The UK's Tax Freedom Day – the day when Britons stop working for the Chancellor and start working for themselves – falls today, 29th of May.
The Adam Smith Institute has calculated that, for 149 days of the year, every penny earned by the average UK resident will be taken by the government in tax. This year’s Tax Freedom Day falls two days later than it did in 2011.
There is more on this on the Adam Smith Institute page:
http://www.adamsmith.org/blog/tax-spending/today-is-tax-freedom-day-2012
Hilariously they also say: “In the Middle Ages a serf only had to work four months of the year for the feudal landlord, whereas in modern Britain people have to toil five months for Osborne’s tax gatherers.”
Tuesday, 29 May 2012
Thursday, 24 May 2012
Income DrawDOWN
This blog post intended for Income drawdown clients of Green Financial only
(but anyone is welcome to read)
I’m writing to you because you have a pension income drawdown plan, which is can also be referred to as an income withdrawal plan.
Please accept my apologies if there is, by necessity, jargon, acronyms and specific pension terminology in this letter. This letter is also published on my blog with helpful links and an appendix with those links is attached and a short jargon buster is also included.
I last contacted you on this matter in February 2011, in advance of the new rules, in case you wished to review your income at that point, as it was the last chance to increase or amend before the new rules were formally announced in the March 2011 Finance Act which was passed into law in July 2011 . I also provided a link to a blog post I wrote with further info. http://greenfinancial.blogspot.com/2011/02/for-green-financial-pension-drawdown.html
Income is falling…
Due to a number of economic and legislative factors, as plans reach their review point, which is now every three years rather than every five, the maximum income available to draw is falling for many people, in some cases quite drastically. This is not the case for everyone or every plan but to be forewarned is to be forearmed in case it affects you.
The purpose of this letter is to explain why and how the changes might affect you and your plan and to prompt you to ask for assistance should you feel you need it.
Why Drawdown?
Many clients opted for drawdown in order to draw as much from their pension as fast as they could, especially if they had other wealth and other income elsewhere, reasoning they’d rather have the money in hand than languishing in a pension.
Other people chose drawdown as they didn’t like the idea of buying an annuity
Some people chose drawdown because they wanted to access a tax free lump sum and didn’t need to take income
And there are many other reasons too – If you need reminding of your specific reason(s) for choosing a drawdown plan they will be in the letter I wrote to you just after the plan was set up.
Why is income falling?
There are a number of reasons mostly to do with the economy and changing pension legislation.
• In recent times there has been a general consensus that the requirement to buy an annuity with a pension (until recently one had to purchase an annuity by the age of 75) was unfair or unjust. Seemingly in response to public opinion the requirement to purchase an annuity has been removed. So in simplistic terms, previously drawdown had an ‘end date’ (75) but now it can go on almost indefinitely, so the money has to last longer, so the rate at which it can be withdrawn has lowered, in order that the pot does not run out, ie there is no money to pay an income.
• The Finance Act 2011 introduced a three year periodic review rather than every five years so the revaluing of the plan happens more frequently meaning any reduction in income happens more frequently (of course of income could increase that would be more frequent too)
• The Finance Act 2011 reduced the maximum permissible income from 120% of HMRC/GAD rate to 100%. Again, to simplify this, it means that previously one could draw income at a rate faster than via annuities, but now the maximum withdrawal rate has been lowered more in line with other methods.
• Interest rates are lower now than previously
• The revised HMRC/GAD rates introduced in April 2011 are lower than previous rates
• Another big factor that could reduce income levels further will be that investment returns have been lower over recent years, particularly equities. Investment performance and review is just one of the topics I mention each year when I send your review pack. So for those relying on high equity performance to keep the remaining pension pot value up, this will be a big factor.
