The Rising

Dominic Thomas
October 2023 • 3 min read

The rising

We have all been aware that prices have been rising, some rather more than the officially stated rate of inflation (are they kidding?). You are equally likely to be aware that interest rates on cash deposits have been slowly creeping up, reflecting the Bank of England lending rates. Most of the Banks and Building Societies were shamed into increasing rates by the regulator, the financial cartel has slowly limped to improvement in their offerings. At the time of writing, global equity markets are up about 7.28% over 12 months or 9.96% since the start of 2023.

This has also meant an increase in annuity rates, which are a fair bit higher than 12 months ago. Annuity rates are based on life expectancy and economic conditions, notably interest rates. For example, over the last year, according to Standard Life, annuities are up about 20%. However a little warning about the statement, there is a sense of ‘if only’ about these sorts of things…

If you were quoted for an annuity last year at age 65 (for example) you would be 66 now. As a result your annuity quote would be more anyway due to the fact that you are a year older. The older you are the better the deal, because it’s about your life expectancy (how much is left of it).

If you had bought an annuity last year at the prevailing rates, you may be a little miffed, as most of them do not increase with inflation each year. In simple terms you use a pension fund (usually) to buy a fixed income for life. This is either just in your name or with a spouse benefit (the income will continue at the same level or a lower amount each year). When the annuitant dies, generally the annuity stops, unless there is a spouse benefit or a special guarantee has been bought (so would pay the estate). You can certainly have an increasing annuity, but normally at fixed terms of 3% or 5% at the most. However these are costly and tend to be much lower, typically taking 12 years to catch up before actually paying more each month than a level annuity.

Let’s suppose you have £100,000 and are 65 – a single life, level annuity would provide about £7,462 a year (roughly). If you had been born a year earlier and turned 65 in 2022, you would have an annuity paying around £6,218 a year. This is nothing to do with investments performance, but everything to do with interest rates. Over time, that difference becomes more significant the longer you live.

The other odd thing about annuities is that if you are not in great medical shape, you may well qualify for an enhanced annuity, perhaps 30%-40% more. This is due to the expectation that your life will be shorter than average.

So had you waited you would be able to get a bigger annuity, if your health had worsened you would have a better annuity, if your spouse had died, you would get a better annuity. All pretty grim really. These are all things that we cannot predict, other than that you age. It’s also why we ask you about your health and plans. These are not insignificant issues. Let’s talk about them.

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The RisingJemima Thomas2023-12-01T12:12:27+00:00

Lost pensions

Dominic Thomas
July 2023 • 8 min read

Lost pensions

The world of pensions is ever changing, a phrase that three decades ago I thought could never be uttered with a straight face, such was my naivety. The last three decades have seen a vast amount of change which has left most of us attempting to follow a paper trail of who took over who, a bit of head scratching, trying to remember who took over Clerical Medical or Friends Provident, Sun Life, Equity and Law, Norwich Union and hundreds of others.

KNOW YOUR EAGLE STAR FROM YOUR COMMERCIAL UNION

Today, the pension provider landscape looks nothing like it did. Indeed, traditional pension companies have largely disappeared or sold their legacy of pension funds to someone else. This has often not been a spectacular success, with constant promises that you (and we) are important, but evidently not important enough to answer the phone before a change of Chancellor.

1 IN 4 PEOPLE HAVE LOST A PENSION

Add in the regular movement of investors as their careers unfold and you have such a mess that not even an angry teenager’s bedroom would surpass. A recent survey (warning with them all about extracting data from a small sample to 66m people, but that said..) showed that 1 in 4 people believe that they have a missing or lost pension. I’m a little surprised it isn’t a higher proportion.

There are a multitude of small pots of pension benefits, sometimes pennies but sometimes thousands of pounds. Many of you may remember “contracting out of SERPS” in the late 1980s or early 90’s… some of these pensions have had several decades of growth and worth a princely sum. It is certainly worth checking.

PROCRASTINATION WILL COST YOU INCOME

Too regularly good intentions to “sort out my pensions” is deferred until a better time. I understand this very normal reality but it carries a cost. A lot of old pensions are very expensive by today’s standards and those charges are eating away at returns. Then of course, there is the issue of the returns themselves – are the funds appropriate, suitable to your long-term ambitions?

