Tag: certified financial planners


Budget 2014


Radical changes proposed in today’s Budget could herald the biggest shake-up to UK pensions ever. And it could happen as soon as 2015.

These welcome proposals would give pension savers more freedom, choice and flexibility than ever before over how they access their pension savings.

In this brief budget over view we cover the following – more information will be issued when we have more details.

1. New ISA
2. NS&I – Premium Bonds / Pensioners Bond
3. Pensions – Retirement Income
4. Tax Allowances and Thresholds


In a major simplification for savers, the annual subscription limit will be increased to £15,000 (from £11,520), and there will no longer be a lower cap on the amount saved into a cash account. So your clients can save any combination of amounts up to £15,000 overall between their cash and stocks and shares ISA.

The simplified product will be known as a NISA (New ISA), and all existing ISAs will become NISAs. Savers may also transfer their stocks and share ISA to cash.

This measure is intended to give greater choice and flexibility for savers but, in the current climate of low interest rates, clients should be carefully advised about switching fully to cash.

The annual subscription limit for Junior ISA and Child Trust Fund (CTF) will also be increased from £3,840 to £4,000.

All of these changes will have effect from 1 July 2014

Two key measures were announced for savers with National Savings and Investments. Premium Bonds get a decent fillip: increased investment (£30,000 to £40,000 in June 2014, up again to £50,000 in 2015/16) and bigger prizes (two £1M prizes a month from August 2014).

The proposed fixed rates on the Pensioner Bond look attractive – 2.8% gross/AER for a one year term, and 4.0% gross/AER for a three year bond.

But there’s a £10,000 maximum investment limit and the income will be taxable

Pensions – Retirement Income

The detail isn’t set in stone. But this signals a clear Government desire to give savers more control, and responsibility, over their destiny in life after work. It could represent pension utopia, but only with advice to solve an increasingly complicated retirement equation.
These proposals will be consulted on this year, but in recognising the need for flexibility there is a boost for drawdown users almost immediately.

The chancellor has announced two welcome changes to income drawdown rules from 27 March:
•Capped income drawdown – limit up 25%: The maximum yearly income allowed under the pension capped drawdown rules will increase by 25%, from 120% to 150% of the GAD basis amount, for income years starting after 26 March 2014.
•Flexible income drawdown – MIR cut to £12k: The yearly secured income needed to meet the ‘minimum income requirement’ to access flexible drawdown will be cut from £20,000 to £12,000 for those applying to start flexible drawdown after 26 March.

Taken together, these changes give pension drawdown users even more flexibility to dial income up or down to adapt to changing circumstances.

Pension triviality limits increased

The Chancellor has announced welcome changes to the pension triviality rules from 27 March 2014:
•Triviality limit up to £30k: Individuals over age 60, with total pension savings of £30,000, or less can take it all as a trivial commutation lump sum – the current limit is just £18,000;
•Stranded pot rules relaxed: Small stranded pension pots of up to £10,000 can be taken as a lump sum – a significant increase from the current £2,000. And the number of small stranded personal pension pots that can be taken as a lump sum is increased from two to three.

These changes improve choice for more consumers who may otherwise have been forced to receive very small regular pensions for life, with limited ability to shop around for the best annuity. In both cases, up to 25% of the lump sum can be paid tax-free with the balance taxed as income.

55% Drawdown death benefits charge set to be cut

It’s been a day full of good news for drawdown users with the announcement of a consultation on the 55% tax charge on drawdown lump sum death benefits.

With much greater freedom proposed on taking pension benefits, there are plans to cut the rate of tax payable on drawdown death benefits from April 2015 to make it more closely aligned to income tax charges on drawdown.

Having a rate of tax on death which is greater than the income tax on withdrawing income could see the tax tail wagging the retirement income dog. The Government have recognised the need to have a tax system where pension savers are not penalised by only taking what they need from their pension fund.

This should see the ability to pass on pension death benefits to loved ones given a further boost and make the use of bypass trusts even more appealing.

