Women and workplace pensions: the short straw

Women are more likely than men to have more than one job – which means they are more likely to miss out on having an auto-enrolled workplace pension.

Although tens of thousands of workers earn over £10,000 (the threshold for auto-enrolment), they are not gaining this income from a single job, which means that they are ineligible for a workplace pension according to a Citizen’s Advice Study. Most of these people are women – 72,000 of them in fact. Even if they don’t miss out on a workplace pension all together, they may well get less. Add this to the recent changes to state pension age, and it seems like a pretty raw deal all round.

A study by Zurich found that between 2013 and 2016, women received contributions worth 7% of salary, while men got 7.8%. This was attributed to the fact that men tend to work in sectors with more established and generous schemes, while women often suffered adverse effects from taking career breaks such as maternity leave or studying.

The government has said that it plans to look at the issue later in the year, when it reviews the auto-enrolment programme. These statistics further cement the need for people to think about long term financial planning as a potential £47,000 shortfall is not insignificant.

Over 50 and starting up

The job market can be a tricky place for people in their 50s as companies focus on their bottom line and hire cheaper (read younger) employees above the more expensive – and more experienced 50-somethings.

However, companies are missing a trick. 50-somethings are in their prime and they’re fighting back – by starting their own businesses. The growth in self-employment since 2000 has been fuelled by those over 50 who have been finding it increasingly difficult to secure full time work. According to ONS data, there were 4.6 million self-employed people in the UK at the end of 2015, and the over-50s account for 43% of those starting their own businesses. But how many of the employed workforce are over 50? Less than a third.

Pensions freedoms enabling people to access their retirement funds from 55 and increasing transfer valuations on final-salary schemes have made it possible for people to fund a business venture – perhaps doing something they’re truly passionate about. Another route to funding a start-up is through a redundancy pay-out, or inheritance. Here’s a positive statistic: businesses set up by the over-50s are more likely to still be trading five years later than those created by younger people.

A combination of experience, talent, enthusiasm, and financial firepower is a heady mix – so keep an eye on the “olderpreneurs” – they could be your next client!

Social media: managing negative comments

There’s no escaping it – social media has become a huge part of our professional lives and although you may not be a fan, your company needs a presence on at least one social media platform. When it’s going well, we get a buzz from a ‘like’ or a new follower, but what happens when it doesn’t go so well and you come in for online criticism?

It’s important to be aware of who is saying what when it comes to your social media platforms and be vigilant for all mentions of your brand and product – including your people. Googling your company can be a good place to start and setting up google alerts to monitor what people are saying will keep you in the loop.

Sometimes the criticism is based on a fact or genuinely poor service that a customer or client has recieved, but sometimes it could just be a grudge. Before you proceed, identify the category of the complaint – is it is a business error, a misunderstanding, a negative comment or spam? Identifying the category will help you to come up with the best solution for dealing with the problem.

Unhappy customers tend to lash out when they feel their concerns are not being listened to. For example, a few years ago a British Airways (BA) passenger tweeted a complaint to the company about their customer service following the loss of his father’s suitcase. 76,000 twitter users saw the complaint, but BA failed to respond for 8 hours, then gave the excuse that their twitter feed is only open from 9-5… which for a 24/7 global operational service, seems rather odd.

Another airline, Jet Blue, offers a better example: one twitter user tweeted about being upset at having to to home and (jokingly) asked for a parade to greet her at the gate. The company’s twitter team saw the tweet and sent it to the airport customer service team, who met her at the gate for a welcome home parade!

Financial services firms don’t tend to have the volume of transactions or personnel to man the lines or field as many incoming messages, but appropriate humour and the personal touch can make all the difference.

Taxbriefs Chancellors – 8 Alistair Darling 2007 – 2010

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Alistair Darling took over as Chancellor in June 2007 when Gordon Brown finally moved into the job he had been angling for over many years – Prime Minister. It was not Darling’s first experience of the Treasury – he had been Chief Secretary in the first year of the Blair government after ten months in the shadow role.