The good news is that even the Government have a service for lost pensions. You can find the link in our conveniently entitled “useful links” page – Lost Policy Finder. Of course, if you already have the details and they are sitting in a drawer somewhere, send us a copy so that we can assess it for you, don’t leave it until you take your retirement more seriously, we want to help you avoid using the phrase “if only I had got this to you earlier”.

GETTING READY FOR RETIREMENT… THE SOONER THE BETTER

As a not very aside, side note…. Do also have a go at our “Retirement Ready?” quiz if you are yet to retire, and please SHARE this information with people you care about, helping everyone to become more financially informed as well as financially independent, is one of our reasons for being here.

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Lost pensionsJemima Thomas2023-12-01T12:12:30+00:00

THE SPRING BUDGET 2023

Dominic Thomas
March 2023 • 10 min read

Pension reforms of sorts…

If you are under 75 and have a pension, today is a better day than yesterday. You may breathe a sigh of relief; the Chancellor has done something to directly benefit you. As with all Chancellors, there is of course some politics at play. Whatever your view of the rabble at the House of Commons, we finally have a Chancellor who seems to both understand maths and has an ability for some long-term thinking as well as valuing the concept of financial independence in his Spring Budget 2023.

As a reminder, it was the Blair Government who introduced the Finance Act 2004 which ushered in new pension rules from April 6th 2006 known as A-Day and termed “Pension Simplification”. The basic premise was to simplify pension funding, enabling anyone to make payments and get tax relief, restricted by a maximum annual contribution allowance and a lifetime allowance for the value of your pensions, be they final salary or investment based. It sounded so simple, something akin to the battery level on your mobile phone.

Next month, “pension simplification” turns 18 years old. Simple is certainly not a term that anyone would consider in the same breath as pension rules. A veritable smorgasbord of metrics are needed to monitor if you fall foul of the rules.

A-DAY TURNS ADULT

Today though, Mr Hunt has abolished the Lifetime Allowance, a welcome and grown up but unexpected move (it had been hinted that it would return to the level at which the Conservative Government inherited it at £1.8m. No, it’s abolished, completely! The Lifetime Allowance, which is something everyone had to assess pension benefits against will be gone from 6th April 2023. Do not retire before then – or more accurately do not crystallise any pension until then.

ANNUAL ALLOWANCE – UP BUT STILL TAPERED

He has not however returned the Annual Allowance to the 2010 level of £255,000 but has increased it from £40,000 to £60,000. In addition, the Tapered Annual Allowance has not been scrapped, but increased from £240,000 to £260,000 from 6 April 2023. The threshold test at income of £200,000 has not been altered. In theory therefore the new standard annual allowance of £60,000 will still reduce by £0.50 for each £1 over £260,000 but stopped at £360,000 when you will get the minimum maximum annual allowance of £10,000.

By way of example, someone with income of £300,000 would be £40,000 over the £260,000 threshold and thus see the annual allowance reduce from £60,000 to £40,000.

Those of you that have taken income from a personal pension (not a defined benefit/final salary pension) will be able to continue towards a pension under the Money Purchase Annual Allowance (MPAA) which is being increased from £4,000 back to £10,000. I understand this will double up as the minimum maximum (if you see what I mean) that anyone with income over £360,000 can also contribute (gross).

NEGATIVE TURNS POSITIVE

Medics (and a few others) that on occasion have a negative pension value for the year will now be able to offset this, something that was not possible previously.

25% TAX FREE CASH IS GOING FOR BIG PENSION POTS

There is a slight “fly in the ointment”. Under pension rules tax free cash is capped at 25% of the fund value, buried in page 100 of the Budget is the statement that advisers understand but most investors do not. “The maximum Pension Commencement Lump Sum for those without protections will be retained at its current level of £268,275 and will be frozen thereafter”. In other words, the tax free cash lump sum (PCLS) link is to be broken. 25% of the current lifetime allowance is £268,275 and this is therefore being retained, meaning that whether your pension fund is more than this, you cannot withdraw more than £268,275 as a tax free lump sum. In plain a pension fund of £2m does not produce tax free cash of £500,000 (25%) but £268,275.

