‘Where do I go for advice on how best to look after my savings?’

As a Financial Adviser with over 20 years’ experience of customer service and financial advice with a major high street bank that was the original building society, this is a question on the tips of many customers lips.

Many of the high street banks have withdrawn their financial advice service since the introduction of RDR resulting in the redundancy of many of their advisers and the sudden withdrawal of their advice service from its high street branches. Subsequently, an enormous amount of knowledge has been lost to the customer that was passed on through their advice.

This service was perhaps taken for granted by customers as a free service, but this ability to sit down face to face with an adviser, and the advisers help to unravel the many complexities of savings and investing, was welcomed by many of the banks customers.

Suddenly, the banks seem to have abandoned these customers and their needs. If you are one of those investors with current holdings, who do you talk to now?

Are you offered a telephone contact, only to be told the person you eventually get through to the other end isn’t able to offer you advice, let alone sit down face to face with you!

Perhaps you have received a maturity pack with various tick box options. Is this how you wanted things to end up for your hard earned savings?!

Does this ring any bells for you? Have you had a policy mature, but have now got no one to talk things over with?

At a time of record low interest rates what are you meant to do, and where are you meant to go for help?

So many questions, it seems to be a minefield, and no way out!!

Can I trust my bank to look after me? Am I sure they really have my best interests at heart? Or am I looked upon as another sale to meet their over ambitious targets? How do they make you feel? Are you confident in them?

This I know, from what customers have expressed to me, are the concerns and feelings of many people about their bank to which these customers have been loyal to for many years.

Our savings, investments and pensions for each of us, is our individual financial security for ourselves and our families futures. Quite a big responsibility then!

Who do you turn to then?

My view is to seek that individual IFA, who will review with you regularly and offer you that confidence again that you are an individual not a statistic. Keep in touch with you when things get worrying or changes in our lives are happening. Someone who will sit with you face to face, look you in the eye, and listen and understand your concerns, and then offer clear advice to steer you through those difficult decisions and help guide a pathway for you, that you feel confident and comfortable with.

Someone who you can trust again! Someone who can make sense of it all for you. Someone who can understand your individual circumstances, as we are all different and have different ambitions and goals.

Has your bank turned its back on you?


Do you have money abroad?

For decades, some better-off investors have kept money in overseas banks – most popularly in Switzerland – that offered a high degree of discretion over the details. Whatever the reasons – perhaps for flexibility when travelling abroad, or simply to have money that is not subject to the vagaries of sterling’s fluctuations – this has made it difficult for the UK tax authorities to obtain their ‘pound of flesh’ on any income generated.

While it may appear a good idea for all of us to minimise the amount of tax we pay, this must be legitimate tax avoidance rather than tax evasion. Unfortunately, some investors may inadvertently have forgotten to include their overseas earnings in their UK tax declarations, or not even realised that it was necessary to do so.

Estimating that it is missing out on massive potential amounts of money, HM Revenue & Customs (HMRC) has therefore entered into an agreement with the Swiss banks that will enable it to collect money due to it.

The end of an era
Swiss banks are not suddenly going to start proactively telling UK authorities about those who hold accounts with them. It will, however, soon be possible for HMRC to ask them for information about specific UK taxpayers. This must be targeted at individuals; it will not be possible for the UK’s tax authorities to go on ‘fishing expeditions’ to see who they can catch, as the number of requests will be limited to 500 a year.

The new arrangement
Exception for UK-based Swiss banking customers who already co-operate fully with HMRC (these individuals exempt from the scheme) the accounts that UK customers hold with Swiss banks will, from May 2013, be subject to a new withholding tax on future investment income and capital gains.

The tax will be 48% on interest and 40% on dividends, while capital gains will be subject to tax at 27%.

It is hoped that the deal will bring in as much as £6 billion to the Treasury, which should go some way towards making good the money lost to the country through tax evasion (estimated at £14 billion in 2008).

What about past income and gains?
As part of the deal struck with the Swiss banks, a non-specific payment will be made by the banks to HMRC of £384 million to cover past liabilities and all historic liabilities prior to that date will thereby be considered as having effectively been paid.

In order to avoid ‘hot’ money being moved to alternative banking tax havens in advance of the new arrangement starting, the Swiss banks have agreed to tell HMRC should customers try to move money away from them.

