Archive for the ‘Pensions’ Category
Automatic Enrolment Earnings Triggers
In case you didn’t see it amongst all the furore about Boris Johnson’s interview with my old school mate Eddie Mair; the Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band)Order 2013 – SI 2013/667, was recently laid before Parliament. This comes into force on 6 April 2013.
The earnings thresholds for 2013/14 are as follows:
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Automatic enrolment eligibility earnings trigger £9,440
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Lower qualifying earnings band limit £5,668
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Upper qualifying earnings band limit £41,450
We’ll be discussing these with 44 Financial clients (if they impact on you at our next pension reform meeting. If you are not already one of our clients and all this is news to you – give us a call on 0116 260 5443 to book an initial consultation at our cost.
If, on the other hand, you want to see Boris Johnson squirm see the BBC interview here.
Steve Clark
Local Govt Pensions–give a little and take a lot?
The recent change to the state pension scheme could be bad news for employees and most employers who participate in the Local Government Pension Scheme,
Here’s the rub. The explanation is going to get a wee bit complicated – but I guess that this being an article on pensions it goes with the territory.
What’s the problem?
Sometime before 2017 contracting out of the State Second Pension will stop. No one is exactly sure when but that is par for the course with some of these changes.
When this happens it means that employees who are members o
f pension schemes like the Local Government Pension Scheme will pay more National Insurance.In today’s money that extra will work out at 1.4% of their earnings between £5,564 and £40,040. In return for paying more the employee will get their service counted towards the new single-tier pension of £144 per week that was announced recently.
Do higher contributions mean higher benefits?
As you might imagine nothing is ever straightforward on planet pensions. In pension terms we are kind of looking at an apple and a pear.
However, fear not; our friends at the Department for Work & Pensions seem to think that employees will benefit. Their white paper claims that around 90% of all contracted-out employees will be better off in value terms.
We can probably safely assume that the 10% that don’t benefit are the higher earners.
The straw and the camel
Clearly, there’s a danger that this could be the last straw for some employees when these higher outgoings come at a time of increased household bills and zero pay rises.
Members have already been asked to pay more towards the Local Government Pension Scheme in recent years. Higher earners will pay more for their benefits from next year. Some members are already considering opting out to boost their take home pay in tough times.
So I’m not entirely convinced that the DWP are right when they say that employees will benefit from these changes. What about those that can no longer afford to be a member and opt out or those who will opt to join the less generous 50/50 Scheme (as and when it appears).
What about Employers?
It’s worse news for Employers I’m afraid. Employers will end up paying 3.4% more in National Insurance.
In the Local Government Pension Scheme the Employers are unlikely to be able to pass this extra cost on to members. So it must be passed down to council tax payers (if the Employer is a Local Authority) or met from further efficiencies .
But what about those Employers that are Admitted Bodies to the Local Government Pension Scheme? Where can they find the extra cost?
Many Admitted Bodies are signed up to long term contracts that were negotiated without an allowance for this extra charge. Traditionally, membership of the Local Government Pension Scheme is high amongst employees of these Admitted Bodies. So this is going to hit them hard.
Could we see some outsourced contracts being in jeopardy? If not, then some form of cost cutting and possible redundancies would seem likely.
Is there some stability on the horizon?
Probably not. Having been in the industry for over 25 years I can’t recall a period where there has been anything other than constant change. One thing is clear though all Employers – and especially those Admitted Bodies in the Local Government Pension Scheme – need to keep an eye on the horizon to make sure they know what’s on the horizon. As I’ve said more than once on this blog over the last two and a half years – watch this space.
Steve Clark
Financial planning for the end of the tax year
The nights are finally starting to get a little lighter – maybe we can start looking forward to Spring after all. In financial services, Spring means two things; the Budget (on March 20th this year) and the end of the tax year on Friday April 5th.
This article gives some suggestions on financial planning steps to take before the end of the tax year, so that you can make the most of your tax allowances and organise your affairs as tax efficiently as possible. However, the first point to make is a practical one.
Easter is early this year, with Good Friday on March 29th and Easter Monday on April 1st. With holidays bound to impact on administration at some financial institutions, our first suggestion is that if you’re going to act before the end of the financial year, don’t leave it until the last minute. If you want to make sure your transactions are processed in time, look on the week commencing March 25th as the last practical week.
