Personal Finance Society news update from 21st June to 4th July
Taxation and Trusts
TAXATION AND TRUSTS
Guardianship of the property and affairs of missing
The Guardianship (Missing Persons) Act 2017 has now received
Royal Assent and will be brought fully into force in 2018. The Act
allows for the appointment of a guardian to manage the affairs of a
person who has been missing for more than 90 days when certain
conditions are met.
Where an adult has been missing for months, or even years,
without known cause, families are often left with no means of
administering that person's financial affairs.
Under the current law, (The Presumption of Death Act 2013), the
missing person's spouse, civil partner, parent, sibling or child is
required to wait at least 7 years or provide proof that the missing
person 'is thought to have died' before they can apply for a
'Declaration of presumed dead'. In the meantime, there is no
mechanism which enables the dependants of the missing person to
deal with their property and financial affairs and this can lead to
serious practical problems.
Following calls for reform, the Coalition Government consulted
on whether there ought to be a new legal process by which a person
("a guardian") could be appointed to act on behalf of, and in the
best interests of, a missing person. The government then issued a
response paper which outlined the key features of the proposed
The outcomes of the consultation have now been enacted in the
form of The Guardianship (Missing Persons) Act 2017
(the Act) which received Royal Assent in late April. However, the
commencement date of the Act has been postponed due to the recent
General Election and the Act is expected to be brought into force
by regulations in 2018.
Below is a summary of the main provisions of the Act:
(i) The Act defines "missing persons" as persons who are absent
from their "usual place of residence" and "usual day-to-day
activities" in circumstances where either their whereabouts is
unknown (or not known with sufficient precision) or the person is
unable to make and/or communicate decisions about his or her
property or financial affairs for reasons beyond their control
(other than illness, injury or lack of mental capacity).
(ii) An application for a guardianship order will be possible
once the person has been missing for 90 days. The order will last
for up to 4 years and can be renewed on expiry.
(iii) Guardians must be over the age of 18 or a trust
corporation, and must consent to the appointment. In addition, the
guardian must be 'suitable' having regard to the proposed
guardian's skills and knowledge and their relationship with the
missing person. Note it will be possible to appoint two or more
guardians at the same time or at different times.
(iii) The order may confer either a general power on the
guardian in relation to the missing person's property and financial
affairs, or may be limited to specific rights and powers. These may
include powers to sell property and make investments, resign from
trusteeships held by the missing person and/or make a gift out of
the missing person's property. However, a guardian will be subject
to certain restrictions, for example, they cannot make a will on
behalf of a missing person or exercise powers conferred on the
missing person as trustee.
(iv) A guardian will be required to act in the best interests of
the missing person and in this respect will be subject to duties
similar to those of a trustee - the guardian will be supervised by
the Office of the Public Guardian and will be required to file
accounts in much the same way as a Deputy appointed under the
Mental Capacity Act 2005.
(vi) A guardian appointed under the Act will only be able to
make gifts "for the maintenance of, or otherwise for the benefit
of, a dependant of the missing person" or where the guardianship
order expressly authorises the making of the gift - either
specifically or generally.
(vii) The Act offers protection for banks and financial
institutions who deal with a person in possession of a guardianship
order unknowingly after the missing person has been found (i.e.
where the guardianship order has been varied or revoked). This is
likely to be a source of reassurance to banks, who might otherwise
be concerned about exposing themselves to liability in relying on
the instructions of a guardian.
The new Act, which applies in England and Wales, will help to
alleviate the practical problems currently faced by those who are
missing a relative and enable banks and other financial
institutions to act with greater legal certainty when dealing with
the financial affairs of vulnerable or missing customers.
The Queens speech and beyond - consolidated latest
(AF1, AF2, AF3, AF4, ER1, FA2, FA4, FA5, FA7, JO2, JO3,
JO5, LP2, RO2, RO3,RO4, RO5, RO7, RO8)
The Queen's Speech was significant as much for what it
didnotcontain as for its predictable (and weighty) Brexit
The Queen's Speech, delivered on 21 June, was not
the grand event that might have been expected. To quote the
Parliament website, the State Opening of Parliament took
place with 'reduced ceremonial elements…due to the unique
circumstances of the general election'.
