Monthly Archives: June 2017

Employers – don’t risk your credit rating
June 2017

The Pension Regulator (TPR) have confirmed that they are beginning to see the first employers receive County Court Judgements (CCJs) for failing to pay automatic enrolment fines.  This can happen when an employer persistently ignores the penalty notices sent to them by TPR.

Employers failing to pay their fine within 30 days of receiving the CCJ will find it gets entered onto their credit record and remains there for six years.  This could seriously affect their ability to borrow money for their business in the future.

Don’t get caught out – If you are an employer and would like advice on your Automatic Enrolment duties, please get in touch with us.

State Pensions: not quite what was advertised
June 2017

Most people reaching state pension age today are receiving less than the new state pension.

A Freedom of Information (FoI) request from the Sunday Times revealed an interesting fact about the new state pension, which started life just over a year ago on 6 April 2016.  The newspaper asked how many people who had reached state pension age (SPA) since that date had received at least the new state pension (originally £155.65 a week, now £159.55).

The response from the Department for Work and Pensions (DWP) was that between 6 April 2016 and 31 August 2016 – so roughly in the first five months – 41% of people reaching their SPA (65 for men, about 62 and a half for women) had pensions at least equal to the new state pension.  Or, to put it another way, 59% got less than the headline ‘single-tier’ amount which the government so heavily promoted.

It was always the case that what was promoted as a ‘flat rate’ pension was going to produce anything but that for many people, with the numbers receiving less than the full amount gradually declining as the new scheme matured.  According to the DWP’s own calculations, by 2020 slightly under half of new state pensioners will receive less than the full rate, while by 2030 that proportion shrinks to just under 20%.

This was well-known to pension experts, but not made clear in much of the information supplied to the public.  The House of Commons Work and Pensions Select Committee, in its report on “Communication of the new state pension” said that the potential shortfalls had “… not been made sufficiently clear in government communications that … focused on the full flat rate of £155.65”.

If you want to see what you are currently projected to receive when you reach state pension age (which, don’t forget, may be changing again from 2027), then the starting point is the government website https://www.gov.uk/check-state-pension.  Even if you are entitled to the full amount (or more), it is worth putting that figure into context: for a 35-hour week, the newly increased National Living Wage provides £262.50, almost two thirds more than the full flat rate state pension. Which means you may want to review your non-state private pension provision…

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.

Pension Regulator begins nationwide spot checks on employers
June 2017

Inspection teams from The Pensions Regulator (TPR) will be visiting hundreds of businesses across the country over the coming months to check that employers are meeting their Automatic Enrolment duties correctly.

TPR teams began visiting London-based employers in March and have recently moved on to Greater Manchester.  They will be carrying out inspections in other towns and cities in the next few weeks.

As well as helping TPR to identify those who are deliberately ignoring their AE duties and take enforcement action against them, the checks will help the Regulator understand any challenges that employers are facing.

If you are an employer and would like advice on your Automatic Enrolment duties, please get in touch with us.

For more general information from the Pensions Regulator, please click here.

 

So, it’s a hung Parliament …
June 2017

Post election update

As dawn broke following the General Election, the morning light revealed yet another political gamble that had not paid off for the dice roller.  The UK has a hung Parliament, with no party holding an absolute majority.  Such is the unpredictability of a parliamentary democracy.  If you ask the people of the UK what they think, be prepared for the answers that you might receive!

The last few weeks has highlighted the divide in opinion in the country of the role and size of the state in our lives, with further austerity and a shrinking state on the one hand, and a material rise in spending (and taxation for some) on the other.  Each of us has our own feel for what we believe to be best for ourselves and the country, which we were able to express at the ballot box on 8th June.  We also remain, as a nation, somewhat divided on the Brexit issue, although perhaps mostly united in the reality that it is going to go ahead, in one form or another, respecting the will of the (slim) majority.

More importantly, the last few weeks has united us as a nation in grief and utter condemnation of the barbarous terrorist attacks in Manchester and London, and a deep sense of resolve that the values that we collectively hold as a nation are immutable: decency, respect, tolerance and democracy.  The Election result illustrated what this truly means; Members of Parliament losing their seats, magnanimously shaking hands with their victors and accepting the right of the people to have their say.  The election is another stark reminder to those who assault our values that they will never win.

Certainly, it is an awkward time for such political turmoil, with the start of the Brexit negotiations just days away.  We will leave the ramifications of this result and the speculation of what we might expect next to others.  We don’t want to add to the noise or a further sense of election analysis fatigue.

