FREEDOM BRINGS RESPONSIBILITY

Freedom Brings Responsibility

I hope that you are aware that since April 2015 pensions have had considerable improvements. Rather than having to buy an annuity anyone with a pension can simply take income from age 55 however they want (note that this age is gradually rising to be within 10 years of your State Pension Age which you can check here). As income it is taxable, but your pension fund has the benefit of 25% of anything “crystallised” being tax free. This you may remember, concerned some that there would be a rush on Lamborghini’s… which didn’t materialise. Mind you at £270,000 for a new Aventador, you would need to withdraw around double that to be able to pay the net price.

Many of you have been accessing your pensions under these new conditions. According to the latest HMRC data in Q2 (April to end June) of 2018 the number of individuals to whom payments were made reached 264,000. A total of £2,269m was paid out to them. The system has now been in place for 3 years and the value of all payments is now nearly £20,000m (some would say that’s £20bn).

Gone in 0-60 Seconds?

The basic caveat is that once your pension fund is spent, well… its gone. There have been many mistakes made – particularly in terms of taking too much money out and paying tax unnecessarily. As the income from the pension is assessed as income, those that believe that they can simply have their money are right, but invariably forget that the amount means that they must pay 40% or 45% income tax. Clever, or rather sensible planning can keep tax at 20% or less.

The Government and HMRC are probably rather pleased with this, it means that they are taking way more tax than they would have done, particularly as many of those drawing money from pensions are doing so before they are even retired.

Tax First, Ask Questions Later

HMRC also apply their own brand of logic, which is tax first, ask questions later. In other words, you must reclaim tax when too much has been taken. Despite lobbying by financial advisers and the pension industry generally, HMRC aren’t budging on changing their approach, claiming that people are better off paying too much than too little and then having to find money to pay their tax. Since the start of pension freedoms this “over-taxing” has amounted to more than £280m. So hardly a surprise that they won’t budge. Of course, this ought to be reclaimed… but therein lies the problem of theory and practice and in any event the Office of Tax Simplification recently warned that pension freedom withdrawals are poorly understood… one might be forgiven for wondering what on earth the OTS achieve.

To put your mind at ease, you need to complete the snappy titled “P55”to reclaim overpaid tax on your flexible pension. You can find the form here.

Here’s a video of an Aventador being tested by Autocar… no need to form a queue.

Dominic Thomas
Solomons IFA

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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FREEDOM BRINGS RESPONSIBILITY2018-09-25T10:22:31+01:00

The Future of Pensions

The Future of Pensions

I am currently at my annual conference in Wales – the Chartered Institute for Securities and Investments (CISI) with whom the IFP – Institute of Financial Planning merged last year. Yesterday we covered a number of valuable topics, but the talk that resonated most with me was from former Pensions Minister MP Steve Webb, who talked about the future of pensions – amongst other things.

I had to admit that my BS radar is usually on hyperdrive when listening to any politician these days, which is probably a sad reflection on me, however I was very impressed by what he had to say, albeit he did not paint a terribly pleasant picture of the future. Of course, only time will tell if his predictions come about and in fairness, he was quick to remind us of the problems with predicting the future, particularly in a climate where since the last general election all of the major political parties have changed their leaders and the country has voted to leave the EU.

Book cover of Yes Minister - A Very Courageous Decision

Play it again Sam…(or Phil)

Webb was clear that changing pensions is pretty difficult and appears to be a low priority to either the Government of Civil Service. He gave an insight into the slow turning wheels of Whitehall, sounding much like an episode from Yes Minister. Given all the change that we have had (State Pension, Auto Enrolment, Pension Freedoms, Annual Allowance Taper, Lifetime Allowance…) he suspects and urges a period of quiet inaction from the Chancellor, Philip Hammond. This is particularly pertinent to those concerned about the loss or reductions of tax relief on pension contributions or changes to the tax free cash entitlement. He made the case that the public and financial planners could not plan ahead in confidence if the rules are changed every year, yet warned at Chancellors are easily tempted by ideas to collect more tax, however short-sighted.

