Neston & Beyond: Budget 2015 Special – How was it for you?

Please be assured, despite my having no lunch today,  no members of the production team where harmed during the writing of this article.

I do wish the press & TV news would just wait until the announcements are made, rather than this childish behaviour of running around speculating as to what we’re going to get, like 5 a year old at  Christmas. Anyway…

There he stood, Guy of Osborne, master of the little red case with the weight of the breath of 303 Tory M.P.s gently pushing at his back, soon to have their employment fates decided in the upcoming election.

Summary.
Some almost funny quips directed at Ed Milliband, some interesting, and dare I say exciting news about savings, increased taxation for the wealthy via the reduced Lifetime Allowance and less taxation for the rest and the threat of a government sponsored IT project to do away with annual tax returns. Must be election year. The news & press will warble on about the big popular announcements, but as ever, I would like to explore with you if I may one of the announcements that seemed to go with neither cheers from the tory side, nor brays from the labour side.

For completeness, the headlines are recorded below, but what about this increased tax for the wealthy?

The reason this was met with silence I suspect is because very few in the house probably understood it or the implications of the announcement. I am sure civil service union heads up and down the land however will soon be boiling with rage.

Why? Well let me explain. If you have a large pension pot, if any benefits you take are derived from a value above the ‘Lifetime Allowance’ there are additional taxes to pay. An extra 25% income tax if you take income, or a 55% tax charge if you take a lump sum. Why will unions be upset? Well if you are a long standing senior public sector worker, whether you are a head teacher on £100,000 or more per annum, or a Council executive, NHS manager Central government mandarin and the like, with higher salaries than most, it is pretty easy to breach the lifetime allowance and incur the tax charges.

An example.
Bernard Appleby is a public sector employee with a salary of £105,000 per annum. He has been a member of the pension scheme throughout his career, and sensibly bought added years so he might attain the full forty years worth of service in to maximise his pension. His annual pension on retirement would be £52,500 plus a lump sum of £157,500*. All right for some. However, if we value these benefits for ‘Lifetime Allowance’ then the figure is £1,207,500, or 20.75% above the new £1m lifetime allowance. So, in addition to paying income tax on his pension like any mere mortal, he will also have to pay an extra £2,723 annual income tax, plus a bite out of his lump sum of just under £18,000. (*There are different scheme specific calculations but the outcome is the same.)

Please check ‘The Guardian’ tomorrow* for further details.

John.

*Other newspapers are available.

Spring Budget 2015 Headlines.

ISA ‘freedom’. Borrowing from your own ISA if you like, but be able to pay it back. Instead of being able to put up to £15,240 in the 2015-2016 tax year into an ISA in total, savers can take out their money and put it back in within the same year, without losing their ISA tax entitlement. The only condition is that the repayment is made in the same financial year as the withdrawal.

Help to Buy – ISA. Similar to its ‘Help to Buy’ programme for homebuyers, the government has announced that savers will be able to open an ISA, save up to £200 a month towards their first home, and the government will boost it by 25%. This is the equivalent of a £50 bonus for every £200 people save, up to £3,000.

Personal allowance. Much pre-released, the tax-free personal allowance would rise to £10,800 in 2016-2017, and £11,000 the year after. The government calculates the increases to the personal allowance from £6,475 in 2010 to £11,000 in 2017-2018 will save a typical taxpayer £905 per year.

Savings allowance. From April 2016, a tax-free allowance of £1,000 (or £500 for higher rate taxpayers) will be introduced for the interest that people earn on savings.
Pension access. Pensioners will be given the freedom to sell their annuity for a cash lump sum. Currently, people who have bought an annuity are unable to sell it without having to pay at least 55% tax on it. From April 2016, the tax rules will change so that people who already have income from an annuity can sell that when they choose and will pay their usual rate of tax they pay on income, instead of 55%.

Abolished: the annual tax return. Millions will have the information HMRC needs automatically uploaded into new digital tax accounts. Please spare us a government IT project.

National Insurance reductions / relief’s for younger workers and abolition of ‘class 2’ national insurance contributions which is paid by the self employed. Single tier taxation draws closer methinks.

