Paul's Blog

The Insolvency Service has given Dipak Rao, the former accountant of Deep Purple, an eleven-year ban from serving as a director. The ban follows the revelation that he had misappropriated a minimum of £2 million from the companies who held responsibility for controlling the copyright over many of the rock band’s hit songs.

Rao was discovered to have made a number of payments to his own personal accounts from Deep Purple (Overseas) Ltd and HEC Enterprises Ltd between 2008 and 2014, hiding the transactions by restricting access to bank statements for both companies and excluding them from the financial accounts. Both companies were set up in the 1970s to manage the copyright of Deep Purple’s hits, and subsequently became responsible for the rights of songs by two other bands, Rainbow and Whitesnake, which were formed by Ritchie Blackmore and David Coverdale, former members of the earlier band.

Both companies went into administration in 2016 following Rao’s resignation as director two years earlier. Whilst Rao has confessed to ‘borrowing’ at least £2.27 million, the Insolvency Service has only recovered £477,000 so far. The scheme was only uncovered after Blackmore launched a lawsuit against the companies demanding unpaid royalties of £750,000. The investigation was ‘as clear as it was damning’ according to an inside source, and led to Rao being disqualified from managing or controlling a company without leave of the court until 2028.

“Rao misappropriated company funds causing detriment to the company and its creditors, to his own personal benefit,” said Sue Macleod, chief investigator of the Insolvency Service. She urged company directors to “note from this enforcement result that actions of this kind will lead to serious censure,” adding that Rao’s “disqualification is a reminder to others tempted to do the same that the Insolvency Service will rigorously pursue enforcement action and seek to remove from them for a lengthy period.”

https://www.accountingweb.co.uk/practice/general-practice/deep-purple-accountant-rocked-by-ban?utm_medium=email&utm_campaign=AWUKINS290917&utm_content=AWUKINS290917+Version+A+CID_1fa95b5e2c29b2202a7fe1b7febaf528&

After months of speculation, the Bank of England finally raised interest rates in the UK for the first time in over a decade. The increase from 0.25% to 0.5% might seem small, especially when you consider that the last time the interest rate was increased in July 2007 it was up to 5.75%, but the fact that interest rates are going up at all after more than ten years at rock bottom is significant.

The rates rise will have an impact on the finances of millions of people in the UK, with those on variable rate mortgages likely to lose out the most. 46% of households with a mortgage are on either a standard variable or tracker rate, which are likely to move at the same time as the official bank rate.

These mortgages have an average of £89,000 left to pay off, resulting in a monthly payment increase of around £12. Those with higher variable rate mortgages will of course see their outgoings increase by a higher amount: payments on a £300,000 mortgage will go up by about £39 a month. Homeowners with fixed rate mortgages meanwhile can expect their payments to remain the same for some time following the interest rate lift, as can those with loans and credit cards to pay off.

Savers are likely to benefit from the rates increase having seen little growth on their savings for a number of years. On average, an easy-access savings account currently pays interest at 0.14% annually, meaning that £10,000 worth of savings would generate just £14 every year. If providers choose to pass on the rates rise in full, this will add another £25 to earn £39 annually. A typical ISA meanwhile will see the annual growth of £10,000 increase from £30 to £55.

Pensioners who have purchased an annuity can also expect to benefit from the rates rise. Annuities follow the yields on gilts, or long-dated government bonds. In anticipation of a rates rise, these have also increased, meaning those purchasing an annuity for retirement will receive better value for money on their investment. In November 2016, a joint annuity bought for £100,000 would receive an annual income of £4,086. That figure has risen this month to £4,468 and could continue to go up depending on how likely further base rate increases are – something which the Governor of the Bank of England, Mark Carney, has indicated is likely over the next few years.

