Monthly Archives: September 2016

The six figure pension fund
September 2016

The fall in interest rates is boosting some pension transfer values

six-figure-pensionsPension scheme deficits have been hitting the headlines again, and not just those of BHS.  The Bank of England’s efforts to bolster the post-referendum economy have been to blame.  On one widely quoted measure – the Pension Protection Fund’s PPF7800 Index – the overall deficit for private sector benefit schemes covered by the PPF was £408bn in July 2016, an increase of over £170bn in the space of just 12 months.

The reason is the fall in long term interest rates, which are the basis for valuing final salary pension scheme liabilities: as rates fall, the value put on the liabilities rises.  Unfortunately for many schemes, the other side of the balance sheet – the investments assets – do not rise in value as rapidly, hence the deficit (liabilities – assets) widens.

There is one piece of potentially good news that stems from this situation: many schemes are increasing the transfer values they offer.  This is due both to increases in asset values and to schemes’ desire to reduce their liabilities by cutting membership.  In some cases, transfer values have been equal to over 30 times the prospective pension, meaning a £3,500 future pension could provide a six figure transfer value.

If you have final salary benefits from previous employment, it could be worth seeing whether a transfer now makes sense, even if it did not a couple of years ago. To begin the process, please contact us.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. 

Interest rates now at 0.25%
September 2016

interest-ratesThe Bank of England halved its base rate in August. By the end of the year, it could be lower still.

At its first formal meeting after the Brexit vote, in early July the Bank of England’s interest rate setters (the Monetary Policy Committee) surprised some economists by not cutting rates.  The (non-) move resurrected criticism of Mark Carney, the Bank’s Governor, as “an unreliable boyfriend”.

In August, the surprise came from the opposite direction.  Not only did the Bank cut interest rates, but it also announced more quantitative easing (QE – buying of government and corporate bonds) and new low rate loans of up to £100bn to banks and building societies to encourage lending.  As if that were not enough, the bank also said “if the incoming data proves broadly consistent with the August Inflation Report forecast, a majority of members expect to support a further cut in Bank Rate…during the course of the year”.  Fortunately, Mr Carney has made clear he does not favour negative interest rates, but another cut will take him very close to what used to be called the ‘zero bound’.

Savings rates have been dropping for some time, but this has not stopped deposit-taking institutions from cutting further, in some cases by more than the 0.25% reduction made by the Bank of England.  One of the most attractive interest-paying current accounts has announced a 1.5% reduction in interest payable.

The extra £70bn of QE has pushed down government bond yields: lend money to the government for a decade and you’ll be paid only less than 0.7% a year.  Once again this has pushed down annuity rates and exacerbated the problems of funding final salary pension schemes.  Lower interest rates also drove down the value of the pound, which could ultimately mean higher inflation.

For investors, as opposed to depositors, the Bank’s moves were beneficial, giving a lift to the value of UK shares and bonds, and, by dint of sterling’s fall, foreign assets.

Despite the rate cut and its aftermath, there are still opportunities to invest for income. However, advice is more vital than ever now, as the pool of remaining income investments is becoming potentially riskier.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Protecting your Pension
September 2016

The interim procedure for claiming the 2016 pension protections has come topurple-egg-nest-egg an end.

The referendum vote has disrupted many plans and timetables this year.  Among them is the passage of the Finance Bill, which in any other year would by now have been given Royal Assent and become a Finance Act.  In 2016 it looks as if the transition from Bill to Act may not occur until shortly before the new Chancellor announces his first fiscal measures in the Autumn Statement.

The delay in passing the Bill has had some curious consequences.  One relates to the 20% reduction in the pension lifetime allowance to £1 million and the associated transitional protections.  The third cut in the lifetime allowance and the new protections took effect from 6 April 2016, but the legislation underlying them is in that slow-moving Finance Bill.

Initially, HM Revenue & Customs (HMRC) announced an interim paper-based procedure for claiming the new protections, primarily for anyone starting to draw benefits before the Finance Act 2016 came into being. HMRC promised to set up an on-line application process by the end of July, at which point the interim procedure would end.  The timing was taken to be driven by the (then) likely Royal Assent date.

The online procedure is now in place – you can find out more at  Unlike earlier versions of transitional protection, there is no deadline for applications.  However, this does not mean you can ignore the provisions until you start to draw your benefits, because they revolve around values as at 6 April 2016 and subsequent actions.

If you think these new protections might be relevant to you, please contact us as soon as possible to discuss your options.  Even if you have already started to draw benefits, the new protections could still be worth claiming.

The value of tax reliefs depends on your individual circumstances.  Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

A new Chancellor takes the reins
September 2016

race-horse-reiensThe UK now has a new Prime Minister and a new Chancellor, but will tax policy change?

If you went on an overseas holiday in the second week of July, you left the UK with David Cameron as Prime Minister and George Osborne as Chancellor, but by your return the country was in the hands of Theresa May and Philip Hammond respectively.  A week is truly a long time in politics.

As with the consequences of Brexit on the economy, it is too early to say what the impact of the new government will have on tax policy.  However, a few interesting indicators have already emerged:

  • In her first speech outside Downing Street, Mrs May said “When it comes to taxes, we’ll prioritise not the wealthy, but you.”
  • The new Chancellor has said that he will not introduce an emergency Budget, but instead wait until the Autumn Statement to review developments and then set out his plans.
  • The Prime Minister and her Chancellor have both ruled out trying to achieve no Budget deficit in 2019/20, a goal which George Osborne had himself abandoned after the Brexit vote.  However, cutting the deficit remains firmly on the agenda.
  • Mr Osborne’s post-Brexit pledge to cut corporation tax to under 15% has not been endorsed by Mr Hammond.

The mood music is thus very different from what we have been used to.  For example, it is possible to imagine Mr Hammond making the cut to higher rate pension tax relief that Mr Osborne shied away from in March.  Such a move would certainly fit in with not prioritising the wealthy…

The value of reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.