the introduction of Making Tax Digital for VAT, along with related research.
    • will have a call for evidence on raising standards for tax advice available to individuals.
    • together with the UK Statistics Authority (UKSA), is launching a consultation on the shortcomings of the Retail Prices Index (RPI) measure of inflation. This closes on 22 April 2020.
    • will consult to ensure that where tax legislation makes reference to the London Inter-Bank Offered Rate (LIBOR), which is being replaced in 2021, it continues to operate effectively.
    • will legislate to take further action against those who promote and market tax avoidance schemes.

    Miscellaneous

    • No fuel or alcohol duty rises.
    • Pubs will benefit with business rate discounts rising this year from £1,000 to £5,000.
    • A plastic packaging tax will come into force from April 2022.
    • Emergency relief funding of £120 million will be provided for communities affected by the recent flooding and additional £200 million will be available for flood resilience. In addition to this, over the next 5 years, the total investment in flood defences will be doubled to £5.2 billion.
    • A new ‘nature for climate fund’ will be set up with £640 million of funding to protect natural habitats. This will also fund 30,000 hectares of new trees.
    • By the middle of 2025, more than £600 billion is set to be spent on roads, railways, broadband and housing.
    • Over 5 years, £2.5 billion will be made available to fix potholes and resurface roads.
    • An extra 6,000 places for rough sleepers will be provided under a £650 million package to tackle homelessness. This will be funded by the stamp duty surcharge mentioned earlier in this summary.
    • After the Grenfell Tower fire, a £1 billion fund has been set aside to remove all unsafe combustible cladding from all public and private housing higher than 18 metres.

    Keep your financial plans on track after the Budget 2020 with Lawsons Equity. To discuss the announcements made by the Chancellor of the Exchequer and their implications on you, your family and your business, please do not hesitate to contact us.

    We look forward to hearing from you

    Oil Crash Shakes Financial Markets

    An international row between two of the world’s biggest oil producers – Saudi Arabia and Russia – has triggered a price war just at the time when the coronavirus crisis threatens the global economy.

    Oil prices crashed by more than a fifth plunging and spurring a rush into government bonds as investors sought havens.

    The FTSE 100 suffered its biggest intraday fall since 2008 this morning as the outbreak and plunging oil prices dragged the index below 6,000 points and sent stock global stock markets crashing.

    London’s blue-chip index fell by as much as 8.7 per cent to just 5,899 points as it opened following a weekend of coronavirus turmoil.

    It then rebounded slightly as traders scrambled to find their bearings, but stood 6.6 percent lower by 11.30am at 6,038 points.

    The price of crude oil is about half the level it hit in early January.

    The root cause of that is the coronavirus. It has hit demand for oil and some of the big exporters have been trying to stabilise its price. Last week a group of them discussed production cuts.

    But the biggest producer among them, Russia refused and the oil price fell further.

    Cheaper oil is obviously a benefit for users. Airlines have been hit by a decline in bookings, but cheaper fuel will offset that a little. And in time, there will be an impact on the price that motorists pay, although in many countries, including Britain, tax accounts for most of what they pay.

    The Saudis are the biggest oil exporter in the world with the cheapest cost of production. The state-owned producer Aramco can get oil out of the group for less than $3 a barrel, which puts them in a stronger position to survive a price war.

    But a prolonged battle would put pressure on even the Saudis’ finances, which is why they are keen to diversify their economy under ruler Mohammed Bin Salman’s Vision 2030 programme. Ratings agency Fitch estimates the Saudis need a price of $82 a barrel to balance the books.

    What does it mean for the UK?

    The UK is a net oil importer, so firms across the country will have cheaper production costs. Motorists should also feel the benefit at the forecourt, although the majority of a litre of petrol is made up of fuel duties and VAT.

    A low oil price should provide a modest tailwind for an economy likely to be ravaged by coronavirus in the next few months. The Bank of England could soon be writing a letter to the Chancellor explaining why inflation is more than 1 percentage point below its official 2pc target.

    Don’t Fall Off: Volatility in the Stock Market

    Far far away, behind the word mountains, far from the countries Vokalia and Consonantia, there live the blind texts. Separated they live in Bookmarksgrove right at the coast of the Semantics, a large language ocean. A small river named Duden flows by their place and supplies.

    Life’s a Rocky Road: Bracing for Challenges

    Far far away, behind the word mountains, far from the countries Vokalia and Consonantia, there live the blind texts. Separated they live in Bookmarksgrove right at the coast of the Semantics, a large language ocean. A small river named Duden flows by their place and supplies.