One other “minor” point is that those with Primary, Enhanced, Fixed or even Individual Protection from 2006, 2012 (max £450,000), 2014 (max £375,000) and 2016 (max £312,500). Therefore some people will have a higher tax free cash entitlement than the new limit of £268,275).

ISAs, JISAs, VCTs, EIS, SEIS

All as previously.

INCOME TAX, CORPORATION TAX, CAPITAL GAINS TAX, INHERITANCE TAX

As previously announced for 2023/24.

On occasion, Budget plans get revised (remember the glove puppet of a PM?) so there is a possibility that after a little more thought, pressure and checking, some of the points in the Budget might need a tweak, but in general this is a rarity.

If you have questions, that I have the realistic possibility of answering (not “where is Cloddach Bridge?” which gets a sum for refurbishment…. which I imagine is one of those times we may remark, “what, a million pounds?” (actually £1.5m) is either a lot or a little, that old price and value thing… much like the criticism that will inevitably be made of the abolition of the lifetime allowance, which is, from my perspective of working with you, a very good thing indeed.

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THE SPRING BUDGET 2023Dominic2023-12-01T12:12:35+00:00

Golden handcuffs

Dominic Thomas
Jan 2023 • 6 min read

Golden handcuffs…

For many employees, a key reason to remain with their employer is because of pension benefits, however the playing field of employer pension schemes is far from level and the cynic in me questions whether Government tax policy is deliberately attempting to reduce the cost of pensions to employers, particularly the State employers such as the NHS.

Firstly, it’s important to understand the two basic types of pension. The clue to what they are is in the unusually straight-forward name.

1 – Defined Benefit (DB) or Final Salary Scheme

Your pension (benefit) is based on your final salary when you leave the scheme, whenever that is at the scheme normal retirement date (NRD).

The amount you get is a fraction of your final salary, your membership of the scheme and work for the employer builds your entitlement. So a scheme with a 1/60th rate of “Accrual” 25 years of membership would provide 25/60ths (41.6%) of your final salary. This will be inflation-linked within parameters set by the scheme.

The amount you receive has nothing to do with how much you contribute, that can be any amount (sometimes nothing). It is your employers duty to honour the agreement not simply for the remainder of your life but likely the remainder of your spouse’s life as well.

According to ONS data to 2019 (the most recent at the time of writing) there are about 7.6m active members (people still building benefits) of DB schemes, of these 6.6m are in Public Sector schemes.

2 – Defined Contribution (DC) or Money Purchase Scheme

These schemes are more straightforward in that they are investment-based schemes and the only guaranteed definitions are how much the employer is going to contribute as a percentage of pensionable salary (and the employee). How much this is ultimately worth will depend on how well the money is invested and the charges applied. Many employers use fairly cautious investment strategies in the misguided belief that this is better, yet as most people will save for their retirement for three or four decades, this will be rather like driving with the handbrake on.

The Auto Enrolment pensions that were introduced to automatically add staff to a pension rather than ask them if they wanted to join are essentially defined contribution schemes. They have been a success in the sense that more people are now saving into a pension.

The majority of employers do not offer a DB scheme, in fact hundreds have been closed over the years. There are barely any open DB schemes in the private sector, because they cost an awful lot to run and provide. There are roughly 10.4m people drawing a pension from a DB scheme and it’s fairly evenly split between private and public sector pensions. Remember that these are pensions payable for many years with a degree of inflation-proofing. Back in 2006 there were about 3m members of private sector DB schemes, half of them were closed, but by 2019 only 0.6m members were actively building benefits due to the number of closed schemes, deemed too expensive. Contrast this to the 0.9m members of open private sector DC schemes in 2006 which has risen to a whopping 10.6m.

To put a little more ‘flesh on the bones’ of the open private sector DB schemes, employers contribute a weighted average of 19.1% with employees adding a further 6.5%. Compare this to the weighted average private sector DC scheme where employers contribute 3.5% and employees just 1.6%. It doesn’t take a maths genius to work out that its much cheaper (by a country mile) for employers to provide a DC scheme, for which they pay annual contributions when their member of staff works for them and not a penny more thereafter.

