It is too early to know how everything will pan out, indeed it's only been three days since the UK electorate voted to leave the European Union, yet it has been the catalyst for some highly unpredictable political dynamics and for a fall in sterling to its lowest level for three decades. But above all we have had the media full of speculation and emotional commentary, talking of carnage, turmoil, negative territory and tanking in the "markets", falling house prices and rising mortgages.
Two things that effect our ability to make decisions are emotions and uncertainty
So how can we deal with the emotional bias and uncertainty and make the best decisions we can. I take a look at two important areas interest rates and investments.
By the close of business on Friday the FTSE 100 stood at 6138 or -3.15% from the previous day's close at 6338. The media called this carnage, given the fact that we have been experiencing volatility in the markets since last July and indeed during the last year the FTSE 100 lowest point was 5,499.50. In fact the FTSE 100 stood at 5,800 only last week.
The drop in the FTSE 100 was less than the German Dax -6.82% and less than the French CAC -8.04 and less than the Spanish IBEX -12.35 %
The FTSE 100 is made up of predominantly UK registered companies that trade globally and these companies will perform better than domestically focussed UK businesses. The pound's fall in value will not be without disadvantage as companies with oversea's earnings translate some of their profits back into sterling.
Many speculative investors had assumed that the UK would stay in and had taken positions in their portfolios to reflect this. When the result came in on Friday morning that the UK had voted to leave the EU, they were "caught with their pants down" and panic ensued. Stock was sold that would fare less favourably under a Brexit and a potential recession as a result of short term re-entrenchment of consumer and corporate spending. For example, some of the shares that came off worse were house builders on the back of fears of a recession and no longer being able to rely on a free flowing source of migrant workers needed to achieve the housebuilding targets. As the markets opened Redrow's shares fell 77% - this is not down to a sudden change in the management of Redrow as a company and interestingly a few hours later the shares recovered 57% of the fall.
I'm sure there were city traders shorting the market and making huge profits but in personal financial planning we don't operate in the same way. We leave that to the hedge fund managers and concentrate on the bigger picture, sustainable growth over the long term.
Investment principles remain the same :
1. Know what your financial goals are, how much you need and when you need it by and why you need it - then remain confident in your goals adjusting them to suit your needs not to fit in with circumstances.
2. Be clear on how much volatility you can personally deal with and what will keep you awake at night. Don't exceed your limits.
3. Ensure your investments are not in shares of one or two companies but in a fully diversified portfolio across geographic regions and across asset classes. Invest in well managed multi asset funds or in the services of a discretionary fund manager and you will be well positioned to see through any short term market volatility.
4. Volatility can also be your friend, if you are investing regular sums of money. Invest little and often, sometimes you will be buying "units" at a lower price and when prices move up, these are the ones that will make a significant difference to your overall wealth. You can't time the markets but you have more of an opportunity to benefit from up turns if you are continually investing small sums.
5. A loss is only a loss if you cash in your investments.
Fund managers that I speak to aim to make returns over the long term, in a world where investment returns are driven by the top down impact of global macroeconomic conditions as well as the bottom up factors of enterprise, innovation, management and profitability of companies. At the moment we are experiencing a higher amount of political influence or top down impact but their reasons for investing in selected companies will be based on deep analysis and conversations with the company directors. If the conviction was there in the first place any changes made in the underlying fund investments will not be as a result of a knee jerk reaction to a Brexit result.
For the of us not concentrating on saving and investing, Brexit will effect borrowers. So what's going to happen to my mortgage, should I get a fixed rate now?
Interest rates have been held at all time low by the Bank of England in order to allow time for the banks to build up their reserves and as a consequence of their concern over the total debt that each household currently runs. It is only a matter of time before interest rates increase but the time being it seems that the drop in the value of the pound has meant that interest rates may well be cut, even to zero!
The Bank of England has said it has stress tested worse case scenarios than a Brexit and will do all it can to support the economy. If the pound falls it makes UK goods and services cheaper to buy but puts pressure on exporters and creates inflationary pressure internally. Methods to counter this could be to reduce interest rates. There is speculation that rates could be cut by 0.25% by August and potentially go as low as 0%. The bank has also said it will consider monetary intervention with another programme of quantative easing if needs be. Interest rates could reduce.
But again, stick to your goals, if you are buying a property now with a mortgage and a fixed rate is right for you because it gives you stability of payments then it is right for you regardless. A lot has happened in the last three days let along the next two - five years.
We need to try and equip ourselves to counter emotional bias and uncertainty as best as possible so that we don't remain in a state of stasis. It is predicted that the UK will be in a state of limbo for the next two years whilst legislation is re written and the terms of a Brexit are agreed - don't let it become a personal limbo that denies you two years in progressing your own goals.
....and finally as I write it appears that we may have a constitutional crisis on our hands as the overall percentage of eligible voters who voted to leave the EU was 37% . This may have given a political mandate to leave but I understand it may not have the legal standing that is required, as it is less than the 40% trigger, which requires our Representatives of the House of Commons, our MP's to make up their own minds. Parliament has to protect the greater interests of the country and with the majority of MP's wanting a remain outcome...... yet more uncertainty lies ahead. So for now I won't look at pension legislation, not just yet.
