The end of the Euro, but not Europe?

As we draw towards the end of 2010 many are turning to the prospect of all manner of festive things and as I write this, the prospect and forecast of snow is on the horizon. Sadly, for those in the Emerald Isle of Ireland, the realisation of an economy in significant trouble is at the forefront of many minds.

Amongst other economic measures, a Bi-Lateral loan of around £7.0-£8.0 Billion has been offered by the UK to Ireland to help with its problems and with the International Monetary Fund (IMF) busy in its halls of power, the political power of the existing administration looks weaker by the day, with the election polls beckoning in January. Their austerity plan due to be released in Dublin later today will make interesting reading.

Ireland is far from being alone in this situation, and many other nations such as Greece and Portugal have suffered similar fiscal situations and other nations, such as Spain, are not looking as healthy as many would want. Other nations in the Euro-Zone, such as Germany, are not seeing the same economic problems and, in a contrary fashion, are seeing sustainable growth going forward, although time will tell if this remains constant. As with all of these things, past performance is not a guarantee of future performance. This imbalance is creating some economic friction. With some nations fiscally falling behind others, the pockets of the wealthier countries that have been dipped into to help out are, as the saying goes, beginning to get deeper with shorter arms, causing concern that this may undermine their own economies. Remember, this has been a painful time for all countries financially and attitudes are changing to the protection of their own countries rather than that of the Euro-Zone.

This has led to some speculation on the future of the Euro as a currency for the Euro-Zone. Some now suggest that the Euro in its present format will not survive. That some of the northern countries will form their own Euro currency, introducing a two tier Euro-Zone or simply revert back to their old currency from whence they came. However, there seems little speculation on the Euro-Zone as a whole, just the currency it uses.

Where does this trouble, concern, comment and speculation leave us as investors?

In my opinion, the answer lies in one word, which is ‘diversification’. The future for Europe as an investment area remains reasonable, although it is likely to go through some change going forward. By diversifying your investments (Pensions, ISA’s, OEICs, Portfolios) to ensure that you are not overly exposed to one investment area and taking regular advice from your Independent Financial Adviser (IFA) you should maintain the potential of reducing exposure to investment risk.

When looking at an individual investment area, you should also do this in conjunction with your overall attitude to investment risk. This should provide a more encompassing approach and Churchouse Financial Planning Limited has prepared an Investment Risk Scale to help with your considerations and this can be found here.

Past performance is not a guarantee of future performance. Values can fall as well as rise and are not guaranteed.

This article should not be treated as individual advice. Individual advice is only available based on your individual circumstances. Further information, advice and contact details are available at our websites, www.churchouse.com or www.planmypension.co.uk

Keith Churchouse

Director of Churchouse Financial Planning Limited

Churchouse Financial Planning Limited is authorised and regulated by the Financial Services Authority. www.planmypension.co.uk is a trading name/style of Churchouse Financial Planning Limited.

CHURCHOUSE is a trademark of Churchouse Financial Planning Limited.

National Employers Savings Trust (NEST)

The last administration proposed a wide-ranging review of pension saving in the UK and introduced the concept of the National Employers Savings Trust or NEST for short. Much work was done on this subject prior to the election in May 2010 and some felt that NEST would not survive the new Coalition Government. After some consideration NEST seems now to be proceeding at pace with a trial pilot (through Volunteer employers) starting next year (2011) and full implementation with the full scheme being launched in 2012 and most employers being tied into the arrangement in 2014.

It is clear that the public in the UK is not saving enough for its retirement income because many individuals will fall short of their target income at retirement. With the pressures on the State Pension increasing, many people will know of the proposed levelling off of State Pension benefits for all at a level of £140.00 per week from 2015. We are also aware that the State Pension age is increasing from 65 to higher ages, such as 66 for both men and women from 2020 with further changes to follow.

To help with this situation, NEST is being introduced. It is proposed from the start date the contribution level to the scheme of a minimum of 2.0% pa, with 1.0% pa being paid by employers and 1.0% pa by employees (0.8% pa net contribution and tax relief of 0.2% ).

