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Pension Freedoms Leading To More Complex Retirements

Experts suggest independent financial advice for retirees.

Those who have already or who will enter retirement after April 2015 face making decisions that director at Wealth and Work, Jonathan Watts-Lay warns “can be incredibly daunting”. Retirees must avoid authentic looking scams and navigate a new, more complicated set of options.

Mr Watts-Lay explains that “in the past many people automatically bought annuities from their pension provider, even though there may have been better rates available elsewhere, so employees need to make sure they look into all their options.”

Many were unnecessarily losing out due to a fear of paying for advice or not understanding what possibilities were open to them. This has increased as new options came about as of April 2015, when all people over 55 were given full access to their pensions. Opportunities increased as it was decided that they would only face marginal rate taxes and were made able to pass on a pension tax freely.

Retirees Told To Seek Financial Advice

It is the place of Independent Financial Advisers to assess all assets and come up with the best measures to meet a clients needs.
Avoiding unnecessary tax costs is one way where seeking advice can end up saving money. As a rule 25% of a person’s pension is accessible tax free with the remaining 75% taxed as earned income. This means it may be most efficient to withdraw a smaller amount from their pension if they have the option of taking money from an I.S.A. which remains tax free to access.
Workers could also buy additional state pension provision if they are a woman born prior to the 6th of April 1953 or a man born before the 6th of April 1951. Both have the chance to top-up their state pension by a maximum of £25 per week.

Paul Hoskin

@HoskinFinancial

THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL

 

Varying Opinions Over The Amount Deemed Safe To Withdrawal From Pensions

Experts advise on the ideal yearly amount to take out of a pension.

Data published by the Association of British Insurers details the amounts of money taken out of pension schemes in the first year of “pension freedoms”. The insurers believe “a minority may be withdrawing too much too soon” in a manner that is risky.

The data shows how the British people are reacting to the new freedoms but what amount is safe to withdrawal is open to debate.

Over 10%

3,379 pension pots had over 10% of their total value withdrawn in the first 3 months of 2016. At this rate over 40% of the pot would be gone within a single year, an amount that is unsurprisingly only recommended if someone has another source of income.

4%

72,275 pension pots had 4% or less of their total value withdrawn. 4% has been thought of in the U.S. as the optimum figure in order to enjoy the best return over a period of around 30 years, a sensible time-frame when dealing with pensions.

When studied by the investment analysis firm Morningstar however it was shown that the amount released varied greatly over time in the U.S. specifically. At the height of the stock market boom of the 1980’s, 10% was withdrawn but the 1930’s, 1970’s and 2000’s saw just 2.5% taken out.

2.5%

Morningstar found that for the U.K., 2.5% would have been the most efficient amount to withdrawal in the past. Its future prediction is that 3.2% is the top end of what is desirable.

Inheritance Tax

Protected from inheritance tax, pensions may also be seen by some as a favourable way to pass money on to beneficiaries. Wanting a sum of money to remain after death complicates calculations and further demonstrates that people should seek professional financial advice.

Paul Hoskin

@HoskinFinancial

THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL

Market’s “Muted” Reaction To Trump’s Election

Data suggests Trump’s surprise victory may have less of an impact on the market than initially feared.

The F.T.S.E. 100 saw an initial negative reaction to the news of Donald Trump winning the U.S. election matching that of Japan’s Nikkei, the two falling 2% and 5% respectively. There is however a feeling among some that the market has learnt lessons from its knee-jerk reaction to ‘Brexit’. Hargreaves Lansdown’s senior analyst, Laith Khalaf states that the “initial stock market reaction to the Trump victory was a short intake of breath, followed by a shrug”.

The news, although a shock has been received in a more “muted” fashion according to Mr Khalaf who points out that despite an “early morning sell-off,” the F.T.S.E. 100 then “staged a recovery to trade a little under yesterday’s closing price, with the F.T.S.E. 250 actually bouncing back into positive territory.”

A common theme between the events was that ‘experts’ failed to predict the results. Markets are seemingly growing used to political uncertainty. Managing director of IBOSS Ltd Chris Metcalfe believes “there is no point in us forecasting what happens next, people way smarter than us have just called another election completely wrong and as for economist forecasts, well you just have to look at the hopeless calls on the U.K. post-‘Brexit’”.

