Who would like money for nothing?

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The recent Budget was great news for many people, with one key area where rules will have a swift, positive, impact – the changes to Triviality Rules within pensions.

The Trivial Benefits rules allow individuals to access their pension funds immediately as a lump sum if the value of those pensions are small.  Many of the budget rules don’t kick in until 2015 however the Triviality changes are already in place.

Once you are age 60, if your pension fund is valued less than £10,000 then you can access this fund as a lump sum, irrespective of any other pensions you may have.  Furthermore 25% of this encashment will be tax free.

This has created a clear opportunity for savers.

It is possible for someone to save £8000 into a pension, receive tax relief of £2000 to create a fund of £10000.  A Higher Rate tax payer will receive even more tax relief.

The saver can then take the benefits immediately.  If you are a non-tax payer when taking the lump sum then the £10,000 fund would effectively be tax free.  If you are a basic rate tax payer, then the fund after tax would be £8500.

The rules allow this Triviality option to be exercised three times, separate from and in addition to the rules for commutation of combined funds under £30,000.

Whether you are a non-tax payer, basic rate tax payer or higher rate tax payer the rules could allow you to make between £1500 and £6000 tax free.

The Budget has introduced many encouraging changes and we are happy to help our clients maximise their position to take advantage of any quirks.

Please contact Platinum to discuss your current situation and how you can take advantage of the new rules.

Budget 2014 – Food for thought

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For the majority of our clients the budget was great news.  Over the next few blog articles we will focus more on specific items, but for now here’s a brief summary

Ahead of next year’s General Election, Chancellor of the Exchequer George Osborne delivered a Budget that provided considerable food for thought. Focusing in particular on support for business, savers and pensioners, the Chancellor hailed the UK’s economic recovery but warned there was still more to be done.

The UK economy is now predicted to grow more strongly than previously forecast and, over the course of this year, the Office for Budget Responsibility expects the economy to expand to a level greater than its pre-crisis peak. Meanwhile, the UK’s budget deficit during 2014 is likely to be lower than envisaged at 6.6%, and is now expected to continue its decline until 2018/19, when it is predicted to achieve a surplus of 0.2%.

 

  • The  Chancellor increased the income tax personal allowance to £10,500 – a move that will reduce the typical UK taxpayer’s bill significantly. The higher-rate tax threshold will increase from £41,450 to £41,865 during the 2014/15 tax year and will rise by another 1% to £42,285 in 2015/16.

 

  • From 1 July, cash Individual Savings Accounts (ISAs) and stocks & shares ISAs will be merged and simplified into a single ISA with an annual tax-free contribution limit of £15,000.

 

  • The confusing 10p tax rate for savers was scrapped so now anyone with earnings and savings interest of less than £15,000 needn’t pay tax.

 

  • The Chancellor also announced a new Pensioner Bond, available to everyone aged over 65 from January 2015. The Pensioner Bond will be offered by National Savings & Investments.  We wait to see how attractive the rates will be.

 

Meanwhile, in what was probably the most controversial measure within the 2014 Budget, the Chancellor announced plans aimed at removing all tax restrictions on pensioners’ access to their pension pots.

 

  • In particular, pensioners will no longer be obliged to purchase an annuity to fund their retirement. The measures will give retirees more freedom to decide how to use their pension pot but have also raised fears some individuals might fritter away their money and have to be supported by the state.

 

  • From 2015 pension savers will be able to access their entire fund at age 55 although access will be subject to income tax.   For those over 60’s who already have secure pension income of £12,000pa, they can access their funds      immediately.

 

  • The positive news for retirement planning continued with immediate changes to income limits for those clients in ‘Drawdown’.  The maximum income allowed has immediately increased by 25%.

 

  • As well as the above the definition of ‘trivial benefits’ has been dramatically changed.  With immediate effect many more retirees with small funds can access their entire funds immediately.

On the wider economy, business rate discounts and enhanced capital allowances in enterprise zones were extended for a further three years. The Annual Investment Allowance was extended to the end of 2015 and doubled to £500,000. As a result, 99.8% of companies are expected to pay no tax on money used for capital investment. Export finance was doubled to £3bn and interest rates on this lending were slashed by one-third.