Darling was seen as a “safe pair of hands”, having previous ministerial experience at the Department for Transport, cleaning up the fallout from Railtrack’s failure, and at the Department for Trade and Industry. He was Secretary of State for Work & Pensions between July 1998 and May 2002 before moving to Transport. His term as Chancellor ran for just under three years (June 2007 to May 2010), which meant he took the full force of the 2007/08 financial crisis: the run on Northern Rock started three months after Darling entered 11 Downing Street.

His background was in law and he was called to the Scottish Bar in 1984 before entering Parliament in 1987. His first Budget was in March 2008, but many of the 2008/09 measures had been announced (and re-announced) by his predecessor or merged into Darling’s 2007 Autumn Statement.

What he did

His first Budget:

  • The transferable IHT nil rate band had been announced in the previous October and was widely seen as an attempt to spike the Conservatives’ guns. At the time, George Osborne (as Shadow Chancellor) was suggesting the IHT threshold should be £1m, a move that is said to be why Gordon Brown did not call a snap election that autumn.
  • The abolition of the 10% band for earnings and a 2% cut in the basic rate, both of which had been revealed in Brown’s 2007 Budget, were confirmed by Mr Darling. However, the 10% rate abolition met a groundswell of criticism about its effects on the lowest paid and by May, Darling was forced to take action. He increased the personal allowance by £600 to compensate low earners for the loss, adding nearly £3bn to government borrowing.
  • Capital gains tax was reformed, with indexation and taper relief both scrapped in favour of a single rate of 18%. Entrepreneurs’ relief, with a cumulative lifetime allowance of £1m and an effective tax rate of 10% replaced business taper relief.
  • The start of what has proved to be a long series of measures aimed at non-doms began with the £30,000 annual charge for remittance basis to apply after at least seven years UK residence out of the last nine.
  • An increase in alcohol duties of 6% above inflation resulted in a Facebook campaign that saw Mr Darling barred from many pubs, starting with his Edinburgh constituency.

His second Budget:

  • In his November 2008 Pre-Budget Report, Darling cut the standard rate of VAT by 2.5% to 15% until the end of 2009. This was a costly measure (over 12bn in lost revenue), aimed at countering the impact of the financial crisis.
  • A financial crisis focussed meeting of the G20 and the timing of Easter meant that the 2009 Budget did not take place until 22 April.
  • A 50% top rate of income tax was announced for 2010/11, for those with incomes of over £150,000.
  • The phasing out of the personal allowance for those with incomes of over £100,000 was announced, to take effect from 2010/11.
  • The high income excess relief charge for pension contributions was announced, to take effect from April 2011. It aimed to taper tax relief on pension contributions down to basic rate for those with income of over £150,000, with basic rate applying at £180,000 and over. There was much criticism of the complexity and, in the end, Mr Darling’s successor, George Osborne scrapped the idea before it could take effect, preferring to reduce the annual allowance to £50,000. However, slightly under five years later Mr Osborne announced his own complex variant of tapering, based on the annual allowance rather than the rate of relief.
  • The lifetime and annual pension allowances were frozen up to 2015/16 at the 2010/ 11 levels (£1.8m and £255,000 respectively). Once again, Mr Osborne had other ideas…
  • The company car value cap of £80,000 was scrapped, with effect from 2011/12.
  • The ISA allowance was increased from £7,200 to £10,000, but just to complicate matters, only those aged over 50 benefitted from the increase in 2009/10: youngsters had to wait until 2010/11.
  • The car scrappage scheme was introduced, giving £2,000 to anyone replacing a ten year old car they had owned for more than 12 months with a new vehicle. The main beneficiaries proved to be Korean motor manufacturers.

