March 2017 Wealth Management Update
Pension advice allowance – Use your pension to pay for advice
The Treasury have announced that it is now possible to withdraw up to £1,500 from your pension pot, tax free, in order to pay for financial advice.
This rule change comes into effect in April this year and allows you to withdraw £500 at a time, three times during your lifetime, to use in payment for financial advice and retirement planning. It can be used to pay for any regulated financial advice in relation to any type of Personal Pension, but it does not apply to Defined Benefit or Final Salary schemes.
This move was inspired by the fact that those who take financial advice save an average of £98 per month more into their pension pots. The government are clearly attempting to encourage pension saving by allowing the public to become more educated on the benefits of retirement planning.
Whilst this allowance may be most beneficial to those who find paying for financial advice more of a financial burden than yourselves, you may be able to pass on the information to your children, friends or family who may benefit from accessing financial advice regarding their pensions.
We don’t know yet which providers will facilitate this from day one – we will keep you posted.
Trust Tax Returns
So we are already in March. Where did that time go? We are therefore only one month away from Trust Tax Return letters winging their way from HMRC to you in April.
As always, we are here to help with any queries on your Tax Returns relating to any trusts you may have put in place with us. If you need guidance, please contact us as soon as you receive your HMRC notification to allow us plenty of time to complete the forms.
Paper returns are due by 31 October 2017. As we will not be completing any Trust Tax Returns online for any of our clients this year, please be aware of this deadline and make sure your paper returns are submitted on time to avoid incurring fines from HMRC.
If you have any questions about this, please contact the office and we will be happy to help.
Have you read the small print?
It would seem that, with the scrapping of pension exit fees, providers will always have other ways of applying fees that are to their advantage. One of those ways is servicing fees. Now, we fully agree with servicing fees – providing the service justifies the fee. However, in reality the so-called ‘service fee’ generally involves no advice, no active management from the provider and no advantage for the client.
One reported case disclosed how one man’s pension was reduced from £8,740 to £0 at 65 years of age, solely by service fees levied by Friends Life. This gentleman paid into his pension over the late 1990s and early 2000s but, being unable to continue contributing, ceased payments soon after. However, a clause in the small print of his agreement stated that he had to contribute at least £5,000 per year or face “additional charges”. A further clause stopped him from transferring to another provider, as doing so would reduce his entire pension fund to £0. The gentleman involved was never advised of these restrictive clauses and was victim to the doorstep selling that was rife in the 1990s, and which goes on to some extent even today.
Transferring to another provider offering the same level of management would have reduced his annual payments from £425 per year to just £10 per year, because this “service fee” was in fact for no service at all. Fees of this type are simply not justifiable, and would leave someone with no pension to draw upon in retirement.
After much negotiation, Friends Life did agree to rectify the situation and awarded the individual a revalued pension pot of £16,249 and a 2.49% exit fee if he wished to move to another provider (until April, obviously, when exit fees will be capped at 1%).
The lesson here is to always read the small print, keep track of your pensions and, above all, use a reliable and trustworthy adviser who would not let something like this happen to their clients.
Residential Nil Rate Band – coming soon
The much talked-about Residential Nil Rate Band will come into effect in the new tax year, in about a month’s time.
The RNRB will allow you to pass down your main residential home to your direct descendants, which includes children, adopted children, step-children, foster children or children under guardianship with you, if you die after 6 April 2017.
The RNRB will start at £100,000 in 2017 and will increase as follows:
- £100,000 in 2017–2018
- £125,000 in 2018–2019
- £150,000 in 2019–2020
- £175,000 in 2020–2021
After 2021 it will increase in line with inflation.
It is worth noting that the “carry forward” spousal rule that applies to the Nil Rate Band also applies to this new allowance, and is based on the RNRB level at the time that the second person dies. So, even if your partner passed away before April 2017, you could still use their allowance when you pass away at some future point.
As always, there are rules! For those with an estate worth more than £2 million, the RNRB will start to reduce by £1 for every £2 above £2 million. This means that on an estate worth £2.35 million, one person’s RNRB will be lost, and on an estate worth £2.7 million, the RNRB will not apply at all. Unlike the NRB, the RNRB allowance cannot be transferred to trust or utilised in any way during your lifetime.
So what do these changes mean to you? For those of you who have already put your planning in place with us – we will be in touch as the year goes on. If you have Wills or Trusts with anyone else – Solicitor or Will Writer – you should expect to hear from them soon. If you are unsure then please come and speak to us.