    5 Tips on Diversifying Your Portfolio

    Far far away, behind the word mountains, far from the countries Vokalia and Consonantia, there live the blind texts. Separated they live in Bookmarksgrove right at the coast of the Semantics, a large language ocean. A small river named Duden flows by their place and supplies.

    QROPS Malta – One of the Top UK Pension Transfers Destinations

    Those of you reading this are probably already aware of the key benefits of a QROPS and who can have a QROPS (not only ex-pats but even UK residents). One of the unique benefits of a QROPS is that it does not have to be situated in the place you happen to be living at the time. Rather, transferring your UK pension into a QROPS enables you to choose the jurisdiction that will benefit you most now, in the future and in retirement.  There are a number of options to consider, and your choice of jurisdiction should be guided by the factors covered in our article on Top 3 UK Pension Transfers Destinations. Three of the most popular; Gibraltar, Malta and the Isle of Man predictably happen to be the three safest options. This article goes into more detail on Malta QROPS and the unique advantages of using Providers of Malta QROPS.

    QROPS Malta – One of the Top UK Pension Transfers Destinations

    In the early days of QROPS Guernsey was the number one jurisdiction, however, HMRC delisted the 300 schemes in Guernsey after a new rule was brought in for QROPS, that is that the schemes must be open to local residents and not a system for UK ex-pats.  This opened the door for Malta pension providers with Malta’s strategy to build an economy based on international financial services. Malta now has 21 schemes and is considered as one of the top locations to transfer a pension for those living in the EEA.

    Malta QROPS Changes

    Discussing QROPS in Malta we need to understand some key benefits in order to understand ‘why Malta?’  A start point is to understand the New QROPS Malta Rules for 2017 to see if it is suitable for you and if it meets your personal and financial objectives:

    • Clients need to be 55 before they can draw benefits, this is down from the old rule of 50.
    • Clients must live within the EEA and if they leave within 5 years will be subject to the Overseas Transfer Charge of 25%.
    • Flexible drawdown is available, similar to the UK, so you can take your pension in periodic lump sums, as an annual income, as a mix of the two or cash in your pension from age 55; tax will be due where you are resident when drawing benefits if there is a Double Taxation Agreement with Malta; if no DTA, you pay Maltese income tax on the QROPS.
    • The tax-free lump sum allowed is 25% for clients wanting flexi drawdown.
    • Tax rate will depend on where you are living when you decide to draw pension benefits. You will need to look into the Double Taxation Agreements between Malta and the country you reside in to see who gets the taxation rights.
    • You then need to look into local personal income marginal tax rates and allowances to see what income tax is payable.
    • You need to show proof of tax residence in your country of retirement if you want your QROPS in Malta to be paid out gross. A DTA also needs to exist. Otherwise, you will be taxed in Malta at Malta Tax Rate (personal income tax rates) of up to 35%.
    • There is no tax on growth or death in Malta.
    • You can invest in the currency of your choice, e.g. GBP, USD or EUR.
    • You can invest in the investments of your choice: you can self direct, but you cannot self-manage. The pension trustees in Malta for your QROPS need to sign off on any changes, so you can’t just log-in and make changes like you can in a UK SIPP.
    • If you move back to the UK, often your tax on death will be significantly less due to benefits are taken whilst abroad and time spent abroad. Any death taxes in the UK would also be based on the original transfer amount, not any gains.

