Will Britain lose its AAA credit rating?

Stephanie Flanders the BBC's economics editor considers the outlook for Gilts. "There's been a lot of talk about Britain losing its AAA credit rating down the road. But guess what? As far as the markets are concerned, we already have........"

The 250% tax on pension contributions

High earners with occupational pensions beware!

Ten ways to beat Alistair Darling’s big squeeze

An interesting article from The Times on Sunday.

Pre Budget Report - Pension contributions for high earners

My understanding of the latest change is that if you earn/ have income of £150k + the tax relief on contributions will be restricted if contributions exceed £20k or in certain circumstances £30k per annum. Employer pension contribution were not included in the calculation of earnings/ income.

The amendment in the PBR states that for those earning £130k + employer pension contributions will be included in calculating the £150k level.

Simple.

Annuity rates fall to record lows

See the recent article in the Financial Times. Annuity rates have fallen over the past 15 years, but are there other advantages to annuities? Click here for the article in full.

Insuring against the risk of serious illness

You are five times more likely to suffer from a life-threatening illness than you are to die before you reach 65, insurance claims statistics suggest. You might expect therefore that the risk of falling seriously ill is something that people readily address when planning their finances.

However, whilst most people have some sort of Life Insurance, far fewer address the risk and potential impact of falling seriously ill. Critical Illness Insurance Cover can offer a solution.

Typically, most clients either have or look to put in place, two forms of insurance cover:

- Life Insurance to help their dependents in the event of their death; it might replace earnings, pay off a mortgage or provide a lump sum for other use (e.g. shareholder protection).
- Income Protection to cover the risk of loss of earnings due to long term illness or disability.

We advise on whether clients have too much or too little cover or indeed whether they have the right kind of insurance cover. In many cases, we consider a third form of cover:

- Critical Illness Insurance Cover (CIC) which pays a tax-free lump sum if you are diagnosed as suffering from a life threatening condition- the most common conditions resulting in claims are cancer, stroke and heart attack.

For your free 27 page, electronic guide to Protection, giving details on these and other types of personal and business protection, please send an email to jacqueline@refp.co.uk

More and more members now staying with their occupational pension schemes

The number of people leaving their pension schemes fell to its lowest level this year, while enquiries about the current value of the pensions rose to its highest level, according to Aon Consulting in a recent article from the Financial Times. Enquiries from members regarding their pension schemes were up 26 per cent from June. The number of members leaving their pension scheme also fell by 34 per cent during the third quarter. The research included 350,000 scheme members from 35 UK defined contribution (DC) and defined benefit (DB) schemes. The fall appears to indicate increased confidence in private sector pension schemes and a growing interest in planning for retirement. Click on the link above for the full article.

National Savings Withdraw Fixed Rate Bonds

As the title says NSI withdrew their highly competitive range of fixed rate bonds following complaints from various banks and building societies. Leaving savers with lower rates and banks with higher margins and greater profits. Something wrong here?

What they don’t teach you at business school

Merryn Somerset Webb looks at Value Investing: Tools and Techniques for Intelligent Investing.

Another commercial property bubble?

This week Aviva pulled the sale of nearly £1 billion of property assets held in funds containing £15.6 billion of offices, shops and sheds. Why?

Pre-Budget report 9th December

Alistair Darling will unveil his pre-Budget report on December 9, at 12.30pm. We can hardly wait.

Early retirement don't lose out.

The minimum age for drawing a pension will rise from 50 to 55 from 6th April 2010. If you are one of the 3 million people effected by the changes please feel free to call us and discuss your options - 020 8209 9247.

Investment review

Jonathan Ruffer from Ruffer LLP shares his thoughts on investment markets.

Barclays Bank Plc buys Standard Life Bank

After 11 years Standard Life sell their banking arm to Barclays.

Non-resident? HMRC 6

HMRC 6 is the replacement to the IR20 booklet and sets out the criteria for determining whether or not an individual is UK resident for tax purposes. The main innovation is the removal of day counting and the introduction of the "Factors ". The only time when only day counting will be used is the 183 day rule. HMRC is attempting to take away the perceived certainty of the day counting and replace it with a vague set of Factors which need to be considered before it is accepted that someone is non resident. This means that it is no longer good enough for individuals to simply, for example, avoid spending 90 days per annum in the UK to avoid being UK resident. HMRC will look at other Factors (such as available accommodation). This is clearly unsatisfactory for taxpayers as it is difficult to predict what the outcome will be in each case. Follow the links for more information Thomas Eggar HMRC (page 15).