As a rough guide, the ‘balanced’ pension sector typical fund has moved in a band of approximately +/-25% either side of the October 2006 value and in October 2011 was +12% up. Based on that, if drawing 5% of the fund as income per annum, the fund would now be 15% down on the 2006 value on investment performance alone. Please remember this is a simplified example to illustrate how investment performance affects these products not a personalised report on your plan and content.
• Those invested in cash will also have seen the real value of the fund reduce and thus the real value of the income it can provide reduce as inflation erodes the value.
More detailed information is included in the guide I have enclosed.
If you’d like to speak about your own plan, please do contact me.
Yours sincerely,
Ian Green
Appendix
Please note:
Any links to websites, other than those written by Green Financial are provided for general information purposes only. We accept no responsibility for the content of these websites, nor do we guarantee their availability.
Any reference to legislation and tax is based on our understanding of United Kingdom law and HM Revenue & Customs practice at the date of production. These may be subject to change in the future. Tax rates and reliefs may be altered. The value of tax reliefs to the investor depends on their financial circumstances. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments.
This letter and attachments are also stored on your secure personal client website. Let me know if you need help accessing this
Links
Green Financial Blog Post from Feb 2011 with action point reminder and jargon buster
http://greenfinancial.blogspot.com/2011/02/for-green-financial-pension-drawdown.html
Finance Act 2011
http://services.parliament.uk/bills/2010-11/financeno3.html
HMRC Pension Website
www.hmrc.gov.uk/pensionschemes
GAD tables
www.hmrc.gov.uk/pensionschemes/gad-tables
Money Advice Service Income Withdrawal Guide
http://www.moneyadviceservice.org.uk/_assets/downloads/pdfs/your_money/a5_guides/income_withdrawal.pdf
Green Financial guide to Retirement
Information on drawdown on page 18 and A-Z jargon buster at the end
http://www.iangreen.com/downloads/Retirement.pdf
(but anyone is welcome to read)
I’m writing to you because you have a pension income drawdown plan, which is can also be referred to as an income withdrawal plan.
Please accept my apologies if there is, by necessity, jargon, acronyms and specific pension terminology in this letter. This letter is also published on my blog with helpful links and an appendix with those links is attached and a short jargon buster is also included.
I last contacted you on this matter in February 2011, in advance of the new rules, in case you wished to review your income at that point, as it was the last chance to increase or amend before the new rules were formally announced in the March 2011 Finance Act which was passed into law in July 2011 . I also provided a link to a blog post I wrote with further info. http://greenfinancial.blogspot.com/2011/02/for-green-financial-pension-drawdown.html
Income is falling…
Due to a number of economic and legislative factors, as plans reach their review point, which is now every three years rather than every five, the maximum income available to draw is falling for many people, in some cases quite drastically. This is not the case for everyone or every plan but to be forewarned is to be forearmed in case it affects you.
The purpose of this letter is to explain why and how the changes might affect you and your plan and to prompt you to ask for assistance should you feel you need it.
Why Drawdown?
Many clients opted for drawdown in order to draw as much from their pension as fast as they could, especially if they had other wealth and other income elsewhere, reasoning they’d rather have the money in hand than languishing in a pension.
Other people chose drawdown as they didn’t like the idea of buying an annuity
Some people chose drawdown because they wanted to access a tax free lump sum and didn’t need to take income
And there are many other reasons too – If you need reminding of your specific reason(s) for choosing a drawdown plan they will be in the letter I wrote to you just after the plan was set up.
Why is income falling?
There are a number of reasons mostly to do with the economy and changing pension legislation.
• In recent times there has been a general consensus that the requirement to buy an annuity with a pension (until recently one had to purchase an annuity by the age of 75) was unfair or unjust. Seemingly in response to public opinion the requirement to purchase an annuity has been removed. So in simplistic terms, previously drawdown had an ‘end date’ (75) but now it can go on almost indefinitely, so the money has to last longer, so the rate at which it can be withdrawn has lowered, in order that the pot does not run out, ie there is no money to pay an income.
