Crown Wealth

RDR explained, important changes you need to be aware of when in relation to financial advice

2012-05-15T09:10:00.000+01:00

The Financial Services Authority (FSA) is working with firms, advisers, consumer groups and industry experts to improve investment advice. Through a process known as the Retail Distribution Review (RDR), the FSA is modernising the way recommendations about investment products such as ISAs and pensions are made to investors.
These changes will ensure:

Advisory firms and advisers tell you how much their services cost and agree with you how much you will pay.
Advisers who offer you independent advice must consider all relevant options for you and do so free from any restrictions (such as working with only a select group of product providers) or bias (such as being paid by commission). This makes sure that the advice offered to you is truly independent and, if it is not, the adviser must clearly explain to you why not.
You will receive advice from competent, trained professionals who subscribe to a code of ethics ensuring they act with integrity and treat their customers fairly.

What changes come into effect on 31 December 2012?
From 31 December 2012, advisers (excluding those who recommend securities and derivatives) will have two choices. Either they offer totally unrestricted independent advice (Independent Financial Advisers) from across the market, or restricted advice (Restricted advisers – tied to one or more products). Where they offer restricted advice, they will have to explain to you what the nature of the restriction is.
Every adviser (including those who recommend securities and derivatives) will have to meet new consistent professional standards. An overarching code of ethics for investment advisers will be introduced, ensuring they act with integrity clients are treated fairly. The level of qualifications advisers must have has been modernised and raised, and systems are in place to improve how they keep their knowledge up to date.
The aim is to ensure that you can have greater confidence in the advice you are being given. Your adviser will be able to consider a broader range of products, or clearly state which products they can advise on. Their advice will be free from bias towards any one product provider because of how much that provider pays them in commission. In addition, you will know how much the advice is costing you, and the advice will be from an individual with a higher level of technical expertise due to the new professional standards advisers must meet.
Investment advice has never been free. The price you currently pay for advice is often hidden within the charges of the product you buy and that price is currently set by the product provider, not you, the customer. These changes are not altering how much the advice should cost, but rather enabling you to agree how much the adviser gets paid, rather than that decision being taken for you by a product provider.
The new charging system will not stop investors with modest means being able to afford financial advice. If you prefer, you will still be able to get advice without having to write a cheque. For example, you could instead agree with the adviser to have their fee taken from your investments; the difference in future is that you will agree with your adviser, in advance, how much you will pay for their advice.
The FSA is serious about the Retail Distribution Review changes being in place at the end of 2012. A recent attempt by the Treasury Select Committee, in mid-June 2011, to delay implementing the Retail Distribution Review by 12 months was immediately rebuffed by the FSA!
If you want to find out more, contact one of the team who will be happy to help.

Sources: www.fsa.gov.uk

Optimising the risk-return trade off

2012-05-15T09:06:00.000+01:00

The risk-return trade-off is a concept that every investor should be familiar with. Stated simply, it means that to gain a higher potential return on an investment, you have to accept more risk.
It’s also important to understand what those risks might be, like the risk of losing some of your capital, the risk of fluctuating returns, or the risk involved in holding cash in the bank as inflation eats away at the value of savings.
You can’t avoid risk, it’s inevitable. The trick for the canny investor is to manage it carefully, by creating an investment portfolio with a risk profile that matches their needs.
Of course the needs of different individuals can vary enormously. A 59 year-old hoping to retire at 60 probably won’t be willing to risk the capital in their pension pot, so they may choose to accept a lower return in exchange for greater security. While a 25 year-old with far less capital may be willing to accept much higher risk in the hope of benefiting from higher growth.
There’s also individual “appetite for risk” to consider. But of course it’s not actually the “risk” that people hunger after, it’s the potential rewards – and investors should think carefully about what they’re willing to put on the line before they go chasing them.

Financial Planning and Divorce

2012-05-15T09:05:00.000+01:00

No-one who is going through a divorce finds the process easy: it’s long, messy and almost always painful. Even if there are no children involved, divorce is a procedure that takes its toll on both sides: the acrimony, the paperwork – and the inevitable meetings with your solicitor.
It’s understandable that many people involved in a divorce want to minimise the number of meetings they attend and simply let the solicitors get on with sorting it out.
Unfortunately, trying to cut down on meetings could be a serious mistake. Divorces are not just about broken relationships, dividing up the family home and arranging custody of the children. Sadly, they’re about financial planning as well – and meetings with your independent financial adviser may turn out to be even more important than meetings with your solicitor.
Even if a couple have only been married for a relatively short time their financial affairs are likely to be inextricably linked. The mortgage will almost certainly be in joint names; they could well have shared protection policies and pension benefits may need taking into account when assets are divided.
Couples who have been together for longer – and an increasing number of people are now getting divorced in later life – will find the financial situation even more complex. Pensions will certainly be an area that requires specialist financial advice as some people, particularly high-earners in final salary pension schemes, will have built up pension funds which could well be worth more than the family home.
The new rules on pensions sharing in divorce have introduced a variety of options when it comes to dividing accumulated pension funds: they have also introduced the need for some seriously complicated (and potentially contentious) calculations, making expert advice absolutely essential.
All these areas mean independent financial advice can be crucial to making sure that any financial ‘damage’ you suffer as a result of a divorce is kept to a minimum, and that you emerge with a clear idea of the financial planning steps you need to take in the aftermath of the divorce.
Virtually no-one relishes going through divorce proceedings, but if you find yourself in that position, seeking out independent financial advice will be one of the wisest decisions you make. A good IFA will help make sure that you receive the best possible financial ‘result’ from the divorce and will work with your solicitor to see that everything runs as smoothly and painlessly as possible. Whether it’s helping to sort out the mortgage, reaching an equitable settlement of pension assets or any of the other complications that a divorce can throw up, an IFA will be on your side, constantly giving advice with your best interests at heart.
If you are – or fear that you might become – involved in divorce proceedings then please don’t hesitate to contact us. We’ll provide you with expert and wholly confidential advice – and do our best to make sure that the financial pain of your divorce is kept to an absolute minimum.

Sources: http://www.pensionsadvisoryservice.org.uk/workplace-pension-schemes/final-salary-schemes/divorce

Crown Wealth Management highlighted in top ten IFAs in the Midlands Region by Citywire publication

2012-05-15T08:45:00.000+01:00

New Model Adviser magazine a Citywire publication classified Crown Wealth Management as a leading new model firm with grand plans for 2012. Brian Benson, Managing Director of Crown Wealth said, the honour was given to firms on the basis of of our commitment to being a fee based firm, providing a high level of service and achieving above the minimum requirements in terms of qualifications. All three advisers in the firm had passed advanced qualifications with myself being a fellow of the Personal Finance Society, a Chartered Financial Planner and also a Certified Financial Planner which is a worldwide recognised Financial Planning qualification. Matthew Clegg is also a Chartered Financial Planner and Paul Ward is Diploma qualified.