Short Term Impact

There is still room for short term profit making off the back of market uncertainty. Those that invested in gold for example have seen a $20 rise in the price of 1 ounce up to $1,300. Longer term the election of Donald Trump is receiving more positive sentiment from Mr Metcalfe saying “that once the dust has settled Trump is not necessarily bad for asset markets”.

It took a few weeks for the F.T.S.E. 100 to recover ‘Brexit’ losses. Mr Khalaf’s view is that the market has become better at factoring in political surprises.

Paul Hoskin

@HoskinFinancial

THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL

New I.S.A./Pension ‘Hybrid’ Derided

New Lifetime I.S.A. blurs the distinctions between I.S.A.s and pensions.

Steve Webb, a former pensions minister has bemoaned the creation of the Lifetime I.S.A., feeling the product fails at being either a pension or an I.S.A. and is instead a “horrible hybrid”.

Mr Webb served as pensions minister during the coalition government and is now the director of policy at Royal London. He highlights what he sees as the eroding of the tax benefits of pensions. He questions if pensions are being degraded with those in power deciding “whether pensions are simply a long term savings product or something special.”

Baroness Ros Altmann, Mr Webb’s successor shares his concerns, stating that in her view “Lifetime I.S.A.s risk poorer pensioners in the future and it is a disaster in the making.” She feels the launching of the product has “mis-selling written all over it” and is concerned customers will be hurt due to its complexities. She says “it is not simple. It is not a pension” its “penalty on withdrawal is punitive.”

Baroness Altmann expresses that “it is fundamentally – as a pension – not a good product.”

“Saving More Tomorrow”

Mr Webb’s suggestion is that the U.K. could move towards a more American style system he describes as “saving more tomorrow”. He points out how “the Americans encourage people to save more tomorrow by forgoing any salary rises and instead putting that increase into a pension.”

Calling for changes Mr Webb advises “there has to be a law that means unless you opt out every time you get a pay rise it goes up by increments, from 8% to 8.5%, then up to 9%. And so on.”

Mr Webb believes action such as this is necessary to avoid a situation where people are “not going to be able to afford to retire”.

Paul Hoskin

@HoskinFinancial

THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL

Employers Could Be Freed To Cut Employee’s Final Salary Pensions By Up To 30%

Proposed law would allow companies to reduce their workers’ pensions without seeking court’s approval.

MPs in the Work and Pensions Committee are considering freeing employers who are struggling financially to reduce their workers’ final salary type pensions without having to appeal to a court.

Current Promises Are Unsustainable

Pressures created by longer life expectancies and poor investments have led to a record pension funding shortfall in excess of £1 trillion. Sustainability questions mean that more than 11 million workers’ pensions could be affected.

The government is projecting to need to use its financial support, the Pension Protection Fund to save hundreds of pension schemes. Where used, payouts for workers will be reduced.

‘Conditional Indexing’

‘Conditional Indexation’ is viewed as a last resort, letting a companies own financial health inform the annual rises or ‘boosts’ ideally for a short time period.. It would allow annual pension uplifts to be as low as 0%. over the average 25 year retirement, this would mean total retirement income to be reduced by 30%.

Malcolm McLean, a senior consultant at pension firm Barnett Waddingham, says that although designed purely as a means of saving pension schemes genuinely in trouble, the ‘conditional indexing’ proposed could become a “free for all” for unscrupulous companies. He urges lawmakers clearly set out rules addressing this.

According to Calum Cooper, a partner at pension consultancy, Hymans Robertson if used in the manner it is intended, conditional indexation would be “just a temporary measure to be used whilst a sponsor is having difficulties”.

Other Measures Are Being Proposed

Another proposal is to change the minimum annual pension increases from the Retail Price Index to the historically lower Consumer Price Index. Over the average retirement, the worker will again lose out, this time losing 13% of their pensioner benefits.

Paul Hoskin

@HoskinFinancial

THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL

Over 55s Lead Record Rise In Equity Release

Total lending based off the value of large assets such as houses increases to a record amount.

The Equity Release Council are reporting that in the second quarter of 2016 wealth being released by over 55s passed the £500m mark for the very first time reaching £514.4m.