• The Finance Act 2011 introduced a three year periodic review rather than every five years so the revaluing of the plan happens more frequently meaning any reduction in income happens more frequently (of course of income could increase that would be more frequent too)
• The Finance Act 2011 reduced the maximum permissible income from 120% of HMRC/GAD rate to 100%. Again, to simplify this, it means that previously one could draw income at a rate faster than via annuities, but now the maximum withdrawal rate has been lowered more in line with other methods.
• Interest rates are lower now than previously
• The revised HMRC/GAD rates introduced in April 2011 are lower than previous rates
• Another big factor that could reduce income levels further will be that investment returns have been lower over recent years, particularly equities. Investment performance and review is just one of the topics I mention each year when I send your review pack. So for those relying on high equity performance to keep the remaining pension pot value up, this will be a big factor.
As a rough guide, the ‘balanced’ pension sector typical fund has moved in a band of approximately +/-25% either side of the October 2006 value and in October 2011 was +12% up. Based on that, if drawing 5% of the fund as income per annum, the fund would now be 15% down on the 2006 value on investment performance alone. Please remember this is a simplified example to illustrate how investment performance affects these products not a personalised report on your plan and content.
• Those invested in cash will also have seen the real value of the fund reduce and thus the real value of the income it can provide reduce as inflation erodes the value.
More detailed information is included in the guide I have enclosed.
If you’d like to speak about your own plan, please do contact me.
Yours sincerely,
Ian Green
Appendix
Please note:
Any links to websites, other than those written by Green Financial are provided for general information purposes only. We accept no responsibility for the content of these websites, nor do we guarantee their availability.
Any reference to legislation and tax is based on our understanding of United Kingdom law and HM Revenue & Customs practice at the date of production. These may be subject to change in the future. Tax rates and reliefs may be altered. The value of tax reliefs to the investor depends on their financial circumstances. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments.
This letter and attachments are also stored on your secure personal client website. Let me know if you need help accessing this
Links
Green Financial Blog Post from Feb 2011 with action point reminder and jargon buster
http://greenfinancial.blogspot.com/2011/02/for-green-financial-pension-drawdown.html
Finance Act 2011
http://services.parliament.uk/bills/2010-11/financeno3.html
HMRC Pension Website
www.hmrc.gov.uk/pensionschemes
GAD tables
www.hmrc.gov.uk/pensionschemes/gad-tables
Money Advice Service Income Withdrawal Guide
http://www.moneyadviceservice.org.uk/_assets/downloads/pdfs/your_money/a5_guides/income_withdrawal.pdf
Green Financial guide to Retirement
Information on drawdown on page 18 and A-Z jargon buster at the end
http://www.iangreen.com/downloads/Retirement.pdf
Friday, 4 May 2012
E&OE
Mistakes and Corrections
With the number of variables involved in investment funds, the number of funds and the general complexity it is no surprise that often a provider, in an audit, picks up an error.
This could be a pricing error (under or over), a tax error, a naming error or other similar mistake.
Normally when this happens the provider will inform me, the IFA, of the error that has been found and what they will be doing. They then give me a list of my clients it applies to.
They then write directly to the client, informing them what went wrong, any implications, what happens next and generally putting everything back where it should be.
So whilst this kind of thing is far from a day to day occurrence neither is it normally cause for concern.
If you receive one of these letters and after having read it, it still doesn’t make sense, please contact us and we'll be delighted to explain exactly what is happening with your plan.
But if you receive one and it all seems OK to you, feel free to carry on as normal.
There are examples below.
Monday, 30 April 2012
Directions to Hyde Park House
Directions to Hyde Park House
Parking is limited in Manfred Road and many bays are resident only or tightly time patrolled by local traffic wardens. Manfred Road is a turning off the Upper Richmond Road and is an 'L' shape, and continues into a one-way street, 'Oakhill Road' which itself returns to the Upper Richmond Road - so if you miss a space on Oakhill you can loop round again easily.
