Tax. Investment & Kids by Rob Tedder

, , 29 August 2018

Welcome to the first i4C blog 

We’ll be sharing all things cashflow related and beyond, building a useful and ever-expanding reference point for financial planners.

“New Kids on the Block”

We are the new kids on the block for integrated cashflow planning software, and like our 80’s boyband counterparts we’ve got ‘The Right Stuff’. We’re here for the duration, aiming to be a driving force within the cashflow modelling industry by making your life easier and more successful.

Our aim is to take you ‘Step by Step’ through the process, keeping life as straightforward as possible without losing the required functionality for all your financial planning needs. This applies whether you are a paraplanner, advisor, part of the compliance team or the client – we aim to cover all requirements and avoid leaving you ‘Hanging Tough’.

Given that I’ve exhausted my 80’s & 90’s New Kids on the Block knowledge, and that the last reference didn’t really make sense anyway, for your sake I’ll avoid trying to shoe horn any more in!  That’s what 14 years of paraplanning does to you!

The power of cashflow modelling demonstrated in one client’s words. 

What better way to start off our inaugural blog post than with a quote from a client of an i4C user following a recent cashflow modelling session using i4C:

“That is the best couple of hours anyone has ever spent with me. I feel like a weight has been lifted and you have really helped me see that my life is not just my business. That is sometimes easy to forget when you are doing the daily grind. You have truly lifted me out of the mire and helped me look at the big picture. THANK YOU”

Ask Rob……….Your question of the week

In this regular section, Rob Tedder – our Knowledge & Success Manager – answers a key question that we’ve received from an i4C software user.

Question: i4C’s default risk profiles are great, but how do I set profiles that are relevant to my business?

Rob says:

Your i4C administrator will find the risk profiles under the cog in the top right-hand corner of the screen next to the save button. Selecting ‘Edit Risk Data’ will bring up the ‘Manage Attitude to Risk’ input screen, where the administrator can set up, edit and delete the Model Portfolios at a firm level.

There is no limit to the number of risk profiles that you can add: the edit risk data world is your oyster.

You can then specify the breakdown of the returns on the profile by interest, growth or dividends. If the investment is in a taxable wrapper, then the Interest element will be taxed as Savings Income, the Dividend Yield as Dividend Income and Growth as subject to Capital Gains Tax (CGT).

These profiles are then applied across the business to ensure consistency for all users.

Feature of the Week – “Tax Planning is Integral to All Financial Planning”

Within i4C, all inputs to our application are made gross of tax.

If you are using net of tax figures and not taking this into account it is simply impossible to do proper planning such as:

  • Retirement planning
  • Income tax planning
  • Inheritance tax planning

We do all the hard work in the background for you using our powerful tax calculators, working out:

  • Income tax
  • Capital gains tax
  • Chargeable gains;
  • Stamp duty; and
  • Inheritance tax liabilities

You’ll be pleased to hear that we’ve had these tax calculators audited by a leading national accountancy firm, to ensure the accuracy of our projections. We don’t hide the data away –  it’s ready at your fingertips to sense check, so you can get right under the bonnet of your planning via our various reconciliation tools.

Case Study of the week

Background

Mr and Mrs Wahlberg (obviously a made up name) are in poor health and have recently undergone the process of transferring Mark’s defined benefit pension scheme, to safeguard the potential to pass on inheritance tax efficient benefits to his children.

  • He has recently taken voluntary redundancy and been living from cash rather than drawing on his pension, whilst he adjusts to retirement and gauges what his actual expenditure levels are.
  • He has established that their spending is in the region of £25k per annum, which leaves them with a shortfall of circa £10k per annum over the next 9 years whilst awaiting state pensions to commence.
  • Whilst he appreciates that he may need to use his pension to live comfortably, he likes the idea of being able to pass on any residual value to his wife and children when he dies.
  • Now that he has established he has a low level of expenditure to live the life he wants, he would like to look at drawing an income from his pension to plug the shortfall between the guaranteed pension incomes he has and his income requirements. This also enables him to maintain a level of cash for emergencies, if needed.
  • Mark wanted to know how best to source this income, whether it be via a drawdown route, taking tax free cash, or via the purchase of an annuity to bridge the income gap. His initial thoughts were that he did not like the idea of purchasing an annuity, due to the potential for the value to be lost on death.

Cashflow modelling scenarios

  • Mark’s financial planning adviser modelled their situation using i4C software, based on his current and future income and expenditure requirements. They established the income shortfall and the likelihood of them qualifying for an enhanced annuity due to ill health.
  • They created two scenarios on i4C, comparing the impact of taking income drawdown versus buying an annuity with part of his pension pot, and what level of residual pension pot would be left on death to pass to the children.
  • Using i4C software clearly demonstrated to Mark that purchasing an annuity ensured that he was able to plug the income gap, with a guaranteed income for the remainder of his and his wife’s lives. Financial security could be maintained whilst leaving the residual pot to grow, without the impact of regular withdrawals slowing down the growth to pass on to his children.
  • i4C provided Mark with the confidence to follow the annuity route because he could see the impact of both scenarios, and that his children would be suitably looked after when he passes away.

For those of you about to rush off to talk your clients through this wonderful advice, you should be aware that this is an example client case and not to be referenced on the file for your compliance department to review.

Article of the week

Ok, it isn’t quite an article but have a listen to these podcasts if you get a spare few minutes, some interesting thoughts and discussion between like minded people. Click on the link if you want to have a listen http://www.mulberrybow.com/mbma

I hope you enjoyed the first i4C blog!

Thanks,

Rob

Knowledge & Success Manager