MFF Client Newsletter - Summer 2023

+ Are you considering partial retirement?

As we reported in our previous newsletter, from this October, members of the 1995 Section of the NHS Pension Scheme can take their pension benefits while retaining their current NHS role.

New guidance on this topic is being announced month by month

as we move closer to the official launch. As with all NHS finance matters, some of the crucial information needed to help make decisions is not yet readily available, but we will bring updates as soon as key data is released.

What we know so far

This partial retirement option is already possible for pension benefits earned in the 2008 Section and 2015 Scheme but from this autumn, it will also apply to any 1995 Section benefits you hold.

If you are aged 55 and above, you can choose to take between 20 and 100 per cent of your pension benefits in one or two payments – without having to leave work.

One important consideration however, is that if you choose this option, you must reduce your pensionable pay by at least 10 per cent in the 12 months after drawdown from the 1995 Section.

Can you apply?

NHS Employers has recently confirmed the criteria needed to be eligible for partial retirement. It says a member must:

• have reached their minimum pension age

• be an active member of the Scheme

• reduce their actual pensionable pay by at least 10 per cent

• have a change in their terms and conditions of employment to reflect the reduction in pensionable pay, the rest of their terms and conditions remain the same

• have had the previous level of pensionable pay prior to partial retirement for at least 12 months

• expect the new level of pensionable pay to last at least 12 months from the point partial retirement is taken

• not have already claimed partial retirement on two occasions.

How to apply

We would urge you to discuss your options for retirement with your financial adviser. There are many factors to consider including the impact of the McCloud remedy on your pension benefits. In addition, if you are no longer an active member and debating rejoining in order to take flexible retirement, it is important to be aware of the potential drawbacks of doing so.

+ Are you considering partial retirement? continued

If you do wish to proceed, a new document called a ‘Partial Retirement Supplementary Form’ needs to accompany the standard retirement application. This form will confirm the arrangements agreed with your employer and the percentage of pension you wish to take.

This new form has only just been published which means it might be difficult for NHS Pensions to process in time for October. However, NHS Pensions has vowed to make quick progress, with benefits backdated to 1 October if necessary.

There is also a new online ‘Partial Retirement Calculator’ to help members plan their next steps but this will not be available to use until 1 October at the earliest.

What impact might the McCloud remedy have?

The McCloud remedy, which seeks to redress the age discrimination caused by moving some members to the 2015 scheme, confirms that those impacted will be given a choice between taking their benefits for the remedy period from the 1995/2008 Section or the 2015 Scheme instead.

If this applies to you, your pensionable service for the remedy period will be automatically put back into the 1995/2008 section until it is time for you to make a choice. If you apply for partial retirement, NHS Pensions will contact you within 12 months of

taking your pension benefits to ask for your decision.

The McCloud remedy means there are important factors to consider as part of your decision. For example, deciding what percentage of your pension to take at partial retirement could affect your tax position, or your final salary link, if applicable.

A new online ‘McCloud Percentage Tool’ should be available from 1 August. Although it will not give as much information as the Partial Retirement Calculator, it will allow those affected by McCloud to see the optimum percentage of pension to take to avoid needing to repay overpayments when they make their McCloud choice at a later date.

Annual Allowance Statements

The NHS Business Authority, which administers the pension scheme, has confirmed that annual allowance statements for 2022/23 for members affected by McCloud will be deferred until next year, following the publication of the McCloud legislation.

Instead, impacted members will receive a 2022/23 pension saving statement from April 2024 at the same time as their 2023/24 statement.

Please do continue to discuss these matters with your adviser as there are many caveats to consider with any decision regarding the NHS Pension.

+ Inheritance tax: record receipts for HMRC

HMRC has announced record inheritance tax collections of over £7.1bn last year. The basic inheritance tax threshold (known as the ‘nil-rate band’) has been frozen at £325,000 since April 2009 and is due to remain at this threshold until April 2028. Soaring property prices, high inflation and this near twenty-year standstill means more estates than ever are likely to face an IHT bill.

One of the easiest ways to mitigate a tax liability is to give assets away during your lifetime – and there are various options for doing so:

Annual exemption – you may give away up to £3,000 each tax year without incurring inheritance tax.

Small gift allowance – you can also gift up to £250 per person each tax year, as long as the recipients have not received the £3,000 annual exemption.

Wedding gifts – you can offer money as a wedding gift – up to £5,000 to children, up to £2,500 for grandchildren and up to £1,000 for any individual. There are certain rules – the gift must be made before the wedding or civil partnership and the event must go ahead. Lifetime gifting – these can be of any value and will be exempt from IHT if you survive the gift for a period of seven years. If you pass away, the value of the gift will be added to your estate. You cannot retain any interest in the assets eg if you gift a piece of

artwork, you cannot continue to display it. Charitable giving – your estate can pay a reduced rate of IHT if you give at least ten per cent of its value to charity. The IHT rate would reduce from 40 per cent to 36 per cent.

Surplus income gifts – you can make significant gifts from your ‘surplus income’ provided you can prove that your standard of living will not be altered after the gift has been made. This might included paying someone’s rent or grandchildren’s school fees. There are certain criteria to follow so it is important to seek legal clarity on this point.

Trusts – putting property in a trust for your family could reduce inheritance tax, again provided you live longer that seven years after it is created.

With estate planning, it is prudent to take control of the situation sooner rather than later. Before doing anything else, you should ensure that you have a valid Will in place and that it remains fit for purpose if it was created some time ago.

If you would like further advice on estate planning or intergenerational wealth management, please do speak with your adviser. They can ensure you have the basics covered, have considered all the options available in terms of financial and tax planning, and can refer to specialist help where required.