His third Budget:

  • By the time of Darling’s third Budget in March 2010, the election date had been set for 6 May.The Budget was therefore largely one of his if-we-win proposals, most of which were subsequently co-opted by George Osborne.
  • The IHT nil-rate band was frozen at £325,000 for five years to 2015. It has since been frozen for another six years, to April 2021.
  • The annual investment allowance was doubled to £100,000. This was the first of many tweaks that saw the allowance rise to as high as £500,000 and fall to as low as £25,000.
  • A temporary increase in the SDLT threshold to £250,000 was introduced for first time buyers. At the other end of the scale, the top rate of SDLT rose (again) to 5% for residential properties valued above £1m from April 2011.
  • The minimum holding of ‘eligible shares’ in a VCT was increased from 30% of qualifying holdings to 70%.

Mr Darling’s term as Chancellor was defined by the financial crisis, but was bookended by Gordon Brown. It was Brown’s promotion from Chancellor to Prime Minister which gave Alistair Darling the role and Brown’s failure to win the 2010 election which ended Darling’s term as Chancellor.

Living to 100…what about working to 100?

The World Economic Forum is underway in Davos and aside from the hot topics of Brexit and the forthcoming inauguration of Donald Trump, the consequences of living for longer is featuring highly on the agenda.

It seems increasingly likely that most babies born since 2000 in developed countries such as the UK, US, Canada, France and Germany, will live beyond 100. This longer life expectancy, of course, brings with it numerous challenges – one of which is the need to pay for it.

Retiring in your early to mid-sixties is already pretty much a thing of the past for the majority of workers and according to one Davos participant, Lynda Gratton, people are going to have to constantly retrain and change careers to maintain their working lives. She notes that as people work for longer, new situations and questions arise such as whether an older employee is going to comfortably report to a younger manager. Similar workplace developments are likely to require a period of adjustment.

Another key issue is people’s health. We might be living for longer, but health and energy levels can certainly decline with age. Diseases such as dementia are going to need increased research in order to find new treatments to grapple with the effects. And people of the previous retirement age having to care for increasingly older relatives.

It is likely that many older people will take on part-time roles or mentoring positions as they start to wind down towards retirement – whatever that comes to mean. To work part-time means that one’s finances need to be in good shape.

This is a good time to talk to your clients about their plans for a later retirement – they may have little choice.

 

Taxbriefs Chancellors – 7 Gordon Brown 1997 – 2007 (part 3)

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Gordon Brown continued as Chancellor after Labour’s June 2001 election victory in which Tony Blair gained a 167-seat majority. Brown’s first spring Budget of the new Parliament was deferred until 17 April 2002, following the death of his baby daughter in January of that year. That complicated matters somewhat as it meant newly announced (as opposed to the Brown speciality of re-announced) measures would be retrospective if taking effect from the start of 2002/3:

  • This backdating problem explains why the major change was deferred to 2003/04. This was the uncapping of employees’ and self-employed NICs, with a new rate of 1% over the upper earnings limit.
  • Brown announced a reform to the tax credit system from 2003/04 with working tax credit replacing three existing credits and being extended to those aged 25 and over without families. Child tax credit was introduced to replace Children’s Tax Credit, with tapering to zero above a joint income of £50,000.
  • The 10% starting rate of corporation tax on the first £10,000 of small company profits was reduced to 0%, heralding a wave of incorporation by everyone from window cleaners upwards. The small companies rate was cut to 19% while the main rate remained at 30%.
  • CGT taper relief for business assets was improved, so that after only two years just 25% of gains were taxable.
  • The flat rate VAT scheme was introduced to simplify record keeping.

Brown’s seventh Budget in 2003 took place against a dire backdrop, shortly after the FTSE 100 recorded a low 3,287. It had been deferred for a second successive year, this time because of the start of the second Iraq war on 20 March 2003:

  • He deserted indexation and froze the personal allowance, although other allowances and bands were increased.
  • The Child Trust Fund (CTF) was announced, giving children born after August 2002 a one-off government payment of £250 ot £500. This was killed off by the coalition government in 2011.
  • What was to become stamp duty land tax was announced, to take effect from November 2003.

