Welcome to the third edition of our bi-annual communication ontopical financial planning matters and areas of interest to privateand corporate clients – we hope you enjoy it.

At the time of writing we are finalising our private clientproposition, one of our requirements under the Retail DistributionReview that will become effective from 31 December 2012. Weintend to continue to provide a holistic service addressing all aspects

of financial and personal taxation planning, with regular reviews of these matters anintegral part of the service. We will also continue to offer a full financial planning serviceto our corporate clients and, with automatic enrolment into workplace pension schemesstarting for the largest employers in October, we are well placed to provide solutions whereexisting pension provision may not meet the requirements of the Pensions Act 2008.

Our new website is now live and, in keeping with our desire to make information morereadily available, future editions of Illuminate will be sent by email and made availableonline. With this in mind, if you would like to continue to receive Illuminate from us,please either register for our newsletters via the “In the News Section” atwww.kerrhenderson.com, or alternatively send a request to info@kerrhenderson.comentitled Illuminate.

Maxwel l Buchanan, Manag ing Dir ec tor , Ker r Henderson (Financ ia l Ser v i ce s) Ltd

It never ceases to amaze me how many people areprepared to travel abroad without any form oftravel insurance in place and yet a recent surveyestimated that up to 3.2 million people from theUK do precisely that. Of those surveyed, despitebeing aware of the high cost of medical treatmentabroad and the higher risk of theft, 6% stated thatthey never bother with travel insurance. For suchpeople it seems that the lure of saving a fewpounds by avoiding travel insurance is morecompelling than the risk of being left high and dry.Perhaps if they knew what it costs to get home tothe UK from abroad they would think again; forexample, an air ambulance from the Canary Islandscan cost up to £16,000 and from the East coast ofthe USA, it could cost up to £45,000. Even on ascheduled flight the costs are enormous – a flight,stretcher, and doctor escort from Australia cancost up to £20,000, not to mention the medicalbills in the country where you were initially treated. Assuming you are not one of those people whotravel without insurance then what cover shouldyou look out for? Above all, you must make surethat you are covered for Medical Expenses to asuitable level (typically £5,000,000) including,where necessary, the cost of repatriation to theUK. It is also vitally important that you informyour insurers of any medical conditions that you

have, as well as those of anyone travelling withyou. In addition to this, you must advise theinsurers of the medical conditions of anyonewhose sudden illness or death would cause you tohave to cancel your trip and return to the UK –this includes relatives not travelling with you andany business partners. All too often people travelabroad without declaring the medical conditions ofothers and then find that their insurers refuse topay a claim – it is far better to know before youtravel if insurers will or will not cover claims forpersons with medical conditions rather than findout when you are already abroad, and facing hugebills for returning home on the next availableflight.A common assumption is that all travel insurancepolicies are the same when this is most definitelynot the case. For example, some insurers will coverextreme sports such as bungee jumping, whitewater rafting, jet skiing, scuba diving and otherswill not. Some insurers will pay for the financialfailure of a travel or accommodation providerwhere this does not form part of a package whichcovered under the ATOL scheme whereas otherinsurers do not provide this cover. One other common misperception is that theEuropean Health Insurance Card (commonlyreferred to as an E111 card) replaces the necessity

of travel insurance. Again, this is not the case - theE111 card merely allows you to benefit from thesame medical treatment in any member country ofthe European Union that you would at home onthe NHS. Some countries do ask for a patientcontribution so it’s not entirely free of charge in allcountries, and some conditions and treatments arenot covered. The E111 card is available free onwww.ehic.org.uk so don’t be tricked by otherwebsites that charge for something that is free toall UK citizens. And finally – whatever you do, don’t rely on atravel insurance policy to cover your personaleffects whilst abroad. The cover provided isgenerally very low with a low single item limit thatmay well be short of what is needed to replace theitem that has been lost – to avoid being out ofpocket, just check that your household insuranceprovides you with necessary cover whilst you areaway from home.For further advice on single trip, annual multi-trip, and business travel insurance policiesplease contact Andrew Rodgers, ManagingDirector of Kerr Henderson (GeneralInsurance Services) Limited on 028 9068 0612or e-mail on arodgers@kerrhenderson.com

ILLUMINATE

Ins ide thisissue. . .Travelling abroad? Don’t forget to cover up ...The absence of women......and menHow much?Pensions and Spousal by-pass trustsAuto Enrolment

July 2012

TRAVELLING ABROAD? DON’T FORGET TO COVER UP. . .

