Dawn of a New Era for Pensions

Last year’s Autumn Statement confirmed the dawning of a new era in pensions.

A number of the changes had already been identified – for example, the removal of the cap on drawdown income from April 2015, which will allow all individuals to take as much or as little as desired from their pension pot, though the income will still be subject to tax.

However, that Autumn Statement also brought in new rules whereby the new lump-sum withdrawal option – 25% tax-free and 75% subject to income tax – will be added to the existing choices of annuitisation, drawdown and tax-free cash when individuals take their benefits.

New rules were also introduced to prevent individuals making contributions that attract tax relief and then immediately making lump-sum withdrawals, a proportion of which will be tax-free. People who access a pension under the new flexible rules will only receive tax relief on contributions of up to £10,000 gross each year afterwards. There are limited exceptions which we can explain further.

Another significant change has been the treatment of residual pension pots on death, as the Autumn Statement confirmed the abolition of the 55% tax charge imposed on pension pots in certain circumstances.

A further positive note was that spouses who continue to receive annuity income after the death of their wife or husband will enjoy the same tax breaks.

Still, with every silver lining must apparently come a cloud and the Government also announced the minimum pension age would increase from 55 to 57 from April 2028 onwards.

Once again, we would encourage all clients to contact us at Platinum if they have any concerns about their pensions or wish to discuss the impact further.

Market Update – 2014’s eventful finale

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December delivered a relatively eventful finale for 2014.

On the one hand, investor sentiment was boosted by encouraging news on the US economy and signs that leading central banks – notably in the US and the Eurozone – remain supportive. However, confidence was considerably undermined by concerns about the impact of the falling oil price and questions over the economic outlook for China, the Eurozone and Russia.

In the UK, the FTSE 100 index fell slightly over December and was down over 2014 as a whole, ending the year at 6,566 points. Share prices in the energy sector remained volatile, destabilised by the falling oil price. The UK’s economic expansion during the third quarter of 2014 proved slower than initially calculated – the economy grew at an annualised rate of 2.6% during the period, compared with an earlier estimate of 3%.

On the continent, fragile investor sentiment was dented by the news that Greece’s prime minister had called a snap election for January. The Athens General index plummeted and was down 28.9% over 2014 as a whole. Volatility has continued and markets have fallen further in the past week. Nevertheless, investors can draw some reassurance from the European Central Bank, which confirmed that preparations for additional stimulus measures had been “stepped up” in order to boost growth in the region’s moribund economy.

Germany’s Dax index fell during December but was up 2.7% over the year. Across the Atlantic, the Dow Jones Industrial Average index reached further new highs during December, closing above 18,000 points for the first time. Investor sentiment was buoyed by the news the US economy had expanded at an annualised rate of 5% during the third quarter, and by reassurance from the Federal Reserve over the future path of monetary policy. Japan’s markets continued to suffer from the uncertainties yet the Nikkei 225 index was up 7.1% over 2014 as a whole.

What does this mean for investors?

Financial markets and economies had a bumpy ride in 2014 yet on the whole returns were positive. 2015 looks as though it could follow the same trend.

As always investors will benefit most where they hold a diverse range of investments and asset classes ranging from corporate bonds and property through to UK and global equities.

For our clients we will continue to review their holdings and help position our clients plans to hopefully reduce volatility without jeopardising investment returns.

Please get in touch if you would like to discuss your investment strategy.

Wishing You A Merry Christmas & A Prosperous 2015

Merry Christmas 2014

We would like to take this opportunity to wish all our clients and contacts a Merry Christmas.

As always we look forward to catching up in the New Year.

Best wishes

from

All the Team

 

Stamp Duty Changes

 

The Chancellor’s Autumn Budget Statement announced radical reform to how stamp duty is calculated for residential home buyers.  This change to a fairer system has been welcomed by many, including the Royal Institute of Chartered Surveyors (RICS).

The old system was often described as working on a “slab” basis and created distortions in the housing market because it favoured those buying properties at the top of a tax rate band.

The new system is fairer because for the majority of house buyers it’s a cheaper system because they only pay tax on the proportion of the property within a relevant tax band.

