You may wonder why the iconic picture of Marvin Gaye sits atop my blog this week. One of his many legendary hits had the title 'Whats Goin' On?' and that's exactly what I'm being asked this week by my clients!
Mr Osborne has done it again with the reversal of a 55% tax charge on any pension fund passing down the family line. This comes into force on April 6th 2015, along with the lifting of the restriction as to how much cash you can extract from a pension fund. Add to that the re-announcement of 'no compulsion to purchase an annuity' and you suddenly find yourself thinking 'what's going on?'
My own belief, is that this is trying to create wealth for the next generations. We already know that austerity measures will continue for 3 or 4 terms of government at the going rate and that the gap of 'Middle England' is now wider than the country itself.
With more people about to face being Auto enrolled into pension schemes over the next 3 years (from 2016 120,000 COMPANIES A MONTH with need to sort this out), it is clear that the Coalition are trying to make pension schemes-regardless the size of the pot-a very advantageous investment to provide income for the retiree, but also for that capital to be passed down to future generations, with the aim to help the next generation have deposits for homes, money for schools etc, without having to borrow too much. This will then hopefully trigger our children (& grandchildren) to see the benefits of a pension scheme and for them to get involved, or better still, to get the kids saving into one as well if possible.
I also think (or is that hope?) that Inheritance Tax will be reviewed. I long for the day to see Inheritance Tax raised to £500,000 and applied only if the 'family house' is passed down to the next generation. If it is sold, with cash given to the next generation, then it is passed free, allowing the beneficiaries to purchase a house, or start a business & employ people, so it is put back into the economy or used to create jobs. that's my philanthropy done with.
For some, retirement is too way off to even start thinking about it, which I totally understand, but if you wait to when you can see, feel, touch and smell it, then its probably too late.
Out of all of this, Politicians of all parties have made us talk about pension schemes and made us think about our ability to live on £140 per week state pension, that seems to be moving further away from age 65 that I grew up with.
If this latest blog has made you want to have a chat then please visit www.business-ifa.co.uk where you'll find all my contact details.
Have a great week and don't forget, 3rd Monday of every month, 7pm-8pm catch my Radio Show on HCR104FM or, if you're out of the catchment area, listen online!!!
Victor
Hello,
Apologies for the delay between blogs, but what with summer holidays and kids being off, I thought I'd start again in September. These last two weeks have seen me visit my family in New York & New Jersey, with a road trip to Washington DC.
I have to say, I have always had a fascination with the USA as a whole. As my dad's Sister married a G.I in 1945, I have been fortunate enough to visit my family out there for as long as I can remember. Various holidays there, have seen us take many roadtrips and internal flights to see as much as this country as possible.
So how big is this country? well, anyone who has flown to east & west coast, will know that's the same distance roughly, between the UK and New York and from New York to furthest west (Hawaii) there is a 5hr time difference. Flight time from say New york to Florida is around 4hrs.By comparison, the flight from Newquay to Southend Airport takes about an hour and the same could be said for a flight from Luton to Edinburgh.
So using flight times, the USA is approximately 4 times deeper and 7 times wider. We have a population of 63 million and they have a whopping 313million...but where are they????
The map at the top of this blog, is a personal favourite. A New Yorkers (or its that Yoikers?) view of the USA. Add in Florida and I'd say for the vast majority, that's our view. But there's more......
The USA's best selling vehicle for the last few years is..what? a Dodge? Chrysler? Buick? Subaru?Honda? nope..not even close..Ford? yes! the F150 to be precise..a four door, 5lt flat bed pick up truck-they can't make enough of them.
The USA has states devoted to growing Corn, Potatoes, wheat, grain, fruit and trees (New Jersey has huge swathes of land given over to corn and tree farms), as well as poultry, Cattle etc. Financial services is big, but commodities like Frozen Concentrated Orange Juice, Pork Bellies, wheat, Oil, Corn etc (ever seen the film Trading Places?) far outweigh the importance to the USA, with Fracking fast taking over as the biggest yet and the raw materials needed to make them happen, are spearheading investment growth.
When George Bush spoke after 9/11 he referred to 'Alkaieda' as 'these folks' Europe could not believe such a term could be used. He was ridiculed, branded an idiot..but he's a mid western Texan from an oil refining family..that's how they talk and the USA understood that. Jimmy Carter was the son of a Peanut Farmer, the founding fathers of the Declaration of Independence were Virginians.
But unless these things are learnt, taught etc..we will only ever see the USA, from the New Yorker perspective.
