Every road through life is a long long road, filled with joys and sorrows too. As you journey on how your heart will yearn for the things most dear to you. With wealth and love ’tis so, but onward we must go….

You may well recognise these words as the opening lines to one of Sir Harry Lauder’s most favourite and famous songs, or possibly more so as a tune used by Birmingham City as their club anthem.

As a fan since birth, rather than dwell on the sorrows of relegation, i’ll remember this season for the joys of the Cup victory against Arsenal.

We all experience life’s ups and downs as we journey through life and anybody watching the premiership relegation battle ebb and flo, be they a fan of one of the five involved or a neutral, will have gone through many emotion.

I guess the challenge for many is how best to deal and manage with these up and downs throughout life, and this can be both when fantastic results are achieved or when things go horribly wrong.

As financial planners we are asked to help solve problems that are faced at both ends of the spectrum on a regular basis and whilst the starting point for our involvement tends to financial, this is so much intertwined with our clients life plans and objectives that neither can be solved in isolation of the other.

Financial planning is a journey, it’s an ongoing and continuous process through life that can help you keep right on, so the things that your heart yearns for and the things that are most dear to you can be fulfilled.

So, whether you experience joys or sorrows – do remember to keep right on with your financial planning !

It’s not often that we see successful comebacks, just think back to Ali, Borg & Tyson – all had great careers first time round – yet failed to repeat their achievements when they returned from the wilderness to try again. 

Since April, the annual allowance for pension contributions has been cut drastically and is now set at £50000, and to compensate the Government has brought back into play an old favourite of mine, that being, the ability to carry forward unused tax allowances from previous years.

With the new £50,000 a year limit applying to all registered pension schemes of which an individual is a member, and includes all contributions and benefit accrual made by the individual, their employer or by a third party on their behalf, the comeback of carry forward offers pension savers a way of investing more in one year that the £50000 limit, by using unused tax allowances from the three previous tax years. Briefly:

• The unused annual allowances from 2008/09, 2009/10 and 2010/11 is based on a notional annual allowance of £50,000.
• You must use up the annual allowance in the current year first, then go back to the earliest of the three carry forward years available.
• You must have been in a pension arrangement in an earlier year to have unused annual allowance to carry forward from it, although you don’t have to have contributed to that pension arrangement.

Thinking of who may benefit most, i’ve put together a list that is by no means exhaustive:

• High income individuals who have had contributions restricted in previous years under the old anti-forestalling provisions
• People approaching retirement, who are looking to boost their retirement fund
• Business owners who have enjoyed a successful trading period and have evidenced an increase in profits
• Individuals who have received a recent windfall or inheritance
• Company directors looking at ways to reduce the company’s corporation tax bill

Over the coming days and weeks there will be plenty of information/analysis issued from various sources relating to today’s Budget. However, for those of you who want a very quick overview of the main points we have produced this Budget Special:

Pre-announced changes that come into force on 6th April:

• Personal Allowance for under-65s to rise from £6,475 to £7,475.

• Higher rate threshold to fall from £43,875 to £42,475. (Which will affect an estimated 750,000 workers.)

• Individual Savings Account maximum investment to increase to £10,680 of which cash can be up to £5,340.

• Employer’s and employee’s National Insurance rates will be increased by 1%. This means that the employee’s NIC rate will be 12% above the Primary Threshold up to the upper earnings limit (UEL) and 2% thereafter. The employer’s NIC rate will be increased to 13.8% on all earnings above the secondary threshold. A similar increase will apply to class 4 NIC rates for the self-employed.

• The annual allowance for pension contributions with tax relief will be reduced from £255,000 to £50,000.

• Property costing more than £1m will attract a new 5% rate of stamp duty. (A twenty five per cent increase for houses of this value.)

• The threshold for the family element (£545) of the child tax credit will drop from £50,000 to £40,000. The baby element, worth another £545 to families with a new child will be abolished.

• All benefits, tax credits and public service pensions will be up-rated in line with the CPI (Consumer Prices Index) rather than the RPI (Retail Prices Index).

• Child benefit is frozen until 2014. Payment is £20.30 for a first or only child and £13.40 for each additional child – payment is tax free. (The Government has proposed that from January 2013 the benefit will be lost for families where there is a higher rate taxpayer.)