Strong and stable portfolios (if not government)

What we do want to do is to reassure you that your portfolio is well positioned to weather any storms both now and in the future.  It is worth remembering the following:

  • Your portfolio is highly diversified through the thousands of equities and bonds that it holds and the countries that it is invested in.
  • Your non-UK equities are unhedged, which means that you hold this portion of your portfolio in non-GBP currencies.  In the event of a fall in the value of Sterling (GBP), as we have initially seen, these overseas assets will be worth more in Sterling terms.
  • Your  bond holdings – which are hedged – are diversified across global markets, reducing the impact of any rise in the cost of borrowing that might occur on account of the greater uncertainty that the UK faces at this time.
  • While markets don’t like uncertainty, the UK is a small player in the global pond and the General Election result is just a ripple.
  • Portfolios go up and down; they always have and they always will.  If you don’t need to spend the money today, don’t worry about what happens in the coming days, weeks and months.

Although the Election result may feel uncomfortable for some, let’s keep it in proportion.  We live in a tolerant, open society – and by the look of the greater level of engagement in the election by the younger generation – a great democracy that cares passionately about its future.  Put the kettle on, have a nice cup of tea and celebrate this next – if unpredicted and a little uncertain – step for our nation.

If you would like to speak with us about this or any other matter, please feel free to get in touch.

Other notes and risk warnings

  •  This article is for general information only, and is not intended to be advice to any specific person.  No reader should take any action based on the content of the publication without first obtaining personal advice from us or their own financial advisers.
  • The value of investments and any income taken from them can go down as well as up. Exchange rates may cause the value of underlying investments to fall as well as rise.  You may not get back the value of your original investment.
  • Past performance is not indicative of future results and no representation is made that any stated results will be replicated.
  • Any reference to taxation is based on our understanding of the current position, which may change in the future.
  • The actual taxation may be affected by individual circumstances.
  • The FCA does not regulate tax advice, so it is outside the investment protection rules of the Financial Services and Markets Act and the Financial Services Compensation Scheme.  The newsletter represents our understanding of law and HM Revenue & Customs practice.  All rights reserved.

And after the election …
June 2017

There is unfinished business for the new government to deal with.

Past performance is not a reliable indicator of future performance.  However, when it comes to general elections, there is plenty of history to suggest that tax increases are more likely in the first Budget to occur after the polls have closed.  From a politician’s viewpoint, it makes sense to deliver the medicine immediately, as that leaves the longest gap before the next election.  For example, it was in the summer Budget after the May 2015 election that the new dividend tax rules, reduced tax relief on buy-to-let properties and 3.5% increase in insurance premium tax were announced.

In the post-election environment, whoever ends up as Chancellor will be presenting a new Finance Bill, probably in July.  There is a raft of measures to reinstate because so many were dropped from the March Finance Bill in the rush to get it passed before parliament shut down. When reviving the spring Budget, the Chancellor will almost inevitably wish to add some new tax legislation based on what was (or, as important, was not) stated in their party’s manifesto.

Changes which were not originally in March’s Finance Bill are unlikely to take full effect before the start of the next tax year (2018/19), but even so there may be some “anti-forestalling” measures that bite immediately.  One area which looks ripe for a further attack is tax relief on pension contributions.  You may recall that the tapering of the annual allowance for high earners was announced in the July 2015 post-election Budget.

If you are contemplating large pension contributions in this tax year, it could be a wise precaution to make them before the new government’s first Budget.

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

Revisiting social care in the election campaign
June 2017

The general election campaign provided a reminder that the issue of funding social care remains unresolved.

Who pays how much for long term care in England came to the fore recently.   It is one of those subjects which successive governments have repeatedly kicked down the road.  Nearly 20 years ago, the then Labour government established a Royal Commission to examine the problem.  Its proposals that personal care should be free were rejected.  Ever since, there have been further reviews and reports, all of which have met a similar fate.

The last (2011) set of recommendations, from Sir Andrew Dilnot’s review, were accepted (with several modifications) before the start date was summarily deferred for four years to April 2020, shortly after the 2015 election.  It was these reforms that the Conservative manifesto proposed to abandon completely, causing much controversy.  Within four days, the Prime Minister had been prompted into something which looked remarkably like a U-turn, even if she said it was only a clarification.

The original 2020 plan would have placed a cap on the total personal contribution you would make to social care fees.  While the figure most often quoted is £72,000, this is a substantial understatement because:

  • The figure is index-linked, so will probably be nearer £80,000 by 2020.
  • It excludes the “hotel costs” of food and accommodation.
  • It is based on what a local authority would pay for care, not what a self-funding individual would be charged by a care home – normally a much higher amount.

It has been suggested that the true figure would be more like £200,000.

At present, there is no direct way of insuring against social care costs before they arise: the few providers who were in the market withdrew some years ago and only ‘immediate care’ plans remain.  One current potential solution is to build some provision into your retirement planning, using pension flexibility to draw the large sums needed to fund care home fees.  To see whether and how this might work for you, please talk to us.  We promise not to defer a response for two decades or longer…

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.