I also learnt that scientists believe a baby born in the USA today has a potential life expectancy of...110!!! now as a financial adviser, that just creates so many questions..can you imagine living till 110? how many years will you work for then? surely you cant stop at 65...you've potentially 50yrs left to live!!!
In the UK, using the State pension system, we've seen 40yrs funding for a pension and as a life expectancy, this was based on '3 score & 10'-70yrs of age-so retiring at 65, 40yrs of funding gave us 5yrs of living. Today we can look forward to late 70's/early 80's..we surely can't expect 40yrs of funding, to now sustain us for 15 or 20yrs..let alone 50yrs!!
Them folks don't know whats coming!!
Have a great week
Victor
'So, I decide to go a Networking meeting. I've read up on the latest news and found an investment fund that has posted growth of 28% in ONE YEAR! It's regulated, so nothing to worry about, it is a moderate to adventurous fund and eligible under the Financial Services Compensation Scheme (FSCS) if the company folds (which it won't as the fund is operated by a household name). I'm now ready for the one minute introduction. I've rehearsed my spiel and I'm going to blow them away....sweaty palms, heart racing, I'm pumped and ready...."Good evening, my name is________ and I'm an Independent Financial Adviser. I'm delighted to tell you, that I can name an investment fund that has posted a 28% increase in one year and if you want to have a natter, please come and see me" BOOOOOM! I'm well chuffed. There is stunned silence as people nod sagely to eachother. I check my business card stash-(enough) my pens are working...I'm going to get 30 interviews here!
The meeting ends and we retire to the bar to have some more chat...Tumbleweeds...I can't believe it! no one is giving me the eye, no one wants to even ask me a question! I'm dumbfounded and go home perplexed, confused and amazed.
So next week I go again, a week before the Grand National (our equivalent of the Kentucky Derby or Prix de L'arc de triomphe if you will!) Limp handshakes, no eye contact nothing, I'm clearly surplus to requirements. This time I'm languid. I'm in no hurry, no animation..its my turn ' Hi there. As you may know, I enjoy horse racing and I've been made aware of a horse in Ireland that is being especially trained, groomed & fed to run in next weeks' National. I'll in the bar if you want to have a natter' Startled faces all around! I've blown it methinks. How dare a Financial Adviser recommend such a frivolous and risky investment?
Eight people, Eight bloody people who ignored 28% potential returns last week, meet me in the bar asking for the horses details and what cut do I want if it wins!"
A wonderful story, told to me by an IFA in the last week who shall remain nameless, the same as the Networking group.
Well hello readers and I apologise for my tardiness at organising a Blog. We've had a change of computer systems at the office, which didn't help but to be perfectly frank, its been busy and I'm not complaining!
Isn't that story great? so true in life generally we can't wait for anything! from £2 on the Lottery to pre cooked & takeaway food-we just can't wait and when it comes making a money on our hard earned cash, relevance and common sense fly out the window as we chase that fabulous headline of '8% a year guaranteed for 3 years' even though the e-advert carries no protection statement at all, we are prepared to consider investing.
Yet, when we look under our noses, we can see that some of the big, well established companies that head up the major Financial Indices in the world are paying high single sometimes double digit dividends as the western world finally starts to creep into recovery.
Having a flutter is fine, so long as you know you might lose it all. The same applies to these new investment ideas of investing in Storage companies, Car Parks etc..the vast majority are Unregulated, this means there is no FSCS protection if the company folds. So if you're going into these schemes, be aware. I have seen one recently where a Solicitor is being used to handle the financial transactions. As such, the solicitor displays accreditations and their financial protection details if they make a mistake. Unfortunately, potential investors are assuming (and the investment company is not saying) that this is protection for them.
Whilst the saying 'Don't look a gift horse in the mouth' is true, 'All that glitters isn't necessarily Gold' is equally true. Have a flutter, take a punt, but go in with your eyes wide open when it comes to Unregulated Investment Schemes and dare I say it? Talk to an Independent Financial Adviser. If you want one, you can go to unbiased.co.uk or check the CII website, or as your reading this...talk to me!!!!!!
Have a wonderful rest of summer, take care & I'll be back in September
Oh and if you can, listen in to HCR104fm on Monday 15th September, 7-8pm UK time...I am the 'Money Man' available online as well
Victor
Well Hello again!
This week my blog focuses on Auto Enrolment/Workplace pensions and in my own way, I think the picture above will become a distinct possibility. I stress this is, as the blog says 'Victors' View' and no one elses!!