Sources
http://www.bbc.co.uk/news/business-41846330
http://www.bbc.co.uk/news/business-41831777
http://www.telegraph.co.uk/money/special-reports/will-happen-investments-interest-rates-rise/

Retirement is undoubtedly the section of your life which receives the largest amount of planning for most people, with much of your working life spent ensuring you can live where and how you want once you’ve retired. However, as with all plans, there are always going to be aspects of your retirement which don’t end up quite how you’d expected, and a few you might not have even considered until you’ve actually given up work. Here are a few key lessons learned by those enjoying retirement already:

  1. Part-time work might not be for you – More and more people are including a part-time job into their plans for when they retire, sometimes for financial reasons but also to remain social and active. In theory it’s a great idea, and whilst it works well for some, finding something that meets all of your needs can be more difficult than you might expect. If you do want to continue working part-time, try to have something lined up before you actually retire. It’s also a good idea to plan for your part-time earnings to be extra money rather than a requirement for your monthly expenses.
  2. Think carefully before moving home – It’s natural that you’ll want to spend more time with family once you’ve finished working. But be realistic when making plans regarding your home. Keeping hold of a larger property might seem like a good idea to host family events, but if the space is rarely used then downsizing is often a far better option that makes both maintenance and utility costs more manageable. Don’t rush to move closer to family either. If your children are now young professionals it’s likely that they’ll need to move from one area to another for their career, which could potentially leave you living in an unfamiliar area and no closer to your loved ones.
  3. Maintain a realistic outlook – It may sound obvious, but retirement doesn’t automatically guarantee a stress-free life. It’s therefore important to make plans and keep a balanced mind to help you deal with any issues that either arise or continue once you’ve finished work. In fact, no longer having a career to focus on can make other aspects of your life to do with family or health feel overwhelming if you don’t prepare yourself emotionally. Taking up new interests and hobbies may seem like a cliché, but they’re a great way of ensuring you can keep perspective and make plans for the days and weeks ahead.

Sources
http://www.bankrate.com/finance/retirement/lessons-new-retirees-learn-hard-way-6.aspx

Not beginning to save towards your retirement until you reach your fifties would not so long ago have been considered leaving matters far too late to put anything meaningful away for your life after work. Previous generations saw building a pension as something to do over an entire career, with contributions throughout your working life coupled with investment growth being the only way to ensure your retirement pot was substantial enough to provide for you throughout your retirement.

However, whilst compound interest still means that anything put away at the start of your career will see some serious growth by the time you need it much later in your life, the reality today for many young people is that they simply have very little to invest when they first begin work. Many may find that they won’t be able to begin saving seriously until they reach middle age.

The reasons for this are several. First of all, your wages are statistically likely to reach their peak for women during their forties and for men in their fifties. Secondly, as the average mortgage term is twenty-five years, most people who bought their home in their twenties are likely to have finished paying it off by the time they reach their fifties. A third key reason is the declining cost of raising children. Whilst it’s unlikely that you’ll stop giving them financial support completely, if you’ve had kids in your twenties or thirties it’s probable that the cost of providing for them will have gone down a great deal by the time you’re heading towards 50.

With considerable tax relief on both ISA investments and pensions, it’s now possible to build a healthy retirement fund even if you only start saving in your fifties. For example, someone with no existing savings, earning £70,000 annually, who started saving the maximum permitted yearly amount of £40,000 at age 50 could amass a pension pot of £985,800 by the time they turn 67, assuming a 4% annual return after charges.

£40,000 a year might sound like a huge amount to save every year, but this amount includes the generous tax relief enjoyed by pension savings. Our £70,000 earner would only need to put away £27,000 of their own money in order to reach the £40,000 contribution, whilst a basic rate taxpayer would need to contribute £32,000 to achieve the same.

So, whilst it’s sensible to begin saving as early as you can, it is possible to begin putting money away when you reach middle age and ensure you have enough to provide for yourself later in life. The last ten years of your working life can reasonably be seen as some of the most important in terms of preparing for your retirement.

