Welcome to the second edition of our regular communicationto our private and corporate clients, pension scheme trusteesand our professional introducers.

Andrew Rodgers looks at questions you should ask whentaking out or renewing your general insurance policies. KathyCowan’s piece expands on the impact of the Retail Distribution

Review and how financial services will change from January 2013. Stephen McClearycomments on the main points of the Chancellor's Autumn Statement and theimportance of ensuring that you maximise your various tax-advantaged allowances.

On the corporate side, Brian Jackson addresses the requirement for employers tobegin automatically enrolling their eligible employees into a pension scheme fromOctober this year.

Maxwel l Buchanan, Managing Dir ecto r, Ker r Henderson (Financial Ser vic es) Ltd

In nearly 30 years in the General Insuranceindustry I must have heard those words hundredsof times from potential new clients whoexpressed dissatisfaction with their currentinsurance broker. The problem here is fundamental: education. Tobe fair, the insurance industry has enjoyed ameasure of success in educating the majority ofpeople as to the necessity for certain types ofinsurance – and indeed some insurancearrangements (such as Motor and Employers’Liability insurance) are compulsory. I’m sure thatmany millions of people who have had claimspaid by their insurers in the past would accept thatthey were glad that they had sought the advice ofan insurance broker and protected themselvesagainst the loss that they suffered. However, with ever-increasing competition fromexisting insurers wanting to grow their businessand from new entrants wanting to establishthemselves in the market place, advertisers havepeddled a notion amongst the insurance-buyingpublic that insurance policies are a commodity,essentially all the same and that their buyingstrategy should all be about saving money.Regrettably many insurance brokers have falleninto the same trap and advertise their services inthe same way.Where does the question of advice and suitabilityfit into all this? The Financial Services Authorityrequires all insurance brokers to know theirclients, to carry out a proper assessment of theirrequirements, and to explain the products thatthey are recommending in such a way that a clientcan readily understand the terms and conditions

that apply. It is now all too common an occurrence that anenquiry from a new client (or indeed the renewaldiscussion with an existing client) focuses aroundthe premium that is required rather than thequality of the cover provided, the suitability ofthe product to that client’s needs, or the claimsservice and financial standing of the insurer beingrecommended.A decision to buy an insurance product is not onethat you should take lightly. An insurance policywill only be of use to you if, in the event of a loss,the insurers accept that you have fulfilled yourside of the bargain and have complied with all theterms and conditions of the policy. All too often aclaim is refused by an insurer because certainobligations on the policyholder’s part have notbeen met. To give a few of the more commonexamples: the requirement in some householdinsurance policies that you always set yourintruder alarm when you leave your homeunattended; the requirement in some holidayhome insurance policies that, in the wintermonths, you either drain the water system whenthe property is unoccupied or leave the heating onpermanently at a certain temperature to preventpipes from freezing; and the requirement in mostprivate car policies that you never leave yourvehicle unattended with the keys either in or onthe vehicle. I have met many people who have had claimsrefused for not complying with such requirementsand, when this happens, the finger tends to bepointed at their insurance broker. We, as insuranceprofessionals, have a duty of care to our clients at

the point of sale fornew business and atrenewal for existingbusiness to pointout that cover is asimportant (if notmore important) than price, and to satisfyourselves that our clients are aware of theirobligations under the terms of the policies thatthey are buying. All relevant details areconfirmed in writing, but one fears that all toooften this may be simply filed away in a draweronly to see the light of day again when a loss hasoccurred - and that is when you really find outwhat you are covered (or not covered) for.Next time you buy insurance or renew an existingpolicy, don’t just ask what the premium is – makea point of asking what you are actually coveredfor, is the product really suitable for your needs,are there any specific terms and conditions thatyou need to be aware of, and why that particularinsurer has been recommended – don’t forget toread the terms and conditions and exclusionscarefully so there aren’t any nasty surprises if youhappen to make a claim.If you do this, then you won’t have cause to say“My broker never told me” and more importantly,you might find yourself covered after all …Andrew Rodgers is Managing Director ofKerr Henderson (General InsuranceServices) Limited. If you would like someGeneral Insurance advice then pleasetelephone Andrew on 028 9068 0612 oralternatively e-mail him usingarodgers@kerrhenderson.com

ILLUMINATE

Ins ide thisissue. . .“My broker never told me!”The Retail Distribution ReviewAutumn Statement 2011Compulsory PensionProvision - 2012

“MY BROKER NEVER TOLD ME!”