What questions have you got about how Brexit may effect your financial planning? Let me know I'd love to hear from you. Please leave your questions in the comments section and lets get some conversations going.
Jill Turner - 26th June 2016
Five times as strong as steel and the main fabric of bulletproof vests. This post is inspired by the late Stephanie Kwolek, award winning chemist and inventor of Kevlar. It made me think, can I make a bullet proof financial plan for clients that will deflect the bullets and absorb the shocks of our volatile, uncertain, changing and ambiguous world.
Hello, my name's Jill Turner, I love to engage people with financial planning and it was my priveledge to put this presentation together for the Dales and Peak Business Networking Group
Here's 10#Hacks that can be implemented in your financial planning that will definitely make an impact on your lifestyle, beginning with :
1. Reduce uncertainty - underpin your financial goals with life, serious illness cover and income protection.
What will happen to our goals if we fall ill along the journey, we cannot work and our income dries up. " I'm saving, I have money in the bank", I hear you say - but how long will that last? The office of national statistics have published the average household savings as £177 per month. Leaving the money on deposit would take 12 years and nine months to save the average salary of £27,000.
Why not take a small portion of the £177 and buy life assurance or income protection. A 30 year old non smoker can have £13,470 per annum of short term income protection, paid after 13 weeks for up to five years, for £18.94 per month. That will go a long way to keeping the wheels turning.
2. Use a menu of protection benefits
You can buy differing levels of life protection, serious illness cover and income protection. For example if serious illness cover for the full amount of your mortgage borrowing blows your budget, then buy an amount equivalent to one or two years salary, this could be enough to take time out of work or pay for some medication that may not be available on the N.H.S.
Buy what you need, mix and match covers, make sure its index linked and there are guaranteed insurability options - then adapt as you journey on.
3. Make use of the appropriate trusts
Life insurance companies love trusts, it means they know who to pay any claims money to and there's no need to go through the probate process. It also keeps the money outside of your estate, essential if you are using life assurance to cover any inheritance tax bill.
4. Switch to clean share class funds
If you are saving through mutual funds or collectives ( OEICS ) examine a switch to the clean share class version, with no bid offer spread, no exit or entry charges and no kick backs to platforms or wealth managers. This could provide an immediate improvement to your financial planning but beware of incurring a capital gains charge.
An interesting paper was published in the 80's, "Determinants of Portfolio Performance" where 93.6 % of the variations in return on investments were attributed to asset allocation. Getting the right mix of assets and an investment strategy for your purposes, can seriously improve your financial planning outcomes.
6. Don't follow the herd.
There's a rather unsavoury phrase that sticks in my head when it comes to investments, "buy on the sound gunfire" apparently attributed to Nathan Rothschild in the 1800s. It means buy when things are out of favour or having a torrid time. The media is always full of what's doing well, its an easier story but Warren Buffet said, if everyones's talking about it, its time to sell. Sell before the doom mongers move in with greater negative sentiment by which time, its too late. Examine the figures and make decisions on facts.
7. Save little and often
How many times have I heard I can't afford to save, my business or my children are taking me for every penny. Its always easiest to save first rather than wait to the end of your pay period to see what's left. Besides, if you were to save the price of a coffee for five days a week, that would be £50 per month. With an investment return of 5% in a stocks and shares ISA over 10 years it could be at least £7,718. Regular investments can also give a better return through participating in pound cost averaging ( a subject for a future post ).
8. Use your tax allowances.
Most higher rate tax payers aim to be basic or non tax payers in retirement. If you can receive tax relief on your pension contributions at the higher rate of 40% or more when the money goes in and pay tax at the lower rate of 20% when you take your retirement income, its a no brainer to get an immediate uplift on your investment. Tax relief is costing the exchequer billions and in an age when the chancellor wants to bring in as much tax as possible, higher rate tax relief is definitely under threat. There has been a stay of execution with the introduction of the L-ISA. Higher rate tax relief for pension contributions may not be around forever so take advantage while you can, maximise contributions in this current tax year and even go back three years and carry forward any unused annual allowance in those years.
9. Consider blended retirement income solutions
Once upon a time there was a standard cup of instant coffee and fairly similarly there was a standard annuity that gave you an income in retirement in return for giving an insurance company your pension pot.
Then you were told annuities are bad because the insurance companies keep all the money if you die. Then interest rates fell which gave less annuity income in return for your pension pot. Then came drawdown, taking an income straight from the pension pot, which seemed a good idea until volatility entered the investment markets. So what do you do?
There have been a number of innovations in product design since the Taxation of Pensions Act in 2014. Short term annuities are coming back into favour providing secure income for set periods and leaving the remainder of the pension pot untouched or available for income drawdown. Annuities are now available with improved capital guarantees and longer guarantee periods, up to 30 years. There are even hybrid products which combine features of annuities with an income drawdown.
It's no longer all or nothing, a blended solution, mixing income drawdown with some secured income through annuities, could be the caramel machiatto of retirement income planning.
