The rise of the silver divorcees

Fewer people may be getting divorced in England and Wales each year, but the average age of couples ending their marriages has hit record highs – and generally the older a couple are, the more complex the financial settlements.

The good news, according to the Office for National Statistics (ONS), is that 2015 saw a decrease in the number of divorces by 9% to 101,055. Not only is there a falling divorce rate, the statistics also reveal that marriages are lasting longer. A recent article in The Telegraph noted that the average age of marriage for men has risen by a decade since 1970 from 23 and a half to 33 and a quarter in 2014, and women’s has increased from 21.8 to 31.3.

Despite these trends, the average age of divorce has risen to just 45 years for men and just under 44 years for women – an all-time high – with couples marrying young more likely to split. If a couple are in their mid-forties and above, it’s likely they’ll have larger pension pots and more complex financial affairs to wade through. Private pensions top the list as the single biggest component of the UK’s £11 trillion household wealth, accounting for 40% of this figure.

According to Aviva, private pension assets could total about £120,000 in combined private pension assets if the couple were to divorce in their 50s (assuming they married when aged 30). This accumulated wealth will be a critical factor in the divorce settlement and will surely affect the financial futures of both parties.

You may have clients either going through a divorce at the moment, contemplating it in the future or managing their finances and re-building their lives after the split. Either way, negotiating the financial fallout from a divorce in mid or later life can be a tricky business – one which is likely to require patience and tact by the bucket load.

Election-watch: the business of politics

The old joke used to be that the Church of England was the Conservative Party at prayer. Almost as true, the Confederation of British Industry (CBI) was once the Conservative Party at work. No longer: “Theresa May’s Conservatives” – the manifesto’s brand – has retreated from business. The party’s proposals include:

• A corporation tax rate of 17% in 2020 (already in legislation).
• A simplification of the tax system which “…remains too complicated”.
• “…longer-term reforms” to, and “a full review”, of, the business rates system, including an exploration of “self-assessments in the valuation process”.
• Action “to ensure that the interests of employees on traditional contracts, the self-employed and those people working in the gig economy are all properly protected”.
• Giving the Pensions Regulator “the right to scrutinise, clear with conditions or in extreme cases stop mergers and, takeovers or large financial commitments…” There will also be an “update (to) the rules that govern mergers and takeovers, with a focus on overseas takeovers.
• Executive pay packages will be “subject to strict annual votes by shareholders and listed companies will have to publish the ratio of executive pay to broader UK workforce pay”.
• A doubling of the Immigration Skills Charge to £2,000 a year, alongside widespread tightening of immigration controls. The CBI labels the immigration approach as the manifesto’s “Achilles’ heel”.

Labour’s business proposals are more immigration-friendly, but other aspects are not:

• A staged increase in corporation tax to 26% (21% small profits rate) by 2020/21.
• An “efficiency review” of corporation tax reliefs, expected to yield £3.8 billion a year.
• “A package of reforms to business rates…exempting new investment in plant and machinery”. Longer term, there would be a review of “the entire business rates system” and possibly a land value tax.
• A new “Ministry of Labour”, the strengthening workers’ rights and empowerment of their trade unions.
• Amending the takeover rules “to ensure that businesses identified as being systemically important have a clear plan in place to protect workers and pensioners” on takeover.
• Introducing an “Excessive Pay Levy”, payable by employers, on total compensation exceeding £330,000.

The Liberal Democrats’ proposals are a blend of the other two parties’ ideas, including:

• Corporation tax would rise to 20%, backed up with “tough action against corporate tax evasion and avoidance”.
• A review of business rates and their possible replacement with a Land Value Tax.
• “Modernise employment rights to make them fit for the age of the ‘gig economy’.
• A requirement for “binding and public votes of board members on executive pay policies”.

If all that sounds unappetising from a business viewpoint, then remember, another truism: businesses do not have a vote…

Election-watch: pensions, pensioners and politics

Politicians worry about pensioners. One major reason why was highlighted in a report from a House of Commons committeee in late 2014 on voter turnout in the 2010 election. The report estimated that 44% of people aged 18-24 voted, overall turnout was 65.1%, but 75% of those aged over 55 voted. On those figures, it is surprising that the Conservatives’ 2017 pension proposals were less generous than previously:

• The triple lock for basic and new state pension increases would continue to 2020 and then be replaced by a double lock, removing the current 2.5% floor.
• Winter fuel payments would be means-tested, although how was not detailed. All other pensioner benefits would be maintained “for the duration of this parliament”.
• On social care in England, the manifesto proposed four reforms:

1. To raise the upper capital limit for a full contribution to costs to £100,000 (no comment was made about the £14,250 lower limit).
2. To include the value of the home when means-testing for in-home care.
3. To allow payments for in-home care to be deferred until death.
4. To drop the £72,000 Dilnot cap on total personal contributions, “which mostly benefited a small number of wealthier people”. However, four days after the manifesto’s publication, an unspecified cap was back on the agenda.