February 2012

The Financial Services Authority’sexpressed aims are thatconsumers are offered atransparent and fair chargingsystem for the advice they receive,are clear about the service theyreceive and that advice isprovided by highly respectedprofessionals. In short, thismeans that from 1 January 2013,

commission payments by insurers will bebanned and advisers will be required to agreewith their clients exactly what they pay for whatservice provided. Qualification-wise, the bar isbeing raised to at least diploma standard (fromthe current certificate minimum standard) as theFSA wants to put the financial advisory industryon a similar professional standing to that of lawand accountancy respectively. Even at this stage it is difficult to overestimatethe impact that the new rules will have on firms(both provider firms and advisers). Financialadvisory firms are currently busying themselveswith redefining their business models anddeveloping their menus and costs of services,and the back office implications that these

changes bring; exams are being notched up andStatements of Professional Standing (theprerequisite for giving advice post-January 2013)are being applied for. From a client’sperspective, they will already be having adifferent conversation with their advisers and, over the course of the next few months,should be much clearer in terms of exactly what services they want and are getting for their money. One of the likely main industry ramifications ofthe RDR is that there will be a significantcontraction in the number of advisers who willbe able (or willing) to meet the newrequirements for ‘independence’. Alreadyseveral major networks of advisory firms haveannounced that they will be ‘restricted’; adviserswho want to continue calling themselvesindependent will have to meet the RDR’s whole-of-market requirements, which are much morechallenging and wide-ranging than is currentlythe case. This status will be essential forintroductions from solicitor firms as the LawSociety position is that solicitors can only referclients to advisers who are independent. At Kerr Henderson, we already have three

Chartered Financial Planners, others qualified todiploma level and a team of specialistparaplanners. We will be retaining ourindependent status which means that we will beseeking to build on our already strongrelationship with our professional introducerfirms as we already work alongside, andcomplement the services provided by, suchfirms for their clients. Such clients (includingtheir families and businesses) require strategicand practical advice on all aspects of theirfinancial planning needs, which may includebusiness and inheritance tax planning, specialistretirement and investment requirements. We are well positioned to continue to be ableto provide these services into 2013 andbeyond and if you feel that we can assist inany way, please do get in touch with MaxwellBuchanan, Nikki Rodgers or StephenMcCleary on 0845 247 7777 to discussfurther.

This article was written by Kathy Cowan,Director of Compliance at the KerrHenderson Group

The Retail Distribution Review

• The State Pension Age will rise to age 67 from 2026, eight yearsearlier than originally planned;

• The annual capital gains tax (CGT) exemption will remain at£10,600 for the 2012/13 tax year;

• The investment limit for ISAs will increase from £10,680 this yearto £11,280 for the 2012/13 tax year (£5,640 for cash ISAs);

• The introduction of a new tax-advantaged investment scheme toencourage investment into start-up companies. The SeedEnterprise Investment Scheme (SEIS) will be introduced fromApril 2012 and will provide income tax relief of up to 50% for aninvestment of up to £100,000, carried out by an individual intoshares in a qualifying company. Additionally, where an individualrealises a capital gain in the 2012/13 tax year, this gain will beexempt from CGT if the proceeds are invested into a qualifyingSEIS (this is a one-off exemption); and

• Also in the area of tax-advantaged investment, the rules forEnterprise Investment Schemes (EIS) and Venture Capital Trusts(VCT) are to be reviewed in order to ensure that investment isreaching the intended recipients, i.e. small trading companies inneed of capital. In an interesting move, it is intended to excludefrom relief any companies set up to access the relief ! This isclearly targeting the popularity of lower risk schemes which areengineered to take minimal risk.

