Recommended Read: “The 7 Secrets of Money”. Simon Brown co-authors book
BpH Wealth Partner, Simon Brown has collaborated with three other finance professionals; Ben Sherwood, Richard Stott and Bruce Wilson, to publish a book that provides a clear path to build your investments and meet your life goals.
The book has already received some wonderful reviews from other well respected members of the financial planning and investment community.
“An essential read for anyone investing for their future or considering doing so. It provides a simple, yet powerful, framework for making better investment decisions, avoiding the common mistakes that investors make, simplifying what needs to be done in practice.”
Tim Hale, Smarter Investing
“Reading The 7 Secrets of Money, one realizes there is a science and a logic to investing. Relief, trust and exhilaration replace confusion, lethargy and distrust.”
George Kinder www.kinderinstitute.com
See the 7 Secrets of money website or apply for your free copy by emailing us at ku.oc.htlaewhpbnull@ecnalab or calling us at BpH Wealth 01582 461122
Partner, Adam Bell, prepares for cycling challenge. Durness to Dover, 800 miles in 8 days
On 18 June 2011, BpH Wealth Partner, Adam Bell and his good friend, Mike Smith, will be embarking on a great cycling challenge. This is to mark Mike’s 40th birthday (Adam already being a few years past that), and to raise money for the East of England Air Ambulance charity.
The departure point is Durness, the most north westerly populated point on the UK mainland. The arrival point is Dover, 821 miles and 8 days later. The total amount of climbing is 35,000 feet, taller than Mount Everest.
Check it out and please sponsor Adam and Mike if you feel able.
Tax year changes + proposed alterations
ISA limits
On 6 April these increased to £10,680 and up to £5,340 can be in a cash ISA.
Financial Services Compensation Scheme (FSCS)
From 1st January 2011, in respect of savings in a UK bank or building society, the compensation limit increased from £50,000 to £85,000 meaning that if the savings institution were unable to repay funds due to fraud or liquidation, you would be compensated by the FSCS.
For joint accounts, the limit is £85,000 per person. Please bear in mind that the limit is based on FSA licences, and some banking groups may own a wide range of individual companies which may use just 1 banking licence, and so even though accounts might be spread across different companies, just 1 limit of £85,000 could apply. If you wanted to find out if a subsidiary holds its own licence, you can find out from the Financial Services Authority Consumer Contact Centre on 0845 606 1234 or speak to your BpH adviser on 01582 461122.
Early access to Pensions Savings
On 13 December 2010 HM Treasury launched a consultation on whether allowing access to pension savings before normal pension age might encourage more pension saving, as they are concerned that with increased longevity, people are not saving enough. Recent surveys carried out have indicated that people might be inclined to save more for retirement, if there was the possibility of being allowed access to the funds earlier for specific reasons. They have put forward 4 possible routes:
Option 1 – Loan
Savers are able to borrow a lump sum from their pension plan, with a requirement to repay with interest. This would be potentially easier and cheaper than a bank loan due to the lack of security requirements and lower interest rates. This model is currently used in the United States.
Option 2 – Permanent withdrawal
Savers are able to withdraw a lump sum without any obligation to repay it. This will almost certainly be limited to cases of financial hardship. This model is currently used in New Zealand.
Option 3 – Access to standard tax free cash sum only
Savers are able to withdraw a lump sum up to the value of 25% of the fund. There is no requirement to repay however further lump sums will not be possible without further saving.
Option 4 – Feeder-fund
This model offers a combination of ISA (or other savings vehicle) and pensions within a single product wrapper. Contributions up to a pre-determined level would be placed in the ISA fund. Once the level of the ISA savings reaches the trigger point, contributions would then be switched into the pension fund.
The Government intends to confirm later on this year whether or not it will proceed with allowing any form of early access to pension funds.
Changes to maximum pension contributions
Yet again, the rules on the maximum amounts that can be paid into a pension scheme have been altered.
This follows on from the 2009 clampdown on contributions allowed to be paid by anyone earning £130,000 or more which meant anyone in that situation could only pay £20,000 or possibly a maximum £30,000 pa paid as a pension premium, whilst someone on £129,999 could in theory have £255,000 paid in for them.
From 6 April 2011, the rules will alter so that there will be a flat annual allowance of £50,000 for everyone, with scope for carrying forward a notional unused allowance from 6 April 2008.
However, there is still the likelihood that high earners will only receive basic rate tax relief and a consultation document from the Treasury has indicated that individuals will also have to pay a personal tax charge based on any excessive employer contributions.