Whilst on the subject of tax he made it clear that the Treasury are naturally inclined to taxing now rather than in the years ahead, so there is a very real pressure to take the view that tax relief reductions in the short-term outweigh the advantages of taxed incomes in the future, so by inference, a system of loss of tax relief and no taxation of pension income is a genuine prospect. He argued that this was evidenced by the Treasury’s love for ISAs and obvious contempt for pensions with the Lifetime Allowance reductions (and associated tax penalties) and the new tapered annual allowance. Personally he would scrap the LTA but retain a cap on annual pension contributions (which I certainly agree with). He did point out that of course putting trust in future Chancellors to honour a commitment not to tax pension income in the future required a high degree of faith, which  deliberately provoked some mirth from the audience.

Turning to Brexit, he simply outlined his view that interest rates are likely to be very low for a long time, which would place pressure on people to look for better returns than the puny sums they achieve from their savings. He argued that this would likely lead to yet more scams as people fall for yet more illusory promises of high returns. He also warned of the impact on final salary pension schemes which, because of the assets that they hold and the way calculations are performed, would have larger deficits in their pensions (due to low interest rates) probably leading to some, or perhaps a majority of companies trimming their dividend payments.. which in turn makes the task of achieving investment income harder still.

He seemed to have little regard for our regulator of whom he said was “not fit for purpose” and thought the new LISA was perhaps the most badly constructed investment idea for years. If you follow me on social media, you will know my thoughts on this already.

So, whilst Steve Webb found a receptive audience, I was left with the sinking feeling that there was little hope for common sense to return to the Treasury… but who knows… we all get to find out in a few weeks time for the Autumn Statement.

Dominic Thomas
Solomons IFA

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

The Future of Pensions2017-01-06T14:39:13+00:00

Pension Tax Relief Changes?

Pension Tax Relief Changes?

It would appear that further changes for pensions are likely. Pension tax relief has been “under review” which I always take to mean a report into the impact of a decision has been already made. At present whatever your rate of tax you receive as relief for any pension payment that you make.

As outlined within this blog before, in practice this costs HMRC a lot of money and is essentially a gift back to anyone that appears to be deemed as “rich” which as far as I can tell from Government and Opposition policy is anyone earning something between £50,000 and £1million as anyone with an income above £1m seems to largely avoid paying any tax her in the UK.

The expectation is that relief will be 33% so that a neat little explanation of tax relief can be spun by the media – 2 for 1… that is £2 from you £1 from the Government. Personally I fail to see how this is sensible as it’s an extra 13% for most people and a reduction of only 7%-12% for higher and additional rate taxpayers. It would be more sensible to have a standard rate of 25% which then at least correlates to the 25% tax free cash lump sum. 3 for 1 is just as simple to spin.

Constant Changes to Pensions

This comes on the back of other pension reforms

  • Pension freedom – abolition of any requirement to buy an annuity, retaining your pension as an investment portfolio.
  • Reduction in the Lifetime Allowance (£1m from 6th April 2016)
  • Online application for Lifetime Allowance Protection
  • Reduction in the Annual Allowance to £40,000
  • Annual Allowance tapering for those with income of £150,000+ from 6th April 2016 reducing the annual allowance to a maximum of £10,000.
  • Auto Enrolment or Workplace pensions
  • Changes to what constitutes a “year” input years are reverting to tax years.
  • Flat rate State Pension
  • Changes to the State Pension Age
  • Legislation to give HMRC the ability to take money from your bank account

Some of these changes are welcome, some are not, and many seem to be altered each tax year, making planning for the future somewhat awkward to say the very least.

Dominic Thomas
Solomons IFA

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

Pension Tax Relief Changes?2017-01-06T14:39:20+00:00

70 is the new 60…. well for the State Pension

70 is the new 60….for the State Pension

One wonders what we are doing to future generations. Today I read an article suggesting that the State pension age will inevitably become 70, all due to the fact that more people are living longer. The State pension age used to be 60 for women and 65 for men, this has undergone a period of “equalisation” and will be 65 for both men and women from 2018. As this ideological “hurdle” was achieved some time ago, successive Governments have simply made plans to extend the age at which a State pension is provided. The State pension age will be 66 by 2020 and 67 from 2028.