The second quarter of 2016 saw the highest growth rate in new plans agreed between clients and providers since the third quarter of 2003, increasing at a rate of 23%. The 3 highest ever recorded rates of equity release have occurred in the last year.

Reasons Behind The Rise

An ageing population and increasing house prices have contributed significantly to this demand.

E.R.C. chairman Nigel Waterson says that the market has stepped up to meet the demands of this growing number of people wishing to use their assets to access cash.

Regulator legislation in April has also added to the numerous new providers and products in sustaining this boom. Optional interest repayments have become exempt from mortgage affordability rules.

Lifetime mortgages that provide a large lump sum rose 37% from £152.1m to £208.8m. Drawdown lifetime mortgages, allowing multiple withdrawals of money however still account for the larger sector of the market, up 31% from £231.6m to 304.0m. This was the greatest annual jump since 2012 when the country was recovering from recession.

Total market activity has risen markedly. More than 2 out of 3 current lifetime mortgages are drawdown, up from 65%. This means that despite growing at a faster percentage, the proportion of single lump sum lifetime mortgages actually went down slightly from 35% to 1 of 3.

Home reversion plans in the second quarter of his year has more than doubled the same period last year from £623,647 to £1.5m.

For help and advice please do not hesitate to contact us at Hoskin Financial or Hoskin Home Loans

THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL

Record Number Of Over 50s In Work

Aviva have published figures showing that employees over 50 are on track to become the largest segment of the workforce by 2024.

A total of 9.67 million people over 50 are currently employed in the U.K., making up 31% of the workforce. The most recent figures show that this age group is rising at a record pace since 1992, when data began to be kept and when the over 50s made up just 21% of those employed.

Trend Set To Continue

Aviva believe that by 2018, the number will reach 10 million for the first time and account for 1 in 3 workers by 2024.

Alistair McQueen, savings and retirement manager at Aviva predicts that “over 50s will become the leading group of workers within the decade”.

Changing Attitudes Towards Planning For Retirement

As life expectancy and with it the cost of living post-retirement increases, pension-aged people must rely on both saving more of their earnings to put towards retirement and working longer to acquire more money.

Mr McQueen states, “for many, the best response will be a mix of the two. Auto-enrolment into workplace pensions encourages us to save more, and more than 6 million new pension savers have joined the system since it was introduced in 2012.”

Retirees Under 65 Becoming Increasingly Rare

Mr McQueen adds that “ the idea of ‘early retirement’ would be relegated to the dustbin of history if recent trends continued”. If the decline in early retirees were to be maintained at its current rate, it would take until 2029 for there to be no people aged between 16 and 64 classified as ‘retired’.

In 2011, a peak of 1.6 million 16-64 year old’s were classed as being retired. The number has since fallen to 1.2 million in 2016.

For help and advice please do not hesitate to contact us at Hoskin Financial or Hoskin Home Loans

THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL

 

Aviva Claims To Be Insulated From ‘Brexit’ Impact

Aviva believes capital surplus built up in recent years proves their business should not be affected by ‘Brexit’.

The insurance company Aviva is publishing research and data to reassure a market in shock after the vote for the U.K to leave the E.U., which led to Aviva’s share price falling by around 130p.

Steps Taken To Strengthen The Company In Recent Years

Angharad Knill, executive at Macquarie, provider of financial, advisory, investment and funds management services, says that “we believe this (devaluation) reflects the Aviva balance sheet of three years ago rather than today, and that the insurer has taken action in line with Solvency II capital requirements for insurers. While we do not believe Aviva has a ‘fortress’ balance sheet, it does offer a compelling valuation and dividend yield.”

Capital Surplus

Aviva has tripled its capital surplus in the last 4 years. The company reports that currently, its Solvency II coverage ratio remains near the top of its working range of 150% to 180%. This means that its net income after tax is around 150% to 180% the value of its short and long term liabilities.

In 2015, Aviva amassed £2.7bn in cash generation. £0.4bn of this came from Friends Life, an internal part of Aviva, management actions and one-offs. Ms Knill expects “more management actions to come and expect more strong cash flow in 2016 as the Friends Life integration continues. Management are guiding to 5-10% of Solvency II capital generation in 2016.”