High earners and pension contributions

The 2009 Budget introduced changes which will affect high earners (earning £100,000 or more) and the pension contributions that they might make. The reduction in the personal allowance and increase in income tax rate make pension contributions an attractive planning option. However, contributions may need to be carefully planned to avoid tax charges under so-called "anti-forestalling" measures.

AEGON Scottish Equitable have produced one of the clearest and most user-friendly explanations of the changes and its implications we have found.

Permanent Interest Bearing Shares (PIBS)

PERMANENT interest bearing shares or PIBS are special shares issued by building societies that pay a fixed rate of interest. They cannot be sold back to the society but can be bought and sold on the stock exchange, which means the price varies. A few years back, Permanent Interest Bearing Shares or Pibs were considered to be as good as gold, and were considered to be a safe home for income seekers. The problem with PIBS is that in the event of a building society being wound up, PIBS owners will find themselves some way down the queue and may not get back all of their capital as they are not protected by the FSCS. In the past, this was an acceptable risk where the possibility of a UK building society being wound up would have been almost zero, but as we have seen this is all changed now.
Some building societies, such as Bradford & Bingley, have decided not to pay the interest payments, which is catastrophic news for those who rely on this to supplement their income, such as pensioners. Trying to sell them on can prove difficult, as PIBS are an illiquid investment and now, with the danger of suspended interest payments looming, no one wants to buy them.

Banks finally forced to make charges more transparent

Look at this article from yesterday's Financial Times - how banks and building societies have finally bowed to the pressure from the public and the Office of Fair Trading. Not all good news though, unauthorised overdraft charges still lack the clarity required...

Disclosure of undeclared offshore income

HMRC has given individuals with undisclosed offshore income and gains a chance to disclose with a fixed penalty of 10%.

Law Society notes on gifting assets

An interesting guide to gifting and care provision.

QROPS in The Sunday Times

OVERSEAS pension funds have seen demand soar over the summer, as a growing number of Britons plan to retire or move abroad to avoid the new 50% tax.

Handling benficiary designations

A useful summary of designating beneficiaries for life and pension plans.

Gibraltar suspends QROPS transfers

Administrators of QROPS in Gibraltar are holding off UK pension transfers pending the resolution of a tax query raised by HMRC.

IHT Planning

Are Family Limited Partnerships and Family General Partnerships the modern alternative to trusts? Read more or call us to discuss.

High earners - Pension amendments to the 2009 Finance Bill

If your income has been over £150k in the past two tax years or will be this year then your pension contributions may be restricted. More details can be found here or call us to discuss your particular case - 020 8209 9247

What has the FT got to say about your pensions?

The FT Weekend had a couple of interesting articles regarding Pension Savings.

The first was about Protected Rights: now that they are allowable within a Self Invested Personal Pension (SIPP) is it wise to move? The answer of course is that it depends on your own circumstances and requirements, but certainly worth a thought for those who have existing Protected Rights.

The second article refers to Company Pensions. In this era of cost cutting, should you be worried about your employers contribution to your pension? What can YOU do to ensure your pension remains healthy.

The Sage of White City

Robert Preston looks at the longer term implications of corporate debt repayment.

Financial Planning Week - Top Tips

As members of the Institute of Financial Planning it's time to "wave the flag" for Financial Planning Week. Click this link for Top Tips on financial planning and other useful information.

Why borrowers are not staying with Standard Variable Rates

I had a call from a journalist the other day regarding the results of a recent survey from Unbiased.co.uk. This survey found that only 27% of borrowers who reached the end of their fixed rate stayed on the Standard Variable Rate (SVR). Isn't this surprising he asked? Shouldn't the number be higher? I wasn't surprised, for a couple of different reasons...

