Autumn 2012

Montpellier Asset ManagementLower Ground FloorGlendale House11 Montpellier TerraceCheltenhamGloucestershire GL50 1UX

Montpellier Asset Management Limited is authorised and regulated by the Financial Services Authority.Registered in England and Wales. Company No.05307480. Registered office: 11 Montpellier Terrace, Cheltenham, GL50 1UX

This newsletter is for general information only and is not intended to be advice to any specific person. You are recommended to seek competentprofessional advice before taking or refraining from taking any action on the basis of the contents of this publication. The FSA does not regulatetax advice, so it is outside the investment protection rules of the Financial Services and Markets Act and the Financial Services CompensationScheme. The newsletter represents our understanding of law and HM Revenue & Customs practice as at August 2012.

Tel 01242 530999Fax 01242 530700Email info@montpellierasset.comwww.montpellierasset.com

Welcome to Montpellier’sAutumn NewsletterWell what an incredible summer we have all had, 2012 will definitely beknown as the “Golden Summer”, with many of our sportsmen andwomen achieving their lifetime dreams of becoming Olympians. Duringthe last 7 years Team Great Britain has invested in the futures of manyof these sports people, and now that the games are over lets hope thatthe legacy left behind can deliver yet more Gold Medallists in the yearsahead, as it certainly always helps the stockmarkets when we win!

! Montpellier is delighted to welcome to the team Elizabeth Langford, our newOffice Manager. Elizabeth has worked for many years for a well known EstateAgent covering Herefordshire and Gloucestershire where she managed themarketing and smooth running of the office. These skill sets are invaluable in thecurrent marketplace and everyone at Montpellier is looking forward to workingwith Elizabeth who brings with her a wealth of experience to our firm.

! Another first for us this year is the sponsorship of Martha V, a 3 year old Irish CrossThoroughbred Sports Horse, who will be competing across the country in showingand dressage in 2013. Our sponsorship of Martha V began with a win at this year’sMonmouth Show where she took the Sports Horse Championship. Martha V’sfuture is a promising one in dressage and Montpellier are proud to be associatedwith her success.

! The new website is now live and we have enhanced the range of informationavailable to clients with the addition of some useful guides on many financialmatters which we hope you will find very useful.

! We are currently in negotiations to move office to a more prominent position inMontpellier and we hope that by the time the Winter Newsletter is available wewill have moved. This move will enable us to offer a better quality service to ourexisting clients along with encouraging new business through our front doors, aswe will have a more street facing position.

! If you would like to know how any of the issues contained within the newsletteraffect you then please do get in touch with us.

We hope you enjoy reading our Autumn Newsletter and we look forward to speakingwith you soon.

Montpellier Asset Management

In this issue:

Deciding when you want to stop work

Year-end tax planning for your company

Tuition fees call for careful financial planning

Pension transfer rules: all shook up

Falling annuity rates ahead

Changes to charges in the offing

Pensions auto-enrolment arrives

The changeover to adviser charging is an initiative of the regulator –the Financial Services Authority (FSA) – and follows a series ofproposals called the retail distribution review – or RDR. Part of theRDR has also been the introduction of higher minimumqualifications for financial advisers, resulting in many advisers takingexams.

Adviser charging will mean an end to the old system under whichthe insurance companies, fund managers and other productproviders determined the level of commission paid to advisory firmsand deduct it from the product. Of course the ultimate payer wasalways the client. From 1 January 2013, product providers will nolonger set the commission levels; this will be solely a matter for theadvisory firm and the client. And the charge will be even moretransparent and on top of the cost of the product itself – not partof it.

So in many cases, the cost of products will come down and thenadvisory fees will be charged separately. It will be easier to see whatis happening and so it will be easier to understand.

What is more, in many instances the new system could lead tooverall reduced costs to the client, as advisers negotiate and chooseappropriately competitive products for their clients.

The level and methods of calculating the adviser charges will varyaccording to the work done and the services provided. We areproviding new client servicing documentation setting out theposition in detail. Over the course of the coming months we will bepleased to explain this to you further and take you through theservices we will be providing.

Changes to charges in the offing

Autumn 2012

Like them or loathe them, the judgments handed down by theEuropean Court of Justice cannot be ignored. One example, whichis due to take effect on 21 December 2012, is the ruling in theBelgian Test-Achats case that insurance companies cannotdiscriminate between men and women when setting their premiumrates. So next year, car insurance for women is likely to cost more,while the higher-claiming men will probably pay less. The flip side ofthe coin is that men will lose out elsewhere.

