149 days of tax

Tax Freedom Day is the day when Britons begin working for themselves rather than the taxman and falls on May 30 in 2011, compared to May 27 in 2010. The Adam Smith Institute calculates this each year and this is the latest.

http://www.adamsmith.org/blog/tax-and-economy/tax-freedom-day-will-be-30-may-2011/

The main reason for the three extra days appears to be the rise in VAT (Value Added Tax), which increases from 17.5 per cent to 20 per cent on January 4.

Tom Clougherty, executive director of the Adam Smith Institute, described Britons as being “desperately overtaxed”.

It is interesting to view the tax freedom date and the comments of Mr Clougherty alongside the recent Government announcement that a review of the tax system will be undertaken with 'tax simplification' the aim. Call me a cynic but I just don't see the taxation system becoming simplified anytime soon and I have less faith that the overall tax burden on the nation will fall...

Tax Freedom Day has moved on six days since 2009, but remains less than the previous decade’s peak of 2006 when Britons needed to work until June 4 before they began working for themselves rather than the taxman.

So this means the average Briton will have to work for 149 days to pay their taxes in 2011. Every penny earned in the UK between January 1 and May 29 will be taken by the taxman to support government expenditure.

I have long maintained with my client facing work that much of my value lies in helping clients to pay less tax on their income - legitimately - and that whilst I cannot promise returns of x% or y% each year I can guarantee savings of 20% or 40%. This makes a big difference in capital needed to support income and the benefit increases over time, especially when tax freedom day moves later in the year.

Crikey! BAD News about pensions - FOR ME!

Readers of yesterday's blog would have rejoiced over the latest changes to pension legislation.

Not such good news for me as in the post today I received two annually updating technical reference books, over 1,000 pages combined, total cost to me North of £200 - much of which is now out of date.

Bah!

Crikey! - Good News on Pensions

Today, the government has given more details of how it is planning to make changes to pension legislation from April 2011.

These include:
• no specific age deadline for buying an annuity
• a cap on the amount "drawndown" annually from a pension pot by an individual without buying an annuity
• a withdrawal of this cap if the individual can prove they have enough income to never run out and rely on the state.

The level set for this cap, and the minimum income required for the cap to be taken away, will be part of an eight-week consultation on the proposals.

Regular readers and clients of Green Financial would have been aware that there was an interim measure announced in the budget that increased the maximum annuity age from 75 to 77.
Assuming the new proposals get through Parliament the new rules should be in place by April 2011.

One of the best announcements, in my opinion, was the removal for many of income drawdown limits. As long as a lifetime income of £20,000+ can be secured, there will be no limit. In effect, you’ll have to show that you won’t run your fund down to nothing and THEN go cap in hand to the state for benefits. Thus rewarding those that save a decent sum into their pension, letting them extract a level more commensurate with what they were used to during their working lifetime.

There is a sting in the tail – tax on death benefits looks set to rise to 55% from 35% thus making any kind of pension related / inheritance tax loopholes look unlikely but this is a fair trade off given the positives and the real purpose of pensions ie to provide income in retirement, not to bypass inheritance tax for future generations

It remains to be seen what the actual effect of deferring annuity purchase past 75 will be as ‘mortality drag’ may have a detrimental impact.

Mark Hoban, financial secretary to the Treasury says "The more you save for retirement, the more control and flexibility you will have and ultimately, the more you will be able to pass on to your family on death. Combined with the tax breaks available on pensions, these simple messages will be very popular with investors."
To encourage people to take greater responsibility for their financial future, including in retirement, we need to give people greater flexibility over how they use the savings they have accumulated”

I started on a positive but cynically perhaps, will finish on a slight negative. Let’s hope, unlike so much other recent legislative change, that the positive ‘headlines’ are not undermined with negative detail. More on the new proposals as the details emerge…
Ian Green

for Green Financial Employer Clients - Am I ready to NEST?

Many of my employer clients are now being bombarded with info on the impending 'NEST' pension requirements, due to land in 2012.

For most Green Financial clients, compliance with the new rules will be simple.
It will likely mean increased overall pension expenditure on employee contributions and ensuring this is factored into budgets and accounting, but the actual legislation itself should hold no fears.

