2017 Budget

2017 Budget

The 2017 Budget from the Chancellor Philip Hammond will take place this Wednesday. In practice, few are expecting him to deliver anything significant. He has already publicly stated that there will be no “spending sprees” which is a rather unhelpful relative term, but would imply that there is unlikely to be a considerable amount of money for sectors that probably need it.

There are lots of things that I wish he would change, but I am sounding rather like a broken or at least well-worn record, that the rules around pensions are more than a little bit daft, but utterly insane – but hey, this is Government policy not common sense.

Pension Insanity

As a brief reminder of the pensions insanity. You are restricted to how much you can pay into a pension each tax year (called the annual allowance). This is currently £40,000 or 100% of your actual earned income, whichever is the lower figure.

The UK has a system where you are penalised if your pension pot exceeds a certain value (now £1million) this is called the Lifetime Allowance. You are also penalised if you earn more than £150,000 and begin to see the reduction of your annual allowance from £40,000 to £10,000. This is called pension taper relief, catchy sounding term isn’t it! Tax penalties are ready and waiting should you mess up, many will – through nothing deliberate, other than earning and income and being a member of a pension scheme, something that one would normally think were good things to do. Just for good measure your pension is valued at the point you “retire” (though in their infinite wisdom this is now called a crystallisation event) and then again at 75 with assessment against the Lifetime Allowance, which may well result in a significant tax payment – or rather it will if you exceed the Lifetime Allowance of the day.

Doctors, Teachers and Measure for Measure

Those that are members of final salary pensions like the NHS, Civil Service or Teachers Pension Schemes – basically anyone that works for a State service, which is likely to benefit us all. You possibly know someone who works within in the NHS or a Teacher, who has had increasingly pressurised workloads, with extended hours and utterly pointless assessments, form filling (for which read, Government department bureaucrats need to measure something, so let’s try this) all simply to justify their non-inflated salaries, which on occasion they have to reapply for…  all because a Government can. Anyway, as these people are clearly coping too well and not leaving in the numbers that Government hoped, they are asked to calculate their annual allowance rather differently and constantly guess if they will overpay for the year, which results in a tax fine that on money that they might not receive when then retire. I am not kidding – this is not fake news.

Hollow Words, Smoke and Mirrors

When Chancellors and Prime Ministers or indeed any politician talks about serving people, one is  always left suspicious as the words are invariably bereft of any action plan or follow through. There are few like the Duke, in Measure for Measure, who survey the detail of the way their citizens are governed. We all plod on regardless because the problems are apparently “just too big to fix” and “we must all have a grown-up debate”… hmm..

If Government was a business it would be in an even worse shape, for failing its customers so frequently and so outrageously. Yet whichever one is elected, they make the same empty promises and simply meddle along, tinkering at the edges hoping that everyone will quickly forget, which they will…

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

2017 Budget2023-12-01T12:18:40+00:00

What is the truth about SIPPs?

What is the truth about SIPPs?

If you didn’t read yesterday’s post, can I suggest that you do so. Click here to see it. The quickest route to a financial scam is to fail to read information. The Radio 4 programme suggested that the scam concerned meant that some people had pretty much lost their entire pension. So can I encourage you to simply give me 5 minutes of your time so that you have a few more facts about financial scams? This article assumes that you have heard the radio programme concerned.

SIPPs

Firstly, a SIPP (Self Invested Personal Pension) is not simply for the rich (as implied by the programme). There is nothing wrong with a SIPP they can be just as cheap as a standard personal pension. The main difference is that they can include unregulated investments. You may recall that this was supposedly what the public was clamouring for at one point – remember Gordon Brown back-tracking on being able to put residential property into a pension? Well that would have to be into a SIPP. A residential property is an unregulated investment too! We arrange SIPPs because they have a far greater range of funds – our main reason for using them is to access low cost funds (very low cost).

Risk Profiling and Risk Questionnaires

Any decent adviser will attempt to explain and assess your attitude to risk. This isn’t an easy concept. The best tool I know is the one I use for clients. The world-leading software from FinaMetrica, it’s a psychometric test and naturally rather more than “on a scale of 1 to 10..” Risk is relative and requires thought. Crossing the road is “risky” but rather more so if you don’t look or listen. Box-ticking is never going to do justice to a proper, contextualised conversation…. but worst of all is assuming that your attitude to risk is the same as your advisers…. almost certainly not.

Transferring Your Pension

Again, there is nothing wrong with this, but there needs to be a good reason to do so (or several). Moving an investment based pension to another investment based pension is pretty straight-forward, but there issues to consider carefully. In any event moving this sort of pension is called a pension switch (like for like), although often called a “pension transfer” in layman’s terms it isn’t. It doesn’t help that all the forms to do this are called pension transfer forms, or transfer packs and so to be consistent, advisers, myself included use the same term, but it is not what the regulator means by “pension transfer”.

