PK Partnership Budget Savings and Pensions

Pensions: Annuity options for long-life planning

Life expectancy has stopped increasing, according to a report from the Office for National Statistics (ONS) issued in September, but we are still living longer than ever before.

Between 2000 and 2010, average life expectancy at age 65 rose by 2.4 years for men and by 1.8 years for women. However, since 2010 improvements have slowed markedly and the latest figures from the ONS show almost no change from those issued a year ago. On average, a man aged 65 in 2015- 2017 could expect to live for another 18.6 years, while a woman aged 65 could survive for a further 20.9 years. The important word here is ‘average’. Other calculations by the ONS suggest that a man aged 65 now has a one-in-four chance of living for another 29 years, to 94, while a woman has the same chance of living another 31 years, to 96. There is a 7% chance that a man aged 65 now could survive to 100, and an 11% chance for a woman.

Such long terms are challenging if you are considering how to invest your pension fund to provide an income throughout your retirement.

THE ANNUITY OPTION

For those with a pension fund to invest, taking out an annuity is the only way to guarantee income for however long you live. However, since the introduction of pension flexibility, annuities have fallen out of favour. The latest FCA figures suggest over five times as much money is placed in income drawdown as annuities, despite the investment risks and ongoing management involved in drawdown.

While drawdown does have major benefits in many circumstances, the important role of annuities in providing secure income is in danger of being ignored. Annuity income can be structured in a variety of ways to incorporate automatic increases – for instance in line with inflation – minimum payment terms and/or continuing until the second death of you and your partner.

Importantly, once the framework is chosen, there are normally no future changes. That gives security but makes the initial choice of annuity design all the more important.

If you would like more information on annuities, perhaps to provide a core level of retirement income alongside drawdown, please talk to us.

We can supply guidance based on your health and lifestyle circumstances. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

 

Image courtesy of Flickr_Pink Sherbert Photography

Headline increases and frozen thresholds in the 2018 Budget

The last Budget before Brexit proved to be more interesting than expected. The 2018 Budget was delivered five months before the Brexit deadline and the start of the 2019/20 tax year. It threatened to be an interim affair, as decisions announced in October risk appearing seriously out of date by the time April arrives. In the event, Mr Hammond chose to be more radical than expected, declaring that, “austerity is coming to an end, but discipline will remain”.

The main points of interest to emerge were:

- On 6 April 2019, the personal allowance will rise by £650 to £12,500, reaching the target originally set for 2020/21 in the 2017 Conservative manifesto.

- The basic rate band will increase by £3,000 to £37,500, making the higher rate threshold (personal allowance + basic rate band)

- £50,000. This also matches the 2020/21 target.

- Both the personal allowance and higher rate threshold will be frozen for 2020/21. They will rise in line with CPI inflation from 2021/22 onwards.

- Despite rumours, there were no changes to inheritance tax (IHT), which means the residence nil rate band rises to £150,000 on 6 April 2019. However, an overhaul of IHT could still emerge when Mr Hammond presents his Spring Statement.

- The pension lifetime allowance will increase to £1,055,000 for 2019/20, in line with CPI annual inflation to September 2018. There were no other adjustments to pension allowances. The capital gains tax annual exempt amount will increase to £12,000, in line with inflation, for 2019/20.

- There were minor technical changes to EIS funds, after the many changes to venture capital trusts and enterprise investment schemes in the 2017 Budget.

The adult ISA contribution limit for 2019/20 was left unchanged at £20,000, although the limit for Junior ISAs did increase £108 to £4,368.

FROZEN THRESHOLDS

Many tax rates and thresholds were frozen, which offers a subtle way of raising additional revenue to Chancellors. This will be necessary as an examination of the spending commitments given in the Budget reveals that over £27.6 billion of a total £30.6 billion will be spent on the NHS by 2023/24.

For example, the main IHT nil rate band stays at £325,000, the threshold set back in 2009. The starting points for additional rate tax (£150,000) and the phasing out of the personal allowance (£100,000) also haven’t increased since their introduction in April 2010.

Combined with the increase in the personal allowance, these frozen thresholds mean that from April the band of income potentially subject to 60% marginal tax (currently 61.5% in Scotland) covers half of the income between the £100,000 taper starting point and the £150,000 threshold for additional rate tax (45% or 46% in Scotland).

THE HIGHER RATE THRESHOLD

The increase to the higher rate threshold for 2019/20 has three knock-on effects:

- The upper earnings/profits limit for full rate national insurance contributions rises to £50,000, effectively clawing back nearly 40% of your income tax saving if you are an employee with earnings above £50,000.