Stating the obvious, if you are running any business, profit is what sustains a future; reducing costs increases profits (or should). The Public Sector cannot generally make quick and substantial changes like this. Generally the approach has been to alter existing DB schemes, with pensions starting later (65, 67, 68 as opposed to 60). Member employee contribution rates have increased – doubling in many cases. Finally, the rate of accrual has also been changed, often dressed up as better, but invariably forfeiting other benefits such as a lump sum. This is where most Union and legal challenges have been directed.

So taking a typical doctor who began their career paying 6% into a 1/80th pension scheme that would provide a pension for life from age 60 and a one-off tax-free lump sum. If they started working without any career breaks they might build 36 years of service (36/80ths) providing a 45% pension of their final salary (say £130,000) of £58,500 a year and a one off lump sum of £175,500.

If we exclude inflation, a same salary doctor will need to work an extra 7 years to get their pension at 67. They pay closer to 13.5% of salary to the pension and build it as 43/54ths of 79% of their salary (no lump sum)… but the Government was smarter than that, the maths isn’t really 1/54th of final salary, it’s of each year … the term ‘career average earnings’ captures this. A doctor starting out is obviously paid substantially less than one at the peak of their expertise and career earnings – so it’s nothing like a final salary but an average salary over 43 years. Taking the midpoint as an example, 21 years into a career – or retiring on a salary that you had 21 years ago. In fairness it isn’t quite like that, there is some inflation-linking, but this is detail you don’t need to know right now. The principle is how pensions in the Public Sector have been sliced and diced to save money.

When you add in draconian Government/HMRC rules about the Lifetime Allowance (a tax charge of 25% or 55% for those with pensions valued at over £1,073,100 and the Annual Allowance formula used, (which for many triggers a substantial tax on a pension income they have not yet had), it is very hard to conclude anything other than a deliberate strategy to remove higher paid long-term employees … like doctors.

So quite apart from the awful treatment medics often get in the media and utterly fictional suggestions of Consultants barely breaking from a round of golf to turn up for work occasionally, there is little wonder that most of them feel betrayed by a nation that they chose to serve. I can certainly tell you that from three decades of working with NHS doctors, I’ve not met any that became multi-millionaires through their work within healthcare. Some are certainly more entrepreneurial than others, but most of them simply love medicine and get satisfaction making a real difference in people’s lives, more likely describing it as a ‘calling’.

The reasons for the NHS being in crisis are complex and many, but part of the reason is that many doctors are being forced to reduce the number of sessions that they work or retire early so as to avoid a scenario where they are essentially paying more tax than the income they earn … actually paying to work. It is down to the Government and policymakers to have an adult approach to pensions and scrapping many of the really very badly thought through self-defeating rules.

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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Golden handcuffsJemima Thomas2023-12-01T12:12:39+00:00

Changing of the guard

Dominic Thomas
Dec 2022 • 5 min read

Changing of the guard

I know that football isn’t everyone’s cup of tea, but it often provides useful metaphors. Whether you love or loathe it, I suspect that you have heard the name Cristiano Ronaldo, who is one of the sport’s true superstars, with a career that has made him extraordinarily wealthy as his prolific goalscoring has resulted in team successes and trophies. At the age of 37 he is representing Portugal at his fifth World Cup (starting in 2006). His latest contract pays him £26m a year.

Yet on Tuesday evening, he was left ‘on the bench’ and watched as his team beat the Swiss 6-1 with a hat-trick from his replacement, Ramos some 20 years his junior. Few of us will contemplate retirement at 37, but in sporting terms, that is ‘getting on a bit’. Ronaldo and his many millions of admirers will have mixed feelings about seeing someone else take centre stage and provide an extremely good performance that threatens the possibility of Ronaldo’s normally guaranteed place in the starting line-up for the next match against Morocco on Saturday for a place in the semi-final. Those who know football, will observe that this is a normal experience for all players but rare for the superstars of the sport, but something that Ronaldo has only recently begun to experience at his club (or no longer his club).