Tax allowances and thresholds

Income tax:
•The personal allowance, set at £10,000 for 2014/15, will rise to £10,500 in 2015/16 for those born after 5 April 1948. At the same time, the level at which income tax becomes payable at higher rates will rise by 1% to £42,285, meaning that higher rate taxpayers with incomes below £100,000 will also be better off by £184 – a little less pressure on the ‘squeezed middles’.
•Age related allowances will remain at £10,660.
•From the 2015/16 tax year, a spouse or civil partner who doesn’t have income to fully use up their personal allowance, will be able to transfer up to £1,050 to their partner, provided that partner is a basic rate taxpayer.

Capital Gains Tax
The annual exemption will rise by £100 to £11,000 in 2014/15, and to £11,100 in 2015/16


As always should you require more information please do not hesitate to contact us on 01737 225665 or advice@conceptfp.com


building your financial future

The Changing State of the National Pension Pot

In 2011, the value of assets held in UK funded pensions was £2,040.7 billion, which was equivalent to 135% of Gross Domestic Product (GDP) for the UK.

Self-administered pension funds, most of which are associated with defined benefit occupational pension schemes, accounted for 71% of the total. Self-administered pension funds now include insurance-managed funds. These had been excluded from the pension pot calculations previously.

On a like-for-like excluded basis, self-administered pension funds account for 66% of assets held in UK pension funds in 2011, up from 55% in 2009.

Between 2008 and 2010, pension saving contributed 79% towards the total aggregate saving of households that were headed by someone who was aged between 50 and 64. When looking at the 50 to 64 age group according to the saving capacity of people on different incomes, it can be seen that those at the top with the most savings, have around eight times those who have the least saving.

For the period 2008/10, the evidenced median Defined Benefit pension saving for those households with such savings, was £177,900. In contrast, those within Defined Contribution schemes had median pension saving of £29,000. For both men and women aged between 16 and 64, and who were defined as having a saving orientation, the safest perceived way to save for retirement was through an employer’s pension scheme.

The Pension Protection Fund (PPF) is a statutory fund run by the Board of the Pension Protection Fund, a statutory corporation established under the provisions of the Pensions Act 2004.

The PPF’s main function is to provide compensation to members of eligible defined benefit pension schemes, when there is a qualifying insolvency event in relation to the employer, and where there are insufficient assets in the pension scheme to cover the Pension Protection Fund level of compensation. To help fund the Pension Protection Fund, compulsory annual levies are charged on all eligible schemes.

Investing the assets of the PPF effectively is a further key function of the organisation and the PPF is also responsible for the Fraud Compensation Fund – a fund that will provide compensation to occupational pension schemes that suffer a loss that can be attributable to dishonesty.

The latest PPF figures show that:

  • The aggregate deficit of the 6,316 funded defined benefit occupational pension schemes, mostly in the private sector, in the PPF index is estimated to have increased over the month to £236.6 billion at the end of March 2013, from a deficit of £201.5 billion at the end of February. This is down from a higher deficit of £317.0 billion in May 2012.
  • Total assets were £1,121.5 billion and total liabilities were £1,358.1 billion.
  • There were 5,080 schemes in deficit and 1,236 schemes in surplus.
  • After falling in 2007 and 2008, total contributions to self-administered pension funds increased rapidly in 2009, 2010 and 2012, mainly because of a rise in employers’ ‘special contributions’, such as deficit payments.

Sources: www.pensionprotectionfund.org.uk


building your financial future

Increased Protection Level for Individual Savings

The compensation limit for people who lose money if their bank, building society or credit union goes bust was increased on Friday 31st December 2010, from £50,000 to £85,000.

Compensation will be paid by the Financial Services Compensation Scheme (FSCS) – ‘the compensation fund of last resort for customers of authorised financial services firms’. The new limit is part of a Europe-wide requirement for each country to offer compensation equivalent to 100,000 euros.

The FSCS covers business conducted by firms authorised by the Financial Services Authority (FSA) who said that the new higher limit would cover the “vast majority” of UK savers. European firms (authorised by their home state regulator) that operate in the UK may also be covered.

The FSCS was set up mainly to assist private individuals, although smaller businesses are also covered. Larger businesses are generally excluded, although there are some exceptions to this for deposit and insurance claims.

The FSCS protects the following:

? Banks and Building Societies
? Credit Unions
? Insurance
? Home Finance (including mortgage advice)
? Investments
? Pensions
? Endowments

The authorities hope that the revamped FSCS rules, which will be the subject of a publicity campaign in early 2011, will be enough to stop another run on a bank.