The small print won’t be known until closer to the start of the new tax year.
Alterations to income draw down
Since its introduction in 1995, income draw down has provided considerable flexibility for anyone who didn’t want to lock in their fund and purchase an annuity.
Under current rules, once you’ve taken any tax free cash, the fund can remain invested, and you are allowed to take out a variable amount of income which can be up to 120% of a fixed limit roughly equivalent to the maximum amount an annuity would pay (based on a table produced by the Government’s Actuary Department, referred to as the GAD limit), with a lower limit of nothing.
At the moment, at age 75, the rules force you to either purchase an annuity or go into a form of capped draw down whereby the income must be between 55% and 90% of the GAD limit. From last year, the age 75 limit was temporarily raised to 77, and now from 6 April 2011 that age limit is going completely, along with other important changes.
This now means that no-one will be forced to take any form of pension savings at any age – they can continue to defer them indefinitely if they want to/can afford to, or they can use the new rates applicable for income draw down.
In the majority of cases the maximum income will now be limited to 100% of the GAD limit, which is less than currently, although the same nil lower amount still applies, which clearly is an improvement for those over 75. The limits must be recalculated every 3 years up to age 75 and then annually thereafter.
The current rules are for a 5 yearly calculation, meaning that anyone taking maximum benefits could see a reduction in their income at the next review date after 6 April 2011.
For anyone who has sufficient other pension income to meet a minimum income requirement of at least £20,000 per annum including State benefits, then under a new arrangement called flexible draw down, they will be allowed to take out higher levels of income, up to the full value of the fund which could be withdrawn in one go if desired.
The standard 25% of the fund can be taken as tax free cash, with the balance subject to normal rates of income tax.
Anyone who takes advantage of this will not be allowed to pay any new pension contributions or else they will be subject to further tax charges. In addition, if someone is non UK resident and moves back to the UK within 5 years of taking any amounts under flexible draw down, they will also be subject to further tax.
However, clearly for anyone who has sufficient income to meet the required levels, the ability to surrender potentially the full fund is a very considerable benefit.
Other changes taking place from 6 April 2011 include what gets paid out after death.
The new position is that upon death at any time, the unused fund can be paid out subject to a 55% tax charge, compared with 35% that applies if death occurs before 6 April 2011 if the person is aged under 75. Whilst this is worse for anyone under 75, this is an improvement for the above 75’s as currently no lump sum can be paid.
However, it should be borne in mind that currently if someone decides to reduce or not to take any benefits specifically after being diagnosed with a terminal illness, in theory HMRC may make a claim for Inheritance Tax from any funds remaining in draw down for anyone who has not left the funds to a surviving spouse, partner or financial dependent. This is on the grounds that the person has deliberately reduced the value of their Estate by not taking income. However, the Government has indicated that this is an area they will look at in the future, in order not to penalise people.
Clamp down on tax avoidance schemes
At the beginning of the year, the Office of Tax Simplification published a list of 1,042 tax reliefs that were going to be reviewed in the “interests of simplification”. 74 of these are being looked at in depth now, with a further 75 at a later stage, whilst the other 893 are unlikely to be reviewed.
The 74 key reliefs consist of EIS, VCT and film tax reliefs, CGT on private residences, various aspects of life assurance taxation, some parts of Inheritance tax and a whole variety of obscure reliefs.
One of their key criteria is reviewing reliefs which benefit a small number of taxpayers but which may create distortions in the tax system, or which are complex to operate. They’ve said the cost of the tax avoided by the reliefs won’t be the key driver. Bearing in mind the state of the Government finances, this aspect may not necessarily be the case!
Retirement changes
Currently, employers have the right to terminate an individual’s employment for reason of retirement at the age of 65 (or the company’s normal retirement age, whichever is the later) without paying any compensation to them.
This is subject to the employer following a specific process, which includes consulting with the employee in relation to their continued employment. Whilst the employee has a right to request that they work beyond the age of 65 as part of this process, there is no obligation for the employer to allow this.
The Government has confirmed that between 6 April 2011 and 1 October 2011 it will be phasing out the compulsory retirement age, meaning that forcing someone to retire at any age if they want to carry on working will be age discrimination and not allowed unless the employer can prove there are particular circumstances that can be justified.
The ages at which State Pensions commence are also altering.