PLAN, PURPOSE, PREPARATION

There is no obvious way to prepare for retirement, for some it is a very sudden change of pace and evokes questions about purpose and meaning, for others there is a sense of relief, as though a great burden has been lifted. A recent webinar presented by researchers from academia, has found that most retirees are not very well prepared for the transition. Whilst finance and having enough money is a significant element of retirement, it certainly isn’t the sole consideration.

Researchers found that most people do not consider how a change in health may create problems where they live, if they are unable to drive, use public transport or have a hospital reasonably nearby. They also pointed to the underappreciation of social contact and community and how a once pleasant ‘get away from it all’ location becomes increasingly isolated from valuable personal connection.

One question that seems to be understood and answered differently in different countries is “when does middle age end? And when does old age begin?”. This reminded me of a clip that I saw recently in which it was argued ‘middle aged’ is between 35-50, being typically the mid-point in most people’s lives…

65 IS THE NEW 45…

Often, we hear “you are as old as you feel” I’m not convinced by that, but I do think having connections, community involvement, friends and family all help make life invigorated and outward looking. Pop star, material girl, Madonna will turn 65 in August 2023 (next summer) and if she had been a UK resident for long enough, paying her NI, would be eligible for her State Pension in 2024.

As for people who have already turned 65 in 2022 – Stephen Fry, Jo Brand, Nick Faldo, Jayne Torvill, Frank Skinner, Timothy Spall, Daniel Day Lewis, Siouxise Sioux, Fern Britton, Dawn French, Billy Bragg and Steve Davis are all part of the cohort that will collect their State Pension at 66 in 2023. As for Ronaldo, if he was eligible to claim a UK State Pension, under current rules he could do so when he is 68, which is in 2053, some thirty years time during which he would see a further seven World Cup tournaments.

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Changing of the guardJemima Thomas2023-12-01T12:12:40+00:00

Getting enough state pension?

Dominic Thomas
Dec 2022 • 12 min read

Are you getting enough state pension?

This item is relevant to women aged at least 69 and men 71 or older.

The State Pension is regularly in the news, yet it is widely misunderstood. It has not helped that Government policy over the decades has altered it considerably as society has changed, both in terms of equality and longevity. As a result there are layers to the State Pension, not everyone gets the same amount.

In recent years it came to light that some pensioners had not been receiving what they were due. According to the DWP this dates back at least as far as 1985. Initially in March last year the DWP estimated that about 134,000 pensioners had been underpaid, but by July this year the figure rose to 237,000 with underpayments worth about £1.4bn.

The main challenge is accurately assessing all the data and making recompense and in practice the DWP have flagged a possible 400,000 cases that require a review. To complete the review process alone along the original timescales is by the end pf 2024 (which will be too late for many) means reviewing 19,000 cases a month, at the last count only 4,000 cases were being reviewed each month. The DWP is hoping that increasing staff from 500 to 1500 and better automated systems will help them get on track… errm, good luck with that. Let’s remember that the problem is one of poor data in the first place with errors going unspotted for many years, there is already concern that even the solutions will contain errors.

At the time of writing around £200m has been paid of the estimated £1.46bn and many suggest the process may well take 5 years to complete.

According to the DWP, those impacted are people that claimed their pension before April 2016 and do not have a full National Insurance record, largely impacting married (or widowed) women. Tracing people is problematic but around 118,000 that could be traced were underpaid by an average £8,900 each. Some payments are much larger.

The DWP advise that they will be in touch, frankly I would not wait for them to contact you if you think you may be affected. You can and should check your State Pension here: www.gov.uk/state-pension. Please note this problem really relates to the older State pension, not the one that superseded it in 2016. In reality that means if you are a man and born before 6 April 1951 or a woman born before 6 April 1953. Today (December 2022) you would therefore be at least 69 if a woman 71 if a man. If it helps, Liverpool football legend Kenny Dalglish and pop veteran Chris Rea (On The Beach and Driving Home for Christmas) were both born 4th March 1951 or American Mary Steenburgen (of Back to the Future) in February 1953 or our own Jenny Agutter (The Railway Children and Logan’s Run) who was born in December 1952.