Disclaimer: ‘Neston & Beyond’ and similar articles written by me are my personal views and the sole aim is to where possible inform, sometimes amuse, occasionally entertain and hopefully, if all else fails, at least be interesting. In no way can any of what you read here be taken as advice of any form, be it parental, lyrical, electrical, prognosticative, desirable, ichthyological, astronomical, factual, governmental, statistical, financial, legal, marital, occupational, political, philatelogical, sociological, incidental, accidental, fiscal, zoological physical, biological, medical, dental, accidental, haberdasherial, cosmological, or tangential.

Neston & Beyond: The Guided Missive Set to Explode.

Since a vote hungry Chancellor George Osborne declared changes to how pensions can be taken after April 6th 2015, there are some who believe enthusiasm for pensions has increased. At a stretch, and I do mean a stretch, it might even be said pensions have become interesting. Funny thing is, as with most politicians, What the Chancellor says, and what he does, are very different. The big quote from the budget speech was that every person over age 55 with a pension pot would receive free impartial independent advice. Well, he lied, or to be kinder, he mis-spoke, but not of course to boost political capital.

What was written down, but not spoken was all would be able to access free impartial independent guidance, but let’s be honest, few outside the heady world of financial regulation know there is a significant difference between the two. Clearly the chancellor doesn’t, so why should you?

Authorised and regulated ‘advice’ means a person, i.e. a human being, qualified, authorised, regulated, and approved by the Financial Conduct Authority. It helps if they are not in gaol / jail (delete as you wish), speak your language, and have arrangements in place to compensate you if it goes wrong. Ideally, they should also be pleasant and polite fellows, of any gender, with the ability to put in writing, free of gobbledegook, what you should do, what you should not do, what you could have done and why you shouldn’t do it.

‘Guidance’ means a person, or a booklet, or a online interface or ‘app’ to use the modern parlance who will read to you out loud what your pension provider will already have written down for you to read, and then leave you to it. If reading is difficult for you, then this is a valuable service.

In a similar vein to “if you need to ask the price you cannot afford it”, then if you think you need guidance, realistically you probably need advice. Problem is, advice costs money, but guidance resulting in the wrong decision will likely be far more costly. Difference is, you will only have yourself to blame.

Remember, free advice is usually worth what you paid for it, so how does one go about getting ‘guidance’?

The chancellor wants to be seen to be in league with a certain voting demographic against the nasty mean financial services companies so it is not surprising one source is set up by the government, but funded not least by nasty mean financial services companies. Called Pension Wise, it will be available online, over the phone or face-to-face at a local Citizens Advice Bureau. This assumes of course your local Citizens Advice Bureau has not been shut down because of a lack of government funding. The decision you make is still on your own head/wallet.

Pension Wise

The second source is also set up by the government, but funded entirely by nasty mean financial services companies. ‘Money Advice Service’ is not an advice service, but an

information and sometimes ‘guidance’ service set up by Government but entirely funded by a mandatory levy on financial advisers and financial services companies. You see, even the regulator gets confused; because I offer advice, I have to be approved, authorised, qualified, regulated, tipped upside down regularly and inspected, but the ‘Money Advice Service’… No. The decision you make is still on your own head/wallet.

Money Advice Service

A third source is the providers of your pension. If you call and ask to access, draw from or take an annuity from your pension savings, they will be required to question you, and point out the possible failings in the course of action you choose. The decision you make is still on your own head/wallet.

Finally, there is advice, but in the wake of the above, a certain definition does not fall readily to my keyboard. I would not say all paid for advice is worth it, I mean look at how the government was advised on the Royal Mail giveaway, sorry, I mean sell off, and they certainly paid for that twice over.

I suppose all I can say is as you would with any other high value decision. Ask around, shop around maybe, and be certain you understand what you are paying, and what you are getting in return.

Bye for now.

John

Disclaimer: ‘Neston & Beyond’ and similar articles written by me are my personal views and the sole aim is to where possible inform, sometimes amuse, occasionally entertain and hopefully, if all else fails, at least be interesting. In no way can any of what you read here be taken as advice of any form, be it desirable, ichthyological, astronomical, factual, governmental, statistical, financial, legal, marital, occupational, political, philatelogical, sociological, incidental, accidental, fiscal, zoological physical, biological, medical, dental, accidental, haberdasherial, cosmological, or tangential.