RISHI TO THE RESCUE

TODAY’S BLOG

RISHI TO THE RESCUE

Well – I, perhaps like you have just watched Friday (20th March 2020) evening’s PM announcement. It included a huge set of commitments and financial stimulus from the Chancellor Rishi Sunak. I’m just going to leave it here, with a slight lump in my throat, that this is fantastic news. Compassion and help. The enormity of his financial package will eb scrutinised and assessed, but the point is bluntly – a shot of confidence, we are in this mess together and we will help each other out of it.

There is fantastic news for employers, with a scheme to pay 80% of salary up to £2,500 a month. That is a huge commitment. July 31st self-employed tax payment can be deferred until January 2021 and VAT is also deferred by 3 months. This is not saying that taxes will not be paid but giving a very direct and real injection of cash into the system to protect each one of us.

The detail we will turn to, but for now, I’m going down the path of the optimist and if my hunch is right, Rishi has just scored a hat trick in the world cup final… well the equivalent. I hope you agree that this is good news. We rise together.

RISHI TO THE RESCUE

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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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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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

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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RISHI TO THE RESCUE2020-03-20T17:43:21+00:00

Talking Money…. again

Talking Money… again

As you will have gathered from the plethora of adverts in the weekend papers and advertising hoardings everywhere, the tax year is coming to a close. This means it is your last chance to use up your 2016/17 ISA allowance of £15,240 or perhaps a Junior ISA for those young enough.

This tax year has had many unwelcome changes, most significantly the pension tapered annual allowance, which has reduced the annual allowance (normally capped at £40,000) to a £10,000. This applies to anyone with “adjusted income” over £150,000. But that doesn’t make you “safe” if you don’ earn £150,000. As the annual allowance is £40,000, the maths starts at £110,000 of income. Pension contributions paid are added to income, indeed any income, be it rent, dividends or interest are all counted. So many may well find that they have exceeded the annual allowance.

Deliberate Complexity

Yes, the Government could have made things easier, but why bother when there are so many willing voters who will forget the hassle at the ballot box. In fact, Mr Hammond, the Chancellor has had two opportunities to abolish this utterly ludicrous rule in either in his Autumn Statement or his Budget last week. There are tax penalties and charges if this is exceeded and you don’t have any unused relief from any of the three previous tax years 2015/16, 2014/15 and 2013/14. Pensions have the ability to go back 3 tax years if you exceed your annual allowance.

Shrinking heads?

To provide a little more context – ten years ago, the annual allowance was £215,000 in 2006/17, it rose each tax year to £255,000 by 2010/11. It was then slashed to £50,000 for 2011/12 and remained at that level until 2014/15 when it became £40,000. Today in 2016/17 it is likely to be £10,000 for many high earners.

Of course the Government knows what they are doing, by encouraging us all to save for our retirement and financial independence…. I expect that we will soon hear “lessons will be learned”. Oh and no, this is not fake news, its just unwelcome news.

Clients will be receiving a printed copy of Talking money this week, which has some more facts.

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

Email me to get in touch
Talking Money…. again2017-03-14T17:29:22+00:00

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

Would that it were so simple

Would that it were so simple

There’s a new film “Hail Caesar” by the Coen brothers. A line which I keep finding myself repeating is spoken by Laurence Lorenz, a character played by Ralph Fiennes. He is trying to coach a stuntman with his acting – repeating the line “would that it were so simple”. It’s a funny scene, which I won’t spoil for you, but it is a phrase that I find appropriate with great regularity.

In a matter of weekends between broadsheets, the Chancellor appears to have done a U-Turn on changes to pensions. Of course had we not had all the speculation, leaks and reactions we would have been “none the wiser” of his apparent “flexibility is a strength”.

The truth is of course that we will not know what is in the Budget on 16th March until, well… 16th March and as they say a week in politics is a long time. The Chancellor is determined to control State spending and this has created a significant amount of ire and assessment in the media – as well as around dining tables in homes throughout the country.

Reshuffling the deck?

Whatever you think of Mr Osborne, as with all Chancellors, pain is delivered as discipline, where possible made to appear as a progressive change. Most of the time, there is little more being done than a reshuffling of the cards, hoping that this time, the hand will be sufficient to take home the equivalent of the jackpot.

The truth is that running the finances for the UK is not an easy task (and I am not attempting to make excuses for him). Tax revenues are based on assumptions about the future, costs are too – but there is inevitably the odd “unforeseen event” such as a plague, war or famine… which in practice aren’t really that unforeseen, because they occur regularly.

Nobody is really going to be pleased much of the time, whatever politicians tell us, we know that they have ambitions based on a concept that 4 years is the long-term, which is, as we all know, full of flaws. Would that it were so simple.

As for Hail Caesar – it is a film for our time about a film about another time, but the eternal golden rule – he that has the gold makes the rules.

