FSA to raise consumer awareness of deposit protection

The Financial Services Authority (FSA) is making it obligatory for all banks, building societies and credit unions in the UK to prominently display, in every branch and on every website, how much compensation savers could claim in the event of an institution failing. This is part of a continuing effort by the FSA and the Financial Services Compensation Scheme (FSCS) to improve confidence around compensation by increasing awareness of deposit protection.

Proposals published in December 2011 require each FSA-authorised bank or building society based in the UK to state that: ‘Your deposits are protected up to £85,000 by the Financial Services Compensation Scheme, the UK deposit protection scheme.  Any deposits you hold above this amount are not covered.’

Banks with branches in the UK, but headquartered and authorised in the European Economic Area (EEA), will have to state that deposits held with them ‘are not protected by the UK Financial Services Compensation Scheme.’ They will also have to state which other national scheme is providing the protection so that customers again know which compensation scheme they are relying on, which country it is based in and how it would work – for example how long it would take them to get their money back.

The proposed changes are designed to reinforce existing deposit protection measures and to ensure that every customer can clearly see how much of their money is protected, how much is not and whether they are covered by the UK compensation scheme. Recent research conducted by the FSCS to measure consumer awareness of the scheme, found customer knowledge continues to be extremely poor, and has in fact dipped since the crisis.

These proposals are the latest step in improving the deposit protection arrangements for consumers. A year ago all national compensation schemes across the entire European Economic Area were harmonised to offer cover at €100,000, or the local currency equivalent, and ensure eligible consumers are paid within 20 working days. At the start of 2011, the UK introduced faster payout rules, with a target of a seven day payout for the majority of claimants and the remainder within 20 working days.

 

Undersaving Britain

Pension saving is at its lowest level for 10 years according to recently published Department of Work and Pensions (DWP) analysis by the Family Resources Survey (FRS), a key source for pension information. The analysis came from interviews with around 25,000 private households across the UK in 2009 and 2010.

Only 38% of working-age people, 11.6 million out of 30.4 million people are saving into a private pension. In reporting the analysis, the DWP highlighted that this shows exactly why automatic enrolment into pension schemes being introduced from October 2012, is so critical.

The figures show a steady decline in pension saving between 1999/2000 and 2009/10, with the decrease being most dramatic among men and the under 40s. While the overall number of people saving into a private pension fell from 46% in 1999/00 to 38% in 2009/10, pension saving among men fell from 52% to 39%. And among people aged between 20 and 39 years old pension provision fell from 43% to 31%.

The analysis also reveals a map of pension provision across the UK in 2009/10, with higher pension provision in the South East (43%), Scotland (42%), the South West (41%) and the East (41%), and lowest pension participation in Northern Ireland (33%), London (34%) and the West Midlands (34%).

Minister for Pensions, Steve Webb, said: “These are alarming figures and they underscore exactly why our pension reforms will be so vital. With fewer people saving into a pension, lower annuity rates and an average of 23 years in retirement, many people could face a poorer future in their later lives.

“We simply must put a stop to this trend and get people saving. Automatic enrolment, beginning for the largest employers later this year, will get millions of people saving, many for the first time.”
Automatic enrolment in a nutshell

• Beginning in autumn 2012, many more people will have access to a pension at work, to help them save for their later years.
• Employers will have to enrol all eligible employees into a pension and make minimum contributions into the scheme.
• If you are eligible, your employer will enrol you automatically into a pension.
• You will be able to opt out if you want to but will therefore miss out on an employer contribution of around £600 a year once minimum contributions are established – 3% of average earnings of £26,200 for full-time workers (ONS 2011 Annual Survey of Hours and Earnings)

 

Should you want more information please do not hesitate to contact us on 01737 225665 or advice@conceptfp.com

For our 2 most popular guides please just click on the links below

Guide to making the most with savings

Guide to planning for retirement

or for all of our guides please see below

http://www.conceptfinancialplanning.co.uk/financial-guides.php

 

Funding Care Home Costs – the problems posed for both families and practitioners

Michael Young, Chairman of STEP Worldwide, 9 January 2012

The issue of how we fund care home costs in England and Wales has been a politically contentious one for years. One in three women and one in four men are likely to need long-term care, yet few see the current system – which can see someone’s home and life savings liquidated and used at the behest of a local authority to pay for care costs – as being fair.

