What The General Election Means For Your Wealth

With the General Election just over a month away, the contenders are throwing their economic hats into the ring. Although none of the 3 main parties have provided a manifesto as yet, they have all been giving their views on tax, spending and reducing the UK deficit. Here is a quick overview on where the three main parties stand on balancing the UK’s books.

 

Liberal Democrats

They plan to increase the amount lower earners can take home by raising the personal allowance to £11,000 in their first year of office and then to £12,500 by the end of the term. Whilst they have not (yet) suggested bringing back the 50p tax rate on incomes over £150,000 p.a., the closeness of previous votes on the issue means that this could not be completely ruled out. What is being proposed for the moment is a 'Mansion Tax', which would essentially work in the same way as Council Tax but with the funds going to central Government. Additionally the Liberal Democrats have suggested increasing Capital Gains Tax to 35% (from 28%). This would potentially affect people who own second homes (e.g. buy to let landlords) as well as those who own other forms of investments such as shares. Their aim is to have the UK back in the fiscal black by April 2018.

 

Labour

One of Labour’s headline policies is to reintroduce the 10p tax rate as a bridge between the nil rate personal allowance and the 20p rate. At current time, they are yet to specify how much income would be included in this rate. They have stated that the impact on Government finances could be counterbalanced by withdrawing the Marriage Couples’ Tax Allowance. Labour plans to reduce the deficit by a combination of ending further borrowing to finance spending and an increase in various taxes. They have proposed reintroducing the 50p tax rate on incomes over £150,000 p.a. They also support a Mansion Tax, although they are yet to explain how specifically, this would work. On the subject of housing, Labour have made no comment on Inheritance Tax. Rising house prices have made IHT a reality for increasing numbers of people. Unless the nil rate is raised at some point in the future, then the impact of IHT will continue to spread. Labour have also proposed a tax on banker’s bonuses and (which may prove popular with the electorate) a 5% pay cut for Government ministers.

 

Conservatives

The Conservatives plan is essentially to reduce the deficit by cutting government spending. They too aim to have the UK back in the black by 2018. They plan to raise the personal allowance to £12,500 p.a. Likewise the 40% rate would start at £50,000 p.a. (from its present level of £41,900 p.a. Their stated aim is to have these tax changes in place by the end of the next parliamentary term. While this would not deliver any short-term improvements to higher-earners, it might not have an adverse impact on the family finances either. The Conservatives have not made a commitment to a Mansion Tax and have actively opposed it in the past. Likewise, while they have not many any pledges on Inheritance Tax, they have made recent changes to pensions rules from 6th April 2015 which effectively makes it easier and more tax efficient to pass on pension pots between generations. It is an open question as to whether or not the Conservatives will be able to increase the nil-rate band to reflect the impact of rising house prices. There is no obvious sign that they would seek to lower the bands.

 

The political water still remains cloudy......let's hope they all do what they are meant to and actually firm up on their policies prior to the voting stations opening......it would help voters after all!

 

What The General Election Means For Your Retirement Plans

 

General Election time often creates both excitement and nervousness and for much the same reason – the prospect of change. With the battle heating up, the economy in general and pension reforms in particular look like becoming key battlegrounds in the approach to May 7. With that in mind, let’s take a look at what the three main parties have indicated is in store in terms of retirement planning in general and pensions in particular.

 

The Liberal Democrats

At the moment, the Liberal Democrats’ proposals are still in “pre-manifesto”-stage, i.e. they are still to be made final (they've only had 5 years to work something out!). Current indications are that they plan to adopt a 'tax and spending' economic strategy. Hence pension savers can expect there to be new levies on their pension pots. There will also be a reduction in the amount people can save tax-free in these pension pots. The Liberal Democrats are currently talking about capping them at £1 million, which would be a reduction of 20% on the current figure.

 

The Labour Party

The Labour Party has also yet to release its manifesto. However it has shown itself open to reducing tax relief on pension contributions made by higher earners. Specifically it has mentioned targeting those earning over £150,000 p.a. and slashing the relief on pension contributions to 20%. Labour believes that this would raise over £1 billion, which they say they would then spend on job creation. This is in addition to reintroducing the 50p rate of income tax to incomes of over £150,000 p.a. Labour have indicated that they are in favour of a mansion tax, which they say they would use to fund the NHS. As a final retirement-related point, Labour have also proposed abolishing the Winter Fuel Payment for the most affluent pensioners.