Labour was more generous in its manifesto plans:

• The triple lock would be guaranteed “throughout the next Parliament”.
• Winter fuel payment and free bus passes would be “guaranteed as universal benefits”.
• Pension Credit would be extended to women caught by state pension age (SPA) changes and “further transitional options” would be explored.
• A(nother) commission would be established to review SPA rises beyond 66.
• On social care, there would be an unspecified maximum on personal contribution and an (unspecified) capital limit increase. Options for funding include “wealth taxes, an employer care contribution or a new social care levy.

The Liberal Democrats’ manifesto plans sit between the Conservatives and Labour:

• The triple lock would remain “for the next parliament”.
• The Winter Fuel Payment would be withdrawn from higher rate taxpayers, a move worth only about £100 million a year. Bus passes would survive.
• The party would “finish the job of implementing a cap on the cost of social care”.

In practice, maintaining the pension triple lock will not cost much for the next few years because of higher inflation. As for the other ideas, suffice to say there seems to be a convenient lack of detail…

 

Zero hours contracts – the rights versus flexibility battleground

It’s been called the ‘gig economy’, which sounds almost fun and for hundreds of thousands of workers it’s a way of life. But even before the election, zero hours contracts were a political issue pitting flexibility against workers’ rights. A government-commissioned review into employment practices is expected to state that workers on zero-hours contracts should be entitled to request guaranteed hours.

The right to ask for fixed hours is supported by the Confederation of British Industry (CBI), which represents employers. If this is implemented, it would mirror the rights of all employees to request flexible working, which was introduced in 2014. The CBI said that all employees should receive a written statement that sets out the key terms of their employment and their rights.

Detrimental effects

Of course, zero hour contracts may actually suit some workers if flexibility is what they’re looking for. But they could run into problems when it comes to gaining access to some financial products such as mortgages, credit cards or even mobile phone contracts.

Over 900,000 people are on zero-hours contracts across sectors in the UK such as large retailers, restaurants and hotels. They are subsequently not entitled to guaranteed working hours or sick pay and their employment status is likely to have a detrimental effect on their pension and future financial planning. Often, employees on zero-hours contracts will be juggling several jobs, according to the Office for National Statistics.

For those who believe that zero-hours contracts are exploitative, this proposal is likely to be welcomed. However, it should be stressed that while workers have the right to ask, the employers have no obligation to grant them guaranteed hours.

If your clients employ staff on such contracts, it’s worth keeping them posted on the outcome of this review in mid to late June.

Election-watch: the manifesto truth about income tax

Income tax and national insurance contributions (NICs) – the income tax that dare not speak its name – are major revenue raisers for governments of all hues. Together they will produce £305bn for the Exchequer in 2017/18, 44% of all tax revenue, according to the Office for Budget Responsibility’s March 2017 estimates.

That proportion explains when economists were so critical of the Conservatives’ pledge at the 2015 election to freeze rates for income tax and NICs (and VAT). Locking down the major source of government cash flow is overly-constraining, as Mr Hammond so recently discovered – possibly at the cost of his post-election occupancy of 11 Downing Street.

Conservatives

For the 2017 election, the Conservatives have made no fresh manifesto promises on either tax. With the Taylor review on modern employment practices due to report soon, there is an understandable reluctance to revisit the spring Budget’s class 4 problems. On income tax, the oft-repeated goals of a £12,500 personal allowance and £50,000 higher rate tax threshold “by 2020” (at least for non-Scots) remain, but that is all. Keeping tax “as low as possible” receives several mentions, but who would promise anything different?

Labour

Labour does not, at least for the roughly 95% of income taxpayers with income under £80,000. The unlucky 5% – about 1.5 million – would face a 45% band starting at £80,000 (rather than the current £150,000) and a new 50% top rate beginning at £123,000. That odd number is presumably to avoid hitting the band between £100,000 and £123,000 where the phasing out of the personal allowance increases the effective marginal tax rate by a half.