Defending your money against tax
Perhaps the most effective (legal) way to shelter money against UK income and capital gains tax is by using tax-efficient schemes such as Individual Savings Accounts (ISAs) and pensions, although there are alternatives including premium bonds and – for those prepared to accept a far higher level of risk – Enterprise Investment Schemes and Venture Capital Trusts.

Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.


Going the way of Greece

Greek TempleWhile I have no desire to revisit issues discussed last week, it is worth noting that public service unions are stepping up their campaign for mass strikes (times 13th June) with 1.2 million Unison members said to be “on the road to industrial action”. It is unfortunate that within days the same newspaper was reporting that ratings agency Standard & Poor’s has downgraded its rating of Greece from “B” to “CCC” – worse than Ecuador and Pakistan.

Part of the reason that Greece is unable to repay its debt and is therefore unable to reassure markets that it will not default on at least part of its debt is that its trades unions came out on the streets, earlier this year – and are at it again now – to protest against austerity measures aimed at reduced public sector spending.

It couldn’t happen here …
Perhaps this should be seen as a warning to trades unionists here, but there has long been a feeling – or so it seems – that we are insulated from problems of this nature, because ours is a stronger economy to start with. This may be true to a limited extent, although what really protects us is the fact that our borrowing tends to be over longer timescales and we are not therefore due to renegotiate massive tranches of borrowing any time soon. But this situation will not help for ever; unless austerity measures work, we will end up like Greece – with out sovereign debt down-rated and therefore facing higher interest rates.

The economy is not strong and we have high inflation
With economic growth weak – at best – and inflation still well above target at 4.5% for the CPI (5.2% for the RPI) this is something that investors need to think about very carefully. The combination of high inflation and weak growth is a recipe for potential disaster. The Bank of England cannot afford to raise interest rates, for fear of slowing growth even more. This means that savers feel worse off. Putting money in the bank for three years will today generate little more than 3.8% gross – less than the rate of inflation – and the stockmarket seems unwilling to provide a viable alternative way of growing money in such a way that the additional risk is compensated for by higher returns.

For example, the FTSE100, which rose above 6,000 during 1999 and 2000 and then again between late 2006 and mid 2008 has more recently refused to lift itself above that level for more than a few weeks at a time, since it first re-emerged into ‘blue sky’ last Christmas. This makes investing for growth very difficult> Conversely, a few days ago, the index was some 10% below its long-term growth trend, so those predicting that it is overdue for a significant bounce-back may have a point.

What effect might strikes have?
It is not just the impact that strikes may have on the confidence that markets have in the coalition’s ability to hold a course than many external and politically disinterested commentators appear to agree is essential.

What really matters is that a sustained programme of strikes could slow economic growth even more. The only people to benefit from that could be the union-funded Labour party, which could then claim to have been correct in predicting that cuts were too fast, when the fact is that the only thing preventing recovery is the opposition of trades unionists to sensible austerity measures.

Unions have a legal and moral right to protest to protect their members; but governments must govern in the interests of everyone.

When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.


Budget Summary April 2011

Perhaps unsurprisingly, this year’s Budget focussed heavily on the need to grow the economy, rather than thinking about the usual round of giveaways. In fact the Budget was tax neutral and the only real giveaway – on fuel duty – is being paid for by the oil companies, provided it’s not reflected in future pump prices.

With GDP likely to fall to 1.7% this year, compared with previous estimates of 2.1%, and unemployment rising, the Chancellor aimed to help the private sector grow without affecting the need to reduce spending. Importantly, steps already taken are expected by the Office for Budget Responsibility to reduce public sector net borrowing, which is forecast to be £146bn this year, falling to £122bn next year, £101bn the year after, £70bn in 2013/14, then £46bn before coming down to £29bn in time for 2015/16.

This is vitally important to UK plc, because only by reducing borrowing can the interest rate we have to pay on sovereign debt remain low. The market interest rates we pay have fallen to 3.6%; by contrast those paid by Greece are 12.5%, Ireland almost 10%, and Portugal and Spain, 7% and 5%, respectively. If our interest repayments were to be forced up, this would dramatically reduce the rate of economic recovery, as the budget deficit would start to rise again without even more drastic – and potentially recessionary – action.