Firstly, the SVR, while linked to the Bank of England base rate, is the lenders rate and therefore they decide what it will be. As I am sure you know from reading in the news over the last few months, most lenders have decided not to pass on the rate cuts the BoE implemented, therefore in many cases making the SVR unattractive for some borrowers. Time and time again I have found myself having to explain to an irate client why they are facing a rate of 4.84% when they reach the end of their fixed rate when the BoE rate is 0.5%. This rate incidentally, is what the Bank of Scotland has charged since pretty much since last February, ignoring all the subsequent rate cuts.

Another reason is that many people have become much more cautious since the credit crunch hit. Those who are on a variable rate are savvy enough to realise that the situation will improve - for example the Institute of Chartered Accountants in England and Wales recently found that confidence among business professionals has turned positive for the first time in two years, indicating the recession may be at an end. Rates will increase significantly and many borrowers now realise the need to fix into good rate for a longer period. Five year fixed rates have increased over the last two months as many lenders are realising this too.

If your fixed rate is coming to an end, now is the time to do something about it!

Is the stockmarket recovery sustainable?

Is the current stockmarket recovery sustainable? Do you believe in a "V" or a "U" shaped recovery? My favourite pessimist Merryn Somerset Webb writes.

Property market prospects

He got out of the property market with £370 million by selling Foxtons now Jon Hunt's calling the bottom of the market. Read all about it.

How to shelter your investments from the 50% tax rate.

Ellen Kelleher at the Financial Times looks at some of the strategies that can be adopted for avoiding 50% tax on your investments.

Is your workplace pension enough?

So you are lucky enough to be in a job which offers a Final Salary pension scheme and both you and your employer contribute regularly - surely you do not need to think further about your pension pot? Not according to a recent survey by Standard Life. It has found that while one in six people want to work past the current retirement age of 65, a third believe that they will have no other choice. See the full article on why your workplace pension may not be enough - click HERE.

Friends Provident and the Resolution Offer

Robert Preston's interesting look at the recent offer for Friends Provident.

Why make a will?

Your Will is one of the most important documents you will ever sign. If you do not make a Will, your property could end up in the hands of people you have no wish to benefit. Also, you might have failed to take advantage of the tax planning opportunities which often become apparent when making a Will.

Most people think that without a Will, everything passes automatically to the surviving spouse. This is not necessarily so and will depend upon your circumstances.

Comptons Solicitors in Camden have an excellent Wills service and give some good pointers on why making a will is so important. Check it out: http://www.comptons.co.uk/wills_probate.html

Jacqueline Thornton CertPFS Certs CII (MP&ER)

Norwich Union - Windfall?

If you're wading through the Norwich Union reattribution offer you may want to take a look at this article from The Telegraph.

How is your credit rating looking?

Interesting article in the FT last weekend. Credit reference agencies, such as Experian and Equifax, are reporting an increase in requests for credit reports as more and more people are having their loan, credit card and mortgage applications declined. Information held on agency files includes not only whether individuals have kept up with repayments and how much borrowing they have but also how long they have been at their current address and whether they are on the electoral roll.

See the article in full http://www.ft.com/cms/s/2/24115380-4c66-11de-a6c5-00144feabdc0.html

Jacqueline Thornton CertPFS Certs CII (MP& ER)

Fixed Rate Bonds and Deposit Accounts for SIPPs

More and more investers are now turning to Fixed Rate Bonds as a way to maximise the return from their investment while remaining in cash. This entails committing your funds to an account for a fixed period and in return gaining a higher level of interest. Generally investors are tied in for the full term of the bond or are heavily penalised for early withdrawals. Fixed Rate Bonds are now the most popular online search by savers at Moneysupermarket.com.

We have seen many clients who have Self Invested Personal Pensions (SIPPs) with the main bulk of their investment sitting in cash and earning abysmal interest. For example, the default bank account for an Alliance Trust SIPP is Cater Allen and this is currently offering 0% interest on the first £100,000; 0.375% on balances from £100,000 to £1m and on balances over £1m the account yields a rate of 0.453%. This means that on a SIPP cash balance of £500,000, an investor would earn £1,500 interest per annum. However, many other SIPP cash accounts will still offer 2-3%. Taking the same investor who moves his cash balance to one of these accounts, his £1,500 could become £15,000. Significant difference.