Team profile: Cristina Morais, head of client services

Cristina has worked for MFF since 2016 but has recently moved into her new role, leading our busy client services team. Not only does she have an impressive array of academic qualifications but she also speaks three languages. Cristina is described as the lynchpin of the office – always smiling, never ruffled and able to cope with any challenge.

You have many financial qualifications…

I gained a degree in economics and a master’s in accounting and finance when I lived in Portugal. In addition to that, I hold the IMC, the Investment Management Certificate, by the CFA UK, which is a professional membership body representing 12,000 investment professionals. I gained my diploma in regulated financial planning by the CII (Chartered Insurance Institute) and I am also a certified accountant in Portugal.

When did you decide to work in financial services?

My first job when I finished university was in a small accountancy firm. It had a similar vibe to MFF where you know and work closely with the business owners and socialise with your colleagues after work.

After a couple of years working in accounting it was starting to feel repetitive and I felt that I needed to learn something new so decided to enrol in the master’s degree in accounting and finance. Studying made me realise that what I was doing was not what I wanted to do for the next 20 years so I decided to finish my masters and find something new.

Accountants work with information that has already happened –it’s mainly numbers that we need to put together in a specific format to be submitted to the tax man. There were a few projections involved but the bulk of the day-to-day job was working in the past. What we do in financial planning is taking that information and projecting what it could look like in the future using modelling to plan for different scenarios. This is much more interesting to me.

Where did you work before MFF?

I moved to the UK in August 2013. I wanted to have an experience abroad and London seemed the right place for a new career in financial services. The fact that I loved London when I visited in 2012 and had friends working here helped with the decision.

My first job here was as a research analyst for Bloomberg. It was a great experience; there are people from a lot of different countries who can speak multiple languages. The projects are very exciting in the sense that you know you are contributing to a bigger outcome. However, everyone’s contribution is so minimal in the grand scheme of things that after a while the excitement disappears as you produce the same task on repeat. It didn’t take me long to realise that I prefer smaller companies where I can make a difference and contribute to many areas of our processes.

How challenging is it to stay up-to-date with not only financial regulatory changes but also specialist medical changes such as NHS pensions and McCloud?

It is not easy! It helps to assume that the changes will be constant and we need to anticipate and prepare for them when you can. As a team, we never stop learning and this is a good thing.

There is a lot of information available, from the network and financial providers we work closely with, which helps us bring the changes into our processes in an orderly fashion. We do not always have as much warning about government regulatory changes as we might like but we are adept at coping with them.

It is challenging but exciting at the same time. There are always new processes and problems to solve. For someone like me who enjoys being involved with different projects, this is a guarantee that at least every few months there will be something that we need to improve, learn or create to help our clients.

How is MFF embracing Consumer Duty?

The main principles of Consumer Duty mean firms within the industry must prove that their services offer a fair value and that their fees are suitable for the work they conduct. We are in a good position as the bulk of the requirements have been already implemented at MFF. The frequency of our client reviews, the bespoke service we provide with NHS pensions and the clarity in terms of our fees and charges are already ticking the right boxes.

That is not to say that implementing the official administrative records required by the FCA has been easy but putting our clients first is one of our core values anyway.

There will be minor changes in terms of the regulatory documents we provide and obviously there is always room from improvement on our side in terms of client experience, but I like to believe that our clients are already receiving a service that if not above, matches the Consumer Duty standards.

What do you think that MFF does well?

The fact that we provide a specialised service in terms of NHS pensions adds a lot of value to what we can provide to our clients on top of the usual investment and tax planning.

The idea that we are helping our clients with their retirement decisions and their plans for the future makes me feel that we are doing something particularly worthwhile and personal.

As an employee, MFF supports their staff with their progression within the organisation, making us feel that we are all important and contributing to the success of the company. We are not just a number we are part of something, and our input is appreciated.

What was the driving factor to changing roles?

After five years as part of the advice team, I wanted to progress and do something slightly different. I wanted to stay involved with

+ Comment: Paul Hart, director

the technical side of things, like organising investment trusts and managing tax and IHT planning, but I also felt that I could help with streamlining our internal processes, training colleagues and improving the client experience.

I enjoy the different challenges and projects that we need to be involved with, and the satisfaction of finding solutions. For example, I also enjoy the technical side of things and to automate certain tasks I had to learn a very basic form of coding. I am still learning but from this point, it should free us to focus on other aspects that can improve a client’s experience.

Was there ever a plan B?

Sometimes I think that having a small hotel and restaurant would be a nice business to have, maybe as a retirement project as at the moment, I am too busy enjoying what I am doing.

thinking from the professional advisers they work with.

We have worked closely with the team at Sandison Lang since our inception and value their tax planning expertise.

Given the constantly changing financial landscape, there is a greater need than ever before to have a united source of advice. Unless you have two-way communication between both parties, essential information can be missed or you can receive conflicting advice that leads to poor decision making. When dealing with large sums of money and critical life choices, you need to ensure your professional advisers have the complete picture of all your financial interests.

With ever more complex regulatory changes to the NHS pay and pensions coming into play, our adviser team are working incredibly hard to always remain one step ahead. There is a substantial level of specialist knowledge required to navigate the latest retirement flexibilities announced earlier this year and the McCloud legislation due to be published in October –both of which present opportunities and challenges for our clients to consider.

We are therefore delighted to be working with medical accountants who are experts in their field. It is more important than ever for clients to have complementary advice and joined-up

For example, an accountant will have an accurate record of your income from every source – which is usually quite complex at senior consultant level when you may have NHS and private practice income, or even academic work. This in-depth information can be extremely useful to us as advisers, meticulously planning how to make your assets work together to generate future income.

If you would like to speak to the team at Sandison Lang, please ask your adviser for a referral to one of their accountants or visit www.sandisonlang.com for more information.