The Speech lasted just nine minutes, yet was designed to cover
the next two years of legislation - if the government survives that
long. The doubled (theoretical) length of the parliamentary session
is a direct consequence of the raft of Brexit-related legislation
that needs to be in force by 29 March 2019 (EU exit date). Meeting
this timetable promises to be extremely challenging.
As far as legislation relevant to the financial services
industry is concerned, you will hunt in vain in the Queen's Speech
for any of the proposals contained in the Conservative
- The word 'pension' did not pass the Queen's lips, so we can
assume the Triple Lock and Winter Fuel Allowance stay in place.
There was no mention of (BHS-inspired) legislation protecting
pensions during company sales or mergers.
- The statement that the government "will seek to enhance rights
and protections in the modern workplace" is little more than an
acknowledgement that there will be a response to the Taylor Report.
However, press reports suggest its publication has been put on hold
while the government considers its position.
- On social care, the Speech offered only a promise to "bring
forward proposals for consultation." As the Dilnot capped regime
for care costs is not due to begin until April 2020, there is still
time for it to be culled.
There was no comment about Budget timing in the
Speech, although the Chancellor had used the Andrew Marr Show to
confirm that there will be no summer Budget. Mr Hammond said "…there's not going to be a sort of summer
budget or anything like that, there will be a regular budget in
November as we had always planned, and in that budget we will set
out our future plans for public spending, for taxation, for fiscal
balance and everything else that needs to be clear."
The Chancellor's promise that there would not be
"anything like that" was subsequently contradicted by a few lines
in the 82 pages of background notes issued by No 10 to accompany
the two pages of Queen's Speech. Hidden on page 16 of these copious
notes under the heading of "Other Measures" is the following:
'The [two-year parliamentary] programme will
also includethree[our italics] Finance Bills to implement budget
decisions. Summer Finance Bill 2017 will include a range of tax
measures including those to tackle avoidance.'
The prospect of a Summer Finance Bill raises two
1. When does Summer end? Governments are prone to elasticate
seasons to suit their circumstances, witness the timings of some
Autumn Statements. The parliamentary timetable announced before the House of
Commons dissolved has the [genuinely seasonal] Summer recess
running from 20 July to 5 September 2017. In past years the
post-Summer sitting has lasted only ten calendar days before the
House shuts up shop for nearly four weeks because Conference Season
has arrived. In 2016, that meant the House rose on 15 September and
business did not resume until 10 October.
On the face of it a new Summer Finance Bill
introduced before the Summer recess would have very limited time to
debate if the aim was for it to reach Royal Assent by 20 July.
Thanks to the recesses, it would not have much more debating time
if the Royal Assent goal was mid-October.
2. What would be in the Summer Finance Bill? The
material culled from the Finance (No. 2) Bill 2017 was the
contentious content. In theory, a Summer Finance Bill could run to
over 600 pages, based on the difference between the Finance (No. 2)
Bill 2017 (776 pages) and the eventual Finance Act 2017 (155
pages). Would the government try to reinstate all the abandoned
legislation and, if Royal Assent by July 20 is the goal, rush it
through? In the current political climate trying to push through
Making Tax Digital (to mention just one of the dropped items)
without detailed parliamentary scrutiny might well be
The legislative situation remains unclear on the "lost" Finance
Bill measures. Alas, the promise of a Summer Finance Bill does
little to clarify matters for now.
HMRC online trusts registration service
(AF1, JO2, RO3)
HMRC has announced that its online Trusts Registration Service
will not be ready for launch this June as originally intended. The
online Trusts Registration Service replaces the paper 41G(Trust)
form and the ad hoc process for trustees to notify changes in their
circumstances, and will be relevant to any trust that generates
The launch was intended to coincide with the beneficial owner
registration requirements of the EU's Fourth Money Laundering
Directive (4MLD) - transposed into UK law at the end of June.
The Register will allow HMRC to collect and hold adequate and
up-to-date trust information centrally in line with the specific
requirements of the 4MLD, and will require any new or existing
trust that generates a 'tax consequence' to provide information on
the identity of the settlor, the trustee(s), the protector (if
any), the beneficiaries (or class of beneficiaries if the trust is
a discretionary trust) and any other persons exercising control
over the trust; as well as a detailed picture of the assets held.