May Market Commentary

2012-05-04T09:03:00.000+01:00

Wednesday April 25th must have been the morning David Cameron felt like phoning in sick. The Office of National Statistics officially confirmed that a shock 0.2% contraction in growth had pushed the UK into its first double dip recession since the 1970s. Meanwhile the Leveson Inquiry rumbled on with Culture Secretary Jeremy Hunt facing calls to resign; Labour opened an eight point lead in the opinion polls and there were predictions that the increase in diabetes could bankrupt the NHS. All in all a good day for a sick note…
The situation in Europe was not much better. Spain looked increasingly jittery as the Government admitted that the country’s debt would jump to a 20 year high, with a debt-to-GDP ratio of 79.8%. To compound matters, much of the debt of the Spanish regions was downgraded to junk. The eurozone crisis claimed its latest victim when the Dutch Government of Mark Rutte collapsed over disagreements about the inevitable cuts.
Stock markets around the world were volatile throughout April – and yet surprisingly many markets finished the month little changed overall.
In the US Facebook paid $1bn for Instagram – a company that has never made a profit – whilst Warren Buffet invested $2bn in a solar energy plant that will supply electricity to large parts of California for the foreseeable future. Time will tell who made the better investment…
UK
Despite his troubles by the month-end, April started well for David Cameron. The Purchasing Managers’ Index for March showed an increase on the February figure and this is usually taken as a positive sign for the economy. The rise – from 53.8 to 55.3 – was hailed as clear evidence that the worst was over and that the UK would avoid a double-dip recession.
Unfortunately, there was always bad news lurking round the corner and despite the efforts of Mary Portas to revive the High Street, Deloittes reported that retail failures had cost 10,000 jobs in the first quarter of the year. Like-for-like sales for the first quarter were down at Marks & Spencer (they described the current outlook as “challenging”) and Tesco saw their profits fall for the first time in 20 years.
But the UK retail situation may not be as gloomy as the big battalions would have us believe. Whitbread reported continuing growth in its Costa and Premier Inns chains, and Starbucks confirmed an eleventh consecutive quarter of growth in the UK. Perhaps more significantly, the British Independent Retailers Association said that independent shops had net openings of over 2,500 shops in 2011 – the equivalent of ten small towns worth of new shops. BIRA claimed that ‘independent shops are saving our towns on their own.’
The March figures showed that UK inflation rose slightly, reaching 3.5% and the final figures for February also confirmed that the trade deficit had worsened to £3.4bn. Nationwide reported that house prices fell by 1% in March, with UK prices now generally 0.9% lower than they were a year ago. The price of a typical home is now £163,327.
Despite the bad news, and the threat of further uncertainty ahead, the FTSE finished the month virtually unchanged at 5,738 – down 30 points from the end of March.
Europe
Europe in April was the now traditional mix of doom, gloom and credit downgrades. Spain was again the main whipping boy, and several of the country’s regions are now paying interest rates on their debt that is described as “impossible.” There are genuine fears of a domino effect within Spain itself, with worries that one region could turn to Madrid for help with its finances as early as May.
The yield on the country’s 10-year government bonds hit 6.1%, the highest since December. Standard & Poor’s downgraded Spain’s credit rating to BBB+ and warned that the recession in Spain was likely to deepen by the end of the year. With unemployment at around 25% and fears that the Spanish banks may require a €120bn bailout, it was hardly surprising that the country’s Ibex 35-share index fell to 7,011 – down 12.45% on the month.
(To put Spanish unemployment in perspective, the only countries reporting higher levels of unemployment are Rwanda, Angola, Macedonia and Namibia.)
In France, all eyes turned to the Presidential election as Nicolas Sarkozy tried to hold off Socialist challenger Francois Hollande. The first round of voting was notable for a very strong showing from National Front candidate Marine Le Pen, with nearly 18% of the vote. The second round is on May 6th and at the moment most commentators expect Sarkozy to lose out to Hollande. This would undoubtedly herald loud cheers in Greece and a clash with Angela Merkel, as Hollande is far less in favour of the austerity measures currently being pursued in Europe.
Both the French and German stock markets retreated in April, with Germany’s DAX index down just over 2% at 6,801. It will be interesting to see the reaction if Francois Hollande defeats President Sarkozy.
US
In the US, April was a good month for Mitt Romney as Rick Santorum finally pulled out of the Republican race, leaving the way clear for Romney to challenge President Obama in November.
For Wal-Mart however, April proved to be a very bad month as they became mired in bribery allegations at a Mexican subsidiary. Lawyers rubbed their hands and announced that the firm would face a “two to four year investigation” under the Foreign Corrupt Practices Act. Subsidiary companies (including Asda) in all countries came under scrutiny and, not surprisingly, Wal-Mart shares tumbled.
The economic indicators were largely positive for the US: the March figures confirmed that another 120,000 jobs had been added; inflation fell to 2.7% and when the numbers were finally crunched for February’s trade deficit, the good news was that it had fallen to $46bn.
US GDP rose by 2.2% in the first quarter and consumer spending also rose as some commentators suggested that the US had benefitted from not going down the austerity-at-all-costs route favoured in Europe. As Philip Inman put it in the Guardian, “Ultimately the US cared less about its AAA rating than about jobs and living standards, saving austerity for a time when the economy is stronger.”
The Dow Jones index finished the month at 13,214 – up precisely two points on the end of March figure.
Far East
China yet again increased its holding of US debt, buying $12.7bn of US bonds. According to the BBC, China now holds $1.17tn of US debt and continues to be the largest foreign buyer.
Significantly China had an unexpected trade surplus in March which many experts suggest heralds a rebound in the global economy. Exports rose by 8.9% from the same month last year while imports rose 5.3%, to give the country a $5.4bn surplus for the month.
China’s inflation rate rose to 3.6% in March (including food price inflation of 7.5%) and the economy continued to expand at a rate countries in the west can only dream about.
After a trade surplus in March, Japan swung back into deficit in April, with energy imports outweighing car exports.
Both the Chinese stock market and Hong Kong’s Hang Seng index rose during the month, but the Japanese market fell back 5% to finish at 9,521, perhaps weighed down by worries about the high level of energy imports.
Emerging Markets
Emerging Markets can always be relied on to provide a heady mix of the astonishingly good and the downright frightening – sometimes within the same economy.
So while the UK and Europe worry about negative growth, some emerging economies are recording double digit year-on-year GDP growth, with particularly strong performance in many African countries. Even relatively ‘mature’ emerging countries such as Turkey and India have achieved growth of 5% and above.
The stock market phenomenon which is Venezuela has been well documented in this bulletin: the market rose another 30% in April, but Venezuela also tops the league tables for inflation, with a current rate of 24.6%, and interest rates are in excess of 15%. Something has to give at some point.
Brazil is often heralded as a success story and clearly there is going to be major investment in the run-up to the 2014 World Cup. But potential investors should note that the country has interest rates at 9% and inflation in excess of 5% – a not uncommon picture in emerging economies. The Brazilian stock market fell back by 5% in April, but remains up on a year-to-date basis. Among other stock markets Thailand was the star performer, rising by 16% during April.
And finally…
As you look forward to two days off in June courtesy of Whitsuntide and the Diamond Jubilee, dark forces may be at work.
The Centre for Economics and Business Research has called for all UK bank holidays to be scrapped, saying it would add £19bn to the country’s total economy. Each bank holiday apparently costs £2.3bn in lost output.
The phrase ‘get a life’ comes to mind…

Sources: Source Information on request

Repaying Student Loans – how does it work?

2012-04-10T12:49:00.000+01:00

Many of our clients have children at university but are not aware of how Student Loans operate, this article will help to explain how they work and at what rate they are paid back.
The Student Loans Company (SLC) was set up to undertake the administration and processing involved in the payment of loans and grants to students and the payment of tuition fees for higher and further education services.
The majority of students will have a loan to cover the full cost of tuition fees plus a maintenance loan to cover the cost of living expenses. Everyone on an eligible course qualifies for 72% of the maximum loan, regardless of income, and the rest is income-assessed. These loans are subject to interest at the rate of inflation, on the basis that the amount eventually repaid will have the same “real value” as the amount borrowed.
SLC undertakes account maintenance and communication with borrowers. For borrowers within the UK tax system, collection is undertaken by HM Revenue & Customs (HMRC) through the PAYE or Self Assessment (SA) processes.
Loans are collected directly by SLC for borrowers outside the UK tax system. Repayment of student loans begins from the April after borrowers finish or leave their higher education course, but only when their income exceeds a certain threshold level. The annual threshold has been set at £15,000 since 6 April 2005. The corresponding monthly threshold is £1,250 and the weekly threshold is £288.
Repayment is collected at 9% of earnings that are above the relevant income threshold. This system of collection is known as Income-Contingent Repayment (ICR), because it tapers the repayment obligation according to the gross income of the account holder. The 9% repayments are unaffected by the rate of interest.
For collection through PAYE, the SLC sends details of borrowers who are due to repay their loans to HMRC to identify them as taxpayers with current employment.
Employers should start making Student Loan deductions only when:

they receive a Start Notice (From SLC)
a new employee gives them a form P45 with a ‘Y’ in the ‘Continue Student Loan Deduction’ box (box 5)
a new employee gives them a form P46 with a tick in box D (Student Loans).

Repayments deducted by the employer are worked out on individual pay periods and not on the total income for a whole year.
The deductions are paid over together with PAYE tax and NICs deducted during the same period. When employees leave, the employer must identify on their P45 that they are liable to make Student Loan repayments.
After the end of each tax year, employers must notify HMRC of the student loan deductions they have collected. HMRC then collates this information and passes it to SLC, who update their borrowers’ loan accounts, including calculation of interest charges to match when the payments were made.
Borrowers who are not employees, but who fall under the Self-Assessment system, have to send HMRC a tax return each year. Their student loan repayments will be collected through SA, along with their tax.
Employees who also receive a SA tax return may have to make some loan repayments when they make their annual balancing payment, as well as having deductions made under PAYE. Borrowers can also make voluntary repayments direct to SLC at any time.

Sources: www.slc.co.uk

A Pension Pot Reduction Scam

2012-04-10T12:41:00.000+01:00

A report highlighting that growing numbers of pension savers are being offered the chance to release cash from their pension pot early – only to be hit with hefty hidden charges – was recently published by The Pensions Regulator, the Financial Services Authority and HM Revenue and Customs.
Described by an FSA spokesperson as likely to be a scam – where illegitimate businesses try to con individuals out of their pension money – the authorities have taken the unusual step of issuing a joint warning to demonstrate the seriousness of a problem they say affects thousands every year.
Last year, about £200million was taken out via these so-called ‘pension liberation’ schemes. Some firms offer to release part or all of a worker’s pension pot at a younger age in return for a percentage of the total. Those who are tempted into doing so, possibly to pay off a mortgage or fund their children’s education, are later hit with tax bills that can leave them with just a fraction of their original fund left. Most fraudsters fail to tell their victims that they will incur massive penalties from HMRC for accessing their pension early.
An example was given of a 50-year-old man building up a pension pot worth £20,000, and a firm may offer to give him £16,000 and take £4,000 in commission after ‘liberating’ his savings. However, hidden taxes and unauthorised payment charges to HMRC could lead to a bill of 55 per cent of the original fund. The victim could have to pay another £11,000, so that in reality he receives just £5,000 of his original £20,000 fund.
Pensions Minister Steve Webb said: ‘I am very concerned that people will end up poorer in retirement as a result of these dodgy deals. I hope people listen to these new warnings and think twice before making a decision they could later regret.’