The Government established the Commission on Funding of Care and Support chaired by Andrew Dilnot to look at the issue. In its report the Commission made firm recommendations for radical reform to a system it has described as “confusing, unfair and unsustainable”. One of the key aspects of the suggested reforms was the introduction of a ceiling on the amount any individual could be expected to contribute towards long-term care. Unfortunately, however, there seems to be little political appetite at present to push through such reform. Indeed the latest indications are that reforms could be many years away. Given the current economic climate and the rather parlous state of many local authorities’ finances that is perhaps unsurprising.

The result however is that both families and the STEP members who advise them are left struggling with a legal and regulatory framework around the issue of care home fees which is generally recognised to be badly in need of overhaul and which is patchily and inconsistently applied by local authorities.

Against this background there is growing anecdotal evidence that an unscrupulous minority of so-called advisors are exploiting the fears and uncertainties created by the current system to misuse products and structures and sell them aggressively as a means of avoiding liability for care home fees – ignoring the fact that, at the end of the day, the arrangements promoted might well fail to do anything of the sort.

The current law rests on an intentions test, something which is always likely to cause problems and complications. While there are many very valid reasons for thinking about estate planning, if arrangements have been entered into with the intention of avoiding liability for care home fees they can be set aside by the courts and local authorities can take the assets to pay for care costs. Proving intention is never easy, however, and in practice we seem to have arrived at a situation where many local authorities do not take action unless arrangements are set up very shortly before someone needs to enter into care.

Even so, the current “blind-eye” adopted by many local authorities to schemes aimed at avoiding liability for care home fees might well change in the future. Funding pressures may force local authorities to take a more aggressive stance. Indeed, as the popularity of such schemes grows, it can only add to the pressure on local authorities to take firmer action. It is essential therefore that we consider the issue of what will happen if there is a change of attitude on the part of the authorities towards the use of trusts and many of the other mechanisms used to avoid care home fees.

The first thing to say is that many of the clients who have spent time and money taking action which they believed was protecting their savings are likely to be angry and disappointed when they find that it hasn’t worked.

Second, disappointed clients might well want to try and blame someone, and, however clear the warnings given to them at the time, they may blame their advisors. There is therefore a clear risk of reputational harm both to the profession and to some of the widely used but occasionally abused structures used in this area such as trusts.

Third, unless the warnings given by advisors about the dangers inherent in such schemes have been very clear indeed, there is every chance that irate clients will seek compensation. If such claims succeed that could be very expensive for the profession, but even if they do not, the experience of other industries is that waves of compensation claims when “a product fails” are both extremely expensive to process and very damaging to reputations.

Against such a background I believe STEP members should proceed very carefully in any discussions with clients about how to fund or avoid care home fees. Certainly in my view, any reputable advisor should be very wary indeed of promoting any scheme aimed at avoiding liability for care home fees. Indeed, given the uncertainties about both the practical application of the current rules and what will be the shape of any reformed scheme – likely to be introduced at some point currently unknown but very probably well within the lifetime of any arrangement set up today for a client – I simply do not see how any advisor can give well-based recommendations to their clients in this area. Relying on a local authority to turn a ‘blind-eye’ to an arrangement designed to circumvent the ‘capital adequacy’ rules in relation to liability for nursing home fees seems to me to be a very poor basis on which to advise a client.

What if a client approaches their advisor about such a scheme, perhaps because they have seen publicity or heard about them from friends? This, I know, is a situation many STEP members have encountered. In such circumstances the advisor has a clear duty to the client to explain carefully and fully the potential pitfalls. Should the client wish to go ahead in any case, it would be prudent in such circumstances to ensure that the warnings given had been very carefully documented and acknowledged by the client.

One of our major banks recently hit the headlines, receiving the largest ever retail fine from the FSA and being required to foot a large compensation bill. HSBC’s mistake had been to give inappropriate advice to elderly clients regarding long term products designed with care home fees in mind. I think it is fair to say that if one of our major financial institutions can get it so expensively wrong in this area, every STEP member giving advice to the elderly about care home funding should also be looking very carefully at the procedures they have in place.