- The income ceiling for pension automatic enrolment contributions could increase to £50,000, £3,650 above the current limit. Such a rise would coincide with the increase in minimum total contributions from 5% to 8% of ‘band earnings’ – £6,032–£46,350 in 2018/19.

- The £50,000 income threshold for the high income child benefit charge is unchanged for 2019/20, meaning it will apply once higher rate tax starts to be paid.

If you would like to discuss how the Budget affects you, please get in touch.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

 

PK Partnership cost of financial advice

Make your Will the right way…

Like all legal documents, your will must meet certain requirements.

Firstly, a will must be signed and witnessed to be valid. You must have two witnesses who can’t be beneficiaries or be married to a beneficiary.

If your circumstances change – perhaps selling a business or having a child – you will need to update your will. These changes also need to be signed and witnessed.

If you marry, any previous will you have made will usually be invalid, so you must make a new one. Remember, unmarried partners don’t automatically inherit, and stepchildren won’t automatically be included in provisions for ‘children’.

If you are excluding a close family member, make it clear why you are doing this and what you want done with the money. If your reasons aren’t clear the individual could contest your will in the courts.

You should name at least two executors to sort out your financial affairs after you die. Executors can be beneficiaries, such as relatives or friends, or you could appoint a solicitor instead. If you don’t do this the probate court will appoint an executor on your behalf.

The Financial Conduct Authority does not regulate will writing, trusts and some forms of estate planning. This article is for general information purposes only. Please speak to a will writing professional for advice.

 

Image courtesy of Flickr_Pink Sherbert Photography

Lessons from a record bull run

The US stock market recorded its longest ever bull run in August 2018.

A new record was set for the Standard & Poor’s 500 (S&P 500) index on 22 August 2018, when the market reached the 3,453rd day of a run that started on 9 March 2009.

The index has also achieved numerous all-time highs as part of this run.

Bull markets are typically defined as periods starting with a market low point and ending when the relevant index falls by more than 20% – and they rarely last as long as this.

The S&P 500’s current bull market started when the index hit the memorable low of 666 during March 2009. By 22 August 2018 the Index was at 2,871, a 331% increase from the depths of the

financial crisis and an annual growth rate of 16.6%, before any dividends are considered.

Although the Dow Jones Industrial Average (DJIA) is often quoted as the performance measure of the US stock market, investment professionals prefer the S&P 500 as a benchmark. As its name suggests, the S&P 500 has 500 constituent companies, whereas the DJIA has just 30.

Over the same period, the UK benchmark the FTSE 100 roughly doubled in value. However, for UK-based investors, returns from the US could be marginally greater than those implied by the S&P 500 because the pound was at $1.376 on 9 March 2009, whereas it was trading at only $1.291 by 22 August 2018.

INVESTMENT STRATEGIES

The nine years of a US bull market offer investors some lessons:

- International diversification of investment can deliver rewards. UK-based investors can pay the price of favouring funds investing in their home country. While many of the UK leading companies are multinational, no UK-listed companies have matched the performance of the likes of Apple or Facebook.

- Currency can play a part in adding to returns – or reducing them. Changes in currency valuations impact on both foreign-listed shares and UK-listed shares of companies with overseas earnings.

- Timing entry and exits to a market can be difficult. As the graph shows, US markets have seen a few small dips since 2009.

Exploiting them successfully by selling at the high and buying back after the dip may appear easy – but only with hindsight.

Staying invested and ignoring the market ‘noise’ has proved to be a sensible strategy.

Despite the success, the long-term rise in US shares has been labelled the ‘most hated bull market’ in history. Almost since its start in 2009, many market watchers have predicted its demise. So far, they have all been proven wrong.

If you want to review the global spread of your investments, why not ask us to calculate a geographical breakdown of your portfolio, drilling down into each fund’s holdings?

The value of your investments and the income from them can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

 

Image courtesy of Flickr_Sheila Sund

HMRC Focus on Inheritance Tax Returns

HMRC investigated almost one in four inheritance tax (IHT) returns in 2017/18, according to research published in September by UHY Hacker Young.

HMRC can impose penalties of up to 100% of the tax due on UK estates that underpay. These penalties apply even though it is often a family member who acts as executor after a relative has died.

Executors have a legal duty to ensure all information is correct when applying for probate or filing an IHT return.

Particular care should be taken to ensure property values reflect current market conditions, and that assets are not omitted from the return. Not all estates will be liable for IHT. The rules can be complex, so seek advice if necessary.

 

Image courtesy of John&Fish, Flickr

Getting married – doing the rights thing

There are many misconceptions around the rights of the 3.3 million unmarried couple families in the UK. The government has recently announced that heterosexual couples will be able to enter into civil partnerships in England and Wales, but there will still be many unmarried couples who see no advantage in a marriage or civil partnership. However, it is worth understanding some of the laws relating to co-habitation.

