FREEDOM BRINGS RESPONSIBILITY

Solomons-financial-advisor-wimbledon-blogger

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-60-seconds-movie-poster-2000-1020192927

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

Email me to get in touch

FREEDOM BRINGS RESPONSIBILITYDominic2025-01-21T15:51:59+00:00

Now we’re talking money

Clients will shortly be receiving a hard copy of Talking Money. In it we highlight the inevitable end of tax year issues that need consideration – or at least some of them. We also have a feature on China “Enter the Dragon” in which five fund managers provide some thoughts about the state of the Chinese market each has a point to make.

We also outline a few of the changes to the State Pension – where for once the highly complex is actually becoming more simplified, this is truly a rarity when it comes to pensions. There is also a very small note in the news section which points to some of the problems of not using an adviser.

The real cost of not taking advice

In January the FCA produced some market data in an attempt to understand the impact of the new pension freedoms (introduced from April 2015). The figures show that one in five people who encashed a pension pot of £250,000 or more took no advice.

This is alarming because they would have automatically paid tax of 45% on the pension (as income above £150,000 is taxed at 45%). Huge sums of tax have been needlessly paid, reducing the value of a pension fund far more than the credit crunch – which at least has recovered somewhat.

Some speculate that this was and is the only real reason for allowing pension freedoms – to collect far more tax. Perhaps the Budget on 16th March will provide further insight into this position.

Similarly, only yesterday I met with someone who had not protected his Lifetime Allowance, which will result in a large tax liability.

Taking advice does have a cost, but so does not taking advice, however taking advice also has a value, not doing so does not.

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

Now we’re talking moneyDominic2025-01-27T17:02:28+00:00

Pensions – more needless headaches the Lifetime Allowance

Pensions – more needless headaches

You may recall that Mr Osborne in his great wisdom has decided to reduced the current lifetime allowance even further, just to clarify – the Lifetime Allowance is the value of your pensions, either in payment or being built up. It currently stands at a figure of £1.25million but from 6th April 2016 will reduce to £1million.

It is very easy to calculate the value of your pensions, provided that they are purely investments pensions, such as personal pensions, SIPPs (self-invested personal pensions). You can also exclude the value of your State pension.

However, if you have an annuity in payment or old final salary pensions or perhaps simply a current final salary (or career average) pension (called a defined benefit pension scheme) such as the NHS or Teachers Pension, the sums are considerably more complex.

Long story short, once the value of your pensions has been calculated you may find that you have exceeded the lifetime allowance – which is reducing. So you will need to do something about this, which may well involve some uncomfortable decisions about future membership of pensions, even or perhaps especially, good ones, which is utterly daft.

Another bonkers pension policy

Yes, I did say bonkers. Despite what Mr Osborne may say about helping people to help themselves, he is actually restricting the amount that you can build in your own pension, actively discouraging saving, which does seem to be rather at odds with any historic Conservative policy in history, unless you count the lamentable decision by Norman Fowler to remove the rule that enabled employers to make membership of an occupational pension scheme a condition of employment, allowing the employee to contract out and not join the pension scheme. In fairness to Mr Osborne, with the benefit of hindsight, Mr Fowler probably takes the prize for arguably the most loopy pension decision for generations.

Mr Fowler was under the misguided impression that this brought about freedom for employees to decide if they really wanted to be in their employer’s pension. Mr Osborne can only be motivated by collecting more tax as there are 55% tax charges applied to amounts that exceed the lifetime allowance, unless you have the relevant protection, which is also not really guaranteed.

We are not talking about small sums of money here. So you need to gather your information, for two specific dates 5th April 2014 and 5th April 2016. This creates a headache for you, a massive task for me and in my opinion the lifetime allowance is one of the worst pension ideas in history – penalising both those that save and a successful investment strategy. This is a subject that I will return to frequently before 6th April 2016.

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 – more needless headaches the Lifetime AllowanceDominic2025-01-21T15:03:49+00:00

Auto Enrolment – the rising tide

Auto enrolment pretty much effects everyone that isn’t yet retired. In a nutshell, having faffed around with pensions for the last 30 years the Government are now forcing employers to offer pensions to their staff. Employers will be required to contribute 3% of salary… employees 5%.

It’s true that this is not a compulsory pension. Employees can opt out. Employers cannot. There are hefty daily fines for those that fail to meet the deadline to implement their new, qualifying staff pension. Everyone has to comply…. not doing so isn’t an option.

All the UKs biggest businesses have now set up their auto enrolment pensions (also called workplace pensions…. helpful eh?). Just pause to think what an administrative nightmare this is… staff coming and going on a daily basis, all needing to comply else suffer fines. What a headache… thankfully technology will reduce the headache, but action still needs to be taken.

Now small and medium-sized firms are gradually reaching their “staging date” (start date) and there will be a massive number of them. Few realise that there are implications for contracts of employment and of course operating costs. However the biggest issue is technology as all staff need to have a working email address… presumably a work email address is easiest to monitor and demonstrate that information has been sent by the employer.

Pain Relief

Most financial advisers and Accountants aren’t getting too involved in auto enrolment. Frankly because the work can be expensive and small firms don’t want that. So we have found a solution – a bit of really good IT. Its called AE in a Box. It isn’t a pension. It’s a project management tool that ensures that you are compliant with the rules, makes it easy to set up a scheme and communicate with your staff.

If you are an employer (even if you run a Limited company with only one other Director or member of staff) you have to comply. So check out the very easy to use tool. It is a monthly license subscription (and you will need the ongoing support) as even those that opt out of your pension, will need to be opted back in every 3 years… the Government hope that inertia will ensure more people join pensions and thus build up their own resources, rather than relying solely on the State Pension… which is already over-stretched.

Are you an Employee?

Do your boss a favour, point them to our tool and earn some brownie points. I promise you that auto enrolment is a headache and leaving it until thousands of employers are trying to do the same thing at the same time will end in tears…. and fines. As an employer myself, I really value people who bring me solutions not problems.

Are you an Accountant?

The tool enables Accountants to assist in the process, providing and checking data. This will make your life much easier on so many levels when dealing with your small firm clients.

Click this link to get more information, its low-cost with a single sign up fee. The monthly fee isn’t taken until 6 months before your scheduled staging date. But whatever you do, now is the time to take action.

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

Auto Enrolment – the rising tideDominic2025-01-27T17:03:19+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 PensionDominic2025-01-21T15:52:00+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 changesDominic2025-01-21T15:52:00+00:00