This imposes a more onerous reporting obligation on many trustees
who have until now been exempted from the requirement to complete a
form 41G(Trust) if there was 'no income arising, and no likelihood
of income or gains in the future'. In contrast, the new
requirement to register or update trust details online applies in
any year that the trust generates a UK tax consequence of any kind
- this could be an income tax, CGT, IHT or SDLT implication.
Trusts that hold collectives will have needed to register under
the previous system and for these trusts little more will change
other than when and how the information is provided. For trusts
that hold no assets other than onshore or offshore single premium
investment bonds, the new rules will presumably mean that online
registration will not be required unless either a chargeable event
occurs or a chargeable occasion for IHT occurs. However, the
position is not yet entirely clear.
The requirement to register will apply to both onshore and
offshore trusts. However, bare trusts, where any tax
liability arises to the beneficiary rather than to the trust, are
excluded from reporting.
Until the Trusts Registration Service is available, HMRC has
asked customers to delay notification of new trusts. In the
meantime, those completing Trust and Estate Tax Returns have been
instructed by HMRC to leave the box that asks for confirmation that
'changes to the trust have been updated on the Trust Register'
blank, with a view to ensuring that correct details are recorded on
the register when it is up and running. Once the service is
operational, trustees will have until October 5 this year to
register new taxable trusts, and until January 31 2018 to provide
information on existing trusts.
A heartfelt plea
(AF1, AF2, JO3, RO3)
The Chartered Institute of Taxation (CIOT), the
Institute for Fiscal Studies (IFS) and the Institute for Government
(IFG) have published a joint letter to the Chancellor congratulating him on
his reappointment and restating the need to improve tax policy.
The letter notes that 'The tax system itself is
immensely complex and the length of the code has continued to
increase, leaving taxpayers confused and increasing business
uncertainty. The original Finance Bill published in March was the
longest on record.' The organisations make four main suggestions
- A more strategic approachTax policy would benefit from a more
strategic approach being taken, with clear principles established
and objectives set for the Parliament. As a priority, the CIOT, IFS
and IFG want a roadmap for the tax treatment of savings and
pensions where, in what might be regarded as an understatement,
they comment that 'frequent changes have undermined incentives and
left a confusing landscape'.
- Consulting earlierThe organisations argue for earlier
consultation and ensuring that implementation challenges are
considered before decisions are set in stone. The need 'to ensure
that the ground for reform is well prepared' is something Mr
Hammond would find hard to dispute after the Spring Budget's U-turn
on Class 4 NICs. The letter proposes that the UK should consider
independent reviews of tax measures before their
- Reducing the proliferation of new measuresThis is a plea to
slim down the ever-growing Finance Bills, each containing fresh
tweaks or additions to the existing outsized structure. One
interesting idea is that variants of the public-spending
value-for-money tests are applied to new tax reliefs.
- Systematic evaluation of effectivenessLate last year the Public Accounts Committee reiterated the
findings of the National Audit Office on poor HMRC
understanding of the effectiveness of tax reliefs. An apparent lack
of sufficient information on which to base assessments was blamed.
The three groups want to see 'a commitment to systematic evaluation
of the effectiveness of existing reliefs and incentives'.
Few outside government would argue with these
suggestions. However, as the letter acknowledges, 'Making tax
policy over the next five years presents exceptionally severe
challenges. Brexit will consume time, expertise and resources (not
least IT resources)…'
China and MSCI finally get together
(AF4, FA7, LP2, RO2)
After several years of saying no, the emerging markets indices
leading provider, MSCI, has now decided to include some Chinese
mainland shares in its leading Emerging Markets indices. However,
the process remains gradual.
Companies incorporated in China often have two classes of
- A Sharesare the main share category and are denominated in
renminbi (sometimes known as the yuan), the Chinese currency. A
shares are listed on the Chinese stock exchanges, the main two of
which (in Shanghai and Shenzhen) were established in December 1990.
Until 2002, A shares could only be purchased by mainland China
- H Sharesare Hong Kong listed shares of Chinese incorporated
companies. These first appeared in 1993 and are listed in Hong Kong
dollars (which is pegged to the US dollar). H shares have
traditionally been the main route for foreign investors to gain
access to shares in Chinese companies.