10. Nominate Beneficiaries
Good practice in financial planning has always included a discussion of what is to happen to any remaining pension fund upon the death of the member. The Taxation of Pension Act 2014 has widened out the class of beneficiaries from just dependants to include non dependants and introduced the concepts of nominee and successor beneficiaries. It's important to fill out the nomination forms correctly and consider nominees and successor beneficiaries.
In the course of my work as a financial planner, legislation and politics are always changing. We are living in a VUCA world, volatile, uncertain, changing and ambiguous but these things remain consistent:
These 10#Hacks won't constitute a bullet proof vest on their own and the caveat that this article is for information purposes only and does not constitute advice, applies. But I hope it gives food for thought and if you have any queries about your own position please don't hesitate to get in touch.
Jill Turner : May 2016 http://www.jillturnerassociates.co.uk
"What's holding you back? " asked the keynote speaker at a recent business event. Easy... administration, compliance and BT. Whilst I have to be patient for BT to make improvements to their service and similarly acknowledge that regulation and compliance is not going to get any lighter in the personal financial services sector, I can take some small steps to streamline my administration and spend more time with clients.
So, I'd like to share my 5 most used apps that have helped so far.
1. Good Notes IV - Time Base Technologies Ltd
How much time do you waste looking for that compliment slip with vital information or the post it note or scrap of paper with a much needed phone number ? Is your desk cluttered with notebooks and caps of paper ?
Are you a scribbler who likes to take hand written notes at a meeting, lecture or networking event ?
Good notes can help and as I've found out over the course of last year it can do so much more. Use it to annotate pdf documents, complete application forms, store pdf brochures, key feature documents, illustrations, guides. You can set up notebooks for when the creative ideas start flowing, notebooks for each client meeting, notebooks for each networking event. Like all apps they need to be used for a while to understand their full potential and then customised for use your way.
This is how I have been using it.
I've created a Master Category List which includes, Clients, Ideas, Products, CPD, Exam Study, Initial Disclosure Documents. Here's a screen shot from some exam revision notes imported a pdf into the Exam Study master category. There's been a few sub categories here but that's another blog for another day.
Its perhaps with organising material for client meetings that Good notes has really come into its own. Under the Client master category, I create a sub category for each client meeting containing a notebook for handwritten notes. As well as notebooks Good Notes allows you to import pdf's. This allows me take all the documents, charts, brochures, illustrations, forms, I might need all within the one folder and ready to annotate as we go through the client meeting. There's an electronic rubber to wipe out unwanted notes and a highlighter pen. The ink flow is very responsive and pens come with different ink colours and nib thickness. Then, before I leave the meeting any documents and notebooks can be emailed, synced, printed or exported for safe keeping to Google drive or iCloud before deleting from my iPad.
Find out more here
2. Scanner Pro 6 - Readdle
Once more in the quest for an uncluttered desk and mind the ability to turn my phone or iPad into a scanner has been another most used app. Its quicker than my desk top scanner, can create documents with multiple pages ready to be saved and shared by email, social media or other apps on your device.
The scanner automatically loads scans to a nominated cloud storage. I've found it invaluable in taking scans on the spot at client meetings of documents, where I prefer to leave the originals with my clients. They can be uploaded on to a specified client folder on the main server and immediately deleted from the mobile device.
Readdle's Scanner Pro is also handy for copying news articles to share, dare I say it recipes, receipts, screen shots, event handouts. Use it your way. The app is also compatible with Good Notes which means I can import scans into folders for greater organisation.
Discover more here
3. Cam Card - Intsig Information Co Ltd.
The result of going to a lot of trade shows or networking events is a pocketful and a deskill of business cards and then when you need that very one, its nowhere to be found. Cue Cam Card.. this handy app not only relieves your desk from all those business cards but saves you the time of entering the all the contact details by hand into your contact management system.
A press of a button has cam card scanning the business card, it highlights the important contact details and then enters the relevant information into the right fields for either Gmail contacts, or iCloud contacts or both. Not only does cam card save you from the tedium of entering details manually into a contact management system, the full app allows cards to be shared, tagged, reminders added and notices received when contacts move companies or get promoted.
You can also add meeting notes and it will pick up your location and let you know where you first met the holder of the card. How it does all this is as mysterious and amazing as the time it saves you.
Discover More here
4. Tax App - Intrinsic
There's loads of features and information contained in this app which make it indispensable particularly for those of us who's memory recall is a little slower. there's so much information to retain as a financial planner its not always easy to recall the detail immediately but that's what clients often want and need. So to save my head from bursting and to declutter my mind so I can focus on my client's needs during a meeting, its reassuring to have the equivalent to a weighty tax guide, on my phone, in my pocket, ready and waiting.
The app has all the tax tables you can shake a stick at, including amongst others, car benefits for employees, National Insurance contributions, stamp duties as well as all the personal and corporation tax reliefs. There's calculators for loans, inheritance tax, savings, future values, break even points, V.A.T ,along with Budget updates and a news feed.