In one of my earlier posts where I talked about savings accounts, I mentioned the importance of reviewing what you have and if necessary find a better alternative. This is the same when looking at the underlying investments in your pension. I have talked to many clients this week who just did not realise the poor interest that was being paid on their default SIPP account and that they COULD increase their return by merely moving their cash. This is an example of one of the simple ways to help boost your portfolio.

Jacqueline Thornton CertPFS, Certs CII (MP& ER)

The bearish case for property

Just in case you were beginning to feel positive about the UK housing market here's the counter argument from the Weekend FT.

Landlords hit by high cost mortgages

Yesterday I read an article in the Weekend FT confirming what we already know - mortgages for Buy to Let landlords have become extremely expensive. Not content with inflicting high interest rates, many of the BTL lenders that remain in the market (very few!) have imposed high arrangment fees, ranging from 2% of the loan amount to 3.5%. To put this into context, the arrangement fee for a mortgage of £200,000 could be as high as £4,000 - and this is before valuation and legal fees come into it! The odd lender who does charge a flat fee imposes a higher interest rate - clients just can't win.

Figures from the Council of Mortgage Lenders (CML) showed that new Buy to Let lending fell for the sixth consecutive quarter in the first six months of 2009. It accounted for 6% of all lending on the first first quarter, compared to 12% last year for the same period.

The high costs make it difficult for landlords to switch to a new mortgage deal and many are having to stay with their existing lender. This may lead to problems when interest rates rise.

Jacqueline Thornton CertPFS

How are your savings doing?

So you've worked hard for your money and you expect your savings to do the same. But are they? Many savings accounts are now paying less than 0.1 per cent or less, including those which claim to be "premier" or "reward". Even those accounts which require a notice period are not immune to these low rates - for example the Cater Allen Soverign 30 day account pays 0% interest. How do you make sure that your savings are earning the best rate of interest possible? The answer is simple - review what you have and if needed find a better alternative. Abbey 5% Home Saver account is a regular savings account paying 5% aimed at prospective first time homebuyers (although the accumulated cash can be used for any purpose). It does require ongoing monthly deposits of between £100-£300 per month. If even one month is missed the interest rate drops to 0.1% for that month, after which it reverts to 5%. This shows that there are good deals to be had, if only you shop around.

Jacqueline Thornton CertPFS

Source: Financial Times 17/18 May 2009

Mortgage approvals increase sharply

Economists said they saw glimmers of hope after mortgage approvals rose by the biggest margin for three years in February and lending to companies grew at its strongest pace in almost a year.

The number of loans approved for house purchases rose to 37,937 in February from 31,791 in January, the biggest jump since 2006 and the highest level since May last year, according to data published on Monday by the Bank of England.

Meanwhile, Bank figures on M4 money – which includes notes and coins as well as money in bank accounts – showed lending to private non-financial companies grew at a 5 per cent annualised rate over the three months to February. That was the fastest rate of growth since June last year, and compared with a rise of 0.9 per cent in January.

Increased lending to house buyers and non-financial businesses last month contrasts with sharp declines at the end of last year and follows several faint signs that the recession may be close to a turning point.
The data follow other evidence of heightened activity in the housing market. The Royal Institute of Chartered Surveyors has recorded rising inquiries from new buyers for the past four months, although actual sales have fallen to the lowest level in 30 years. House prices are declining at a slower pace, according to recent data from Hometrack, while sales are being finalised closer to asking prices.

Service industry activity is declining at a slower pace than at the end of last year, while fairly strong income growth in the fourth quarter of 2008 allowed consumers to save more without greatly reducing their spending.

Source: FT 30th March 2009

Effect of falling inflation on index-linked pension payments

Some personal pensions in payment will apparently be cut if the annual rate of inflation falls this year. The government is predicting RPI will show a year-on-year drop of more than 2% by the Autumn.
If that happens, some pension providers have said they will reduce payments on index-linked pension annuities. However, the government has promised that the basic state pension will rise by at least 2.5% even if prices fall year-on-year.

Some providers (including Axa, LV, Partnership, some Standard Life annuities, some Prudential annuities) have said that if RPI becomes negative payments will go down. Other providers have said they will not make cuts (Norwich Union, MGM, and Legal & General) but that payments will remain flat until RPI increases to a higher level than it was before.

Many company pensions may also be frozen if prices fall.