Archive for the ‘Pensions’ Category
Pensions–Tax opportunites and traps
The new pension freedom reforms are being accompanied by a flurry of tax changes in April.
Savers could be able to pass on what’s left of their pension pots to loved ones tax-free after death, after the Chancellor announced the scrapping of the 55 per cent tax rate currently applied to funds left to children.
Instead, beneficiaries will either pay tax at their own income tax level – with the money they receive added to their earnings to calculate this – or if the person who dies is under 75 there will be no tax to pay.
The Chancellor also announced in his Autumn 2014 Statement that husbands and wives whose partners die before reaching 75 will get annuity income from their spouse’s pension tax-free. Beneficiaries of ‘joint life’ annuities, or other types that come with death benefits, currently pay income tax on what they receive.
However, over-55s looking to take advantage of new pension freedoms to withdraw big sums from retirement savings need to be wary of landing themselves with big tax bills. Although people will suddenly get unfettered access to their whole pension pot, only 25 per cent of retirement savings will be tax-free while the rest will be taxed as income.
Workers used to usually paying the basic rate of tax through employers might not realise that dipping too freely into their pension pot at retirement could put them into the higher rate tax bracket. If they get it wrong, because they hadn’t checked it or worked it out, they could find themselves suddenly paying out a large amount of tax when cashing in their pension.
People tempted to use their retirement savings to acquire a buy-to-let property are also advised to weigh the tax implications carefully because money shelled out upfront to HMRC could prove a significant drag on returns.
It might also be sensible not to rush into things and to avoid drastic decisions before the May election, which could bring in a new Government that immediately starts tinkering with the pension reforms and tax system.
Although many observers feel that any incoming Government will not want to upset older savers, early in their term, the opportunities for change will still be rife in the coming months.
Govt eases rules on auto-enrolment?
The second response in the government’s consultation on auto-enrolment was issued late last week.
In the second round of consultations the government propose that employers can ignore certain groups of workers in their assessment. These are:
- Employees who are already contributing to pension savings.
- Employees who are just about to leave.
- Employees who have given notice of their retirement.
- Employees who have cancelled pension membership after being contract joined.
Although it does seem at times with auto enrolment that we are building an aeroplane in the sky these recent suggestions are pragmatic and welcome. If nothing else it shows that the government are listening (and not to your mobile phone calls for a change!) and are prepared to alter the regulations to make them more workable for employers.
The ministry mandarins are working on the proposals as we speak and we’ll have to see what they deliver.
Meanwhile, where this leaves many of the small employers who are facing the daunting task of dealing with auto-enrolment with no advice is debatable.
Steve Clark
Employers struggle to achieve 2014 auto-enrolment
Less than 1 in 4 employers staging for auto-enrolment in the first half of 2014 have confirmed their provider and completed everything necessary to be ready to comply. This is according to a report issued by NEST the pension scheme of last resort for auto enrolment.
An article in Pension Expert magazine helps to underline the logistics of what UK employers are facing. This year over 25,000 employers are expected to reach their staging date. If you click here you can read the article. That’s the date upon which you have to comply with the new rules.
Although you can postpone your staging date for up to three months it still means that you have to have everything in place ready to go by the earlier staging date.
As if this wasn’t bad enough news the pensions industry is already hinting that from advisers through to providers it will be very challenging to support all these employers.
This is something that we can echo in our own business. We are currently running six projects for clients who stage this year and are about to take on another two. If there’s any advice that we can give employers it is – don’t sit on the letter from The Pension Regulator telling you when you need to comply. This isn’t something that you can easily do yourself in a month or so. We had a call last week from an employer who has to comply from 1 February who hadn’t done anything about auto-enrolment. Reluctantly we had to turn the employer away as there was no way we could get everything in place in such a short time without jeopardising the service our existing clients receive.
Our experience, which is backed by the views of The Pensions Regulator, is that ideally you would have between a year and eighteen months to complete the project. The last thing you want to be doing is having to make decisions under ti
me pressure.
The Pensions Regulator knows – from your PAYE records with the tax man – when you have to comply. They will write to you about a year to eighteen months before your date. They know that within four months of that date you must go on-line on their website and complete the registration of your auto-enrolment scheme. They will start to write to you about that nearer the time. If you do nothing or are late The Pensions Regulator will know. They have the power to fine you. If you click here you can read more about how The Pensions Regulator will deal with non-compliance.
All is not lost though
As long as you have a reasonable time left we can still help. We offer a fully managed project that will make sure that you are fully compliant that deals with provider selection, assessment processes and software, communications, registration and governance.