As of March 2016, Aviva published preliminary results reporting a Solvency II ratio of 180% and a surplus of £9.7bn. They therefore consider themselves among the strongest placed and most resilient of the U.K. insurers with a low sensitivity to market stress. They state that they are monitoring any technical implications and will adapt accordingly.

For help and advice moving forward please do not hesitate to contact us.

Paul Hoskin

@HoskinFinancial

THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL

Uncertainty Ahead If The U.K. Votes To Leave The E.U.

On Thursday 23rd June, the U.K. will vote in a referendum to decide whether or not to remain in the European Union.

A pro-leave outcome would send shock-waves through the U.K. and internationally.

Political Change

David Cameron and George Osborne have tied themselves to the ‘remain’ campaign, should the public vote against them, their authorities will be severely weakened. Cameron could step aside immediately, in the midst of economic turmoil or stay and honour the decision of the people. The result will mean a shifting of power towards the ‘leave’ campaigners, notably Michael Gove and Boris Johnson.

Rival Pictures Of ‘Brexit’ Painted By Campaigners

Osborne claims the timescale for exiting is strict and that he will immediately activate article 50 of the Lisbon treaty, setting in motion a negotiation to be completed within two years. Vote Leave campaign director, Dominic Cumming says this is “mad and like putting a gun into your mouth and pulling the trigger”.

Pressure from the E.U. makes triggering article 50 highly likely by the autumn. One of its creators, former Liberal Democrat M.E.P. Andrew Duff claims “the clause puts most of the cards in the hands of those that stay in.”

The E.U.’s Reaction

An E.U. official stated that “it will be imperative to prevent the Brexit contagion gripping other countries”. This could see the major powers within the E.U. push to make sure seceders are seen to be the losers in negotiations. Leave campaigners believe however that over the summer the E.U. will come to consider the value the U.K. brings to the union.

So What Will Happen?

Huge issues such as the U.K.’s membership of the single market and the free movement of E.U. citizens will become bargaining chips between large institutions with the outcomes dependent on individuals fighting with their own agendas.

Until next time when we may know if we are in or out.

Paul Hoskin

@HoskinFinancial

THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL

Further Crackdown expected from HMRC on high net worth tax

Pinsent Mason have reported that the HM Revenue & Customs recent crackdown on tax avoidance is likely to be extended with the government having caught half a billion pounds extra since they started the campaign.

According to a Freedom of information requested by the law firm, HRMC reported that they collected £494m worth of income tax between 2014 and 2015 through their investigations into tax avoidance schemes.

Paul Nobel, the Tax Director for Pinsent Mason had warned advisers and accountants to beware of this success.

“High-net worth individuals and other wealthy taxpayers are likely to face further scrutiny as a result – both here and abroad”

HMRC has stepped up their investigations since 2012 especially following the extensive media coverage of celebrities participating in such activities, targeting actors, musicians, sports starts and comedians.

In April 2014 the Counter Avoidance Sirectorate was created to crack down on the use and promotion of such avoidance schemes and HMRC has also published a list of arrangements which run contrary to its rules.

Tougher powers have be introduced to find and demand disputed tax. The accelerated payment notices, which have caused some controversy have been part of these, where upfront payment of the tax under question within 90 days when the use of an avoidance scheme is suspected.

HMRC continue to be given new powers and tools to help them crack down on these avoidance cases.

HMRC has seen a surge in returns from investigations into tax affairs of high net worth individuals. The past year has seen an income of £29 for every £1 spent on the investigation process. That is a 60 per cent increase from 2014’s investigations.

£414m has been collected from the high net worth unit, which covers 6,000 individuals who have a net worth of £20m or more in 2014/2015.

The Committee of Public Accounts has concluded in their reports that the HMRC however are not doing enough to tackle tax fraud. They believe that “only limited progress” has been made in reducing losses through the crime.

Tax avoidance and evasion has once again been in the spot light recently with the leak of the “Panama Papers”. With everyone from the Prime Minister to actress Emma Watson named in these papers. The Financial Conduct authority has sent information requests to 64 implicated firms so far, but refused to be drawn on its preliminary findings.

For help and advice please do not hesitate to contact us at Hoskin Financial or Hoskin Home Loans

THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL