What price a state pension?
In spending power terms, the flat-rate state pension may not seem a lot, says the Telegraph, but you may revise that view when you think about what it would cost to buy an equivalent in the open market. For a single man aged 67, to buy an annual income of £8,122 a year, with guaranteed increases at 3% a year for life, would cost £238,000. At some point an increase in interest rates will reduce the cost of generating income from savings, but the sums required are still going to be huge and a challenge for savers.
Big transfer offers tempt employees
Employers are tempting employees to switch out of their pension schemes by offering huge ‘transfer values’ , sums that can be taken to an independent scheme and invested, in exchange for giving up ‘final salary’ related pension rights, says the Mail. It cites the example of a 62-year-old man who had to choose between a pension of £24,000 a year at age 65 or a sum of £849,000 today. Before Brexit, transfer values of 20-25 times the expected pension were typical, but now multiples of over 30 are common. These record transfer values are the result of extremely low interest rates and may not last, warn experts.
Many won’t get new inheritance tax allowance
Many people will not benefit from a new inheritance tax allowance that is available from April 6th 2017, says the Mail. The Residence Nil Rate Band is an extra allowance, starting at £100,000 per person this year, which can reduce the amount of an estate that is subject to inheritance tax at 40 per cent. But you have to leave a property in your will, and must leave it to children or grandchildren. Childless couples don’t get the allowance, which will rise to £175,000 by 2020, and a wrongly-drafted Will could also mean you lose the allowance even if you do leave your home to your children.
Almost 2 million Britons hoping to downsize before they reach old age and poor health face a housing crisis, with just 186,000 retirement properties available to buy in the whole of England and Wales, says the Mail, citing new research. One third of older people would like to ‘rightsize’ by moving into specialist retirement housing, but there just isn’t enough available, so they are staying put in homes larger than they need. An additional problem is that most developers are building retirement properties to rent, whereas most retired people have capital in their properties and would prefer to buy. The rate of building of suitable retirement homes has fallen from nearly 30,000 a year in 1989 to under 6,000 today.
Plan on living to 100
Financial planner now routinely assume that clients will live to the age of 100 when creating cash flow plans, says the Telegraph. They are both reflecting the increase in life expectancy that has happened, and projecting further increases in the future. The problem of increased longevity is the risk of running out of money, but financial planners aim for a balance and say there’s also a risk in being too cautious.
Big fall in child benefits
Payments of child benefit have fallen to their lowest level in 13 years following the introduction of rules that restrict benefits for high earners, says the Financial Times. The rules restrict the benefit for households where a parent earns over £50,000, and all the benefit is lost if earnings exceed £60,000. About a million fewer children now benefit from the tax-free payments (£1,076 for the first and £712 for subsequent children). Moreover, think-tanks say mothers who fail to claim the benefit do not realise they are also failing to add qualifying years for the state pension.
Tax threat to death in service benefit
The families of higher earning employees could suffer an unexpected tax hit on the death benefits they expect from ‘death in service’ life insurance schemes, says the Financial Times. The schemes usually offer payouts of two to four times salary, but because this is generally provided via the company pension scheme, it is subject to the ‘lifetime allowance’, and if the total pot exceeds £1 million then tax at 55 per cent will be applied to the excess. Experts say higher paid employees should ask pension trustees how the benefits are paid.
HMRC chases tax scheme bills
HMRC has started to play hardball with people who used failed tax avoidance schemes, says the Financial Times. Once it has issued Advanced Payment Notices, it is taking tougher action to collect the money, including instigating bankruptcy proceedings and seizing assets. Experts say that since HMRC first issued APNs in 2014, it has moved slowly to collect tax but is now likely to issue many more enforcement notices.
As tax year end approaches, there is still time to make use of your available reliefs and allowances.
This tax year end planning checklist covers the main planning opportunities available to UK resident individuals and will hopefully help to inspire action to reduce tax for the 2023/24 tax year and to plan ahead for 2024/25.
As tax rate band thresholds are changing, understanding the impact on high rate taxpayers and the economy is crucial.
It was recently revealed in the media that the amount we need to enjoy a ‘moderate’ retirement has increased by £8,000 per annum, a 38% increase, in just one year.