Under the previous Government, the intention was that State Pension Age would be equalised at 65 with women’s State Pension Age gradually increasing over 10 years from 6 April 2010, and then for both men and women, the Pension Age would rise in stages from 2026 to age 66, then 67 by 6 April 2036 and 68 by 6 April 2046.
However, the Coalition are bringing the changes forward and so State Pension will now be equalised at 65 for men & women from November 2018, and then increased to age 66 from 6 April 2020. They haven’t yet published plans yet for bringing forward the changes to 67, 68 or later, but have confirmed it is being looked into.
The biggest losers are women born around 1954. A woman born on 5 April 1953 will still be able to claim her state pension when she is just 62 years, 11 months and one day old. A woman born a year and a day later will have to wait until she is 66.
Bringing forward the change to age 66 by 6 years means that people will have less time to make allowances for the delay in drawing a State pension.
For anyone who hasn’t retired and is not certain how much State pension they will get, perhaps due to a gap in the record for paying National Insurance, a BR19 form is available from us, to enable you to get confirmation from the DWP of the amount of your pension.
One of the steps available for anyone under retirement age to make up any shortfall, as well as obviously paying more towards any private pension provision, is to make voluntary Class 3 NI contributions.
Budget, 23 March 2011
Although some of the changes which take effect from 6 April are already known such as the increases in many benefits, it is usually the case that there will be some alterations which aren’t included in the Chancellor’s speech, but are published afterwards.
If there any aspects which have an effect for our clients, we will of course let you know.
Exam success – BpH staff pass with flying colours
We’ve been busy studying for industry qualifications over the last few weeks, months and years. Here is how we have done:
For Partner, Michael Freedman
A Fellowship. Michael is now Chartered Financial Planner, FPFS, which stands for Fellow of the Personal Finance Society.
This is the highest level of qualification in financial planning obtainable from the Chartered Insurance Institute.
For Partner, Simon Brown
Certified Financial Planner (CFP), which is an internationally recognised qualification through the Institute of Financial Planning. Simon has also qualified as a Certified Wealth Mentor, the first in the UK.
For Partner, Adam Bell
R06 Financial Planning Practice. This is a holistic type exam requiring advisers to demonstrate their overall capabilities by testing them on a wide range of financial issues.
For Client Service Assistant, Elspeth Bedford
Certificate in Financial Planning – Investment and Risk Module
For Client Service Assistant, Debbie Lake
Certificate in Financial Planning – Investment and Risk Module
Well done everyone!
Our article in “Hertfordshire Life”: Creating a balance between life and money
Simon Brown, lifestyle financial planning specialist and Partner at BpH Wealth Management LLP in Harpenden, tells us some truths about money, and gives us some tips to improve our financial health
Conventional financial advice has served us badly. Too many people’s hopes are being dashed when they discover their pensions and savings have not grown enough to help them maintain their desired lifestyles in retirement, let alone retire as early as they had hoped.
Most people don’t know that their investment pots have been eroded by hidden costs paid to financial product providers in yearly fees and commission. Most people don’t know that you can’t beat the stock market. That following hot tips picked up from the financial pages will get you precisely nowhere. They may perform in the short term but not consistently over time. Over five decades of academic research demonstrates this.
So what do we do? How can we all ensure we have enough money?
We focus all our energy on the things that we can control rather than on the things that we can’t.
These are things like earnings, assets, savings, costs, spending and taxes.
The starting point, however, shouldn’t be the money. Before money has meaning, it’s essential to look at what you need and want it for. To ask yourself some searching questions about what you want from life. What would you be doing right now if you had the choice? What do you like? What do you dislike?
These questions can be incredibly hard to answer but once you’ve taken time to think about them and to plot some achievement milestones, you can start to work out how much money you will actually need to achieve your goals.
The next step is a detailed look at your income and expenditure both now and going forward. This is where you condense all your vital financial information into one place. This includes income, all your outgoings, assets, debt and likely events that will affect your position.
Having a real picture of your lifetime cash flow gives you the ultimate reality check. It removes the guesswork and allows you to make informed decisions. Sometimes life changing ones. It tells you how much you need to earn or save. For one client it told us how much he needed to sell his business for. For another it meant giving up work far earlier than she had ever anticipated.
By having an idea of your life goals and the various pieces of your financial jigsaw in one place, it gives you what you need to do some relevant and robust financial and investment planning.
The whole issue of money is a complicated one but if you break it down into some simple elements such as wants, needs and how best to fund them, you will feel more in control and hopefully happier and healthier as a result.