Those of you who receive our Annual Trustees Minutes every year (around December normally) do not need to take any action, as these minutes cover the additional legislation required. For those who do not receive our Annual Trustee Minutes, additional changes will be needed and these are the responsibility of the person appointed to complete your Trustee Minutes.
St James’s Place – at it again
Last month we reported on SJP and their hidden charges that were costing clients unknown amounts in fees. Well, it seems they have many more skeletons in their closet. They made the headlines again this month for offering hidden commissions to their advisers, using a point-style system.
Obviously, commissions were banned in 2012. But SJP have implemented some sneaky techniques to reward their advisers for every £1 they bring into SJP. The rewards include jewellery worth up to £8,000, lavish holidays and celebrity dinners.
This intense focus on bringing money into the company not only puts insane pressure on the advisers that work there, but also puts far too much emphasis on how much money can be extracted from each client, rather than what is in the client’s best interests.
This system could result in advice being given to clients based on how many commission points it would generate, rather than what would be the best course of action for each client, and could lead to extensive mis-selling throughout SJP. In fact, it may leave many SJP customers pondering whether or not they were sold the right product for them, or merely the one that made their adviser the most money!
Many individuals in the industry believe that incentives should be based solely on the quality of the adviser’s relationship with the client, rather than monetary rewards. We certainly agree with this.
UK growth forecasts are rising
Last month inflation was up to 1.6%, the highest since June 2014, and it is expected to rise to 2% throughout 2017 because of the rising cost of imported goods. The Bank of England originally forecast 1.4% growth back in November last year, but the growth outlook for 2017 has been upgraded to a solid 2% because of higher spending and more investment than expected since Brexit.
The colossal slowdown in consumer spending that many people were expecting in the aftermath of Brexit had not happened, and so growth throughout the UK has remained strong. The Bank of England also credits growth in the USA and Europe with its more positive predictions.
The Bank of England is, however, being reserved in its predictions for 2018 when the effects of Brexit may be seen more widely, with a projected growth of 1.6%. This represents a slight slowdown from this year and, paired with an expected inflation rate of 2.7%, means times are sure to get somewhat tougher as the years go on. I am sure this prediction will change throughout 2017 as nobody can be certain about how and when the markets will react, or to what degree.
The Bank of England has said that they will watch closely to ensure the situation doesn’t become unmanageable and I certainly don’t envy them their job. They probably have the most difficult balancing act in the world, and the twists and turns of things such as Brexit only make keeping the balls in the air that much more difficult.
Book of the month
Most of you will know Derren Brown as the TV hypnotist and magician. What you probably don’t know about him is that he is an accomplished scholar, with degrees in Law and German, as well as holder of the Neuro-Linguistic Programming masters designation. It is with this hat on that he has written Happy – a study of … well, how to be happy.
Many of the points Brown makes go against much of the “positivism movement”, but are all well argued. The book is divided into three parts with the middle section focusing totally on the history of philosophy in relation to emotion and the study of happiness.
While a little meandering, the book is worth a read just to discover his five rules for happiness –though you probably won’t agree with them. At the very least, you will finish the book understanding that Mr Brown is a very clever man indeed.
Best Savings Selections
Top Three No Notice Accounts without Bonus
|Name||Contact||£1 Gross %||£500 Gross %||£1k Gross %|
|RCI Bank UK||www.rcibank.co
|1.10 (min £100)||1.10||1.10|
|Virgin Money||Via branch||1.01||1.01||1.01|
|Coventry BS||0800 121 8899||0.85||0.85||0.85|
Top Three Monthly Interest Accounts
|Name||Contact||£1k Gross %||£5k Gross %||£25K Gross %|
|Charter Savings Bank||www.chartersavingsbank.co.uk||1.04||1.01||1.04|
|RCI Bank UK|| www.rcibank.co.uk
|Paragon Bank|| www.paragonbank.co.uk
Top Three Cash ISA’s
|Name||Contact||£1 Gross %||£10 Gross %||£100 Gross %|
|Aldermore||0345 604 2678||n/a||n/a||1.20 (min £1,000 & Fixed for 2 years)|
Please check with the terms and conditions before opening any account. If in doubt consult with your financial adviser directly as the above are for information only.
Source: Moneyfacts Magazine March 2017 Edition