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As a parent, could you be missing out on your state pension?

There’s no reason why being a parent, and particularly being a non-earning parent with commitments to their children, should put you at risk of decreasing your state pension entitlement. Currently, however, there are potentially hundreds of thousands of people in this exact position – although thankfully, there are steps to take so that it can be avoided.

Figures supplied to the Treasury by HMRC suggest that there could be around 200,000 households missing out on these pension boosting entitlements. If the child benefits are being claimed by the household’s highest earner, and not the the lower earner or non-earner, these potential national insurance contributions can fall by the wayside. Treasury select committee chairman and MP Nicky Morgan says; “The Treasury committee has long-warned the government of the risk that for families with one earner and one non-earner, if the sole-earner claims child benefit, the non-earner, with childcare commitments forgoes National Insurance credits and potentially, therefore, their entitlement to a full future state pension.”

With 7.9 million UK households currently receiving child benefits, there is potential for a large number of people to be affected. Thanks to data from the Department for Work and Pensions, it’s suspected that around 3% of those (around 200,000) may be in this situation. It’s worth noting that the family resources survey covered 19,000 UK households and as the estimate is sample-based, there is some uncertainty on the exact numbers of those at risk. Nicky Morgan continues, “Now that we have an idea of the scale of this problem, the Government needs to pull its finger out and make sure that people are aware of the issue and know how to put it right.”

Sources
https://www.moneymarketing.co.uk/over-200000-parents-may-be-missing-out-on-their-pension-says-hmrc/

https://www.mirror.co.uk/money/200000-parents-missing-out-state-13895884

From the Adviser-Store

The demise (and potential rebirth) of Patisserie Valerie

The prominent cafe chain Patisserie Valerie collapsed into administration after ‘significant fraud’ emerged in its past accounts.

Already, 71 of its nearly 200 cafes have been closed and a further 122 are up for sale, leaving the future of the prominent chain hanging in the balance. Accounting giant KPMG have been appointed as administrators to the company and its various subsidiaries throughout the process.

Thousands of false entries in the company’s ledgers, among other irregularities, led the firm to overstate its profits and cash flow for several years.

Companies have two primary motivations to manipulate their profits. Firstly, the pay of some executives is directly tied to financial performance. And secondly, it’s unlikely that financial manipulation will be detected by investors because of the nature of the relationship between independent auditors and their corporate clients.

The motivations in Patisserie Valerie’s case have not yet been established.

When the accounting ‘black hole’ emerged, the company was valued at £450 million. The company’s finance director was arrested by the police, bailed and resigned. Shares have since been suspended and are yet to restart trading.

An array of investigations have been opened into the company. The Serious Fraud Office are running an investigation of an unnamed individual linked to the company, while the Financial Reporting Council is meanwhile investigating accountancy firm Grant Thornton for its role as auditor to Patisserie Valerie. As it stands, only two members of the original board remain.

By any standards, it could be described as an accounting nightmare.

You might think all looks set for the company to join the likes of Woolworth’s in the cemetery of former British high street chains… However, the company’s story has recently taken a turn for the better.

On the 8th of February, sportswear tycoon Mike Ashley made a surprising bid to add the chain to his empire. The billionaire has been on something of a buying spree over the last year, adding struggling retailers House of Fraser and Evans Cycles to his high street portfolio. There are rumours that Ashley is trying to assemble a portfolio of brands to sell in his House of Fraser stores.

Whether or not his bid is successful remains to be seen. It will also be interesting to see what emerges from the ongoing investigations into accounting malpractice in the firm.

Sources
https://www.bbc.com/news/business-47094831
https://www.accountingweb.co.uk/business/finance-strategy/baking-bad-patisserie-valerie-collapses-into-administration?utm_medium=email&utm_campaign=AWUKBUS240119&utm_content=AWUKBUS240119+CID_ee7370ae83bca130e50bcc401c04136d&utm_
https://www.theguardian.com/business/2019/feb/08/mike-ashley-bid-patisserie-valerie-sports-direct

Mary Poppins returns: Can a tuppence really save the day?