• Inheritance Tax – The nil rate band (NRB) is frozen at the amount introduced in 2009/10, £325,000 until April 2015.

• Capital Gains Tax – The annual exempt amount for capital gains tax will increase in line with statutory indexation to £10,600, with effect from 6 April 2011.

• Alcohol Duty Rates – As first announced at Budget 2008, alcohol duty rates will increase by 2 per cent above the RPI on 28 March 2011. This will add 4 pence to the price of a pint of beer, 15 pence to the price of a bottle of wine, and 54 pence to the price of a bottle of spirits.

Go to: http://www.hm-treasury.gov.uk/d/rates_thresholds_tables.pdf

New Announcements:

• Increase the personal allowance for under 65s by £630 to £8,105 in April 2012, with an equivalent £630 reduction in the basic rate limit taking it to £34,370 to leave the higher rate threshold unchanged at £42,475. (The Chancellor stated that the personal allowance will increase from 2013-14 by at least the equivalent of the RPI, until the Coalition Government’s goal of increasing the personal allowance to £10,000 is achieved.)

• Cut in Corporation Tax – From April 2011 the main rate of corporation tax will be cut from 28 to 26 per cent, falling to 23 per cent by 2014, with an increase in the bank levy from January 2012 to offset the benefit to banks.

• The Chancellor announced that the 50% top rate of tax is only temporary. Osborne said that now would not be the right time to remove the 50 per cent tax rate, but it is “sensible to see how much revenue it actually raises.” The Chancellor has therefore asked HM Revenue & Customs to review the revenues raised from the top rate of income tax on the basis of self-assessment forms returned to HMRC.

• Entrepreneur’s Relief – From 6 April 2011 the Government will increase to £10m the lifetime limit on capital gains qualifying for entrepreneurs’ relief.

• The economy is forecast to grow by 1.7 per cent in 2011, lower than forecast in the June Budget. According to the Chancellor this mainly reflects higher-than-expected inflation this year, as a result of recent global commodity price shocks, and the weak weather-affected final quarter of 2010.) GDP growth is then forecast to strengthen, with growth peaking at 2.9 per cent in 2013.

• The Government reaffirmed the inflation target of 2 per cent for the 12-month increase in the Consumer Prices Index (CPI).

• Responding to the work of the Office of Tax Simplification (OTS), the Chancellor has abolished 43 tax reliefs including tax exemption on the first £70 of interest from National Savings Ordinary Accounts and 15p a day Luncheon Vouchers scheme. – A full list of tax reliefs abolished is on pages 66 to 68 of the “Red Book” – see link at end of this e-mail.

• The Chancellor confirmed that the Government will consult this year on the options, stages and timing for integrating the operation of income tax and National Insurance Contributions (NICs). Any new system will maintain the contributory principle and the Government will reflect this in any changes it brings forward. In addition, the Chancellor confirmed that the Government will not extend NICs to individuals above State Pension Age or to other forms of income such as pensions, savings and dividends.

• The Department of Work and Pensions (DWP) will shortly publish a Green Paper to consult on options for reform, which will include a proposal for a single tier pension, currently estimated to be worth around £140 a week.

• The Government has already decided to bring forward the increase in State Pension Age to 66 to April 2020. Given the continuing increases in life expectancy the Chancellor confirmed that the Government will bring forward proposals to manage future changes in the State Pension Age more automatically, including the option of a regular independent review of longevity changes (no specific details regarding this were provided).

• The Government has established a commission, chaired by Andrew Dilnot, to make recommendations by July for a sustainable social care system, and the Chancellor confirmed that the Government will set out its plans for reform in due course.

• Residence – The Chancellor announced that the current rules that determine tax residence for individuals are unclear and complex. The Government will therefore consult in June on the introduction of a statutory definition of residence to provide greater certainty for taxpayers.

• Approved Mileage Allowance Payments (AMAPs) – From 6 April 2011, the AMAPs rates will rise to 45 pence per mile for the first 10,000 miles and 25 pence per mile thereafter. In addition to claiming AMAPs rates, an allowance for passenger payments currently in place for business employees, at 5 pence per passenger per mile, will be extended to volunteers.