Autumn Statement 2011

What has been billed as the biggest shake-up in retail financial services is now less thanone year away. Despite regulatory initiatives and sheaves of disclosure documentation inthe past few years, there is no doubt that the Retail Distribution Review (‘RDR’) will bea game-changer for the financial advice industry.

The Autumn Statement contained a range ofnew provisions relating to tax andgovernment expenditure together with areminder of some previously announcedmeasures. Given the current state ofgovernment finances, it is hardly surprisingthat there were no headline-grabbing taxcuts, but there was a number of interestingmeasures aimed at individual taxpayers.

The key points to come out of the statement were as follows:

Auto-enrolment is, quite simply, the biggest singlechange to the UK pensions system in our lifetime.It can be seen as the first step towards compulsorypensions savings and it will affect the vastmajority of UK employers and employees. The starting date is 2012. Employers with at least one worker will beobliged to automatically enrol their workers into their pension scheme.The key word here is “automatically” – in other words, the employeewill not need to make any active decision to join and the onus insteadwill be on the employer to join the employee to their scheme. Quitethe reverse, of the current situation where there is an active decision onthe part of the employee, they don’t join. The employee, thereafter,can elect to “opt out”, with the monies paid being refunded to therespective parties but inactivity on the part of the employee will nowmean membership – and hence contributions will be due from both theemployee and employer. However, that’s not the end of it - the processhas to be repeated every three years with the “opt outs” beingautomatically re-enrolled and offered the opportunity to opt-out again.Meanwhile, new employees and current employees who pass certainage or pay thresholds throughout the year will also need to beautomatically enrolled.

We expect that automatic enrolment will overcome the two key areaswhich currently hold employees back from initiating retirement savings,by (a) forcing employers to provide a monetary pension provision and(b) by removing the inertia to joining a scheme by making the defaultoption membership. There will clearly be a cost involved whichemployers need to take into consideration now. Although initiallycontributions will be phased in the final minimum cost will be 5%gross employee contribution and 3% employer.

Whilst the starting date is October 2012, the new obligations will bephased in between then and October 2016, depending on the size ofthe employer, with the larger employers coming first. You can checkthe date (referred to as the “Staging Date”) that applies to your ownorganisation at http://www.dwp.gov.uk/docs/staging-dates-by-employer.pdf but make sure you consider how this date applies to yourcurrent business model. For example, if your business is seasonal andyour official staging date coincides with the busiest time of your year,you may want to give consideration to bringing forward your stagingdate to a period which you are better resourced to deal with thechallenge.

All employers are going to be affected by this change in legislation so itis important that they prepare well in advance for the associatedincreases in cost and administration. A number of options are available

to employers to help meet their obligations and include the creation ofa new, low-cost, national pension scheme, NEST (NationalEmployment Savings Trust). However many current schemes can beamended so that they allow them to meet the qualifying requirements.Businesses will need to audit their current arrangements and decidewhat approach best suits their financial model. The solution may wellinvolve an incorporation of current arrangements and/or the inclusionof NEST for a tier of the workforce.

The Kerr Henderson Corporate Pensions team has developed anAutomatic Enrolment Audit to assist employers in identifying theirobligations and to design the most relevant response. The auditinvolves the following seven steps:

1. Assess the workforce and who to enrol

2. Audit the existing pension provision

3. Audit existing group risk benefits

4. Audit legal processes

5. Audit the HR system

6. Audit the payroll system

7. Design a compliant strategy

Should you wish to consider the audit for your ownorganisation or you simply want more informationon how automatic enrolment could affect you,please contact Brian Jackson atbjackson@kerrhenderson.com or 028 9068 0621.

