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?


Taxbriefs Chancellors – 9 George Osborne 2010 – 2016

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George Osborne took over as Chancellor in May 2010, replacing Alistair Darling after an inconclusive general election which gave the UK a coalition government under David Cameron. He had been Shadow Chancellor for the previous five years, having been allegedly the third choice of Michael Howard after the Conservatives lost the 2005 general election.

Mr Osborne’s term as Chancellor ran for just over five years (May 2010 to July 2016), ending when he was sacked by Theresa May in the fall out from the Brexit vote. He came from a wealthy background, his father being the co-founder of the Osborne & Little wallpaper company.

What he did

His first Budget, classed as an emergency Budget, was in June 2010. It took place in the wake of the financial crisis, with government debt ballooning to 10.8% of GDP in 2009/10 and annual economic growth having hit a low of -6.1% in the first quarter of 2009:

  • The standard rate of VAT was raised by 2.5% to 20% from January 2011.
  • Capital gains tax was revised, with the single flat rate of 18% kept for basic rate taxpayers only. Higher rate taxpayers saw their rate increase to 28% from the day after the Budget. However, the entrepreneurs’ relief limit was raised from £2m to £5m.
  • Corporation tax cuts of 1% a year for four years were promised, starting in 2011.
  • Insurance Premium Tax was put up by 1% to 6% from January 2011.

In 2010, Osborne also set in train what was to become the Office for Budgetary Responsibility (OBR). The main aim of the OBR’s creation was to end the manipulation of Treasury forecasts that marked Gordon Brown’s era as Chancellor. In October 2010, he revealed the results of a Spending Review, fixing departmental spending through to 2014/15. This contained average real term cuts of 25%, except for health and international aid. Osborne’s deficit reduction efforts were split roughly 80/20 between spending reductions and tax increases. His first Spring Budget in 2011 was presented as a “Budget for Growth”:

  • Corporation tax was cut by 1% more than announced in the 2010 Budget, to 26%.
  • The personal allowance was increased by £1,000, with the promise of another £630 increase in 2012/13 (and a £630 cut in the size of the basic rate band).
  • EIS and VCT rules were reformed, with EIS income tax relief increased from 20% to 30% and the EIS investment limit doubled to £1 million.
  • The annual allowance was cut to £50,000 from 2011/12 and the lifetime allowance to £1.5 million from April 2012.
  • The lifetime limit for entrepreneurs’ relief was doubled to £10 million.
  • The tax screw was tightened on non-doms.
  • The default basis for indexation of direct taxes was changed to CPI from 2012/13.

Osborne’s third Budget in 2012 was labelled the “omnishambles Budget”, by Ed Milliband, with the introduction of the notorious “pasty”, “cathedral” and “granny” taxes. In addition:

  • The additional rate of income tax was cut from 50% to 45% from 2013/14.
  • The personal allowance was given an increase of £1,100 from 2013/14, but again there was a reduction (£1,025) in the basic rate band to limit the benefit for higher rate taxpayers.
  • A tax on child benefit, in the form of an income tax charge for those with incomes above £50,000 was announced, to take effect from January 2013.
  • The top rate of SDLT was raised to 7% on residential properties valued at over £2 million and a new 15% rate was introduced for residential properties valued at over £2 million and a new 15% rate was introduced for residential properties owned by companies and trusts – another attack on non-doms.
  • A cap on unlimited income tax reliefs of £50,000 or 25% of income was announced.

After his 2012 Budget, Osborne has little choice but to be more cautious in his 2013 Budget.

  • The personal allowance was increased by £560 to £10,000 for 2014/15.
  • The single tier pension’s arrival in 2016 was confirmed.
  • The £2,000 NIC Employment Allowance was announced, to start in 2014/15.
  • Corporation tax was to be unified at a 20% rate for all companies, from 2015.
  • The annual allowance was cut to £40,000 and the lifetime allowance to £1.25m from 2014/15.
  • The annual investment allowance was increased from £25,000 to £250,000 for two years from 2014/15.
  • The annual investment allowance was increased from £25,000 to £250,000 for two years from January 2013.

Osborne’s fifth Budget in 2014 was the one which stands out in many people’s minds, as it saw radical reforms to pensions announced which, somehow, had avoided the usual pre-Budget leaks:

  • Drawdown for money purchase pension became available without limits or restrictions on entitlement, heralding a precipitous fall in annuity business.
  • The commutation rules for turning small pension pots into cash were greatly relaxed.
  • The savings rate of tax was reduced from 10% to 0% and the band widened from £2,880 to £5,000 from 2015/16.
  • The ISA limit was increased from £11,880 to £15,000.
  • The annual investment allowance was doubled to £500,000 from April 2014 to the end of 2015.
  • A new fixed rate savings bond for pensioners was announced, to be launched in January 2015.

His 2015 Budget was a game of two halves, either side of the general election (which it is thought Osborne expected the Conservatives to lose):

First half:

  • The Help to Buy ISA was announced, to start in late 2015.
  • The lifetime allowance was cut to £1m from April 2016.
  • The higher rate threshold was given its first above-inflation increase in seven years.
  • The personal savings allowance was announced, to take effect from 6 April 2016.
  • Following on from his earlier pension reforms Osborne announced plans to permit sales of existing pension annuities from April 2016 (though this idea was eventually abandoned).

Second half:

  • A new tax treatment of dividends, including a £5,000 dividend allowance, was announced.
  • Non-doms UK resident for at least 15 of the last 20 years would be treated as UK domiciled for tax, including inheritance tax (IHT) from April 2017.
  • Corporation tax cuts to 19% in 2017 and 18% in 2020 were announced.
  • A cut in the annual investment allowance to £200,000 from 2016 was announced.

Osborne’s final Budget, in 2016, came a few months before the referendum, which at the time looked like a probably ‘remain’ victory.

  • The Lifetime ISA was announced, to be launched in April 2017.
  • Capital gains tax rates were unexpectedly cut by 8% (apart from residential property and carried interest).
  • The ISA limit was increased to £20,000 from 2017/18.
  • A further corporation tax rate cut to 17& in 2020 was announced.
  • Stamp duty on non-residential property was restructured onto a band basis.

The referendum result effectively ended Mr Osborne’s career as Chancellor. It is perhaps too early to know what his six years at the helm will be remembered for, but the creation of the OBR and pension tax reform seem certain to be on the list.


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.