My core conclusion, however, is that the situation that has now been created around funding the costs of long term care creates an impossible position for everyone – local authorities, the public and advisors alike. The latter involved in the highly laudable process of trying to make sensible and responsible financial plans for the elderly. We have a current legislative framework which few support, not least because it creates a post-code lottery based on the attitudes of local authorities. Surely it should not be possible for local authorities to pick and choose what legislation they will enforce and what they will ignore. Such an approach is hardly equitable.

Alongside the uncertainties created by such a framework there is the prospect of future, as yet unspecified, fundamental reform which whilst undoubtedly needed, could very easily make any plans drawn up now pointless or ineffective. STEP will be writing to Ministers urgently, highlighting the difficulties now being created for those wanting to make plans for their later years and urging a rapid clarification of the current legal and practical uncertainties.

Source – STEP Michael Young – Click here for Press Release

 

 

Staff barred from Final Salary Pension Schemes

The number of businesses that have closed their final salary pension to all of their staff has jumped by a third, the National Association of Pension Funds (NAPF) has revealed in its latest annual survey.

The survey found that almost a quarter (23%) of pension schemes are now shut to both new staff, and to future contributions from people who were already in the pension scheme. This is up by a third from 17% in 2010, and from just 3% in 2008.

The survey shows that more change is inevitable. Among those pension schemes which are closed to new staff but still open to existing staff, 30% expect to close the pension altogether in the next five years. They plan to then move staff into a ‘defined contribution’ pension, where the employer is exposed to much less risk. Meanwhile, one in ten (11%) say they will keep the existing defined benefit pension scheme structure, but will make it less generous. This could include changing accrual rates or moving from a final salary to a career average structure.

The findings reflect an escalation in the decline of final salary (or ‘defined benefit’) pensions, as schemes that have already closed to new joiners shift their focus to existing members. Final salary pensions have been increasingly strained by rising longevity, poor investment results and red tape. Employers have been closing these pensions to try to manage risk and mounting costs. Only 19% of private sector schemes are now open to new joiners, compared with 88% ten years ago.

Joanne Segars, NAPF Chief Executive, said: “The private sector is seeing a seismic shift in its pensions, and more change is certain. Demographic and financial pressures mean businesses are struggling to afford these pensions and final salary deals are coming off the table and are either being watered-down or replaced altogether.

“Many firms are trying to get a grip on the risks and rising costs by freezing the fund to both new and existing staff. While it is difficult to be exact, we estimate up to a quarter of a million have been moved out of their final salary pension over the past three years. People will often find that the replacement pension on offer is a good one. It’s encouraging to see that, despite the harsh economic climate, payments into defined contribution pensions by staff and their employers have remained stable.’’

There are many options to consider should you find yourself in this situation,  if you want to find out more on planning or need advice about pensions, please do not hesitate to contact us on

01737 225665 or advice@conceptfp.com

 

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Ten strategies for tax planning in 2012

Many of us will be making a New Year’s resolution to sort out our finances in 2012 – but an often overlooked part of putting your finances in order is making sure that your tax planning is effective. Are you claiming all the tax relief you’re entitled to? Are your investments arranged in the most tax efficient way?

To give your financial planning a head start, here are ten strategies for efficient tax planning in the year ahead.

1.

First and foremost, be organised. Make sure that you submit your tax returns on time. The rules have changed and the full £100 penalty will now be due if your return is late, even if there is no tax outstanding. Make sure you submit your return by October 31st if it’s non-electronic, or by 31st January following the end of the tax year. In addition, make sure you keep good records. This may not seem very exciting, but HMRC are increasingly stressing the importance of accurate record keeping. Everything tax related – interest statements, dividend vouchers, payslips, P60’s and so on – needs to be kept. Your accountants will be happy even if you simply hand them a folder with everything in it: that’s far better than not having the relevant documentation.

2.

Make full use of your personal allowances. The basic personal allowance for 2011/2012 is £7,475 and this can be used effectively if you and your spouse are both involved in running a business. Even if only one of you is involved, the other could be employed in order to use up his or her personal allowance.

3.