April market commentary

2012-04-10T12:38:00.000+01:00

March was a month which began with headlines about the Greek debt crisis and the impending ‘final deadline.’ By the end of the month the focus – in Britain at least – had shifted to Granny Tax, Cornish Pasties and the shortage of petrol.
On March 7th world stock markets suffered some of their worst falls of recent months as investors worried that the Greek bail-out would not be accepted. In the event the necessary thresholds were met quite comfortably, but sadly this didn’t signal the end of the global economic malaise.
Once the euphoria had died down – and that happened remarkably quickly – reality set in with investors and commentators alike acknowledging that the road ahead would be long and bumpy and that there were plenty more potential crises around the corner.
UK
If a week is a long time in politics, then in March a month was an eternity for the British economy. It began with the FTSE within sight of the 6,000 level and Nissan announcing plans to create 400 new jobs with a compact car plant in Sunderland. With a further 1,600 jobs expected to be created in the supply chain this was one the Government could definitely file under ‘good news.’
Unfortunately petrol reached a record high around the same time and it was then downhill all the way.
There was bad news for UK homeowners, with the Halifax announcing that mortgage rates would rise on May 1st with the base mortgage rate increasing from 3.50% to 3.99% – an increase of 14%. Other lenders were not slow to follow suit and the gloom was compounded a few days later when the Halifax confirmed that house prices had fallen by 1.1% in February. By the end of the month lenders were talking about stricter lending criteria, and house prices fell again as the stamp duty holiday ended.
The response to George Osborne’s budget was lukewarm at best, with several of the measures coming in for criticism and ‘Granny Tax’ trending on Twitter before the Chancellor had even finished speaking. The top rate of tax was cut from 50p to 45p but with tax allowances for pensioners being frozen, it was hardly surprising that the Budget was derided as one that ‘picked the pocket of pensioners.’
However, it was in the final week of the month that it went seriously wrong for the Government, as motorists queued for petrol in the face of a threatened tanker drivers’ strike. The Government also faced the possibility of a ‘bakers’ march’ with a groundswell of opposition to plans to impose VAT on hot, savoury food. When the full weight of the Government spin machine is used to tell the nation how much the Prime Minister likes Cornish Pasties you know that “events, dear boy” are not quite going to plan.
The British Chamber of Commerce cut its forecast for output growth; the retail sector continued to struggle and the OECD claimed that Britain was back in recession. Unsurprisingly, the FTSE struggled to make any ground through March, and ended the month down just under 2% at 5,768.
Europe
With Greece having been ‘saved’ – for now at least – the focus in Europe switched to the other countries that were deemed to be in trouble. Spain introduced an austerity budget at the end of the month which it claimed would save €27bn, but like last month’s tough measures in Greece it was greeted with civil unrest.
However, markets were buoyed by the European finance ministers agreeing a new €500bn bailout fund (which in practice will probably rise to €700bn). This is now the “firewall” on which all hopes are pinned.
Despite these worries the key German DAX index rose again, finishing the month 1.32% up at 6,946. The index has risen by an impressive 17.7% since the start of the year.
Other European markets were mixed, but Spain fell by over 5%. Worryingly, it is the only one of the world’s major stock markets to be down on a ‘year-to-date’ basis, with a fall of 6.52%.
US
The picture in the US was somewhat confused. As Mitt Romney moved towards the Republican nomination, President Obama saw a further 227,000 jobs added in February. Encouragingly, this was across the whole range of employment sectors and unemployment in the US is now running at 8.3%.
However, the pessimists were quick to point out that the US balance of trade had widened in January, with a goods and services deficit of $52.6bn, up from $50.4bn in December and a three-year high. Given these conflicting signals it was no surprise when the Fed (Federal Reserve Bank) opted to keep US monetary policy unchanged.
The Dow Jones index had started the month within touching distance of the 13,000 mark. Although the performance throughout March was not spectacular, the recent gains were consolidated, with the index finishing at 13,212 for a rise of almost exactly 2%. The Dow Jones index is now up by just over 7% since the start of the year.
Far East
The news from Japan was mostly good in March, with a trade surplus of ¥32.9bn being confirmed for February after four-straight months in deficit. Although Japan’s recovery from the world recession and the tsunami is still fragile these are encouraging figures and, not surprisingly, the Bank of Japan left its key monetary policy unchanged.
In China the inflation rate fell to 3.2% – however food price inflation rose to 6.2% which must make life difficult for the average person. There was a worrying story in the BBC news archive about the ghost town of Ordos – a town built for hundreds of thousands of anticipated residents at the start of the Mongolian Coal Rush. Today the town stands derelict and deserted – testimony that not everything in China works out perfectly.
This uncertainty was reflected in the stock market – consistently above 3,000 in 2011, but now down another 3% on the month to finish March at 2,350. If the Chinese Government allows the yuan to float more freely – as has been suggested – then this will presumably make Chinese exports less attractive.
The Hong Kong market also saw big falls in March, declining by over 5% to finish the month at 20,556.
Emerging Markets
Like China, the other ‘BRIC’ countries, Brazil, Russia and India, all saw their stock markets fall during the month although all are comfortably ahead since the start of the year.
Several other emerging markets posted useful rises, but the stellar performer of the month was once again Venezuela, with the stock market there recording a massive gain of over 30% in March. As we have already seen, The Dog of the Month award – or ‘perro del mes’ in this case – went to Spain.
And finally…
However your investments performed, March was a remarkably good month for Bob Diamond, the boss of Barclays. He staggered home under the weight of £17m in pay, shares and perks – at a time when the bank’s profits fell. Anyone who invested £100 in Barclays in 2006 would now have £29. It’s alright for some…

Budget 2012 Overview

2012-03-22T12:41:00.000Z

Summary
The Chancellor presented his third full Budget since the coalition Government took power on Wednesday, 21st March.
Billed as ‘the budget for working people’ with a promise to ‘back business’, Mr Osborne highlighted the Government’s commitment to three specific areas: a stable economy, a fairer, more efficient and simpler tax system and reforms to support growth.
As the Budget was announced, the Office for Budget Responsibility (OBR) increased its forecast for UK GDP growth in 2012 from 0.7% to 0.8%. It predicted future growth of 2% in 2013, 2.7% in 2014 and 3% in 2015.
Although the Chancellor expects inflation to fall from the current 3.7% to 1.9% by the end of the year, he has reaffirmed the Consumer Prices Index (CPI) inflation target of 2%.
The Government views businesses as the catalyst for economic recovery and the budget reflects this, with a number of announcements supporting business growth. In particular, a reduction on the headline rate of corporation tax to 24% from April this year. Further reductions are planned that will take the rate to 22% in 2014. Mr Osborne highlighted that Britain has moved into being one of the top ten places to do business globally and highlighted his intention to more than double annual exports to £1 trillion by 2020.
Some of the headline announcements affecting individuals include a hike in the personal allowance, a reduction in the top rate of tax from 50p to 45p, age-related allowances for pensioners being reduced or axed and a new stamp duty rate of 7% for properties worth over £2 million.
Over the coming weeks and months, updates and further information on budget proposals, including consultations, will be announced. We will keep you updated on any change in legislation which may affect you.
If you have any questions or queries arising from this budget, then please do not hesitate to contact us.
Tax overview
A key theme in this year’s Budget was the Government’s commitment to making a fairer, more efficient and simpler tax system. A number of wide-ranging reforms to the tax system were announced in addition to a clampdown on tax evasion.
The Government have accepted the recommendation of the Aaronsen Report that a General Anti-Avoidance Rule (GAAR) targeted at abusive schemes would improve the UK’s ability to tackle tax avoidance – a practice which Mr Osborne highlighted as being ‘morally repugnant’. These measures will reportedly increase Treasury revenues by £1bn.
Income Tax

What

The Government will increase the personal allowance by £1,100, taking it to £9,205 in total.

When

6th April 2013

Comments

This is a significant increase in the basic rate tax allowance and will be a welcome announcement to low and middle earners. Mr Osborne claimed this would make 24 million people £220 per year better off. The full allowance is only available to those earning under £100,000.

What	Freezing Age Related Allowances.
When	6th April 2013
Comments	Pensioners currently have higher personal allowances and these additional allowances will be frozen and reduced over time, bringing them in line with the standard personal allowance. Those currently receiving the higher allowances won’t see them reduced, although inflation will reduce pensioner income in real terms.

What	Introduction of a new cap on income tax reliefs to ensure that those on higher incomes cannot use income tax reliefs excessively.
When	6th April 2013
Comments	For anyone seeking to claim more than £50,000 of relief, a cap will be set at 25 per cent of income (or £50,000, whichever is greater).

What	A reduction from 50p to 45p on the top rate of tax on incomes above 150,000.
When	6th April 2013
Comments	No surprises here. George Osborne had already announced that this tax initiative was generating less revenue for the public purse than originally forecast.

What	Introduction of a Personal Tax Statement.
When	2014-2015
Comments	Supporting the Government’s initiative to make the taxation system more transparent, these statements will allow taxpayers to see a breakdown of where their taxes are being spent.

What	Launch of a detailed consultation on integrating the operation of income tax and NICs.
When	Published after the Budget
Comments	This builds on extensive work already undertaken and further underpins the Government’s commitment to a simpler and more transparent tax system. For most of us, and in particular those in business, a simpler tax system would be welcomed.

Corporation Tax

What

Reduction in the main rate of corporation tax by an additional 1% from April 2012 with further reductions in subsequent years.

When

April 2012 – 24%, April 2013 – 23%, April 2014 – 22%

Comments

A welcome boost for business where the headline corporation tax rate has been reduced further than expected. The headline rate was already set to be reduced to 25% in April 2012.

What	A reduced corporation tax rate of 10% on profits derived from patents.
When	April 2013
Comments	A move welcomed by business and entrepreneurs supporting manufacturing and the growth of business in the UK. This will apply to proﬁts attributed to patents and similar types of intellectual property.

What	Introduction of corporation tax reliefs for the video games, animation and high-end television industries, subject to State aid approval and following consultation.
When	1st April 2013
Comments	Another initiative giving a welcome boost to business, should give rise to increased levels of investment in technology led industries. It is part of a new ambition to make the UK the technology hub of Europe.

What	The bank levy is being increased to 0.105% to prevent banks from benefiting from this cut in corporation tax.
When	January 1st 2013
Comments	This increased banking levy is expected to net the Treasury around £2.5bn a year. Time will only tell on this one.

Housing

What

Increase in Stamp Duty for houses worth over £2m to 7%.

When

22nd March 2012

Comments

The ‘mansion tax’ that was widely reported prior to the Budget equates to a £140,000 tax bill on a £2m property. The Chancellor has also put in place measures to stop individuals paying stamp duty by purchasing a residential property through a company. Such purchases will now incur a 15% tax charge.

What	The Government has announced a reinvigorated Right To Buy for the two million tenants in council housing.
When	From April 2nd 2012
Comments	The current range of regional caps on discounts will be replaced by a higher single cap of £75,000.

