As client circumstances can be so varied, we have produced a series of case studies to detail some of the challenges that you and your clients may face and how we have helped similar individuals to reach their financial goals. In the last two issues we covered Inheritance Tax planning and Deed of Variation planning. In this issue, we continue our series with the theme of Company planning.
In the next few issues we intend to cover, Personal Injury Trusts, Pension Sharing on Divorce and Long Term Care planning. If there are any other topics you would like to see covered, please let us know.
We were approached by Mr Brown & Mr Carruthers who had set up a group pension scheme for their company, Quality Hotels Ltd, when the Stakeholder pension legislation was introduced in 2001. The scheme had not performed very well and the scheme provider had closed to new business, so they asked us to carry out a full review of the scheme.
Objectives and concerns
Mr Brown felt that if an employee had worked for Quality Hotels Ltd for 40 years, he would want to know they could retire with a reasonable Pension. He did not feel that the existing Pension scheme was very good or that the company and its employees were getting good value for money.
We asked Mr Brown to gather as much information as possible regarding the Pension Scheme from the scheme provider. We then reviewed the information and produced a report detailing how the scheme worked, what the performance of the funds had been, what the key issues to consider were and our recommendations.
One of the major issues was that the bulk of the employees were in a With Profits fund and the bonus rate on the fund had been reduced to 0% many years ago and was unlikely to ever increase. We immediately arranged for a switch out of this fund (without any penalties for the employees). However, the fund choice was limited and so we suggested an alternative pension provider be considered. They agreed and so we researched the market place and set up a new scheme with a provider who intended to stay as a market leader for many years to come.
We also outlined the new legislation requiring all employers to pay into a Pension for their staff, either into their own scheme or the basic Government sponsored ‘NEST’ scheme. We were able to ensure that the new scheme was set up in a way that would protect Quality Hotels Ltd from the changes in the legislation and with the added benefit that Quality Hotels Ltd could inform staff that they offer them something far superior than the Government minimum. For further information on this topic, please see our article published in the September 2011 issue or contact us for a further copy.
We then highlighted to Mr Brown that a pension is of no great merit for someone who is long term sick or for their family if they die. As a result of our discussions and experiences Mr Brown had encountered with his staff in the past, we arranged a relatively inexpensive Group Life cover, long term income protection and limited Private Health cover scheme for the employees.
Finally, Mr Brown & Mr Carruthers had a 50% shareholding each in Quality Hotels Ltd and their shareholders agreement said that each had the option to buy the other 50% should one of them die. We pointed out to them that as neither had the funds to physically pay for this they faced either saddling themselves with a crippling amount of debt, or end up with other each other’s family members becoming 50% shareholders. As a result, we set up a shareholder protection plan for them. We also considered succession and retirement planning, as the earlier this planning starts the better. They both felt that the property the business was housed in (owned in their own names) would be worth the same to them as the sale value of the business. As a result of this we are talking to them about a Management Buy Out where the managers purchase a large chunk of the company relatively cheaply, but only after the company has signed a very long term lease on the premises. This should ensure they are both comfortable in retirement, whilst at the same time securing the succession and future of the business.
We review Mr Brown’s & Mr Carruthers’ situation and the Quality Hotels Ltd Pension scheme at least annually. The Pension scheme review includes looking at the funds the scheme members are invested into and the performance of each member’s pension pot. We also ensure that the protection scheme remains adequate and that Mr Brown’s & Mr Carruthers’ own retirement planning is on track.
Who can help put a sensible plan into place?
Professional Financial Centre (East Midlands) Ltd has helped many clients like Mr Brown & Mr Carruthers to put a sensible financial plan into place for the rest of their lives. When looking at the arrangements available we are able to prove that we have your interests at heart. As changes happen, we review our clients’ plans, adjusting them to meet changing economic circumstances and family needs.
As a result of our qualifications, experience and culture, we qualify to be included on the SIFA Professional Directory of IFA’s, which is endorsed by the Law Society.
As a member of the Derby Law Society, by quoting code LS1 you and / or your clients will receive a 5% reduction in our costs.
Richard Shanks (Managing Director)
Professional Financial Centre (East Midlands) Limited
Wesley House, St Michael’s Lane
Authorised and regulated by the Financial Services Authority. This article is not a recommendation and you should obtain appropriate advice before acting on any of the information provided.