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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…

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The Day After The BudgetDominic2017-01-06T14:40:06+00:00

Nest: The Long Wait Continues…

1954: The Long Wait – Victor Saville

I wonder if you have your advent calendar? As the traditional countdown to Christmas begins, it seems that we will have to wait until next year for further clarity on the dates for NEST (or auto-enrolment of workplace pensions). The Government (well Steve Webb) announced that they were delaying the implementation for small firms – which coincidentally puts the date beyond the life of the current Government. This measure is an acknowledgement that the economic conditions are not terribly favourable to small businesses and additional costs may be unhelpful. However, the entire planned implementation is also under question as it had originally been intended that employers contribute a minimum of 3% of earnings, but only after at least 12 months paying 2%. So we now have to wait for the revised schedule which is promised early next year.

As a consequence there is now a row in process about the merits of delaying, which some argue is poorly thought through. My own experience of this matter is that many small businesses are not well prepared for NEST and would probably welcome the opportunity to have more time to get prepared. Those most aggrieved are those intending to supply the pension products and Labour Shadow Pensions Minister Greg McClymont who raises concerns about the impact of the delay on NEST’s ability to repay its £120m set up cost. I still find myself wondering why these things become so needlessly complicated.

DT

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Nest: The Long Wait Continues…Dominic2023-12-01T12:48:31+00:00

Autumn Statement – deckchairs on the Titanic?

1997: Titanic – James Cameron

Perhaps its me, but my impression of the Autumn Statement today was frankly underwhelming. In fairness, bar a complete change of policy the Chancellor has worked himself into a corner. The growth forecasts are cut, public sector pay has been more or less frozen. The hope is that for UKplc this is not a case of rearranging the deckchairs on the Titanic. The Chancellor seems upbeat, but then he has to. He wasn’t dealt a terribly good hand and he is now stuck playing it as well as he can. The economy and frankly Parliament are short on good ideas to get us out of the recession.

One of the positive announcements was the provision of £40bn to small businesses. Whilst this is a big number, by comparison to the NHS Budget of £106bn it is relatively small. This after all is the Budget to help our ailing nation and where wealth and job creation are supposed to begin (in the private sector). There was as a case of deja vu – with social tennants given the opportunity to buy their homes at a 50% discount on a right-to-buy basis – something that we have certainly seen before with council homes.

Many of us will be receiving a State Pension later (if there is any money left by then) and the £1m limit of Venture Capital Trusts will be removed. This has little real benefit to the vast majority of the population directly and I have my reservations about the genuine long-term business plans of VCTs.

Most of us probably would have expected this sort of Statement. There isn’t money around and there’s not a lot of festive joy to be gained, save altering an petrol price increase, which has not even happened yet. So whilst I attempt to digest the 98 page statement, I don’t think there’s an awful lot to write home about, but I will keep you posted. I assume that the strikes by Public Sector workers will proceed tomorrow.

DT

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
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Autumn Statement – deckchairs on the Titanic?Dominic2023-12-01T12:48:33+00:00

NEST: The Times They Are A Changing

I have provided another new document which will help both employers and Trustees in relation to the changes in workplace pensions. I have not been terribly creative with the title, which is “Staff Pension Schemes – Prepare for the Future”. If you would like a pdf copy do let me know and I will send you one. I would also encourage a look at the Pensions Regulator website, they have some very readable documents and are the ones that really need to be most satisfied when it comes to introducing a staff pension scheme. This is a far superior site to the NEST site, which I still have trouble navigating to find what I want quickly.

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
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NEST: The Times They Are A ChangingDominic2023-12-01T12:49:01+00:00

NEST: State Pensions, Hope and the Road to Utopia

Political conferences often seem like an opportunity to spell out a Utopian version of life. This week, the pensions minister Steve Webb has spoken at a meeting at the LibDem conference. He outlined the Government’s broad intention to remove means testing from the State Pension and provide a pension that would eventually be capped at £140 a week in total (£7,280pa). Some receive a larger State Pension than this now and a few nearer to retirement expect to do so. This is primarily due to the SERPS or S2P element of the State Pension – or even delaying receipt of it. Mr Webb suggested that those entitled to larger State Pensions would retain their benefits, but going forward everyone else should expect the same amount. At the moment, irrespective of your entitlement everyone ends up with a minimum of £135 a week if you have no other (or very little) resources. This is known as pensions credit and is designed to ensure that retired people are not “poor”. It is a means-tested benefit.

This is a planning nightmare for the Bureaucrats – the current State Pension is linked to National Insurance contributions and therefore UK earnings as well as age and gender. The entire system needs to be very carefully unpicked to prevent a “series of unintended consequences”. It is interesting to see that Mr Webb is citing projections that 1 in 6 people alive today in the UK will live to 100 and one in three females born today will live to that age. This is also the main reason for the ambitious and hopeful aspiration of the Universal Credit System that the Coalition are introducing.

