Budget 2015: Key Highlights

The Chancellor, George Osborne, delivered an upbeat Budget at 12.30pm on 18^th march 2015. This was his sixth Budget as Chancellor, and the last of the current Parliament. He announced ‘record employment’ in the UK, living standards at a higher level than in May 2010 and economic growth of 2.6% in 2014 – faster than any other advanced economy. Petrol duty is frozen too, and you can celebrate this with a very slightly cheaper pint of beer (1p off duty)….but not wine!

This positive message was continued in some of the Chancellor’s announcements, although not all (see pensions Lifetime Allowance…). We have listed below the main points that could affect your financial planning and your household income. These are as follows:

Pensions

• Pensions Lifetime Allowance to be reduced from £1.25 million to £1 million from April 2016…although the Chancellor did announce that the new Lifetime Allowance will be indexed to inflation from 2018.
• This will be the third reduction in the Lifetime Allowance since 2012, at which point it was brought down from £1.8 million to £1.5 million. It was then lowered again in 2013 to the current rate of £1.25 million. It may be cold comfort, but no change to the Annual Allowance for pension contributions, which remains at £40,000 gross (from all sources) for the tax year 2015/2016.
• Pensioners to be allowed to access their annuities (full details of how to be confirmed) – 55% tax charge to be abolished and tax applied at highest marginal rate.

Personal taxation

• Annual paper tax returns to be abolished. The current tax return system will be phased out and replaced with individual digital accounts which can be accessed online.
• Tax-free personal income tax allowance to rise from £10,600 in 2015/2016 to £10,800 in 2016/2017 and £11,000 in 2017/2018.
• Higher rate tax threshold to rise at a rate above inflation, from £41,865 in 2014/2015 to £42,385 from April and £43,300 in 2017/2018.
• The transferable tax allowance for married couples (also see new Marriage Allowance) will rise to £1,100.
• There will be a review of legal loopholes that help people to avoid Inheritance Tax (IHT). Of particular interest to the Government is the use of a Deed of Variation to avoid IHT. A Deed of Variation changes a will after the death of an individual and allows the beneficiaries of the estate to change how it is distributed.

Savings

• ISAs will become ‘fully flexible’ – savers will be allowed to withdraw and replace cash ISA money during a tax year without affecting the overall tax-free ISA limit.
• New ‘Help to Buy’ ISA: first time buyers will be able to save up to £200 a month towards their first home with a Help to Buy ISA. The Government will boost their savings by 25%, giving an extra £50 on savings of £200. Accounts will be available from autumn 2015 and savers can make an initial deposit of £1,000 when opening an account, in addition to their monthly savings.
• New personal savings allowance: the first £1,000 interest earned on savings income will be tax-free for basic rate taxpayers from April 2015. Higher rate taxpayers will have a £500 allowance.

Small businesses and charities

• Corporation tax to fall to 20%
• Abolition of Class 2 National Insurance Contributions for the self-employed
• Automatic gift aid limit for charities to be extended to £8,000 from £5,000
• Review of business rates – further details to be confirmed

As always, no individual advice is provided during the course of this blog. If you would like advice on the changes announced in the Budget then please contact the team at Chapters Financial Limited at our Woking or Guildford offices.

Keith Churchouse
Director of Chapters Financial Limited
Certified Financial Planner
ISO 22222 Personal Financial Planner
Chartered 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.

The momentum of Pensions Auto-Enrolment in 2014

The beginning of April 2014 saw a significant number of smaller businesses joining into the Auto-Enrolment pension revolution that is sweeping across the UK.

It is clear that the numbers of individuals being Auto-Enrolled into pensions is climbing every day. I received an e-mail on 1 April 2014 (not an April fools) to confirm that the one millionth member had been enrolled within the National Employer Savings Trust (NEST) as an example.

The details of Auto-Enrolment Pensions are nothing new and further details are available on the Chapters Financial website (See Businesses and SMEs section). We have seen the largest employers first being enrolled from October 2012 with many employers with team numbers above 250 being enrolled by early 2014.

Living Longer/ Retiring Later/ State Pension Burden

It is a fact that we are all living longer and that our time in retirement is being extended. The financial burden on State Pensions is ever-increasing and we will see the State Pension age increase from 65 up to a proposed age of around 68 by 2026. We will also see the equalisation of State Pensions being rolled out over the course of the next 18 to 24 months. This should see the State Pension value equalised at approximately £145 a week (£7,540 pa/ paid gross but taxable) for all qualifying recipients post this change (subject to a suitable NI record).

This age increase is also reflected in the minimum age at which pension benefits can be accessed, which is currently 55 years old (having increased from 50 some years ago) and is proposed to increase to age 57 in 2028, as confirmed here: https://www.gov.uk/government/consultations/freedom-and-choice-in-pensions

Staging Dates 2014

The key date for employers in meeting their Auto-Enrolment requirements has been their Staging Date. This is the date to which they must enrol their employees into any new Workplace Pension, if they do not have a qualifying scheme that exempts them from the legislation. In our experience, this means most employers need to make changes to their existing schemes, Defined Benefit (DB) or Defined Contribution (DC), or implement a new pension scheme.

As you may be aware, the majority of employers in the UK are not large and therefore it is anticipated that a far higher number of employers will need to meet their Auto-Enrolment requirements during the course of 2014/2015.

What needs to be considered?

Requirements may include arranging a scheme, assessing the workforce for their eligibility, implementing notifications to the staff, reporting to The Pensions Regulator and implementing the scheme at the correct date with contributions and the relevant data for employees to be able to consider their options once they are opted into the scheme.