Insurers will be unable to take gender into account whencalculating individual pension annuity rates. Currently men benefit

from a higher annuity rate than women of the same age, becausemen have shorter life expectancies. From 21 December that ratedifference must disappear and all new annuities will become‘unisex’. Quite how much difference the change will make is as yetunclear, although last year a Treasury paper said that ‘Maleannuities could decrease by 13% per year’.

This means that if you are a man and planning to buy a pensionannuity in the next few months, you have no time to lose. Someproviders may start amending rates before the 21 Decemberdeadline to ease their holiday season administration issues.

Falling annuity rates ahead

Pensions auto-enrolment arrives

It is nearly eight years since the Pension Commission, set up by theprevious Government, issued its first report, ‘Pensions: Challengesand Choices’. One of the report’s key suggestions to extend privatepension provision was to introduce some form of automaticenrolment into a pension scheme for all employees.

All the main political parties accepted the idea in principle and iteventually found its way into legislation, with a target start date ofOctober 2012. Alongside auto-enrolment, the various Pensions Actsalso introduced a backstop pension scheme for employers, whichchanged its name along the way from National Pensions Savings

Scheme (NPSS) through Personal Accounts to NEST (NationalEmployment Savings Trust).

The coalition Government ordered an urgent review of NEST andauto-enrolment on coming to power, but subsequently decided togo ahead after making some administrative changes and extendingthe phasing-in period to six years.

Whether you are an employer or an employee, you could beaffected by this major overhaul of pension provision from 1 October for large employers and smaller organisations affectedover the following few years.

The world of pensions is about to start a new era.

Printed on paper produced using wood fibre and manufactured at a mill that has been awarded the ISO14001 and EMAS certificates for environmental management.

Men are likely to see their annuity rates start falling soon, as gender discrimination in the setting of pension annuityrates comes to an end.

A new system of paying for investment and much other financial advice will be ushered in at the start of 2013. It iscalled adviser charging and will have an impact on the structure of many investment products in the future.

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Deciding when you want to stop work

You might think that very few people wouldwant to work after the date when theirstate pension starts to be paid – wheneverthat might turn out to be.

In fact, some 1.4 million people wereworking beyond their SPA towards the endof last year, according to the Office forNational Statistics (ONS). There are severalgood reasons for this, and some of themcould affect you.

! Most of us are living longer, more healthylives than previous generations did and

we are therefore more capable ofcontinuing to work, especially into our60s and early 70s.

! We need to top up our state pensions,which are far from generous; for examplethe basic state pension is currently up tojust £107.45 a week for a single person.

! Many women keep working until theirpartners retire.

! Self-employed people need to keepworking longer than their employedcounterparts, because they generallyhave lower state and private pensionbenefits.

! Many pensions schemes are becomingless adequate and need topping up. Finalsalary pension schemes are fastdisappearing from the private sector.

! Lacklustre performance from manyinvestment markets has limited thegrowth of pension fund values.

! Annuity rates have fallen significantlyover the years, and low interest rateshave hit pensioners’ returns from banksand building society deposits.

Working past your SPA should be a personal

choice rather than a financial necessity, sohaving enough to fund your retirementincome should be at the forefront of yourplanning prorities.

Estimating your eventual total retirementincome can be difficult, especially if you aresome way off SPA. This is where we canhelp. We will analyse all your potentialsources of retirement income and projectthe likely returns, based on a variety ofassumptions about earnings growth, priceinflation and investment returns. Wetypically find that people need moreretirement income, and we can thensuggest options to make good the shortfall.

Why not ask for an assessment now? Thealternative could be working past age 65, or66, or 67…

A pension is a long-term investment and theincome from it can go down as well as upand you may not get back the full amountyou invested. Past performance is not areliable indicator of future performance.Your eventual income may depend on thesize of the fund at retirement, futureinterest rates and tax legislation.

Autumn 2012

You should start planning now if your company’sfinancial year end is 31 December.

We may only be three quarters of the way through this Olympicyear, but it is already time to consider the finishing line. If yourcompany’s year end is 31 December, you should start thinking aboutwhat to do with your business’s profits now. As usual, the groundrules have altered slightly because of tax changes.

Income tax In 2013/14 the starting point of higher rate tax (40%on earnings, 32.5% on dividends) will fall from £42,475 to £41,450.At the same time the additional rate of tax will drop from 50% to45% (42.5% to 37.5% for dividends).

Corporation tax The small profits corporation tax rate hasremained at 20% since April 2011. However, the mainstream ratedropped by 2% to 24% from 1 April 2012 and will drop to 23%next April.

Capital allowances The annual investment allowance (a 100%allowance for plant and machinery expenditure) fell from £100,000to £25,000 from April 2012. From the same date the main writingdown allowance for plant and machinery was cut from 20% to 18%.

