Pensions Lifetime Allowance/ Don’t Delay

Many clients have enquired recently about planned HMRC changes to pension allowances at the beginning of the new tax year, starting 06 April 2014. We have detailed the points of these significant changes in our recent Newsletters and because they are so topical, have confirmed the outline of these again in this Blog. 

 

I have detailed below some generic notes on the subject of HMRC’s change to the pensions Lifetime Allowance due to occur at the end of this tax year, 05th April 2014. 

 

As you may know, the Lifetime Allowance (LTA) reduces from £1.5M to £1.25M on 06/04/14. Excess pension/benefits over the LTA is taxed at 55% if taken as a lump sum or 25% (plus normal income tax) if taken as income. Hence if you do have an excess – protection will only reduce the size of this excess.

 

Anyone effected by these limits should consider the HMRC changes in legislation carefully to see if you wish to continue to accrue pension benefits into the future (possibly accepting the future tax charges on the amounts you accumulate into the future) or leave the scheme (possibly losing employer contributions if they are being made and possibly Death-in-Service benefits). 

 

To provide some protection from this situation, HMRC currently offer: 

• Fixed Protection (before 05 April 2014)
• Individual Protection (for those who have accumulated benefits in excess of £1.25M on 05/04/2014) in the new tax year (2014/2015). 

I have detailed the headlines of both below.  

1. Fixed Protection 2014/ Important 

• Must be applied for before 5th April 2014 ( This can be achieved online at the HMRC website)
• Maintains your LTA at 1.5m
• Will be lost if accrue any pension after 6th April 2014 – for example continued accrual in a final salary pension scheme or making any future pension contributions (including being Auto-Enrolled unless you opt out within 1 month)
• You must inform HMRC if you accrue benefits and hence give up your protection, within 90 days of knowing that you continue to accumulate benefits. The fine is £300 as an initial charge and £60 per day afterwards if HMRC are not informed.   

If you are in any doubt that this Fixed Protection may be advantageous then we would normally suggest that you apply for it now directly to HMRC.

 

However, if you then decide to stay in your pension scheme/continue to accumulate benefits you must notify HMRC in writing within 90 days or face a fine (noted above).  

 

For Final Salary Pension Schemes:  

 

The LTA accrual rate is 20X pension accrual + Cash

 

2. Individual Protection 2014/ From the new tax year 

• Only available if you have benefits at above £1.25M at 05/04/2014
• Still only HMRC proposals and cannot be applied for before 6th April 2014 (needs to be achieved before April 2017). Forms likely to be available by Mid/Late summer.
• Maintains your LTA at the value of your pension at 5th April 2014 up to a maximum of £1.5M.
• You can continue to accrue pension benefits after 6th April 2014 without losing this protection.
• Benefits above the Individual Fixed Protection amount you secure will still be charged at an equivalent tax charge of 55% when paid.

3. Annual Allowance Limit Reduction 

In addition to these changes, you will be aware that the Annual Allowance (AA/ the maximum contribution/benefit accrual that is allowed to be made into a pension for you from all sources in a year) is falling from £50,000 Gross in this tax year to £40,000 from the new tax year.

Any amount paid into a pension for you in excess of the new limit of £40,000 gross in the new tax year will be charged to tax at your highest marginal income tax rate.

For Final Salary Pension Schemes:

The AA accrual rate is 16X pension accrual (+ cash if your scheme gives you a separate lump sum in addition to your pension)

4. Summary

If you would like guidance and advice on these pension legislation changes, then please contact the team at Chapters Financial at either our Guildford (01483 578800) or Woking (01483 330800) offices.

 

No individual pension/ financial advice is provided during the course of this blog.

 

Keith Churchouse FPFS

Director

Chartered Financial Planner

ISO 22222 Personal Financial Planner

 

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

Directors....are you ready?

I read an article through Reuters News Agency recently that confirmed the UK had overtaken Japan as the 2nd largest global pensions market. It is good to see that many of us clearly take saving for our retirement seriously. Hopefully with the continued introduction of the mandatory employer Auto-Enrolment/ Workplace Pension roll out for the next 2 years, we will see this pension’s savings market increase still further. Taking this further, having seen larger employers now enrolled, many SME's are seeing their Staging Dates coming in 2014 and Chapters Financial are certainly seeing a higher level of enquiries on this topic. We have certainly experienced the process and note that advice to reach implementation is vital to achieve the required objectives, from choosing a scheme, to setting up the paperwork to reporting the required notifications to The Pensions Regulator. Starting the process early is important, scheme implementation does take time to prepare, present and finalise (you have been warned!). 