First, there is no such thing as a ‘common-law’ marriage. The nearest legal status, ‘irregular marriage’, only applied under Scottish law, and it was mostly abolished in 2006.

This means that transfers of investments between unmarried partners could be subject to capital gains tax, which would not apply to transfers between spouses living together. Yet, at the same time, the government can treat unmarried couples as if they were married for some tax and benefit rules such as the high income child benefit charge.

IN CASE OF THE WORST

Some severe consequences of not marrying are revealed at the most difficult times. If an unmarried couple splits up, an ex-partner has no right to claim spousal maintenance or share of the other’s pension(s). They can only make a claim in respect of solely owned property if they can show they have made a financial contribution or have carried out repairs or improvements, which may not be the case if the non-owner stayed at home to care for children during the time they were together.

If an unmarried partner dies without leaving a will, the survivor will only automatically inherit property the couple owned as joint tenants. If the surviving partner does inherit under their partner’s will – including automatic transfers of jointly owned property – they could incur inheritance tax, even if it is their home. Married couples can use the spousal exemption to transfer any unused nil rate band and residence nil rate band to reduce IHT.

Surviving unmarried partners also won’t receive the state bereavement support payment, normally paid to widow(ers). A recent Supreme Court judgement questioned this practice, but as yet the rules have not changed.

A different approach to financial planning may be needed if you have not married your partner. To understand what that means for you and your partner, please get in touch.

 

PK Partnership cost of financial advice

The ski season is here!

The skiing season is here and many people will be heading to the slopes this winter. Skiing accidents, however, are the most common claim on Winter Sports insurance. Even experienced skiers and snowboarders can be involved in collisions or accidents.

Top tips for staying safe on the slopes

1. Know your limits – ski or snowboard to your skill level

2.Wear protective headgear or a helmet – we would advise to make wearing a helmet mandatory.

3.Make sure your skiing or boarding equipment is in good order. It should fit your height, weight and skill level.

4.Take lessons if you’ve never skied before. If you haven’t been on the Piste for a while, a lesson or two will polish up your skills.

5.Never go off-piste unless you are authorised to do so by the resort. On many insurance policies, you will not be covered for off-piste skiing unless you’re accompanied by a qualified guide.

6.Respect the mountain and make sure you obey all warning signs – especially during avalanche season.

7. Remember that skiers or boarders in front or below you on the Piste have right of way.

8. Don’t drink and ski. Excess alcohol will slow your reactions and affect your observation and balance!

9. Carry a fully charged mobile phone with you.

10. Always take out the right winter sports travel insurance. Make sure your travel insurance suits your needs before you buy it and keep your travel insurance medical emergency helpline number and your policy number to hand.

Many private client insurance policies will cover winter sports but it’s always a good idea to check with your insurance broker what you’re covered for, such as age limits and impaired medical circumstances. Please contact us if you require specialist travel or ski chalet insurance.

 

Diwali Insurance PK Partnership

Wishing you and your family a Happy Diwali

Wishing you and your family a very Happy Diwali! May the lights guide you and happiness never leave your side.

…but please ensure your jewellery is correctly insured!

We don’t’ want to put a negative on this wonderful celebration but Asian Gold can be a particular target thieves around Diwali as communities get together to celebrate, leaving homes empty.

Gold is highly desirable to criminals due to the speed that it can be exchanged for large sums of cash.

Anjana Pankhania, Private Clients Manager at PK Partnership said, “with the majority of banks no longer storing jewellery, people have little option but to keep their items at home but they are not always adequately protected. This is not by any stretch just affecting high net worth individuals and we would recommend that families check their current insurance limits. With jewellery being handed down through generations of families it is often hard to prove the value of items as people do not have up to date valuation certificates.”

Recommended steps include keeping all jewellery and other valuables in a safety deposit box, high value gold and jewellery at home, hidden and discreet in public, being vigilant during holidays, weddings and events, and ensuring all jewellery is digitally recorded and insured.

In a house there are only so many places one can hide jewellery and thieves know the obvious places, typically under the bed and between the floor boards.

Top tips to ensure your jewellery is correctly insured

1. Ensure that there is adequate safe protection in your home

2. Have a professional valuation for all high value items

3. Photograph all items of jewellery

4. Avoid wearing an accumulation of high-value pieces in areas or places that you don’t know

For more information please contact Anjana Pankhania at PK Partnership Private Clients Division on 020 8681 4994.

 

Image Courtesy of Flickr_Ishan Manjrekar

Budget Snapshot 2018

The Budget statement was delivered today at 3.30pm by the Chancellor of the Exchequer, Philip Hammond.