Most of my clients are now starting to receive a letter from the 'TPR' - The Pension Regulator. Already, I have a few calls asking 'is this a scam?' or 'what should I do?' or more frequently 'Ah, I've got over a year to worry about it, I'll talk to you later'
Auto Enrolment, or Workplace pension is the terminology for a call to arms to enrol all who employ somebody, who is over the age of 22, below the age of 65 and earns more than £10,000 per annum into a pension scheme(there are other caveats, but this is the crux!), so if you're and employer who employs, or you're an employee and you fit the above criteria-this affects you. Auto Enrolment until now, has concentrated on larger companies who started (or 'Staged' as the term is known) in October 2012. The staging (or enrolling perhaps!) is now focussed on those companies with around 50 employee's and over the coming two years, those who employ one other person than themselves will come into focus-we're eventually peaking at around 180,000 companies every month will need to enrol/stage/join.
This is a mammoth task! especially, when you see there are around 25,000 registered financial advisers and maybe 50 companies who will facilitate this. Even now, maybe a couple of thousand companies each month need to get themselves set up, but you won't see it in the press or anything, maybe from the Chamber of Commerce or Federation of Small Businesses.
Even talking to the FSB, they admit feedback from members 'apathetic' and they feel 'its another 'Stakeholder' pension scheme' (stakeholder was introduced in April 2001 and required those with 5 employee's to have a scheme available for those who wanted to join, by the September of that year, the Atrocities of the Twin Towers in New York happened which obviously changed the focus). This time around, it is different. Auto Enrolment was a Labour idea, helping those who do not benefit from company sponsored pension schemes like the public & private sector-this was aimed at the Micro, Small & Medium sized privately owned businesses.Launched by the then chancellor, Alistair Darling in 2008, it was to equalise the pension playing field, to stop the dramatic drop in income from employed, to retirement. So a change of government-if there is one next year-is unlikely to halt this and the TPR does have teeth, with Dunelm Mill recently being publicised as to have received a warning.
As we approach the smaller sized companies, we will find more of them and possibly, as the pension companies fill up with bigger sized companies from the big supermarkets, high street stores etc, by the time a 5 or 10 man business approaches them, they may have more than they need..leaving the employer with little choice as to what company to use.
A company and an employee has to also consider the cost 2, 3 & 4% of employee earnings will go into a pension for an eligible individual and up to 3% for the employer over the next few years. Surely a company & an individual would want to know this more than a year in advance, so they could plan?
Yes, opting out is available, but to opt out, you have to be in first and 3 years after opting out, you'll be put back in.
So all I ask, is if you get that letter from The Pension Regulator-act on it. Talk to your business mentors, talk to The Pension Regulator. By all means talk to your accountant, but it is likely that he or she will only look at this from a payroll perspective and that's not what its all about.
Give yourselves time to think and adjust-perhaps this coincides with the overall salary package you want to pay-perhaps it means something else.
Please speak to your Financial Adviser. if you have one, if not go to unbiased.co.uk or give me a call. Most advisers will offer a free consultation without obligation.
This can be set up and administrated by yourself as a company owner, absolutely no problem at all, in the same way, that you can do your own filing of accounts and run your own payroll, my question is "where is your time best spent?" as the old saying goes, 'A ship is safe in the harbour, but that's not where it was built to be'
Have a great rest of week and weekend,
Victor
Hello!
This week my thoughts were focussed on the strike that went ahead on Thursday. Unauthorised or not, it got me thinking as to why people would strike-& include changes to pensions as a reason to. Now don't get me wrong, I'm all for democracy and if someone feels strongly enough that all aspects of negotiation are futile and to strike is the only way, then so be it.
But.....I do find it difficult when the strike includes 'changes to pension'. We are about to see some of the biggest legislative changes in pension history. One potential change alone allows someone to access their whole pension fund in its entirety-what's wrong with that and why strike about it? we see that the vast majority of public sector workers are exposed to either Final Salary Pensions (aka defined benefit) or high level Money Purchase pensions (aka defined contribution) schemes, if the Final Salary scheme is closed to new members (unlikely, but worth noting). In some instances a Final Salary scheme could cost an employer 20%-30% of an employee's salary per year to run, whereas a Money Purchase scheme might cost an employer 15-18% of an employee's salary each year. That's a huge shift from the Private sector, where virtually all but a few are in Money Purchase schemes, receiving larger contributions from those working in larger organisations, Multinationals, Banks, etc, let alone those working for private companies or individuals...so, when compared to others, the Public sector pension regime looks too good to strike about..doesn't it?
I get the issue on pay. receiving 1% salary increases, being asked to work longer hours for the same money will increase stress levels within the work environment & I'm sure work is also brought home too-even if its to rant about 'what a day I've had' but isn't this compensated by aforementioned pension contributions? these guys will eventually retire on up to two thirds of their final salary..will you?
