HMRC Pensions Individual Protection application/ Now available

As an update from the last tax year (2013/2014), we note that the HMRC website has been updated today and now includes full details of the new Individual Protection for pensions, along with a facility to apply for this online.

This application can be found here: http://www.hmrc.gov.uk/pensionschemes/ip14online.htm

Chapters Financial is not responsible for the content of external webpages.
As a reminder, the HMRC website confirms:

Individual Protection 2014

The government announced that individual protection 2014 will be available when the lifetime allowance is reduced to £1.25 million for 2014-15. Individual protection 2014 will operate from 6 April 2014, for those with pension savings valued at over £1.25 million on 5 April 2014.

Individual protection 2014 will give a protected lifetime allowance equal to the value of your pension rights on 5 April 2014 - up to an overall maximum of £1.5 million. You will not lose individual protection 2014 by making further savings in to your pension scheme but any pension savings in excess of your protected lifetime allowance will be subject to a lifetime allowance charge.

You'll be able to apply for individual protection 2014 from 18 August 2014. Your application must be received by HMRC no later than 5 April 2017.

You can hold both fixed protection 2014 and individual protection 2014.You can also hold individual protection while holding either enhanced protection or fixed protection but you can't apply for individual protection if you already hold primary protection.

Summary

Pensions and HMRC protection can be a complicated subject, dependent on your individual circumstances. If you would like to consider the points noted above further then please do not hesitate to contact the team at Chapters Financial, who will be able to help you further with your pension enquiries. No individual advice is provided during the course of this blog. If you would like to receive further information regarding your own individual situation and circumstances, please contact the Chapters Financial team in either Guildford or Woking.

Keith Churchouse BA Hons FPFS
Director, Chapters Financial Limited
Chartered Financial Planner
Certified Financial Planner
ISO22222 Personal Financial Planner


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

Top up & take? / More State Pension changes

Top up & take? / More State Pension changes

We all know that as a demographic, we are living longer. To maintain our standards of living, many of us are also working longer, past the current State Pension age of 65 and beyond.

Whilst taxable earnings are available, some chose to defer their State Pension Benefits until they are needed. This in the past has been advantageous for most with an uplift in deferment of 10.4% pa for each full year deferred. The current standard full State Pension (in the tax year 2014/2015 is £113.10 per week (£5,881.20 pa gross) and you may also be entitled to additional State Pension benefits, such as State Earnings Related Pension (SERPS), Second State Pension (S2P) or a Graduated Pension).  

You may want check your State Pension to ensure you are up to date you can use the State Pension Forecast service here:  https://www.gov.uk/state-pension-statement

The Government has recently announced that this deferral uplift in their State Pension will be cut by almost half. These changes are being brought in because we are all living longer, as noted, and the comparatively generous rate of increase to date will not be sustainable into the future.

The Pensions Minister, Steve Webb, stated that when the new, single-tier State Pension system is introduced in April 2016, people who choose to defer their State Pension beyond state pension age will only receive a 5.8% increase in their pension if they delay payments for a year. Just over half the current increase of 10.4%.

Under the current rules, someone choosing to defer for one year would need to live for around another ten years to make the decision financially worthwhile. When the reduced rate of increase is introduced, you would have to live for about 19 years to benefit from their choice. If we knew how long we would live, this would make the financial planning a lot easier, although I am sure it would have many other undesired effects!

In monetary terms under the new regime for State Pensions to be introduced in just over 18 months’ time, an individual receiving the full flat-rate State Pension of approximately £155 a week (£8,060 a year) would see an increase in their total annual benefits of only £467.48 if they defer for a year. If you look at this over the course of retirement, say 25 years, someone deferring at the old 10.4% pa rate of increase would receive over £17,000 more from a State Pension of £155 a week than an individual under the new rules.

The good news is that anyone who reaches State Pension Age before 6 April 2016 can still get the 10.4% rate of increase if they choose to defer taking benefits. It’s disappointing news, though, for anyone who will retire after that date and had planned to delay their State Pension.