Since the release of the film Mary Poppins Returns in December, it’s taken over $250m, making it a financial success. The story of the film itself however seems to recommend a few ways of making your own personal finances successful too. With the original set in 1910, the sequel takes us to 1935 where Michael, just a boy in the first film, is now a man with children of his own. Unfortunately, due to him being unable to repay a loan, he finds himself face to face with the frightening possibility of having his home repossessed.

Thankfully for Michael, in the original film his father gives him shrewd advice to invest his pocket money of a tuppence, rather than giving it to the women selling bird food. Quick reality check; even over the course of 25 years, the compound interest on a mere tuppence is extremely unlikely to have been enough to help Michael out of his rut in the real world. Realistically, with an average interest rate of 6%, saving two pennies wouldn’t even bring you in a single pound. Perhaps his father invested it particularly wisely, finding the unicorn company of his day, perhaps putting it into oil stocks, but even then it would require a huge return. It’s a film, after all, and the overriding message of being responsible with your finances is a noble one, so we can allow them a bit of creative licence.

Beyond taking the advice of investing two pence too literally, there are some positive messages and useful takeaways from Mary Poppins Returns. Ultimately, the tone is optimistic; the suggestion being that even if you’re in a particularly difficult financial position, there’s always a solution. It also suggests that these solutions are easier to come by with a bit of forward planning.

Sound investments are as beneficial now as they were in 1910, so seeking and listening to advice about how and where to put your money can be as helpful for you as it was for young Michael. Keeping on top of your financial situation and making conscious efforts to plan for the future will put you on steady ground and allow you to plan for a future that, in the words of Mary Poppins herself, is “practically perfect, in every way!”

Sources
https://www.bbc.co.uk/news/business-46741343

one in seven widows are missing out on valuable tax breaks

New data reveals that thousands of widows are missing out on valuable tax breaks on money inherited from their late husbands or wives.

In 2015, the government introduced a new rule that allows spouses to claim an extra ISA allowance. This allowance, known as an Additional Permitted Subscription allowance (APS allowance), is available to the surviving spouse or civil partner of a deceased ISA investor, where the investor died on or after 3 December 2014.

According to the Tax Incentivised Savings Association (an ISA trade body), around 150,000 married ISA savers die each year. However, just 21,000 eligible spouses used their APS allowance in the 2017-18 tax year, meaning they may be paying more tax than they need to pay.

Many bereaved spouses are unaware of the extra protections they can claim on, while others find the process difficult and confusing.

It is thought that many of those who lose out are widows whose husbands pass away without informing them of the exact nature of their financial affairs. In some cases, widows only discover large sums of money long after their husband’s death.

Situations like this have led to many to call for greater transparency between spouses around their financial affairs. A culture of privacy around financial matters is rife among the ‘baby boomer’ generation, where the higher earner often manages the money and investments. This can leave the bereaved in a precarious position, especially if they don’t know what bank accounts, investments and companies their spouse may have managed.

If your partner has left funds held in an ISA to someone else, you’re still entitled to APS. For instance, if your partner left an ISA of £45,000 to their friends and family, you can use your APS allowance to put an extra £45,000 into an ISA of your own.

Think you might be able to claim? You can apply through your late partner’s ISA provider. You will need to fill in a form, similar to when you open an ISA.

Sources
https://www.telegraph.co.uk/personal-banking/savings/one-seven-widows-missing-valuable-tax-breaks/

Saving for retirement: what’s the magic number

The fact is, most of us are simply not saving enough to enjoy a similar lifestyle to our working days in retirement. A ‘retirement reality’ report from insurer Aviva shows that nearly 1 in 4 employees believe that retirement will be a financial struggle.

There are plenty of legitimate reasons why we don’t save enough – more immediate financial concerns will naturally take priority. You can’t save for tomorrow, for example, if it means forgoing your mortgage payments today. A lack of financial education also plays a big role. 85% of young adults, when surveyed, revealed that they wish they had been taught more about finance management through their school and university careers.

The Government’s auto-enrolment workers’ pension initiative has helped and there are around 1 million people saving for their retirement for the first time ever, as a result, but how do the numbers add up? The minimum auto-enrolment contribution rate is 5% of annual income, and despite more than half of workers believing this is the recommended rate of saving, it’s far from it. The generally accepted figure among experts, if you wish to maintain a similar lifestyle in retirement, is a contribution equal to 13% of your annual income. Some of this deficit will be made up by employer’s pension contributions, however, we’re still looking at a wide gulf between actual savings and those that are required.