THOSE PROBABLY SHORT-CHANGED

The DWP focus on these main categories

Someone already getting State Pension who got divorced or had their civil partnership dissolved.
A married woman whose husband reached State Pension age after them and who became entitled to his State Pension before 17 March 2008
A husband, wife or civil partner in a couple where both had reached State Pension age and the other person has died and not yet claimed their State Pension, or
Someone aged 80 and over who has either no State Pension or Graduated Retirement Benefit, as they need to make a claim to get any Category D State Pension.

APRIL 2023 – THE INCREASE for 2023/24

I was asked recently if everyone’s State Pension will be increased by the inflation rate of 10.1% announced in the November Budget. I can confirm that according to all the Government website information this is the case. I have used this link as the source: https://www.gov.uk/government/publications/benefit-and-pension-rates-2023-to-2024/benefit-and-pension-rates-2023-to-2024 but to save you the trouble, the salient information is shown below. The new State Pension has a much later retirement age and this is likely to be extended further. A small footnote in the Budget showed that the Government would set out its intention in 2023.

THE “OLD” STATE PENSION

Category	Rates for 2022/23	Rates for 2023/24
Category A or B basic pension	£141.85 / £7,376.20	£156.20 / £8,122.40
Category B (lower) basic pension – spouse or civil partner’s insurance	£85.00 / £4,420	£93.60 / £4,867.20
Category C or D – non-contributory	£85.00 / £4,420	£93.60 / £4,867.20

THE NEW STATE PENSION

New State Pension	Rates for 2022/23	Rates for 2023/24
Full State Pension	£185.15 per week / £9,627.80 per year	£203.85 per week / £10,600.20 per year

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Getting enough state pension?Dominic2023-12-01T12:12:40+00:00

NHS Consultants… a paper trail

NHS Consultants…
a paper trail

If you are an NHS Consultant you will have likely been aware for some years that the calculations relating to the pension annual allowance are hugely complex and difficult.

This is further compounded (as some of you will have experienced) by the fact that occasionally some of the documentation produced by the NHSBSA contains errors.

And the calculations become harder still when we are faced with ‘gaps in the data’. Suffice to say – the more information we have, the better our calculations will be.

That said, here is a complete list of all the documents that we would require in order to get these calculations right for you:

Total Rewards Statement (available to you online – but overwritten each year in August)

Annual Allowance Pension Savings Statement (only issued automatically by the NHSBSA in certain circumstances; so some of you will need to specifically request these)
P60
P11D if applicable
Payslip for March
Accounts / Tax Return for any Private Practice income
And as if this doesn’t sound like a lot – in order to do your calculations completely (and historically) we need these documents for:
ALL tax years going back to 14/15
ALL schemes … you will now be in the 2015 Scheme, but clearly we need information about your membership in the original 1995/2008 Scheme as well

Our admin team here at Solomon’s is currently working hard on trawling back through our records to see how many (or how few!) of these documents we have on file for each of our clients who are NHS Consultants (not an enviable task).

If you are one of our clients who religiously sends us these documents each year – thank you for being so meticulous (you may now stop reading this post with a contented grin!)

If you know that you have not been sending us these documents, please do drop us a line and we will confirm precisely what documents are missing.

Either way – the annual allowance is very likely to be something that all NHS Consultants need to worry about at some point (if not already) – so don’t delay in getting your paperwork up to date – it will save a lot of time and effort (and anxiety) in the long run.

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NHS Consultants… a paper trailJemima Thomas2023-12-01T12:12:42+00:00

YOUR STATE PENSION – TIME IS RUNNING OUT

TODAY’S BLOG

YOUR STATE PENSION – TIME IS RUNNING OUT…

When the new State Pension was introduced from 6 April 2016, the Government also provided an easement to the normal six-year window which allows individuals to pay Voluntary (Class 2 or Class 3) National Insurance Contributions (NICs) to fill in gaps as far back as 6 April 2006. However, this easement is coming to an end on 5 April 2023 meaning individuals have a little over nine months to take advantage of this easement. I repeat…

THE EASEMENT TO BACK FILL YOUR NI CONTRIBUTIONS ENDS ON 5 APRIL 2023.

This was picked up in the press:

Telegraph (18 June 2022): How to boost your state pension by £55,000.
Express (25 June 2022): Pensioners could boost their state pension by up to £55,000 – how you could do it.