Alternatively, we are working with some smaller employers on a more light touch basis where we effectively coach them on delivering their own project. At a time when money is tight form many employers this can be a good way of getting some advice to help you comply.
If you want to kick start your auto-enrolment project and get moving call us on 01163 800 133.
Steve Clark
Your 5 minute news round-up
An airport in your pension?
The Daily Telegraph ran a story on Tony Fowler, who now owns a 50% stake in the Isle of Wight airport.
He and a friend bought it from the receivers and expect to restore it to profitability. Mr Fowler bought his share through his pension fund – an airport is a commercial property which is among the permitted assets for a self invested personal pension scheme. Mr Fowler now commutes from his home to the airport in his gyrocopter – but has to pay the same landing fees as everyone else.
Interest rates: what to do?
With the recovery in the UK economy, many are predicting that interest rates will rise sooner than the Bank of England predicted with its ‘forward guidance’ in the summer.
At that time, it expected its own base rate to remain at about current 0.5% level until 2016, but could that happen sooner? And what can you do to prevent a rate rise becoming a personal calamity? Both the Daily Telegraph and the Sunday Times asked the question. Both agreed rates could rise sooner than 2016. And both came up with only one positive recommendation: if you have a mortgage, fix the interest rate at today’s low levels to protect yourself from the possibility of soaring mortgage repayments.
Cautious SMEs reluctant to grow
Most small and medium sized enterprises (SMEs) don’t want to grow, reports the Daily Telegraph.
Over 80% of those surveyed said they wouldn’t borrow to expand, while only a fifth plan to increase their capital investment over the next year and 16% will increase R&D spending. Just under a fifth expect to take on more staff.
Is it time to fix?
Borrowers might do well to take advantage of current low interest rates, suggests the Daily Mail.
With inflation currently at 2.7%, two-year fixes at 1.5% and five-year fixes at 2.5% look like a bargain. Rates may fall a bit further for the kind of higher loan-to-value loans supported by the government’s Help-to-Buy scheme (typically 90%+), but fixed rates for borrowers with lower LTV ratios have risen a little in recent weeks.
Invest-er-mate
The 50th anniversary of Dr Who has seen a boom in associated memorabilia, reports the Daily Mail.
Real Daleks are pretty rare, but anyone still in possession of a 1965 Codeg clockwork Dalek – purchased for a princely 82p – can now get up to £800 for it, which is better than a lot of stock market investments have done.
Tech boom forecast
One of Britain’s most successful fund managers has predicted a boom in technology shares.
Nick Train, manager of the Finsbury Growth & Income fund, is quoted by the Daily Telegraph as predicting a massive boom in tech stocks over the next decade. (For the record, Mr Train was not managing a technology fund at the time of the notorious dot-com bust). He holds a third of the fund’s investment in technology stocks.
Carbon credit fraudsters closed
The UK authorities have closed down 19 firms which, between them, had tricked 1500 investors into paying £24 million for worthless ‘carbon credits’.
The scam played up the ‘green’ merits of carbon credits, but these certificates were sold at vastly inflated prices.
Hoping for a Jisa boost
The Daily Telegraph has been campaigning for a change to the rules on Child Trust Funds, to allow parents to transfer these CTFs to the newer and more flexible Junior Isa (Jisa) which replaced CTFs in 2011.
According to the Telegraph, up to 6 million children have CTFs paying poor rates while better rates are available in Jisas, and Jisa schemes also offer a larger range of funds for longer-term investments. The Telegraph predicts that Chancellor George Osborne will announce a change in his Autumn Statement on December 5th.
Affordability tests may spell trouble
At least half of all potential borrowers under the second phase of the Help to Buy scheme could be disqualified by lenders, reports the Sunday Telegraph.
The two biggest lenders that have signed up to the scheme – Lloyds and RBS – use ‘affordability’ tests which measure what proportion of a buyer’s income goes on mortgage repayments. These two banks require borrowers to be able to cope if rates rise to 7%, in effect almost doubling from their current level. Experts say this will prevent a great many potential homebuyers from securing a loan.
Steve Clark
A higher pension–but at what price?
Former BT employees are the latest to get an offer from their former employer of a higher 
pension.
Similar offers have previously been made by Boots and ITV. Of course there’s a catch. The company is offering a higher fixed pension that will never increase in future, whereas its normal pension rises in line with inflation.
For those in good health, the danger of taking the fixed pension is that they live into their nineties and that the rate of inflation rises – in that case the spending power of their income will shrink. On the other hand, for those in poor health who aren’t likely to live long, a higher income now could represent a very good deal.
If you get such an offer, ask our advice, as there are often wrinkles (for example in relation to spouse’s pension rights) that could be very important.
Steve Clark