Tax Credits and Benefits

What

Child Benefit to be withdrawn for higher earners.

When

April 2013

Comments

Only households where someone has an income in excess of £60,000 a year will no longer gain from child benefit. There will be a tapering of the benefits received from £50,000-£60,000. There remains some concern as the benefit cap is applied to single income; a couple each earning £49,000 will still be entitled to the full amount of child benefit.

Savings, Pensions and Investments

What

Tax reliefs capped at 25% for high earners (see Income Tax).

When

April 2013

Comments

Individuals will be restricted to claiming tax relief on the higher of £50,000 or 25% of earnings. This will not affect ISAs, pensions or enterprise investment schemes which are subject to existing caps. A welcome note to see that there is no change to pension tax relief.

What	Introduction of initial flat-rate pension of £140 per week for those with 30-year national insurance record.
When	2016
Comments	This long awaited measure to simplify the pension system is welcome news. Those that will lose out are higher earners who may have seen higher levels of state benefits; some low earners will see an increase in their pension entitlement.

What	Auto review of state pension age.
When	Proposals will be published at the time of the Office for Budget Responsibility’s (OBR) 2012 Fiscal sustainability report.
Comments	The Government will commit to ensuring the state pension age is increased in future to take into account increases in longevity.

What	VCT and EIS rules changed.
When	6th April 2012
Comments	The rule changes were mostly previously approved and widen the opportunity for investment. Amongst other changes, the EIS annual investment limit for individuals will be increased to £1 million and the qualifying company limits will be increased to companies with fewer than 250 employees.

Business

The introduction of a new cash basis for calculating tax for small businesses – the aim is to create a simpler tax system for smaller firms with a turnover of less than £77,000. Consultation will take place before the proposed implementation from April 2013.
The Government will improve and reform the Enterprise Management Incentive Scheme (EMI), which helps SMEs recruit and retain talent, by providing additional support to help start-ups access the scheme.
From 1 October 2012, VAT will be extended to close loopholes, including applying it to hairdressers’ chairs (to make clear that their rental is already subject to VAT), static holiday caravans (to bring in line with mobile caravans) and certain hot food (because most hot food is already subject to VAT).
The introduction of an ‘above the line’ Research & Development tax credit from April 2013 with a minimum rate of 9.1 per cent before tax. Loss making companies will be able to claim a payable credit. The R&D incentives for small and medium sized companies will not be affected as part of this change.
The Government has confirmed that the Asset Purchase Facility will remain in place for the Financial year 2012-13.
There will be a consultation around simplifying the Carbon Reduction Commitment (CRC) energy efficiency scheme to reduce administrative burdens on business. The Government will bring forward proposals in Autumn 2012 to replace CRC revenues with an alternative environmental tax, and will engage with business before then to identify potential options.
An internal review will be conducted to examine the role of employee ownership in supporting growth and will also examine options to remove barriers, including tax barriers, to its wider take-up.
The Government is increasing the funds available to invest through the Business Finance Partnership to £1.2 billion.
There will be a drive to expand the overseas role of UK Export Finance to enable it to develop finance packages that could help UK exporters secure opportunities identified through UK Trade and Investment’s High Value Opportunities programme.
There will be a move to incentivise lenders to lend more to smaller businesses under the Enterprise Finance Guarantee (EFG) scheme, by raising the level of lenders’ EFG portfolios (to which the Government guarantee applies) from 13 per cent to 20 per cent.
84 per cent of health and safety regulation will be scrapped or improved, including legislating in 2012 so that ‘strict liability’ provisions in health and safety law will no longer hold employers to be in breach of their duties when they have done everything that is reasonably practicable and foreseeable to protect their employees.
The Government will pilot the best way to introduce a programme of enterprise loans to help young people set up and grow their own business.
Company car tax rates from 2014–15 to 2016–17 have been set out, including the removal of the diesel supplement in 2016. Changes have also been announced to the capital allowance regime for business cars.

Miscellaneous

Vehicle excise duty (VED) rates will increase in line with the Retail Price Index (RPI) and rates for heavy goods vehicles will be frozen. The Government also aims to develop a direct debit system to allow motorists to spread their VED payments.
The Debt Management Office will consult on the case for issuance of gilts with maturities significantly longer than those currently in issue (in excess of 50 years) and/or perpetual gilts. An initiative to manage Government debt over the long term, securing borrowing whilst interest rates are at record lows.
The Government will extend the Capital Gains Tax regime to gains on disposals by non-resident non-natural persons of UK residential property and shares or interests in such property. This will commence from April 2013 following a consultation.
There are no further changes to fuel and excise duty.
Smokers to pay extra duty by 5% above inflation from 6pm on Wednesday, 21st March.
Alcohol duty unchanged.
The ten largest cities in the UK will receive funding for superfast broadband. There will also be investment for smaller cities to develop their broadband infrastructure.

Note: This document contains a summary of some of the main points covered in George Osborne’s recent Budget announcement. If you would like any further information on any aspect of this year’s Budget, please do not hesitate to get in touch.

Sources: HM Treasury

March market commentary

2012-03-05T13:06:00.000Z

On Monday February 27th the German Bundestag approved the Greek bailout by 496 votes to 90. A few days earlier consent had finally been wrung from the Greek politicians, and the €130bn bailout now looks to be in place. Is the Greek debt crisis – the constant theme running through this monthly review – over at last? You would be unwise to bet on it. The move is unpopular with the German electorate (who recognise that they are largely going to pay for it): unpopular in Greece (where the far left are making significant gains in opinion polls) – and still looked on sceptically by many market commentators. Expect to see the words ‘Greece’ and ‘crisis’ in future reviews.
Perhaps anticipating the eventual settlement – for now – of the problems in Europe, it was a generally positive month for world stock markets, with all the major markets again moving forward, although they generally failed to match the significant gains made in January.
There was the usual mixture of good and bad news – stronger than expected jobs growth in the US; a fourth consecutive month of declining exports in China – but that is in welcome contrast to say, six months ago when the news was almost unremittingly bad.
UK
The UK stock market moved ahead during February, finishing the month at 5,872 for a rise of just over 3%. However, the month was not without its low points, as the arguments about reform of the NHS rumbled on. Disturbingly, the Coalition partners appear to hold directly opposing views.
There was bad news for the UK High Street, with the majority of news outlets reporting on the number of empty shops in the UK. The Guardian reported that the traditional British High Street was in a “death spiral.”
Worrying news as well for the UK service sector, which accounts for two-thirds of economic activity. The CBI reported a slowdown for the three months ending in January. Consumer services, covering hotels, bars and restaurants were particularly badly hit, in a period which included Christmas and New Year. Unemployment also continued to edge upwards, reaching 2.67m. The unemployment rate is now 8.4%, the highest for 16 years.
Just to be on the safe side the Bank of England pumped another £50bn into the economy. With Barclays being ordered to pay £500m in tax they had previously tried to avoid, at least there’s only £49.5bn for the rest of us to find…
Europe
In the same way that the Greek debt crisis is a recurring theme of these monthly reviews, so are our old friends “credit warning” and “downgrade.” The ratings agencies seemingly take it in turns to issue the bad news. In February it was Moody’s who stepped up to the plate, warning of a negative outlook for Austria, France and the UK. Italy, Portugal, Spain and a handful of smaller countries had their credit ratings cut.
In France, President Sarkozy launched his bid for re-election: not, as you might expect, with a statesmanlike speech on the debt crisis, but with his first tweet. Rather more seriously, the G20 said that Europe needed yet more money in its bailout pot. You get the feeling that the day on which the German taxpayer says ‘no more’ cannot be far away.
In keeping with the general mood, however, all the European exchanges (with the exception of Spain) rose during February. The German DAX index turned in an almost identical performance to the FTSE, rising by a little over 3% to finish the month at 6,856. France and Italy both rose, and even the Greek stock market managed a gain of 0.54% on the month.
Unfortunately this relatively good news wasn’t enough to prevent Standard & Poor’s stepping in at the end of the month and downgrading Greek debt yet again, effectively giving it junk bond status.
US
Having looked nailed on to be the Republican nominee last month Mitt Romney has faltered recently and now ‘Super Tuesday’ on March 6th has become pivotal in the race to oppose Obama. The GOP will no doubt be hoping ‘Super Tuesday’ on March 6th clarifies the situation: if not, expect to hear more talk of Jeb Bush emerging as a ‘unity candidate.’
The economic news continued to be largely positive with the US creating 243,000 new jobs in January. This was well ahead of the estimated 150,000, with 50,000 of the new jobs being in factories. Unemployment fell to 8.3%, all of which is good news for President Obama. Interestingly, Ronald Reagan won his landslide second victory with unemployment at 7.5%.
On February 21st the Dow Jones index broke through the 13,000 barrier for the first time since the banking crisis. It ended the month at 12,952, a gain of 2.53% since the end of January.
Far East
The month started badly in Japan with Sony announcing annual losses of £1.8bn. Incoming chief Kazuo Hirai made an early bid for the understatement of the month award by saying the company felt a “slight sense of crisis.”
Japan’s retail sales rose more than had been expected in January, boosted by a surge in car sales as government subsidies on energy efficient vehicles lifted demand. Overall, though, the Japanese economy shrank by 2.3% in the final three months of 2011, much worse than the 1.4% that had been anticipated: exports were not helped by the continuing strength of the yen and the floods in Thailand.
In China, the manufacturing sector contracted in February for the fourth straight month: exports orders dipped sharply thanks to the continuing problems in Europe. Neither was there much sign of China helping Europe through the debt crisis. Despite meeting Angela Merkel, Chinese Premier Wen Jiabao was disinclined to act. There is the strong suggestion that rather than simply pump money into the banking system, the Chinese would prefer to buy physical assets in Europe.
The Far Eastern stock markets comfortably outperformed Europe and the US during February – China was up 6.77%, Hong Kong 7.54% and Japan produced a stellar performance, rising by 10.58% in the month.
Emerging Markets
In general the emerging economies couldn’t match the rises in the Far East, but Brazil, India and Russia all managed gains of around 5%. There were impressive performances from some of the smaller European countries: Finland was up by just under 8% and Denmark managed a double-digit rise. It will be interesting to watch the performance of this sector in the months ahead.
But the star performance of the month was turned in by our old friend Venezuela: shrugging off any worries about President Chavez’s surgery in Cuba, the stock market rose by 16.5% in February.
And finally…
Musing on the continuing debt crisis, one commentator said that “Greece needs re-booting.” We’ve all fixed our computer by turning it off and turning it on again. But doing that with a country might be rather more risky…