Mr Webb also suggested that NEST and its auto enrolment should be unaffected by means-testing – which is something that I blogged about yesterday as a result of further news from the conference.

The prospect of living until 100 or longer does rather complicate financial planning and your assumptions about the future need to be considered and reviewed in line with your expectations. You may have read that Bob Hope’s wife Delores died on Monday at the age of 102. She had been married to her husband Bob for 69 years. Bob Hope died at the age of 100. Bob Hope once said “You know when you’re getting old when the candles cost more than the cake!”.

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
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NEST: State Pensions, Hope and the Road to UtopiaDominic2023-12-01T12:49:06+00:00

NEST: Feathers in a fluster at LibDem conference

Money Marketing report that at the LibDem conference today, there has been a call for those over the age of 50 to be given a one hour consultation about their pension in relation to the new auto-enrolment pension scheme (NEST). It is reported that Lord Oakeshott is concerned about the prospect of yet another pension mis-selling scandal. He has tabled a motion in the House of Lords for all those over 50 to receive an hours consultation. It seems that he is primarily concerned about the best use of money when debt might be repaid or benefits lost if only small sums are going towards a pension.

Lord Oakeshott is of course quite right to be concerned that people use their money wisely, but the main point of NEST was to provide a low cost pension that required little advice and possibly set up by an employer (which includes sole traders). This is not good news for employers or advisers who technically could be caught out advising those on low incomes to save for their retirement, when in practice (and with the advantage of hindsight) it may have been better for such a person to spend their money or clear debt rather than save, if the benefit system means losing benefits which they may have otherwise qualified for. To my mind this merely highlights the mess that our benefit system is in. We should never be in the situation where taking responsibility for your future is penalised.

I would certainly agree that advice about whether to join a pension would be preferable, but precisely who provides this and whether the advice is any good is of course unclear. Attempting to assess a 50 year old’s existing pension planning to date and presumably debt levels, expenses and planned goals does not take an hour as any good financial adviser will know. Perhaps Lord Oakeshott has never met one.

Similarly, Dr Ros Altmann of Saga is concerned that certain people over the age of 50 should not be saving into a pension. She would like to see risk warnings for NEST, as she argues that it is not always appropriate for low paid workers to pay into a pension.

As I hope is clear, I agree with the notion that for some people saving into a pension is not a good idea, if the benefits system remains as it is. If advice is to be provided, qualified and competent advisers should be the ones providing this – which costs money, which is entirely counter-productive to the intention of NEST. If advice is going to be provided and paid for, there are far better alternatives for employers to offer their staff than NEST. It is about time that this matter was properly finalised before it turns into yet another white elephant. We only have a year to go before the first NEST schemes must launch.

If you are old enough to have gone to the cinema to see “The Time Machine” with Rod Taylor which was released in 1960, you are one of those that is being “warned”. A time machine would certainly be of use when it comes to investing, but given that I’m not Doctor Who and don’t know anyone that has the benefit of being a Timelord, though if I may presume – we all need some time M’Lord!

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
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NEST: Feathers in a fluster at LibDem conferenceDominic2023-12-01T12:49:07+00:00

Russian Roulette Retirement – Six Bullets

I apologise in advance for the tone of this piece, but find myself outlining some broad details which many will find akin to teaching grandma to suck the proverbial egg. I’m also conscious that having an image of the poster from the 1978 Robert De Niro film “The Deer Hunter” is stretching the point and I don’t wish to offend anyone with the image.

Let me begin with an obvious statement. We don’t get to decide when we are born. As a consequence we don’t get to decide when we become 65. If you are “lucky” you will be 65 at a point in time when the economic cycle is good, when the markets are rising. Many however, will find that 65 comes at precisely the wrong moment. Many people are playing a game of Russian roulette with their future. You can only control so much – so what can be done?

1. Review your pension and investments. It is vital that the investment strategy ties-in with your planned need to draw capital or income (or both) from your portfolio of whatever. This sounds rather obvious I know, but this is a very common mistake that people make. In essence, the closer you get to the day you need your funds most people will want to have a high degree of certainty and not worry about the state of the global markets. As a result the investments should all be in low risk/low return holdings, possibly cash. Most people do not appreciate that their pension or endowment or whatever has a range of funds, OK often very small, but never-the-less there is a range and invariably this includes low risk funds. In an ideal world you should gradually apply “investment brakes” in a 5-year run up to the date you need the proceeds.

2. Consider what retirement will actually mean for you… many people find the transition from work very difficult, some leave high profile positions and describe life in retirement rather like “being invisible”. There is nothing to stop you earning money/working after a certain age. Certainly much will depend on what the role is and your state of health, but this is something that is within your control. It is important therefore to reflect on what you are likely to do in retirement and what income (if any) you need. By way of example, Robert De Niro turned 65 in August 2008. To date he has worked on a further 14 films since then.