Investment house, Fidelity, has devised a system it calls the ‘Power of Seven’, consisting of a number of savings goals. Ultimately, it suggests that to comfortably retire at 68, you should have saved the equivalent of 7 times your annual household income. So if you were to retire with a household income of £50,000, you’d want a pension pot saved of £350,000. The exact figures will differ from case to case, so it’s recommended to use an online pension calculator to understand your personal situation and check it regularly to keep yourself updated.

There are steps you can take to bolster your pension pot. It’s down to you to take responsibility for your finances, and even small steps like being a member of the works pension scheme and using tax friendly Savings Accounts can be helpful. If you receive a pay increase, perhaps allocate half of it to your savings or investments and enjoy the other half now. As tempting as it can be, it’s important to foster self control to turn down opportunities for frivolous spending – think about tomorrow and give yourself more options in your golden years.

Sources
https://www.thisismoney.co.uk/money/pensions/article-6449851/How-need-squirrel-away-golden-retirement.html

The long-awaited ban on pensions cold-calling has finally come into force

From January 9 2019, the cold-calling of savers about anything to do with their pensions became illegal. The new law doesn’t just cover phone calls. Any unsolicited emails or text messages about your pension will also be illegal.

As it stands, not every cold-call you receive about your pension is a scam, though many scammers use it as a tactic to get their hands on your retirement savings.

When the ban comes into force, you can be sure that any out-of-the-blue call about your retirement savings is definitely a scam.

The introduction of pensions freedoms in 2015 is widely cited as the reason for the alarming increase in pension fraud over the last few years. Scammers have seized upon these rules, which give savers much more flexible access to their retirement savings, to get unsuspecting individuals to transfer their cash.

Key warning signs of pensions scams include offers of free pension reviews and promises of incredibly high rates of return, among others. Citizens Advice report that as many as 10.9 million people were cold-called about their pensions in 2016 alone.

In the wake of this rise in scamming, savers have been turning to financial watchdogs in huge numbers for help. Between August and October last year more than 173,000 people visited the FCA’s ScamSmart website for more information.

Pension fraud victims lost £23 million in the last year alone, up £9.2 million from the year before. The real amount could be even higher as only a minority of victims report being scammed.

From 9th January, when you put the phone down on would-be pension scammers, you can tell them that they have broken the law just by contacting you.

If you suspect you have been victim to a pension scam, you should report the scam or fraud to Action Fraud as soon as you can. They will pass the information to the National Fraud Intelligence Bureau who will analyse the case to find viable lines of enquiry. If they find any, they will send the report to the police for investigation.

Sources
https://www.telegraph.co.uk/pensions-retirement/financial-planning/scourge-pension-cold-calling-finally-banned-january/

Inheritance Tax – Could there be a better alternative?

Inheritance tax is enormously unpopular to say the least. A YouGov poll found that 59% of the public deemed it unfair, making it the least popular of Britain’s 11 major taxes. What’s more, the tax has a limited revenue raising ability, with the ‘well advised’ often using gifts, trusts, business property relief and agricultural relief to avoid paying so much.

As it stands, the tax affects just 4% of British estates and contributes only 77p of every £100 of total taxation. This puts the tax in the awkward position of being both highly unpopular and raising very little revenue. At the moment, the inheritance tax threshold stands at £325,000 per person. If you own your own home and are leaving it to a direct descendant in your will, this lifts the threshold by an additional £125,000 in the 2018-19 tax year (the nil-rate band), to £450,000. Anything above this is subject to a 40% tax.

Inheritance tax is seen as unfair because it is a tax on giving (while normal taxes apply to earnings) and it is a ‘double tax’ on people who have already earned – and been taxed on – their wealth.

However, the Resolution Foundation, a prominent independent think tank, has suggested an alternative.

They propose abolishing inheritance tax and replacing it with a lifetime receipts tax.

This would see individuals given a lump sum they could inherit tax free through their lifetime and would then have to pay tax on any inheritance they receive that exceeds this threshold. The thinktank suggests that by setting a lifetime limit of £125,000 and then applying inheritance tax at 20% up to £500,000 and 30% after that would be both fairer and harder to avoid.