China has gradually relaxed restrictions on the ownership of A
shares, first through the Qualified Foreign Institutional Investor
(QFII) scheme and then, in 2011, through the Renminbi Qualified
Foreign Institutional Investor (RQFII) programme. The RQFII allowed
the Hong Kong subsidiaries of Chinese fund management and
securities companies to recycle offshore renminbi deposits into A
shares. In November 2014, a further relaxation took place with the
launch of the Shanghai-Hong Kong Stock Connect program ('Stock
Connect') which permitted investors in Hong Kong to trade in A
shares listed in Shanghai (and vice versa), albeit again subject to
a daily (and, initially, aggregate) quota. Thirteen months later
the Stock Connect arrangement was extended to the Shenzhen
exchange, which offers greater access to the Chinese technology
sector than its Shanghai counterpart.
The increasing international availability of China A shares has
created growing problems for global equity index providers. China
has grown to become the second largest global equity market by
market capitalisation, but less than 2% of Chinese listed shares
are held by non-Chinese investors. Some of that disparity is due to
how index providers have treated China.
Each year MSCI, the leading provider of emerging market indices,
has reviewed whether to include A shares in its global indices. In
both 2015 and 2016 there was some expectation that China would be
added, but the final the answer was no. Last year, when MSCI's
Market Classification Review once again left China in the cold,
MSCI blamed concerns about capital controls and the practice of
suspending shares when prices become volatile. There was also
investor unease about broad pre-approval restrictions imposed by
Chinese stock exchanges on launching financial products
byanyfinancial institution on any international stock exchange if
these products were linked to indices that include China A shares -
a clear potential problem for exchange traded funds providers.
Since last June all three issues have been partially addressed by
the Chinese authorities.
MSCI's 2017 Market Classification Review was published two
weeks ago and this time around China received the green light:
- From June 2018, MSCI will include China A shares in the its
Emerging Markets Index and the MSCI All Cap World Index.
- 222 China A Large Cap stocks will be added to the MSCI Emerging
- Initially MSCI will apply a 5% "partial Inclusion Factor",
meaning that China is not being given the full index weighting its
market capitalisation would justify. Thus the 222 shares will
only represent 0.73% of the Index's value, rather than the roughly
15% that full inclusion would imply.
- The choice of 5% - and the year's deferral - are both designed
to smooth the path of transition. This is a major consideration
given that it is estimated $2trn ($2,000bn) is benchmarked against
the MSCI Emerging Markets Index. MSCI is coy about when that 5%
weighting might start to rise and smaller Chinese company shares be
included. It says "When further alignment with international market
accessibility standards occurs, sustained accessibility is proven
within Stock Connect and international institutional investors gain
further experience in the market, MSCI will reflect a higher
representation of China A shares in the MSCI Emerging Markets
Index". In other words, MSCI will retain full discretion and there
is no pre-set rollout of weighting increases.
It is worth remembering that this staged reform is all about
shares of Chinese companies listed in China. The MSCI Emerging
Markets Index already has a 28% exposure to China, but this is via shares
listed in Hong Kong and the US (a good example being Alibaba).
Half way point
The first half of 2017 is over, ending with a final week when
uncertainty about the future of interest rates in the UK and
The end of the first half marks the end of another politically
turbulent period in the UK. The view across the six months belies
the upheaval that took place: the most widely quoted yardstick of
the UK stock market, the FTSE 100, nudged up a little under 2.5%.
Elsewhere, there were some sharper movements, as the table below
Change in H1 2017
FTSE 350 Higher Yield
FTSE 350 Lower Yield
Euro Stoxx 50 (€)
MSCI Emerg Markets (£)
UK Bank base rate
US Fed funds rate
ECB base rate
2 yr UK Gilt yield
10 yr UK Gilt yield
2 yr US T-bond yield
10 yr US T-bond yield
2 yr German Bund Yield
10 yr German Bund Yield
Brent Crude ($)
Iron Ore ($)
A few points to note from this table are:
- The FTSE 100 has been on a rollercoaster, peaking at 7,377 in
mid-January, dropping to 7,099 by the end of the month, then
rallying back up to 7,430 by mid-March before diving to 7,114 in
mid-April (on the Election announcement). Thereafter it rose again
to 7,548 in early June on opinion poll optimism, with an inter-day
high almost breaching 7,600 before descending in the wake of the
- The FTSE 250, regarded as a better yardstick for UK plc
(although still with a significant weighting of overseas revenues),
was more resilient and it breached 20,000 for the first time in
May. However, it too succumbed after the Election. With the FTSE
250 achieving almost 7% growth in the six months, the result has
been that the FTSE All-Share (roughly 80/20 FTSE 100/FTSE 250)
outperformed the FTSE 100 by almost 1%.