Changes to contracting out and Protected Rights

2012-02-27T19:41:00.000Z

Changes to contracting out and Protected Rights
From the 6 April 2012 the Government is changing the rules for contracting out and individuals will no longer be able to contract out through a personal or stakeholder pension plan or a defined contribution scheme. This means that anyone currently contracted out of the State Second Pension through these types of pension plans will automatically be contracted back in from 6 April 2012. In addition, the restrictions on the fund that investors have built up from existing contracted out payments, known as Protected Rights, will be removed from 6 April 2012. Investors will instead be able to take their Protected Rights benefits in the same way as other pension benefits, for example, if they are married or have a civil partner they will no longer have to buy a 50% spouse's pension. What this means for our customersInvestors who were contracted out through a personal or stakeholder pension plan or a defined contribution scheme will automatically be contracted back in from 6 April 2012.Any Protected Rights benefits that investors have built up from existing contracted out payments will remain invested in their plan or scheme. But from 6 April 2012 they will be able to take their Protected Rights benefits in the same way as their other pension benefits.

The key questions you should ask your IFA

2012-02-22T10:08:00.000Z

Thousands and thousands of clients across the UK have long-standing and happy relationships with their Independent Financial Adviser. However, the world of financial services is changing on December 31st this, and it may be that your independent adviser is no longer fully independent after that date.

The Financial Services Authority is implementing the Retail Distribution Review (RDR as it’s commonly known) in December 2012, after which time advisers will either give ‘independent’ or ‘restricted’ advice. Simply put, ‘independent’ advisers will be give advice on the full range of retail products and investments: advisers giving ‘restricted’ advice will – as the name suggests – only advises on a limited range of products.

Certain conditions (including higher qualifications) will need to be met for an adviser to continue to be classed as ‘independent’ and it is therefore entirely possible that your independent adviser will no longer be independent as we enter 2013. If it is important to you that you continue to receive independent – as opposed to ‘restricted’ – advice, here are the three key questions you should ask your current adviser now:

1.Do you plan to offer independent or restricted advice after December 31st 2012?
2.Do you already have the higher qualifications you’ll need to continue giving independent advice? If not, when do you expect to achieve them?
3.Could you explain to me how I’ll pay you from 2013 – and how will this be different from the way I pay you now?

Hopefully you’ll receive the answers you want, and you’ll be able to carry on dealing with the same adviser. But supposing you don’t? Supposing, for example, that your current adviser is only going to offer restricted advice when you want fully independent advice and – however regrettably – you feel that you need to find a new adviser? In addition to the questions above, here are five questions that might help you settle on a new independent financial adviser.

Do you specialise in any particular area of financial advice? This is important for two reasons – firstly, there’s no point dealing with an IFA who specialises in say, mortgages if your main need is going to be for investment advice. Secondly, if an IFA does specialise in a particular area, they should have specialist qualifications in that area; for example, there is an advanced qualification for IFAs who specialise in pension planning.

Could you describe a typical client of yours? If, for example, you’re a private individual you might not want to be the client of an adviser who concentrates on the corporate market. It makes sense to try and find an adviser who deals with ‘people like you.’

Could you describe your advice process to me? A good IFA will take time to make sure he’s gathered all the relevant facts; he’ll do all the necessary research and he’ll give you written recommendations. Most importantly, he should give you plenty of time to make a decision and you definitely shouldn’t feel under any pressure to invest or to purchase any products.

Will you work with my other advisers, such as my solicitor and accountant? There are bound to be times when this is necessary: the answer should be an uncompromising ‘yes.’

Finally, are you in this for the long term? Hopefully, you’re going to be working with your IFA for several years, so you want one that’s committed to his or her business and in it for the long haul. Go ahead and ask your existing or potential IFA when he’s planning to retire – after all, if he doesn’t have an idea about his own financial future, he’s unlikely to have one about yours!

Ten ways to cut Inheritance Tax liablity

2012-02-22T10:04:00.000Z

As a starting point, every individual is entitled to a nil rate band, under which no inheritance tax is payable. For the current tax year, the nil rate band is £325,000. Any inheritable assets over that threshold figure can attract a tax of 40%, payable to HM Revenue & Customs.

There are however a number of steps, using exemptions and allowances that you can take to minimise this tax liability. Most of these are about ensuring that the threshold is not ultimately crossed, your wishes are fulfilled and intended beneficiaries do not miss out.

• A first step toward avoiding Inheritance Tax (IHT) could be by making a will, particularly if your partner or spouse is the intended main beneficiary. Put your affairs in order and don’t ignore the inevitability of your death!
• Consider making early gifts in the hope and expectation that you will live for seven years after any gift is made. Gifts made more than seven years before the donor dies are free of IHT. Search for ways of helping the younger generation to benefit, for example helping with school or university tuition fees.
• For some gifts to be IHT free, you don’t need to survive for seven years. Consider using smaller allowances such as the £3,000 per person annual allowance for gifts to anybody and the ability to give up to £5,000 to your children when they marry. This could be £5,000 from each parent to each adult child.
• Discretionary trusts can be set up and enable assets up to the nil rate band of IHT of £325,000 per person, or £650,000 per married couple or civil partnership, to be sheltered from IHT, so long as the donor survives seven years. Unlike outright gifts, these trusts let donors retain control of the assets.
• A habit of gifting may cut your IHT liability if you can show that such gifts are made out of income, are made on a regular basis and they do not reduce your own standard of living.
• Consider becoming an agricultural landowner. In general, agricultural land which is let out can become IHT-free after seven years and could be IHT-free after two years if you farm it. Complex rules govern business property and agricultural land reliefs, so professional advice should always be taken.
• If you have suffered injuries in the past during military service and this becomes a contributory factor to your death, then your estate may become IHT-free.
• It is not possible to shelter your family home from IHT if you remain living in it, so another solution could be to spend some of the wealth in the asset before it can be taken into account for tax, for example via an equity release scheme.
• Individual Savings Accounts (ISAs), whilst being popular ways of avoiding tax on income and gains from a wide variety of savings and investments, have no protection against IHT. Plans to minimise your IHT liability should include seeking to reduce any ISA component.
• If you have substantial overseas assets, choosing a tax friendly location abroad where you wish to be buried may help you avoid IHT on those overseas assets. A somewhat drastic step to take, but where you intend to be buried can be deemed to be where you are domiciled and if domiciled overseas, only your assets based in the UK are subject to inheritance tax.

The information above has been prepared solely for the purpose of providing a basic introduction to IHT planning. When making an investment decision, you should always seek the advice of a professional financial adviser.

Tax treatment & law
All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and Her Majesty’s Revenue and Customs (HMRC) practice. Levels and bases of tax relief are subject to change.

ISAs gathering dust, not interest?

2012-02-22T10:02:00.000Z

An increasing number of new cash ISA products are being sold with additional interest as a bonus percentage, usually for no more than the first year. Investors who do not review their ISA holdings on at least a yearly basis may find that a later interest yield is dramatically less that they expected. Some people with ISA investments believe that it is not easy or even possible to transfer their ISAs from one provider to another.

It’s quite clear from Her Majesty’s Revenue and Customs that investors can transfer their ISAs from one manager to another whenever they want. They may in effect transfer their current year ISA subscriptions (and any related income) and/or all or part of their previous years ISA subscriptions (and any related income). There are two constraints – firstly, if the ISA contains current year subscriptions only the entire account must be transferred, and secondly subscriptions to a stocks and shares ISA can only be transferred to another stocks and shares ISA. However, subscriptions to a cash ISA can be transferred to another cash ISA, or to a stocks and shares ISA.

HMRC also tell us that where current year subscriptions are being transferred from a cash ISA to a stocks and shares ISA, the current year subscriptions are treated for all ISA purposes as if they had been made to the stocks and shares ISA. This means that the investor is regarded as never having subscribed to the cash ISA. Within the overall subscription limit, therefore, the investor may subscribe to a cash ISA later in the current year (with the same or a different provider) without breaching the one-ISA-of-each-type-a-tax-year rule.

The transfer procedures are guided by best practice recommendations from HMRC. When an ISA is transferred, the old ISA provider must give the new ISA provider a notice in writing containing information and a declaration.

HMRC has produced a range of model forms, available on-line for use by investors and managers, to enable the transfer processes. In simple terms, you as an investor should choose an ISA product (if helpful your financial adviser or accountant can advise on product suitability), then speak with the new provider and fill out a transfer form, which should contain a note you send to your existing provider. The new provider will contact your existing ISA provider, sorting out the transfer and preserving your existing ISA tax-free status.

There are two additional points to bear in mind – firstly what you certainly must not do, is withdraw your money from an existing cash ISA, in order to re-invest it yourself in a new ISA, as this breaks the ISA transfer link and you lose the tax benefit for that amount – let the approved transfer process take its course, for which there is a guideline of 15 days maximum for transfer completion. The second point to be aware of is that some ISAs still carry a penalty charge by your current provider for transferring out. Check for this – it should have been made clear to you when you purchased the ISA. As we approach the end of a financial year, now is a good time to check the interest rates on any existing cash ISAs you hold!