The headline grabbing figure of £55,000 is based upon the increase in State Pension following backfilling ten qualifying years, increasing an individual’s State Pension by £52.90 per week and paid for an assumed 20 years from State Pension Age (SPA).

For those of you not yet drawing your State Pension, I regularly remind you to check both your National Insurance record and obtain a proper State Pension forecast. To say that politics has been mucking around with your State Pension would be a significant understatement. You can also do this via your Personal tax account.

BEFORE TOPPING UP

However, people considering topping up need to take a range of factors into account. For example:

Some years can be ‘cheaper’ to top up than others; for example, people who have worked part-year and have paid some NICs may be able to complete that year more cheaply than buying a completely blank year;
Filling blanks for certain years (particularly those before 2016/17) can sometimes have no impact on your State Pension. This is particularly relevant for people who have already paid in 30 years by April 2016 and who were long-term members of a ‘contracted out’ pension arrangement;
People who expect to be on benefits in retirement may find that some or all of any improvement in their State Pension may be clawed back in reduced pension credit or housing benefit;
People who were self-employed can save money by paying voluntary Class 2 contributions (currently £163.80 per year) rather than Class 3 contributions (£824.20 per year);
Before paying voluntary NICs, individuals should see if they can claim NICs credits for a particular year. For example, those looking after grandchildren may be able to claim credits transferred from the child’s parent, and this could be a cost-free way of boosting their State Pension.

THREE KEY GROUPS

There are three groups for whom top-ups may be of particular interest:

Early-retired public servants, or private sector individuals who have been members of a ‘contracted out’ occupational pension scheme; the period of contracting out is likely to reduce their State Pension below the maximum amount, and their early retirement is likely to mean they have ‘gaps’ in their NICs record which can be filled;
The self-employed, who may have gaps in their NICs record and may be able to go back to any year since 2006/07 to top it up; this group is less likely to be affected by complications around ‘contracting out’.
Anyone that took a career break to look after children.

TAKE ACTION:

If YOU haven’t started to receive your State Pension, please do take this as an urgent reminder to check your pension. The State Pension is now roughly £9,660 a year each – which is a guaranteed income for the remainder of your life. Whether you think this is a lot or a little isn’t of concern here – just that you receive what you are entitled to.

For the record, no I don’t think its enough… which is why I do what I do and you pay me to do it.

LINKS:

Dominic Thomas
Solomons IFA

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY | DATA PROTECTION

YOUR STATE PENSION – TIME IS RUNNING OUTDominic2023-12-01T12:12:48+00:00

CAPPING CARE COSTS IN ENGLAND

TODAY’S BLOG

CARE COSTS IN ENGLAND

In early September 2021, the Government revealed initial details of its long-awaited plans for funding social care in England. While the other constituent parts of the UK each have their own care funding rules, they are all influenced by the approach adopted in England. A little over two months later some unwelcome clarification on the new English framework emerged.

2014 REVISITED

At the heart of the plan is a reworking of the structure created by the Care Act 2014, itself the product of the Dilnot Report produced in 2011. There are three key aspects of the new regime:

1. REVISED CAPITAL LIMITS

At present, if your savings and other wealth (potentially including the value of your home) amount to more than £23,250, then you must meet all your long term care costs. However, if your savings and other wealth are below £14,250 you will not have to touch them, although you will still be subject to an income-based means test to assess any personal contributions to your care costs. In between those two capital limits, a sliding scale of capital contribution applies – effectively meaning contributions of 20.8% a year of any capital over £14,250.

Under the new regime, the capital limits will rise to £100,000 and £20,000, with the in-between capital contribution still based on 20.8% of the excess over the lower limit. That could mean a payment of over £14,500 a year if you are assessed to have £90,000 of capital.

2. CARE COST CAP

Your liability to pay for care will end once an £86,000 (index-linked) ceiling is reached. In September, the Government emphasised that this cap applied only to personal care costs, not ‘hotel costs’ such as accommodation and food. Two months later it confirmed that hotel costs would initially be set at £10,000 a year, regardless of the true cost. Not such good news was the simultaneous announcement that the basis of the cap had changed from that in the Care Act 2014. Instead of the £86,000 total applying to fees paid by the individual and their local authority, only the individual’s outlay would count towards the cap. The implication was that many more people would never see the benefit of the cap, given the average stay in a nursing home is less than three years.

