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.
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