They predict that a lifetime receipts tax would raise an extra £5 billion by 2021, bringing in £11 billion rather than the £6 billion inheritance tax currently raises. In a time of mounting pressure on public services like the NHS, this additional revenue would be welcomed by many.

Moving away from inheritance tax would reduce many of the current ways to manage the amount of assets an individual is taxed on upon death. For instance, people would not be able to reduce the size of their taxable estate by giving away liquid assets seven years prior to their death.

The Resolution Foundation also suggests restricting business property and agricultural relief to small family businesses.

The lifetime receipts tax is, at the moment, just a think tank recommendation and is not being considered by the government.

However, the government are trying to introduce changes to probate fees that would see estates worth £2 million or more pay £6,000 in probate fees, up from the current rate of £215. This proposal has seen little support in the House of Lords and the government may consider scrapping the tax.

Sources
https://www.telegraph.co.uk/tax/inheritance/government-could-back-disguised-death-tax-following-lords-pressure/
https://www.accountancyage.com/2018/05/03/inheritance-tax-is-unfit-for-modern-society-and-should-be-abolished-says-think-tank/

4 cruises around the British Isles

When you think of a cruise, the first things to come to mind are usually European cities of culture, blue Caribbean oceans or Balearic islands.

What many people don’t realise is that there are some incredible options available much closer to home.

The British Isles boast a staggering number of beautiful and unusual destinations, particularly along the coast. Many of these are off-limits to the enormous passenger ships which are normally associated with cruises. ‘Boutique’ cruises are a fantastic holiday option for those wanting to avoid the crowds and experience what our home isles have to offer; here are four exciting examples.

  • London to London

Departing from Tower Bridge, London, there is a cruise by Silversea, which will take you all the way around Britain and Ireland before returning you to where you started. A 12 day cruise enables you to enjoy an array of experiences, from a traditional Cornish pub lunch in Falmouth to Balmoral Castle in Aberdeen or a trip from Belfast to the Giant’s Causeway.

  • Birds and Blooms of Britain

If you’re somebody with an appreciation for nature, you could take a springtime voyage with Noble Caledonia from Plymouth to the Isles of Scilly, Lundy, Skomer, Llandudno, Peel, Holy Loch and Fairlie. With excursions into the Abbey Gardens of the Island of Tresco and the Botanical Gardens of the Cowal Peninsula, any green-fingered passengers will be happy. Not to mention the puffins, guillemots and razorbills around Lundy and Skomer for the birdwatchers on board.

  • The Scenic Route

If you’re heading to Dublin but don’t fancy taking a flight, Le Boreal is a 264 passenger mega-yacht which boasts interiors designed by Jean-Philippe Nuel, as well as serving the finest French cuisine. Departing from London and stopping off in Dover, it takes in the glorious views of Dorset’s Jurassic Coast and the historic coves of the Scilly Isles. Before it arrives in Dublin, you’ll have the opportunity to visit Glengarriff and Kinsale over the course of a seven night journey.

  • A Royal Voyage

If opulence and exclusivity appeal, you could get on board the Hebridean Princess.The ship holds only 50 passengers, and the Queen herself chartered the vessel in 2006 for a holiday to celebrate her 80th birthday. Departing from Oban, the cruise explores the Outer Isles and visits lochs, islands and remote mainland sites and allows you to be surrounded by luxury.

Sources
https://www.telegraph.co.uk/travel/cruises/articles/small-ship-cruises-to-explore-the-british-isles-and-beyond/

New year, new you for your finances

With the new year comes new possibilities, and most of us like to put a resolution in place. While you might not stick to your January gym membership or finally get that novel written, committing yourself to a financial resolution is an excellent way to start 2019.

Improving a financial situation has proven to be a high priority for the British public as we turn the first page on a new calendar. In fact, the average adult will commit £4,600 on financial resolutions; this includes goals like paying off a debt or moving house. For those under the age of 25, 11% of people aim to clear their debts in the new year, and for the over 55s that figure increases to 15%.

Even with the best intentions, however, it can be tough to see resolutions bear fruit. Luckily, there are a few steps you can take to give yourself the best chance.

