Thursday 28 July 2011

1971 and all that

Happy 40th Birthday to me!


Post Birthday Blog

1971 and all that

I turned 40 yesterday having been born 27 July 1971

A friend and client was kind enough to send me a birthday card with a few numbers from 1971 on it.

It makes interesting reading...

 Petrol was 7.5p a litre (compared to over £1.35 at the garage I passed on my way home tonight)

A large loaf was 10.5p (half a penny, remember those!)

Colour TV licence was £12 (black and white licence was abolished)

Average house price £5,970 (what would that buy you now?)

Prescription charge –  20p

Cinema ticket – 40p

Pint of beer – 12p

And to pay for all this the average weekly wage for a full time working man was £32.90 (£1,710 per annum)



I then looked a little further into a few more financial differences between then and now.

In the US in 1970/1 a typical skilled working class couple with two children had one wage earner, saved around 11% of their income and had revolving credit (ie they had credit cards but paid them off in full each month). The family therefore could be thought to have a reasonable safety net: little risk of mortgage default, adequate savings, low borrowings if any and a potential additional wage earner if required.

Compare and contrast that with today. In the same type of family, typically both parents are working, and the safety net has gone. There are little or no savings and paying back credit (excluding the mortgage) takes up 15%+ of income. The loss of one job, or accident or illness would threaten the survivorship of the family finances and the fall in their house price since 2008 has wiped out any equity there.

In 1971 Inflation in the UK was 8.6%

Decimalisation hit the UK (in February admittedly) and also in February 1971 the NASDAQ exchange, beloved of all investors until the tech bubble burst at the turn of the century, started in America. Continuing the technology theme, Intel invented the first microprocessor (numbered the 4004 tech fans!)

Oil is in the news at the moment as then. North Sea Oil had just started production in Norway.

And to finish on a more serene and suitably named note, GreenPeace came into existence.

Ian Green (age 40 and 1 day)

Tuesday 26 July 2011

Tax & Wealth Tips 2011/12

The latest edition of my Tax & Wealth Planning tips booklet is out.
50 tips, split into chapters, covering
- Personal & family
- Property
- Retirement
- Savings & investment
- Business
- Employment
- Overseas income
- Your estate
- General approach

http://www.iangreen.com/GFA-Tax&WealthTips2011.pdf

After the budget 2011I had to wait until the Finance Act was given royal assent. This happened on July 19 2011. So now I have been able to produce this. I hope you find it useful and it saves you money.
The aim is that the tips act as a prompt, either to review, take action or contact me for further information.

Please remember the guide is just that, a guide. It should not be taken as advice to any specific person.

Monday 25 July 2011

Faster Death Claim payouts

In a splendid piece of news the ABI (Association of British Insurers) has recently published guidance for all life insurance companies to help them speed up the time it takes to pay out life insurance claims.


Historically there have been complex legal issues (so they said) as to why claims couldn't be paid until the estate of the deceased was wound up.

Now, with what is seemingly good old common sense, the insurance and legal professions (ABI & The Law Commission) have banged heads and come up with a solution. Under the new process, the life insurance company will write to the main beneficiary under a life insurance policy and ask them to complete a declaration, that states if they receive money and it turns out they were not the rightful recipient (or the claim should not have been paid) they agree to pay back the money.

Whilst this will not eradicate arguments over the minority of cases whether a claim was ultimately payable or not it should alleviate the hardship that arises for many families when a genuine claim is delayed in payment for estate winding up reasons.

There are well over 30,000 death claims a year normally paid in the UK and the ABI think this new guidance should reduce the average payout time from 4 months to 4 weeks.


Note: There will be exceptions, where the circumstances of the death are suspicious (usually but not always with the police involved) or in some complicated estates.

Monday 18 July 2011

UK Sustainable Investment 20th Anniversary

The Invitation
Last week I attended the 20th Anniversary reception at The House of Lords for UKSIF, originally named the UK Social Investment Forum, now known as the Sustainable Investment and Finance Association.

Membership consists of 70+ Financial Institutions, 60+ social finance and other institutions and 50 pension funds and foundations.

I am one of just over 50 financial advisers that are members.