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

Would that it were so simple2017-01-27T10:59:40+00:00

The 2016 Budget, rumour has it…

The 2016 Budget, rumour has it…

As you may have gathered, the 2016 Budget is to take place on 16th March 2016. As ever there is ample speculation about what it may contain. This Chancellor has generally managed to outfox the financial services industry with changes that were not expected.

That in mind, the current rumours are that the rate of tax relief applied to pension contributions is likely to be reduced. It is expected that this will hit higher rate taxpayers the most, perhaps introducing a single rate of tax, the rumours being 20%, 25% or 33%.

Truth and rumour are rarely the same thing. However if you are swayed by the media who will now be gearing up into a mild frenzy, then give some consideration to making a pension payment before the Budget, as Mr Osborne has had a habit of using dates to suit his own purposes, rather than those of convenience.

So consider this not advice, but more of a tip, that should things change and they do so on the day, you may wish to get a pension payment made before 16 March if you are a 40% or 45% taxpayer. Of course this needs to be done in the context of your financial planning, but remember that you can invest into cash within your pension, which could act as a “holding bucket” until you discuss a strategy with us.

As ever, our APP (which is free – so do tell others) will be updated following any changes announced.

Rumour has it...

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 2016 Budget, rumour has it…2017-01-06T14:39:19+00:00

Taxing Reforms for Pensions

Taxing reforms for pensions

There has been considerable “chatter” about the prospect of pensions being reformed even further. In particular, the tax of pensions is very much up for debate, making the prospect of tax reforms for pensions a genuine possibility.

In brief the Chancellor has already made huge changes to the pension system, enabling a pension to be taken as a lump sum or as income without any requirement to buy an annuity.  In addition, a pension can now be easily passed on to beneficiaries of your estate, rather than ceasing when you do.

Tax Overpayments

The new freedoms have already and will continue to mean that some people don’t do their sums properly and end up paying too much tax – unnecessarily, which of course is a good thing if you run HM Treasury… every little helps and all that.

In very simple terms, most people will currently find that whatever the size of their pension pot, they can take 25% of it as tax-free cash (these days “we” call it a pension commencement lump sum – or PCLS). The rest is taxed as income.

Reforming tax relief

At the moment, anyone that pays into a pension gets tax relief – either at 20%, 40% or even 45% depending on your rate of tax. Everyone gets 20% (from age 0 to 75). So an investment of £1000 actually costs £800 if you are a nil rate or basic rate taxpayer. If you pay more than 20% tax, you get to claim the balance back via your tax returns.

The Chancellor is reviewing this, because it costs the country a lot of money. The main problem being that employers make most of pension contributions each year and do so in part because it is treated as a deductible cost. If this were considerably altered, then most employers are likely to reduce or even stop (bar the minimum requirements of auto enrolment) their contributions. This would result in smaller pensions in retirement…

So he could simply reduce tax relief to a lower amount, in essence he has done this already for anyone earning over £150,00, who have their annual allowance restricted to just £10,000 (less than an ISA) if they earn over £250,000.

Tax relief provided in 2013/14 amounted to £34.3bn, whereas the tax on pensions generated £13.1bn a “cost” to the UK of £21.2bn. Most of which (2/3rds) is reclaimed by higher rate taxpayers… those paying 40% or more.

Shrinking the Pot

He has also reduced the amount that can be held in a pension (the Lifetime Allowance) which is set to reduce again from £1.25m to £1m next April. Anything above this will be subject to an excess tax charge of 55% as things stand at present. That’s what I call easy money for the Treasury and there isn’t that much that you can do about it, other than applying for protection where relevant.

Changing the Sweetener

Another option would be to make pensions tax-free in retirement instead of taxable. Whilst this sounds all well and good, the reality is that who would honestly trust any future Government not to change the rules later, when they realise that they need the income to be taxed.

Simplicity Seems Dead

I am of the opinion that pensions are going to change, how much and when, we simply do not know. However the Government wants to be seen not to help the “rich” which seems to include people paying 40% tax and everyone paying 45% tax. It would include anyone in the State Sector that has built up a long career – doctors, teachers, police, civil servants – all of whom seem to be the current “cat to kick”. It certainly includes anyone that has pension funds worth £1m or more. Though I would argue that £1m in a pension pot isn’t that huge (yes I know its relative)  but in practice that provides at £40,000 a year income… not enough to pay higher rate tax. The worst case to my mind would be to create a “before and after” system – which we have had before, which only makes life more complicated.

If I were Chancellor?

People need an incentive to save for the long-term. I would abolish the Lifetime Allowance making all current and previous protections irrelevant. I would restrict tax relief to a % of salary, perhaps providing it directly as a 5% tax cut, say 20% tax becoming 15% if payments are made to a pension. That way HM Treasury collect taxes, people are incentivized to save and earn. I would scrap rules that enable people to pay into pensions for children, which is essentially something that only the wealthy can do, so that pensions are only for those aged 18. However I would continue to tax pension income as income…

Sadly, for younger generations the prospects of good pensions looks fragile… of course there is the prospect of the solution as outlined in Logan’s Run….. there’s just one catch..