Pensions The standard lifetime allowance, which effectively sets aceiling on the value of retirement benefits in most instances, was cutfrom £1.8 million to £1.5 million on 6 April 2012. No increase is duefor at least the next few years.

The combined impact of these changes is complex, so your year-endreview needs to be tailored to you. There is no one-size-fits-alladvice. To explore these options further, please call us to arrange ameeting.

! You may want to maximise your employer pension contributionsthis year, because you want to exploit carry forward of unusedrelief from 2009/10, which will be lost after 5 April 2013.

! If you want to extract substantial income from your company, youmay wish to wait until 2013/14 and the introduction of the 45%additional rate income tax.

! Drawing dividends rather than salary to save NICs remains a wiseoption – if it is available to you.

The value of tax reliefs depends on your individual circumstances.Tax laws can change. The Financial Services Authority does notregulate tax advice.

Year-end tax planning for your company

Did you know that one of the more controversial measures from 2012’s Budget comes into forcefrom 7 January 2013? Broadly speaking, if you or your partner has income of over £50,000, the one with thehighest income will effectively be taxed on the amount of child benefit the family receives. A sliding scale applies –the total benefit is taxed away to nil by £60,000. However, in 2012/13 only the final 13 weeks of child benefit iscaught. You will not notice any immediate difference to net pay, as HMRC plans to sort out matters next tax year. Thiscould mean you start to receive self-assessment tax returns.

Recent research shows that more and more people are working after they reach their state pension age (SPA).

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Autumn 2012

University tuition fees in England areset to increase again next year,according to the Office for FairAccess (OFFA), which said fees for2013 will rise to an average of£8,507 a year, slightly above thecurrent average of £8,414.

Universities can charge tuition fees of up to£9,000 a year – around three in fourinstitutions are planning to charge themaximum for some or all of their courses.

There are cheaper universities and parts ofthe UK where the cost of living is less, andScottish students living in Scotland pay notuition fees. But many students wanting todo full-time degree courses cannot avoidwhat are likely to be considerable costs.

It has been estimated that parents wantingto pay three years of tuition fees at £9,000would need to save around £93 a monthfrom birth in a tax-free cash ISA. If theyhave not started yet and the child is alreadyten years old, the parents would need to setaside approximately £250 a month fromnow on.

Cash or stocks and shares ISAs are popularchoices, with equity investments more likely

to produce a higher return – although thatis a riskier option. Parents can also chooseto set up one of the new Junior ISAs, or, ifthey can, continue putting money into apre-existing Child Trust Fund. Anotheroption is tax-exempt Friendly Society savingplans, which are long-term endowmentpolicies.

To lift some of the financial burden ofhigher education, the UK Government hasset up a £150 million National ScholarshipsProgramme to sponsor loans andmaintenance grants, but no one knowswhat will be available further down the line.

There are always going to be students whodo not have the cushion of being able tostudy debt free and are likely to end uprepaying a loan over many years. That said,repaying a student loan is not like repayinga loan from the bank. It is linked toearnings, rather than borrowings.

Graduates repay only 9% of any earningsabove the threshold limit of £15,795, risingto £21,000 for loans taken out fromSeptember 2012. At the end of 30 years, ifthe total amount repaid fails to cover thetotal amount borrowed plus interest

accrued, the outstanding amount will bewritten off.

The value of your investment and theincome from it can go down as well as up,and you may not get back the full amountyou invested. Past performance is not areliable indicator of future performance.

Tuition fees call for careful financial planning

Both the Financial Services Authority (FSA) and The PensionsRegulator (TPR) have been looking at their guidance and rules onpension transfers.

TPR has been concerned about ‘incentive exercises’, which ofteninvolve members of a final salary pension scheme being offeredenhanced transfer values to move their benefits elsewhere. TPR saysthat ‘A minority (and, very possibly, a small minority) of membersmay have personal circumstances which result in them being in abetter position through accepting an offer’.

Pension scheme trustees have been told by TPR that as part of anincentive scheme, ‘Fully independent and impartial financial adviceshould be made accessible to all members and promoted in thestrongest possible terms’.

As far as that advice is concerned, the FSA has long had detailedstandards, which advisers must follow in considering whether it isappropriate to transfer a pension. The spread of incentive schemeshas prompted the FSA to revisit its standards and, in particular, the

assumptions built into the transfer value analysis system. Some ofthese had become quite out of date and there was a danger thatthey would result in an understatement of the risks associated witha transfer.