EIS and VCT Schemes

The Chancellor announced that to encourage investment in businesses with high growth potential, the Government will reform the rules for EIS and VCT, raising the rate of EIS income tax relief to 30 per cent from April 2011. From April 2012 the Government will increase the annual EIS investment limit for individuals to £1 million, increase the qualifying company limits to 250 employees and gross assets of £15 million (EIS and VCT), and increase the annual investment limit for qualifying companies to £10 million (EIS and VCT). The Government will consult on options to provide further support for seed investment, simplification of the EIS rules by removing some restrictions on qualifying shares and types of investor and refocusing both EIS and VCTs to ensure they are targeted at genuine risk capital investments.

Junior ISAs

The Government announced in October 2010 that it will introduce new tax-advantaged accounts for saving for children, called Junior ISAs. All UK resident children aged under 18 who do not have a Child Trust Fund will be eligible for Junior ISAs, and the accounts are expected to be available from autumn 2011. The Chancellor announced that draft regulations setting out further detail will be published in the week commencing 28 March 2011, alongside the introduction of Finance Bill 2011.

Non Domiciled Individuals

The Chancellor announced an increase in the existing £30,000 annual charge to £50,000 for non-domiciled individuals who have been UK resident for twelve or more years and who wish to retain access to the remittance basis of taxation. The £30,000 charge will be retained for those who have been resident for at least seven years but less than twelve years. The tax charge will be removed when non-domiciled individuals remit foreign income or capital gains to the UK for the purpose of commercial investment in UK businesses. The Chancellor confirmed that the Government intends to implement the reforms to non-domicile taxation and the statutory definition of residence from April 2012 and there will be no other substantive changes to these rules for the remainder of this Parliament.

Charitable Giving

The Chancellor announced that the Government will encourage giving by the wealthiest by reducing the rate of inheritance tax by 10 per cent for those estates leaving 10 per cent or more to charity, from a rate of 40 per cent to 36 per cent. This will reduce the cost of giving to charity through bequests. The Red Book says that the relief is designed so that the benefit of the tax saving is reflected in the bequests received by charities and not in payments to other beneficiaries. (The new rate will apply where death occurs on or after 6 April 2012. Budget documentation confirms that the Government will be consulting on the detailed implementation of this measure and will issue a consultation document before the summer.) The Government will also increase the Gift Aid benefit limit from £500 to £2,500 from April 2011 to enable charities to give ‘thank you’ gifts, to recognise the generosity of significant donors; and will consult on proposals to encourage donations of pre-eminent works of art or historical objects to the nation in return for a tax reduction. The Government will reduce bureaucracy for charities through the introduction of a new system of online filing which will bring Gift Aid into the 21st century and introduce a Gift Aid small donations scheme. This will allow charities to claim Gift Aid on up to £5,000 of small donations per year without the need for Gift Aid declarations. Finally the Government will also explore how to increase the take up of Payroll Giving, which allows individuals to give through their pay and reduce their income tax bills.

Full details of the Budget – “The Red Book”:

Available at:  http://cdn.hm-treasury.gov.uk/2011budget_complete.pdf

Yesterday the European Court of Justice (ECJ) ruled that insurance  companies can no longer take  into account someone’s sex when calculating annuity rates and insurance  premiums.

The big headlines in the media have largely revolved around car insurance and the impact upon young drivers. Certainly, we will see big changes here with younger females being the group to be hardest hit. But, the long term implications for personal financial planning will be far more widespread with particular impact upon pension planning and life assurance, critical illness and medical insurance.

Pensions:

As things stand, on a like for like basis, men can buy and secure a higher income at retirement than women, because their expected longevity is lower, so their pension savings can produce more income over a shorter period.

But when gender is no longer taken into account, and unisex rates are applied this will be bad news for men, and equally for women who rely upon their partners pension fund for the major proportion of household income in retirement – which remains the case for the majority.