If you want to find out more, or need advice about managing your ISAs, contact one of the team who will be happy to help.

Crown Wealth Management - Team update

2012-02-22T09:22:00.000Z

Over the last 6 months Crown Wealth Management has expanded both its client services team and advisory team. Brian Benson founder and Managing Director of the company said, "We had no option but to expand the team based on the exceptional growth that the company had experienced over the last 12 months. Our main proposition is based on providing a high level of service and the new staff appointments provide commitment to our existing clients and allows the company to continue to take on new clients.

Eleanor Fitchett has joined the client services team, her duties include reception duties, administration and adviser support.

Matthew Clegg who joined Crown Wealth in April 2010 in a technical support role has been authorised by the Financial Services Authority as an adviser, Matthew is a Chartered Financial Planner and works closely with Brian Benson to provide financial planning and investment advice.

Paul Ward joined the firm in January 2012 to further supplement the advisory team, working with Brian and Matthew to provide financial planning and investment advice to new and existing clients.

Savers left short-changed by unfair annuities system

2012-02-18T09:20:00.000Z

The National Association of Pension Funds (NAPF) and the Pensions Institute (PI) at Cass Business School published a joint report early in 2012, suggesting that around half a million people retiring each year are being short-changed by up to £1bn from their total future pension income, because overwhelming obstacles stop them getting the best deal within the annuity market.
The report describes millions of private sector workers as saving for their retirement, whilst being stuck with a hugely unfair, opaque and bewildering annuity system. Worse still, it highlighted evidence of sharp practice and murky pricing in the annuity market putting unsuspecting consumers at a huge disadvantage. The £1bn loss could treble in size to £3bn over the next decade as the annuity market matures and as up to 8m people start being automatically enrolled into workplace pensions from 2012. Around 20% of these losses are passed on to the public in the form of lost taxes and higher means-tested retirement benefits.
When they retire, people in the private sector saving in a ‘defined contribution’ pension (now the most common form of company pension scheme) use their pension pot to buy a product called an annuity from an insurer. This gives them a regular income and is a one-off, irreversible decision that sets the size of their pension for the rest of their life. The process for choosing an annuity is a complex one and the majority still go for the ‘default’ option by sticking with their pension scheme provider. This failure to shop around for a better deal can wipe 30% off their annual pension income, and in some cases up to 50%.
The NAPF/PI report found that it is too difficult for savers to get the best deal when:
• 80% of savers have pots of less than £50,000, and most annuity advisers will not find it profitable enough to advise on pots of this size;
• Fewer than one in five people have the financial know-how needed to pick the right annuity at the best price;
• Those savvy enough to ‘shop around’ for the best rate struggle to do so because the best shops are not signposted;
• People get too little support from employers or providers when making a decision about their annuity.
The report, partly based on extensive interviews with companies that cover 80% of the annuity market, also discovered that in practice, annuity prices can be heavily manipulated:
• There is a severe lack of transparency and understanding about how annuities are priced, especially for those with medical conditions who could qualify for a much higher level of pension income;
• Annuity advisers say some insurers push rates downwards at certain pot sizes when they see a group of people approaching retirement, as they expect many will not look for a better deal and will accept the insurer’s first quote;
• Annuity rate bands can have ‘cliff-edges’ which mean that rates outside of the commonly quoted £50,000 and £100,000 benchmarks suddenly drop off and become much worse, penalising customers who could get a better rate by having as little as £1 more in their pot;
• Most savers pay commission when they buy an annuity. It is factored into the annuity rates of most providers – whether the saver gets advice on annuity choice or not!
If you want to find out more or need advice about buying an annuity, contact one of the team who will be happy to help.

Budget Seminars - Bridgnorth, Oswestry and Shrewsbury

2012-02-16T09:17:00.000Z

Budget Seminars hosted by Turner Peachey Chartered Accountants in Bridgnorth on the 21st March 2012, Oswestry and Shrewsbury on the 22nd March 2012.

Budget 2012 is being touted as the most important Budget that Chancellor George Osborne has had to deliver. The next General Election is not too far away, and the most recent GDP figures from the Office for National Statistics showed negative growth in the last quarter of 2011 - two consecutive quarters of negative growth and the UK is officially in recession.

The coalition Government now faces the difficult task of boosting economic growth at a time when household budgets are already overstretched, whilst attempting to keep voters on-side. The Autumn Statement prioritised business growth, but many commentators argue that tangible results have yet to be seen.

Many economists claim that businesses are the only tool that the Government has available to jump start growth in the economy, so more initiatives to boost funding and entrepreneurs are expected. Meanwhile, higher rate taxpayers are the likely targets of cutbacks, as the coalition Government already speaks of introducing a mansion tax and reducing the higher rate pension relief.

Whatever happens, we will be reporting on it live on Budget day - 21st March 2012 in Bridgnorth and the following day in Oswestry and Shrewsbury
If you would like to attend please call Mary on 01743 27677 to reserve your place.

February Market Commentary

2012-02-05T09:11:00.000Z

January got off to a predictably slow start, at least in Europe and it was January 9th before Angela Merkel and Nicolas Sarkozy met for talks. Unsurprisingly, they were worried about the credit crunch and – no surprise here either – Greek debt.
Other countries greeted 2012 less sluggishly and China and India reported a strong start to the year, with an increase in domestic demand helping to compensate for reduced orders from Europe.
Virtually all world stock markets turned in a positive performance in the first month of the year. The only fallers were Malaysia, Slovenia, Portugal and Spain, with several markets seeing rises approaching (or even slightly exceeding) 10%. Among the more established markets Hong Kong led the way, rising by 10.61%.

UK

The news from the UK was almost unremittingly bad throughout January – and yet the FTSE 100 index managed a healthy rise of just under 4% to finish the month at 5,681.
Unemployment in the UK reached a 17-year high at 2.68 million, with youth unemployment continuing to be above one million. On January 24th the Guardian reported that the national debt had reached £1tn and in a more prosaic demonstration of the national malaise, Little Chef reported a round of job cutting, perhaps reflecting the fact that there are far fewer reps and delivery drivers on Britain’s roads.
Most worrying though was the reported slump in Tesco’s sales over the Christmas period. The company’s shares slumped 15% on the news as Tesco warned of ‘minimal growth’ – a sentiment echoed by other retail chains such as Argos, Mothercare and Halfords.
Then on the very last day of January came news that Britain’s manufacturers had enjoyed a “strong start” to the year, with output growing at the fastest rate for a year. The closely-watched Purchasing Managers Index survey for January was upbeat, and even had some economists suggesting that a ‘double-dip’ recession could be avoided. Another strong performance in February would be a very positive indicator for the UK.

Europe

As noted in the introduction, M. Sarkozy and Frau Merkel didn’t meet until well into the new year, but then it was business as usual with yet more talks aimed at solving the Greek debt crisis and the EU bailout fund being boosted further to $1tn. Several learned commentators are now actively discussing the means by which Greece could leave the euro but – for the moment – the talks go on.
More worrying in the short term was the fact that the ratings agencies continue to downgrade both European countries and European banks. France lost its AAA rating in the middle of the month, and by the end of the month Italy and Spain had also been downgraded. Among the smaller economies, Belgium, Slovenia and Cyprus were all told to sit on the naughty step.

Speaking at the Davos Economic Forum, legendary financier George Soros warned of a “lost decade” for Europe, similar to that which affected South America in the 1980s.
Like the UK, however, European stock markets shrugged off all the worries to post strong gains in January: Germany’s DAX index rising by 8.91% to finish the month at 6,617.

United States

It was easy to be confused in the US, in a month which saw headlines about SOPA and SOTU. The first was the Stop Online Privacy Act, eventually withdrawn in Congress after much protest from Google, Facebook and countless other online luminaries. SOTU was the annual State of the Union address, and it was widely seen as the start of Barack Obama’s campaign for re-election. It may be that in the run up to the election the President finds himself repeating Bill Clinton’s mantra – “It’s the economy, stupid” – as the economic indicators coming from the US seem to be giving increasingly good news.
Despite this, the Dow Jones index posted only a modest rise compared to some world markets – up 3.6% to 12,632. However, American investors do have several reasons to be cheerful, with the economy expanding by 2.8% in the fourth quarter of 2011. Figures for December showed that inflation and unemployment both fell in the month and the US Federal reserve stated that there would be “no interest rate rises before 2014.”

The Far East

All the major markets in the Far East – China, Japan and Hong Kong – saw gains in January, and as noted above, Hong Kong’s Hang Seng index rose by more than 10%.
Japan did post its first annual trade deficit for more than 30 years, but given the disruption caused by the tsunami of March 2011, that was hardly surprising.
China’s economy “only” expanded by 8.9% in the last quarter of 2011: export growth was lower as a result of the problems in Europe, but as noted elsewhere, there are signs that domestic and regional demand is beginning to compensate for this.

Emerging Economies

January was a tremendous month for those stock markets usually filed under ‘emerging markets’ with Brazil, Argentina and India all posting double-digit rises. The Russian stock market rose by just over 7% as the anti-Putin protests subsided (perhaps because of the Moscow temperature in January…), but there was a less impressive performance from 2011’s stellar performer, Venezuela, where the rise was only 4%.
Whilst the IMF cut its overall growth forecasts for 2012 – trimming its forecast of world economic growth from 4.1% to 3.3% – it inevitably sees the major contractions in Europe and the developed world. Emerging and developing economies in Asia, Latin America and Eastern Europe are still predicted to see growth of 5% or above.

And finally…

January was a quite outstanding month for the financial headline writers. Blacks Leisure found itself in trouble and was eventually bought by JD Sports for £20m. Last minute price reductions failed to save Blacks but did prompt the headline, “Now is the winter of our discount tents.” And Sir Fred Goodwin found himself back to plain old ‘Mister’ as his knighthood was removed for the RBS debacle. However, Mr Goodwin was to hang on to his massive and much-envied pension pot – prompting the English edition of the ‘Volga News’ to report, “Queen takes Knight but no cheque, mate.”