3. The State pension age is being moved around all over the place at the moment by Governments that are unable to deal with maths, economics and social planning. The amount of the pension is being “reviewed” as are the qualification rules. The principle is that everyone (UK domiciled resident taxpayers) should get a full State pension, but quite who qualifies and how much tax or exemptions apply is open to debate. I suspect that for poor reasons, the State pension will one day become means-tested.

4. Ignore the impact of inflation at your peril. Good planning means attempting to maintain your purchasing power. In reality basic utilities, transport and food costs all seem to rise faster than any government approved statistic for inflation (you have been warned).

5. The goalposts keep moving. This is of course meant to be a source of great joy to Financial Advisers and Accountants as it means important things have happened which need explaining. I don’t find myself feeling this way, indeed quite the opposite. The BIG new rules are pretty much these:

5.1 From April 2012 your pension funds must not be worth more than £1.5m. There are some exemptions but all come with a catch. This is known as the Lifetime Allowance.

5.2 The amount paid into pensions per tax year per person has altered. £50,000 is the allowance, but you can use up “2 previous unused years”. Those earning good salaries in defined benefit/final salary pensions also have a complicated formula to calculate the amount that their pension increased by over the year which will restrict their allowance and in some case exceed it leading to a further tax charge. This is known as the annual allowance.

5.3 The need to buy an annuity (annual income for life) has been abolished. That said, most people will end up with one. Whatever you do, DO NOT accept the annuity quote that your pension company sends you. There will be others that are MUCH better. An adviser will sort the best for you. It may be that you have a poor medical history – or smoke, this will lead to a better annuity as, to be blunt, you have less chance of reaching the average age of death.

5.4 If you don’t like the idea of an annuity (giving up some or all of your pension fund to an insurance company in exchange for an income for the remainder of your life and possibly that of your spouse) then you can also now defer taking the annuity – potentially for good (known as DrawDown). You can instead take an income similar to that of an annuity and leave the fund invested. The fund almost certainly needs to grow, so you will have to expose the fund to investment risk. The amount of income is determined by your age, gender, size of the fund and the Government Actuarial Department.

5.5 If you have guaranteed sources of income for life of £20,000 which can include your State pension but not earnings or income from investments, then you can strip all the fund as income if you wish, simply paying the relevant rate of income tax at the time. This is known as Flexible DrawDown The £20,000 limit implies that you won’t return cap in hand to the State once you blow the lot – or if you do, you won’t find a sympathetic ear.

6. Finally (yes I cheated a little with the 5.1-5.5 didn’t I) make sure that you have thought about what you want from life. Generally we don’t control the date of our death, so ask yourself some soul searching questions. Having an enormous pension pot that you worked hard to build, depriving yourself of many “good things” only to die three months into retirement is not a good result. That’s why a good financial planner will ask some pretty personal questions. As I have probably said many times before only “magic” in financial planning to to attempt to ensure that your money does not run out before you do. This of course will prompt some very deep and big questions.

A good financial planner is perhaps a little like Joseph – who managed to make sure that enough was saved from the years of plenty for use in the years of famine, which ended up saving the entire Egyptian nation. A great financial planner will ensure that you handle the question – how much is enough?

There is no need to play Russian roulette with your future.

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
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Russian Roulette Retirement – Six BulletsDominic2023-12-01T12:49:16+00:00

State Pension Announcement

After much speculation in the media over the weekend and my attempts to find a copy of the “Green Paper” it wasn’t until yesterday evening, at 6.15pm that the Coalition announced their plans and a Green Paper regarding the proposed changes to the State Pension. Speaking to a sparsely populated House of Commons (spot the MP) Prof. Steve Webb spoke about the key issues and plans that are being announced. The video is shown below (or see the link). You need to move the slider to about half way along – to the right time of 18:15:45

Transforming the State Pension is no easy task, simplifcation is a term that has regrettably been largely misused in the pension world and whilst the changes have noble aims there is an awful lot of number crunching to do before we can categorically say that everyone is better off and the State pension is simple to understand. Mr Webb said “With today’s Green Paper we are setting out how we plan to transform the pensions system and create a simple, decent state pension that is easy to understand and efficient to administer. We need to ensure that saving for the future pays.”

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
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State Pension AnnouncementDominic2023-12-01T12:51:37+00:00

State Pension Gossip

Today’s press covers the story that the Government are being advised that life would be considerably more straight forward if everyone receieved the same State pension. Today’s rumours are that this is about £140 a week.

This would be considerably easier for anyone trying to work out their pension – it amounts to £7,280 a year for everyone. Most of us would need considerably more than this (which is about £600 a month) to live on and so would still obviously need to ensure that we build up other “non-State” pensions.