Register for your emailversion of Illuminate atwww.kerrhenderson.comgo to ‘In the News’ page

We can all cope with this for a day or two, butafter that it can start to become a real problem.In a recent survey by group risk insurer Unum, itwas found that 30% of companies can onlyabsorb the cost of absence for a maximum ofone week (Holden-Pearmain Research 2011).The same survey found that 19% of employersfound managing absence impacts highly on theirother duties. In our experience few employersmanage to accurately calculate the total cost ofabsence in terms of direct and indirect costs but,if they did, they would be surprised at howmuch absence actually costs per year.Yet managing absence remains something thatmost companies delegate initially to linemanagers and many rely on the “fit note” as thesole evidence of incapacity. A lot of companieshave plans for long-term absences and, if anincome protection policy is in place, the insurerwill have a rehabilitation service which can beinvoked early in an anticipated extended absenceperiod. However in the short term the positionis rather different as the impact of one or twoemployees being off can be huge. The construction of sick pay policies can also beproblematic. For many companies there is

reliance on the bare minimum requirements andemployees are placed on Statutory Sick Pay (SSP)after 4 days absence - it’s a great motivator to getback to work, but what happens when there is agenuine reason for absence or a serious illness?This is where the dangerous issue of“discretion” kicks in. Most employers will havea paternalistic pang at some point and will wantto be seen to be doing the right thing particularlyif it’s a recovery from a very serious operation orcondition. For some they want to make surehard working employees are looked after – thisseems reasonable, but it’s dangerous as this caneasily be viewed as discrimination by others.From a genuinely sick employee’s point of view,surviving on SSP or, to put it more accurately,£85.85 per week, isn’t going to aid their recovery.Suddenly simple things like paying bills or themortgage are going to become tricky. Mostpeople these days don’t have adequate savingsand, with a national average unsecured debt of£10,500* per person, it’s easy to see how a badsituation will become worse. This is where Kerr Henderson can help: Short-Term Income Protection cover is now availableand can be offered as either an employer

sponsored co-funded option (where theemployer and employee both make acontribution), or voluntary (where the employeradministers a scheme but the employee alonepays the premium). Not only will this helpprotect the genuinely sick employee but it alsooffers independent and medically informedscrutiny of qualifying absences. A payment tothe employer to cover increased business costs(e.g. the hiring of temporary employees) can alsobe included.We can also offer an Absence ManagementService which, for a small cost, can outsourcethe absence reporting to a third party companyensuring consistency, follow up and regular,accurate reporting. This is both an employeebenefit and an employer benefit; correctlycommunicated it can be presented as a valuableadditional benefit for employees at a time ofneed.Contact John Kerr on 028 9068 0610 (orjkerr@kerrhenderson.com) for moreinformation.

* Source: “The Protection Gap” – YorkshireBuilding Society 2008

The absence ofwomen......and men

The headline is that financial advisers will not beable to be paid by commission from 1 January2013 – what some have signalled as being theend of ‘free’ advice. The rejoinder to this is thatadvice has never been ‘free’; these changes donot affect how much the advice should cost butsimply ensure that you as the customer agreewith your financial adviser how much you payfor the services you actually receive. Nor doesit necessarily mean that you will have to take outyour chequebook: where a financial product isinvolved you may be able to agree to have thefee taken from your investments or pension.The point is that you pay for what you get, andsign up for the service that you actually want topay for. What the exercise has uncovered is that the

reliance in the industry upon payment bycommission has quite often had the unintendedeffect of blurring the boundaries regarding theextent to which ongoing reviews and serviceswould be provided by the adviser and expectedby the customer. At Kerr Henderson, in the coming months wewill be discussing this with you and encouragingour clients to sign up for ongoing reviewservices at agreed intervals so that together wecan keep an eye on the continued suitability ofyour financial products for your changingfinancial and personal circumstances and lifeevents. Another pertinent factor to be takeninto account is how your investments orpensions have performed or the coverage ofyour long-term insurance products. It’s all too

common to have made what looked like a soundinvestment some years ago, only to forget aboutit and then find that it has gone stale or off theboil – it might have been consistentlyunderperforming, the star fund manager mayhave left for another investment house or someother extraneous factor. The continued volatilityof the wider economic situation and the flux ofgovernment taxation policy also make a regularreview of financial affairs imperative for manyand we are also able to add value through ourpersonal taxation and estate planning services. Contact details for our private clientconsultants are available on our website orcontact Stephen McCleary onsmccleary@kerrhenderson.com or call 028 9068 6436.

How much?

It’s all looking good - your day is meticulously planned and you are on the cusp of actually getting through the workload thathas been on your mind for weeks - you are actually looking forward to work today. Then, you arrive in work to find yourcolleague has rung in sick because of flu: they might be off for a day or two or it could be a week or two…your well planned daylies in tatters…you have to get to grips with someone else's work “structure”, review their urgent work for the next few daysand either do it in lieu of your own, or delegate it to someone else.