There’s also nothing to stop children being employed in the family business so as to take advantage of their personal allowance. Remember though that payment must be for actual work carried out, and at a reasonable commercial rate. Your children also have their own annual exemption for Capital Gains Tax, so it may make sense to move some assets into their names, especially if the value of the assets is likely to increase.

4.

The contributions which an employer makes to a pension scheme are generally tax and NI free for most employees. If you want to boost your pension, it may be worth considering ‘salary sacrifice’ – giving up some of your salary to increase your pension contributions. You’ll need to discuss this with your employer and you may need some specialist advice from an independent financial adviser, but it can be a very effective way of increasing the amount going into your pension.

5.

If you are running a business, try and incur expenditure just before the end of your tax year rather than just after as this will speed up the tax relief. Examples of the type of expenditure you might consider bringing forward include repairs to buildings and plant, and advertising and marketing campaigns.

6.

In most small companies the directors and the shareholders are one and the same, and so they can choose the most tax efficient way to pay themselves. Using dividends as opposed to salary can result in savings to NIC, but it does require some planning. Any good accountant or independent financial adviser will be able to explain all the options to you.

7.

The current threshold for VAT registration is £73,000: it may be worth registering voluntarily if your turnover is below this, although registration obviously brings extra administrative responsibilities. When you first register for VAT you can reclaim input tax on goods purchased up to three years before registration, providing you still have them at the time of registration.

8.

Remember that interest paid on bank and building society deposits will have tax deducted at 20%. If you do not pay tax then you can sign a form to have the interest paid without the deduction of tax. Alternatively, you can submit a repayment claim to HMRC.

9.

When you’re choosing between different investments, it is the overall investment strategy that is the main consideration, not the tax position. You should make investments based on whether they are right for you and your financial planning: an investment strategy based purely on saving tax may do more harm than good.

10.

Finally, the best strategy of all – and the best advice – is to work with your professional advisers on a consistent, long-term basis. They will be able to give you all the appropriate advice to make sure that your financial affairs are arranged in a way that is both tax efficient and right for your long-term financial planning. A regular review meeting with your accountant and ourselves is always time well spent, especially if you are on our RAA Scheme (Review Advice and Administration Scheme)

 

 

As ever, if there is any aspect of your tax planning – or your wider financial planning – that you would like to discuss with us then please don’t hesitate to contact us.

 

 

Please Note : Any information concerning the taxation treatment of a recommended investment or action is based on our understanding of current Inland Revenue law and practice. Taxation law may be subject to future change.

Ten New Year’s Resolutions for your Financial Planning

Around 50% of us make New Year’s Resolutions and ‘sort the finances out’ must be one of the most popular: but that’s a little vague – it’s more a wish than a firm commitment to take action. Looking at the January appointments we’ve had with new and existing clients, here are the topics that we’ve discussed most often. If you’re determined to sort out your finances, these may give you some food for thought.

1. Sort out the mortgage

The mortgage is the biggest monthly expense for the vast majority of people, and making sure that the rate you’re paying is competitive is basic common sense. Many people are paying a higher rate than they need to and half an hour with an IFA or independent mortgage broker can be time very well spent. Yes, there are costs involved in moving your mortgage, but these can often be outweighed by the savings to be made.

2. Sort out our life cover

This is an absolute priority, especially if you have children. Many people don’t know the answer to questions like ‘how much life cover do I need?’ ‘How much do I have?’ ‘Does it include critical illness cover?’ No-one likes to think about the possibility of being seriously ill or dying, and therefore we tend to neglect our protection policies. Life cover can be surprisingly inexpensive: and even if you do have cover in place, make sure you have it checked on a regular basis. In many cases the cost of protection is continuing to fall and it may be possible to replace old policies and increase the amount of protection you have, without increasing your premiums.

3. Start saving for the children

However much you’ve just spent on Christmas presents, your children are going to cost you a lot more in the future. Whether it’s university tuition fees, a first car, your daughter’s wedding or the deposit on a house, the numbers are only going to go one way. Even if you only save a small amount, doing it on a regular basis over a long period can make a significant difference – and with the ability to save tax efficiently through an ISA, at least the taxman will be on your side.