3. MEETING THE COST

To fund the reform, NICs for employers, employees and the self-employed will increase by 1.25 percentage points, meaning that basic rate taxpaying employees will face an NIC rate of 13.25% – just shy of two thirds of their income tax rate. Dividend tax rates will also rise by 1.25 percentages points, e.g. from 32.5% to 33.75% if you are a higher rate taxpayer.

DON’T RELY ON IT…

While the new capital limits and care cap for England will not take effect until October 2023, the NICs and dividend increases will bite (throughout the UK) from 6 April 2022. The theory is that, initially, the extra revenue will go to the NHS, but then gradually move across to funding social care as the new regime gets underway. In practice, many commentators have been sceptical that any Government will be able to take money away from the NHS once it has started to flow. Perhaps that explains why, from 2023/24, the extra NIC charge morphs into a separate Health & Social Care Levy.

2023 ONWARDS

Once the new regime is in place, the burden of care costs will be reduced, but the changes are not as significant as some of the election-time rhetoric suggested. There is still a possibility that your home will have to be sold to meet your care costs; the 2023 system will simply defer that sale until after your death and bridge the interim period with a loan from your local authority.

ACTION

The new regime is no reason to assume you can forget about the cost of care.

There are many bar room lawyer stories about how to avoid meeting care costs. Most fall at the first hurdle, the law that prevents ‘deliberate deprivation of assets’ to sidestep the capital test. If care costs concern you, talk to us about how funding can be built into your retirement planning.

Dominic Thomas
Solomons IFA

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CAPPING CARE COSTS IN ENGLANDDominic2023-12-01T12:12:52+00:00

STATE PENSION INCREASE

TODAY’S BLOG

STATE PENSION INFLATION INCREASE

You will have noticed the impact of inflation on various goods and services that you have bought lately. Inflation always hits those on a fixed income harder. That mainly means those that are drawing their pensions.

The ONS publish data about inflation every month, but I suspect your actual lived experience of inflation may differ from the general averages for the entire country. There has been much coverage of this in the news, in particular the real inflation on supermarket products.

You can check the official current rate of inflation here (click here)…. Or you could look at your utility bills.

Retirees in Britain face the worst disparity in their state pension payments when set against inflation since the triple lock was introduced over a decade ago, findings warn. In April 2022, state pension pay-outs will rise by 3.1%, and be based on Consumer Price Index figure from last September. But earlier in the month, new official figures revealed that inflation was running at 5.5% in the year to January.

Pensioners would currently see a real term loss of 2.4% in the amount of state pension income they receive from the Government, and the problem could worsen with forecasts of inflation peaking at around 7.25% in April, according to experts at Quilter.

The basic state pension will rise by £4.25 to £141.85 per week, or around £7,370 a year, in April. The full flat rate will rise by £5.55 to £185.15 per week, or around £9,630 a year. Since the triple lock was launched in 2010, there have only been 22 months when inflation stood above the uprating of the state pension for the previous April and five of those months were in 2021, says analysis by Quilter. The previous biggest disparity was 0.6% back in November 2017, when inflation ran higher than the state pension uprating for 11 months, but only on average creating a disparity of 0.4% over the period.

I have no wish to get political, but I would add that this is a difficult situation for any Government. The number of people claiming the State pension is rising and there are fewer “working” people (paying NI) to cover the cost. This is, to be blunt a timebomb. The State Pension is a political punchbag, in theory paid for by the combined employer/employee or self employed National Insurance contributions.

See the links below (for those not yet drawing a State Pension).

Remember that the State Pension is income and taxable, it is simply that for most people it is within the personal allowance for the tax year (the 0% allowance). The personal allowance for 2022/23 remains at £12,570.

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk
Call – 020 8542 8084

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PRIVACY POLICY | DATA PROTECTION

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

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PRIVACY POLICY | DATA PROTECTION

STATE PENSION INCREASEDominic2023-12-01T12:12:53+00:00

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