Now..I'll tell you a brief story...I worked for a bank for 17 years and I was lucky enough to have a Final Salary pension. I also saw zero per cent salary increases for around 6 years. I saw my bonus structure change, meaning I had to do more business, for less money. I also had my retirement age changed on my pension, from 55 to 60 meaning I had to work more years to get the same level of pension. Unite/Unison were enraged, we should strike..& some did. I didn't strike, because I didn't think my voice wouldn't change anything, however, it did make me stop and thing and eventually it became one of the myriad of reasons I left & set up my own business, but I digress.....
I was working with people who had been at the bank since they were 16 years old and were now 50. They spent more time at the Bank than with their partners and children!!!
I was orphaned while at the bank, I was married, 3 times a father and divorced whilst at the bank..the security of income and a fantastic pension was the reason the majority of people I came into contact with stayed at the bank. To alter what was fundamental to their life (I wasn't the only one divorced due to work overload and bringing all the days issues home with me), their reason for staying, enduring the workload, having time off with stress etc, etc, was the benefits & when you mess with benefits, you are shifting Teutonic plates because the sacrifices made to and by husbands, wives & families were and are brought into sharp focus and that's why I think the changes to work & pensions causes such action. Not the change per se, but the emotion it brings...As I say, You can't touch that, its potentially Pandora's Box.
Now some reading this will say that I'm out of my depth as I'm no analyst and I agree, but, I have an opinion and as we are a democracy..........!!!!!!!
Have a great weekend and I hope you can switch off mobile data and enjoy it
Victor
Its 4.45pm, I'm in the office at the bottom of my garden, a glass of Sancerre is on my desk & then I find this graph and upend said glass over the table! Good afternoon one & all, its been a while.
These last couple of weeks have seen me speak to my clients about pickling their pension..in other words..preservation. When you see a stat like this (this is a study of a small sample-around 200 respondents and it was done last year) it makes you think. Now obviously I'm looking at the far right bar chart. Now what it doesn't say is whether these respondents are choosing to work forever, because they want to, or because they have to.
As a micro business owner, I love what I do and cannot see a time when I won't be working, but it will be because I want to and when I say work, it will probably be over lunch and at a leisurely pace.
My clients have accumulated their pension & are now looking to get the most out of it, because they recognise at aged 65, they could easily still be alive in 25yrs time, which is a vast difference between that of our parents, who would recite the lifespan as '3 score & ten' (70yrs). We are also starting work later. some 40 years ago, the average starting working age was 15, now its 21. The retirement age was 65 and now its 68, and the average life expectancy has gone from 68 (males ONS statistic 29/3/12) out to 82.9 (males, Dorset ONS statistic 29/3/14)
So a shorter working life and a longer life expectancy, means that Steve Webbs' 'buy a Lamborghini' quip was not the best thing to say, but with the new rules coming into play from April next year, there will be nothing to stop you doing just that, providing the fund is valued around £150,000 so you can buy one..but then you have to tax it, fill it & insure it..where's that money coming from?!
Clearly, we must have some fun, after all, for most of us, the tax free cash element (which is 25% of the pension pot value) is our 'lottery' win and a chance to enjoy ourselves if we haven't managed to do so along the way, but, as the fund has to last two lifetimes (if you're married) and maybe, be passed onto you kids (yes, it can be done), then perhaps the pickling jar may be the preferred idea.
As ever, these are my ramblings and based upon the conversations I've had. This is not advice & can't be seen as such. If you would like a free consultation without obligation then please get in touch via my website: www.business-ifa.co.uk and I'd be delighted to have a coffee & a chat with you.
Until the next time,
Victor
So, given too many options, what's the chances of doing nothing? I'd say pretty good actually!
I love going out to eat. My ideal restaurant offers me freshly prepared food, a choice of say 4 starters, 5 Main meals and 4 desserts (for my wife, I don't do sweet!) give me a menu where it has too many choices & chances are my appetite suppresses & I order the first thing I see & I won't be that happy with my choice, but I'll have eaten.
My blog this week is back to my industry & specifically pensions......I know...... strap yourself in, pour a large G&T (as I have done) & ruminate with me............
When I first came into the Financial Services Industry in 1989, there were two options available at retirement:
Option 1: Invest the whole fund into an annuity & receive an income each month, for as long as you live or:
Option 2: take a quarter of the fund as tax free cash & with the now reduced amount, buy an annuity & receive a reduced income (obviously as you've take a quarter out of the equation) each month for as long as you live.