Deferral may still be a sensible move for someone in very good health who intends to carry on working, or who has substantial pension income from other sources. However, for the majority of retirees after April 2016, it may well be a case of ‘top-up and take’ – checking that you have accrued the number of years required to qualify for the full basic State Pension and, if you haven’t, make a lump-sum payment to rectify the situation – and then start taking benefits.

The ability to top-up the State Pension (voluntary Class 3A National Insurance Contributions) will currently become available (from October 2015) to those close to and over state pension age and full details can be found here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/300007/wms-state-pension-top-up.pdf

Chapters Financial is not responsible for the content of external webpages.

It would be worthwhile checking that any voluntary contribution offers the potential for value before proceeding to join in the new initiative.

The Chapters teams in Guildford and Woking are well placed to advise you on the impact of current and future changes to pension’s legislation on your finances. No individual advice is provided during the course of this blog. If you would like to receive further information regarding your own individual situation and circumstances, please contact the Chapters Financial team in either Guildford or Woking.

Keith Churchouse BA Hons FPFS   

Director, Chapters Financial Limited 

Chartered Financial Planner
Certified Financial Planner 

ISO22222 Personal Financial Planner 

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

Extra! Extra! Read all about it! Topping up your State Pension: is it worth it?

Financial planning and retirement planning can get complicated when coming to the right solution for each individual. The new flexibility introduced in the Budget 2014 is very welcome, however it is very important not to forget the basics, such as the State Pension available to each individual.

Normally, as part of our standard process, we ask individuals to check their State Pension benefit accumulation to ensure that the correct value is being achieved. This may not always be the case and it is important that allowances, such as the Home Responsibilities Allowance, are accounted for. This can be achieved by using a BR19 State Pension Forecast form, which may be found here: https://www.gov.uk/government/publications/application-for-a-state-pension-statement-form-br19-interactive-pdf or by going online to check the value of future benefits here: https://www.gov.uk/calculate-state-pension

It should be clear that in most cases there is real value in maximising the index-linked income from the State Pension, and reviewing the benefits, in our opinion is usually worthwhile (not in all cases), especially if you have the opportunity to increase their value.

Extra! Extra! Read all about it!

From October 2015, pensioners will be able to ‘buy’ up to £25 a week of extra State Pension. This option will be open to anyone who reaches State Pension Age before April 2016 – in other words, women born before 6 April 1953 and men born before 6 April 1951. The scheme aims to compensate the millions of pensioners who will miss out on the new flat-rate State Pension, which will come into effect from April 2016 and will pay around £155 a week.

If you qualify, there is only a short window of opportunity to increase your State Pension under this new top-up scheme: the scheme will run for 18 months, from 12 October 2015 to 1 April 2017.

Is this a new top-up scheme?

Yes, although there’s already a system whereby you can top up your basic State Pension. You currently need 30 years of full National Insurance contributions to qualify for the full basic State Pension. If you’ve accrued fewer years, you can make a lump-sum payment to increase the amount of basic State Pension you will receive on retirement.

The new scheme doesn’t replace this system and it’s important that you check that you have full entitlement to the full basic State Pension before you subscribe to the new top-up scheme. This is because your money will buy you significantly greater benefits under the existing scheme – for example, a sum of £890 would currently buy a 65 year old £4.64 a week of extra basic State Pension, whereas under the new scheme the same sum would boost your income by just £1.

What benefits can I ‘buy’ extra?

You can choose to top up your State Pension by between £1 and a maximum of £25 per week. How much you’ll need to contribute depends on how much extra pension you want to get each week and how old you are when you make the contribution.

For example, you are 68 years old in October 2015. You decide that you want an extra £5 per week (£260 a year) on top of your pension. The cost of an extra £1 per week for a 68 year old is £827, so you multiply £827 by 5. Therefore, you’ll make a lump sum payment of £4,135.

