Comments Off on State Pension top up – Six Months Left to Apply
The Department of Work and Pensions (DWP) has recently issued a reminder to all those who have expressed an interest in topping up their Additional State Pension by up to £25 per week. The option to make Class 3A Voluntary Contributions applies to individuals who attained their State Pension Age (SPA) on or before 5th April 2016, i.e. individuals who receive, or will receive, their State Pension under the old rules.
Why It Might Be Worth Considering
It has been possible to make the Class 3A Voluntary National Insurance Contribution (NIC) payment since October last year. When the Government announced the details of these earlier, they stated that the rate offered would be in line with the market. However, even when they became available it was not possible for a healthy individual to secure a pension annuity paying the same level of income as achieved from paying Class 3A NICs. However, since then, annuity rates have been falling and then, post BREXIT, nose-dived.
So, for an individual aged 66, to secure an income of £1,300 p.a. with a 50% spouse’s pension that is index-linked would cost over £46,900, according to the MAS site on 28th October 2016.
To obtain the same level of income a Class 3 would cost £21,775 based upon the DWP calculator run on the same date.
In simple terms, the Government offer, which was generous when it was launched has, due to the changes in the annuity market, become very attractive.
It should be noted that securing a taxable pension of £1,300pa or £1,040 after 20% income tax would take almost 21 years to break even, taking the 66 year old to 87 – this exclude the indexation of the pension income and also the loss of growth on the £21,775 investment. This represents an annuity income of almost 4.8%.
However, it’s worthy of consideration! Give Lexington a call on 01793 771093 if you would like to discuss.
We would like to say a big Thank You to everyone who came out to support the Lexington Children in Need Coffee Morning we held a couple of weeks ago. We were overwhelmed with your generosity, and with your help we raised £202.30. Lexington has matched this amount and so our grand total is £404.60.
Comments Off on Autumn Statement 2016 – what it means for you
Philip Hammond’s first Autumn Statement didn’t contain any major tax or pensions changes that have any immediate impact for you.
There was welcome news that pension tax relief remains untouched. It appears that now is still not the time for a major pensions shake up, but it could be the perfect time to maximise funding and secure higher rate tax relief.
This will be the last Autumn Statement. In future the Budget Day will switch from spring to autumn, with a toned down statement on the economy delivered each March. This will give welcome breathing space between the announcement of budget changes and their introduction.
The key points from today’s statement were:
Reduced Money Purchase Annual Allowance The Chancellor announced just one cut to pension allowances. The Money Purchase Annual Allowance (MPAA) is set to be cut from £10,000 to £4,000 from April 2017 (subject to consultation). This only affects those clients who have accessed their Defined Contribution pensions under the new pension flexibilities and continue to pay into their pension.
But what does accessing pension flexibility mean? With the right strategy, it doesn’t have to be an issue. Just taking the tax free cash out of a pension, without drawing an income, doesn’t trigger the reduced annual allowance. And anyone who was already in capped drawdown before 6 April 2015, and doesn’t exceed their ‘capped’ income limit, will also retain a £40k allowance.
For many clients, the first time they dip into their pensions will be the day they stop work. So a drop in their annual allowance is of no significance. But some may wish to phase their retirement, perhaps by cutting their working hours. These clients may still wish to continue funding or more importantly could be benefiting from employer contributions. They may need the best of both worlds – their full £40k AA and the option to dip into their pension savings if needed. And remember that if you have already accessed your pension flexibly, you could be tripped up by auto-enrolment!
Some older pension schemes may only offer Uncrystallised Pension Funds Lump Sums (UFPLS), where each withdrawal is fixed as 25% tax free cash and 75% taxable income. This will automatically trigger the cut to the £4k allowance. Being in a modern flexible pension which offers the full range of flexible income options can help by allowing just tax free cash to be taken and retaining the higher allowance.
Salary sacrifice remains a tax efficient choice for pension savers There will be no changes to the funding of pensions via salary sacrifice. This is good news for pension savers, including all those who have chosen salary sacrifice as part of their auto-enrolment arrangements.
Certain other employee benefits will no longer receive the tax and NI advantages of salary sacrifice from April 2017, meaning they’ll be in the same position as other workers who buy benefits out of their net pay. This will include exchanges for benefits such car purchases, parking, school fees, gym memberships, travel insurance and smart phones, although there will be some protection for existing arrangements until April 2018 (2021 for cars and school fees).
Salary sacrifice allows employees to boost their pension pots through savings in employer and employee NI following an agreed reduction in pay. A higher rate taxpayer could increase their pension contribution by up to 18% by reinvesting their savings in employer and employee NI.
2017/18 rates and bands confirmed The increase in the personal allowance in 2017/18 is confirmed as £11,500 and the higher rate threshold will rise to £45,500. Increases are planned to £12,500 and £50,000 respectively by 2020.
Comments Off on Donald Trump and the market reaction
In one of the biggest surprises in modern election history, Donald Trump has emerged as the President-elect and will take office in January. While some are overjoyed and some are dismayed, the markets are decidedly unhappy.
As of this writing, the markets are reacting negatively to a new president that ran on a pro-business, low regulation platform (among many other things). The reason is quite simple. The market first and foremost wants a stable environment and greatly dislikes uncertainty. Love him or hate him, Trump is bringing considerable uncertainly to the table.