The reason is really two-fold, cost and longevity. The State pays pensions in various forms, the most obvious being the State pension, which now costs about £110bn a year. Disability pensions costs around £42.2bn and survivors pensions about £1.1bn, amounting to roughly £153.3bn which is about 20% of all Government spending and by far the largest component of Government spending. Details here (click).

Looking ahead

In essence anyone born since 1960 can expect to have to work longer. Given the increasing life expectancy and inherent problems with ageing, care costs are expected to soar, resulting in further dilemmas for Government about how to meet costs…. from a population that is having fewer children.

Episode IV – A New Hope

Consider those that graduated this summer and are just starting out on their careers, born in the early 1990’s they were only just teenagers when the credit crunch occurred the property boom had happened. If you understand my heading (refering to the very first Star Wars movie in 1977) this generation can be forgiven for thinking that the Star Wars films were made sequentially when episode I was actually released in 1999 – they were 7). Student loans are now part of their deductions each month, along with compulsory pensions. I don’t like to be a pessimist, but the generation just starting out have inherited the debts of previous Governments (currently interest payments are around £40bn a year), have little prospect of “getting on the property ladder” and an ageing population that received their State pension many years younger than they will. Any academic results they achieve are met with accusations of “easy exams” and employers seem almost eager to say “we cannot find good enough people”. Not even to mention the problems with the environment. I appreciate that you already know this.

The Breakfast Club

I am reminded of the 1985 film, “The Breakfast Club” written and directed by John Hughes, which recently celebrated its 30th anniversary. This was a group of teenagers held back in detention one Saturday morning and who eventually reveal the stories that brought them there. Vernon, the supervising teacher, representative of a now uncaring, disillusioned, bored older generation loathes the fact that he is also forced to spend his Saturday supervising misfits. He is caught by Carl, the caretaker, fishing through the personnel files hoping to find scandal that he can use against his peers. This results in a conversation between the two, in which he complains about the youth of today and ends with this dialogue.

VERNON: You think about this…when you get old, these kids; when I get old, they’re gonna be runnin’ the country.

CARL: Yeah?

VERNON: Now this is the thought that wakes me up in the middle of the night…That when I get older, these kids are gonna take care of me…

CARL: I wouldn’t count on it!

No… neither would I…. perhaps we all need to think rather more carefully about how we are planing not just our own future, but that of future generations… as Simple Minds remind in the closing title music – Don’t You Forget About Me. Perhaps there could be some redemption… even Darth Vader managed to salvage something with his own offspring.

Dominic Thomas
Solomons IFA

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

70 is the new 60…. well for the State Pension2017-01-06T14:39:24+00:00

Pensions: State Pension changes

The State Pension is changing…. again!

Like anyone else I am rather fed up with the constant tinkering and general messing around with pensions, in particular the State pension. It seems to me that it isn’t so much that the goalposts are regularly moved, but more that you don’t know whether the game requires, a ball, bat, horse or car. I came across a rather good succinct short video by financial journalist Sarah Pennells. I see no reason to reinvent the wheel when someone else puts all you need to know concisely. Sarah runs a financial information website called www.savvywoman.co.uk which aims to help women in particular. It’s certainly worth checking out. Anyway here she is summarising the changes.

 

Your State Pension

It would be wise to obtain a State pension forecast if you can. You can do this by visiting the main website to obtain one.

Dominic Thomas
Solomons IFA

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

Pensions: State Pension changes2017-01-06T14:39:26+00:00

Pension Timebomb

Solomons-financial-advisor-wimbledon-blogger

Pension Timebomb

Ok its April 1st, but this isn’t an April Fools Day joke…. this is data from the Policy Exchange, founded in 2002 to help contribute the national thinking about society. I don’t know if it is the case, but it would appear that the Coalition Government had a look at this before deciding to introduce the pension rules that come into effect next week. However if you are someone still saving for a pension or an employer, the findings are not great reading, with both needng to contribute rather more to pensions. Clicking on the graphic should make it larger.