5. Attitude to Investment Risk App - Intrinsic
Attitude to investment risk isn't the sole focus when working out financial plans and the right type of investment funds or portfolios for our clients. It allows financial planners to work within a regulatory framework but it is just a starting point to much broader discussions.
Where this app excels is enabling us to engage with clients quite quickly in discussions around what may originally appear to be quite complex subjects. Investment experience to date , their own appetite for investment risk, capacity for loss, appropriate asset allocations all of which are combined with goals based planning, all during a client meeting, without having to go back and forth to the office.
Financial Plans are built around changing circumstances, needs and aspirations and these will vary from client to client. This app allows some of the initial concerns, goals and understandings to be worked out during a client meeting, allowing us to reach a draft proposal stage in a shorter time frame. The report can be emailed there and then from my iPad to my server for safe storage and to my client's inbox if I wish to leave a "takeaway" from our initial meeting.
If you've got a favourite or indispensable app I'd love to find out more. Please use any of the contact details at the top of the page or complete the contact form below.
Once upon a time, the government’s Autumn Statement only dealt with the country’s economic position and strategies to improve it..... and it was called the 'Pre-Budget Report'.
Now it has become an intrinsic part of the overall Budget process and gives the government a chance to unveil some of its proposed tax changes within the context of the overall economic strategy.
Whilst there will, inevitably, be new proposals made in the Budget 2016, the Autumn Statement contains information on tax and pensions proposals that is important for financial planners to know. With the government still under constant pressure to improve public finances, (and the climb down on tax credits and the increases to the defence budget increase the difficulty of this challenge) the importance of taxation to the overall "business plan" of 'UKPlc' cannot be underestimated.
The Chancellor's Autumn Statement focused, in their words, on "protecting economic and national security".
One of the most talked about highlights was the rebuttal by the House of Lords of the tax credit reforms which in effect forced the Chancellor to hold back his plans in this area. Commentators believe that the proposed tax credit cuts will somehow be clawed back with the implementation of universal credit. Whilst the income threshold for tax credit taper remains unchanged at £6,420 , one wonders how this taper will be effected with the new digital proposals for collection of taxes , designed to bring tax receipts forward but could also trigger the implementation of the taper before a complete trading/ reporting year.
There were no details from the pension tax relief consultation so we suspect a late night on Budget Day in 2016.
There were of course many other highlights for financial planning and wealth management. A full copy of the HM Treasury Spending Review and Autumn statement is available to download at the bottom of this article.
But for now...
Capital Gains Tax
Buy to Let
In addition to the changes in the taxation of the rental income from buy to let properties, anyone wishing to purchase a residential property for investment or a second home will need to pay additional stamp duty at 3% above the current Stamp Duty Land Tax rates. This comes into effect on 1st April 2016.
The higher rates will not apply to companies or funds making significant investments in residential property. The government will issue a consultation on the policy detail.
Tax Avoidance Evasion and Compliance
The government will introduce a new penalty of 60% of the tax due to be charged in all cases successfully tackled by the General Anti Abuse Rule (GAAR) and will make small changes to the GAAR’s procedure to improve its ability to tackle marketed avoidance schemes.
Tax administration - Making tax digital
The government will invest £1.3 billion to transform HMRC into one of the most digitally advanced tax administrations in the world. Most businesses, self-employed people and landlords will be required to keep track of their tax affairs digitally and update HMRC at least quarterly via their digital tax account, reducing errors through record keeping. HMRC will ensure the availability of free apps and software that link securely to HMRC systems and provide support to those who need help using digital technology.
This will not apply to individuals in employment, or pensioners, unless they have secondary incomes of more than £10,000 per year. The government will publish its plans to transform the tax system shortly and will consult on the details in 2016.
This will also bring the receipts of tax forward but one wonders how this will impact the self employed in receipt of tax credits. Will it bring the level of income for tax credit taper, currently £6,240, forward meaning that self employed people could loose their tax credit mid accountancy period.
And finally ..... more details are expected soon on a number of measures that were announced by the Chancellor in the July Summer Budget, but which were not mentioned in this Spending Review.
If you would like a review of your personal circumstances and weather you are investing in a tax efficient way ( and I emphasise tax efficient not tax avoidance ) ensuring you are utilising your reliefs, your investments are performing as expected and your financial plans underpinned with adequate protection - please do not hesitate to get in touch. You can use all the contact methods at the top of the web page or just complete and enquiry form below.
And don't forget your free downloads
As we approach the fireworks season here, I've been reflecting on some fond memories of times spent in Malta and in particular at the village festivals. These events would be dominated by rival marching bands, who would start their journeys at opposite ends of the village. Their eventual union in the village square would trigger mayhem, celebrations and of course fireworks. Except the fireworks were a real disappointment, one huge seismic upfront bang with a trail of smoke and then nothing .... finished.
That was a good couple of decades ago. Valetta, the capital of Malta, now hosts a two day International Firework Festival every April. The the rivalry is amongst local firework producers with the aim to create a memorable, noisy but importantly adding colour and sparkle to the experience.
So what's all this got to do with financial planning.....
Here are five ways in which the life insurance companies have used rivalry to evolve and give you more bang for your buck.
1. Full corporation tax relief. Jerry Bayman former head of Business Protection at Bright Grey are credited with developing "relevant life policies". By exploiting legislation from the 2003 Income Tax Earnings and Pension Act, small limited companies can now provide life assurance to directors and key employees by way of death in service benefits, with full corporation tax relief, no interference with the pensions lifetime allowance and without inclusion as a P11D benefit in kind.
2. Free weekly cinema tickets, coffee and iTunes. Vitality Life, the rebranded collaboration of PruProtect and Discovery Life in South Africa, rewards its policy holders who engage in their health. Discounts on bikes, discounted health checks, free weekly cinema tickets, coffee and iTunes are some of the rewards available in return for exercising and getting regular health checks. Full use of the rewards may be greater than the actual premiums you pay.
3. Children's cover I can't be sure, but I believe BUPA were the first company to offer children's critical illness cover as an additional definition, warranting a payment under a critical illness policy. Payment is a percentage of the overall cover, is paid as an extra which leaves the policy owners cover intact. BUPA subsequently merged with AXA Life who then merged with Friends Life. We've recently had a successful payment for a client, who's daughter is now recovering from hydrocephalus.
4. 24/7 Health Support Line In conjunction with my network we are very proud to offer this service from Red Arc for free, at the point a client needs it and for as long as they need it. Losing someone you love, being diagnosed with a critical illness or suffering an injury that prevents you from working can be made easier to bear when there is expert advice and a listening ear. As well as taking care of financial aspects we want our clients other worries looked after. The service is run by Red Arc for all clients, independently from the insurance companies.
5. Rehabilitation Cover It was possibly Friends Life who first offered this as an integral part of their income protection cover. Its not often published but it makes sense really for an insurance company to do everything they can to help get someone back into work after an illness or injury. It reduces their claims payment but importantly lets clients get back to work and enjoy life.
The price rivalry with life assurance, critical illness and income protection is over and all companies now publish their claims statistics online.
What counts now are the "add ons" to the policies. I haven't mentioned them all and I haven't even mentioned the importance of trust documents ( that can be saved for a later post ) but this is where an adviser with enthusiasm and knowledge of the different policies out there, can really make a difference.
An adviser will listen to your needs and goals and help you navigate the various company propositions and importantly will be around to help any clients through a claims process.
Its not about price anymore, it's about quality of experience and securing our clients financial future in the best way possible. So
So, if you've got a policy in a drawer, a carrier bag or shoe box in the cupboard and you are not sure if it is a banger or a damp squib please don't hesitate to get in touch and take advantage of a review "on us".
Enjoy your fireworks
Sheffield 41st Beer and Cider Festival 22nd October - Kelham Island Museum 18:30.
Sheffield Life & Pensions Society and The Insurance Institute of Sheffield are hosting an informal evening at the Steel City Beer & Cider Festival on Thursday 22nd October 2015.
The plan is that we meet at The Harlequin pub and on Nursery Street at about 6.30pm and then at 7.00pm walk the short distance to Kelham Island Museum venue.
The cost of entry to the Festival is £1.00, plus, of course, the cost of the ale!!! There will be around 200 beers from over 70 breweries and a selection of real cider. Stalls will offer food, pub games and other entertainment.
This is not a formal event; just PFS & CII members, friends and family having a few beers together in a venue that commemorates the industrial heritage of Sheffield. Further details can be found at steelcitybeerfestival.co.uk
Harlequin Nursery Street Sheffield 6.30pm Thursday 22nd October and then at Kelham Island Museum
Yorkshire Business Festival - Tankersley Manor, S75 3DQ 1st October 9:30 - 4pm free
Yorkshire Ladies Links is a non membership women's networking and business support group, bringing together and supporting professional women from all sectors both online and offline through networking events. Welcoming. professional women, working mums, ladies returning to work or setting up a business, female business owners and those who simply want to support local organisations and charities.
Full details of speakers, exhibitors and booking go to the Eventbrite.
The event is free to attend.
Made, City Hall, Sheffield 22nd October 9am - 6pm . The annual festival of Entrepreneurship held in Sheffield attracts participants not only locally but across country. Plenty of opportunity to network and get motivated by people who have been there and done it.
Tickets for the event are £50 with concessions at £12. Full details at the Made Wesbite
Fringe Events are also timetabled through the week include Doing Business with China ways in which to Develop Networking Skills some of which are free and some are delivered as webinars.
Business Peak District offers free membership to all businesses between Manchester, Sheffield, Stafford and Derby. They run ad hoc events to help bring businesses together around issues of funding, development and promoting the Peak District as a place to do business.
South Derbyshire Business Breakfast - September 29th 7:30am - 9:30 am The Boardwalk Bar and Dining, Willington DE65 6DW
Funding for Business Breakfast - September 30th 8:45 - 11:30am The Old Hall Hotel, Buxton SK17 6BD
Derbyshire and Peak District Business and Towns Forum - Thornbridge Hall, DE45 1NZ _ October 7th followed by a tour and tasting at Thornbridge Brewery.