An online calculator is available at https://www.gov.uk/state-pension-topup . This will give you an idea of the cost and value of buying extra State Pension income at your current age.

Chapters Financial Limited is not responsible for the content of external webpages.

Does the new scheme offer value for money?

It could, for many people. The scheme works like an annuity, in that you are buying a guaranteed (and index-linked) income for life with a lump sum payment. Thus, your investment will only pay off if you live long enough to recoup the cost of buying the income and subsequently start earning a ‘return’. So those in good health should benefit from topping up their State Pension.

The maximum additional benefit of £25 a week costs £22,250 for a 65 year old. This is equivalent to an annuity rate of 5.84% - significantly higher than the current market rate of just over 3%. The return is higher still for older pensioners – a 70 year old will pay £19,475 for an additional income of £25, which is equivalent to an annuity rate of 6.67%.

Spouses and civil partners will also be able to inherit 50% of the top-up on the death of the pensioner, and the resulting income payments will remain index-linked.

The scheme may offer poorer value for money for a range of individuals:

• Single pensioners – as they have no spouse/civil partner to inherit 50% of their top-up
• Those with shorter life expectancies – as they may not live long enough to benefit from their investment
• Those who need access to their capital in retirement – rather than committing their lump sum to buying an income

What are the alternatives?

There are alternatives and each individual case is different. This is where high quality financial planning advice can help you understand the options and to allow appropriate decisions to be made as to the ways clients and enquirers use their capital to gain income.

The Chapters teams in Guildford and Woking are well placed to advise you on the impact of current and future changes to pensions legislation on your finances. No individual advice is provided during the course of this Blog. If you would like to receive further information regarding your own individual situation and circumstances, please contact the Chapters team in either Guildford or Woking.

Vicky Fulcher

Trainee Financial planner

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

What’s new about the NISA?

All Individual Savings Accounts (ISAs) will become New ISAs (NISAs) from 1 July 2014. This applies to all existing ISAs and new accounts opened after 1 July. The new name reflects the significantly increased limits and flexibility that will be available to account holders following the Budget 2014. Some use this medium as a savings vehicle for retirement and have campaigned to see the limits available under this tax efficient savings vehicle extended.

New limits

The current limit for ISA investment is £11,880 for the new tax year 2014/2015. From July, the annual limit will increase to £15,000 – the biggest ever increase to ISA limits. It is planned that this investment limit will then rise by inflation every year going forward.

You won’t be able to invest the full £15,000 ISA allowance until July. Between 6 April and 30 June 2014, the total amount you can pay into a Cash ISA is £5,940. If you have a Stocks and Shares ISA, you can also pay into that account, but the combined amount you pay into your Cash and Stocks and Shares ISAs must not exceed £11,880.

New flexibility

When the new rules come into play, you will be able to split the amount you pay into an ISA between a Cash NISA and a Stocks and Shares NISA as you choose – up to the new overall annual ISA limit of £15,000. Previously, it was only possible to save up to half the overall ISA subscription into a Cash ISA. This should be a particularly valuable feature for those who are keen to protect their capital from exposure to movements in the stock market.

It will also be possible to transfer between cash and stocks and shares ISAs (either way) to meet your needs and attitude to investment risk. If you want to transfer funds from a Stocks and Shares NISA to a cash NISA after 1 July, different rules will apply depending on when you paid the relevant amounts into your Stocks & Shares ISA. If it was in the current tax year (i.e. after 6 April 2014), you must transfer these savings as a whole. Any savings related to earlier tax years can be transferred to a cash NISA in whole or in part (but you’ll need to check with your ISA provider that they allow part transfers).

New for juniors

If you are aged between 16 and 18, you can hold an adult Cash NISA but cannot open a Stocks and Shares NISA. From 1 July 2014, you will be pay up to £15,000 into your Cash NISA for the tax year 2014/15. This equates to an increase of £9,060 in the amount that a young person can save in an ISA account – a significant step forward in encouraging a savings habit in the younger generation.