    Benefits of QROPS in Malta

    • Strong Regulation -Maltese Financial Service Authority (MFSA) is the regulator and much of its rules are based on those of the old UK FSA and now the UK FCA. It has a robust EU compliant regulatory framework.  At the same time, the MFSA ensure that they support business encouraging innovation hence encouraging more providers and more competition and choice for prospective clients.
    • Due Diligence – In order to gain approval from the MFSA, the providers of schemes have to go through an extensive due diligence process and must abide by the EU Capital Adequacy Rules
    • Growth in Financial Services Sector – In recent years there has been 25% growth in Malta’s finance sector (Finance Malta 2017 Edition).
    • English is the primary language of business in Malta making it easy to conduct business and no need for translation of documents saving costs and time.
    • Tax Advantages – QROPS Malta Rates– British expats living abroad can now transfer their pensions to a QROPS Malta to avoid paying UK taxes as long as they remain tax resident outside the UK. A Qualifying Recognized Overseas Pension Scheme in Malta avoids up to 45% tax upon death imposed in the UK after age 75 and also avoids UK income taxes of up to 45% when drawing pension benefits. But you have to be careful of the Double Taxation Agreements with the country where you want to draw retirement benefits as you will want to make sure you don’t get hit with a high-income tax on remittance into the country you reside in. You also need to check if you will be taxed in Malta or your country of retirement. https://www.financemalta.org/sections/tax/income-tax-in-malta/
    • 65 Dual Taxation Agreements – Malta currently has 65 Double Taxation Agreements with countries around the world (https://www.financemalta.org/double-taxation-agreements/), but you need to study each individual Double Taxation Agreement to understand where the tax liability is. The tax may be imposed in Malta, shared with Malta or be taxed in your country of residence at retirement. Gibraltar QROPS or a UK SIPP may be a better choice in many cases, particularly if you live in a country which does not have a Double Taxation Agreement (DTA) with Malta or you live outside the EEA. If there is no DTA with Malta in your country of residence, you would pay income tax in Malta on any retirement benefits you receive.
    • Member of European Union and is on the OECD white list and has a dedicated pension regulator which all contribute to its excellent reputation for financial safety, prudence and responsibility. http://www.internationaltaxreview.com/Article/3536277/Malta-Malta-publishes-Common-Reporting-Standard-guidelines.html
    • HMRC Co-operation – Because Maltese QROPS were originally designed according to British guidelines in co-operation with HMRC, this jurisdiction’s schemes benefit from having a similar foundation so generally easier to understand.
    • Life Time Allowance – For those not yet retired who have large pensions pots there can be a danger that with additional pension contributions, the growth of the funds or the revaluation of DB schemes that scheme could exceed the lifetime allowance. By transferring to a QROPS the LTA is fixed at the time of transfer so future grows does not impact the percentage of LTA used by the scheme.
    • Malta is a nice place to visit and easily accessible if you want to meet you provider face to face.

    Some well-known providers of Malta Pensions and QROPS Solutions

    • STM
    • TMF
    • Atom – Ex JTC
    • Momentum
    • Harbour
    • Elmo
    • MC Trustees
    • Bourse

    Transferring from a UK Defined Benefit Scheme to a QROPS or UK SIPP

    “The Pensions Regulator has revealed that 67,700 people transferred out of defined benefit pension schemes in the last year alone, as savers seek to take advantage of sky-high transfer values.”

    In this article, we will look at issues regarding final salary pension transfer advice and defined benefit pension transfer advice.  We will describe examples of:

    • Why people want to transfer from defined benefits pension schemes to defined contributions schemes (dc pension schemes)
    • Which pensions can be transferred and which cannot
    • Benefits of Transferring
    • Benefits of NOT transferring
    • Key factors that a pensions specialist must take into consideration
    • Brief outline of the process and how Lawsons Equity Ltd can

    It will provide a basis for comparing defined contribution vs defined benefit pension plans. 

    Transferring from a UK Defined Benefit Scheme to a QROPS or UK SIPP

    Why Do People Want to Transfer Defined Benefit Pension to a SIPP or a QROPS

    With increased pension flexibilities a greater number of clients are likely to find themselves considering some form of income withdrawal solution to their retirement income needs. With the availability of flexi-access drawdown (FAD) and its removal of the need to consider maximum GAD limits, the opportunity to take large, irregular and ad-hoc income payments creates further complexity in ensuring the sustainability of a client’s pension income.’ Just Retirement – Technical Bulletin – Critical Yield

    People want advice and will want to transfer for different reasons, each person is different and we at Lawsons Equity Ltd treat each as different.  There are many factors that must be considered at the start, and these are covered in detail in our article on Top 3 Destinations for Pension Transfers.    These include attitude to risk, ability to absorb fluctuations in the value of the pension fund, personal circumstances, economic goals etc. Examples of why people want to transfer include;