Do contact me if you have any questions. Meanwhile, there is some helpful info below. I am indebted to the pensions technical department at AEGON for originating much of the following text:

For many Green Financial employer clients, so-called ‘self-certification’ (see orange text below) will be the best way to meet their employee pension contribution obligations from 2012.
But it's likely to mean reviewing the current contribution structure and making changes to scheme design. This will take time, so we need to start taking action now.

From October 2012, employers will have a number of new obligations. Not only will they have to auto-enrol their eligible jobholders (see jargon list at end of blog) at the right time, they also have to make sure jobholders benefit from at least the minimum contribution into an auto enrolment scheme.

This creates a challenge for employers. The problem is that the vast majority of ‘defined contribution schemes (such as group personal pensions or stakeholder arrangements) don't base contributions on qualifying earnings. Contributions tend to be based on basic salary with no salary offset. This means you will have to carry out onerous checking either monthly or yearly, to make sure that every jobholder in an auto enrolment scheme receives the minimum contribution. And if the contribution actually turns out to be less than the minimum, the employer has to make up the difference!

Of course, one solution to avoid this administrative hassle and complexity would be to simply base contributions on qualifying earnings. But this 'levelling down' of contributions means the first £5,715 a year wouldn't be pensionable, which means lower earners, especially women, would be worse off – not something that most employers would want to do to their valued employees.

A much simpler solution, avoiding onerous checking and reducing administrative costs, while also reducing the risk of levelling down of contributions, is for employers to self-certify each year that their contributions meet a minimum test. This is appropriate for schemes which have high total contributions. The Pensions Act 2008 allows for a process known as self-certification. This allows employers to certify with the Pensions Regulator that, overall, their scheme meets the quality test for a DC scheme. The pension industry and employer groups have worked very closely with the Department for Work and Pensions (DWP) to develop a workable self-certification model. So far the model is still a proposal, but the approach has been accepted in principle by the government.

Under the proposed self-certification model, a scheme meeting one of the following tests allows the employer to certify that it meets the quality test:

Test 1
The scheme has minimum contributions for each jobholder of 9% of pensionable pay where the employer pays a minimum 4% contribution.

Test 2
The scheme has minimum contributions for each jobholder of 8% of pensionable pay, where the employer pays a 3% minimum contribution, but pensionable pay is at least 85% of total pay. The ratio of pensionable pay to total pay can be calculated as an aggregate across the scheme.

Test 3
The scheme has minimum contributions of 7% of pensionable pay for each jobholder (where the employer pays a minimum of 3% contribution) and 100% of pay is pensionable.
Employers will need to self-certify that their scheme meets the quality test every year.

The minimum contribution will be phased in from 2012. It's expected that the self-certification test will reflect this. We expect the DWP to issue the self-certification draft guidance and draft regulations before the end of the year.

Action for Green Financial Clients

Start talking to me now about your staging date, how you’re going to comply with the new obligations and how you can meet the minimum contribution. I can help you to:

• review the total contributions level for all categories of member
• review the employer's contribution for all categories of member
• review the definition of pensionable pay against gross earnings
• draw up a plan to increase contributions using a phased approach
• find out when the employer's staging dates falls
• consider salary exchange
• consider matching of contributions and save more today
• put together a communications plan explaining the value of saving

Jargon Buster:

Eligible jobholder – employee who earns £7,336 (in today's terms), aged at least 22 years but under state pension age and ordinarily works in Great Britain.

Qualifying earnings – a band of earnings between £5,715 (in today's terms) and £33,540 (in 2006/07 terms) with proportionate amounts for a period less than 12 months. Earnings for this purpose include salary and a number of variable payments such as bonuses, overtime, commission, shift allowances and some statutory payments, for example Statutory Maternity Pay.

Staging date – the latest date an employer must start auto enrolling eligible jobholders.

Minimum contributions – 8% of qualifying earnings, of which at least 3% must be paid by the employer. Any balance is payable by the employee and will include tax relief from the government.

Quality test – for a defined contribution (DC) scheme, this is a check to see that at least the minimum contribution is paid into a scheme.

Auto enrolment scheme – an occupational pension scheme or a personal pension that meets the quality test and allows the jobholder to join without the need to make any choices or provide any information.

The above is correct as of my understanding as at November 2010. Further updates will be made on this blog as and when required.