Sources
http://www.telegraph.co.uk/pensions-retirement/financial-planning/start-investing-50-get-1m-pension-pot-67/

Changes to inheritance tax (IHT) came in earlier this year, affecting the allowance for those wanting to pass on their home to members of the family. But as the changes are being rolled out over the next few years up to the 2020/21 financial year, it can be hard to know if and how the changes will affect you.

The current amount you’re able to leave in your estate without incurring IHT is £325,000, known as the nil rate band (NRB). Anything above this amount incurs 40% tax, with certain exceptions, such as gifts to charities, being able to lower that percentage. Any transfers between spouses or civil partners are exempt from IHT even if your estate exceeds the NRB, with married or civil partnered couples having £650,000 – twice the NRB limit – to offset against their combined estate.

Introduced in April this year, the residence nil rate band (RNRB) adds a further £100,000 to the NRB. This will then increase by £25,000 each year up to 2020/21, when it will reach £175,000. Each person will therefore have a maximum allowance of £500,000, with surviving spouses having an allowance of £1 million to offset against IHT when their partner’s allowance is transferred to them.

The RNRB differs from the NRB in that it doesn’t apply to lifetime transfers, such as transfers into trusts or gifts given by an individual within a period of seven years before they died. This means that whilst the NRB could potentially be consumed through gift-giving in the last seven years of a person’s life, the RNRB would still be fully available.

Back in 2015, when the RNRB was first discussed, there were concerns over discouraging older couples from downsizing or selling their home to move in with a relative or to residential care. Since then, however, the rules have been readjusted so that the allowance can still be utilised by those who sell up or move to a smaller home before their death, as long as the deceased leaves the downsized property or equivalent valued assets to their direct descendants.

Whilst there’s no limit on how much time passes between the downsizing or property sale and death, the transaction needs to have taken place after 7th July 2015 in order to qualify. RNRB also only applies to one property which the deceased needs to have lived in at some point before dying, meaning that buy-to-let properties or those in discretionary trusts don’t apply. If the deceased owned multiple homes, personal representatives are able to nominate which property should qualify for RNRB.

It’s also important not to fall into ‘the sibling trap’ – leaving a home to a sibling rather than a direct descendant such as a son or daughter, which disqualifies them from being able to use the RNRB.

Sources
https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band
https://www.gov.uk/government/publications/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band
https://www.theguardian.com/money/2017/apr/01/inheritance-tax-relief-1m-residence-nil-rate-band
http://dev.cs.mail-first.co.uk/inheritance-tax-recent-changes-need-know-plan/
http://www.voice-online.co.uk/article/death-and-taxes-uk

A new study has found that paying to free up your time is linked to increasing your level of happiness. Individuals taking part in a psychological experiment said that they felt happier when using $40 (around £30) to save themselves time rather than buying material goods.

Stress over not having enough time can lead to reduced well-being, as well as being a contributing factor in conditions such as insomnia and anxiety. However, it has been reported that even the wealthiest people are generally unwilling to pay others to carry out tasks they dislike.

Whilst the average level of income is increasing in many countries around the world, a new phenomenon known as ‘time famine’ is being observed, particularly in Europe and North America. This is recognised as stress over the demands made on an individual’s time each day. The study, carried out by psychologists in the US, Canada and the Netherlands, looked at whether using money to free up time can counteract this stress.

Over 6,000 adults – in these three countries and Denmark – including 800 millionaires – were questioned about how they spent their money on buying time. Whilst those who did so said that they felt a greater sense of satisfaction in their lives, less than one in three reported spending money to buy themselves time on a monthly basis.

This then led to a two-week experiment taking place in Vancouver, Canada. Sixty adult participants were asked to spend $40 on something that would save them time during the first weekend. Purchases included having lunch delivered to work, paying for cleaning services, or even paying children in their neighbourhood to run errands.

On the second weekend, the participants were told to spend the money on material goods, with purchases including wine, books and clothes. The researchers found that the time saved reduced feelings of time stress, increasing happiness more effectively than the material purchases.