    • Flexibility over the nomination of beneficiaries, timings and benefit methods. With defined benefits (DB) schemes, beneficiaries may only be a spouse or civil partner, in some cases children up to 18 or 23 if in full-time education, or can prove they are dependent.
    • In the case of single or divorced clients with no children, they may wish to transfer so that they can leave their pension to other relatives.
    • Typically on the death of the pension holder, with DB schemes the beneficiaries get 50 or 60% of the pension benefits due to the pension holder. With a defined contribution scheme, the whole remaining pension pot can be left.  How it is treated for tax depends on the jurisdiction of the scheme and where the beneficiary is tax resident.  How pension pots are taxed on death are different for each jurisdiction and also depends where the beneficiaries are tax resident
    • Potential lower taxes depending on where the client expects to be tax resident and type of scheme.
    • Clients may wish to have more control over how their assets are invested thus giving them the prospect of greater capital and income payment (but understand this will bring greater risk). The current scheme may not reflect a client’s appetite for risk, benefits timing preferences or investment time horizon.
    • Clients may want the ability to choose to convert the capital into an annuity at a more personally appropriate time and have potential to benefit from enhanced or impaired annuity subject to deterioration in health in later life. In summary, they want flexibility and more control.
    • In some jurisdictions (i.e. Jersey) clients may want to take advantage of 30% tax-free cash lump sum payment versus 25% (if non-UK resident for more than 10 years);.
    • Opportunity to retire before the normal retirement date of their current scheme should the client wish. Typically with a QROPS or a SIPP, retirement can be from age 55, in a few jurisdictions retirement can be at 50.
    • Depending on the jurisdiction the client may elect to receive capped benefits between 0% and 150% of GAD between the ages of 55 to 75; it will give them more flexibility of drawdown to meet changing demands with age and changing lifestyle.
    • Clients may wish to take advantage of current annuity rates /gilt yields because they think they may be higher when they decide to take benefits and so the cost of securing the same level of income in the future could be less.
    • If clients are leaving the UK and will become tax resident in other countries they may want to take their pension in another currency to reduce currency risk.
    • Leave UK tax environment
    • Lock in high transfer value due to low-interest rates
    • Removal of life expectancy gamble associated with Defined Benefit schemes
    • Also if retiring abroad, there may be inheritance tax considerations to transferring a pension. 

    Which pensions can be transferred and which cannot

    If you’re in what’s called an ‘unfunded’ public sector pension scheme, you won’t be able to transfer your pension. Examples of an unfunded public sector pension scheme are the Teachers Scheme and the NHS scheme.

    You will be able to transfer your pension if you’re in a:

    • Private sector defined benefit scheme sometimes called final salary schemes or
    • Funded public sector pension scheme (such as the local government pension)

    Benefits of Transferring

    Not all benefits will apply to all clients, some depend on the jurisdiction of the new scheme, the tax residency and domicility of the client, where funds are remitted to, etc.

    • With flexible drawdown clients can control the rate at which they withdraw funds to optimize their tax situation and to match their lifestyle changes over time.
    • In some countries, clients can take advantage of the lower taxes provided that they are a tax resident but we are not tax advisors so clients must ensure that they will not be treated as a UK tax resident (see below section on tax).
    • 30% tax-free cash lump sum payment (depending on jurisdiction) versus 25% (if non-UK resident for more than 10 years);
    • If client dies before they reach the age of 75 and before taking any benefit (uncrystallised), they will be able to pass the value of their defined contribution pension interests as a lump sum completely tax-free.
    • They can select who they wish to nominate as their beneficiaries.
    • Pre-age 75, they can decide when to draw benefits and how much up to a statutory maximum each year.
    • Clients can elect drawdown or purchase an annuity with their new pension fund assets at a time that suits them better, perhaps when rates are more favorable. Annuity rates/gilt yields may be higher when they decide to take benefits and so the cost of securing the same level of income could be less;
    • Potential to benefit from enhanced or impaired annuity subject to deterioration in health in later life;
    • Clients can select where and how they invest; i.e. what asset class, what funds etc. So that they can take back control and have the potential to generate greater longer-term gains.

    Benefits of NOT Transferring out

    • Reduced exposure to investment, inflation and longevity risks.
    • Direct costs and more complexity than a lifetime annuity.
    • The value of investment capital and/or the income produced may fall as well as rise;
    • There is no guarantee that annuity rates will improve in the future. If you choose to purchase an annuity, the level of pension you receive when you purchase the annuity may be lower or higher than the pension available under ‘income drawdown’;
    • Receiving benefits from your personal pension may erode the capital value, especially if investment returns are poor and a high level of income is taken. If income withdrawals near, or are at, the maximum permitted are taken, such income withdrawals may not be sustainable. The higher the pension withdrawals you choose to receive, the higher the probability that your pension benefits may reduce in the future;
    • The lifespan of a member of a personal pension and the investment performance of the assets held in a personal pension are impossible to predict. As a result, once a member has started to draw down benefits from their personal pension and depending on the level of benefits paid, the assets in the pension may be exhausted before the death of the member.
    • There is no guarantee that annuity rates will improve in the future. If you choose to purchase an annuity, the level of pension you receive when you purchase the annuity may be lower or higher than the pension available under ‘income drawdown’;
    • A small number of defined benefit schemes have safeguards or guarantees that cannot be achieved in a defined contribution scheme. For example, some schemes allow members to take the pension after age 50, this is not available in any scheme that is currently available to transfer into.  Of course, the value of the pension would be reduced based on the recommendation of the Scheme’s actuary to reflect the increased number of years the pension would be paid.

