Over the past few years we have seen adjustments to the Lifetime Allowance for pension savings, and a number of protections have been made available to protect your benefits. Individual Protection 2016, which also goes by the acronym of IP16, is one form of protection currently available.
When you think about a financial plan, most people will think about ways to build their wealth, be this through careful tax planning, pensions, investments, etc. So few, however, think about protecting that wealth that they have worked so hard to build up.
In a UK-wide study carried out by insurer Legal & General, it was found that the average employee would be on the breadline in just 32 days if they lost their main source of income due to death of spouse, critical illness, accident/illness resulting in being off work.
The same study found that a quarter of us would have completely exhausted our savings in one week or less, if we found ourselves in this situation. For those lucky enough to have savings which could support them longer than this, they may be compromising the quality of their life in retirement, forfeiting early retirement, using monies intended to get children on the property ladder, or leaving legacies to grandchildren.
With all this in mind, it seems strange, therefore, that we have no problem insuring our cars, valuables and pets, yet we view insuring our own lives as a lesser importance.
There are a number of reasons why this is, and some of it comes down to what psychologists call “optimism bias”.
Optimism bias is described as the enduring, against-all-odds belief that, on an individual level, things are going to work out. It is believed that this mindset stems from the human desire of control; in particular, to feel that you have control over your life, and is reported to effect over 80% of us, regardless of age or gender.
This feeling is coded within the brain’s frontal lobe, which has led some experts to conclude that optimism bias is essentially a form of survival instinct. As you can imagine, therefore, it can be very uncomfortable for us to challenge this instinct and, sadly, it often takes us, or someone close to us to go through a significant negative life event (e.g. death, critical illness, loss of income), in order to break this mentality.
So how can we protect ourselves from the pitfalls of an overly optimistic mindset, without becoming an outright pessimist?
In her 2012 TED Talk, Tali Sharot (professor of cognitive neuroscience at University College London) explains that, although on balance optimism bias can be a good thing (afterall, there is a wealth of research which shows that adopting a positive mindset can be linked to increased life expectancy, improved recovery from illness, etc), we should not be ignorant to the “cognitive illusions” that our brains like to create. Simple acknowledgement of these biases, according to Sharot, is the first step in protecting from their harms.
From here, many academics recommend that building a diverse ‘sounding board’ of trusted individuals within our lives can help us attain a more objective viewpoint at times when our own biases may cloud our judgment. As well as friends and family, this inner circle should be populated with a number of professional advisers (such as an accountant, Financial Adviser and/or solicitor), who may be able to offer enhanced impartiality when it comes to significant personal and/or financial decisions.
To conclude, although it is believed that optimism bias does generally deliver good personal outcomes, these positive outcomes could be further enhanced by acknowledging our weaknesses and building defences in the areas we are most vulnerable.
If you would like to understand more about the importance of protection for you and your family, speak to one of our Financial Advisers today.
In 2017 The Office of National Statistics (ONS) published the results of their analysis into trends around self-employed workers. See the article HERE
The highlight of this analysis was the statistic that in the period between 2001 and 2017, the numbers of workers operating on a self-employed basis grew from 3.3 million to 4.8 million – a jump of nearly 50% in 16 years.
The analysis also covered the characteristics of self-employed workers and identified trends in backgrounds, notably showing an increase from 19.3% to 32.6% in the numbers who are qualified to degree level or above.
As we review this analysis a picture begins to emerge of educated, professionals choosing to take advantage of the flexibility of self-employed status, as opposed to being employed within rigid corporate structures.
Indeed, there are white-collar professions where a self-employed status is the normal, for example in the law profession where statistics from the Bar Standards Board show around 80% of practicing Barristers act on a self-employed basis.
Whilst this movement has been taking place, there has been a change in the employee benefits picture – that is the non-salary benefits employers are now providing to their employees.
Starting with the introduction of Stakeholder pensions in 1997 and the “designated scheme” requirements, which in 2012 were superseded by Auto-Enrolment legislation, employees now benefit from compulsory pension contributions, unless they take the decision to opt-out.
Alongside pension plans and other traditional benefits such as Group Life Assurance, employers are now much more aware of the general health of their staff. Bosses have been motivated by low unemployment figures creating a competitive jobs market and are now providing much more in the form of “Wellness Packages”, to the level that in 2013 record numbers were covered by some form of workplace plan.
If you have chosen a self-employed position, you have chosen to take personal responsibility for your own success and failure in business. Without realising it you have also chosen to take personal responsibility for your retirement planning, life insurance needs and sick pay arrangements.
Ensuring you have replaced any benefits as an employee with appropriate personal provision should form a key part of your financial plan.
For more information on how you can build your financial plan, and what steps you need to take to achieve your financial goals, please contact firstname.lastname@example.org for more information.
Open Banking regulations have been introduced in the UK.
In line with these regulations, QuickBooks is upgrading its bank feeds. Existing connections will be switched off and replaced with a more stable process which will give you a better experience.