UKSIF supports the UK finance sector to lead the world in advancing sustainable investment through financial services.



According to their latest data (*all noted in the anniversary publication ‘Taking Responsibility: Achieving Resilience’) nearly £940 billion in assets is managed responsibly in the UK. Arguably then, responsible investment has moved from the margins to the mainstream. This view is supported by further research showing over 50% of adults would be interested in using their investments to both make money and make a difference.



 GREEN FINANCIAL

Green by name and Green by nature - I offer a service whereby I manage, monitor and assist clients with ‘green’ portfolios. Probably the biggest difference I bring compared to many advisers is my mantra of doing ‘what I can, where I can’.

This means I do recycle where possible, I do buy fairtrade or organic when available, I do switch electrical appliances off at night etc – but I don’t wear 100% hemp clothes or live life without plastic! I bring that ethos to investing for clients, using ethical, socially responsible or green funds where possible but not insisting 100% of the portfolio has to be ‘green’ at all times (although it can be if you want it to be)

WORTH THE EXTRA?

And just like food shopping or utilities, my ‘green’ service does cost a little more, as it means a little more work needs to go in, but it is up to you, the end user, whether you wish to pay a little more for the green (or ethical or fairtrade – call it what you will) investment service.

EQUAL PERFORMANCE?

As I write in my latest client magazine there is no evidence to support the myth that investing in a socially responsible manner means lower performance. That is just not true.

see http://www.iangreen.com/ - digital magazines for Jul/Aug2011 issue
As with all investments there are both challenges and opportunity that will filter through to affect eventual returns.

NEIW

If you’d like to discuss Green Investing please do get in touch.

Look out for National Ethical Investment Week later in the year, 16-22 October 2011. I’ve been supporting this initiative since it was launched four years ago.

Meanwhile, here are a couple of pictures from the reception at The House of Lords.

Lord Deben (John Gummer) addressing the reception

The famous terrace



Thursday 14 July 2011

Could you live on £140 per week? or £161 million for life?

The Government has recently proposed a single-tier, flat-rate state pension worth around £140 a week, and are currently consulting on how this might be introduced in 2015 at the earliest. Recent research from Standard Life has revealed that almost two out of three people (63%) think they couldn't live on £140 a week in retirement, rising to 72% for the 55 and overs.
And with more than one in six Brits (17%) not doing any financial planning, now is a excellent time to consider your own financial planning and ensure it is up to date (or exists!)

And in this sense, retirement planning is not just pensions, although they play a big part. Much of my work with clients is showing how to provide income in retirement, that won't run out before you do.
Whether that is improving and fine tuning your pensions, considering other sources of future income such as property rental income or investment income or something else entirely.

One thing my work does not include is a recommendation to invest in lottery tickets just in case you are the next lucky winner of £161 million! Although if the recent UK big winner is reading this, I'd be delighted to help with future tax efficient income planning ;-)

Tuesday 12 July 2011

Annuities, are they all bad?

Henry AllinghamProbably not a name you have heard of previously. Henry was a World War One veteran who lived to be 113. He owned an annuity.

Henry purchased his annuity (income for life) in 1962 and it paid out, year after year, until Henry passed away in 2010
– 48 years of income.


Annuities generally get a bad press, mostly based around the fact you lose control of a lump sum and if you die you lose the lot with nothing passing to your family.


They are the perceived bad points and whilst true in part do not tell the whole story.

The perception of losing control of a lump sum is not always true, especially if the annuity is purchased from a pension. Perhaps this is the fault of the pension providers who always give us an annual statement with a lump sum figure, yet we should understand from the day we start paying into a private pension it is only ever (under today’s rules) a quarter of the accrued amount that will be payable as a tax free lump sum. The remainder has to be paid as taxable income.

This blog post is not meant to be pro-annuity – As with all my work I remain neutral, preferring not to let personal perspectives get in the way of doing whatever is best and most suitable for any given client at any given time. The aim of this article is just to point out a few positive aspects of annuities I have found in the course of my work, the first being for those that live longer, and we are told life expectancy is increasing all the time, an annuity can represent fantastic value for money.

Living too long or Running out of money

In many ways an annuity could be likened to buying insurance. One is insuring oneself against ‘living too long’, or to put it another way, running out of money.