In the last issue of Illuminate, we flagged the imminent changes that will be made tothe financial advice industry as a result of what is termed the Retail DistributionReview. Preparation for these changes is certainly occupying a great deal of financialadvisers’ time and resources, but what are the main changes that the person sitting onthe other side of the desk should expect to see?

One of the most important financial decisions that an individual makes during their life isto fund an adequate pension plan in order to provide financial security in retirement. Ascontributions are made to the pension and the underlying funds grow, the pension fundcan become a very valuable asset - indeed to provide for a secure retirement it needs tobecome a valuable asset!

Thankfully however, should the individual die in this ‘pre-retirement’ phase, the value ofthe pension (and any separate ‘Death-in-Service’ life assurance benefits) will notnormally form part of their estate and will be paid to the individual’s nominatedbeneficiary (ies) free of inheritance tax (IHT).

So why do we need to carry out any planning?

Although there is usually no IHT on the pension holder’s demise, the nominatedbeneficiary for the death benefits is often the individual’s spouse or civil partner. If thedeath benefits are paid directly to the surviving spouse/civil partner, the value of thepension death benefits will form part of their estate and potentially become liable to IHT at a rate of 40% on theirsubsequent death (where the estate exceeds the available nil rate band). Whilst leaving the death benefits to children on thefirst death, rather than the surviving spouse, would avoid this problem, this is often financially impractical.

So is there anything we can do?

There is a relatively simple solution but the planning has to occur before the first death. It entails the individual (with thelarge pension fund) establishing a trust during his/her lifetime, with a nominal sum (often a £10 note stapled to the trustdeed!) and with the spouse (or civil partner) being included as a potential beneficiary. The individual then alters theirnomination form in favour of the trustees of this trust. The planning is then complete.

So what happens if the individual does die before retirement?

In this situation, the pension scheme trustees will pay the death benefits to the trustees of the trust established during theindividual’s lifetime – rather than the surviving spouse (hence “spousal by-pass”). The trustees (who should include thesurviving spouse) are then in the position of being able to pay the surviving spouse income and/or capital for the remainderof their life but vitally, the value of the trust will not be taxable within their estate and an IHT charge at 40% can thus beavoided.

Considerations when establishing the trust

As the trust will have been established many years before it acquires any significant value and becomes active, it isimportant that some thought go into its drafting. For instance the trustees should have maximum flexibility in terms of whois to benefit and how they are to benefit. Additionally they should have wide powers to deal with the trust assets. Indeed,the trustees’ power to make loans to the surviving spouse rather than pay out income and/or capital can assist further withIHT planning as these loans will be repayable on the spouse’s death and hence reduce the potential for an IHT chargewithin the estate.

In summary, this relatively simple piece of planning can significantly reduce an estate’s liability to IHT without reducing thesurviving spouse’s or civil partner’s access to income and/or capital. If you have any questions relating to pensions andspousal by-pass trusts, please contact Stephen McCleary on smccleary@kerrhenderson.com or call 028 9068 6436.

We covered the subject of auto enrolment (compulsory pension provision)in the last issue of Illuminate and make no apologies for mentioning itagain now: there has been an abundance of press articles on the subject;trades unions have been asking for details of employers’ plans; and thePensions Regulator has actively been contacting employers to assess theirlevel of preparedness. There can be little excuse for any employer notbeing aware of the legal requirements of auto enrolment. Whilst the phasing in of auto enrolment will mean that many employers(those with a workforce of less than 500) will not need to start autoenrolling until 2014, our involvement to date has shown that employersunderestimate the time needed to consider the many issues involved inpreparing for auto enrolment: identifying staging dates, selecting schemesand ensuring they are qualifying, identification of eligible job holders,

communication of changes to the workforce. Overarching all of this is thedecision as to who will attend to the necessary changes – are thereresources to address this in-house, or is external help needed? The Pensions Regulator has produced a very useful quick guide topreparing for auto enrolment:http://www.thepensionsregulator.gov.uk/employers/7-steps.aspxIn addition to the matters covered in the guide, there are other itemswhich, we would suggest, should be considered: how much is this going tocost the business, not only in terms of employer contributions toemployees’ pensions, but also in terms of the additional administration,HR, payroll and record-keeping costs involved? Remember too, that this isnot a one-off cost, as the workforce will have to be continuouslymonitored and eligibility for auto enrolment assessed on an ongoing basis.The message is: don’t put auto enrolment on the back burner. It is a matterwhich needs to be addressed and the sooner it is, the easier the process willbe and the fewer unwelcome surprises it is likely to throw up.If you have any questions on auto enrolment contact Brian Jacksonon bjackson@kerrhenderson.com or call 028 9068 0621.

Pensions and Spousal by-pass trusts

Auto Enrolment

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.