As well as offering higher compensation payouts, the new rules aim to give most claimants their money much faster than before – within seven days and the rest within 20 days. Payouts will also no longer be reduced by the amount of money that a saver might also owe their savings institution – for instance by the size of a mortgage or other loan.


Concept Financal Planning Website

FSCS Website

What’s so wrong with an Annuity?

The continued unwillingness of people to make provision for their retirement continues to be a source of concern to policy makers. Much of the debate as to how to encourage retirement saving has centred on tax breaks and product design and the obligation to purchase an annuity is frequently cited as one of the reasons people do not contribute to registered pension schemes. Indeed the Tories have now promised to end compulsory annuity purchase if they get into power and presumably, should this happen, pension providers will be flooded with new applications. But are annuities really that bad?

The main objections to annuities are that they are inflexible, poor value if you die prematurely, and rates are poor. True, they are inflexible in that once you select the features of your annuity you cannot change them. Yes they are poor value if you are short lived but conversely they are good value if you are long lived. But are rates really poor? And if so, what are they poor in comparison to?

Certainly annuity rates have fallen significantly since their peak in 1990 so are they poor value on a historic basis? No not really. In 1990 interest rates hit 14% and inflation was running at around 7% per annum. While this was very bad news for borrowers it was good news for savers. Today savers are lucky to get a 3% return on their cash. Furthermore, in the last 20 years we have seen life expectancy increase further.

A 60 year old man in good health can currently expect to receive an annuity rate of just over 6%. This is for a level annuity with a 10 year guarantee. When considering equity based investments an assumed rate of growth of 7% is generally used. This might lead one to conclude that annuities are poor value since the annuitant only receives what might reasonably be expected as an investment return, while the capital itself is sacrificed.

The key point though is that an annuity carries no investment risk. Buying a level annuity involves exposure to inflationary risk, life company solvency risk and mortality risk, but not investment risk.

To assess whether paying into a pension and then buying an annuity, is worthwhile we need to look at a similar risk alternative.

Case Study

Let us consider the case of Owen Michaels who is nearing retirement. Owen is aged 50, earns a salary of £40,000 and is in good health.
Let us assume that rather than invest into a pension fund Owen chooses to use Cash ISAs as his retirement funding vehicle. This means he is free to draw money out without restriction and without tax liability.

ISA contributions of £400 per month are made from net salary for the next 10 years. After 10 years, the value of his ISA portfolio (assuming a 3% growth rate net of charges) stands at £55,896.

If contributions of £400 a month had been made to a personal pension fund, tax relief of 20% would have been received and at the end of 10 years (again assuming a 3% net growth rate) Owen’s pension fund would be worth £69,870. From this amount, he could take tax free cash of £17,467 and a net income of £2,527 would be generated via the annuity. From the tax free cash let us assume that £631 a year were withdrawn (25% of the net annuity rate) giving a total annual income of £3,158.

If Owen were to draw £3,158 each year from his ISA portfolio, and assuming a continued net growth rate of 3% per annum, the ISA portfolio would be exhausted after 23 years. Coincidentally, the average life expectancy for a 60 year old male is now just over 23 years.

Clearly if Owen does not survive the 23 years the decision to save via ISAs would have been vindicated but, if he had gone down the pension route and taken tax free cash his beneficiaries would still have access to the residual tax free cash and remember, the annuity rate used had a 10 year guarantee so the minimum return would be £25,270 (£2,527 for 10 years). After 10 years Owen’s ISA is worth £35,642 but the pension residual tax free cash would be worth £15,339, so the worst case scenario is a loss of £20,303 when compared to the ISA route.

So when viewed against a similar risk alternative, annuity purchase continues to stack up reasonably well. The real benefit it offers is as an insurance against longevity and if it were viewed as insurance rather than investment it might get a better press. Like any insurance it is good value if you claim (live beyond average life expectancy) and poor value if you don’t claim (die prematurely).

Pensions are intended as a vehicle to providing income in retirement. As a mechanism for turning capital into an income stream which is guaranteed for life, annuities are perfect. Certainly there are more flexible alternatives and it is possible that in future these alternatives will be available beyond age 75 but for those unwilling to accept investment risk annuity purchase continues to be the most appropriate option and still has much going for it.