The FSA’s new transfer standards were put in place at great speed –a reflection of its concern about incentive exercises. In the FSA’swords, ‘This will make it less likely that an adviser will be able torecommend a transfer from a defined benefit [final salary] pensionscheme to a personal pension’.

The specialist area of pension transfers can be complex and werecommend you seek qualified independent financial advice beforetaking any course of action.

A pension is a long-term investment and the income from it can godown as well as up and you may not get back the full amount youinvested. Past performance is not a reliable indicator of futureperformance. Your eventual income may depend on the size of thefund at retirement, future interest rates and tax legislation.

Pension transfer rules: all shook up

Have you remembered that the national minimum wage for those aged 21 and over will rise by 11p(1.8%) to £6.19 an hour on 1 October? That translates to £216.65 for a 35-hour week or £11,266 a year. It ishardly a king’s ransom, but a pay increase of 1.8% may be more than you have received over the last 12 months.Looked at another way, £217 a week is just over double the current single person’s basic state pension (£107.45 aweek for 2012/13). No wonder there are all those people working past their state pension age….

The regulators have made some welcome changes to the rules for pension transfers.

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The changeover to adviser charging is an initiative of the regulator –the Financial Services Authority (FSA) – and follows a series ofproposals called the retail distribution review – or RDR. Part of theRDR has also been the introduction of higher minimumqualifications for financial advisers, resulting in many advisers takingexams.

Adviser charging will mean an end to the old system under whichthe insurance companies, fund managers and other productproviders determined the level of commission paid to advisory firmsand deduct it from the product. Of course the ultimate payer wasalways the client. From 1 January 2013, product providers will nolonger set the commission levels; this will be solely a matter for theadvisory firm and the client. And the charge will be even moretransparent and on top of the cost of the product itself – not partof it.

So in many cases, the cost of products will come down and thenadvisory fees will be charged separately. It will be easier to see whatis happening and so it will be easier to understand.

What is more, in many instances the new system could lead tooverall reduced costs to the client, as advisers negotiate and chooseappropriately competitive products for their clients.

The level and methods of calculating the adviser charges will varyaccording to the work done and the services provided. We areproviding new client servicing documentation setting out theposition in detail. Over the course of the coming months we will bepleased to explain this to you further and take you through theservices we will be providing.

Changes to charges in the offing

Autumn 2012

Like them or loathe them, the judgments handed down by theEuropean Court of Justice cannot be ignored. One example, whichis due to take effect on 21 December 2012, is the ruling in theBelgian Test-Achats case that insurance companies cannotdiscriminate between men and women when setting their premiumrates. So next year, car insurance for women is likely to cost more,while the higher-claiming men will probably pay less. The flip side ofthe coin is that men will lose out elsewhere.

Insurers will be unable to take gender into account whencalculating individual pension annuity rates. Currently men benefit

from a higher annuity rate than women of the same age, becausemen have shorter life expectancies. From 21 December that ratedifference must disappear and all new annuities will become‘unisex’. Quite how much difference the change will make is as yetunclear, although last year a Treasury paper said that ‘Maleannuities could decrease by 13% per year’.

This means that if you are a man and planning to buy a pensionannuity in the next few months, you have no time to lose. Someproviders may start amending rates before the 21 Decemberdeadline to ease their holiday season administration issues.

Falling annuity rates ahead

Pensions auto-enrolment arrives

It is nearly eight years since the Pension Commission, set up by theprevious Government, issued its first report, ‘Pensions: Challengesand Choices’. One of the report’s key suggestions to extend privatepension provision was to introduce some form of automaticenrolment into a pension scheme for all employees.

All the main political parties accepted the idea in principle and iteventually found its way into legislation, with a target start date ofOctober 2012. Alongside auto-enrolment, the various Pensions Actsalso introduced a backstop pension scheme for employers, whichchanged its name along the way from National Pensions Savings

Scheme (NPSS) through Personal Accounts to NEST (NationalEmployment Savings Trust).

The coalition Government ordered an urgent review of NEST andauto-enrolment on coming to power, but subsequently decided togo ahead after making some administrative changes and extendingthe phasing-in period to six years.

Whether you are an employer or an employee, you could beaffected by this major overhaul of pension provision from 1 October for large employers and smaller organisations affectedover the following few years.

The world of pensions is about to start a new era.

Printed on paper produced using wood fibre and manufactured at a mill that has been awarded the ISO14001 and EMAS certificates for environmental management.

Men are likely to see their annuity rates start falling soon, as gender discrimination in the setting of pension annuityrates comes to an end.

A new system of paying for investment and much other financial advice will be ushered in at the start of 2013. It iscalled adviser charging and will have an impact on the structure of many investment products in the future.

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