When financial planning for clients, aiming to generate and provide income for life, one of the greater challenges I face on their behalf is to balance the risk and reward profile, keeping enough money in reserve to fall back on whilst investing in assets that will outpace inflation, thus retaining standard of living and purchasing power as time goes by.

An index linked annuity can address this, providing a definite source of income, for the remainder of life, increasing in line with inflation.

That said, annuity rates today are much lower than in the last 20 or 30 years or so, their rates being closely allied to interest rates and inflation. At the same time life expectancy has increased. In 1970 a man retiring at 65 could expect to receive a pension for 14 years. Today that is expected to be nearer 24 years of payment.

Without going into the maths and actuarial reasons (but for the more technically minded it is known, rather brutally, as ‘mortality drag’) there is a form of cross subsidy at work with annuities whereby, in simple terms, those that die soon after purchasing an annuity subsidise those that live a long time. The approximate cost of this for someone entering Pension Income Drawdown (see other blog posts for more info on this product) is around 0.5% at age 60 – a small price to pay? It rises to around 1% by age 70. However by age 85 the cost is around 5%. So the decade between age 70 and 80 is sometimes referred to as the ‘Annuity Age’ when it may well be sensible to convert pensions to annuities (but always take individual, professional, fee based advice on this)

Another positive for annuities is the simplicity they bring in financial planning, alongside the certainty. A regular, trackable, easy to understand level of income without any concerns over investment performance or otherwise to sustain that income.

But is there an optimum amount, what with the income being taxable? Arguably if you could keep your annuity income under the higher rate tax threshold and create other income that was non taxable elsewhere it may prove tax advantageous for you, especially if you received higher rate tax relief on the way in (in simple term, under current rules, tax relief of 40% on the way in, and only paying tax at 20% on the way out). Again, another area perhaps to take individual, professional, fee based advice on.

Another reason to not have ‘too much’ (crazy idea I know) in your pension when buying an annuity is a recent development by annuity providers based on demographics. Amazingly the size of the purchase price now goes against the policyholder! They now reason the size of the fund buying the annuity reflects social status, arguing a large purchase price means a wealthy client, and wealthy people live longer than poor ones.

The astute client will ensure their financial adviser knows this and will investigate whether to help them to purchase annuities in tranches to maximise income from various providers rather than use the full fund at once with one annuity company.



There are many factors to consider when purchasing an annuity. My other blog post today consists of my helpsheet on this matter with areas and variables to consider before purchase.

Watch out when doing a ‘DIY’ job on annuity purchase. ‘best buy’ tables in newspapers and online are often manipulated to show best rates (ie for a man of exactly 65) and if you do not fit the exact criteria you’ll find yourself worse off. It is also unusual to find your pension provider is also the best annuity income provider so don’t just buy from them, especially if a bank product. Shop around (see other blog post today).
Consider engaging a financial adviser with specialist annuity research software who can pinpoint the annuity provider who will give you the most money (known as exercising your ‘open market option’) for your unique, personal position. Make sure they charge a fee for this service so you can be sure they are not being swayed by a later commission on an annuity purchase. If you wish the adviser to subsequently help with the annuity purchase transaction and implementation, again look for a fee charging adviser so all your money is at work generating you income, not paying a commission.

In summary, conventional annuities are an excellent way of securing a fixed income for life, with or without things such as inflation linking or benefits for dependents. A series of annuities may work well too, especially for those leaving Income Drawdown pensions as time goes on.
Annuities are certainly not the right answer for all of the people, all of the time,
but they definitely are the right answer for some of the people, some of the time.


Ask yourself, when should you buy an annuity?
Just in case, like Henry Allington, you live to be 113 or older.

Shopping around for lifetime annuities

The Open Market Option
Annuity rates vary from one life company to another, so you should make sure you shop around to get the best deal for you. There are a few things to think about first.

• If you're getting a pension from a personal pension arrangement, your pension provider should send you information between four and six months before you are due to retire, setting out what they will offer you based on the value of your fund. They will also tell you that you can shop around for a higher annuity. About six weeks before you retire your pension provider should give you an estimate of the value of your fund. You can use this to compare products from other providers. This is known as your open market option.