As the burden of this legislation comes to bear on many SME’s over the course of the next 12 months we are finding that many employers are contacting us to secure our services going forward to ensure that they meet their obligations. It is from our experience of arranging these types of schemes that we know it is important that the process is started some six months out to ensure compliance with the new requirements. The Pensions Regulator has made it very clear that they will take action against employers who do not meet their requirements and details of their enforcement options are here: http://www.thepensionsregulator.gov.uk/employers/what-happens-if-i-dont-comply.aspx#s10310

Real Benefits

I have no doubt that this framework for pension savings will bear significant fruit in future years in protecting retirement benefits for those people retiring in the future. It is also interesting and encouraging to note that the opt-out rate for employees seems to be very low, running at an average of around 10.8% as noted by the publication, Professional Pensions, here: http://www.professionalpensions.com/professional-pensions/news/2309949/five-surprising-facts-from-the-dwp-s-auto-enrolment-evaluation

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

If you would like advice and guidance on implementing your Pensions Auto-Enrolment scheme and to manage its implications and costs to your business then please do not hesitate to contact the team at Chapters Financial at our Guildford or Woking offices. 

No individual 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.

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.

Long Term Care, Care Costs and Inheritance Tax

I am not sure I have ever seen two high-profile financial planning issues linked so closely by Government before, namely that of Inheritance Tax and care costs for Long Term Care. The recently commissioned Dilnot Report has done much to correctly move the issue of care costs forward.

Both topics are emotive subjects for both families and those in their older ages. They will generate much text over the next few months. The new plans (subject to confirmation and detail) is to cap long term care costs at £75,000 with assessment for this cap starting at a new level of £123,000. With care costs for many running at around £1,000 per week, as an example, you can soon work out that with £52,000 per annum being spent on care costs, it is easy for estate values to fall quickly. Ironically, this has the 'advantage' of reducing future Inheritance Tax liabilities.

The 'generosity' of this change offered by the Government will not be without expense. We are all aware that they have no money and this change will need to be afforded. This is planned to be achieved by freezing Inheritance Tax (IHT) levels until 2019. In George Osborn's Autumn Statement at the end of 2012, the current Inheritance Tax nil rate band allowance for an individual of £325,000 was going to increase to £329,000 from tax year start 2015/2016. This plan has now clearly changed to accommodate this new planning.

The devil may well be in the detail and I am sure there may be a few more changes before these (apparently) now linked allowances are finalised.

No individual advice has been provided during the course of this blog. Both Long Term Care and Inheritance Tax should be planned for carefully and if you would like to receive individual advice for your circumstances, then please contact the team at Chapters Financial Limited on 01483 578800

Keith Churchouse, FPFS
Director, Chapters Financial Limited, Guildford, Surrey

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

The State Pension......and the possible changes ahead?

This week we have seen our coalition Government turn their attention to the State Pension and the way the current benefits are provided. I am sure there will much press coverage, comment and concern about future changes, both for those who may be effected in the shorter term, from 2017, and for those who hope to claim this benefit into the longer term.

I wanted to provide a summary, and for the purposes of this Blog, I have divided this into the following sections:

The Past and Present

Currently, the basic State Pension amounts to £107.45 per week. This income is paid gross, but is taxable and increases with the Consumer Prices Index (CPI) with a minimum guarantee of 2.5% if CPI falls below this rate, which it did in 2012. On top of this, you might also receive additional State Pension income from past accrual of the State Earnings Related Pension (sometimes known as SERPS) or its successor, the Second State Pension (S2P). I have seen this additional pension benefit when added see the overall pension paid double on regular occasions.

My current understanding is that those who have State Pension benefit in payment before 2017 will not be affected by the possible proposals.

You can probably tell that this can be a complicated calculation when taking into account all the varying factors, with a maximum accrual achieved over 30 years (proposed to increase to 35 years). Here lies part of the perceived problem and the target to simplify the process. It is also proposed that no State Pension will be achieved, with a proposed minimum of 10 years National Insurance accrual to qualify for any State Pension.

How do I check my current State Pension benefit?

You can check your current accrual of your State Pension by completing a BR19 State Pension Forecast Form (available here).

State Pension Deferral

It is currently possible to defer the State Pension after your normal State Pension age (which we know as been increasing over recent times and still increasing), seeing the benefit deferred increasing by 1.0% for every 5 week period. This increase amounts to 10.4% over a full year and this option can be beneficial in financial planning for those who, as an example, continue to work and have no immediate need for the income.

For information, this increase can be taken as taxable cash or increased taxable income. It will be interesting to see if this option survives the final ruling on future changes.

The Future?

The new proposals put forward for 2017 suggests a flat rate of State Pension of around £155.00 per week in total (about £144.00 per week in today’s terms). Of course, this figure may change when everything is finalised. Past SERPS and S2P accrual (which might have given a higher income if the rules had not changed) will be gone.

Of course and as usual, there are winners and losers by changes in legislation. Winners are likely to lower earners and some have indicated females who opted out of the State Pension many years ago. Losers are likely to be higher earners or medium earners who did not contract-out of SERP's (option started in 1988 and stopped around 2 years ago).

Summary

It is suggested that the other 'winner' in these proposals will be the Government, with an overall reduction in long term costs. We are all living longer and, understandably, this places greater burden on the pension system, whether that be the State system or private sector schemes. Clearly, planning for your future retirement will become ever more important to secure future benefits.

No individual advice has been provided during the course of this blog. Pension and retirement planning should be planned for carefully and if you would like to receive individual advice on this subject, then please contact the team at Chapters Financial Limited on 01483 578800

Keith G Churchouse FPFS
Director, ISO22222 Certified Financial Planner
Chapters Financial Limited, Guildford, Surrey
Chapters Financial Limited is authorised and regulated by the Financial Services Authority, number 402899.