For full details visit Peak District for Business Website
BNI - Business Network International hold weekly meetings across Derbyshire and South Yorkshire, nationally and globally, all following the same principles and format.
A franchised business referral and membership organisation, BNI teaches how to market your business by word of mouth. With extensive libraries, podcasts, education material and weekly meetings, this is the perhaps the most demanding of all network organisations. A one seat per profession policy and a set format that is the same wherever you are in the world, BNI sticks to a road tested formula. For those prepared to make the commitment the benefits of the BNI framework and the rewards can be huge.
If you would like to visit my local chapter that meets in Matlock every Friday at 9:30 am please get in touch.
Venue : Auldey St Elphins Retirement Village, Darley Road South, Matlock DE4 2RH
Fee: £12 refreshments included.
Monthly Networking at Cromford Mill in Derbyshire.
MBC meets regularly on third Tuesday of the month from 7.30am - 9am. There are a few exceptions to this - January lunch, July netwalking along the river - so please subscribe to the newsletter for invitations and check meeting dates on the Events Calendar. Online booking for all events is required.
Venue: Wharf Building, Cromford Mills, Mill Rd, Cromford, Derbyshire, DE4 3RQ
Fee: £5 pay at the door. Next events 20th Oct / 17th Nov.
Inevitably the budget will have an impact on financial planning and in an effort to get the facts out to you as quickly as possible I hope you find the following commentary helpful. It has been put together by the technical team at Standard Life and is just one of the many excellent technical papers they produce throughout the year.
You can find the speech in full along with budget documents at the government website.
I'm pleased to read that the government are starting a consultation on simplifying the tax on pensions to increase engagement and aid retirement planning, its something I commented on in the First For Business magazine recently. So here we go.....
Two bites at Annual allowance as PIPs are aligned with tax years from 2016
As a small step towards re-simplification of the pension rules, from 6 April 2016 all pension input periods (PIPs) will be aligned to the tax year. And it won't be possible to change them.
But related transitional rules potentially create an extra £40k annual allowance (AA) for the 2015/16 tax year, giving some savers two bites at the AA cherry this year.
As ever, the devil is in the detail. We'll need to look out for a further discussion paper on this and perhaps a worked cased study.
AA cut for high earners from 2016 - get it while you can
Those with ‘adjusted income' over £150k will have their annual allowance (AA) cut from the 2016/17 tax year, creating a ‘get it while you can' pension funding window this tax year.
The standard £40k AA will be cut by £1 for every £2 of ‘adjusted income' over £150k in a tax year. The maximum AA reduction is £30k, giving those with income of £210k or above a £10k AA. Carry forward of unused AA will still be available, but only the balance of the reduced AA can be carried forward from any year where a reduced AA applied.
The ‘adjusted income' the £150k test is based on is broadly the total of:
Pension tax framework under review
The Government has kicked off a fundamental review of the pension tax framework to ensure it remains fit for purpose, and sustainable, for a changing society. In a consultation launched today, HM Treasury is seeking views on a range of very open questions around what changes (if any) would:
Jamie Jenkins, Head of Pensions Strategy, comments ‘Pensions tax relief was ripe for review.
Despite some suggesting that the industry was resistant to any change in this area, quite the contrary, we have been calling for a more fundamental review rather than constant tinkering. This consultation provides us with a great opportunity to simplify the pensions tax system once and for all.'
Other pension news
Individual tax allowances
Both the personal allowance and higher rate income tax thresholds will increase over the next two years as follows:
These increases are on the way to meeting government pledges to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 during this Parliament.
New dividend allowance
The system of dividend tax credits will be abolished from April 2016. It will be replaced by a new tax free dividend allowance of £5,000. Dividends in excess of this allowance will be taxed at the following rates, depending on which tax band they fall in:
Certain individuals may also have savings income falling into the £5,000 savings rate ‘band', currently taxed at 0%. There is no mention of any change to this band, in which case certain individuals may have tax free income of up to £22,000, depending on the sources of their income.
Making full use of these new allowances can make savings last longer in retirement and potentially leave a larger legacy for loved ones. And strengthens the case for holistic multiple wrapper retirement income planning.
Inheritance Tax: family home nil rate band - but not yet
The Government will introduce a new IHT nil rate band of up to £175,000 where the family home is passed to children or grandchildren. This is in addition to the current nil rate band of £325,000 which has been frozen since 2009 and will remain frozen for the next 5 tax years, until the end of 2020/21.
Who will benefit
The extra nil rate band will be fully available to anyone who:
Like the existing nil rate band the new property nil rate band can be transferred between spouses or civil partners. This means a married couple could pass £1M in 2020/21 to their children tax free on death provided the family home is worth at least £350,000, saving £140,000 in IHT.
Who may miss out
But not everyone will benefit from the additional IHT free allowance. Anyone with a net estate over £2M will begin to see their property nil rate band reduced until it is completely lost once the estate is over £2.2m (2017/18) £2.25m (2018/19), £2.3m (2019/20) or £2.35m (2020/21).