The combination of the above should ultimately reinforce equity markets as they see the UK economy move forward.  This will have an encouraging effect on all savers and investments.

Although we will provide more details on each area over the coming weeks we would urge any and all clients who have any queries or concerns to get in touch with the team at Platinum.

 

For parents whose employer offers Employer-Supported Childcare

The Government is introducing Tax-Free Childcare, to help parents go out to work if they want to so they can provide greater security for their family. This will be available to all eligible employees from autumn 2015. However, it is important to note that you will not lose your ESC entitlement. You will be able to choose whether you continue receiving Employer-Supported Childcare or move to Tax-Free Childcare, although a household cannot be in receipt of support through both schemes at the same time.

The Government will provide clear advice and guidance to allow you to decide which support best suits your individual circumstances.

You can carry on in the current scheme for as long as your employer continues to offer the scheme. If you move employers after autumn 2015 you will no longer be entitled for Employer-Supported Childcare – although you will be able to join the new scheme if you meet the eligibility requirements.

Workplace nurseries will not be affected by the introduction of Tax-Free Childcare.

For parents whose employer does not offer Employer-Supported Childcare

The Government is introducing Tax-Free childcare, to help parents go out to work if they want to so they can provide greater security for their family. This will be available to all eligible employees from autumn 2015. You can register for the scheme direct with Government, open a childcare account, and receive 20 per cent support towards qualifying childcare costs, up to a limit of £2,000 Government support per child per year.

Tax-Free Childcare will be introduced in autumn 2015. The scheme will be rolled out to parents with children under 12 within the first year of the scheme’s introduction. The Government will set out further details of the scheme’s rollout in due course, in good time for you to factor in to your childcare plans. Further advice is available at GOV.UK

Stay Tax Efficient

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As life expectancy in the UK continues to increase, financial planning is becoming even more important. When thinking how best to save for your retirement, you might consider a pension to be the most effective way to ensure you have enough to live on comfortably when you are older. However, a pension is not the only way to achieve your retirement goals and Individual Savings Accounts (ISAs) may provide a particularly useful solution.

Pensions and ISAs are taxed differently. Your pension payments will qualify for tax rebates up front at your highest rate of income tax (subject to certain limits) after which, once you have taken out your tax-free lump sum, the income you receive will be taxable. ISA contributions are made out of taxed income, however, although any withdrawals are tax-free. Also, it is important to remember your pension income counts towards your personal tax-free allowance while your ISA withdrawals do not.

As such, the choice between pensions or ISAs could seem to boil down to the relatively straightforward question of rates, although the reality can be less clear-cut. The tax rebates on pension contributions are important because they add value up front yet an ISA offers much more flexibility. Ultimately, however, it is not necessarily a question of whether an ISA or pension is better but of how to structure a portfolio using both.

As Platinum clients know, we consider a diversified approach essential and encourage everyone to consider all options to maximise their returns.  If you want to discuss any area of your savings further then please get in touch.

The benefits of regular saving

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In the complex world of investment, timing is crucial. But without the benefit of hindsight, no-one can predict what the market will do – or when. This presents a problem for investors – not just when to invest, but also when to eventually pull their money out of the market.

This is where the benefits of ‘pound cost averaging’ – regular saving – comes into play. Pound cost averaging works on the basis that putting smaller amounts of money into a fund or other investment reduces the overall risk of investing at the wrong time. Compared with sinking one large sum in a single transaction, the risk is mitigated by the fact your smaller, regular sums will buy in over a period of time at a variety of prices.

Of course, in a rising market, regular savings will underperform the growth of a single lump sum because the later investments will miss out on the increase of the early days. However, in an up-and-down or falling market, the opposite is true. Later investments will buy in at lower or alternating prices – some lower than the original price – and will therefore gain a little more when the market finally does rise.

Similarly, regular saving is a great way to build up a lump sum from nothing. A lump sum of £5,000 is a tall order for plenty of people. However, putting aside £100 a month from your income might easier – and the addition of investment growth or interest means you could quickly build up a reasonable amount without necessarily noticing. The longer you can leave that growing amount alone, the more impressive it becomes.