Individual Savings Accounts
The overall personal limit for an Individual Savings Account (ISA) for the current tax year is £11,280 and this will increase to £11,520 for the new tax year commencing on April 6th. It’s important to note that if you are only contributing to a cash ISA then the maximum is exactly half the overall allowance – so £5,640 and £5,760 respectively. The other key point is that if you don’t use your ISA allowances for this tax year then they are lost – they can’t be ‘carried forward’ to the next tax year.
We’d always recommend making use of your ISA allowances if you can – you pay no tax on capital gains which you make within an ISA or income you take from it. For long term investment there is a huge range of funds available within an ISA ‘wrapper’ from the very cautious to the very adventurous: as always, we’d be happy to discuss all the options with you if you’d like some advice.
Capital Gains Tax
Accountants will tell you that CGT is the ‘forgotten’ tax relief – people who religiously use their full ISA allowance completely fail to utilise their CGT allowance. For the current tax year everyone has a CGT allowance of £10,600 – meaning that capital gains made on investments such as shares are free of tax if they are within this limit. Husbands and wives can gift assets to each other without incurring a CGT charge, effectively giving a married couple a limit of £21,200. Like the ISA allowance though, the CGT allowance is an annual one, and cannot be carried forward to a subsequent tax year.
Inheritance Tax
The current individual limit for Inheritance Tax is £325,000 and this will remain the same for the tax year 2013/2014. Remember though, that you can make gifts during a tax year and these will be exempt from IHT if they fall within the Revenue limits: the limit is £3,000 per person, so £6,000 for a married couple. Although these amounts are small they can still help to reduce the value of an estate.
There are, of course, far more complex and sophisticated Inheritance Tax planning measures such as the use of trusts; if you feel that you would like specialist advice in this area then we will be happy to help.
Pensions
Why have we left pensions to (almost) the end? For a simple reason – because whilst there is enormous scope to make tax efficient investments through your pension (especially for higher-rate taxpayers) the legislation and rules are complex and it is an area where specialist financial planning advice is almost always required.
The top rate of tax is shortly being reduced from 50% to 45%, so many very high earners will be motivated to make pension contributions now, and as usual there is the chance to make use of reliefs and allowances which haven’t been used from previous tax years.
Equally, those people who are self-employed or directors of companies may need to think about making sure their pensions are as tax efficient as possible, and set up to ensure that they receive the maximum benefits from the business they are running. It all adds up to an area where specialist advice is essential and we are always ready to sit down with clients and use our expertise and experience to make sure they have exactly the right pension planning.
Hopefully that’s a useful overview of the planning steps you should take before the year end.
The key message is simple: “talk to us.” We’re never more than a phone call or an e-mail away and we’re happy to explain any of the subjects above in much greater detail.
*The Financial Services Authority does not regulate taxation advice or trusts.
New RPI and it’s impact on pension schemes
This article is only really of interest to any employers or Trustees that are involved in a final salary type pension scheme.
Those all round good people at Wragge & Co have published a short paper that outlines some of the issues that you should be considering if your Scheme provides indexation.
You can read the paper by clicking here.
As always if you need any help, or have any questions, after you have read this contact your usual 44 Financial consultant.
Steve Clark
Will pension compliance cost you 10% of payroll?
Auto-enrolment could increase employers’ payroll costs by 10% according to research from Eversheds.
The legal firm surveyed 245 companies and found that more than half thought the cost of complying with the new pension rules would be as high as 10% of payroll. The biggest challenge was though to be the additional administration required.
Nearly 60% of those surveyed said they wouldn’t reduce costs by limiting future pay rises. However 16% said they would consider it.
On a positive note the 93% were confident they would be ready by their staging date.
Two of the biggest challenges were getting key messages over in simple terms and getting workers to understand the reasons behind automatic enrolment.
About a third of companies thought it likely that they’d have to communicate different messages to different categories of workers.
When asked the one thing they’d change 41% said they’d allow workers to opt-out before being enrolled. Another 20% wanted the earnings threshold to be removed from the eligibility criteria, so that employers would not have to continually monitor workers’ earnings.
Steve Clark