Simple really...Bit like Henry Fords' quote of 'You can have any colour you want, as long as its black'
But now we so much choice with pensions (and in fairness, colours of cars...Taupe & Teal come to mind) that for anyone approaching the age where you can access your personal pension -55- planning needs to start at around 50, because every option brings its own set of issues:
Buy an Annuity: well publicised at the moment. This is the vehicle that drives out the income and uses age, health, sex & current interest rates/gilt yields to determine how much someone can receive. Given that statistics show we are in our early 80's on average when the permanent horizontal position becomes the norm, that could mean a company paying out for close on 30yrs..so the rates aren't going to be pretty, especially if you want to ensure that your spouse gets some income when you're no longer around & when you're both gone any capital still remaining reverts back to the company who provided you with the annuity..its a kind of spread betting by the company as to how long they think you're going to live for, & whether it becomes theirs on the 1st or 2nd death (take a slug of G&T now!) does this work for you? I don't know, but it will still be a popular choice for retiree's for Public & Private sector workers because (& I refer to 'Option 1 & Option 2') that is generally all they are aware of, apart from Option 3 (which may or may not be available) speak to a Financial Adviser, which is seen as a major pain somewhere low down on our bodies.
Choose an alternative: Good one Vic! Look, I'm not going to highlight the minutiae of everything out there..The sun is shining, the G&T will go warm but lets have a whistle stop look:
First off, lets clear up this tax free cash issue, you do not have to take a quarter or zero. If you want to take 10% this year, next year then 5% thats' fine, or 5% over 5yrs..you can take a quarter of your pension as tax free cash..how you take it, is up to you & subject to your pension provider being able to accommodate (look, I've got to cover things...take a sip of G&T!)
If circumstances provide favourable, you can (subject to being in a suitable scheme that allows) take your cash element & defer taking an income until some future point. This could work well if you've retired but any more income in the same tax year, will take you into the next tax threshold, or if just want to be in charge as to how much & when Income is payable. You can get guarantee's as to how much is received each month, & because you haven't purchased an annuity, on the death, the remaining fund passes to your next of kin subject to tax charges & can also be part of your estate, but subject to Inheritance tax as well. The remaining fund will still go up & down in value whilst you're alive.
Given George Osbornes' budget statement, you can, from April 2015, tax your whole fund as cash. 25% will be deemed free of tax, but the remaining fund will be classed as 'income' & taxed accordingly. so, if you've say, £50,000 in your pension. You take £12,500 as a tax free cash lump sum, the remaining £35,000 is classed as income you've earnt. So if you're earning say £25,000 per annum, for that tax year you're earning £60,000 and are now a higher rate tax payer at 40%, so the £35,000 fund remaining is reduced to £21,000. Far better to consider taking it a bit at a time, using your full 20% tax allowance. But what happens then? You've done you're pension in & now there is only the state pension too look forward to ..but that doesn't kick in until say 68 & you're only 55 now?
I'm labouring here but you get my drift. Every pension action has a reaction & no two peoples' situation will be the same. I mean, we know that once you're in an annuity you can't get out (you didn't? take a swig!) but you can now defer the age when & if you choose to buy one, so the combinations & options are huge. Please don't do nothing-do something & speak to me! I don't bite & I do offer a free , no obligation first meeting (& relax....!)
Mortgage bubble...Don't Panic!
I read with interest comments from papers like the Daily Nail & Daily impress & from top notch business editors like Bob Weston (names have been changed!) that the Monetary Policy Committee need to raise interest rates to cool down this housing bubble..or that house prices set to soar..or that its all bloody doom & gloom for everyone......
I agree that prices have soared that there is & always will be certain parts of the country that are immune to house price fluctuations, but...with big retailers (like Tesco's for example reporting lower profits & mortgage approvals down for the ninth month in a row & continuing to go down due to new 'MMR' rules (nothing to do with vaccinations) where things like Student Loans will be taken into consideration for mortgage borrowing, I forsee a calming of the seas...I also can't see how, as we are seeing a recovery of sorts in the 'Macro' arena, (big industry, financial markets, unemployment) they would raise interest rates now-especially with a run up to an election. This is highly unlikely-in my opinion.
I suppose I could see a 0.25% rise late this year, early next, just to see what the reaction is, but as we are the world cup winners for the population with the most debt (see, we can win something) I don't interest rates rising until Q1 next year & listening to financial industry leaders, an expectation of base rate in 2017/18 is to be around 3%
As always, these are my own thoughts & views & not to be taken as advice..I'd be happy to advise to you..just visit www.business-ifa.co.uk have a look around, & ping me an email or give me a call. feedback is always welcome.
Have a great weekend,
Victor
