Well here was a funny title recently for an article in Professional Adviser, “Pensioner couples to miss out on £7,000 because of toy boy tax”
The picture accompanying it was not much help as it showed an older couple (who looked relatively the same age to me!) fishing it seemed…..(odd not sure what fishing has to do with toy-boys but I’m sure there is some link!) so I think that my picture of Demi and Ashton is more suitable.
But get past the odd start and it was concerned with a State Benefit, Pension Credit and where there are couples with differing ages. (and this seems all the rage according to various dating sites!)
Now before I explain the “toy boy tax” (it isn’t a tax by the way that was just a headline grabber) you will no doubt recall that Pension Credit has two parts, Guarantee Credit and Savings Credit.
Guarantee Credit is an income top up if your income is below £167.25 per week and Savings Credit is an extra payment for those that have saved some money towards retirement ( a maximum of £13.73 per week for an individual)
Until this year (May 2019) if one of a couple was older then they could claim this benefit when the older one of them reached State Pension Age (65 for this benefit)
Now going forward both will have to be at or over State Pension Age to claim this credit.
What it means is that where one is significantly older than the other (I guess where the silly “toy-boy tax” name comes from, though it is a rather sexist assumption here that the male is the younger) then they will have to wait for their Pensions Credit, it could potentially mean that someone misses out on £167.25 a week. Imagine someone 10 years younger then that could be a total of £86,970 they don’t get until the younger person reaches State Pension Age!
But how does this impact you, the hard-working and conscientious financial adviser? Well, I imagine that not many of you give guidance surrounding State Benefits (except the Basic State Pension or the New State Pension) but it can be an important thing to know when looking at income in retirement where your clients have very small pension assets and may well be relying on State provision….You may be looking at some form of Equity Release perhaps…?
If you have couples where one is older they may have been factoring this into their retirement income planning, then this could affect them and could potentially lead to a re-evaluation of their plans. If they have rather more in the way of pension savings then it could require taking more earlier than they planned.
The fact is though that most people with pension and investment plans to review won’t be calling upon this particular State Benefit.
What the point of this week’s article is though, is to highlight that planning and knowing your client is still essential (was it ever not?) and a good understanding of the State Benefits that may affect your clients is to my mind essential.
If you are looking at retirement income for example, perhaps associated with a Pension Switch or a Drawdown recommendation then you must have all the relevant information before you can even consider giving any sort of advice, this must include State Benefits, particularly the State Pension.
Now, while it is ok to many to make an assumption that the client will receive the maximum State Pension, it is highly advisable to make sure that the client has the State Pension forecast, why do I say this? Well, if the client is one of those that has more than the new State Pension and you don’t know this, then your advice (especially when advising on income in retirement) can’t be accurate, can it?
The answer is no.
Now if you read my article recently on Cashflow Modelling (and if you didn’t then shame on you!) then this will make sense and hopefully the reasons why I am insisting on this as part of every analysis will make sense too.
When you are talking to clients that are nearing retirement and statistics suggest that there is more advice being delivered for retirement than ever before, you must be able to demonstrate that you know anything that can influence, good or bad, their retirement situation and therefore your advice to them.
If your clients are in this position with one being younger than the other and they are looking at modest pension incomes, then you need to explaining this risk to them, they need to be clear on what they can get and when, this in turn will drive your advice to them.