There is no designated cycle parking nearby but there are cycle posts within a few minutes walk.
We may be able to arrange cycle parking inside our building given notice - please contact us in advance if you'd like to consider this.
From Putney mainline station
this is a 5 minute brisk walk:
Turn left out of station, to the main crossroad junction and turn left staying on the same pavement, past Halifax and Foxtons estate agent
Continue along the Upper Richmond Road, past the multitude of estate agents, past Virgin Active Gym and crossing Oxford Road.
Another short row of shops includes a 'beer boutique', a cafe Nero coffee shop and a number of convenience stores.
You will now pass under the railway bridge at East Putney, passing the builder's yard and can continue directions from there (below), starting outside the Wandsworth Court and crossing Oakhill Road:
From East Putney Tube Station (district line)
this is a 5 minute brisk walk:
Turn right out of station,
Under bridge, past Valentina foods and SW1SH flats
Cross the main road at the pedestrian crossing outside the co-operative supermarket, crossing towards the Wandsworth court building.
Once you have crossed the Upper Richmond Road onto the other pavement, turn right, crossing Oakhill Road and continue along the Upper Richmond Road
You will see and pass Majestic wine warehouse on the opposite side of the road
The first road on your left is Manfred Road
Hyde Park House is the white building immediately after Normanby Close on your left
If you reach and pass the request bus stop and The Lodge Hotel you have gone too far
Parking is limited in Manfred Road and many bays are resident only or tightly time patrolled by local traffic wardens. Manfred Road is a turning off the Upper Richmond Road and is an 'L' shape, and continues into a one-way street, 'Oakhill Road' which itself returns to the Upper Richmond Road - so if you miss a space on Oakhill you can loop round again easily.
There is no designated cycle parking nearby but there are cycle posts within a few minutes walk.
We may be able to arrange cycle parking inside our building given notice - please contact us in advance if you'd like to consider this.
From Putney mainline station
this is a 5 minute brisk walk:
Turn left out of station, to the main crossroad junction and turn left staying on the same pavement, past Halifax and Foxtons estate agent
Continue along the Upper Richmond Road, past the multitude of estate agents, past Virgin Active Gym and crossing Oxford Road.
Another short row of shops includes a 'beer boutique', a cafe Nero coffee shop and a number of convenience stores.
You will now pass under the railway bridge at East Putney, passing the builder's yard and can continue directions from there (below), starting outside the Wandsworth Court and crossing Oakhill Road:
From East Putney Tube Station (district line)
this is a 5 minute brisk walk:
Turn right out of station,
Under bridge, past Valentina foods and SW1SH flats
Cross the main road at the pedestrian crossing outside the co-operative supermarket, crossing towards the Wandsworth court building.
Once you have crossed the Upper Richmond Road onto the other pavement, turn right, crossing Oakhill Road and continue along the Upper Richmond Road
You will see and pass Majestic wine warehouse on the opposite side of the road
The first road on your left is Manfred Road
 |
| Manfred Road, as seen approaching from East Putney Tube |
Hyde Park House is the white building immediately after Normanby Close on your left
If you reach and pass the request bus stop and The Lodge Hotel you have gone too far
 |
| Hyde Park House - Green Financial is behind the arched window |
Wednesday, 4 April 2012
CASH ISAs for Investment Clients of Green Financial
Are you an investment client of Green Financial?
Are you considering a CASH ISA for the tax year 2012/13?
And possibly one that locks you in to the product for a number of years?
As a rule, for clients who have previously stated to me they have sufficient accessible cash, unless you have a need to accrue more cash for emergency purposes (and I’m assuming this isn’t the case if you have opted for a fixed term cash ISA where you lock the money away) I am not currently recommending cash ISAs
If you are simply rolling an existing ISA over, to obtain a better rate – or transferring an existing cash ISA to a better rate, that makes great financial sense.
