What do you do with cash?
It is now even harder to get a good return on your cash!
NS&I has until recently topped the savings market, offering the highest interest rates across the board. This was good news for savers when rates elsewhere were being cut or were returning next to nothing, and good news for the government as savers ploughed their savings into NS&I products.
However, this way of raising money is more expensive for the government than other means and so the rates have been cut dramatically.
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Other banks and building societies, who were offering more generous rates to compete with NS&I, may follow suit over the coming weeks and rates elsewhere will begin to drop.
So what can you do? If you hold your emergency fund with NS&I the only thing you can do is shop around for a better rate with other instant access accounts.
If you hold funds in NS&I as part of your savings portfolio but don’t necessarily need instant access, you could look at a fixed-term product that will lock the funds away for a set time in return for higher interest. Or, finally, you could invest the money! Investing is likely to be the only way forward to generate growth at rates anywhere near levels above inflation (but obviously it is not suitable for everyone).
We mentioned in another piece about getting your finances in order; this dramatic reduction in NS&I rates, along with the threat of a second wave of Covid-19, may be the trigger to restructure your finances to get the best out of them. We would be more than happy to help put in place something that works for you.
Trust Registration Service update
At the start of the year, we let you know that HMRC had delayed their proposed updates to the Trust Registration Service (TRS). Although the TRS changes still haven’t been confirmed, we do now have some information with which to update you.
It is still not possible to register non-tax-paying trusts on the TRS. The TRS software is being updated to allow this in the future and HMRC will provide guidance about when and how trustees will be able to register in due course. Once this is possible, trustees will have until 10th March 2022 to comply with the registration requirement.
We continuously monitor for further updates so that we can plan for the most efficient way of helping administer your trusts. We will provide you with a more formal update of the new TRS requirements and how they will affect your trust administration once HMRC finalise their changes.
In the meantime, any taxable trusts that are required to be registered on the TRS under the current rules should continue to follow the existing TRS registration guidance and deadlines until HMRC advise otherwise.
Autumn budget cancelled due to Covid
It was decided on 23rd September that the Autumn Budget for 2020 would be cancelled due to the Covid pandemic. The Autumn Budget was also cancelled in 2019 because of the impending election, so fingers crossed for 2021!
Postponing the Budget means that any decisions regarding tax changes will be delayed until next year when we are hopefully over the second wave and the situation is more stable. Instead of the Budget, the Chancellor unveiled his ‘Winter Economy Plan’, which detailed the ongoing support that would be provided to businesses and individuals.
Rather than go into the details here, you can read those sections of the plan that are relevant to your individual situation here.
It is likely that there will be regular updates and changes as the situation unfolds and as winter arrives. We will keep our eyes and ears open for those.
Rise in minimum pension age – start planning now
The rise in the minimum pension age from 55 to 57 years is not due to come into force until 2028, but it is important to know how this will affect you and to make the appropriate preparations where you can. The last thing you want is to plan to access your pensions at 55 only to find out you need to wait another 2 years! This rise is in line with when the state pension age will go up from 66 to 67 years in October 2028. Going forward, the intention is that the state pension and minimum pension ages will rise in tandem, with exactly 10 years between them.
Members can only access their pension benefits before minimum pension age if they are in ill-health, they have a protected pension age or have a specified occupation. Otherwise, a payment made before minimum pension age is an unauthorised payment and subject to hefty tax charges.
The actual date in 2028 from which the minimum pension age will increase has not been disclosed, which is very unhelpful! As an example, if the change is implemented from the start of the new tax year (6th April 2028) those who turn 48 before 6th April 2021 can access their pension at 55; anyone younger will have to wait the extra 2 years until they are 57. However, the government could choose to introduce this increase in a number of ways, including a phased approach, so we will have to wait and see what is decided before the effects on an individual can be fully understood.
However, this should still be a consideration for your Financial Planner when implementing your Retirement Planning and something that should be closely monitored. If you think you would like to speak to an Adviser to ensure you are prepared, please get in touch with us so we can make sure you have a plan that works for you.
Are your finances ready for the second wave?
As we try to avoid a second round of Covid-19 and another potential lockdown, are we prepared for the potential financial effects if it happens?
One of the most important things we learned from Covid-19 round 1 was the necessity of having an emergency fund. As we were all affected so unexpectedly, and to an extent we may never before have experienced, the requirement for accessible and ‘safe’ funds on deposit became essential, especially at a time when markets across the world fell.
It is recommended to keep 6-9 months expenditure on deposit in an easy- access account. If you do not currently have this in place, it is time to think about how it could be achieved.
There have been reports that parents have had to dip into savings they have put aside for their children’s future just to see them through these tough times, most likely because they did not hold a sufficient buffer of emergency funds. On average each family needed to reclaim £700 from children’s savings accounts, which amounts to £17m for every day we were in lockdown – all of which was used for day-to-day necessities.
By structuring your finances correctly and ensuring you have a robust emergency fund, these situations can be avoided. The pandemic has been a reminder that the worst-case scenario can become a reality and we should plan accordingly. If you need help or advice rearranging your finances, let us know and we can help put a plan together to give you peace of mind in this time of turmoil.
Don’t neglect the Annual Allowance
It is approaching the time of year when Annual Allowance (AA) pension savings statements are issued. These are the statements you receive when you have exceeded the Annual Allowance. They usually have to be with pension members by 6th October, so if you haven’t had one by then it’s likely you have not exceeded the AA. As each statement only relates to that particular scheme, it is the individual’s responsibility to take into account all their registered pension schemes for that tax year when assessing whether the AA has been exceeded.
You may not have the usual AA. For example, if you have accessed your taxable benefits and are subject to the Money Purchase Annual Allowance (MPAA) or have high income and have a tapered AA.
If the AA is exceeded (whether standard, tapered or the MPAA) across all pension schemes and there is insufficient unused AA to carry forward from previous tax years, an AA tax charge will be due. Carry forward cannot be used to increase the MPAA.
Should the AA be exceeded, the first step is to see if there is any scope to use carry forward in order to absorb the excess – if there is, then there is no taxable element and HMRC don’t need to be informed (although a record should be kept in case of enquiry).
Should an AA excess not be absorbed by carry forward, the excess must be declared on a self assessment return – deadline 31 January following the end of the relevant tax year, so for 2019/2020 the deadline is 31 January 2021.
In some cases the pension scheme can pay the tax charge out of the pension benefits (called ‘scheme pays’) but even where this is the case, the AA charge must still be declared on your self assessment return.
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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.