In Budget number eight, Mr Brown continued to restructure the tax landscape with most his notable reforms for the personal finance industry:

  • Pension simplification, which had been through a protracted consultation process, finally made the legislative agenda.
  • The rate of relief for VCTs and EISs was increased from 20% to 40% from 2004/05 for two years, much to the frustration of pre-Budget investors. The result was a surge in VCT sales to levels not seen since.
  • The tax rate for trusts was increased from 34% to 40%.
  • In an effort to counter the revenue loss caused by his 0% corporation tax starting rate band, Mr Brown announced that dividends paid by small companies would be subject to 19% corporation tax, leaving the 0% band only applying to retained profits or dividends paid to other companies.
  • The childcare voucher scheme, worth up to £50 a week of tax-free care was announced, to start in 2005.
  • The pre-owned assets tax rules were introduced to counter various lease and loan-based schemes that were designed to sidestep the IHT gift with reservation rules.

Mr Brown’s ninth Budget in 2005 was very much a pre-election affair:

  • Pensioners were promised a £200 council tax refund and free local bus travel from 2006.
  • There was a promise of a 13% rise in pension credit and child tax credit, albeit by 2008.
  • There was a slight reverse turn of the stamp duty screw, with initial threshold rising from £60,000 to £120,000.
  • The IHT nil rate bands through to 2007/08 (at £300,000) were announced in a move to defuse a controversial election topic.
  • The IPT rate was pushed up from 2.5% to 4% from April 1997.

Back for his third term as Chancellor, Mr Brown was by this time waiting for his chance to become Prime Minister. In his tenth Budget there were few great surprises:

  • The final touches to the pension simplification regime were introduced, including the IHT treatment and a new anti-recycling rule.
  • The rate of relief for VCTs was cut from 40% to 30% from 2006/07 and the holding period extended from three to five years.
  • Trusts became subject to new IHT rules.
  • The corporation tax band was abolished.
  • The framework for real estate investment trusts (REITs) was announced, with the new regime to start from January 2007.
  • Road fund taxation was reformed to cut tax on the lowest emission vehicles.
  • The IHT nil rate band for tax years to 2009/10 was announced, probably to remove the issue from the next few Budgets.

Gordon Brown’s final Budget contained more than the usual crop of surprises:

  • A 2% cut in basic rate to 20% from 2008/09 was announced alongside the abolition of the 10% starting rate band for earned and pension income.
  • Age-related allowances were given a substantial above-inflation increase again from 2008/09.
  • A hike in the upper earnings limit from 2008/09 would bring it into line with the higher rate threshold, which was rising sharply thanks to an £800-above-inflation increase in the basic rate band.
  • Tax relief on personal pension term assurance was withdrawn, closing off a cheap life cover option which had been opened by pensions simplification in the previous year. This had been spotted long before April 2006, but again Brown had chosen to wait before acting.
  • The main rate of corporation tax was to be cut by 2% in 2008 to 28%, with the small companies’ rate moving in the opposite direction to 22% by 2009.
  • An attack on managed services companies was revealed.

Gordon Brown’s Budgets changed the tax landscape of the UK, with basic rate income tax down 3% and corporation tax down 5%, while other taxes – notably stamp duty and NICs – became more important revenue-raisers. Over the decade, he greatly complicated the tax regime, even if one of the measures he is most remembered for originally went under the title of “pensions simplification”. Brown’s first Finance Act in 1997 was 105 pages, while the finale in 2007 was 309…However, that now looks almost restrained: “complification” has continued ever since, with George Osborne’s last Finance Act running to 649 pages.

Watch this space for an overview of our next Chancellor, Alistair Darling.

Taxbriefs Chancellors – 7 Gordon Brown 1997 – 2007 (part 2)

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Gordon Brown’s second Budget in March 1998 was not the blockbuster of its post-election predecessor, but still brought in significant reforms.