And as above, if you are wishing to accrue more cash for a specific purpose, then sheltering the interest from tax makes sense.
But for most (not all) Green Financial planning clients we have already considered the amount of cash you have available.
Based on this, and on the premise that in the future, we are aiming to help you provide tax efficient income and capital for when you are no longer working, the current numbers don’t seem to stack up for cash ISAs
The current official rate of inflation on the Bank of England Website is 3.4%
On the day of writing this, the last day of the 2011/12 tax year, using my professional sourcing software I can recommend cash ISAs paying up to 3.5% for instant access.
MoneySavingExpert.com shows instant access rates at 3.1%
I can recommend products where you lock your money away for a year and it goes up to 3.6%
Lock your money away for 5 years and rates of around 4.5% are available
So if inflation remains the same (ie doesn’t go up) you’ll earn a real return of 0.1%, on the best instant access ISA. Using the maximum £5,340 that is just £5.34 a year. If you locked away for 5 years in year 1 you’d be earning £53.40 – I know every little helps but it hardly seems worth locking away £5,000+ to earn £50 to me?
And if inflation goes up – it will eat into that real return.
And many people feel the official rate of inflation is not realistic. Many people report things like petrol, heating costs, food bills etc going up far in excess of 3.4% which means in real terms you may be even lose money in terms of spending power over the term of the product
Anyway, just my thoughts as your professional financial adviser.
But to reiterate, this blog post is not intended to be personalised financial advice. If you have other reasons for investing in cash ISAs they may well override what I have typed here. If you wish to discuss your own personal situation as a client of Green Financial I’d be delighted to speak.
But as a general rule, for those clients that have a financial plan, whereby we have already taken into account your cash savings, and given the current rate of returns on ISAs compared to the rate of inflation (official and ‘real life’) and given the long term nature of a financial plan, I do not think cash ISAs make much sense today.
Are you considering a CASH ISA for the tax year 2012/13?
And possibly one that locks you in to the product for a number of years?
As a rule, for clients who have previously stated to me they have sufficient accessible cash, unless you have a need to accrue more cash for emergency purposes (and I’m assuming this isn’t the case if you have opted for a fixed term cash ISA where you lock the money away) I am not currently recommending cash ISAs
If you are simply rolling an existing ISA over, to obtain a better rate – or transferring an existing cash ISA to a better rate, that makes great financial sense.
And as above, if you are wishing to accrue more cash for a specific purpose, then sheltering the interest from tax makes sense.
But for most (not all) Green Financial planning clients we have already considered the amount of cash you have available.
Based on this, and on the premise that in the future, we are aiming to help you provide tax efficient income and capital for when you are no longer working, the current numbers don’t seem to stack up for cash ISAs
The current official rate of inflation on the Bank of England Website is 3.4%
On the day of writing this, the last day of the 2011/12 tax year, using my professional sourcing software I can recommend cash ISAs paying up to 3.5% for instant access.
MoneySavingExpert.com shows instant access rates at 3.1%
I can recommend products where you lock your money away for a year and it goes up to 3.6%
Lock your money away for 5 years and rates of around 4.5% are available
So if inflation remains the same (ie doesn’t go up) you’ll earn a real return of 0.1%, on the best instant access ISA. Using the maximum £5,340 that is just £5.34 a year. If you locked away for 5 years in year 1 you’d be earning £53.40 – I know every little helps but it hardly seems worth locking away £5,000+ to earn £50 to me?
And if inflation goes up – it will eat into that real return.
And many people feel the official rate of inflation is not realistic. Many people report things like petrol, heating costs, food bills etc going up far in excess of 3.4% which means in real terms you may be even lose money in terms of spending power over the term of the product
Anyway, just my thoughts as your professional financial adviser.