Compulsory Pension Provision - 2012

The most eye-catching of the above announcements is the proposed newtax relief for investing in start-up companies via the SEIS. With theincome tax relief set at 50% of the amount invested (irrespective of therate of tax payable by the investor), together with the potential for CGTrelief at 28%, total relief of 78% could be achieved. Whilst the reliefs aredoubtless exciting, it must be remembered that investment in start-upcompanies carries a very high level of risk and, from the proposals relatingto EIS, it is likely that the rules for SEIS will be tightly drawn.

Although not announced in the Autumn Statement, in the preceding days asignificant change was announced in relation to the “carry forward” rulesfor pension contributions. As background to this rule change, from April2011 the maximum allowable pension contribution was reduced from£255,000 to £50,000. However, an individual is able to carry forward anyunused element of their notional £50,000 entitlement from the 2008/09,2009/10 and 20010/11 years (provided that he/she was a member of a

UK Registered Pension Scheme in those years) and make a highercontribution in the current year (subject to earnings). Previous HMRCguidance required unused allowances in the 2008/09 or 2009/10 years tobe reduced by contributions in excess of £50,000 in the subsequent2009/10 or 2010/11 years. This is no longer the case and excesscontributions over £50,000 are ignored for the carry forward calculationfor the three transitional years only. For example, under the old rules anindividual who had contributed £20,000, £100,000 and £100,000 in theprevious three years respectively would not have had any unused allowanceto carry forward (as the unused allowance in the earlier year is used up bythe over contribution in the later years), whereas under the new rules£30,000 would be available for carry forward from the 2008/09 year. This new interpretation by HMRC should act as a reminder that individualsshould review their pension contribution history in order to assess theirability to maximise contributions and tax reliefs in the current year.

W E L I S T E N , W E A D V I S E , W E D E L I V E R

Investments | Pensions | Insurance

The Group comprises Kerr Henderson (General Insurance Services) Ltd, Kerr Henderson (Financial Services) Ltd and Kerr Henderson (Consultants and Actuaries) Ltd. We are an independent financial advisory firm and employee benefit consultancy providing whole of market advice tocorporate and private clients.

We employ 70+ specialist staff among whom are scheme actuaries, Fellows of the Pensions Management Institute, Chartered Financial Planners,Fellows and Associates of the Chartered Insurance Institute. We provide a comprehensive range of services, as follows:

Our Services

• Commercial Insurances: Employers Liability, Public Liability, Motor Fleet and Property• Professional Indemnity insurance • Death-in-service, sickness and disability benefits • Private Medical Insurance • Critical Illness Insurance • Keyman, business and partnership insurance• Total remuneration planning (including flexible benefits) • Pension disclosures for company/partnership accounts• Pension strategy and change• Pensions and benefits for executives• Pension aspects of mergers and acquisitions • Group Personal Pensions

Services for Businesses

• Personal Insurances: Motor, Household, Holiday Home and Pleasure Craft• Strategic and tactical financial planning advice• Personal investment advice and administration• Wealth management • Pensions and retirement advice and administration • Inheritance tax planning • Trust advice and administration• Advice in respect of pensions and divorce• Protection: life, medical, critical illness, income

Services for Private Cl ients

• Actuarial consulting • Investment consulting • Pensions administration • Pensions consulting• Secretarial services for trustees • Trustee training• Trustee governance • Scheme and member communication• Insurance of group risk benefits.• Trustee indemnity insurance

Services for Pension Scheme Trustees

29-32 College Gardens, Belfast BT9 6BT 08452 47 77 77www.kerrhenderson.com

Kerr Henderson (Financial Services) Limited (registered in Northern Ireland No. NI5131) is authorised and regulated by the Financial Services Authority, FSA Register number 125322.Kerr Henderson (General Insurance Services) Limited (registered in Northern Ireland No. 28521) is authorised and regulated by the Financial Services Authority, FSA Register number 309312.Kerr Henderson (Consultants and Actuaries) Limited (registered in Northern Ireland No. 34514) is an Appointed Representative of Kerr Henderson (Financial Services) Limited, FSA Registernumber 188411.