Conference Season

Conference Season

It is conference season and I my diary is suitably full of my selection of those that I believe merit attention. I’m not attending any of the political conferences and have recently returned from what might be best described as the Premier League of Financial Planners Conference – the annual CISI conference at Celtic Manor.

Yes Minister

Whilst being a non-political conference, clearly insight from the occasional politician or a former one can be valuable. Step forward Steve Webb, who was a LibDem MP and the Minister for Pensions in the Coalition Government, back in the day when politics offered some semblance of common sense.

The Autumn Budget – 22 November 2017

Whilst understandably providing various caveats to his talk, Mr Webb made clear that given the Queen’s Speech, the current Government have essentially given themselves a 2-year timeframe.

 

Not Enough Hours in the Day

He explained that due to the workings of Parliament, this means about 40 weeks in the year that is given over to Parliamentary work. However, 1 day a week is set aside for the Opposition to make their case and another is for MPs to actually work with their own constituents. Given the amount of time that Brexit will consume, there is precious little likelihood that anything significant will change, unless it is populist, garnering all-party support within the available 120 days a year.

Why Tax Rules Are Daft

Aas tax legislation does not have to go via the House of Lords, unlike other acts (for approval or sense check) much can be altered quickly, even with a tiny majority. He made the point that it is precisely because tax legislation bypasses the House of Lords, that so much of it is so complex and poorly thought through. So that in mind, what could the Government possibly muck around with?

What you can pay in

The Annual Allowance – could be reduced further from the current £40,000, despite acknowledging the complexity of the Tapered Annual Allowance, he thought it more likely that this would be extended rather than abolished, perhaps bringing it in for those earning £100,000 rather than £150,000.

What you can get out

Whilst the Lifetime Allowance has already been thrashed to £1m and is meant to now be linked to inflationary increases, he said that cutting it further is an option as “it passes the Daily Mail test – where people think a £1m pension fund is a lot”. He made the point that the Treasury appears to hate pensions (see all recent changes over the last 15 years) but love ISAs, for which they attempt to invent a new one almost each year now.

Employer’s beware

Whilst he thought it unlikely, he also proposed that the Government could apply employers National Insurance contributions to their pension contributions, which would effectively end salary sacrifice arrangements. He also felt it improbable that the tax-free cash lump sum from pensions would end or be reduced, due to the complexity it would create for those that have had, are having or due to have it and rules are difficult to apply retrospectively.

No F-Bombs

Without a single interruption from anyone handing in a P45 or the stage falling apart, the room of delegates was impressed with his delivery and rationale, but sanguine about the prospect of further pension meddling. Everyone I spoke with conceded that ISAs certainly seem to be the favoured investment vehicle for the Treasury as they only give up future tax revenue, rather than current tax revenues. However, reliance on any future Government to maintain promises about ISAs seems probably unwise.

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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Conference Season2017-10-05T15:52:58+01:00

Is the Pension Lifetime Allowance changing?

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Is the  Pension Lifetime Allowance changing?… again

Anyone that knows me will know that I’m not a fan of the lifetime allowance (LTA). This is essentially the Government telling us all how much we can have in a pension pot, or the equivalent of a pension pot. For the record, the LTA is now £1.25m which to many sounds like a lot of money, which it is – but so what? Sure its generally the richer people in society that are going to breach the LTA, but if you are an advocate of higher taxes for the rich, this is done through income tax, capital gains tax, dividends, stamp duty and so on. In any event, isn’t it in all our interests for us all to encourage as many people as possible to become financial independent and to have no need of State support? By the way a £50,000 pension from an employer like the NHS, Civil Service or Teachers Pension will meet the LTA, so many long-serving professionals are caught with this problem.

Huge tax penalty

The penalty for having more than the lifetime allowance is currently 55%. The LTA was £1.8m just a couple of years ago, now its £1.25m. So anyone that got caught by this change currently has an excess tax charge of £302,500. This has been an allowance that has not only failed to keep pace with inflation, but has been deliberately reduced. The rules as they stand at present punish good investment returns and prudent planning.

Scrapping the Lifetime Allowance?

So this morning’s news that the pensions Minister Steve Webb gave a speech at the Marketforce conference in which he repeated a call for a flat rate of 30% tax relief on pensions and scrapping the lifetime allowance is, in my view very good news. It encourages people to save, which when combined with the new rules being introduced for at retirement options, makes the prospect of an attractive pension system realistic. More importantly, we know that saving for our own future is important and restricting how much the fund is worth seems entirely counter-productive to me. Certainly limit any tax relief on payments into a scheme, but not what the funds can be worth… so please Me Webb, follow through on your words.