4. Start saving for ourselves

What’s true for the children is equally true for yourself; if there’s a specific savings target you have in mind, or whether you simply need to save for the proverbial ‘rainy day,’ the earlier you start to save the easier it is to achieve your goal.

5. Sort out my pensions from previous employment

Many people have pensions left over from previous jobs, and despite various Government initiatives aimed at simplifying the system they still don’t have an accurate idea of how much is in their pension ‘pot.’ Good pension planning is impossible without knowing the position you’re starting from, so it’s a sensible idea to talk to an IFA and find out the position with any old pension policies. For example, can they can be brought together and simplified?

6. It’s time I understood the company pension scheme

Just as importantly, far too many people don’t understand their existing company pension scheme. Is it final salary? Money purchase? Eightieths? Sixtieths? Can I make additional contributions? Buy extra years? Again, half an hour with a knowledgeable independent financial adviser will be time well spent. He’ll be able to summarise the main benefits of the scheme for you, tell you the sort of pension you’re likely to receive and advise you of the best course of action if you want to improve your pension benefits.

7. Investigate Inheritance Tax and Long Term Care

If it’s the case that your parents are elderly, then it may be worth thinking about Long Term Care planning. Similarly if their – or your – estate is likely to be subject to Inheritance Tax, then action taken now could pay significant dividends in the future. Again, an IFA will be able to tell you what’s possible, and the steps that could be taken now to prevent an unpleasant surprise in the future.

8. Look at Private Medical insurance

With tales of woe from the NHS continuing – and more economies seemingly still to be made – many people are starting to look at the option of private medical insurance. This may be an investment worth making, particularly if you run your own business and would need treatment at a time to suit you.

9. We need to sort out the partnership insurance

Many businesses are run as a partnership (whether it’s a straightforward partnership or through equal shares in a limited company). The death or serious illness of one of the partners could have catastrophic consequences for the business – and serious implications for the other partner. And yet very few businesses have addressed the simple question of partnership assurance. Your IFA will be able to explain the basic rules to you and give you an idea of what protection might cost: you may well be pleasantly surprised!

10. We need to make a will

Last – but by no means least – make sure that you have an up to date will. The consequences of dying ‘intestate’ (that is, without a will) can be severe, and with a simple will being relatively inexpensive it’s sensible to make sure that this area of your financial planning is kept up to date.

So there’s plenty to think about… and at Concept we always say ‘make a plan’.  You if do not have a financial plan you will never reach your goals.  We are all working longer and harder – but is your money working for you?

If you would like to discuss any of the above points – or any other aspect of your financial planning – then as always, please don’t hesitate to contact us on 01737 225665 or advice@conceptfp.com

 

Chancellor’s Autumn Statement 2011

Chancellor George Osborne delivered his Autumn Statement at lunchtime on Tuesday, November 29th against a backdrop of gloomy economic forecasts.

 
The previous day, the Organisation for Economic Co-operation and Development (OECD) had predicted that the UK would slip back into “a modest recession” early in 2012, with unemployment reaching 9%. The OECD blamed this on a weak demand for exports, the Government’s austerity measures and the squeeze on consumer spending.

 
Reporting on Tuesday morning, the Office of Budgetary Responsibility (OBR) was slightly more optimistic, forecasting growth of 0.7% for 2012 and 2.1% in 2013. However their forecast of growth reaching 3% from 2015 was looked on sceptically by most commentators.
The Chancellor began his statement by emphasising that Britain “would live within its means” – but he still promised a significant investment in education and infrastructure projects, so that the country “could pay its way in the future.”

 

Government borrowing is currently predicted to hit £127bn in 2011/2012.

 
However, the problems in Europe mean that total Government borrowing over the next four years is now forecast to be higher than originally anticipated with an extra £112bn being needed.

 
It was inevitable that figures like this would mean that savings (or ‘cuts,’ depending on your political standpoint) would have to be made, and the axe quickly fell on the public sector. The Statement contained a serious amount of pain for public sector workers: pay rises will be capped at 1% for two years(after the end of the current freeze in Spring 2012), and the OBR is now forecasting 710,000 public sector job losses by the first quarter of 2017. With many public sector workers due to strike today (November 30th) presumably the Chancellor thought he might as well get all the bad news out of the way.