Commitment

Combined with todays early morning motion and debate in the House of Commons, I recently read an article in a professional magazine (MDRT, Round the Table, Commit to your future) which has prompted me to write this blog post.

The article discussed how keeping pace with change requires constantly renewing commitment to clients and the financial services profession.

It occurred to me this might be another area where I undertake a lot of work ‘backstage’ but I am guilty of not telling clients and putting it ‘frontstage’.

The financial services profession is often overloaded with uncertainty. Changes in economics, legislation, tax, Government, products, providers – the list is endless.
Even I am guilty in a small way having changed my company operating name a few times over the last few years.
In fact it seems change is the only certainty.

And this is true of other professions, not just the financial world.

I see part of my role for my clients in bringing certainty, in an uncertain world, to their financial life.

I find many clients are calling for an evolved adviser. They want someone who is always learning, adapting and growing with each change to the marketplace rather than retreating.

In the House of Commons today the FSA ‘RDR’ (Financial Services Authority Retail Distribution review) was being debated, with many MPs opposed on behalf of their local IFAs. There are parts of the RDR I am opposed to – I think that unfortunately it will make it easier for the banks to sell unsuitable products to the mass market – and thus continue ‘mis-selling scandals’ – but there are giant swathes of the RDR that I am massively in favour of.

One of these is education.

Since starting as an IFA (15 years and counting now) I have undertaken Continuing Professional Development each year. I also make sure I have at least the minimum educational requirements whenever they are changed (I currently have more than the minimum) and I continue to take exams in areas I operate in (next up is the Society of Tax and Estate Practioners Trust exams in early 2011)

Commitment to Education
As an adviser I believe education is the cornerstone of continued success for my clients. Not only what is in my head but also paying large sums of money each year for access to the very best professional minds and publications available. If I don’t know the answer myself, I know a man (or woman) that does.

But it is not just education that makes a financial adviser. So here are a few other commitments that I make personally and as Green Financial.

Commitment to Expertise
There is a difference of course between the kind of experience and knowledge I am referring to and that which anyone can google. If looking for an answer that has serious consequences for a client’s finances, I know I’d rather it was coming from the mouth of an expert in the field rather than Wikipedia! Information and data are everywhere, knowledge and wisdom are harder (and more expensive) to come by.

Commitment to Green Financial clients benefit
To analyze what is working in the business and re-evaluate any areas found in need of attention
Build long lasting strategic alliances and professional connections
Assemble a team of experts and professionals

Commitment direct to Green Financial Clients
To offer a bespoke, personalised service, where ‘everyone knows your name’
To strive to exceed expectations
If it ever goes wrong, admit it, and put it right
Help clients understand how new rules and regulations affect them personally
Maintain a genuine concern for clients’ objectives (see also http://www.iangreen.com/ethics.php )
Never, ever forget that it’s your money

Commitment to my professional standing
To give back, by being an active member of local, national and international professional organisations (see future blog post for more on this)
Strive to be on cutting edge, to lead and educate, but to retain traditional values
Learn from other professional experts

Blue and Green Tomorrow - issue 1

I’ve recently been involved, as a founding supporter, in the launch of a new free magazine titled ‘Blue & Green Tomorrow’

It is a magazine for those that want the planet to be as blue and green tomorrow as it was yesterday. (see end of this post for which famous author to thank for the name)

It is NOT just for tree huggers. It is for those that make positive choices where they can, when they can. Clean energy maybe, buying fair-trade goods, ethical investing (my area of expertise), recycling at home & the office and so on.




Nothing’s perfect though, and we all know we can usually do better.
Many companies are now operating with ‘people, profit & planet’ in mind. Sadly some aren’t, they just make the right noises. Blue & Green Tomorrow is not about ‘Greenwash’, where an organisation just pretends they are doing right – and it is not about sensational headlines. It will print good news but also report on bad.

It seeks to provide relevant, interesting, informative and enjoyable news and features.




There are a few sample pages from the first edition here. The front cover, the editorial, my specialist subject ‘ethical investing’ and just to ‘bee’ different (ahem), an article on what bees are doing and what might happen if they stop doing it!











If you’d like a copy, drop me an email at iangreen@iangreen.com with your postal address and I’ll rush one out to you.

Alternatively you could sign up for the e-newsletter at www.blueandgreentomorrow.com/register

I hope you enjoy it.