Key points – individuals
The main points in the Budget affecting individuals were as follows, many of which had already been announced:

  • Personal allowance increased by £1,000 to £7,475 this year and a further £630 to £8,105 from April 2012 – the level at which higher rate tax cuts in is correspondingly reduced to £35,000 for 2011/12;
  • ISA limit increased to £10,680 for 2011/12 (previously £10,200) and will increase in line with the Consumer Prices Index in future, as will other thresholds, with the exception of inheritance tax, which remains static until April 2015 before increasing – this will result in an element of fiscal drag, as long as RPI inflation is higher than CPI inflation;
  • The 50% income tax rate remains in place, but will be temporary;
  • The annual exemption for capital gains tax is increased to £10,600 (from £10,100) and Entrepreneurs’ Relief is increased to lifetime gains of £10 million;
  • Annual pension contribution limit will be a maximum of £50,000 from 6th April 2011 for everyone
  • The lifetime allowance will fall to £1.5 million from 6th April 2012 (currently £1.8 million);
  • Fuel duty escalator is abolished and 1p per litre cut from existing fuel duty – paid for by a new tax on oil companies;
  • Business car mileage allowance increased to 45p (previously 40p);
  • Inheritance tax will be reduced by 4 percentage points (from 40% to 36%) where 10% of the estate is left to charity; and
  • The state retirement age may in future be raised beyond its current target of 67, based on increasing life expectancy – this will help pay for the aspiration to replace the existing state pensions with a single non-means-tested amount of (about) £140 a week.


Key points – businesses
The main points in the Budget affecting businesses were as follows:

  • Corporation tax reduces by 2%, rather than 1%, to 26% from 2011/12 and will fall by a further 1% a year until it reaches 23%, far lower than in competitor countries such as the US and France;
  • 21 new enterprise zones are being created which will offer businesses tax benefits, including relief from business rates for up to five years;
    The small business business rate relief scheme is extended for a further year from 1st October 2011;
  • Business regulation is to be further simplified with the removal of more than 100 pages of code, saving businesses an estimated £350 million annually;
  • VAT threshold for registration increased by £3,000 to £73,000 and the deregistration limit by a similar amount to £68,000; and
  • The planning system is to be revised, in order to support sustainable development.

Other Budget provisions include reducing the time required for clinical trials and a simplification of the money laundering rules. Export promotion will be assisted with £100 million to be invested in Science funded by an enhanced bank levy, while smaller businesses are also to be helped with the R&D tax credit increased to 200% from April.

The construction sector will also be helped by the higher bank levy, as the government has given a £250 million commitment to use part of this to help 10,000 first-time buyers of new homes get on the housing ladder. The mortgage interest scheme is also to be extended for another year from January 2012.
Other issues
The Government announced last October that it would introduce new tax-advantaged accounts for saving for children, called Junior ISAs. All UK resident children aged under 18 who do not have a Child Trust Fund will be eligible, and the accounts are expected to be available from autumn 2011.

The Government proposes to abolish some reliefs, after 2012, and will consult on removing life assurance premium relief; and relief on life assurance premiums paid by employers under employer-financed retirement benefit schemes.

The ability of defined benefit pension schemes to contract-out of the Second State Pension (formerly SERPS) is to be scrapped as part of the move to a single tier state pension.

There will be a consultation on merging income tax and National Insurance to simplify the system for employers. There are likely to be issues relating to such matters as the tax relief available on pension contributions, because they cannot be set against NI; however, we are told that pension payments and other income will not be brought into the ambit of the NI element of any new combined structure.

All the foregoing comments will depend on passage of the Finance Bill through parliament and may be subject to change. No action should be taken without further advice being sought.

Getting professional help
Your pension and investment plans are important to you, so it is essential to seek professional advice before making any decision in respect of your personal or business finances. Please consult your usual financial adviser.

Nothing contained in the article should be considered as giving individual financial advice. The value of investments is not guaranteed and will fluctuate. You may get back less than you invest. Please note that there may be variations for those living in Scotland and Northern Ireland.

Sources: HM Treasury for Budget information


Unisex insurance rates

The European Court of Justice has finally committed an act of gross statistical ignorance and absurd financial vandalism in the name of sex equality. As flagged in our article 9th February 2011, the use of gender-specific rates in any form of insurance will be outlawed from 21st December 2012.