Where a man looks to purchase an annuity – a guaranteed income for life – with his pension fund, predictions indicate a drop in annuity income of somewhere around 5%, logically, putting them closer to the current female rates. Based on current annuity rates, that would suggest a 65-year-old man, who is a non smoker and in good health, with a £100,000 pension fund being worse of by approximately £325 per annum, or £8125 if he were to live to the age of 90.

Now we have this ruling, the Government Actuary Department (GAD) can move ahead and review the rates that determine the level of income an individual can drawdown from their pension fund, should they decide an annuity is not for them. The maximum income that can be taken when in pension drawdown is set to fall anyway with this ruling adding to the drop expected.

Life Assurance:

Gender is an important factor in setting premiums for life assurance – and also critical illness and medical insurance – with premiums, all other things being equal, being cheaper for females than males. So, protection premiums for females are going to rise and  they will fall for men, with the Association of British Insurers predicting a 20% rise for women and a 10% fall for men.

I’ve seen comments like “bonkers” “madness” and “seismic” used to express feelings about this ruling and yes it does seem to defy the law of common sense, but moreover, where is it leading and where will it end. If insurers and annuity providers cannot differentiate on the grounds of sex, how long will it be before there is a prohibition on using age to set annuity income or life assurance premiums, will a smoker be able to secure the same terms as non smoker or will someone with limited life expectancy be able to get protection on the same terms as a fit and healthy individual…

The fact is we are seeing yet more change and it will prove even more crucial for people to shop around and find the best solution for them and their particular situation.

The prohibition is effective from the 21st December 2012. Here is a handy summary of the judgement should you wish to read it.

Yet again, we are experiencing changing pension legislation and whilst, much of it is for the better, some changes may adversely affect you. In particular, it is our view that the changes coming in, in April could disadvantage you, if:

• You are likely to want access to some or all of your pension fund within the next five years, and
• When you do so you do not buy an annuity, and
• You have need to draw upon the maximum income available or close it

Let me summarise some of the key points that relate to income drawdown and the changes that are taking place.

GAD Rates are those used to determine how much income you can purchase with your pension fund. As an example the rate for a 60 year old male is presently around £60 per £1000 of fund and for a 60 year old female is around £63 per £1000 of fund.

Not only is the maximum income amount of 120% of GAD falling after April, but GAD rates are set to fall also.

Crystallising all or part of your pension fund now triggers a “lock” into the 120% maximum amount, even if you do not need the maximum income now – it is giving you an option to do so in the next 5 years.

Crystallisation means drawing upon all or part of your pension fund. This could be to access the tax free lump sum and draw an income or just the tax free lump sum.

The dilemma is what to do with the funds you draw, be it tax free cash sum or income, at a time when they may not be needed from the plan.

Possible solutions could be to re-invest the tax free lump into ISA’s, both before the end of this tax year and immediately at the start of the next one, and recycle the income back into your pension account. Both will be tax neutral.

The main drawback as we see it, with this strategy is the higher tax charge in the event of death if the lump sum death benefit is taken.

If you have an account with a bank or building society and it becomes insolvent do you know if you will be covered under the terms of the financial services compensation scheme (fscs) ?

The fscs covers banks and building societies that are authorised by the Financial Services Authority (FSA). The FSA regularly update the list of authorised firms and the most recent can be found here. If a bank you have an account with is not on the list it may be because it falls under a group authorisation.

The fscs will pay compensation up to a limit of £85000 for sole accounts and up to £170000 for a joint account. This is generally well known by savers, but what can catch savers out, however, is that these limits apply to all accounts held with institutions who operate under the same banking licence.

For example, Bank of Scotland, Halifax, Birmingham Midshires, Intelligent Finance, SAGA and The AA all operate under the same banking licence, as do Nationwide, Derbyshire, Dunfermline & Cheshire Building Societies.

You can find out if the institutions you have your savings with are considered part of the same bank for compensation purposes here

A report by consumer group Which? provides a stark warning for investors about the level of risk attaching to cautious managed funds.

This report comes hot on the heels of the FSA’s £7.7m fine on Barclay’s for inappropriate sale of risky funds, one of which was in the cautious managed sector.