 

The Conservative Party

The Conservatives have yet to release their manifesto either. Is it too much to ask opposing political parties to get their fingers out? They have, however, stated that they are committed to 'dignity and security' in later years. They also have a track record in Government, which could give some clues to their outlook. First of all it was the Conservatives who introduced the “Triple Lock” pension policy, i.e. the guarantee that the state pension would rise in line with inflation, wages or 2.5%, whichever is the highest. While Labour and the Liberal Democrats are both in favour of this 'in principle', neither has made a commitment to keeping the Triple Lock (the Conservatives have guaranteed to keep it until at least the 2020 election).

 

Recently the Conservatives have removed the obligation to use a pension fund to buy an annuity, with effect from 6th April 2015. This means that pensioners can choose between the freedom of keeping control of their pension pot versus the security of an annuity. This has been the subject of some controversy; in that the elderly will splurge their earnings (possibly for the best of reasons) and thereby make themselves dependent upon state support in their latter years, particularly if they need long-term care. Given that the logic behind offering tax relief on pension contributions was essentially to ensure that people were able to save enough to have an income in retirement, it is an open question as to how Labour or the Liberal Democrats would respond to this if they were to form a Government. They could choose to let sleeping dogs lie, they could choose to bring back the obligation to buy an annuity (albeit possibly at a later age) or they could use this change to justify changes to tax relief on pension contributions.

 

The Conservatives have announced other changes, which essentially make it easier to transfer pension pots between generations upon the death of the saver. Again, it is unclear whether or not Labour or the Liberal Democrats would continue to support this.

 

Some light bedtime reading if you suffer from insomnia......

 

http://b.3cdn.net/labouruk/89012f856521e93a4d_phm6bflfq.pdf

 

www.labour.org.uk

 

http://www.independent.co.uk/news/uk/politics/labour-plans-fairer-society-by-reducing-tax-relief-on-pensions-9550071.html

 

http://www.libdems.org.uk/policy_paper_121

 

https://d3n8a8pro7vhmx.cloudfront.net/libdems/pages/6272/attachments/original/1409941645/Pre-Manifesto_3_Sep_2014.pdf?1409941645

 

http://www.pensions-insight.co.uk/policy-predictions-for-the-conservative-party-ahead-of-the-general-election/1474404.article

 

https://increasingyourpension.conservatives.com/

 

http://www.bbc.co.uk/news/business-29408928

 

 

 

General Election Campaign (AKA 'The Budget')

Well, who’d of thought it……George Osborne actually stuck to his ‘no giveaways’ pledge in the final Budget before the election.

 

But as with any pre-General Election Budget, that did not stop him throwing a few crowd pleasers to voters. Cuts in beer, cider and spirits duty and a further freezing of the duty on petrol and diesel will only raise a smile with the masses. Then there was the slashing of tax on savings which will result in no tax on savings for over 17 million please. Very nice.

 

There was the expected pledge to increase the income tax personal allowance……but not immediately. It will go up to £10,600 in April and then to £10,800 and £11,000 respectively over the following two years. The higher rate threshold will also rise. Yet more smiles from voters.

 

When you picked your way through the clichés ("hard working people", "fixing the roof" and "we're all in this together") and 80’s TV quotes (Bullseye......"Out of the red and into the black"), The main message of the Budget was, as expected, sticking to the long-term plan.

 

Achieving his original 2010 aim of having debt falling as a percentage of Gross Domestic Product (GDP) was clearly important to Osborne. It is duly achieved……based on the Office for Budget Responsibility's new projections. But rather than achieving this through a top class Chancellor performance of fiscal magic, it will be mainly achieved by selling assets acquired (including the stake in Lloyds Bank). Or to put that another way……if Plan A isn’t working quickly raise some cash to plug the gap to make it look like it is. Genius.  

 

Anyway, 2018-19 will apparently mark the end of austerity, when spending should be down to 36% of Gross Domestic Product.

 

Living standards will be a battleground in the election. Osborne laid stress on the projections of a rise in real household disposable income per capita in this Parliament. Milliband batted this back by stating “this government didn't solve the problems for working families, it confirmed them".

 

The General Election campaign is off and running!