 
George Osborne also announced that the pension age will rise from 66 to 67 from 2026, which is eight years earlier than previously planned. This move will save a further £59bn. Short-term, the value of the state pension will increase by £5.30 per week from April 2012.

 
One of the key themes of the Autumn Statement was investment in infrastructure – as Deloitte’s head of infrastructure, Nick Prior, commented on Twitter, economic growth only comes when “shovels get in the ground.”

 
In a new initiative, some of the money for the infrastructure investment will now come from UK pension funds, following a model which has worked well in Canada and Australia. Joanne Segard, Chief Executive of The National Association of Pension Funds (NAPF), described the investment as “a real winwin.” Currently UK pension funds hold over £1 trillion in assets, but only 2% of that is invested in infrastructure. However, the Government is going to need to offer the pension funds long-term investments with an income that exceeds inflation. So potentially good news if you’re invested in a pension – possibly not so good if you suddenly find that you’re on a brand new toll road.

 
There is also a distinct possibility that we’ll see the sovereign wealth funds of other countries investing in UK infrastructure projects. Before the Chancellor’s speech the FT had already carried a piece by the Chairman of the China Investment Corporation, expressing his desire to “team up with fund managers or participate in public-private partnerships in the UK infrastructure sector.”

 
As well as the above, other key points in the Autumn Statement were: • The Bank Levy will rise to 0.088% from January 1st. The Government is aiming to collect £2.5bn a year from the Levy

 
• A credit easing programme is to be introduced to underwrite up to £40bn in low-interest loans to small and medium sized businesses. The business rate tax relief holiday will also be extended to 2013

• The Government will consult on allowing small firms to make staff redundant without them being able to claim unfair dismissal

• The rail fare increases will be less than originally planned

• The 3p fuel duty increase planned for January will be cancelled – so some good news for the hard-pressed motorist
• An extra £1.2bn will be spent on education, with free nursery places being extended
• And British science is to receive an additional £200m of extra funding to support research. (But to put this in perspective, it’s 0.2% of the value which was placed on Facebook the same day.)

 
Reaction to the Autumn Statement was predictably mixed. The Times said that Osborne was ‘inflicting pain to fight off [a] debt storm,’ while the Guardian concentrated on the job losses in the public sector. Many commentators criticised the Chancellor for ‘tinkering’ when bolder action was needed.

 
Reaction to the speech on the stock market could hardly be described as euphoric, but the FTSE did manage a small gain after the Chancellor’s speech. But as if to emphasise that Britain remains vulnerable to the world economy in general and the European debt crisis in particular, Italian bond yields reached new highs while Osborne was speaking and credit ratings agency Fitch downgraded its forecasts for the US economy. By Monday night Fitch was also warning that it is getting harder for Britain to maintain its AAA credit rating – which helps the Government to borrow at lower rates of interest. “May you live in interesting times,” as the Chinese saying goes. Whatever the contents of his Autumn Statement, George Osborne and the British economywill certainly be doing that

Cost of motoring miles ahead of inflation

The RAC’s annual Cost of Motoring index has revealed the average cost of keeping a car on the road to be a staggering £6,689 per annum, a rise of 14% (£819) on last year. That’s an average of £128.64 per week and 55.74 pence per mile, but however you dress it up it is surely a hefty blow to Britain’s already cash-strapped motorists.

The Cost of Motoring Index, which is based on a pool of 17 new cars weighted by their ownership, is calculated by taking into consideration all the various financial outgoings associated with owning a new car. These include: depreciation, finance, service, maintenance, repair, fuel, insurance, road tax and breakdown cover.

The area that saw the sharpest rise was fuel, the annual cost of which has risen by £160 to £1,458 – a 12.4% increase in just one year.

Insurance costs have also been heavily affected, with the costs for insurers from personal injury claims and associated legal costs, insurance fraud and uninsured drivers involved in accidents, all pushing the price up sharply. A rise of 14.4% to an average of £551 means that the cost of insurance is now an alarming 35% higher than in 2009.

Adrian Tink, RAC motoring strategist, comments: “This year’s Cost of Motoring index highlights the tough conditions being faced by Britain’s motorists. With the annual cost of motoring approaching seven thousand pounds the price burden of car ownership is hitting drivers hard.

