index | page back | next page

The Life of Brian Riley, Phase 4

Given the recent history, what do you think of the advice that has been given in earlier episodes?

• The advice to consider a cash ISA seemed well founded.

• If Brian had set up a stakeholder pension he could continue to contribute up to £3,600 pa gross to the plan and still be in his employer's occupational scheme, provided his earnings do not exceed £30,000 pa.

• Similarly, if had set up any Personal Pensions he could continue to contribute up to £3,600 pa gross to the plan and still be in his employer's occupational scheme, provided his earnings do not exceed £30,000 pa.

• At this stage it could be that the advice given to Brian's mother, Mavis, concerning Long Term Care is now becoming a matter for Brian to consider.

• George's estate is exempt from Inheritance Tax, as the entire amount has been passed to Mildred. In 'pure' planning terms they wasted this exemption; it may have been possible to pass on assets before their deaths.

• Mildred's estate of £390,000 is liable to Inheritance Tax, as the beneficiaries are not receiving an exempt transfer.

• Quick Succession Relief is not relevant as this applies only where IHT had been charged on the first transfer.

• Under 2004/05 tax rates IHT due on the estate amounts to:
  
  £390,00 less £263,000 (nil band)
  £127,000 at 40%
  £ 50,800
  This is due within 6 months of death.

Now that they are married and with a baby on the way, Brian and Judith have a lot to consider. What are their primary considerations?

• Judith seems to have ceased to receive pensionable income in respect of the occupational scheme and should, therefore, review her position in respect of:

  1. Preserved benefits.

  2. When will she return to work (month or years)?

  3. Will she be able to rejoin her old employer's scheme?

  4. Does she intend to 'return to work' on a freelance basis thereby generating self-employed earnings?

• Brian's Pension arrangements could be reviewed in respect of the following:

  1. If the life cover provided is below the 4 x salary Revenue limit he could consider AVCs as a life assurance vehicle (see 'protection' below).

  2. The family income/expenditure ratio indicates the likelihood of some surplus which could be used to increase pension entitlement, as Brian will possibly not achieve maximum benefits.

  3. Although his employers scheme is probably Contracted Out of S2P Brian should check.

  4. If he wishes to take action to increase pension entitlement the choice between AVCs, FSAVCs and personal/stakeholder pension will depend on:

     1. Confidentiality (FSAVCs/stakeholder/personal pensions are private).

     2. Tax relief (immediate through AVCs and the net pay system as opposed to FSAVCs and the net premium system).

     3. Investment Risk Profile (FSAVCs/personal/stakeholder pensions have wider choice - AVCs are controlled by scheme Trustees)

• Both need to consider the situation, which may occur on the death of, either or both.

• Life cover for Judith would take account of her pregnancy and the 'complications' and special terms would probably be offered.

• The amount of life cover should take account of:

  1. The mortgage (and in whose name).

  2. Any other debts.

  3. The income that each would need in the event of the death of the other.

  4. The length of time for which the income would be needed.

  5. Anticipated investment returns if the income is to be provided from a capital sum (say 4%).

  6. Do they intend to increase their family?

  7. The possible impact of inflation.

  8. Would they be entitled to any State Benefits?

  9. The use of joint life policies, first or second death, should relate to the need and in particular when a cash sum would be needed. In certain cases single life on each could be preferable.

  10. Trusts could be used to add to the speed of payment in the event of a claim and IHT efficiency.

What else could they discuss?

• Other protection needs to be considered:

  1. Critical Illness Cover (esp. for mortgage).

  2. Income Replacement for Brian (IPI).

  3. Accident Sickness and Unemployment cover for Brian (esp. for mortgage).

  4. In view of Judith's 'complications' and the growing family they could consider Private Medical Insurance unless Brian has family cover through work.

  5. They are possibly a little young to look at Long Term Care but it could be a subject worth investigating for the future.

REMEMBER You should not use any information contained on this page as the basis of any action until you have discussed matters with your financial adviser.