This means that women, particularly younger ones, will pay much more for their insurance (while young men are unlikely in reality to benefit from lower rates because insurance companies are already hiking up premiums and this will be a good excuse to do so even more). It also means that women will have to pay more for their life insurance.

Men will receive significantly lower annuities – some people have estimated that the fall could be as much as 8%, which may not sound much until you realise that this means losing one year’s income every twelve years.

Statistical ignorance
It is a simple matter to demonstrate that women, on average, have fewer motoring accidents than men. Insurance companies maintain detailed records that will confirm this in a matter of seconds. It is also a matter of record well known to the actuarial profession that women again, on average, live longer than men.

There is no body of evidence of which I am aware suggesting that men and women experience the same level of claims for motor accidents, mortality or morbidity (for health insurance) which could justify preventing insurance companies from using gender as a rating factor.

It would be ridiculous to ban insurance companies from charging young motorists more than older ones, or forcing them to charge older people the same as younger ones for life insurance. This is no different.

Financial vandalism
The trouble is that outlawing gender-based underwriting is driven not by logic or fairness, but by prejudice and a perverted idea that women are somehow being disadvantaged by gender-related underwriting. It is replacing actuarial science with voodoo; logic with thinking more appropriate to the 1970s sex war.

It is wanton destruction for its own sake – the ECJ has power and appears willing to use it in the face of logic.

What can we do?
For most people there is no chance of defending themselves against what is happening. It is not even clear that contracts entered into now – such as life insurance policies and annuities – will not have retrospectively to be unravelled in December 2012.

There are, however, two things we could do collectively.

First, we should all write to our MPs asking them to legislate against this illogical decision. Whether it would be practical for them to do so or not is uncertain, but it would certainly demonstrate that we are not prepared to be pushed about by unelected officials who clearly do not know – or perhaps do not care – what they are doing.

Secondly, we need establish whether it will be possible to institute legal proceedings against insurance companies for exercising sex discrimination against men, for having their annuities reduced simply on the basis of gender.

That would put the cat amongst the pigeons!

When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do contact Robert Bruce Associates for individual assistance.


Indexation of private pensions

Further to our recent article on the government’s plans to allow private sector pensions to increase in line with the lower CPI, instead of the RPI, the DWP eventually decided not to make the switch compulsory.

In any event, many industry experts had pointed out that this could be a nightmare for scheme trustees to implement, because they are legally obliged to represent members’ interests – and nobody could argue that the CPI is more appropriate than RPI; this was all about saving money for employers – and thereby leaving them with greater profits to be taxed.

Well, actually, Pensions Minister Steve Webb has argued that CPI is a “better fit with pensioners’ year by year experience of inflation” because it excludes mortgage costs. However, looking at how the respective indices are made up suggests that the weight given to housing costs generally does not reflect the fact that pensioners may still face mortgage costs, rent, potentially higher heating costs and, of course, council tax bills that are disproportionately higher, when compared with their incomes, than working families.

So this is good news?
In theory it is, but the Pension Protection Fund – the body that provides a safety net for members of defined benefit (final salary) company pensions schemes where the principal employer becomes insolvent while the pension fund is in deficit – has said that is slashing the levy on ‘solvent’ pension funds that pays for it by about a sixth in 2011/12.

The fund says that the reduction from the £720 million previously proposed for 2010/11 is a direct response to the expected move from the RPI to CPI as the basis for indexation and revaluation of PPF compensation. Now that this is not likely to happen – at least for some time – it will either have to reverse its decision or face a potential shortfall.

Does this affect you?

If you are a member of a defined benefit pension scheme, there is good news and bad news. On the positive side, your employer still has to underwrite your future pension increasing inline with the RPI (up to a maximum rate of 5% (although the Pensions Act 2008 provides for a cut to 2.5%); it will also be facing a smaller levy than might have been the case. On the downside, the protection you enjoy from the PPF is weaker than it was, because of potential under-funding.

What should you do?
While we would not recommend a mass exodus from final salary schemes – when they work properly, they can be the gold standard in pensions – members should be thinking about their options, including making extra pension contributions outside the scheme in order to ensure that they are not adversely affected by whatever may happen to the scheme on future.

When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do contact Robert Bruce Associates for individual assistance.