But to reiterate, this blog post is not intended to be personalised financial advice. If you have other reasons for investing in cash ISAs they may well override what I have typed here. If you wish to discuss your own personal situation as a client of Green Financial I’d be delighted to speak.
But as a general rule, for those clients that have a financial plan, whereby we have already taken into account your cash savings, and given the current rate of returns on ISAs compared to the rate of inflation (official and ‘real life’) and given the long term nature of a financial plan, I do not think cash ISAs make much sense today.
Thursday, 22 March 2012
Offshore 'cluster' bonds
According to budget documents HMRC will introduce measures to combat tax avoidance on insurance policies, capital redemption polices and annuity contracts.
No clients, who purchased their product via Green Financial, will be affected by this.
The measures apply to so-called cluster arrangements where tax charges are confined to just one segment of life assurance bond.
Green Financial have always considered this very aggressive tax planning and subject to threat of legislation or query by the authorities.
With the 'cluster policies' an example would be a bond holder who wants access to their cash before the end of the bond who then redeems nine segments of a ten segment bond while the taxable gains are applied only to the tenth.
It is still the case that with investment bonds we recommend due care and attention should be made to how withdrawals are taken, so as not to trigger unneccesary tax - but this is not to be confused with the type of plan and action the budget has outlawed.
If you are a Green Financial client and have any questions regarding this matter or your investment, please contact us.
No clients, who purchased their product via Green Financial, will be affected by this.
The measures apply to so-called cluster arrangements where tax charges are confined to just one segment of life assurance bond.
Green Financial have always considered this very aggressive tax planning and subject to threat of legislation or query by the authorities.
With the 'cluster policies' an example would be a bond holder who wants access to their cash before the end of the bond who then redeems nine segments of a ten segment bond while the taxable gains are applied only to the tenth.
It is still the case that with investment bonds we recommend due care and attention should be made to how withdrawals are taken, so as not to trigger unneccesary tax - but this is not to be confused with the type of plan and action the budget has outlawed.
If you are a Green Financial client and have any questions regarding this matter or your investment, please contact us.
Tax tables – March 2012
Please find below a link to our tax tables, outlining the key tax data in George Osborne’s Budget of 21 March. The Chancellor unveiled a range of measures that left no doubt that the ‘age of austerity’ is not yet over – though thanks to a steady stream of pre-Budget announcements and leaks, Mr Osborne had little to offer in the way of surprises.
The Budget highlights included:
• The personal allowance will be increased to £9,205 in 2013/14, but the higher rate threshold will be reduced by £1,025 to £41,450.
• There will be a limit on the maximum amount of income tax reliefs that can be claimed from 2013/14.
• As expected, from 2013/14 there will be a drop in the higher rate of income tax from 50% to 45%.
• The so-called ‘mansion tax’ has taken the form of higher stamp duty on house sales over £2 million.
• Child benefit is to be phased out where income is over £50,000.
The tax tables are available for download on the website at: www.iangreen.com/taxtables.pdf
or to view at www.facebook.com/GreenFinancial
These will be joined by budget summaries and other info in the days to come.
We trust that you find the enclosed tax rates useful, and that you find them to be a helpful basis for a discussion with us about your financial future.
The Budget highlights included:
• The personal allowance will be increased to £9,205 in 2013/14, but the higher rate threshold will be reduced by £1,025 to £41,450.
• There will be a limit on the maximum amount of income tax reliefs that can be claimed from 2013/14.
• As expected, from 2013/14 there will be a drop in the higher rate of income tax from 50% to 45%.
• The so-called ‘mansion tax’ has taken the form of higher stamp duty on house sales over £2 million.
• Child benefit is to be phased out where income is over £50,000.
The tax tables are available for download on the website at: www.iangreen.com/taxtables.pdf
or to view at www.facebook.com/GreenFinancial
These will be joined by budget summaries and other info in the days to come.
We trust that you find the enclosed tax rates useful, and that you find them to be a helpful basis for a discussion with us about your financial future.
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