In its “Funding Britain’s Future” document, separate from the manifesto, Labour says these changes would raise £6.4bn a year, less an unspecified adjustment for “… the inherent difficulty of forecast receipts from new taxes, bands and thresholds”. The manifesto says “…. everyone will be protected from any increase in personal National Insurance contributions”, the use of the word ‘personal’ suggesting that employers may not be so fortunate.

The Liberal Democrats

The Liberal Democrat approach to raising income tax is much simpler. Its manifesto promises “An immediate 1p rise on the basic, higher and additional rates of Income Tax” to raise £6bn for the NHS and social care. The party would also scrap the marriage allowance – an arguably regressive move that would only hit basic rate taxpaying couples. The manifesto’s only reference to NICs is an oblique one about funding health and social care: “In the longer term and as a replacement for the 1p Income Tax rise, [the government would] commission the development of a dedicated health and care tax on the basis of wide consultation, possibly based on a reform of National Insurance contributions”.

It is noteworthy that the manifestos all shy away from addressing the complexities which have accumulated in the UK income tax regime through the efforts of both Labour and Conservative chancellors. Neither do any of the parties risk mentioning the logic of combining income tax and NICs instead of maintaining the current make-believe two tier system. But there is always hope – what is not said in a manifesto is often more significant that what is said.

All change for the pound coin

The UK’s new 12-sided £1 coins, which were first announced during the 2014 Budget, entered circulation today (28 March).

The existing, round £1 coin will continue to be legal tender alongside the new one until 15 October 2017 so the public are being encouraged to use their current £1 coins or take them to the bank before they expire.

That’s easy, you might think, as you rummage through the depths of your handbag or wallet, but the government estimates that around a third of the £1.3 billion worth of coins stored in piggy banks or savings jars around the country are £1 coins. One in 30 old £1 coins is also thought to be counterfeit, hence the drive for a more complex design.

Some of the round coins will be melted down and used to make the new version. The Royal Mint has dubbed them ‘the most secure coin in the world’ and they have the following features:

• 12-sided (technically a dodecagan) – it stands out by sight and touch.
• Bimetallic – the coin’s outer ring is gold coloured (nickel brass) and its inner ring is silver (nickel-plated alloy).
• It has a hologram-like image that changes from a ‘£’ symbol to the number ‘1’ when viewed from different angles.
• A hidden security feature has been built-in but what that is exactly is a mystery for now (just to keep the counterfeiters guessing).
• The edges have ‘ONE POUND’ written on them in micro-lettering.
• There are grooves on alternate sides of the coin.

There are more changes on the currency front. 2016 saw the ‘plastic’ £5 note enter circulation. A new polymer £10 featuring Jane Austen is expected in September. And the Bank of England has now announced a new polymer £20, featuring the artist JMW Turner to be launched in two years’ time. There will also be 2 versions of the £2 coin – one depicting Jane Austen and the other, the Royal Flying Corps.

So, check down the back of the sofa and take a hammer to the piggy bank now – you don’t want to discover a round pound coin on 16 October!

Learning from your elders never goes out of fashion

Swimming with dolphins, visiting every continent, upgrading to a dream home. These are things that frequently appear on people’s so-called ‘bucket lists’, particularly as activities to look forward to once we can stop working full time. But how are these activities to be funded once we retire?

A recent poll by Sun Life asked Britons over 50 what their biggest regrets were, and not seeing enough of the world topped the poll. However, failing to start a pension early enough wasn’t far behind. Understanding and appreciating the importance of saving for retirement should start as early as people’s twenties to allow time for the build-up of as substantial a retirement fund as possible. It’s common sense and should help avoid the regret of not saving enough into a pension, making poor investments or underfunding investments.

One way to avoid these pitfalls of course is seeking expert, professional advice. However, a poll by LV= of just over 1,000 British adults aged over 55 who are retired or plan to be within ten years, found that 61% do not intend to speak to a professional expert about their retirement funding. After the Chancellor’s Budget on 8 March, now is a good time to remind your clients of the importance of thinking as far ahead as possible in financial planning.

With a new tax year around the corner, take the opportunity to look at how your communications to existing and prospective clients will help them receive the best advice for their ongoing plans and ultimately retirement. Although who said a bucket list was just for retirees?