What he did

  • More details of the new ISA were announced, including the abandonment of a £50,000 cumulative investment limit which had been floated during consultation.
  • Car fuel benefit was marked for increases of 20% above fuel price inflation for the following five years.
  • The rate of tax relief on the married couple’s allowance was cut from 15% to 10% from 1999.
  • The ‘dead settlor rule’, which allowed life policies held under trust to escape any tax if the settlor had died in an earlier tax year, itself finally passed away.
  • Capital gains tax rules were reworked, with indexation relief being replaced by a taper relief based on the type of asset and how long it had been held. Bed and breakfasting (selling shares on the day followed by a next day repurchase to crystallise a gain) was abolished.
  • Working family tax credits were announced, to be introduced from October 1999. Like several other of Brown’s initiatives, the idea was borrowed from the United States.
  • The higher rates of Stamp duty were increased, with the top rate rising to 3%.
  • The structure of National Insurance contributions was revised from 1999/2000 to remove the slab effect, which meant an extra penny in earnings for the low paid could suddenly trigger a charge on all earnings.

In his third Budget in March 1999, Brown continued to revise the tax landscape:

  • The basic rate of tax was cut by 1% to 23% from 2000/01.
  • A 10% starting rate was introduced, replacing the 20% lower rate. As we shall see, this move sowed the seeds of future problems. At the time, it was criticised as being less effective than increasing the personal allowance and completely removing people from tax.
  • The long-expected end of mortgage interest relief as source (MIRAS – albeit at only 10%) from 2000/01 was announced. From the same year the married couple’s allowance for those under 65 was abolished.
  • The tax charge of £200 for mobile phones was scrapped. Ironically, come April 2017 a charge on mobiles will reappear for those employees who acquire one via salary sacrifice.
  • Child tax credit was announced, to start in April 2001. It was a feature of Brown’s Budgets that announcements were made well ahead of their start date, a fact which meant the Chancellor was often accused of re-announcing (and re-re-announcing) measures.
  • A £10,000-wide 10% corporation tax band was to take effect from 2000 for companies with profits of up to £50,000. Look back with hindsight and it is more than coincidence that IR35 (aimed at personal service companies) appeared (quietly) in the same Budget, promising legislation the following year.
  • The employee starting point for NICs was to be aligned with the personal allowance from 2001/02, a sensible measure that fell by the wayside once the fixation with increasing the personal allowance and “taking people out of tax” (but not NICs) took hold.
  • The top two rates of stamp duty on property rose by 0.5%.

In his fourth Budget and the first of the new millenium, Brown eased off the reforming peddle, not least because there were so many changes previously announced and due to come on stream:

  • A move to base company car tax on CO2 emission levels from 2002/03 was announced, which subsequently prompted the ill-fated rise in the popularity of diesels.
  • The maximum period for CGT taper relief for business assets was cut from 10 years to four.
  • There was yet another turn of the stamp duty screw, with the rate now 4% above £500,000 – a quadrupling since Brown started as Chancellor.
  • A consulation was announced on the possibility of replacing the 5% rule for life policies.
  • The IPT rate was pushed up from 2.5% to 4% from April 1997.

Brown’s fifth Budget, coming ahead of an election in June 2001 (unannounced at the time), was a dull affair, with little beyond indexation where required. The regular use of indexation was seen in some quarters as an example of one of Mr Brown’s greatest sins: stealth taxation. By increasing allowances and tax bands only in line with price inflation (RPI in those days), the Chancellor took an ever-growing tax slice of an economy growing in real (post-inflation) terms. The process, known as fiscal drag, remains to this day, as does criticism of it from the likes of The Institute for Fiscal Studies. The move from RPI to CPI has worsened fiscal drag, because long term CPI is reckoned to run at a little over 1% a year below its now-discredited predecessor.

We’ll be looking at Gordon Brown’s remaining years as Chancellor next time.