At the moment, the State pension is based upon your National Insurance contributions and your qualifying years of working.

Some quick thoughts:

1. This is a good idea, everyone gets is no matter what. It ends all the confusion about SERPS and S2P top ups.
2. Hopefully this would break the National Insurance tax system which is frankly a cumbersome system fudging the fact that most of us pay considerably more in tax than say 20%, 40% or 50% due to National Insurance.
3. It paves the way for a more straight-forward tax system which is certainly needlessly complex and in particular converting National Insurance into a two-prong system (if it were to remain)of compulsory non-State pension provision and a compulsory contribution (rather like insurance) to the welfare state for personal benefits that hopefully will not be required.

What it also could pave the way for..

1. Means tested pension benefits, for example everyone might recieve the State pension except those earning over £100,000.
2. Increased self-reliance and reduction in the welfare State.
3. A tax system that is obviously different.

I have to say that I would favour a flat rate State Pension for all. Whilst I’m at it and I’m living in Utopia I would radically overhaul the tax and benefit system. If we agree that we are all members of society together we should all pay for societal benefits. So, why not…

1. Have a single rate of tax at say 20% for everyone. This would mean that everyone contributes, the wealthy and the poor pay the same proportion of tax. This would actually be FAIR.

2. Scrap tax relief and tax free investments (yes my work load would suffer!) but wouldn’t it be easier! Scrap capital gains tax, dividend tax and a plethora of other taxes – any income or acutal capital gain (after income)would simply fall under the standard 20% tax rate from point 1.

3. No Government could spend more than it raises in taxes and should “bank” 20% for societal emergency each year. In other words only spend 80% of tax revenue.

4. Business, charities, Trusts and employers pay a flat rate of tax after all legitimate costs – why not 20%. Creating greater transparency and having no benefit to hide or move away from the UK. The rate should be in-line with personal tax.

5. No VAT, no Inheritance Tax etc – not needed if EVERYONE is paying 20% on ALL income/gain in a tax year paid at source. I.e. if you receive an inheritance you pay 20% of what you receive, end of discussion.

5. No tax free anything except a standard personal allowance of say £5,000 which is a per-person allowance that can be transferred to a spouse or partner only in entirety. Therefore a non-working spouse that transfers his/her allowance to their husband/wife but earns interest of £1000 will pay 20% tax on the interest. The “couple” have recognition that one of them is not working which will undoubtedly have cost implications.

The media seem to suggest that the Government focus is on benefit cheats, whereas there are billions lost to people that use all sorts of offshore tax loopholes that result in hardly any tax being paid. This is wrong. Sorry it it just is.

We need a society that does not cap entrepreneurialism (ie no higher tax for higher earners) so that there is no motivation to hide income or find a way of avoiding tax. We also all need to take greater responsibility for our society, so everyone should pay and the Government should live within its means. This must surely lead to providing services and infrastrcuture that we want and need. Anything else, pay for it yourself with the 80% you have left.

The tax system as it is means that advisers and Accountants help people legitimately reduce tax. Increasingly it is only the affluent who are using financial planning services and understandably want to get back tax where they can – who wouldn’t? But this leads to all sorts of rubbish tax saving schemes that are often restrictive and and some plain dangerous, rather than creating a financial services industry focussed on helping people plan for their future and use money creatively that will also hopefully benefit society by creating new businesses and jobs.

I’m sure my proposals are full of holes and flawed thinking, but anyone that deals with tax knows it is ridiculously complicated. We all need to pay, we need to ensure that people that need help get it and those that don’t want to help themselves (very different to those that can’t) do not have reason to do so.

…well I can dream can’t I?

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
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State Pension GossipDominic2023-12-01T12:52:53+00:00

Dramatic Rise in Pensioners – Baby Boomers

When the country is celebrating the Olympics in 2012, baby boomers will be turning 65in record numbers. Over 800,000 of them – a staggering 150,000 more than in 2011 – will reach this key milestone. This massive increase corresponds to the post-war spike in births in 1946 and 1947, and presents a challenge for the Government as many of those turning 65 will also start claiming their state pension.

Since the first of the baby boomer generation started to draw their pension at age 60in 2005/06, DWP spending on people over working age has risen by almost £14 billion. By 2012 spending will have risen by nearly another £4 billion.

With the latest research showing that many people can expect to spend around 20 years in retirement, the Government is currently looking into bringing forward increases to the state pension age. It also wants to ensure that older workers who want to keep working are able to do so, by phasing out the Default Retirement Age.

The three urban areas that will see the greatest increase in 65-year-olds over the next two years are Aberdeen (33%), Hull (30%) and Kingston upon Thames (26%).

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
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Dramatic Rise in Pensioners – Baby BoomersDominic2023-12-01T15:32:00+00:00