New! Case study document demonstrating ‘Why have an LPA?’. Download here or from our web page ‘Introduce-Wills and LPAs’

The new pension freedoms introduced in April 2015 have given retirees the option to keep investing their pension pot and draw an income directly from it, as well as the option to pass their pension pot on to their beneficiaries when they die.

While this greater flexibility is very attractive to some retirees, there is one obvious risk.

What will happen if their health deteriorates and they are no longer able to manage their income drawdown arrangement?

What if they need to adjust their income level (for example, to pay for care costs) or adjust their underlying investment choices? Who will make these decisions and instruct the pension company?

Obtaining authority to act on an individual’s behalf can be complicated, time-consuming, expensive and require a court intervention – even for a spouse or close relative.

Of course this risk isn’t new, but it is accentuated by the new rules and the fact that more and more people are likely to opt for income drawdown and keep their pension pots invested until the day they die.

In the ‘old days’, the vast majority of people retiring took out an annuity, whose terms (and income) are fixed for life and, therefore, incapacity was not such a risk as there are no decisions to be made.

Fortunately, a Lasting Power of Attorney (LPA) is a simple but highly effective solution. This legal document provides for one or more people to make decisions on an individual’s behalf if they are unable to manage their own affairs.

An LPA should arguably be an essential part of the financial planning process for any person opting for income drawdown when they retire. Currently, there seems to be limited usage of LPAs alongside income drawdown arrangements, which could be a recipe for problems in the future for those without an LPA.

Putting an LPA in place is a sensible step for anyone considering an income drawdown arrangement.

Factsheet is now available on the Roles and Responsibilities of a Guardian. Download here or from our Introduce – Wills and LPA  page on our website

Pavilion Row has become one of only 20 in the UK to be accredited as a Training Partner of the STEP Employer Training Scheme.

Through issuing accreditation as a training provider, STEP, which is the global association for professionals who advise on wealth planning, recognises Pavilion Row as an employer that encourages continuous learning and professional development, and supports its employees in developing their knowledge, skills and expertise.

 Angus Houston, managing director at Pavilion Row, said: “Our clients and introducers want to speak with qualified, knowledgeable and experienced advisors.

“All our advisors are STEP qualified, and this accreditation recognises the importance of STEP and ensures that we have approved processes in place to support our staff and grow their knowledge so that we all benefit.”

STEP’s head of Employer Partnerships Jenni Hutchinson said: “Through achieving this accreditation, Pavilion Row has demonstrated commitment to providing their STEP-qualified staff with the best possible learning and development opportunities and, as a result, strengthening the overall private wealth industry through high-quality, structured professional development.

“We look forward to working in partnership with Pavilion Row in order to support the ongoing development of this important initiative for STEP.”

As you all know, new rules regarding inheritance tax were announced in the summer budget, the main change being the introduction of a new “residence nil rate band” or “RNRB”. This is being introduced as part of an ambition to enable people to leave their family home to their families.

Putting matters into context IHT tax receipts continue to rise with April to August 2015 some 23.8% higher than the same period last year. According to RICS house prices are expected to rise by 25% over the next five years and Deloitte estimate that the existing nil rate band “NRB” would now be £378k rather than £325k if it had risen in line with inflation since 2009.

What are the bare facts?

• It is not being introduced until April 2017
• The new allowance is in addition to the existing nil rate band “NRB”
• It is being introduced in stages from £100k in 2017/18, £125k in 2018/19, £150k in 2019/20 and £175k in 2020/21 before then rising in line with CPI
• It only applies is you are leaving your home to “direct descendants” which includes children, adopted children, step children, grandchildren and foster children
• The allowance will be transferable in the same way as the current nil rate band “NRB”
• If married, even if 1^st death is before April 2017 any unused band can be transferred on second death
• The existing NRB has been frozen further until 2021 having remained at the current level since 2009
• The property must have been your main home at some stage but not necessarily the one you live in now
• From 8 July 2015 you can still claim the relief if you sell or downsize your home but the details are subject to further consultation with the overriding principle that there is no intention to disincentivise downsizing or selling
• For property over £2million the relief tapers off at £1 per every £2 value of the property therefore for properties over £2.35m there is no additional relief

Who may not get it?

• Anybody who does not have children
• Anybody who is not leaving the relevant portion of their estate to direct descendants
• Where the estate passes into a discretionary trust, even if children are potential beneficiaries of the trust. However there is still a lot of debate around this area and no definitive answer has been given
• If you sold your property prior to 8 July 2015
• If the value of your property (or your share of it) is less than the allowance then the allowance is reduced accordingly
• If your estate is greater than £2.35m then you do not qualify
• Where both partners die before April 2017

What next

We do expect further consultations and possible changes before the new relief is introduced and will keep you update of these.

In the meantime, if you are concerned that planning previously done through your Will may affect whether you receive the new residence nil rate band then we are  happy to review your Will for you.