It will only apply to transfers to children and grandchildren. Meaning those without children will miss out. And it is not possible to use the exemption for lifetime transfers which may discourage some clients from passing on their wealth during their lifetime.
Clients who could benefit from the property nil rate band may need to revisit their existing wills to ensure they continue to reflect their wishes and remain as tax efficient as possible.
The proposed changes to ISA, allowing savers to dip into the savings and replace them without it affecting their annual subscription limits, will go ahead from 6 April 2016.
The new contributions would have to be paid within the same tax year as the withdrawal for it not to be counted. These new flexible funding rules will only apply to cash ISAs and any cash element within a stocks and shares ISA. However, it is now possible to move ISA holdings between cash and stocks and shares without restriction, so clients in stocks and shares will be able to benefit provided they move into cash first.
Help to Buy ISA
First time home buyers will get help from the Government when saving to get their foot on the property ladder. The Help to Buy ISA will be available from 1 December 2015.
The scheme will provide 25% tax relief on savings up to £12,000. So someone saving the full £12,000 would see the government add a further £3,000 to their savings, giving them £15,000 towards the purchase of their first home. This tax relief isn't given at the point of saving in the same way as a pension contribution, but is instead added when the saver buys the home.
The new scheme will be a form of Cash ISA and, in line with current rules, it won't be possible to subscribe to two separate Cash ISAs (Cash & Help to Buy) in the same tax year.
Savings will be limited to a maximum single initial premium of £1,000 and regular savings of £200 each month. And to get the Government bonus, property values can be no more than £250,000 (£450,000 for properties in London).
Non Doms - deemed domicile after 15 tax years, applies to all taxes
‘Non-doms' are individuals who, although resident in the UK, can legally claim that another country is their home (‘domicile'). This means that they can access some tax benefits not available to those who are resident and domiciled in the UK.
New rules apply from April 2017 to restrict this. Individuals will become ‘deemed domicile' (taxed in the usual way that UK domiciled residents are taxed) more quickly - after 15 tax years spent in the UK instead of 17. And ‘deemed domicile' will apply to more taxes - income tax, CGT and IHT, instead of just IHT.
Excluded Property Trusts used with offshore bonds can continue to benefit from an advantageous IHT treatment. But individuals with their affairs set up to take advantage of the remittance basis may wish to review their investments to ensure this will still be tax efficient under the new regime.
Free Money for those aged 60 - 75 courtesy of HMRC how can that be ? Well its all down to a temporary tax loophole and I am sorry, I am only just reporting this now. The treasury are fully aware of this quirk in the rules and have let it been known that they will introduce "appropriate and robust protections against the practice below to make sure it cannot occur in the new tax year 2015 / 20016.
So what is going on now and how does it work ?
In the 2014 budget when everyone was getting giddy over the new pension announcements not much was said about the immediate changes to the pensions "small pots " rule. Up until 27th March 2014 if you had an uncrystallised pension pot you could take it all as a lump sum, subject to tax and subject to the pot not being more that £2,000. You could do this twice.
Whilst we wait for the new tax year and for the major pension changes, the rules for small pots were changed with immediate effect on 27th March 2014. If you have reached the age of 60, you can now take up to three pension pots each worth up to £10,000, as lump sums without needing to buy an annuity. The first 25% will be tax free and the remainder of the lump sum will be taxed as earned income at your marginal rate.
So here's how the quirky tax loophole works for a basic rate tax payer.
1. Pay £8,000 into a personal pension and the pension provider immediately grosses this up by the basic rate of tax to £10,000.
2. Then ask the pension provider to immediately commute this to a pension lump sum under the new small pots rule .
3. The provider will immediately pay £8,500 - comprising £2,500 tax free in respect of the pension commencement lump sum and £6,000 which is the rest of the fund of £7,500 less basic rate tax of £1,500
4. Hey presto, like pulling a rabbit out of a top hat, as a basic rate tax payer you are better of by £500.
5. Do this three times, create three small pots and you have £1,500 courtesy of HMRC.
There is effectively an immediate return of £8,500 for an original investment of £8,000 - a £500 profit or a return of 6.25%
As well as having the available cash to do this, you must be over 60 and have UK relevant earnings of at least £30,000 for the tax year 2014/15 and you'll need to make sure the pension provider can accommodate this before the end of the tax year, they are under a lot of pressure getting all their systems ready for the new regime plus coping with a bottle neck of drawdown applications.
Of course this is all going to end come the new tax year, when HMRC tighten up this loophole but by then attention will then be on commuting any size fund as the new pension rules come into effect. Its sometimes nice to know that HMRC have scored an own goal, if only temporarily.
As always please seek professional tax and financial planning advice as there may be other factors influencing any outcomes.
Are you a parent earning £50 - £60,000 ? If so you will be caught in the child benefit trap which demands you pay a High Income Child Benefit Charge on the child benefit you receive. This is not a reduction in child benefit but a tax and furthermore you'll need to complete a self assessment tax return in order to declare and pay the High Income Child Benefit Charge.... don't panic help is at hand.