I have listed a link below for the phased start dates based on the number of staff that you have within your organisation.

http://www.thepensionsregulator.gov.uk/pensions-reform/duty-dates-timeline.aspx

There will then be a phasing of increased contributions with a minimum total level of 5.0% pa being introduced between October 2016 and October 2017 and then from 2017 a contribution level of 8.0% pa, with 3.0% pa coming from the employer, 4.0% pa coming from the employee and the balance as tax relief (subject to any changes). It should be noted that the percentage is of all income including basic salary, commission, bonus and overtime. Therefore if an employer is looking at the cost to their company of NEST then it should be looking at the total salary cost including all of these items rather than base salary.

Employee Opting in and out

All employers will be required to automatically enrol (on their Automatic Enrolment Date/ AED) their eligible workers into a qualifying pension scheme and to make the relevant contributions to the qualifying scheme selected. NEST is one option available to all employers. Employees will have the facility to opt-out of their employer's qualifying scheme after being automatically enrolled within a prescribed time period if they do not want to join in. They have one month from the date that they have been given prescribed information to opt out and they may do this by contacting the scheme. They will then be put back in the position they would have been in if they had not joined the scheme. This may involve a refund of any contributions taken following automatic enrolment into the scheme. They can opt out after the a enrolment period, but this may mean they are given a preserved pension. Some trust based schemes may provide a refund less tax under short service refund rules applicable to some occupational pension schemes within two years of joining. If an employee opts out the employer will not have to make their required contribution but the employer cannot induce the employee into doing so.

They can opt back in later at the employer/qualifying scheme’s discretion and will be automatically re-enrolled every three years. The employer will then have to contribute again in accordance with the phasing above.

Administration & Existing Schemes

An employer can decide to run a scheme within its own arrangements or use the NEST arrangements put in place by the Government to collect contributions and to administer them accordingly. Some employers already have pensions schemes in place and an employer will need to designate these schemes with The Pension Regulator to join them into the NEST programme. If an employer wants to do this they will need to look at the cost to them and the scheme in doing this.

Dates and Contribution Phasing

The employer will be notified by The Pensions Regulator 12 months prior to the date they have to implement their phase of the NEST funding. The contribution level will be phased from the outset with larger employers starting in October 2012. The initial contributions will be as follows (Contributions to be made on a band of earnings between £5,715 pa and £33,540 pa (the lower limit to be linked to the National Insurance LEL and the higher limit in 06/07 terms and up-rated in line with National Average Earnings)

• Employer: 1.0% pa of earnings
• Employee: 0.8% pa of earnings
• Tax relief: 0.2% pa of earnings

Second Phase - October 2016 to October 2017
From October 2016 the second phase starts and will see an increase in funding/contributions to 5% of earnings (salary/bonus/overtime, etc within band earnings) divided as follows:

• Employer: 2.0% pa of earnings
• Employee; 2.4% pa of earnings
• Tax relief: 0.6% pa of earnings

Third Phase -October 2017 onwards
From October 2016 the second phase starts and will see an increase in funding/contributions to 8% of earnings (salary/bonus/overtime, etc within band earnings) divided as follows:

• Employer: 3.0% pa of earnings
• Employee: 4.0% pa of earnings
• Tax relief: 1.0% pa of earnings

You can see that there are some significant consequences to this legislation and therefore many employers need to start planning now to ensure that they are ready for the changes in their cost projections, and also the requirement to ensure that they are ready to meet their responsibilities.

It should be noted that the level of tax relief, the way contributions are calculated based on income levels or ‘Band Earnings’ and some other issues may vary and are open to consolation at this time.

Churchouse Financial Planning Limited is well placed to help employers with this and we would be pleased to speak with directors of your company to ensure that you meet the requirements needed. This should not be seen or used as individual advice and you should seek independent financial advice for your own circumstances.

Contact Keith Churchouse on 01483 578800 or via churchouse.com

Churchouse Financial Planning Limited is Authorised and Regulated by the Financial Services Authority.

2010 and The FTSE 100 Index

2010 has proved to be a very different year for many of us. With snow disruption causing havoc in January, a late Spring election, Quantative Easing, the football World Cup and finally and more recently, the Comprehensive Spending Review which has bought into sharp focus the economic position of the UK and the cuts required to achieve balance going forward. We have not seen the true effects of these cuts yet, although we now understand how tricky they may be. We are all different and each change may vary the outcome for each of us.

With all of these issues occurring, I thought it might be worth noting what has happened to the FTSE 100 index (the UKs top 100 shares) over the same time. Opening at the start of January (open 04/01), the index stood at 5412.9 points. By 01 June, we had fallen to 5188.4 points this year and at the time of writing this blog on the morning of November 10th 2010, (opening), the index stood at 5875.1 points. Past performance is not a guarantee of future performance, however, is interesting to see what has happened to an index that affects many clients’ investments.