- The US market performed better than the UK market, helped by
the continued strength in a small number of big cap technology
stocks. However, for UK investors, on this occasion the
dollar worked against them as it fell 4.9% against sterling over
the period. The demise of the dollar can be blamed partly on fading
expectations that a Trump bump would lead to a rapid rise in US
- Against the backdrop of the Eurozone's continued monetary
stimulus, the euro strengthened and continental stock markets
posted a positive return. Some of that was down to political clouds
clearing in the Netherlands and France as populists failed to gain
- Bond yields headed upwards over the first half, except for 10
year US Treasuries. The Federal Reserve put through two rate rises,
with a third likely after Summer. In the UK, the June vote of the Monetary Policy Committee
suggested that a UK interest rate rise may be nearer than had been
expected. Statements from Mark Carney and Andy Haldane, the Bank of
England's chief economist, have spread uncertainty. For now, the
notion that there will be no move in the UK until 2019 has been
- Commodities had a mixed first half, with gold responding to the
dollar's weakness. The most notable change was in the price of
Brent Crude, which sunk back below $50 despite OPEC's decision to
continue production limits.
A look at these six-month figures is a reminder of just how much
day-to-day noise can hide what is - or is not - happening to
DCA consultation paper: DB transfers
(AF3, FA2, JO5, RO4, RO8)
The FCA has issued a Consultation Paper proposing changes to how
advice is provided on pension transfers involving defined benefit
schemes and other safeguarded rights.
"the government recognises that the attractiveness of
transferring from defined benefit to defined contribution may
increase as a result of the changes to the tax framework for how
defined contribution pension savings can be accessed." So said page
33 of "Freedom and choice in pensions", the original consultation
paper that accompanied George Osborne's surprise announcement on
pension flexibility on 19 March 2014. The remark has proved
something of an understatement, with Mercer estimating that £50bn
has been transferred out of final salary pension schemes by 210,000
members since April 2015, when full flexibility came into
The Pensions Regulator has given credence to Mercer's figures,
saying in response to an FoI request that "For the period of 1
April 2016 to 31 March 2017 defined benefit pension schemes have,
in total, reported 67,700 transfers out of the scheme. However, not
all of these schemes have reported how many transfers they carried
out. Our estimate is that there were around 80,000 transfers
Now, just over three and a quarter years after Mr Osborne's
bombshell and the subsequent transfer market boom, the FCA has
issued a consultation paper (CP17/16)
entitled "Advising on Pension Transfers". The proposals represent a
significant overhaul of the current regime, which has its roots in
the compulsory Transfer Value Analysis System (TVAS) introduced in
1 January 1995 by LAUTRO as a response to the pensions mis-selling
The FCA's suggested reforms are taking aim at two separate
1. Giving advice and assessing suitability
- The FCA wants "all advice on the transfer and conversion of
safeguarded benefits to include a personal recommendation",
including where the safeguarded right is a guaranteed annuity rate.
The regulator says it has seen only a "few cases" of advisers
claiming they are not giving a personal recommendation. In those
instances, the FCA discovered "the advice did not comply with the
existing analysis requirements and in many cases [was] actually a
personal recommendation". The main reason for the insistence on a
personal recommendation is to stop FAMR applying to safeguarded
- The current FCA guidance is that an adviser should start from
the assumption that a transfer will be unsuitable. Pension
flexibility and rising transfer values has made this stance look
increasingly outdated and the FCA is now suggesting that it be
replaced with "a statement in the Handbook that for most people
retaining safeguarded benefits will likely be in their best
interests and guidance that advisers should have regard to this".