1. Look before you leap!

It can be tempting to jump into the new year with big plans for the future, but if you’re not looking at where you’re coming from, you may not be giving those plans the preparation they need to flourish. Review your spending for 2018, collect your bank statements, bills and receipts and look out for areas of excessive or unnecessary expenditure. Once you’ve identified any pitfalls, they’ll be much easier to avoid in the year ahead.

2. Find your feet

Once you’ve got a good grasp of how the past year has been for your finances, you’ll have an understanding of where you are currently. There may be actions you can take immediately to better your situation. For example, review any subscriptions or direct debits that you now deem unnecessary. Sell any unnecessary items to create an income without any serious lifestyle changes. Consolidate debts with balance transfer cards, to make payments more manageable and to potentially lower your interest rate. Simplifying and strengthening your financial situation at the start of the year will give you greater control over the coming months.

3. Set goals and be reasonable!

There’s no point in setting a goal that is unachievable, only to disappoint yourself when you inevitably fail to meet it. With a solid understanding of your recent financial habits and your current position, set yourself an achievable plan for the year ahead. Be specific and make it measurable! Rather than pledging to eradicate all of your debt, identify a portion that you’re confident you can clear, and set yourself benchmarks to help track your progress.

4. Draw up a budget

It’s all well and good having a plan but you’ve got to stick to it. A well constructed budget can be just the thing to keep you on the straight and narrow. Gather information about your income and outgoings and regulate your spending. For example, it can be very tempting to treat yourself when you receive some unexpected income but don’t ignore the opportunity to bump up your savings. Perhaps consider splitting that extra money between debt repayments and future savings, and if there’s any left over then go for that posh meal. The key is to keep up to date, and revise your savings goals and budget plans as you go so that you’re prepared for whatever the year may bring!

With the right preparation and planning, 2019 can be a great step forward for your finances – take on the challenge and have a happy new year!

Sources
https://www.equifax.co.uk/resources/money_management/new-year-new-start-to-your-finances.html

How can millennials get on the property ladder?

There’s been a lot of talk in the press recently about generational inequality, which has mostly been with good reason. Those currently in their twenties and thirties are earning far less than people the same age did 10 to 15 years ago.

The 2008 recession has put the millennial cohort far behind in terms of earnings and wages. Wages have never fully recovered since the recession and are still behind their pre-financial crisis peak. Many may be unable to ever afford to get on the property ladder, meaning they will have a lifetime of rent payments to fund.

Also, rising house prices have meant that the average deposit has risen from around £10,000 in the Eighties and Nineties to between £50,000-60,000 today, according to analysis by accounting firm PwC. Even when adjusted for inflation, the rise is dramatic.

Auto-enrolment in pension schemes has begun to address some of the long term issues around retirement funding but even still, these do not compare to the security offered by ‘gold-plated’ direct contribution schemes.

The younger generation are already aware that they will have to work far longer. Early retirement will likely be the premise of the rich, lucky or extremely frugal. Fortunately, millennials look set to be able to cope with the demands of a longer working life. The younger generation are fitter and healthier compared to previous generations with far fewer smokers and better diets.

Although a longer working life might be a path towards an eventual retirement, it does little to help young people get on the housing ladder. The fact of the matter is that many young people will need some kind of ‘leg up’ if they are to achieve the financial stability that many of the ‘baby-boomer’ generation managed.

The income gap between older and younger generations means that many young workers will have to rely on the wealth accumulated by their parents and grandparents if they are to sustain the same quality of life.

Family loans have become increasingly important for the financial wellbeing of young people. Many are giving younger generations so-called ‘early inheritances’ in the hope that such loans will enable them to get a foot on the property ladder. This is already so widespread that nearly eight out of 10 first-time buyers in London are receiving some sort of financial help from their parents.

Parents and grandparents are funding help through a variety of means. Almost three quarters of parents used their life savings to help out with the cash, while a third downsized or released equity from their homes. Another third accessed pensions cash; either cashing in lump sums through income drawdown or annual annuities. 7% remortgaged and 6% took out a loan themselves.

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Sources
Sunniva Kolostyak “Fireworks for millennials” in Pensions Age, November 2018
https://www.telegraph.co.uk/personal-banking/mortgages/baby-boomer-vs-gen-y-homebuying-in-1982-compared-to-2016/