The study backs up previous research that concluded those who prioritise time over money are generally happier than those who prioritise money over time. So, next time you come home from work and plan to start your ‘second shift’ of housework, think about whether spending some of your salary to free up that time would make you happier than going on a shopping spree.

Sources
http://www.bbc.co.uk/news/science-environment-40703519

Recent changes announced by the government to the state pension will result in nearly six million people currently in their forties having to wait longer until they can retire. It’s a development which has raised concerns over the dependability of the state pension, which for many makes up the lion’s share of their retirement income and is the most valuable state-funded perk for even more people.

For the seven decades between 1940 and 2010, the state pension age remained constant for both men (65) and women (60). However, thanks to the 1995 Pensions Act, the age for women was increased to 65, a change which was to be phased in between 2010 and 2020. This was then altered further when the Conservatives and Liberal Democrats formed the coalition government in 2011, speeding up the process so that the age for women would increase to 65 between April 2016 and November 2018, with a further increase to 66 for all working adults from April 2020.

Under these plans, the state pension age would be 68 for those born after 6th April 1978. But the changes announced in July this year mean that window will increase to include those born between 6th April 1970 and 5th April 1978. The pension age for anyone currently under 39 is yet to be confirmed. The changes are likely to affect the younger generations who have lost out through the closure of ‘final salary’, or ‘defined benefit’ pension schemes.

Those in their late 30s and 40s are being described as the ‘sandwich generation’, being as they’ve missed out on the final salary pension schemes enjoyed by older generations, but are now too far through their working lives to feel the full benefit of automatic enrolment which younger generations will experience.

However, there are further concerns that things could change yet again, as the government has stated that law on the proposed pension changes won’t be passed until 2023, essentially preparing to pass the legislative aspects on to a future government. Thanks to Theresa May’s weakened position and Labour’s opposition to the proposed increases to state pension age, the changes may not happen at all.

As such, there have been calls from those in the financial world for an independent body to oversee any future changes, as well as the establishment of a national savings strategy to help people with their savings and investments to provide for their future

Sources
http://www.telegraph.co.uk/pensions-retirement/financial-planning/state-pension-shake-everyone-50-needs-know/

Whether you’re nearing the start of your retirement or you’ve still got a few years of work ahead of you, it’s likely that you’ve already started planning this next significant phase in your life. But no matter how much you read, how many numbers you crunch and how many pounds you put away, you might still find yourself constantly adopting a pessimistic view on what should be the period of your life set aside purely for you to enjoy yourself. Psychologists describe this as “awfulizing” – focusing on everything that could go wrong, to the point of forgetting about all the positives that are likely to await you.

It’s a feeling that many retirees describe having in the countdown to finishing their working life. It’s often not a rational response: even those who have saved plenty for their retirement, mapping out the likely eventualities and ensuring they have a financial safety net, can find themselves overwhelmed – panicked even – by the realisation of the huge amount of free time and opportunities which will soon become available to them. A little bit of worry about the unknown is natural, but it’s when this worry blocks your path to achieving your retirement dreams that it develops into full-on awfulizing.

So, if you feel yourself slipping into awfulizing, how can you overcome it? It’s personal to everyone, but there are two steps. The first is to take ownership of those things within your control. Sound financial planning and taking some professional advice should be at the top of this list, as without enough money to see you through your retirement, your imagined fears may well end up as a reality. Being open and honest about this with family is a good idea to ensure that your plans and commitments once you retire are known and understood by everyone who might be affected.

Having taken care of what you can control, the second step is to address those things that you can’t. Accepting that some eventualities simply can’t be planned for is essential to reduce your awfulizing tendencies, but in order to banish them completely you need to become comfortable with uncertainty. View your retirement as a story that hasn’t yet been written rather than a plan from which you can’t deviate. As long as you balance management of the elements you can control with acceptance of those you can’t, you should find yourself free from the awfulizing mindset that can threaten your enjoyment of the best time of your life.