This wording echoes that of TPR in its Regulatory Guidance: DB to DC transfers and
- Alongside this watering down of the default view, the regulator
is proposing to strengthen the assessment process by making it
clear in making a personal recommendation an adviser "should
consider the following elements:
- the client's income needs and expectations and how these can be
achieved, the role safeguarded benefits play in providing this
income and the impact and risk if a conversion or transfer is
- the specific receiving scheme being recommended following the
transfer and the investments being recommended within that scheme
to ensure that it is appropriate for the risk profile of the
- the way in which the funds will be accessed, either immediately
or in the future, including follow-on arrangements;
- alternative ways of achieving the client's objectives. For
example, there may be ways for a client to provide death benefits
which can be funded from income rather than by a lump sum funded by
a pension transfer, and which does not carry so much risk; and
- the relevant wider circumstances of the individual."
This final point is a piece of back covering, which the FCA says
is individual-dependant, but will incorporate such issues as tax,
death benefits, state of health and interaction with means tested
- Where the adviser does not fulfil the role of the pension
transfer specialist and instead uses internal or external support,
the responsibilities of that third party are also being more
sharply defined. The FCA wants the specialist to be more than a
mere TVAS number-checker. It proposes that the specialist must
review the reasonableness of the personal recommendation made by
the adviser, implying "an independent assessment of the soundness
of the basis for the advice". This would "take into account the
client's wider circumstances, including their appetite and capacity
for risk and the nature of the scheme being transferred to". The
greater scrutiny by the pensions specialist will not move the
ultimate responsibility for advice from the adviser dealing with
the client, although it potentially increases the liability of the
specialist to the adviser.
Where an external pension transfer specialist firm takes on the
complete role of giving transfer advice to the client and the
referring adviser's firm focuses on investment of the transferred
funds, the FCA says both firms must be able to demonstrate the
advice they give is suitable for the client.
2. Transfer value analysis (TVA)
The FCA acknowledges that "The current form of TVA has
essentially stayed unchanged since additional requirements for
pension transfers were introduced", although it avoids saying just
how old it is. The regulator also accepts several of the criticisms
that have long been made about TVAs, such as the annuity focus, the
unsuitability for those close to retirement and the poor public
understanding of the critical yield concept, despite its 20+ year
The proposed solution starts by rebranding TVA as APTA -
appropriate pension transfer analysis - a curious phrase which
suggests that the FCA might now consider the TVA as an IPTA
-inappropriate transfer value analysis.
- The APTA will include, "as a minimum:
- an assessment of the client's outgoings and therefore potential
income needs throughout retirement;
- the role of the ceding and receiving scheme in meeting those
income needs, in addition to any other means available to the
client - eﬀectively obtaining an understanding of the client's
- consideration of death benefits on a fair basis, for example
where the death benefit in the receiving scheme will take the form
of a lump sum, then the death benefits in the ceding scheme should
also be assessed on a capitalised basis, and both should take
account of expected diﬀerences over time; and
- 'the prescribed comparator'."
Except for the prescribed comparator (see below), many existing
TVAS systems already produce a detailed analysis which would more
than satisfy the FCA's proposed minimum requirements. It is
virtually impossible otherwise to demonstrate and compare the use
of pensions flexibility.
The FCA wants the APTA to take account of the client's risk
appetite and ability to manage investments when assessing the
possible benefits from a potentially suitable receiving scheme.
This is to include scenarios where the plan is to withdraw
transferred funds for reinvestment outside the pension
The prescribed comparator is likely to prove the most
controversial part of the FCA's proposals. It starts by following
the current TVAS approach in valuing the transferring scheme's
projected benefits at the chosen retirement date on an annuity
basis. However, whereas the TVA uses an interest rate that is
averaged over 12 months, the APTA will take a current rate. The
removal of the 12 month averaging will mean sharp index-linked gilt
market movements show through immediately, rather than get
smothered, as happened in the second half of last year.
Once the annuitised value of benefits has been calculated, this
must be discounted back to the present day if the retirement date
is 12 months or more distant. The current TVAS system effectively
calculates a discount rate using the CETV, and that rate becomes
the critical yield.
