Archive for the ‘Retirement’ 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
Auto Enrolment– Unexpected stats on opt-outs
Never ones to rest on their gold plated laurels those busy 
bees at the Department for Work and Pensions have been busy putting together their latest report on automatic enrolment into workplace pension schemes.
The Automatic Enrolment Evaluation Report 2013 shows the breakdown, by different factors, of private sector employees eligible for automatic enrolment savings into a workplace pensions.
The report breaks down the data by industry, employer size earnings and age. The key points from the results are:
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There is certainly a buzz in the energy sector where those employed in the Energy and Water industry have the highest participation rate at 63% in 2012.
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It’s taking longer to sow the seeds and hook new savers in the Agriculture and Fishing industry with a participation rate of just 18%.
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Employers with between 250 and 4,999 employees have the highest participation rate at 53%
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Those earnings over £40,000 have the highest participation rate at 74%.
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Understandably, those earning less than £10,000 have a 32% rate.
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In terms of age employees aged between 22 and 29 have the lowest levels of participation at 24% compared to those aged 40 to 49 and 50 to 64 which have a rate of 50%.
From a personal viewpoint I’m surprised that the opt-out rate has been so low. It’ll be interesting to see how this figure moves as smaller and smaller employers come under the new rules. My suspicion at the moment is that inertia is propping up the figures. In other words, people are just not capable of getting around to getting the opt-out notice, completing it and getting it back to their employer within a month.
As time goes on I suspect that the coffee tables of the nation will harbour more than a few opt-out notices whose destiny is to keep last Christmas’s Radio Times company! But then perhaps I am just an old cynic.
Whether those modest pension savings will ever be enough to live on is a completely different matter.
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
Don’t you just love it when……….
Someone does something that saves you a tremendous amount of time.
Well this month’s “Don’t you just love it….” award goes to those legal bods over at DLA Piper for their latest edition of Pensions News.
It’s got all the latest stuff on Auto-Enrolment, The Pensions Regulator, Pension Protection Fund, changes in legislation and so much more. And yet you can have all access to this in the time that you take to drink a nice cup of Nambarrie tea – Northern Ireland’s finest.
If all this suspense is too much click this link to get your pensions fix – courtesy of DLA Piper.
Steve Clark