UK bank Lloyds TSB has announced it is selling its Abbey Life insurance business for £977m to Deutsche Bank. Abbey Life is a subsidiary of Lloyds’ Scottish Widows unit and has been closed to new business since 2000.

Lloyds TSB concluded that the sale of Abbey Life was in the “best interest of the group, as well as Abbey Life’s policyholders and staff”.

As of 31 December 2006, Abbey Life managed £12bn of assets held in 1.2 million policies, do you own one of the policies? It will be interesting to see what if any benefit there will be for policyholders. If you would like us to review your Abbey Life plan in view of this announcement then please contact us.

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Most people think about retirement as something that there are able to do when they have enough money. The first thing though you really need to think about is what do I want to do in retirement?  

Before you even start thinking about how much money you need in retirement have a real think about what you would like to do. Once you have done this you can then have a realistic view on what income you need. If you know what you want you are more likely to achieve it.

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Every case is different as everybody has different financial circumstances. For some people their pension fund is their sole source of income in retirement, for others it is just part of the picture.

It is important to firstly think about where you can draw from in your retirement and this will help you to decide how secure you need to be with your pension funds. 

The main choice that you have with regard to pensions in retirement is to decide whether you wish to hand the risk over how long you live and how long the income payments need to be made to an insurance company by buying an annuity with all or some of your pension fund; or alternatively, just drawing on your pension funds to provide you with an annual income and perhaps a tax free cash lump sum at the outset. 

Annuities 

Generally if you have a fund at retirement which is less than £100,000 then an annuity may well be the safer option. The main risks you run with annuities are that:- 

• You do not live very long in retirement and you have handed over all your pension funds to the insurance company and therefore they make a large profit.

• You buy an annuity when the calculation to work out how much the insurance company can afford to give you each payment is at an historically low figure, an example of when this would be would be if interest rates were at historical lows.

• You do not buy add-ons such as a pension that increases by inflation and inflation is steep in your retirement years.

• You do not buy an added option of a spouse’s pension when your spouse outlives you for many years, potentially a more difficult situation as they have lost your income stream.

If before you buy an annuity though you think about these factors and are realistic about balancing what you need in retirement, and protecting those around you if they need protecting, then an annuity may well still be a good option. 

Many people are put off by the fact that they have to hand over their pension fund and effectively this is lost. If though you are of normal health and would expect to live a normal retirement then you may well benefit from an annuity. People who live an average or longer than average length of time benefit from effectively their pensions being topped up by those who have unfortunately passed away earlier than expected. The technical term for this is called mortality drag. So annuities are not all bad but are obviously not right for everybody. 

Unsecured Income (also known as Income Drawdown) 

If your pension fund is in excess of £100,000 then an alternative to look at would be unsecured income (previously known as income drawdown). With this type of contract quite simply you have the option to draw a quarter of your fund as a tax free cash lump sum and the remainder of your fund is invested and you draw out an income within a set limit each year.  

The limit will change as you get older as the payment is linked to your age and interest rates. This form of pension income is far more flexible and so you can tailor your income payments to meet your changing financial needs. 

For example if you part retire you may wish to start drawing on your pension but not take the maximum that is allowed until you are fully retired. This would mean that your pension fund would still continue to grow and may mean that you end up with a greater income later in retirement than you may have done if you had purchased an annuity.  

In order to work out the likelihood of this happening a financial adviser would need to provide you with a “critical yield”. This is effectively the rate by which your fund would need to grow to buy an annuity for you at certain ages; usually these are quoted at 65, 70 and 75. 

Unsecured income is a powerful tool which provides those who have had time and the inclination to make pension savings with the flexibility to be able to vary their income to their retirement needs. 

Obviously there are many other ways to invest for retirement, including using your existing investment to provide an income in retirement but obviously these come down to your own circumstances. 

Do you know how much your pensions are worth? Do you know how much you currently pay?Do you know how much your pensions cost you each month? 

All these will have an impact on what options you have when you come to retirement.

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State pensions (particularly womens) have been given a boost with a proposed change to the rules regarding voluntary National Insurance contributions.

Currently there is a six year time limit on paying these contributions. This means that if you did not pay National Insurance in a tax year you are not entitled to any extra state pension income for that tax year, unless you pay voluntary National Insurance within the next six tax years.