Most investment products offer regular savings as an option, including investment funds, Individual Savings Accounts (ISAs), life assurance and pension plans. If you are considering equities for the first time, this is also an ideal way to start – if prices fall, your regular sum will buy a greater number of units in your chosen fund, which will then generate higher proportionate gains when prices start to rise again. Moreover, the small amount you invest every month should have a minimal impact on your cashflow and your lifestyle, and will also reduce your sensitivity to the short-term ups and downs of markets.

Speak to us at Platinum if you’re thinking of starting to save.

Noticed Anything Different?

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A change is as good as a rest they say, but the credit crunch and a volatile money market illustrates just how quickly our economic environment can change. Your personal circumstances can alter quickly too – moving house, changing jobs or having children. Sometimes, things just don’t happen quite the way you planned.

Planning for change

Any significant changes in life should always prompt you to reconsider your investments. A well planned portfolio will toil away on your behalf for years, working towards your objectives and riding out most of what the market can throw at it.

However, when your circumstances change, your needs and objectives can transform too – and your portfolio may no longer be able to keep up. Such adjustments can mean you modify your attitude to risks or need to reconsider the use of certain asset classes.

Even if your core investments might remain the same, there could be some higher risk holdings which need to be assessed. Or it could simply be time to take the profits and move on to better opportunities.

Helping you meet your needs 

A review of your portfolio will not take much time but could more than pay for itself in money saved – or put to better use.  

We are happy here at Platinum to help our clients minimise the time taken to review matters but maximise their opportunities.

If you would like to take advantage of an impromptu review, then please get in touch….

Stocks & Shares Investments

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The entire Individual Savings Account (ISA) allowance of £11,520 can be invested into a Stocks & Shares ISA during the 2013/14 tax year. Investors can choose from a vast and ever-increasing array of options, ranging across global equity to bond markets.

If you are an investor who knows what they want then Platforms offer the most flexible approach, allowing you to self-select your own shares or funds.  Platforms cover a range of asset classes and markets, so you can create your own portfolio or use your ISA allowance to target one specific investment.

However, choosing your own shares can be risky and unless it forms part of a wider share portfolio, this approach can concentrate your investment around the fortunes of just a few companies. Many investors therefore choose to put their ISA allowance into something more diversified, such as collective schemes or a range of investment funds, which reduces risk by accessing a wide selection of shares.

There are many funds from which to choose – some prioritise income, while others focus on capital growth. Over the long term, funds with relatively high equity content have tended to offer better returns than equivalent investments in cash, bonds or commercial property. However, the value of equities can go down as well as up and they can be volatile. Funds are grouped into categories to give you an indication of their aims – for example, the ‘Mixed Investment 20-60% shares’ category will have no more than 60% in shares, while more aggressive funds can be found in, for example, the UK All Companies, UK Smaller Companies or Global Emerging Markets sectors.

If you want your ISA to generate an income stream, you might wish to consider funds that deliver regular dividend or rental income, or interest payments. The three principal income-generating asset classes are equity income, commercial property and bonds, and there are a number of funds that combine these asset classes together, thereby generating income from a diversified portfolio.

Ultimately, your ISA choices should not only reflect your aims and goals, but also sit comfortably within your wider portfolio. If you want to make sure you have covered all the options available, you should seek professional advice. Please also remember past performance is not a reliable indicator of future results.

Platinum continue to help our clients create balanced portfolios of investments suited to their individual attitudes to risk.  If you would like to know more please get in touch…

Cash ISAs: Don’t Lose Out To Inflation!

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Low interest rates might be great news for borrowers but they can have a devastating effect on savers’ long-term wealth. With inflation tending to run in excess of interest rates, the buying power of your money is being eroded, even though the value of your capital might appear safe. You need to keep a close eye on the interest you are earning.

Nowhere is this more apparent than with cash Individual Savings Accounts (ISAs). According to Moneyfacts, the average long-term fixed-rate cash ISA offered a rate of 2.41% in April 2013, compared with 3.58% in April 2012. However, rates of around 3% are available suggesting consumers are not taking the time to shop around.