Matthew Clegg authorised by the FSA to provide regulated investment and pensions advice

2012-01-30T09:51:00.000Z

Matthew Clegg today gained his authorisation from the FSA to provide regulated investment and retirement advice. Matthew has already attained the gold standard of Chartered Financial Planner and will continue to work alongside Brian Benson to provide financial planning advice to existing and new clients.

Paul Ward joins Crown Wealth Management

2012-01-16T09:42:00.000Z

We are pleased to announce that Paul Ward has joined Crown Wealth Management as a Senior Financial Planner. Paul will be working closely with Brian and Matthew to provide retirement options and corporate financial planning.

January market commentary

2012-01-10T09:35:00.000Z

05 January 2012

December saw the death of North Korea’s ‘dear leader’ Kim Jong-il, with command of the country seemingly passing to his youngest son – the ‘great successor’ – Kim Jong-un. But with sundry generals peering over the younger Kim’s shoulder tensions are likely to remain high, especially around the border with South Korea.

4,000 miles away in Moscow, hundreds of thousands took to the streets to protest against the supposedly-corrupt elections won by Vladimir Putin’s United Russia party. Putin dismissed the protests out of hand, but the uncertainty will continue until the presidential elections on March 4th – and possibly beyond.

In all of this it was easy to forget the ongoing turmoil with the euro; but unfortunately, life went on as normal in the conference rooms and banqueting halls of Brussels. The pivotal moment came on December 9th when David Cameron used the UK’s veto to protect the City of London. Initial support from Hungary and the Czech Republic soon melted away and Britain found itself in a club of one. As the famous – perhaps apocryphal – newspaper headline had it, “Fog in channel: Europe isolated.”

Bickering inevitably followed. The UK and France had a brief war of words, and the Deputy Prime Minister (supported by most of the Liberal Democrats) didn’t appear to be entirely happy with Mr Cameron’s actions. “Dear leader” possibly wasn’t the phrase on Nick Clegg’s lips…

UK

For most of the month it was easy to be gloomy about prospects for the UK. Business in general didn’t react well to David Cameron’s use of the veto: Sir Martin Sorrell, boss of multinational WPP summed up the mood when he said, “Intuitively, it can’t be helpful. I’d rather be inside the tent.”

Unemployment was the highest for 17 years: the public sector lost 65,000 jobs – thirteen times as many as the private sector gained. Youth unemployment showed no sign of falling; the retail trade in Scotland was hit by the bad weather and West End shops reported disappointing takings on their first traffic free weekend as consumer confidence reached an all-time low.

Boxing Day, however, proved a revelation, with record numbers flocking to the high streets and credit analysts Experian reporting a 21.5% year-on-year increase in the number of shoppers. This echoed the picture in the US over Thanksgiving weekend, with shoppers being attracted by unprecedented levels of discounting. Whether it will be enough to save some of the weaker retailers remains to be seen.

The UK stock market finished the year down 5.5% at 5,572: not the performance that investors were looking for at the start of the year, but significantly better than many major markets. In another sign that the UK is performing less badly than some of its major competitors, growth in the third quarter of 2011 was 0.6% compared to 0.2% in Europe.

UK interest rates are forecast to remain at 0.5% throughout 2012, which is at least good news for homeowners. The pound is expected to do relatively well in 2012 – although one commentator did describe it as “the best looking horse in the glue factory.”

Europe

At the end of the month the euro hit an 11 month low against the dollar, and a ten year low against the yen. There are worrying signs that the European banks are starting to hoard cash: if the trend continues that means liquidity could once again become an issue if banks refuse to lend to each other.

The major European stock markets were largely unchanged during December. Italy and Germany fell slightly, while France moved ahead – but the figures were not significant compared to the 12 month falls detailed below.

Worryingly, the new Spanish government of Mariano Rajoy revealed that the budget deficit will be 8% of GDP, not 6% as forecast. A new round of austerity measures will be introduced, including a pay freeze for public sector workers and increased taxes on top earners.

The economic forecasters IHS Global Insight revealed their predictions for Europe in the coming year, expecting GDP to fall by 0.7% overall. The ECB is expected to respond to this with further cuts in interest rates. This was echoed by a BBC survey of 27 of the UK’s leading economists. 25 of them forecast a recession for Europe in 2012 and the majority put the possibility of a eurozone break-up at 30-40%.

Finally, the UK may agonize about youth unemployment exceeding one million but spare a thought for Spain: 48% of 16-24 year olds there are without a job – a truly depressing statistic to welcome the New Year.

US

The US was one of the few countries in the world where the stock market rose during the year, the Dow Jones index finishing 2011 at 12,170 to post a rise of just over 5%.

The year ended with three pieces of good news for the US economy: growth in the third quarter of 2011 was 1.8% and inflation fell in November to 3.4%. Perhaps even more encouragingly, the US trade deficit fell in both September and October: although total US debt now stands at $14 trillion (with China the biggest single holder of debt) there are some indications that the US consumer is starting to buy more home-produced goods.

2012 will see President Obama going up for re-election and you would assume the improved economic news will favour him. At the moment Obama’s most likely challenger appears to be Mitt Romney, if he can hold off 76 year old Ron Paul and a revitalised Newt Gingrich. With the primaries starting this month the picture will rapidly become clearer.

Global

Stock markets in China, Japan, Hong Kong and Russia all fell during the month; again, this was just a part of the wider falls seen around the world in 2011.

The Chinese trade gap narrowed in November, although largely as a result of the continuing crisis in Europe meaning that fewer goods were imported from China. Speaking in early December on the 10th anniversary of China’s entry into the World Trade Organisation, President Hu Jintao promised to increase imports in a bid to boost world trade, saying that they may “exceed $8 trillion over the next five years.” Last year China bought $1.39tn from overseas so whether the promise carries much weight remains to be seen.

Japan’s annual inflation rate fell to 0.5% in November: unemployment remained steady at 4.5% and interest rates were unchanged at ‘virtually zero.’

As had been anticipated, China and Japan unveiled plans to promote the direct exchange of their currencies in a bid to cut costs for companies and encourage more trade. Bloomberg reported Ren Xianfang of IHS Global Insight as saying, “this agreement is much more significant than any other pacts China has signed with other nations.”

Previously, trade between the two countries had meant converting the currencies into dollars. Whilst the move might mean the dollar weakening in the region it is likely to be quietly welcomed by the US, as it could see the yuan – which the US has long held to be undervalued – moving closer to its true value.

World Stock markets – a look back at 2011

For the majority of the world’s stock markets it is impossible to file 2011 anywhere other than in the ‘bad years’ column. Only seven of the 50 markets covered by Trading Economics managed a gain, and only one of these was in double figures. That market was Venezuela, up a hugely impressive 80% - although it would take a brave adviser to recommend investing in the country, and an even braver client to go along with it. To no-one’s surprise the worst performing stock market of the year was Greece, losing more than 50% of its value in 2011.

Most markets saw falls of around 15-20%. Germany was down by just under 15% on the year: France by 17%. Japan fell by 17% and Hong Kong by 20%. Even the supposed growth economies of the BRIC countries saw their stock markets hit: in Brazil, Russia, India and China the markets fell by 18%, 20%, 15% and 22% respectively – all of which puts the performance of the UK market (down by 5.5% on the year) into a more favourable light.

For those wanting the numbers, the UK finished the year at 5,572; Germany’s DAX index closed at 5,898 while in the Far East, Japan ended 2011 at 8,455; Hong Kong at 18,434 and China at 2,186. The rise in the US saw the Dow Jones index close at 12,170.

All stock markets fluctuated significantly during the year – for example, the FTSE touched 6,015 in February and saw a low of 4,791 in August. Other markets moved even more in percentage terms; Germany’s DAX index reached 7,527 in May and hit a low of 5,072 in September.

These movements and all the attendant unpredictability made 2011 very difficult for both investors and their advisers – and what 2012 will bring is hard to say. Clearly the year is going to be dominated by the continuing efforts to sort out the euro and quite possibly by the problems of bank liquidity.

In many ways it would be tempting to end 2011 by thinking that ‘it can’t get any worse and at least all the bad news is out in the open.’ Whilst this might be a little naïve, there were signs of optimism around the world in the final quarter of the year; the strong performance of the US stock market; China’s apparent increased willingness to trade and – hopefully – a new resolve to solve the problems of the euro. Inevitably, there will be difficult times in the coming year, but for investors, there are some lights at the end of the tunnel. We will – as ever – keep you up to date with all the relevant developments in the coming year, and will always be here to answer your questions.

A very happy and prosperous New Year from all of us.

Guaranteed Deposit Investments - Too Good to be True? Maybe not…

2011-12-23T17:16:00.000Z

Many investors are becomingly increasingly disappointed with the return they are receiving on cash held in traditional deposit accounts. With even the best accounts only paying around 3% (before any tax liability is taken into account) savers are not even receiving a return that protects them against inflation.

Understandably therefore, many people are starting to look at alternative investments in the hope that they can generate a more attractive return. However, with worries about the American trade deficit and the eurozone crisis making stock markets around the world nervous, security remains high on the list of priorities for such investors. It is unsurprising therefore, that ‘Guaranteed Deposit’ plans offered by providers such as Investec, Sipp Nordic and others are winning a widespread following.

Colloquially, this type of investment is often referred to as a “guaranteed” investment as one of the key selling points of such investments is that your initial capital is protected, providing certain conditions are met. Perhaps the simplest way to explain the investment is to use an actual example.