Child Benefit has until recently been a universal benefit. given to everyone regardless of personal income. For the first child the payment is £20.50 per week and £13.50 for each additional child. Since January 2013 this changed with the government announcement that if you were a parent with income over £50,000 per annum, you would be required to either forgo child benefit or pay the High Income Child Benefit Charge. Joint income is irrelevant, there could arguable be a joint household income of £98,000 but if one parent earns over £50,000 per annum then they have to pay the charge which is a tax and furthermore you will need to fill out a self assessment form to declare and pay it.
Be aware too, that £50,000 is not just employed income it relates all sources of income added together. So add savings income, rental income, pensions income, dividend income.
So how does the High Income Child Benefit Charge Work ?
1% of Child Benefit is subject to the charge for every £100 or part thereof of income above £50,000.
This is not a reduction in Child Benefit but a tax charge for which you will need to complete a self assessment form.
Lets do the Maths.
A parent of three children under the age of 16 with an income of £54,000 will receive £2,477.80 per annum.
Their income is £4,000 above the threshold or 40 x £100 giving rise to a 40% tax charge on the child benefit.
A tax charge of £991.12
Lets make a pension contribution.
A contribution of £4,000 will bring income down to the threshold and receive tax relief.
Tax relief at source with the pension provider @20% = £800
Further tax relief as a higher rate tax payer 20% 800
Saving on not paying the High Income Child Benefit Charge 991
Total relief on pension contribution 2591
2591 / 4000 x 100% = an effective rate of tax relief of £64.78 %
Plus an enhanced income in retirement and potentially simpler than completion of a self assessment form.
You could also ask your employer to undertake a salary sacrifice exercise, reducing your salary to within the threshold making a pension contribution on your behalf and reducing their National Insurance Contributions in the process. You could also in an extreme move and situation permitting, set up a limited company and pay yourself whatever it takes to keep the child benefit. More charitable solutions would be to voluntarily give up your child benefit to help save the nations welfare bill or make a Gift Aid donation to reduce income.
If you are effected by the High Income Child Benefit Charge get in contact to discuss some solutions.
The several inches of snow that fell after Christmas, were just what the children wanted, "now its really winter", said my son. After tiring themselves out sledging, they turned their creative talents to making a snowman, just like the one from the film Frozen. As the snow fell, the word "Frozen" gave me inspiration for my latest, perhaps seasonal blog.
Just what does the term Frozen mean when mentioned in the same sentence as pensions.
You most often hear the phrase, Frozen Pension, applied to pensions that are left behind with an employer after ceasing employment. The state pension can also be frozen, depending on where in the world you decide to retire. The Pensions Regulator can also issue a pensions freezing order where they feel a scheme needs investigating. This can be where malpractice is suspected or more commonly, where an employer has got into financial difficulties and the members benefits within the pension scheme need protecting.
There are two main types of occupational schemes, those that provide defined benefits at a set retirement age based on salary and years of service and those that provide uncertain benefits at retirement based on the level of monetary contributions, the investment growth on the contributions. The later are often referred to as money purchase schemes but the benefits can still grow dependant upon the underlying investment but its worth checking on the type of investments and their performance.
So is it helpful to use the term Frozen when talking about occupational pension schemes? It implies a lack of movement, a lack of growth and this is not necessarily the reality. It could be that the only frozen factor is the salary at the time of leaving. There could be some valuable guarantees in place for future pension benefits and the pension scheme rules may dictate that benefits have to be revalued each year to keep pace with inflation. In the case of local authority schemes it may be possible to return to employment, pick up contributions and build upon the years of service already earned. Instead of referring to frozen pensions would it be more helpful to use the term Deferred Benefits?
From where I'm sitting, the biggest pensions freeze is the lack of engagement I see in people when it comes to pensions and planning a retirement income. This is hardly surprising given the overly complex way benefit statements are provided. Some employers do help but the majority do not meet with member's of their pension scheme to explain how their pension benefits are accumulating, relying instead, on the information dump contained in an A4 envelope.
Combined with their free lunch attitude to charges and commissions, the situation is perhaps more exasperating when it comes to pensions historically provided by banks and insurance companies. The annual benefit statements might as well be written in a foreign script. They have limited appeal for anyone who's first language is common sense. Those annual benefit statements just end up destined for the drawer or shredded.
As we approach the new world of pension freedoms in the UK, it's going to be vital to understand your pension benefits; what you have, why you have them, whether they are going to provide enough, what the underlying investment performance is, how this fits in with your plans, what charges you are paying and to whom, whether you are claiming all the tax relief you can.
The world of pensions is changing fast, please don't apply your own freeze on pensions. To echo my son's words in the opening paragraph, don't let your retirement be like a real winter. We are here to help you trace old pension schemes, understand what you have and work with you to build your future wealth.
Whilst reading the blog articles please be aware of the following:
Welcome to the blog curated by Jill Turner. The pages are not intended to give advice, they are just the real life stories from a real life financial planner and the wonderful people I get to meet.
I want the pages to be engaging, informative and purposeful.
The information contained within this blog is based on our understanding of current government proposals and tax
law, both are liable to change in the future.
Jill Turner is a member of the Personal Financial Society