It is good practice to retain some cash in an easy-access deposit account so you can cover unforeseen emergencies and short-term necessities. However, there is no reason to tie up all your cash holdings in this type of account. Research by Skipton Building Society, for example, found more than 75% of pensioners with an ISA never withdraw money from their account and interest rates can be significantly higher for those willing to sacrifice some flexibility.

Life is hectic and it is all too easy to forget about your ISAs until the end of the tax year is looming. Rather than waiting until the last minute, take the time to shop around now for the best possible home for your money.

Platiinum are always happy to help our clients.

Is Retirement Your Ambition?

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The Department of Work and Pensions (DWP) has recently proposed a new breed of pension, which will be known as ‘Defined Ambition’. It is intended to provide a greater amount of certainty for people whose pension income is ultimately influenced by investment performance, as opposed to being a set amount based on their salary.

Currently, pensions can be separated into two main types – Defined Benefits and Defined Contributions. To summarise:

  • Defined Benefits pension  – income received when you retire is typically based on your salary and length of service in the scheme. For example, a Final Salary pension scheme is commonly based on a percentage of the member’s salary before retirement, multiplied by the number of years they were in the scheme. This provides a known income for the member in retirement, which has become an increasingly valuable benefit in recent years, due to falling annuity rates and volatile stock markets.

The increased costs and unknown liability that this type of scheme has created for employers has led to a number of schemes being closed to new entrants in recent years.

  • Defined Contribution pension –  this involves you (and/or your employer) paying monthly contributions. These are invested in funds which are designed to grow over the years until you retire, at which time they are converted to produce an income.

Most new pensions, including those used for Workplace Pensions and Personal Pensions, are Defined Contribution type.

The key drawback of the Defined Contribution type pension is that the income that someone will receive at retirement is dependent on investment returns and also on annuity rates that apply at the time, both of these can and do change significantly and can lead to someone receiving a much greater or much smaller income from their pension than they had anticipated when they retire.

This uncertainty, together with historically low annuity rates, have made pensions a less attractive option for many investors, leading to the DWP’s current rethink.

The Pensions Minister, Steve Webb, has for some time been looking at how to make pensions more attractive without placing the burden of providing full guarantees on employers. A decision has been reached and put out for consultation to introduce the Defined Ambition pension. The description set out in the consultation paper is that “A Defined Ambition (pension) scheme would be a scheme under which members are given some form of guarantee in respect of their pension, but not complete certainty of the level of income that they will receive from it in retirement, or when it would be paid.”

The exact detail of what form these guarantees will take is yet to be confirmed, though the consultation period finished in December 2013 and the DWP aims to consult on draft legislation in the next few weeks,

If you would like to discuss your ambition for retirement plans and how the legislation could affect you, please get in touch with us at Platinum.

Market Update – 2014 is looking good!

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Happy New Year to you all.

Looking back, 2013 was actually a very successful year in terms of the economy and financial markets.  Although many people continue to feel the financial pinch, there are distinct signs that economic growth is returning to both the UK and global economies, albeit slowly.

Most encouraging is the manner in which this has been achieved.  The evidence suggests that the economic improvements are steady and based upon good fundamentals.  This has been evidenced by the behaviour of stock markets.

Equities and well known indices such as the FTSE 100 and the S&P 500 had a year of steady growth in excess of anticipations.  Such that the FTSE, buoyed by public offerings such as the Royal Mail, finished the year at a level approaching it’s highest level.

The outlook for 2014 is similarly encouraging – the US Federal Reserve is likely to scale back on its programme of Quantitative Easing and given the recent stock market response, this looks as though it is expected and welcome to some extent.

Within the UK equities remain good value.  The economy looks stronger, as demonstrated in part by the resurgent housing market.  And although UK financial markets grew well over the past year there is still much scope to catch up with some of the larger global markets.

As a slight caution to this enthusiasm, there are still some global and European markets which are struggling as there are some financial sectors (not necessarily equities) which have an uncertain future.

That said, a balanced portfolio will continue to provide the most protection against uncertainties and here at Platinum we will continue to watch the signs in order to help ensure our clients goals are met.

As always I encourage you to contact us about any financial matter or if you simply want to discuss your pensions or investments in 2014 further.