“…UK drivers want to see action from the Government. Last week’s Commons debate, prompted by the Fair Fuel UK campaign, showed the real depth of feeling across the country on the issue. At the very least, we are calling for the scrapping of next year’s planned fuel duty increases.”

Tink also called on oil companies to be more transparent over pricing and to allow drivers to know exactly where their money is going. With both Shell and Exxon recording a sharp increase in profits in the wake of rising oil prices, motorists are, not surprisingly, demanding more information.

Changes to the pension carry forward rules

As you know, a new carry forward facility was introduced on 6 April 2011.  This allows individuals to carry forward any unused Annual Allowance from the previous three tax years, as long as they have been a member of a registered pension scheme at some time during the tax year for which contributions are being carried forward (regardless of whether they made any contributions during that year).

 

For the 2011/12 tax year carry forward will be available against an assumed Annual Allowance of £50,000 for each of the tax years 2008/09, 2009/10 and 2010/11.  There is a strict order in which an individual can use up their Annual Allowance – the Annual Allowance in the current tax year is used up first, followed by the unused Annual Allowances from the three earlier years, using the earliest tax year first.

 

Note: Contributions made using the carry forward facility will be subject to the usual rules on pensions tax relief 

HMRC has just announced a clarification of who is eligible for carry forward and a small, but useful, change to the carry forward rules, as follows.

 

1. HMRC has confirmed that the carry forward facility is available to anyone who was an active member, a pensioner member, a deferred member or a pension credit member of a pension scheme at any time in the tax year for which the carry forward facility is being used.  However, contributions made using the carry forward facility can be paid to any registered pension scheme and don’t have to be paid to the scheme of which the individual was a member.

 

2. Under the original carry forward rules, if the contributions actually paid in pension input periods ending in the 2009/10 or 2010/11 tax years exceeded £50,000 then the amounts carried forward had to be reduced by the excess.  This requirement has now been removed.  This is best explained by the following example.

 

Consider an individual whose contribution history is as follows:

 

Tax year               Contributions paid in pension input period ending in the tax year

2008/09                £30,000

2009/10                £40,000

2010/11                £75,000

 

Under the original carry forward rules the individual could carry forward £20,000 for 2008/09 and a further £10,000 for 2009/10, making £30,000.  However, this had to be reduced by £25,000 (since the contribution for 2010/11 exceeded the £50,000 Annual Allowance by £25,000), so the individual could carry forward only £5,000 to 2011/12.

 

Under the amended carry forward rules the individual can carry forward £30,000 to 2011/12 since there is no longer any need to deduct the excess payment of £25,000 for 2010/11.

Should you require more information on this topic, please do not hesitate to contact us on 01737 225665 or advice@conceptfp.com and we will be more than happy to answer any questions.

 

Take a look at our Saving for Retirement Guide here

www.conceptfp.com

 

Source – SippChoice

State pension ages have now changed

Last month we reported on the Government’s updated plans to speed up the state pension age increases to 65 and 66.  These changes have now been passed into law.

Under these new changes:

• Men born before 6 December 1953 retain their SPA of 65
• Women born before 6 April 1950 retain their SPA of 60
• Women born on or after 6 April 1950 but before 6 December 1953 will have an SPA between 60 and 65
• Men and women born on or after 6 December 1953 but before 6 October 1954 will have an SPA between 65 and 66
• Men and women born on or after 6 October 1954 but before 6 April 1968 will have an SPA of 66
• Increases from 66 to 67 and then to 68 will affect men and women born on or after 6 April 1968

Furthermore, at the G20 summit in Cannes earlier this month, the Government committed to increasing state pension ages more quickly in future, linking them to life expectancies.  The Cannes Action Plan For Growth And Jobs includes a commitment to “address long-term spending pressures and imbalances, such as managing future increases in the state pension age more systematically in response to changes in longevity.”

Click here to use our SPA Calculator, which has been updated with these changes

 

Should you require further information please do not hesitate to contact us or have a look at our Retirement Guide here

01737 225665 or advice@conceptfp.com

 

 

Source – The Pension Advisory Service