If you would like an independent (IFA) review your pension, retirement planning or investments in light of these changes then please let us know.

As noted in this text, we are all different and this information should not be used or relied on as individual financial advice. The Financial Services Authority does not regulate Taxation advice.

Further details of this are available at our website, www.churchouse.com

Keith Churchouse

Chartered Financial Planner & ISO22222 Certified Financial Planner

Director of Churchouse Financial Planning Limited

Churchouse Financial Planning Limited is authorised and regulated by the Financial Services Authority

November Notions…..Your financial planning month?

With the sky alight at the weekend with the beautiful colours of fireworks and the air thick with the smells of bonfire, I know that it is going to by a busy month in financial planning. For those of you who know that I complete 25 years in the profession in 2010, I would note that this experience has always taught me that November is a key (if not the key) business month in the annual calendar to seal off the years production. Can I add that this is not me suggesting this, but our clients usually requiring it.

I don’t know if this is because it is the last month on normality in the year before all things Christmas descend upon us, with the corresponding time and monetary commitments, or whether the first month of truly dark nights, providing more time to focus on financial planning, independent advice (IFA) and getting all things money in order. Whatever the reason, we always ensure that we are ready to help.

Like all financial planning, each client’s requirements, needs and aspirations are different and this variety is inspirational in making our work so enjoyable. I have given some examples below.

Pension Planning:

With many changes in the way the limits on pension tax relief have been applied or restricted and more changes proposed for lifetime allowances (LTA) , this is an area that is regularly changing and many find needs regular attention for contributions to Personal pensions (PPPs), Stakeholder Pensions and Executive / Employer schemes.

For employers, the effects of NEST (the National Employers Savings Trust) on the immediate horizon, this is taking up significant thinking time on the approach to the overall outcome of these plans.

Retirement Planning

I always recommend that a client starts to plan their retirement income planning around 6-12 months out from the date they plan to retire. This is because many want to know what they are likely to get in terms of tax free cash and the final income they can draw, either via an annuity purchase (Open Market Option/ OMO/ Impaired Life Annuity) or, for those prepared to take some additional risk, an income drawdown plan. As with most pension issues, the rules applicable are regularly changing and the increase in the age to which annuities have to be bought from 75 to age 77 is a good example. More changes are proposed for the future.

Early advice and guidance will provide retirees time to think about how the retirement options available and what will suit their needs both at retirement and into the future. Time is a key point here because there is usually a lot of information to take on and digest.

To help with this, we do offer a simple Retirement Options guide free of charge and this can be found here.

Investment Planning:

As we pass the half way stage in the fiscal year (April-April) many chose to invest in ISA’s rather than wait for the deadline of April 05^th. This seems to be another popular deadline that clients focus on. With the full ISA allowance at £10,200 each (2010/2011), this is a valuable tax efficient allowance that many use each year to shelter their investments. In addition, most have a full capital gains tax allowance (CGT) of £10,100 in a tax year (2010/2011) and again many find this of significant advantage in their overall planning. With the highest tax charge above this allowance at 28% as a flat tax rate, this can work well for high rate taxpayers.

Many also start to plan to use their gift allowances in the next month or so, such as the annual gift allowance of £3,000 each or gifts from surplus income.

Summary

You can see that there is usually a lot to think about in financial planning for many around this time of year, whether that be one individual topic or a combination of these, along with other areas of planning, such as inheritance tax.

As an amusing aside, I was horrified when I found out that ‘Santa Claus’ was following me on Twitter the other day (follow me as ‘Onlinefinancial’). At least he had waited until November to start. Either I have been a very good boy in the year or it is just a marketing gimmick. Sadly, I fear it is the later and not because I have not been good.

As we lead up to the festive season, please remember that it is not too late to get your finances in order and ready to face Christmas, 2011 and beyond.

As noted in this text, we are all different and this information should not be used or relied on as individual financial advice. The Financial Services Authority does not regulate Taxation advice.

Further details of this are available at our website, www.churchouse.com

Keith Churchouse

Chartered Financial Planner & ISO22222 Certified Financial Planner

Director of Churchouse Financial Planning Limited

Churchouse Financial Planning Limited is authorised and regulated by the Financial Services Authority