Under APTA the calculation becomes reversed and the adviser
"must determine an appropriate discount rate to value the amount
needed to reproduce the safeguarded benefits, after appropriate
charges". The FCA wants this rate to be appropriate to the client,
"based on their attitude to risk, irrespective of whether the
proposed receiving scheme will involve flexi-access drawdown or an
annuity". There is a clear guidance that the FCA does not expect
the rate (before charges) to exceed the intermediate rate of growth
shown on a corresponding KFI for the receiving scheme (normally
The difference between the calculated value using the adviser
selected discount rate and the actual transfer value must be shown
in a prescribed format with a block graph and a framed
It could cost you £X to obtain a comparable level of income on
the open market. This means the same retirement income could cost
you £(X - CETV) more by transferring.
In CP17/16 an example is given where X is £140,000 and the CETV
is £120,000, implying a £20,000 shortfall. This is not unrealistic
given the differing assumptions that will apply between the largely
gilt-driven FCA calculation basis and the "best estimate" CETV
principle required by SI 2006/33.
Under the heading of "Areas for discussion", the FCA also
address overseas transfers, although it does not make specific
proposals. It notes that the APTA requirements "are likely to
result in a more complex analysis having to be undertaken for an
overseas transfer than for a transfer to a UK DC arrangement". For
example, the FCA says that "…firms must ensure that the APTA
contains sufficient information in order to be able to compare
financial and tax regimes in two countries", a requirement which
may result in the involvement of advisers in each country concerned
or even two stage transfers (ie DB to PPP, then PPP to QROPS).
The consultation period will run for three months, with the FCA
currently saying final rules will emerge "by early 2018".
In many respects, the FCA's proposals are no more than bringing
the regulatory environment up to match what the market is already
largely doing. Advisers that already have a robust transfer process
in place will generally have no major concerns about the FCA
proposals. The one key initiative that will have greater
ramifications for all advisers is the transfer comparator.
Explaining the shortfall between discounted value and transfer
value will be a challenge.
State pension & carers allowance
(AF3, FA2, JO5, RO4, RO8)
Carer's Allowance is an "income replacement" benefit for people
who are unable to work because they are caring full-time for a
disabled person. Since 2002, Carer's Allowance has been payable to
people aged 65 or over, but it cannot be paid in addition to the
Retirement Pension. This is because of the "overlapping benefits"
rule. Although an entitlement to both benefits can mean that
Carer's Allowance is not payable, for lower income pensioners an
"underlying entitlement" to Carer's Allowance can give access to
carer additions to means tested benefits such as Pension Credit.
For other pensioners however, a claim for Carer's Allowance may
result in them receiving no additional financial support.
Cash benefits for carers consist of:
- Carer's Allowance, currently worth £62.70 a week (2017-18
- The carer premium/additionpayable with means-tested benefits
such as Income Support, Pension Credit, and Housing Benefit. It is
payable to those who satisfy the conditions for Carer's Allowance,
and is currently £34.95 a week.
People who make a claim for Carer's Allowance are often unhappy
to find that it is withdrawn if they are also entitled to a state
pension. This is due to the "overlapping benefits rule". In
2017-18, around 367,000 people over State Pension in Great Britain
are expected to satisfy the care conditions for Carer's Allowance,
but only around 18,000 will actually receive the benefit.
The overlapping benefits rule does not only apply to people
eligible for both Carer's Allowance and the Retirement Pension.
Carer's Allowance cannot be paid in full if an individual could
also get any of the following benefits:
- Retirement Pension
- Incapacity Benefit
- Contributory Employment and Support Allowance
- Severe Disablement Allowance
- Contribution-based Jobseeker's Allowance
- Widow's Pension/Bereavement Allowance
- Widowed Mother's/Parent's Allowance
- Maternity Allowance
- Unemployability Supplement paid with Industrial Injuries
Disablement Benefit or War Pension
- Training allowances.
If the amount of the above benefits is less than the amount of
Carer's Allowance, then the difference is made up.
The rationale for these provisions is that Carer's Allowance is
paid to provide income for a person unable to work because of their
caring responsibilities. It cannot therefore be paid in addition to
any of the other income maintenance benefits listed above. To do so
would be against the long-standing feature of the social security
system that "double provision should not be made for the same
Although there has not been a change to the overlapping benefits
principle, it worth remembering what benefits are impacted on
receipt of the state pension.