• Don’t assume the same company with which you built up your fund will automatically offer you the best rate. You may do better to shop around and check whether another company could offer you more. The annuity rate you get can affect your income by hundreds of pounds a year for the rest of your life.



• If you're getting a pension from an occupational defined contribution pension scheme, the trustees may buy your annuity for you, but you can also shop around on the open market and find the insurance company with the best annuity rate for you, or your scheme trustees can do this for you if you ask.

It can be difficult or impossible to change your lifetime annuity provider after you've bought your lifetime annuity, so take some time to choose the one that’s right for you.



Check what your existing provider offers

Before shopping around, make sure you understand what your existing provider is offering you. Check:

• whether your provider offers a guaranteed annuity rate. This is not the same as a guarantee period. A guaranteed annuity rate means that the provider has to offer a minimum annuity rate for your pension fund. Now that annuity rates are a lot lower than in the past, a guaranteed annuity rate can be very valuable and could give a higher retirement income than can currently be bought on the open market;

• whether your provider will charge your fund if you buy your annuity from another company.

Your existing provider will usually give you a quote for a specific type of annuity. Make sure you get a quote for the type of annuity you want, not just the one the provider offers you.

How long have you got?

Annuity quotes are usually valid for between 7 and 28 days.

If you change your mind – you may have the right to withdraw or cancel. If so, the provider will tell you and also tell you how quickly you must act.

Shopping around for your annuity

1. Get an estimate of the value of your pension fund, taking account of any charges, from your provider.

2. Decide whether you want to take a tax-free lump sum, and if so, how much (usually up to a quarter of your fund). If you decide to take a tax-free lump sum, deduct it from the pension fund value your pension provider gives you.

3. Decide whether you want:

o a single or joint-life annuity. If joint life, whether the pension paid to your partner is paid in full or reduced (say by a third) – or

o a level or escalating annuity

4. Think about whether you want your annuity to continue to be paid for a specific number of years (5 or 10), should you die shortly after you buy it.

5. Does your fund need to be a certain size to qualify for the better rates offered by another company? Some firms may not be interested in providing an annuity for small sums.

6. Are you a smoker? If you are, you may get a better rate from some annuity providers.

7. Do you have a medical condition that could reduce your life expectancy? If you do, you may get a better rate from some annuity providers. Some providers of impaired life annuities will also accept pension funds of less than £5,000.

You should now have the facts you need to get quotes from a range of providers.


Or we can do it for you – contact us to discuss our fees for this service

Monday 11 July 2011

Simpler Tax for Pensioners?

The Office of Tax Simplification (honestly, this IS a real department, it is not run by Sir Humphrey and today is not April Fool’s Day) has announced it will review the pensioner tax system as the Treasury attempts to simplify the pensions tax regime alongside the generally stated aim of the Government of simplifying tax as announced in the recent budget.


The OTS chairman Michael Jack has said: “For the estimated 5.6m people of pensionable age paying tax, this area is widely acknowledged as causing too many problems for a group, some of whom are the least able to cope with them.
The OTS will be looking for ways in which pensioners’ tax affairs can be dealt with in a much more straightforward way - especially for those with multiple sources of income.”


The OTS has now been ordered to carry out a review of pensioner taxation. But for now at least this will not include tax relief on pension contributions.

The Treasury exchequer secretary David Gauke commented: “I would like the OTS to carry out a review which identifies and examines which parts of the tax system cause the most complexity for pensioners, looks at how this varies across the pensioner population, and proposes ways to make their tax affairs simpler.
I look forward to an interim report on these issues ahead of the Budget 2012, and a final report with policy recommendations later in the year.”

So it seems the aim of the review will be to examine and identify which areas of the tax system cause the most complexity and uncertainty for pensioners, consider how these issues vary within the pensioner population and explore what changes could achieve simplification (There’s that word again!) and what the wider implications of these might be.

I’ve said it before and I’ll say it again. Simplification, Tax and Government are 3 words which just don’t seem to work for me in the same sentence. Call me a cynic, but there you are. That said, I’ll look forward to what comes of this and hope it achieves its aims. I just won’t be holding my breath while waiting...