    Key factor that a pensions specialist must be considered

    All the factors in our article on the Top 3 Destinations for Pension Transfers, however a small number of key ones are here:

    • Attitude to risk.
    • Your defined benefit pension value. Capital Equivalent Transfer Value (CETV).
    • Ability to absorb losses and/or accept variations up and down of the value of the new pension fund.
    • The funding status of your current DB pension scheme.
    • Cash flow to reduce the probability that you might ‘run out’ of funds if you draw down at too fast a rate.
    • The cost to buy the same benefits as the DB scheme with another scheme
    • Your financial and personal objectives.
    • In general the suitability of the proposed new pension in the light of your personal and economic circumstances and what you want to achieve.
    • The total cost (setup, IFAs fees, annual management fees etc) of the new scheme and underlying assets 

    Brief outline of the process and How can Lawsons Equity help.

    The process is straightforward but not simple. There are many dangers including the risk of pension scam, making illegal transfers that later lead to your fund being taxed as a non-qualified fund.  Lawsons Equity will work with your pension administrator to get the information needed for the analysis.  They will spend the time to understand your personal and economic objectives and your situation.  From this, they will develop a proposal with you for what type of pensions suits your needs, what underlying investments can help you meet your objectives and arrange financial advice from an FCA regulated pension specialist if required. Then once you have an agreed plan we will take responsibility for its implementation.  We are fully regulated and abide by the Malta Financial Service Authority code of ethics, our cost will be given up front, and we will treat you as an individual.

    Everything You Need To Know About Equities (Shares)

    Shares (Equities) are issued by companies to raise capital or financing from investors. When you buy a company’s shares, you become a shareholder of the company. Shareholders are usually entitled to a share of any dividends that are declared and paid.

    If the company you have invested in is wound up or liquidated, you are entitled to any assets that remain only after the company’s creditors have been paid. Many investors are concerned about the potential volatility of shares but as the chart below shows, even when there has been significant financial, political and economic problems in the world over the longer term they generally return good growth:

    everything you need to know about equities

    There are broadly two classes of shares – ordinary or common shares and preference or preferred shares. In this guide, we use “shares” to refer to ordinary shares.

    Ordinary shareholders have a right to attend and vote at general meetings on matters such as a major acquisition/disposal or the appointment of directors.

    A general meeting provides a forum for you to engage the company’s board/senior management and voice your views on matters affecting the company.

    Shareholders earn returns when they receive dividends and if they decide to sell their shares when the price of the shares gain in value.

    Dividends are paid out of the company’s profits.

    Not all the profits may be distributed. Companies may choose to re-invest profits generated from their operations into their business. A company’s share price reflects, amongst others, its growth prospects and future earning potential.

    Investors buy shares in the expectation that the share price will rise. Some may also buy shares as a hedge against inflation or for dividend income.

    Share prices are driven by economic and market conditions, as well as industry and company specific conditions. Much of the price movement of a share may be explained by how the overall market is performing.

    But not all shares react in the same way to the same set of economic, market or business conditions. Shares are often sorted into categories based on the characteristics they have, for example some shares may be referred to blue chips, or be perceived to have growth or cyclical tendencies.

    Such categorisation is based on market convention and may change over time. A company’s market capitalisation is the total market value of its shares.

    Shares may also be sorted by market capitalisation, for example, small aps, mid-caps and large caps. What constitutes a small, mid or large cap depends on the particular market you are interested in. Stocks with smaller market capitalisation may be newer companies, and not very well-researched.

    Investment Advice From Lawsons Equity

    Lawsons Equity Limited is a European-based financial services company providing authorised and regulated advice to clients and their families who may be looking for custom solutions in relation to pension plans, investments and other investment advisory services, as well as leading QROPS advice experts.

    Our Investment advisors have 15+ years experience and are looking forward to talking to you today. Visit our contact page to book your free consultation.

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