This is the first Monday Budget since 1962, the year Ipswich Town were Football League Champions for the only time.

The Budget is a report presented each year by the Chancellor of the Exchequer to Parliament and the nation. The primary role of the Budget is to control public finances by setting out how much tax the Government will collect, how much the Government will borrow and how much the Government will spend. The Budget Responsibility and National Audit Act 2011 requires the Government to produce a Budget Report (which is the formal name for the Budget) for each financial year. The Charter for Budget Responsibility sets out what the Budget Report must cover.

When the Government publishes the Budget, the Chancellor gives a speech to Parliament in which he sets out the key decisions on tax, borrowing and spending, and his reasons for taking those decisions. This speech is known as the Budget Statement.

The official forecast on which the Chancellor bases the Government’s Budget is provided by the Office for Budget Responsibility (OBR). The Budget Responsibility and National Audit Act 2011 requires the OBR to publish two economic and fiscal forecasts for each financial year, including one published at the Budget. The OBR’s duty is to examine and report on the sustainability of the public finances and it is required to do so objectively, transparently and impartially.

PLEASE NOTE: This snapshot is not intended as an in-depth analysis of the Chancellor’s speech (we will leave that to the industry commentators and experts) but we hope this brief summary helps you gain a quick grasp on the key points delivered by the Chancellor from the dispatch box.

More details are available from HM Treasury website.

 

Main Headlines from the Speech

Introduction

This Budget is presented as the ‘era of austerity coming to an end’. If the fiscal outlook changes, that is if there is no Brexit deal, the Spring Statement will be upgraded to a Budget statement.

 

Forecasts

Growth 2019: 1.6%, up from 1.3% in the spring statement

2020: 1.4%, up from 1.3% in the spring statement

2021: 1.4%, matching 1.4% in the spring statement

2022: 1.5%, matching 1.5% in the spring statement

2023: 1.6% (new forecast)

Forecast for borrowing to be £11.6bn lower in 2018/2019 than forecast at the Spring Statement equivalent to 1.2% of GDP.

 

Borrowing forecast

£31.8bn in 2019/2020

£26.7bn in 2020/2021

£23.8bn in 2021/2022

£20.8bn in 2022/2023

£19.8bn in 2023/2024

 

Debt forecast

82.8% in 2019/2020

79.7% in 2020/2021

75.7% in 2021/2022

75.0% in 2022/2023

74.1% in 2023/2024

 

Taxation / Welfare / Finance

  • Personal allowance in 2019/2020: £12,500
  • Higher rate threshold in 2019/2020: £50,000
  • Stamp duty to be abolished for first-time buyers of shared-ownership homes for properties valued up to £500,000.
  • Private residence relief: Lettings relief to be limited
  • Entrepreneur’s relief: qualifying period to be extended to 2 years
  • IR35 rules to be extended to the private sector from April 2020 and will only apply them to large and medium-sized businesses
  • UK digital services tax from April 2020. Not to be on start-ups
  • HMRC to become preferred creditor in insolvencies.
  • Tax on plastic packaging containing less than 30% recyclable plastic.
  • Universal credit: all work allowances to increase by £1000.
  • Extra £1bn for universal credit over five years to fund extra protections for claimants moving over to UC.
  • National Minimum Wage: £8.21 up from £7.83 from April 2019

 

Housing / Infrastructure / Transport

  • £420m to be made available immediately to help councils tackle pot holes
  • No new PFI schemes £695m initiative to help small firms hire apprentices
  • £675m future high street
  • Business rates to be cut by one third for firms with a rateable value of less than £50,000 until next revaluation

 

Health / Education / Child Welfare

  • NHS 10-year plan to include a new NHS crisis service. Children and young people’s crisis teams will be available in all parts of the country
  • Mental health funding up by more than £2 billion by 2023/2024
  • Green paper on the future of social care to be published soon £400m fund to help schools buy ‘extras’ they need.

 

Excise Duty

  • Fuel duty frozen
  • Tobacco duty increased by inflation plus 2.5%
  • Beer and cider duty frozen
  • Duty on spirits frozen
  • Wine duty increased by inflation
  • No increase to air passenger duty on short haul flights

 

Infographic: A look back at arranging insurance for this year’s Gumball 3000 rally

PK Partnership look back at the journey of this year’s Gumball 3000 rally.

As the official insurance partner for the annual Gumball 3000 rally, which started in London and went through Europe and on to the finish line in Tokyo, we look at some key facts from the event that attracted celebrities such as David Hasselhoff and Usher. An eclectic mix of vehicles were entered into the rally with the highest insured vehicle valued at £1.5m.

Gumball_3000_Rally_Insurance_PK_Partnership_2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Click here to read about our logistical challenges.

 

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