The Investment Management Association (IMA) categorise funds into sectors. Their definition of the cautious managed sector is one that contains funds investing in a range of assets with the maximum equity exposure restricted to 60% of the fund and with at least 30% invested in fixed interest and cash.  There is no specific requirement to hold a minimum % of non UK equity within the equity limits. Assets must be at least 50% in Sterling/Euro and equities are deemed to include convertibles. It is noted that the IMA are in consultation on renaming some of it’s sector names at present.

According to Oxford Dictionaries a cautious person is one who is careful to avoid potential problems or dangers. In my opinion, this is very much at odds with the make up a typical cautious managed fund, with this being borne out by the findings of Which? as their survey of investors in cautious managed funds found most were happy to accept lower returns for reduced risk.

The Which? survey highlighted that the level of equity investment in the average cautious managed fund was relatively high at 42%, with 1/3  of cautious managed funds being more than 50% invested in stocks and shares.

Despite its supposedly lower-risk profile, the cautious managed sector has a history of volatility. The average fund in the sector fell by more than 18 per cent between 2007 and 2008, and in the past decade the sector has underperformed less risky investment sectors, such as gilt and corporate bond funds.

The IFS approach to fund recommendations and portfolio construction always start with assessing risk and to ensure consistency we follow the same process with all clients, this way we can be assured of outcomes that lead to clients with similar views on investing money having portfolios of a comparable investment risk.

Having established a client’s acceptance of risk and determined a personal risk score, our next step is to design a risk graded portfolio that blends and allocates the money available for investment across all major asset classes so it sits on the efficient frontier for the level of risk a client wishes to take.

We tend to avoid terms like cautious when discussing risk, as one’s persons view of what is cautious can be very different to another’s, and instead, focus on a scoring system which, from experience to date, offers far more clarity and delivers portfolios and results than reflect an investors risk tolerance.

Are you a company director?

Do you have life insurance in place to protect your family?

If so you could be paying an unnecessary tax penalty. If you pay for this cover from your own bank account you will be paying from after tax income, and if you are paying from the business account you will probably be taxed on the payment as if it were income.

Recent changes in legislation now allow small companies to benefit from an arrangement that only used to be available to large companies.  They can do this by taking out ‘relevant life policies’.  These policies are particularly suitable for small businesses that do not have enough eligible employees to warrant a group life scheme. They can be written on an individual basis so are available to all companies no matter how small.

The tax benefits are:

• Payments are made by the company with no benefit-in-kind charge back
• No National Insurance implications
• Possible tax relief as a business expense
• Tax-free benefits to dependants in the event of a claim

Additionally, these policies can be particularly appealing to high-earning employees who have substantial pension funds and do not want their death in service benefits to form part of their lifetime allowance.

A “relevant life policy” is defined in subsection 393B(4) of the Income Tax (Earnings and Pensions) Act 2003.

So for anyone who can get the premium paid for by the Company (i.e. owner/directors) there is a possible and significant saving.

The only small problem is that only a couple of life companies offer policies through this legislation. However, these are companies with generally competitive premiums so the cost saving can still be there and significant.

The number crunching makes it absolutely clear that the sooner anyone can get money into a pension, the better. However younger people (i.e. those aged 40 or less) seem to have little interest in retirement planning but perhaps moreover they may have limited funds to put towards this anyway.

Parents or Grandparents on the other hand are normally more appreciative of the need to save, to save early and with decent amounts. Statistics from the major pension providers show that pension contributions made on behalf of younger people by their parents or grandparents is negligible; the idea simply has not caught on. Yet any comparison of the figures shows the game changing nature of a sizable pension contribution made at a young age.

Look at a 21 year old who pays £10,000 per year into a pension for 4 years. This has the same buying power at age 65 as a 43 year old paying the same amount per year into a pension for the rest of their working life (to age 65).

So the 21 year old who makes this level of contribution no longer has to contemplate 22 years of saving at age 43 and beyond, unless of course they wish to boost the figures further.

The point is £40,000 paid early has the power of over £200,000 paid much later. There is any number of variations on this theme, where much smaller/shorter periods of contribution paid early have a dramatic effect.

However few 21 year olds have this buying power – but parents/grand-parents may  have:

If a parent or grandparent gifts money – conditional on it being invested into a pension fund – potentially this takes it outside of the parents / grandparents Estate, as it will be treated as either a Chargeable Lifetime Transfer, a Potentially Exempt Transfer or maybe even as an exempt gift, especially if it is paid out of normal expenditure.