The new tax Stamp Duty Land Tax (SDLT) rates are as below:

To help demonstrate the impact for different homebuyers the following table may help:

This new system will give a smoother housing market and avoid false ceilings in property prices at the each change in taxation.  For example, a house buyer would have previously been reluctant to pay £1 over the £250k tax band as it would have incurred stamp duty of £7,500, whereas now the additional stamp duty for that same £1 increase is only an extra 5p.

If you or anyone you know are concerned about how the new tax rules will impact on you, please contact Platinum so we can help.

 

Winds Of Change In The Autumn Statement

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The 2014 Autumn Statement was formulated, unsurprisingly, with more than half an eye on the General Election next May. The high-end property market, wayward banks and tax-shy companies all found themselves in the line of fire and these measures helped to divert attention away from the fact the government had not hit its target to reduce the financial deficit.

Reforms to stamp duty on residential property grabbed the bulk of the media headlines. Chancellor of the Exchequer George Osborne introduced a new tiered system, in which rising rates of stamp duty will be charged in incremental steps. As a result, stamp duty will fall for 98% of house buyers and only those buying properties priced over £937,000 will pay more under the new system.

The annual allowance for individual savings account (ISA) contributions was increased from £15,000 to £15,240 from April 2015 and, in a welcome move for savers, new rules will allow spouses to inherit their partner’s ISA free of tax following their partner’s death.

In a more controversial move, the Chancellor clamped down on multinational companies that generate corporate profits in the UK, which are then diverted overseas. These profits will be subject to what is described as a ‘Google Tax’ at 25% and the change is expected to raise £1bn over the next five years.

Elsewhere, Osborne introduced a new £90,000 charge for people who have lived in the UK for 17 of the past 20 years but who claim non-domiciled status for tax purposes.

On a positive news the UK is the fastest-growing of all the ‘G7’ group of wealthiest economies and growth this year has proved stronger than expected. The Office for Budget Responsibility (OBR) increased its forecast for the UK’s economic expansion during 2014. Looking ahead, growth is expected to slow, but maintain headway. The downside is that spending and borrowing is still higher than income so there will likely be more cuts to certain benefits or services which will affect everyone…

Looking further ahead, there is a forecast surplus within the economy which favors investors over the medium and long term.

If you would like to discuss the impact of the budget, please get in touch with the team at Platinum.

Keep an interest in your mortgage

Mortgage rates fixed

As the UK economy continues to improve, an increase in interest rates is now widely expected during 2015.

Higher rates will be welcomed by savers, who have had a lean time over the past few years. Having reached a peak of 5.75% in July 2007, rates rapidly plummeted to an all-time low of 0.5% in March 2009, where they have remained since.

Conversely, higher interest rates spell bad news for borrowers. A rate increase will drive up monthly repayments for those mortgage holders who do not have a fixed mortgage rate and, while those who have fixed their mortgages will not feel the initial impact of a rate rise, when their fixed period comes to an end remortgaging is likely to result in a sizeable increase in monthly repayments.

Anybody taking out a mortgage should always assess not only whether they can afford their repayments now, but also whether they would be able to afford them if rates go up. A rate rise is now seen as a foregone conclusion and although rates are not expected to rise as far or as quickly as before the financial crisis, even a relatively small increase could have a substantial effect on your monthly repayments.

According to a recent survey published by mortgage lender Halifax, two-fifths (41%) of mortgage holders are worried about the prospect of higher interest rates, with 13% concerned they might find themselves unable to meet their repayments if they were to rise by up to £50 a month.

Meanwhile, if their monthly mortgage payments rose by as much as £100, 30% of mortgage holders fear they will have to cut spending on essential items such as food, energy and insurance. If the terms of your mortgage allow, it may be worth considering overpaying on your mortgage while rates remain low. It may also be worth negotiating a new mortgage now – perhaps moving from a standard variable rate to a fixed rate.

That said, mortgage lenders are already poised to implement a rate increase once it takes effect and are therefore likely to take account of this when offering another deal. Make sure you check the terms of your current deal – you could incur penalties from your current lender if you switch to a new one – and, above all, do take expert advice.

Huge pensions tax to be abolished

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Another positive tax change has been announced, which will benefit many pension savers.

You will be able to enjoy the freedom to pass on unused defined contribution pension to any nominated beneficiary when you die, rather than paying the onerous 55% tax charge that currently applies to pensions passed on after death.