Sources
https://www.forbes.com/sites/nextavenue/2017/06/23/how-i-stopped-awfulizing-retirement/#3da564571baf

Once upon a time, commercial air travel was one of the ultimate luxuries reserved for the rich, famous and powerful, primarily because of the expense involved in doing so. The world where that was true now feels like one from a very long time ago, with ever-advancing technology making flying cheaper and easier and the rise of budget airlines making catching a plane something that everyone can enjoy – or not, as the case may be. With flight delays and cancellations a common occurrence, heightened security measures leading to longer waiting times to board, and incidents such as the violent removal of a passenger from a United Airlines flight in April this year, commercial air travel has not only lost its glamour, but is now something many passengers are coming to dread.

It’s perhaps not surprising, then, that a number of companies are working to put the prestige back into plane travel. These start-ups are looking to strip out the booking and scheduling time passengers experience when using the bigger airlines through utilising private jets. One such company is JetSmarter, which seeks to sell empty seats on private jets through an online booking process. The company plans to use smartphone technology to make it as easy to reserve a place on a flight as it is to book a cab through Uber. JetSmarter doesn’t own or operate the planes themselves, but instead works with various private plane operators throughout the US.

The approach could potentially open up private jet travel to new customers whilst making it far more affordable. However, don’t mistake JetSmarter for a budget service: customers are required to pay an annual fee of $15,000 US (around £11,500), with those wanting to be able to arrange flights themselves rather than accessing seats on existing flights needing to pay additional costs. Not cheap, but for those who fly regularly and who are looking for a travel experience away from the trials and tribulations of using commercial airlines in 2017, it may prove to be a price worth paying.

Sources
http://www.bbc.co.uk/news/business-40443119

A recent study by HSBC has revealed the main financial worries of the ‘millennial’ generation, recognised as those born between 1980 and 1997. As its title suggests, the ‘Future of Retirement’ survey focuses primarily on how millennials feel about how they are preparing for life after work, but also delves into the wider issues around money and modern life which are inherently linked to the subject.

In general, millennials see themselves as less fortunate than the generations which have come before them. Over half (52%) felt that they had seen weaker economic growth than previous generations, whilst 60% said they saw themselves as experiencing the consequences of decisions made by those older than them, including rising national debt and the global financial crisis. In relation to retirement, 65% of respondents are worried that they will run out of money when they retire, whilst 46% were concerned that employer pension schemes would collapse without any payout for their generation.

The average age that millennials begin saving for their retirement is 27, with just 13% admitting to not having begun putting money away for their pension yet. 76% said that curbing their current spending was difficult but necessary to save for later in life, whilst 68% are willing to do so. When it comes to investment, nearly half of those surveyed (48%) said they would go for a risky opportunity which had the potential for greater returns further down the line.

Expanding out to look at the concerns of all those currently working, which includes both Baby Boomers (those born between 1945 and 1965) and Generation X (born between 1966 and 1979), the survey found that only 17% were worried they wouldn’t be financially comfortable in retirement based on their current savings, with a worrying 14% admitting to having not been able to save anything. However, over half (52%) said they felt that due to the constantly changing financial climate, their current retirement plans would not be relevant.

When asked about back-up plans, around two thirds (67%) of working people said they would continue working in some way after they reached their retirement, whilst more than four fifths of people (82%) said they were intending to retire two years later than originally planned in order to give themselves greater financial stability. 41% also said they wouldn’t mind taking on a second job or working for longer to supplement their pension pot.

The key guidance from HSBC’s research is that starting to save early is the best way to ensure you have sufficient savings to support yourself after you’ve retired. Another key message is the importance of seeking advice, with many people now using technology to plan their retirement: almost half of those surveyed (49%) have used the Internet to research their options, 35% have used online retirement calculators and 27% have contacted advisers online. Online savings accounts are also popular, with 41% saying that they are using one to put money away.

Sources
http://economictimes.indiatimes.com/wealth/plan/hsbc-survey-finds-out-why-retirement-is-worrying-millennials-and-what-they-are-doing-about-it/articleshow/58869087.cms