Investec are currently offering a three year investment called the FTSE 100 Deposit Plan 30. As you’ll gather from the title, the plan is linked to the FTSE 100 index – the main points are:

The plan offers a gross return of 19% providing the FTSE 100 index is higher at the end of the three year term than it was at the beginning of the plan
If the FTSE has fallen, your original capital will be returned, but you won’t receive the 19% growth
The plan can be held as an ISA, making the returns tax free, or gains could also be tax free if an investor used his or her annual CGT allowances
Larger amounts can also be invested tax efficiently through a Self Invested Personal Pension, or by using a Small Self Administered pension scheme

With interest rates likely to remain low over the next three years the returns on this investment are likely to easily outstrip the returns on a traditional savings account – especially when you realise that any gain in the FTSE (however small) will trigger the 19% return. However, before investors rush to sign up, there are notes of caution:

If the FTSE falls in value, only your original investment is returned – so any interest you would have gained had the money been left on deposit is lost
And whilst investments like this are eligible for the UK Financial Services Compensation Scheme (now up to £85,000 per person, per authorised firm) return of your capital does ultimately depend on the financial solvency of the underlying institution
In addition, you need to leave your money invested for the full term of the plan: whilst it is generally possible to encash this type of plan early it is not advisable, as then the original guarantees do not apply

So investments such as these are not right for every investor, and they should never be used for the whole of any saver’s investment portfolio. But they do have significant advantages, and can play an important part in an overall financial planning strategy. In addition they can be very tax efficient, making them attractive to investors who have already used their ISA allowance for the relevant tax year.

The example used above – the Investec FTSE 100 Deposit Plan 30 – is a relatively simple example of a “guaranteed deposit” investment, and other plans offer different investment periods, and different potential returns. We will happily work through these examples with you, and explain how this type of investment could form an integral part of you overall financial planning. Please don’t hesitate to contact us if you would like further details.

December market commentary

2011-12-23T17:14:00.000Z

When you realise that the ‘Italian 10’ trending on Twitter refers not to Antonio Cassano's goal against Northern Ireland but to the yield on the Italian 10 Year Bond, then you know the European debt crisis – and the consequent turmoil on the world stock markets – remains alive and well.

November was the month when Italy overtook Greece for the number of times it was in the same sentence as the word “crisis.” Silvio Berlusconi stood down as Prime Minister and – as had happened in Greece – the technocrats moved in to implement austerity measures which would hopefully balance the books and help to bring stability to the eurozone.

In the UK the Chancellor delivered his Autumn Statement against a backdrop of gloomy economic forecasts and a public sector strike.

Meanwhile, on the other side of the world President Obama was intent on setting up a Pacific free trade area, whilst at the same time telling China how to manage its currency.

For the majority of the month world stock markets performed poorly. Only four markets managed overall gains in November; Pakistan, Ireland, Mexico and Venezuela. As could have been expected, Greece was the biggest loser with the index there down 18% in the month. However, markets staged a spectacular rally on November 30th (the Dow Jones, for example, had its biggest one day gain since 2009). This was in response to an injection of liquidity from the US and other central banks and meant that overall many markets finished the month little changed.

UK

November in the UK was dominated by George Osborne’s Autumn Statement. The day before the Chancellor delivered his speech the Organisation for Economic Co-operation & Development had forecast that the UK was on course for a ‘double-dip’ recession, something that the Chancellor was at pains to refute.

But with UK Government borrowing due to hit £127bn in 2011/2012 and an extra £112bn of borrowing now being needed over the next four years, savings clearly had to be made. The axe duly fell on the public sector, with a 1% cap on pay rises from Spring 2012 and an anticipated 710,000 public sector job losses by 2017. Don’t expect this to be the last time your children have a day off school…

Worryingly, the CBI survey of business confidence in November showed a sharp fall from the one carried out in August, with 70% of those surveyed less confident than they’d been three months previously. Two in every five businesses had either frozen recruitment or were laying off staff, with business leaders citing weak consumer demand, instability in financial markets and – inevitably – the eurozone crisis as reasons for the loss of confidence. Another cause for concern was the fact that youth unemployment in the UK hit the one million mark in November.

Having started the month at 5,544 after a healthy rise in October, the FTSE spent most of the month in retreat, only to bounce back on November 30th to finish virtually unchanged at 5,505.

Europe

Again, the month in Europe was dominated by the debt crisis. Although there are rumours of civil servants (and teams of corporate lawyers) burning the midnight oil to assess the implications of breaking up the euro, for now most commentators accept that saving the currency is the favoured course of action.

Spain joined Greece and Italy in a change of government, with the centre-right Popular Party of Mariano Rojay claiming a decisive victory.

European stock markets followed the general pattern – meandering downwards for virtually all of the month, only to rally on the final day. Germany’s DAX index was typical – it started the month at 6,141; dipped well below 6,000 at one point and then finished at 6,088, a fall of less than 1%.

US

The key date for the US economy in November was Friday November 25th. The day after Thanksgiving is known as ‘Black Friday’ as it is the day when retail outlets supposedly move out of the red and into the black.

Up to 40% of US retail sales take place in November and December, and 152 million Americans were expected in the shops over the Thanksgiving weekend. According to the National Retail Federation sales were up 16% on the previous year with shops raking in $52.4bn over the four day weekend.

If your glass is half-full then this clearly shows that US consumer confidence is once more on the rise. Those for whom the glass is half-empty will see a different headline; ‘Spending on imported consumer goods widens US trade gap.’ Only time will tell…

As above, President Obama outlined plans to set up a trans-Pacific free trade area at a regional summit in Hawaii. Significantly the 21 countries involved in these talks account for 44% of world trade. Not for the first time Obama urged China to let the yuan rise, suggesting that it is currently undervalued by 20-25% which clearly gives China a major trading advantage.

Global

Japan reported a 1.5% rise in GDP for the three months to the end of September, suggesting that the economy is starting to recover from the earthquake and tsunami. While Japan is still vulnerable to the strength of the yen and global economic problems, it does seem that the worst of the damage inflicted by Mother Nature has been overcome.

It was business as usual in China with another hefty trade surplus, but India reported a slowdown in GDP growth, caused by higher borrowing costs and the eurozone crisis. To put things in perspective however, India’s GDP growth slowed to 6.9% for the three months ending in September. What wouldn’t George Osborne give for such a slowdown?

And finally…

Our next monthly review will be published in the first week of January, so this may be an appropriate time to wish you a Happy Christmas and a peaceful and prosperous New Year. And rest assured that whatever happens in the global markets in 2012, we’ll keep you in touch.

Abolition of contracting out on a defined contribution basis

2011-11-30T09:51:00.001Z

Do these changes affect you and your pension savings arrangements? It is intended that from the 6th April 2012 people will no longer be able to contract out of the additional State Pension (also known as the State Second Pension) on a defined contribution (money purchase) basis. Instead they will automatically be brought back into the additional State Pension and begin to build up entitlements from this time.

At the moment some pension schemes are set up to provide a pension which replaces all, or part, of the additional State Pension. This includes some company, stakeholder and personal pension schemes. When an individual joins one of these pension schemes, they are said to be ‘contracted out’ of the additional State Pension.

The National Insurance rebates an individual currently gets if they are contracted out are intended to provide benefits broadly the same as those given up in the additional State Pension. However, because benefits from defined contribution schemes can vary, it is very difficult to predict with any degree of certainty what they will get. Due to this uncertainty and the difficult judgements that individuals currently have to make about whether they would be better off in the additional State Pension or contracted-out, the Government has decided to abolish contracting out on a defined contribution basis.

It is intended that from 6 April 2012, instead of receiving rebates of National Insurance contributions, individuals will begin to build up an entitlement to the additional State Pension. For every year that they pay National Insurance on earnings over £4,940 a year (based on 2009/10 earnings), they’ll get an extra £1.60 a week on their State Pension when they come to claim it.

An individual will still be able to save in a defined contribution company pension, personal pension or stakeholder pension. All this change will do is remove the option for people to use this type of pension arrangement to contract out of (leave) the additional State Pension. An individual’s pension scheme administrator or employer should contact them nearer the date of abolition in order to explain how their scheme will operate in future.

People should continue to review their pension position each year as they may be better off opting back into the State system prior to the abolition date.

If you want to find out more about how this might affect your pension savings arrangements, contact one of the team who will be happy to help.

Pension auto-enrolment must be postponed - IoD

2011-11-30T09:50:00.001Z

The Institute of Directors has called for the Government to postpone the phased introduction of its controversial pension auto-enrolment scheme for two years, until 2014. At present, the plans will see some employees being enrolled onto the scheme from October 2012.

The IoD argues that the new regulation comes at a time when real incomes are being eroded by inflation and that the further reduction in spending power that this will cause is the last thing the economy needs. With many employers currently struggling to offer their employees salary increases, firms may find that these additional employee contributions swallow up any pay rises. When IoD members were asked earlier this year how they would make up the contributions, one third said they would be forced to freeze salaries.

It has also been pointed out that, as employees have the opportunity to opt out of auto-enrolment, many will prioritise income now over future retirement savings. The result would be a failing of the Government's objective to increase pension saving whilst at the same time burdening employers with unnecessary administration.

Commenting on the Government's proposed timetable, Simon Walker, Director General of the IoD, said:

“This is the wrong time to be implementing pension auto-enrolment. The Bank of England's downward revision last week of their growth forecasts for this year and next shows that companies and households are hard-pressed. Real incomes are being squeezed and employers are struggling to offer staff pay rises.

“It is not too late for a change in course – if the Government defers auto-enrolment at next week's Autumn Statement, it will have done so before most businesses have even considered the impact of the new rules. A few months ago when we asked, one in five of our members did not even know the legislation was coming into effect from next year.

“The IoD proposes that the Government delay the introduction of auto-enrolment by two years. This would give businesses time to strengthen their balance sheets while not undermining consumer spending when it's at its weakest.”