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

Taxing Reforms for Pensions2017-01-06T14:39:26+00:00

Budget 2015: Students

Budget 2015 – Students

I’m going to attempt to be non-political by explaining how the current student loan system works. This relates to “Type 2” loans, which started in September 2012. Having watched mainstream media coverage of the Budget, I was alarmed at the degree to which little was known about the cost of a prospective Degree… by both media pundits and potential students.

Your Starter for Ten

Being a student involves many things, but financially these are the basics – the cost of the course, the cost of the accommodation and the cost of living. Over the last 30 years the number of students has increased enormously, fuelled by the belief that higher qualifications result in better choices, better income, better national prosperity. As you will know Colleges and Polytechnics became Universities some time ago, for no other reason (I think) than appearing less elitist.

Anyhow, the cost of a University course varies relatively little, most are £9,000. Those not living at home, need accommodation, which realistically costs between £3,500 – £6,000 a year, depending on location and type. Once through the first year most are left to house share within the private sector. Then there is the cost of living… food, drink, books (depending on the course) and the occasional fun night out. I think its possible for most students to live on £80 a week for this.

Loans and Grants

That’s it. Those are the costs. You can pay yourself or you can apply for a tuition loan to cover the cost of the course and a living maintenance “grant” (also a loan) for the living part. Those from families with low incomes can also apply for a further grant, some of which can be a loan, some is a grant, never to be repaid. The Chancellor announced on 8th July that this bit is changing – so that its all wrapped up as a loan. Nothing gratis.

 

 

Student Debt

The debt clock starts once the 3 year course ends. Interest is added and so the debt increases, but the amount of interest added depends on income (RPI for those earning less than £21,000 and RPI up to 3% for those earning £21,000-£41,000, above that its RPI+3%).

Repayments are made via salary if you are employed, or via self-assessment returns if self-employed. No payments are made if income drops below £21,000. Leaving the UK means that the loan is repaid directly to the Student Loan Company… failing to notify them will result in penalties. The loan lasts for 30 years and then cancelled, whatever the balance.

So let’s suppose you have three years of tuition loans (£18,000) and 3 years of maintenance loans (say £15,000), a total debt of £33,000. In theory if you never work or earn more than £21,000 you will not repay a penny. Hopefully University was inspiring enough and helped to obtain a career in something that is rather better paid than £21,000 a year over time… so most will pay something.

The Repayments

This is where it seems that most of the misunderstanding occurs. Loans, however large are only payable if income is over £21,000. If income falls below this, payments stop, interest continues to accrue. In essence then the mechanics of this are more like an extra tax than a loan.

Gross Income Annual Payment Monthly Payment
£21,000 £0 £0
£22,000 £90 £7
£25,000 £360 £30
£35,000 £1260 £105

 

Perhaps you could think of a mobile phone contract… £30 a month seems pretty “normal” for a phone. So I fail to see how £30 a month is not affordable for a Degree. Of course many graduates would hope and expect to earn much more than £35,000. As they do so, their repayments rise. In fact repayments are calculated at 9% of pre-tax income over £21,000. So a graduate earning £150,000 would pay £11,610 a year or £967 a month (the monthly payments are always rounded down). Of course by that point one would expect the loan to have been repaid anyway.

The Politics

Frankly I would need to be persuaded (and open to being so) that going to University isn’t affordable under the current terms. However this misses the wider and more substantive political point. Do we want a well-educated society that one day will be “running the country”. Do we view higher education costs as an investment in our own population or not? The argument that better educated people get better paid jobs and therefore pay more income tax applies whichever side of the debate you stand.

It would appear that given the increase in courses and students, most believe that a Degree must provide better choices. In 1920 only 4,357 first Degrees (as in a Degree not a Masters) were awarded, by 1950 the number had increased to 17,337 and by 1970 51,189. 1990 saw 77,163 Degrees awarded and in 2000 this rose to 243,246. In 2011 the number stood at 350,800. This level of growth is pretty dramatic isn’t it. Since 1980 the number of graduates each year has increased five-fold or eighty-fold since 1920. [source: House of Commons Library, SN/SG/4252 27 November 2012]

Naturally a “free” University system is open to abuse, (every system is) the current one is too – its possible that a graduate could avoid repaying the loan by keeping income below £21,000 a year for 30 years… but I imagine that would be rather difficult, when allowing for real life and inflation.

Happy to be challenged, but let’s ensure the facts are right. The notion of starting adult life with a large debt isn’t pleasant, but in practice it isn’t a bad solution to help more people improve their education.

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

Budget 2015: Students2017-01-06T14:39:26+00:00
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