Dominic Thomas: Solomons IFA

Is the Pension Lifetime Allowance changing?2017-01-06T14:39:36+00:00

What’s the row over pension charges now?

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What’s the row over pension charges now?

You may have been listening to Radio 4 or perhaps seen the TV news, Steve Webb the pensions Minister is doing the media rounds having announced that charges on pensions should be capped at 0.75% which he announced yesterday and has been plugging his cause since. There is no doubt that there are many very expensive pensions and I would go as far to say that there have been lots of “rip off” pensions. There are too many vested interests, this has broken out in a row over pension charges.

Is there any such thing as a free lunch?theawfultruth

We now have various think tanks and Providers all taking the opportunity to price to the bottom and distance themselves from “rip off pensions” as quickly as possible. An assortment of spurious views about the impact on the final value of a pension fund is now doing the rounds. The vast majority of this is utter drivel. We are all to blame for this (advisers, providers, investors, regulators and Governments) why? Well because over the years we have colluded in the deceit that anything to do with financial services is free. It isn’t. I had hoped that this delusion would have been put to bed by the introduction of RDR, yet AE (auto enrolment) exposes the deep resistance to a shift in mindset.

Can a pension have low charges?

It is perfectly possible to use a pension that has low investment charges and by low I mean less than 0.30%. However this is merely one element of the piece. The administration costs are high due to well intentioned regulation. The “sales costs” are high due to well intended regulation. The regulation is designed to protect the investor and the wider market.

Why does AE have unique charging problems?

The unique problem that AE brings is that there are some very tiny premiums. Suppose you earn £10,000 a year and in several years time you will have contributions of 8% a year (£800) a cap of 0.75% on this would be £6… ok its based on the value of your fund, but given that most will not be more than £4,000 that’s £30 to cover the investment and administration for the year (and by the way you can opt in and out, switch funds, vary the payments creating more administration). It’s a nightmare for pension providers. Some have come up with some low cost solutions (hardly any investment choice) and some have a fixed monthly fee. Well even at £1.50 a month (£18 a year) that’s a higher proportional charge on a small fund of £1,000 (1.80% to be precise). The Government backed (taxpayer funded) NEST is loss making and will be for many years. This is typical of Whitehall delusion that they then expect commercial enterprise to replicate. We all know Governments are not good at maths… don’t we?

The solution is right under their noses

Stakeholder pensions (with low charges) failed because there were other better alternatives at a lesser or more competitive price. The Government (this one and the previous one) believe compulsory membership isn’t quite ok, so we have a “difficult not to join” approach. However, I would argue that today employers and employees already have a proper pension system. It’s called National Insurance and the State pension. We know it’s not good enough, so why not simply make it better for everyone? It has no investment risk and is already set up. For those that want (and need) more than the State pension (most of us) then there are plenty of very good pensions around, any decent adviser can structure a sensible plan – but it is not free… neither should it be. If we want to create a society of that is independent of the State, we all need to face some adult truths.

Dominic Thomas: Solomons IFA

What’s the row over pension charges now?2017-01-06T14:39:43+00:00

Auto enrolment – fools rush in?

If you are not drawing your State pension, then by now you should have picked up that pensions are changing – again! This time rather than making employers set up a pension that nobody might use, they have decided to force employers to set up a pension that everyone in that firm will use (unless they have an exemption or opt out). This will include mandatory contributions, which will be 3% from the employer and 5% from the employee (eventually). Whilst the employee can opt, he or she will be opted back in after 3 years (with the option to opt out again) – the ideal being that eventually you will forget and naturally begin building up a pension. Auto-enrolment is the path of least resistance.

Employers have begun (well some months ago) asking about AE. To say that there have been teething problems for the first of the large schemes would be an understatement. So today Steve Webb has intimated that SMEs will have a more simplified approach – now please note that AE is already meant to be a “no brainer” with no question asked other that “do you want in or out?”. I am left perplexed at what other new idea could be so simple… perhaps reforming NI and collecting payments directly would be sensible? I suspect that such “radical thinking” would be rather unwelcome. Anyhow when any Government uses terms like “simplified” or “simplistic” my cynicism really kicks in, as invariably this is code for “we have no idea of the consequences” but someone at a think tank thought this would work.

I am attending another presentation on AE next week, I am hoping that this will provide better insight into the latest “alteration”. I freely confess that it is better to change and adapt based upon experience, but for once, it would be nice to have some firm guidelines so that we all know where we stand..

Auto enrolment – fools rush in?2013-03-07T12:41:43+00:00
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