Under the new proposals, which are set to take effect from April 2015, anyone who dies before they turn 75 will be able to pass on their remaining defined contribution pension to any nominated beneficiaries completely free of tax, whether it is in a drawdown account or untouched – provided it is paid out in lump sums or taken through a ‘flexi access drawdown account’.

Such a payment would also be exempt from inheritance tax if written as a ‘Bypass Trust’ or held for nominated beneficiaries.

The new proposals do not apply to annuities or scheme pensions.

Anyone who dies with a drawdown arrangement or with untouched pension funds once aged 75 or over will also be able to nominate a beneficiary to receive their pension. The nominated beneficiary will be able to access the pension funds flexibly, at any age, and pay tax at their marginal rate of income tax. There will also be an option to receive the pension as a lump sum payment, subject to a tax charge of 45%.

The new proposals continue a major reshaping of the retirement landscape that began in the 2014 Budget which, among other measures, removed the requirement to buy an annuity. With pensions saving clearly now a major focus for politicians and thus in a state of some flux, it is well worth considering seeking expert advice at Platinum regarding your individual circumstances.

Long-term Care Needs Careful Planning

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As the proportion of elderly Britons continues to rise, demand for care is exceeding supply and this had led to a crisis in terms of funding long-term care.

According to the Association of British Insurers (ABI), one in three people will require care, so there’s a good chance that you or your family will be affected.

However payment for long-term care has become an increasingly pressing problem and the amount of financial support that you can expect from the Government will differ depending on whether you live in England, Wales, Scotland, or Northern Ireland.

You have various options when planning how to finance what you need – there are different types of long-term care plans available, such as ‘immediate needs annuities’ which can help to bridge the gap between your income and care costs.

You could also consider using your pension pot to purchase an enhanced annuity, which will pay a higher level of regular income if you have a medical condition or lifestyle that is likely to reduce your life expectancy.

Alternatively, your home could provide a source of finance; you might wish to downsize to a smaller house in order to free up capital. You could also consider an equity release scheme but these should be approached with caution as they don’t necessarily offer good value for money.

Above all, it’s vital that you seek advice. Platinum is always happy to speak with clients and advise on the course of action that suits them best.

Market Update – Darker Nights But Brighter Days Ahead

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This year there have been many reasons for uncertainty and market turmoil, but as we move into Autumn there seem many reasons to stay positive.

Scotland chose to continue as part of the UK and so the financial and currency markets seemed to breath relief.

At the same time the UK financial statistics demonstrate we continue to build momentum away from the recession.

Finally we have Mark Carney’s guidance as the head of the Bank of England as they anticipate raising interest rates next year.

All this makes things appear very bright, however there are still some unanswered questions – sanctions continue against Russia, plus the situation regarding IS in Iraq and Syria shows no sign of being resolved. Then there are further questions regarding how certain firms have calculated their profits, as demonstrated by Tesco.

The end result for investors is they need to be looking forward to positive growth but ensuring any enthusiasm is tempered by taking a balanced approach.

We have reviewed our clients’ portfolios and whilst we continue to be heavily equity based, we still find areas such as commercial property, selective corporate bond funds and the ‘absolute return’ investment sector attractive.

Looking ahead to 2015 and the General Election, we need to ensure our clients are in position to benefit from the growth opportunities but are equally protected from a change in political party leadership.

As always, Platinum is happy to discuss matters with you. Whether it is a review in light of financial markets, a change in legislation or simply an alteration in your situation or priorities, please contact us.

Time To Lock Into Fixed Rates?

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People often re-mortgage their home when a promotional interest rate comes to an end. However, recently they have been happy to stay on the very attractive Standard Variable Rates that their mortgage reverted to, which in many instances can be just 2.5%.

 

With fixed interest rates now as low as 1.99% and increased speculation of rate increases at the Bank of England, is it time to tie in to a low fixed interest rate?

 

More people are preferring to budget by fixing their interest rate as the Standard Variable Rate now looks less attractive because it could be subject to a potential increase.

 

If you would like to chat about your mortgage options then please get in touch with Platinum.  Our in-house mortgage specialist Nick Moynihan is happy to answer any queries.