Is surplus income spent or saved? *AdviserGo UK*

Is surplus money assumed saved or spent in Voyant AdviserGo? 

The answer to this question depends on three factors which we will consider in this article in turn:

         a) The type of inflow;

         b) Planned expenses, purchases, and contributions to savings and investments;

         c) How you have the software set to treat surplus income, which is configured in Plan Settings. 

Finally, we look at Cash Sweep Accounts. These are accounts are where any surplus money goes if it isn’t assumed spent.

a. The Type of Inflow

Surplus Lump Sum Inflows

When lump sum cash inflows occur, the money will be deposited into the owner's cash sweep account if it is not spent or deposited elsewhere – e.g. into a savings account, an investment or a retirement savings plan.

Lump sum cash inflows include:

-          Future windfalls, such as an Inheritance (entered on the Income > Windfalls screen),

-          Proceeds from liquidated properties/assets (items entered on the Property/Assets screen),

-          Lump sum withdrawals (one-off or recurring) from money purchase crystallisations,

-          Lump sum payments from final salary schemes,

-          Surplus debt credits (from a new loan),

-          Lump sum pay-outs from protection policies,

-          Lump sum pay-outs from pensions (money purchases, drawdown pensions) to survivors, 

-          Estate distributions at mortality.

If a jointly owned asset is liquidated (e.g. a couple sells their home), the proceeds from the sale will be split between the owners and deposited into their respective default cash accounts, unless this money is spent or scheduled to be deposited to a specific account or invested.


Surplus Habitual Income

Habitual income, on the other hand, may be assumed spent if not saved, depending on how you set the software to operate. 

Habitual income includes:

- Employment income,

- Other income (entered on the Other Income Screen),

- Planned Withdrawals (on-going or one-off) from investments, savings or MP pensions,

- Drawdown pension income,

- Yield (dividend and interest) from unwrapped investments that is taken as income, not reinvested into the fund,

- Annuity payments,

- Final salary payments,

- State pension benefits,

- Regular payments from long term care or income protection policies. 

AdviserGo is set initially to assume that any leftover surplus from these habitual income sources will be spent (as if it were spent on miscellaneous unplanned discretionary expenses) unless you schedule contributions to savings, investments, and/or defined contribution pensions to capture the surplus. This assumption is popularly known as Parkinson’s Corollary or Parkinson’s Second Law, which suggests that one’s expenditures inevitably rise to meet one’s income.

The thought behind this assumption is that although your clients may provide very detailed and seemingly realistic accounts of what they think they spend today, there could be any number of unplanned future discretionary expenses they cannot foresee. Assuming future surpluses will be saved may not be a realistic assumption for many clients as doing so may leave them with a large, highly improbable store of ready cash. The result, in most cases, would be a much more positive and probably less realistic outcome when projecting your client’s future cash flow, not to mention their estate and possible capital gains tax concerns for inheritors.

We generally think it safer to assume that surplus is not saved, which encourages you to have a realistic discussion with your clients about how they might best plan to save or invest this surplus. You can then set up a savings and investment plan in their client case, perhaps as a what-if scenario, and demonstrate the advantages of future savings.

Future surplus habitual income that is not scheduled to be spent or saved but that is assumed spent is shown in the Cash Flow chart details as the total annual “Surplus Income” figure.

You can view how much unallocated surplus is being assumed spent each year on the legend of the Cash Flow chart, which can be viewed form the software’s Dashboard or Let’s See screens (as shown right).



b. Transfers

Setting up a transfer would be one way to save surplus income. See:

Contributions - How to set up regular savings into Savings and Investments *AdviserGo*

Contributions - How to set up regular savings into a Money Purchase Pension *AdviserGo UK*


c. Plan Settings

How to set AdviserGo to assume all surplus habitual income is saved

Although the software is set initially to assume unallocated surplus spent, you do have the option to switch off this setting and assume the opposite. All leftover surplus can be assumed saved, if you think this approach is appropriate for your clients and their lifestyle, or you could demonstrate what the effect of saving all surplus income would be in a What-If scenario. 

To view and possibly change this assumption for the handling of habitual income, visit the plan settings. On the Dashboard screen, scroll down and select Plan Settings.

In the plan settings, under Calculation Settings, is the option to switch on or off the assumption to “Transfer all excess income / credits to savings”. This option is normally set to “No” by default. If it is switched to “Yes”, all unspent, unsaved surplus will be assumed saved for the entirety if the plan.

mceclip2.pngHow to set AdviserGo to assume all surplus income is saved after retirement

While you may want to assume surplus income spent (if it is not planned to be saved) during your client’s working years, the option is available to save all surplus income once your client is retired. This setting may be used to capture unspent surplus payments from defined benefit schemes and state pensions.

 “Save excess income after retirement” is another preference found in the software’s Plan Settings.

To view and possibly edit this assumption for the handling of habitual income in retirement, visit the plan settings, which are accessed from the Dashboard screen. On this screen, scroll down and select Plan Settings.

In the plan settings, under Calculation Settings, is the option to switch on or off the assumption to “Save excess income after retirement”. When this preference is switched on, all unspent, unsaved surplus will be assumed saved, but only after the recipient is retired. 


Cash Sweep Accounts 

Where does Voyant put surplus cash each year?

When you create a new plan, each person in the plan will be given a cash sweep account - e.g. John’s Cash, Susan’s Cash. These are also known as the default cash accounts. These notional accounts are created automatically by the software and each will start with an initial balance of £0 and serves as an empty container awaiting future cash inflows.

Modelled on a standard savings account, cash sweep accounts are designed to hold cash as if it were on hand. If at the end of a future planning year surplus cash remains after expenses are paid and contributions are made to savings and investments, the remaining cash may be transferred by Voyant into the owner’s cash sweep account depending on the nature of the surplus plus other settings, which we discussed above.

Once funds are put into a cash sweep account, they will remain in this account until they are needed to meet expenses or until the funds are scheduled or set to be transferred into another account. The funds on deposit in these accounts serve as ready cash and will be the first stop for expense fulfilment once incomes have been exhausted.

Surplus cash saved to these notional savings accounts will be grown at the software’s default savings growth rate, an assumption found in the software’s Plan Settings.



How Can I Tell if Surplus Money has Been Saved to the Cash Sweep Account?

Check whether surplus money is being saved to a default cash account by going to the Year View in the year of the surplus money.

Go to the Dashboard or the Let’s See screen and either double-click any bar of the chart or click the year view button, top-right.

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The chart details will then be shown.

Select the Investments tab. The default cash accounts are called ‘NAME cash’, and in these you will see if any contributions are being made in the year of surplus monies i.e. bars that goes above the black need line. Below you can see Margaret’s Cash and a contribution from an inheritance.