Help to Save: Defusing the pensions time bomb

Dominic Thomas
Pension Timebomb2017-01-06T14:39:29+00:00

Business Owners – NEST news

2011: Nesting – Chuldenko
Pension planning is complicated and despite good intentions, this remains the case. The Coalition Government have delayed the review of the State Pension and this week have announced yet even more changes to NEST which alters the staging or more accurately, implementation dates. As you may imagine this is often about the detail and meaning of words, something that I discussed on Wednesday.
It seems that greater clarity was required to define employers and organisations by the size of their PAYE scheme. It was possible under the previous definition that existing pensioners could be captured by the original definition (not the intention). In addition, the “full time equivalent provision” is also being dropped and allows small employers who share a PAYE scheme with a larger firm to move their staging date.
The alterations mean that there will be an increased number of smaller firms who will have their staging date pushed back as a consequence. If this is all Greek to you, don’t worry. Forward thinking employers are getting on with implementing decent pension arrangements for staff. I suggest you keep things simple. As the end result will be a pension that forms part of the employee package, make it attractive and get on with setting something up that enables you as the employer to rewards staff and provide further reason to be loyal. For more information about auto-enrolment and NEST have a look at the Pensions Regulator site.

Please be aware that auto-enrolment is likely to be the biggest shake up for your pension planning in memory. Despite assurances, it has all sorts of problems with administration, which will be a very laboured task for most small firms. that lack an HR department. I was at an all-day training event yesterday to get the latest on this, frankly I don’t think many advisers will want to get involved. The knock-on impact is significant.

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting
Business Owners – NEST news2017-01-06T14:39:59+00:00

Feeling Horse Whipped?

1926: The Great K&A Train Robbery
Banks have been taking a hammering of late in the press. Co-Operative look set to swoop in on the fire sale of 630 or so branches of Lloyds TSB (who don’t forget also have Halifax and C&G branches). This will obviously increase the presence of the Co-Op, who will, if successful, control around 10% of UK branches, which will almost triple its current share of the high street. The sale was originally priced at £1.5bn, but it is widely reported that this will be significantly discounted. Remember that Lloyds are still heavily owned (40%) by the UK taxpayer. Personally, I would imagine that Lloyds would welcome being forced to get rid of branches, they are invariably expensive cost centres and with the advancement of online banking, it is hard to justify why (beyond local community reasons) they are maintained. The banking system is undergoing the equivalent revolution that the steam railway faced. You may have seen the Lloyds “for the journey” high speed train adverts, perhaps not an intended link – the internet is certainly the future of banking, which  is admittedly about user experience, but not exactly about the journey. To add a little fuel to the fire, the Office of Fair Trading has begun another review of the market, this time with emphasis on current accounts. The last OFT review was in 2008, which was mainly concerned about overdraft charges. I couldn’t resist using the image of this film poster despite it not being a black horse.
The Labour leader, Ed Miliband has been complaining about the charges on pensions. I’m not sure where he has been getting his information, but the sort of charges that he is citing (5%)are for old style pensions and he may have forgotten that whilst charges are an important element of building a pension fund, they are by no means the most vital part. The ABI and many advisers are rather cross. Stakeholder pensions, with charges capped at 1% were introduced by the Labour Government and have been a complete disaster in terms of the number of people using them. Sadly, it is hard to get the majority of people to plan for their futures and however cheap the pension, does not lead to improvement in the numbers doing so.
I don’t have too much of a problem with his basic gripe, though his information does seem very out of date. Anyone that has a more modern pension will have far lower charges than he is suggesting, and frankly it seems a little bit like posturing rather than offering solutions. Successive Governments have made a complete mess of pension legislation, which has become more complex and more restrictive. The Coalition have delayed the review of the State Pension, which could get kicked into the long grass for some time. Sadly, these matters are important and reliance on politicians to sort the system out is about as good an idea as a chocolate teapot. One thing he is right about though is, “A lot of people are going to say, when they retire, I had no idea what was coming my way”. This is why financial planning is important, coupled with financial education (to reveal the future with the chance to change it if you don’t like how it looks). Taking responsibility is the first step towards planning for your retirement, finding a good financial planner to help figure out what you need to support your lifestyle and offering different ways of achieving this is what we do for our clients.
We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting
Feeling Horse Whipped?2017-01-06T14:39:59+00:00