Generally speaking though it is not until State Pension Age that people really look at what they are entitled to, by which time it can be long since the tax years that National Insurance was unpaid with no way of making this up. Bearing in mind what good value the State Pension is for most people, this means a lot of people are missing out on a good way to top up their retirement income.

The new Pensions Bill is going to allow people to defer the decision until their own State Pension Age and allow people to buy up to nine years. This will give everyone a great opportunity to top up this pension when they are at a time when they are more likely to have the funds to pay the voluntary contributions. The big winners will be women, currently only 25% of women have a full State Pension compared to 90% of men.

The government may try to overturn the decision but the recent defeat in the House of Lords will make this more difficult.

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There is a great con going on. The government tells us that only a small proportion of estates suffer inheritance tax. That is true. What it does not tell us is how many estates of people who have not yet died are going to be subject to inheritance tax and that is scary. inheritance tax starts above an estate value of £300,000. Unless a married couple organise themselves properly that is £300,000 per couple. That takes into account your house, your investments, your life insurance, your pension funds (unless you sorted that out properly), all your tax free investments, everything. So although the figures may be a tiny percentage now, this is going to get really serious and a huge proportion of the population will be subject to inheritance tax. Now this tax is really easy to avoid or at least reduce. Just getting your Wills to say something other than “everything to the other” but instead using a discretionary will trust, will save the family £120,000! All you think of is property investments, wring your hands and say what about the capital gains tax (assuming you remember that there was capital gains tax in the first place?) could sell and re-invest in CGT/IHT effective assets. Okay it may be risky but at least you are burying two taxes straightaway. For those with big share portfolios with the same worries again, reinvestment is straightforward that is not to say it is not risky but if you do not do anything you will certainly lose 40% - how much of a risk is that? For those with a high income making regular gifts makes a difference. Even though without a high income but some spare cash use the annual gift allowance and give away £3,000 (plus £3,000 for last year if he did not do it). Just do not let inertia in the government’s big con – the headline rate of historic estates - let your family suffer a tax charge of 40% on anything over

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Under new HMRC proposals, the thresholds at which chargeable lifetime transfers (“CLTs”) will need to be reported will be raised to £210,000 and £255,000.* Previously, the limits for the existing two tests were £10,000 for CLTs made in any one year and £40,000 for CLTs made over a ten-year period. HMRC’s proposals should mean that far fewer CLTs will need to be reported.  Great news for those advising clientsUnder these changes, the £210,000 threshold will also generally be applied to most trusts to determine whether a report is required at the ten year anniversary.HMRC is also proposing an additional third test against which the reporting thresholds would be measured. This test will be based on the value of the assets to be transferred.For example, consider someone who invests £300,000 in a discounted gift scheme. Given their age, withdrawals selected, sex and state of health, the retained rights (or discount) are valued at £120,000. The “before” value is £300,000; the loss to the estate is £180,000. The transfer would therefore need to be reported as under the new test, the value of the assets to be transferred, that is, £300,000 has exceeded the threshold of £210,000.In addition, HMRC proposes to reduce the cumulation period for reporting purposes from ten years to seven years. This will bring it into line with the seven-year period for calculating IHT on previous gifts, thereby introducing consistency and simplifying administration for advisers. HMRC have confirmed that the proposals are intended to apply with effect from 6th April 2007, subject to successful passage through Parliament later this year.Full details are at http://www.hmrc.gov.uk/cto/etes.htm. ·         The limit of £210,000 is 70% of the nil rate band (£300,000 in 2007/08) and the limit of £255,000 is 85% of the nil rate band. These limits will increase with the nil rate band accordingly. Both are rounded up to the nearest £5,000.

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For years, the UK property market has been on a phenomenal run, outstripping inflation by a significant amount. The upshot is that young people can no longer get on to the housing ladder and it is reported that average property prices now exceed five times national income. But is this a one way bet? Why are prices rising? The answer is that property prices will rise until the costs of servicing the debt consume such a proportion of income that prices can rise no further. So if interest rates are low properties seem cheap because they consume a smaller proportion of income. Interest rates are now standing at 5.75%. Within living memory of anybody over the age of about 30 interest rates have been at 12% or more and it looks like interest rates are gently moving upwards while inflation is potentially reappearing.   Much of the reason for no inflation recently has been the phenomenal growth in