For those up to the age of 18, the Junior ISA limit has increased to £3,840 in this tax year. One possible way of saving for university costs.   

Old ISA providers…

If you’ve already paid into a Cash ISA account in this tax year, you may find that the terms and conditions of your account don’t allow further amounts to be added when the new rules come into play. However, you can make additional payments by opening a Stocks & Shares ISA account, or by transferring your Cash ISA to another provider that will allow additional amounts to be added.

Nicer ISAs

This new flexibility will give you far greater freedom of choice in how you shelter your capital from tax. If you don’t want to brave the vagaries of the stock market, you will now have the opportunity to save a significant amount more cash in a tax-efficient manner. If you’re keen to take more of a risk, there’s a whole world of investments out there – and the Chapters Financial team would be pleased to advise you on those that will best meet your financial objectives and your attitude to risk. 

Don’t forget the additional opportunity (for those eligible) introduced in the Budget 2014 of the Pensioner Bonds due to be released in early January 2015 which will also offer attractive savings options for amounts up to a total of £20,000.

No individual advice is provided during the course of this Blog. If you would like to receive further information regarding your own individual situation and circumstances, please contact the Chapters team in either Guildford or Woking.

Vicky Fulcher

Trainee Financial planner

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

Are Annuities dead? Take Financial Planning advice first

I read recently from some actuarial tables that a male and female aged 65 in reasonable health could expect to live for around another 25 years or so. It is interesting to note that the differential between men and women (a while ago women would be expected to live for around 3 years longer than a man) has reduced to around a year’s difference. We never know when we will finally meet our maker, however making your money stretch far enough to ensure you enjoy the years of your autumn is paramount.

A possible quarter of a century in retirement is a long time and with the State Pension being equalised in the tax year 2016/2017 at approximately £145.00 a week (£7,540 pa /paid gross but taxable), this amount may well be the minimum you require to make ends meet. (Current level £113.10 maximum 2014/2015). There are some expectations that we will retire later and this has been partly factored into the rise in the State Pension Age in coming years (increasing to 68 between 2024-2026). The minimum age to which you can draw your pension benefits is also increasing to age 57 from 2028. All because we are living longer.

There is also greater knowledge of the need to provide for the costs of Long Term Care and this cannot, and should not, be ignored. You can see that the pressure is on to get these vital retirement income decisions right.

The new flexibility announced in the Budget 2014 was welcome news for many, the main changes occurring in April 2015. Sure, there is going to be a few who blow their pension pots (after paying income tax at their highest marginal rate) on fast cars and holidays, claiming destitution thereafter. You can see the headlines already! However, there are also those that will see the need for an annuity purchase from some or all of their accumulated pension funds to provide them with the future security they desire in their lengthy retirement. This certainty of income offers great security for some, preferring to avoid the volatility of investment markets with their funds. Do I think annuities are dead? Not for some.

Of course, the new flexible Income Drawdown arrangements will become popular, with the option of releasing tax free cash to spend as you will. Thereafter, careful financial planning needs to be undertaken to meet your current needs, taking into account the likely reality that the decisions being made at retirement will be felt for 20+ years ahead. Getting it wrong at the outset could see some returning to work to make ends meet.

HM Treasury have issued a paper called 'Freedom and choice in pensions' on the 19th March 2014 and this goes into great detail on the proposed changes here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/294795/freedom_and_choice_in_pensions_web_210314.pdf

Chapters Financial is not responsible for the content of external websites.

This might appear to be scaremongering, however, many may regret the flexibility introduced and we recommend caution and careful planning to make sure that your pension funds last as long as you do.

No individual advice is provided during the course of this Blog. Speak to the team at Chapters Financial Limited in Guildford or Woking to address your individual needs for what should be the best part of your life....retirement!

Keith Churchouse FPFS, B A Hons
Chartered Financial Planner
Certified Financial Planner
ISO 222222 Personal Financial Planner

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