How To Live Beyond 100

1985: Cocoon – Ron Howard
Financial planning involves making a considerable number of assumptions; perhaps the most important is how long you will live. This is something that I have written about recently. In essence great financial planning ensures you’re you do not outlive your money. We use a variety of sources to help estimate how long this would typically be. However, in general, people are tending to live longer, due to improved diet, medicine and lifestyle. I it with this in mind, that I wonder if you saw the BBC1 programme “How To Live Beyond 100” on Monday 9th July 2012 at 10:35pm.
This was an interesting little programme about the a number of people that are now over the age of 100. There are currently in the region of 12,000 people over the age of 100 living in Britain. Its not a huge number I know, but still pretty significant if you live to be over 100 years old. One seminar I attended recently suggested that actuaries are working on the basis that about a third of babies born this year will live beyond 100. That is quite a staggering statistic and of course has all sorts of implications for the UK State system. You can view this on the BBC iplayer.
We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting
How To Live Beyond 1002017-01-06T14:40:00+00:00

The Day After The Budget

1940: Blondie on a Budget – Strayer
It has been a manic few days. There was the endless speculation in the media about what the Budget would contain, then the Budget itself and today further speculation tempered by some analysis. The reality is that you and I can do nothing about what is in the Budget, all we can do is reflect, understand and where necessary make adjustments to your financial planning.
So what is the big news? well probably the gradual phasing out of the Age Allowance. This is probably welcome by most that understand it, though it would seem that a number of politicians and media journalists do not. The age allowance is currently complex in application – extra personal allowances for those over the age of 65, but these are gradually reduced once income is above £24,000 by 50p for every £1 over £24,000. Good financial planning uses allowances for those caught within this income range so that they don’t lose allowances (another good reason for ISAs) but those with larger incomes frankly tend to have their personal allowances reduced to the standard levels for all. As you will have gathered we are all having the standard personal allowance increased. I say all, but what I really mean is those earning under £100,000.
The tax tier system continues to be smoke and mirrors – pretty much standard diet to all Chancellors that I have known in my lifetime. Yes it is the case that the personal allowance (income you can earn before paying tax) is rising towards £10,000 – but then the amount of income that you pay 40% is increasing. This is a classic moving the goalpost technique. I will put a separate post about this.
The scrapping of Child Benefit has been altered, thankfully some common sense has prevailed and a few more sums have been done. Its a shame that the Chancellor couldn’t simply say that he got it wrong and amended his plan, but there you go.
Corporation tax rates are being reduced – so very good for those running Limited or Plc businesses, such as Ken Livingstone. However for most people this is probably of little interest, for those attempting to do some tax planning, the option of becoming a Ltd company may now be more appealing than self-employed as a partnership or sole trader.
The 50p rate of income tax is being reduced to 45p – but this is hardly news due to all the leaks that pre-empted much of the Budget itself. This is one of those “depend which side you sit on” issues. You will either see this as help to indicate that UKplc is no longer the highest taxed country in Europe and so “open for business” or you will see it as a backhander to the rich. It is of course both.
Pensions were not attacked, but reliefs (excluding those to pensions, VCT and EIS) so mainly capital gains losses and large charitable donations are to be restricted to £50,000 or 25% of income, whichever is the greater. This prevents very large losses deliberately realised in order to pay little or no income tax.
I’m sure you are already bored to death by the annual silly schoolboy behaviour of MPs that we witness each year and the attempt to make a donkey look like a horse. Sadly, little radical reform, much of the Budget is welcome, but the proof of the pudding…
We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting
The Day After The Budget2017-01-06T14:40:06+00:00
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