A Real Pension Transfer

Moving a final salary or “Defined Benefit” pension is invariably unwise, but there are exceptions. We do not (and never have) moved these sort of pensions, these are called pension transfers, and these are the type that causes the regulator concern – for good reason – you would be giving up guarantees! In essence a pension transfer involves moving from a guaranteed arrangement into an investment (which fluctuates in value, so not guaranteed). On occasion, there can be good reasons to move though – if the original scheme is in difficulty or your own circumstances are a little unusual. This requires specialist advice, which we can refer. However, I would argue that historically pension transfers were done to generate commission for the adviser rather than benefit for the investor. However at times, a transfer might be suitable.

Valuing Pensions

Invariably we arrange investments of all descriptions and provide valuations. My own view is that the investor ought to be able to view the investment online and the data should confirm what we say. I also do not like lock-in’s. Any investment that is a little bit out of the ordinary will need an exit method. Many more complex, high risk and unregulated investments all have problems with exit. Normal, regulated funds do not, with the exception of property funds, which can have similar problems and are far from ideal for anyone seeking or requiring liquidity.

Fraud

There will always be people wanting to take advantage of you. These psychopaths (I cannot think of a more suitable term) have little remorse (if any) for the fact that this is your hard-earned money. People are always behind investments, never forget that, on both sides.

Celebrity Endorsements

Similarly, taking advice from anyone not qualified to provide it is a mistake that you really do not need to make in 2015 and beyond. Just because he or she writes about cars, finance, cooking or music or performs in films, does not make the product “good”. They are being paid to read a script. Most people would willingly accept a cheque for reading and smiling, my advice would be to never endorse anything that you have no genuine knowledge of. It is of course a very old “trick” of confidence.

Why does this happen?

Lots of reasons, here are 4.

  1. Because people become fed up with their investments and don’t like the alternative of cash which is currently paying peanuts. There are a plethora of alternatives now, some are ok, but most are simply taking advantage of the generally poor opinions about Bankers and will just as easily take advantage of you (by which I mean deprive you of as much of your money as you are willing to hand over).
  2. Because they are short of cash and being desperate will raid the future to pay for today
  3. Because they have been duped by people implying trustworthiness, but actually have no accountability or relationship
  4. Because financial stuff is pretty dull and full of jargon and its a lot of effort to read and not many people want to pay for advice, particularly if that advice doesn’t deliver the news that they want to hear.

The good news is that your investment experience does not have to be like this, however you do need to remove emotion from your investment strategy (easy to say) and also retain discipline. Investing is life-long, certainly not just for Christmas.

Want more? I suggest you get my free downloadable report about pensions.

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

What is the truth about SIPPs?2025-01-27T16:38:37+00:00

1000 Pensions at Risk

1000 Pensions at Risk

If you are a member of a final salary scheme, or were, I’m sorry to bring you some sorry news of a new report from the Pensions Institute, part of Cass Business School, which highlights the acute pressure faced by many private sector defined benefit (DB) schemes and their trustees as they strive to meet their long-term liabilities.

The report, “The Greatest Good for the Greatest Number“, predicts that the businesses of hundreds of employers will become insolvent well before the end of their recovery plans, under which the trustees and sponsor agree contributions to make good the deficit over an agreed number of years. On insolvency, these schemes may have insufficient funds to pay members’ pensions in full.

In theory the Pension Protection Fund would support those schemes that become insolvent. However it is important to understand that this does not always apply and doesn’t cover all of the pension benefits in any event.

The long-term problem

The research found that of the approximate 6,000 DB schemes in the PPF Index, most of which are closed, as many as 1,000 schemes are highly vulnerable to the risk of significant underfunding and the sponsor’s insolvency as scheme funding levels continue to weaken. Around 600 schemes – 10% of the total – are unlikely to ‘ever’ pay off their pension scheme debts. The businesses of up to a further 10% are at risk of failure due to the DB deficit. Quantitative Easing (QE), low interest rates, and low gilt yields are all considered to add significantly to the problem, especially as gilt yields are a key factor in the assumptions used for valuations.

Key Points

  • Up to 1,000 of the 6,000 Defined Benefit Pension Schemes are at serious risk of falling into the Pension Protection Fund.
  • Of this, members of 600 schemes may only receive PPF compensation; many sponsors are expected to become insolvent in the next five-to-10 years
  • The remaining 400 sponsoring employers might initially survive, but may eventually fail if they are not able to off-load their pension obligations
  • the report challenges the ‘flawed assumption’ that, in time, the majority of these sponsors will meet their pension promises in ful
  • Planned and coordinated action now could secure better outcomes for members than the PPF compensation floor while securing jobs and freeing up businesses to create growth

So, I’m sorry to report that we may all become rather more familiar with the Pension Protection Fund unless action is taken and with so many financial pressures, one can see why it isn’t. Of course, not everyone has a final salary pension scheme and it should be said that many of those in existence are very well funded. However the key lesson in this that applies to everyone is that providing income for a lifetime is expensive, getting your pension income sorted out, in whatever form, is important to address and why you need a good financial plan.

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

1000 Pensions at Risk2023-12-01T12:19:41+00:00
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