ISAs – End of Year (Part 1)

As the end of the financial year approaches in April, taking stock of the performance of your savings is an essential task for anyone who wants to see their personal wealth grow effectively year on year. This blog is a useful guide to savers who invest in ISAs and want more for their money.

 

Tax Efficient Savings

 

The annual allowance that a saver can invest in an ISA without incurring tax on their nest egg in 2014/2015 is £15,000 per year and it can be divided between cash and stocks and shares, depending on your preferred method of investing.

 

While most cash ISAs are free to open, a stocks and shares ISA will normally incur a fee.

If you invest in shares heavily, it is essential to check the overall annual cost of your ISA, as monthly charges over time can stack up

 

Savings Check

 

No broker, fund manager or financial advisor is a better guardian of your wealth than you are, since you are the person who cares the most about your savings.

 

As such, the only way to build your personal wealth is to keep a close eye on it and carry out at least an annual savings audit.

 

Checking up on your rate of interest, return and any costs that might be associated with the account you have is vital.

 

Money is easily lost by simply assuming that it is in safe hands or that your ISA is working for you as hard as it can.

 

Best Rates Available Coming Up To Tax Year End

 

The end of the tax year starts to resemble financial products ‘Black Friday’ as we move into February and March.

 

Banks and Building Societies know that you are likely to be scrutinising your investments and they offer attractive deals in the hope they can poach your custom.

 

With this in mind, don’t simply settle for the first ISA that comes your way as you are in a buyer’s market and you afford to hold out for a good offer.

 

These market conditions are unlikely to emerge for a further 12 months so it’s important to make the most of them while they last

 

Maximise Your Investment For This Tax Year

 

If you feel you missed valuable opportunities in the past twelve months to keep your hard earned personal wealth safe from the predations of the tax man, then the end of the tax year is a perfect opportunity to make a difference.

 

By being proactive about managing and monitoring your savings and shifting money out of ISAs that aren’t performing into ones that are, you can save a considerable amount on larger investments.

 

If you are committed to making your wealth count in the coming twelve months, don’t take the easy option and invest some time in your investments.

 

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED

 

LEVELS AND BASES OF AND RELIEFS FROM TAXATION ARE SUBJECT TO CHANGE

 

THE VALUE OF TAX SAVINGS ON A NISA DEPENDS ON THE INDIVIDUALS’ CIRCUMSTANCES

 

All Change For Pensions

The private pensions market has undergone a period of rapid and intensive change in the past year. In the next two years state pensions will also be transformed and inevitably there will be those who benefit from the changes and those who don’t.

 

This is written to give you the best chance of benefiting from the new pensions landscape…..those that are informed, pro-active and realistic about their circumstances / entitlements retire wealthier.

 

Annuities

 

Last year the Chancellor of the Exchequer made annuities non-compulsory on “defined contributions” pensions……meaning that when a saver wants to access their pension they can decide exactly how to spend it.

 

This gives some the flexibility to use a lump sum from their pension to pay off mortgages or other debt, contribute towards grandchildren’s education fees or buy a new property.

 

What does this mean for you?

 

If you are considering buying an annuity you need to make sure you compare the fees and charges of each annuity scheme.

 

State Pensions

 

Not only have “defined contributions” pensions undergone significant changes in the last year, but plans for state pensions have also changed.

 

The statutory pension in 2016 will increase to a uniform rate for all claimants of £148.40 per week. However, if you were to reach the age of 65 on or after April 1st 2020 you will have to wait a further year in order to be able to claim as retirement age will rise to 66 that year.

 

In 2028, people will only be able to retire at the age of 67 and it is this increase in retirement ages that has helped the Chancellor to appear ‘generous’.

 

That said, these calculations are all based on the fact that overall we’re living longer and healthier lives than ever before so there’s every reason to be positive.

 

What to do next…

 

At the start of each year it is important to audit your pension affairs. You need to find out how many pension pots you have and work out what is in them, how well they are performing and what the likely yield will be.

 

Will your pension be able to meet your financial needs?

 

Is your pension sufficient for the retirement you have planned?

 

If you are ten or twenty years away from retirement it is important to know whether there is a shortfall between what you can afford and what you can envisage.

 

Remember…… those that are informed, pro-active and realistic about their circumstances / entitlements retire wealthier.