Once these new feeds are ready, we’ll ask you to log in into QuickBooks and authorise the new feeds. This will allow your data to keep flowing into QuickBooks without interruption.
The new feeds will give you more control, improving the process and making it more secure.
Please note, for security reasons, the connection will need to be re-authorised every 90 days. If you have further questions about Open Banking, you can find more information on this FAQ on the link HERE
At initial set up you need to decide upon a structure. Of the 5 outlined by the BMA it appears that 3 of these are the most commonly considered – the flat alliance, lead practice or federation models.
Each one has its own advantages and disadvantages, and these should all be borne in mind before opting for one. It may well be the case that the rules and regulations change over time and so one model becomes the obvious choice or that any of them can be used without complications but for now we need to make some of the issues known so they can be considered.
The guidance says that the holder of the funds should also hold a GMS/PMS or APMS contract. If the Federation model is proposed, does the federation hold a GMS, PMS or APMS contract and can therefore receive the money directly?
In all cases a separate bank needs to be set up for the purpose of holding the PCN funds on behalf of the underlying practices as a nominee account. Transactions through this bank account will be outside of the accounting arrangements for the lead practice or federation but will need reporting in the accounts of the underlying practices. There need to be transparency with a full accounting records trail
Holding the funds, providing they have been set up in Trust, does not in itself have any VAT implications
Every care will need to be taken to get the legal framework correct regarding access to the bank account, bank name and authorities, etc.
If the federation does not hold a contract as stated above then one of the member practices will have to be used to hold the bank account – again in a nominee account with no direct impact on their financial position for tax, pensions or VAT – it is just held on account.
If the money from the nominated bank account is drawn down to pay for costs incurred by either the lead practice, one of the PCN practices or a third-party provider such as the Federation consideration will need to be given to the nature of the transaction for VAT purposes
A statement of account will need to be drawn up to show the whole picture for the PCN and the allocations of income and expenses between the different member practices. Each practice will then have to show these figures in their own financial documents and thus account for the relevant superannuation and income tax.
As the Network funding is paid as a DES the income is superannuable in the hands of the underlying practices.
In general, where a practice is drawing down its own share of the PCN funding there should not be an immediate VAT implication although in VAT registered practices there will be an impact on the partial exemption percentage
This is one of the major concerns with the PCN proposals. The vatable supply status of the transactions needs to be considered
Not all supplies under the DES will automatically qualify as VAT exempt medical services. Supplies that are not covered by the exemption will potentially be subject to the standard rate of VAT if the supplier is VAT registered or will add to the vatable turnover calculation to determine if the supplier should become VAT registered, where the current £85000 threshold is breached.
In all the proposed models there is likely to be a supply of staff between entities that does not qualify as a medical exempt activity and would be a standard rated supply.
For instance, would the supply of a pharmacist by covered by exemption as the supply of medical services or is it the standard rated supply of staff? You may then get a different answer for a social prescriber and what about any back-office functions being charged across?
Advice needs to be taken from a VAT specialist to confirm the nature of the transactions for VAT purposes and to consider what can be done to mitigate any potential VAT exposure.
There are a couple of options which may help to mitigate the VAT charge:
The first is the use of joint contracts of employment so that no one practice employs the individuals and each practice declares their share of the employment costs and obligations, but this can cause real issues in terms of legal agreements and from the NHS pension scheme perspective.
Another option is to look at the use of a VAT cost sharing exemption. For this to work there must be a cost sharing group set up correctly with a lead formal business structure of which all practices are members. Charges from the group entity to the member practices must only be at cost. So, the accounting function has to be robust enough to show that no profit is made from any recharges of costs
In the initial year of the PCN contract it may well be that the value of VATable supplies is low and remains below the VAT threshold, but care will be needed to monitor this.
Employment and the NHS Pension Scheme
Who holds the employment contract and thus employer risk and how can this be equally shared between practices?
Consideration can be given to the use of joint contracts but there are pitfalls as noted above, possibly a federation model could be used to employ the staff and de-risk individual practices from employer liabilities, but the VAT issues above need to be considered.
If using a federation, whether the employee could belong to the NHS Pension scheme will depend upon the employing authority status of the federation and what contracts it holds already.
NHS Pensions recognise this as a problem and are working on a solution to try to ensure there is no disincentive to staff employed by a PCN – effectively giving them the ability to join the NHS pension scheme but this is not known at this point.
Employment by a practice holding a core GMS/PMS/APMS contract enables the employee to be in the NHS Pension scheme. This can also be the case for some other third-party providers/federations
How can we help?
MHA Moore and Smalley can provide a review of your network agreement and arrangements and advise over the pros and cons of this and any alternatives that might need to be considered.
We have expert knowledge, experience and network connections to help with all the issues raised above including VAT advice and structure, advising on the pension scheme position, providing the accounting summary and report for the PCN DES transactions that will be required for each practice.
We will liaise with your chosen legal advisers to ensure all financial considerations have been discussed and included in the network agreement.
For more information contact our healthcare services team or email email@example.com