The maximum contribution to pensions per individual in the tax year is falling from £50,000 in this tax year 2013/2014 to £40,000 from 06th April 2014 (from all sources/ Gross contributions). These dates and sums might well be of interest to directors and business managers who are looking to offset business profits as they approach their company’s trading year end. For many limited companies, this might be 31st March, which closely ties in with the end of the tax year. 

It is important to check the 'Pension Input Period' (PIP for short) of the pension you make your contribution to BEFORE making a large contribution. If the PIP period ends after the end of the tax year, you may find that your contribution is restricted to £40,000, rather than the current level of £50,000. 

If you would like guidance and advice on making pension contributions from your business, either by choice for directors, or through mandatory requirements for Auto-Enrolment, then please contact the team at Chapters Financial at either our Guildford (01483 578800) or Woking (01483 330800) offices. 

No individual pension/ financial advice is provided during the course of this blog. 

Keith Churchouse FPFS
Director
Chartered Financial Planner
ISO 22222 Personal Financial Planner 

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

 

Chapters Financial Investment Committee / The US Economy

Each client and enquirer has a different view and approach to investment. They are all different and this is only natural.

Many retail advisory propositions also have different views on the way funds in whatever format (Pensions, Investments, ISA’s as examples) should be invested, some preferring passive investment over more actively managed planning.

Over the last 9+ years, Chapters Financial has always preferred an actively managed approach to investment. We believe this adds greater value to our client proposition. Past performance is not a guarantee of future performance.

To further this active investment strategy approach to investments, Chapters Financial Limited maintains and updates a regular view of the investment markets. We obviously have our own opinions (if you know the team at Chapters Financial you will know that they are not a shy group!), and add to our robust procedures by consulting with an independent specialist, Steven Williams, Director at Cormorant Capital Strategies Limited on a quarterly basis.

More detail on the work of Cormorant Capital Strategies Limited can be found here: http://www.cormorantcapitalstrategies.com/
Chapters Financial Limited is not responsible for the content of external webpages.

At our last Investment Committee Meeting in January 2014, we considered many investment areas. As an example, we looked at the US sector and I have received additional feedback and comment from Steven Williams, which is detailed below:

There is a good chance that 2014 will be the year that the US economy escapes the mire that has characterised the last five years or so. Certainly the conditions for continued progress are in place.

The US job market is strengthening. The unemployment rate stands at 7.0%, nowhere near the sub-5% pre-crisis levels but much improved on the 10% rate in 2009. With non-farm payrolls increasing at a rate close to 200,000 per month, further improvements in the employment situation ought to follow. In addition, the necessary process of deleveraging is maturing. US banks can boast of greater than average rates of tier-1 capital, non-financial corporate profit margins have seldom been wider and, according to Moody’s economy.com, the ‘average share of after-tax income that households must devote to servicing debt is as low as it has been since 1980’. Furthermore, consumer confidence – which suffered a knock during the government shut-down - has rebounded. It seems consumers are cognisant of improving conditions now and expectant of continued improvement to come. Of course, the outlook is not without risks to the downside.

I count three major risks to the outlook for the US economy. The first, and most dangerous, is that of exogenous shock – a genuine surprise. The only insight I can offer into such an event is that they occur more frequently than most investors expect and that at this time the US, in common with other regional economies, is remarkably vulnerable. On the other hand, most investors are wearily familiar with the second and third risks on my list. 2014, just like 2013, will be characterised by the political battle for control of the budget, including more wrangling over the debt ceiling. Finally, the Federal Reserve will be keen to continue to taper its present stimulus package and a disorderly exit has the potential to upset financial markets across the globe (investors in emerging market economies beware).

But, for all of this analysis, investors ought to be aware that asset prices and the wider economy do not move in lock-step. Whilst there is, I think, an absence of compelling evidence to suggest that equity markets are significantly over-priced there is equally a lack of evidence to suggest the counter.

Steven Williams, Director at Cormorant Capital Strategies Limited

No individual advice has been given in the course of this blog. Past performance is no guarantee of future performance. Investment values can fall as well as rise and are not guaranteed.

If you would like to discuss the investment opportunities with regards to your own individual situation and circumstances or any aspects of financial planning, both personal and business (SME), then please contact the team, either in Guildford or Woking.

Keith Churchouse FPFS
Chartered Financial Planner
ISO22222 Certified Financial Planner

Chapters Financial Limited 

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899