Ian Green
Blue and Green Tomorrow magazine
Founding Supporter

* We're indebted to Douglas Adams for writing The Hitchhiker's Guide to the Galaxy, in which he describes Earth as "an utterly insignificant little blue-green planet". Now you know...

Banks - Treating Customers Fairly (Badly) 2

Following yesterday’s blog, about how I feel banks are not really entering into the spirit of the FSA's 'Treating Customers Fairly' initiative, just a quick follow up on bank advertising and marketing tactics.

I should be clear, I am not naïve. I understand the power of marketing and advertising as much as the next person. What irks me is the way that banks and other direct financial product sellers operate in a vacuum and in a fashion that independent financial advisers don’t.

So I am happy if they want to play in the same space as retailers and have an advertising battle a la the supermarket price comparisons (eg best interest rate rather than cheapest baked beans) but it troubles me that they seem to almost mislead with their advertising safe in the knowledge they can hide behind the ‘small print’ and wriggle out of complaints.

This year the banks have had more complaints than ever made against them over product sales (excluding anything to do with the credit crunch)

It is not that these products are necessarily bad (although some are), it is just the constant cross selling of almost anything to anyone (just like my post office gripe yesterday) who walks through their door.

So as promised, I trotted down Putney High Street, read a paper and watched a bit of prime time TV to select a few bank ads that irked me: (It didn't take long!)

TV: Halifax – radio jingle advert telling us how much they love their customers – so much so that they will give you £5 a month if you pay in £1,000 a month and have your current account with them.
Dig a bit deeper – so that is 0.5% of the £1,000. You get nothing more, for any more saved. Plus they know have you as a customer to cross sell – and they make a great deal more than 0.5% profit margin on all the other stuff they’ll now bombard you with!
But it gets better. The ad even tries to ‘upsell you’ to their ‘rewards’ account. In the background the radio is now playing ‘Lucky You’ as they tell you all the rewards you can have. Only in the small print at the bottom of the screen is it now saying you need to pay them £12.50 a month for these ‘rewards’ – Lucky You!

Newspaper: Abbey/Santander – “Earn £100 and 5% for 12 months when you switch to Santander” – little table showing how this deal appears better than 5 other banks. Doesn’t mention anywhere that First Direct, for example, will also give you £100 to switch to them! As with Halifax, no interest on anything over the £2,500 and you need £1,000 minimum. I think it would be great to just play them at their game, switch a few direct debits, pay in the money, and take the maximum £1,500 interest! Again, I don’t have a problem per se with the deal, it just irks me that ‘terms and conditions apply’ yet the adverts (press, TV, billboard) mainly show the £100 and 5% figures in giant neon numerals on top of a building. And if anyone complained about being mislead, the small print would ensure Santander would have done no wrong.

High Street : NatWest – the charter. Don’t get me started. On the one hand I applaud their intention, if true, to become the most ‘helpful’ bank. Having more branches, more branches open, longer hours etc are all things to improve what they do. But on the other hand, woolly commitments to ‘try’ a bit harder at stuff are not so impressive. Nor is the amount of volunteer days/hours they say they give when divided up amongst the number of employees and I’m afraid the NatWest in schools leaves me feeling a little cynical over whether they really are trying to help educate the nation or perhaps just be first past the post when the time comes to open student accounts?

Personal experience: three clients in the last three months have approached me saying they were going to take out a product recommended by a bank employee. Without going into the details, constant theme across all three (a high street bank, a smaller building society, a private bank) were bank employee bringing up the subject when another item was the main discussion, the investment product was complex and the complexities were not explained but boiled down to an eye catching headline (see Santander above), the product was sold as an alternative and comparable to cash but clearly is no such thing, elements of the product not at all suitable for the client (time scales, risk factors etc)

So to bring things back to the start, I don’t have an issue with the banks, or the products themselves - and certainly not the staff personally – they are just sales targeted and told what to sell – I assume they have mortgages to pay too…

It is just that clients are being shown (or worse, just told and not shown) attention grabbing headlines: “5%”, “34% over 4 years”, “no risk” and it is not the whole story.

In summary, I don’t believe the banks are being anywhere near as fair, friendly or helpful as their marketing and adverts would have us believe. But perhaps I am just naive...