Thus the opportunity exists for the parent / grandparent  to reduce the inheritance tax liability on their Estate.

The payment of pension contributions on behalf of the child / grandchild secures them an income in retirement in a very cost effective manner.

Of course the sums may not provide for a full retirement income, but it will make a sizable hole in the gap and get them on their way.

The Government is bringing in new laws from 2012 that will have a significant impact on every employer in the UK.

Pension reform

There will be more pensioners in the future and those pensioners will live longer. This will put a massive strain on the State pension system. To alleviate this burden, the Pensions Acts 2007 and 2008 make changes to the Basic State Pension, the State Second Pension and introduced new employer duties for pensions.

The employer duties

From October 2012, employers will be required by law to:

• automatically enrol all their eligible employees not already in a good quality pension scheme into a Qualifying Workplace Pension Scheme (QWPS) on the day the employee becomes eligible, and
• pay contributions for every employee who does not opt-out of the QWPS.

Key facts

The framework for these new laws is already in place in the shape of the Pensions Act 2008.

• Employers will, for the first time, be required to automatically enrol eligible employees into a pension scheme.
• Employers will, for the first time, be required to pay pension contributions for any employees who join and stay in the pension scheme.
• The Pensions Regulator will police and enforce these new laws.
• Even if you have an existing workplace pension scheme, you may have to make changes so that it complies with the new laws.
• Employers can either use their own pension scheme to comply with these new laws or rely on a Government built scheme – the National Employment Savings Trust (NEST) scheme.

Timetable

The employer duties will be staged in over 4 years from 2012. Larger employers will have their duties imposed first, smaller employers last. Any employer with less than 50 employees will have their staging date set depending on the last two digits of their PAYE reference number.

The costs

The amount of contributions that must be paid in order for a scheme to be treated as a QWPS is being phased in as follows:

The contributions will be based on a percentage of band earnings between £5,035 and £33,540 (qualifying earnings) at 2006/2007 levels. These amounts will be increased in line with earnings to 2012 and beyond.

* The minimum difference includes tax relief available on employee contributions.

Quality Qualifying Workplace Pension Scheme (QQWPS)

Employers can avoid much of the administration burden associated with automatic enrolment by setting up a QQWPS where:

• the total minimum contribution is 11% of qualifying earnings, of which
• at least 6% must come from the employer,
• there is no option to phase in contributions, and
• automatic enrolment dates can be postponed up to 90 days allowing a ‘sweep up’ of eligible employees all at once at the employer’s convenience.

Eligible employees:

All employees will have to be auto-enrolled unless:

• they are already in a qualifying workplace pension scheme,
• they are under the age of 22,
• they are over the State Pension Age, or
• they earn less than £7,475 a year (in 2006/2007 terms).

Employees can only ‘opt-out’ once they have been auto-enrolled. Non-eligible employees must be given the option of opting in to pension saving.

Responsibilities

Auto-enrolment is the responsibility of the employer, not the Government or the pensions industry. The Pensions Regulator will oversee employer compliance and has the power to fine employers for non-compliance.

Employers MUST:

Auto enrol and re-enrol/deduct payments, Register/re-register their scheme, Provide information to eligible and non-eligible jobholders, Provide information to scheme/provider, Process opt outs/make refunds and Keep records

Employers MUST NOT:

Offer advice, Discourage membership, Give jobholders the opt-out form, Encourage opt-outs or Use ‘Prohibited recruitment conduct’

The Penalties:

Stage 1 – Warning:                                   Compliance/unpaid contribution notice

Stage 2 – ‘Wake up call’:                           Fixed penalty – £400

Stage 3 – Persistent offenders:                Escalating penalty with a maximum of £5000 each day

DOING NOTHING IS NOT AN OPTION………..

The Pensions Act 2008, Section 45(2)

“A person guilty of an offence under this section is liable:-

a) on conviction on indictment, to imprisonment for a term not exceeding two years, or to a fine, or both;

b) on summary conviction to a fine not exceeding statutory maximum.”