As the numbers came in and it appeared Trump may win, the DOW futures, which provide an indication of where the market may open, were down over 800 points. As of this writing, the pull back was paired to approximately 400 points, indicating a more than 2% drop at the market open. In the short run, we expect the futures to pull back to more modest losses as reason sets in. A market drop of a few percentage points is likely. We expect volatility will rule the day and likely go on for a few weeks as President-elect Trump begins to articulate his priorities, build and announce his team, and set an agenda for his first hundred days. Should the market drop more than a few percentage points, we expect to be aggressive buyers and will be looking for opportunities across all markets.
Over the long run, we expect the markets to become indifferent to a Trump presidency. History has made it clear that market performance is not correlated to which party is in power.
The bottom line is that the markets care about only one thing, and that is earnings. Every stock is priced to reflect its potential future earnings. If a company has a good earnings outlook, its stock will reflect the earnings potential. If a company’s earnings are expected to decline, the stock price will adjust downward. Now, many things impact future earnings. Let’s take McDonald’s as an example. If McDonald’s sets the expectation that same-store sales and profits will rise because of a popular new menu being tested in small markets, the stock price will likely increase to reflect the expectation of higher future profits. If, instead, McDonald’s looks like it may lose sales because consumers trend towards other new fast food and fast casual restaurant concepts, then we would expect its stock price to decline to reflect the new outlook.
Many other things impact earnings. If interest rates are higher, then the borrowing costs of corporations are higher, cutting into their profits. High energy prices can be bad news for some companies like the airlines, and good for others like drillers. And on and on and on.
Presidents exert far less influence over markets than most believe. Yes, things like unemployment, tax policy and regulations can impact corporate earnings and therefore stock prices, but they are pieces to a much bigger puzzle. In the end, they are greatly outweighed by the success of the company itself and by far bigger issues such as interest rates.
The most important takeaway is that over the long run the stock market cares about only one thing — expected earnings. And the good news is, we all happen to be living in a time where our global markets are made up of the greatest companies to ever exist. There is more innovation and technological advancement taking shape now than at any time in our history, and that has a positive impact on earnings. As a group, over time, these great companies have really only done one thing — go up. Some presidents give it a nudge up, others a nudge down, but at the end of the day, earnings prevail and the world’s greatest companies have found a way to persistently earn larger profits. That leads us to the most important chart of all. The market doesn’t really see blue or red, only green. Regardless of your political persuasion, corporate earnings have only gone up over time, and the market has followed.
This means they will be entitled to a limited number of employment rights (but not those accruing to ’employees’ – which this case was not about). As widely reported, amongst other rights, they will be entitled to:
6 weeks’ paid annual leave each year
a maximum 48 hour average working week, and rest breaks
the national minimum wage (and the national living wage)
protection of the whistleblowing legislation.
As they are not employees, they will not be entitled to:
the ability to claim unfair dismissal
the right to a statutory redundancy payment
the benefit of the implied term of trust and confidence
the protection of TUPE, if Uber sells its business
However, not much has been made of the impact on the position in respect of auto enrolment. Some comments have appeared in Pensions Age of 31 October, which seemed to adopt the view that it did bring them within the definition of “jobholders” for the purposes of auto enrolment. A spokesman from the Pensions Regulator said the regulator would be looking closely at the judgment and was “considering” whether Uber would be obliged to auto-enrol drivers.
Comments Off on US Presidential Elections and Stock Market
Today, Americans head to the polls to elect the next president of the United States.
While the outcome is unknown, one thing is for certain: There has been a steady stream of opinions from pundits and prognosticators about how the election will impact the stock market. As we explain below, investors would be well‑served to avoid the temptation to make significant changes to a long‑term investment plan based upon these sorts of predictions.
SHORT-TERM TRADING AND PRESIDENTIAL ELECTION RESULTS
Trying to outguess the market is often a losing game. Current market prices offer an up-to-the-minute snapshot of the aggregate expectations of market participants. This includes expectations about the outcome and impact of elections. While unanticipated future events—surprises relative to those expectations—may trigger price changes in the future, the nature of these surprises cannot be known by investors today. As a result, it is difficult, if not impossible, to systematically benefit from trying to identify mispriced securities. This suggests it is unlikely that investors can gain an edge by attempting to predict what will happen to the stock market after a presidential election.
Exhibit 1 shows the frequency of monthly returns (expressed in 1% increments) for the S&P 500 Index from January 1926 to June 2016. Each horizontal dash represents one month, and each vertical bar shows the cumulative number of months for which returns were within a given 1% range (e.g., the tallest bar shows all months where returns were between 1% and 2%). The blue and red horizontal lines represent months during which a presidential election was held. Red corresponds with a resulting win for the Republican Party and blue with a win for the Democratic Party. This graphic illustrates that election month returns were well within the typical range of returns, regardless of which party won the election.
Exhibit 1. Presidential Elections and S&P 500 Returns Histogram of Monthly Returns, January 1926–June 2016
Predictions about presidential elections and the stock market often focus on which party or candidate will be “better for the market” over the long run. Exhibit 2 shows the growth of one dollar invested in the S&P 500 Index over nine decades and 15 presidencies (from Coolidge to Obama). This data does not suggest an obvious pattern of long-term stock market performance based upon which party holds the Oval Office. The key takeaway here is that over the long run, the market has provided substantial returns regardless of who controlled the executive branch.
Growth of a Dollar Invested in the S&P 500,January 1926–June 2016
Equity markets can help investors grow their assets, but investing is a long-term endeavor. Trying to make investment decisions based upon the outcome of presidential elections is unlikely to result in reliable excess returns for investors. At best, any positive outcome based on such a strategy will likely be the result of random luck. At worst, it can lead to costly mistakes. Accordingly, there is a strong case for investors to rely on patience and portfolio structure, rather than trying to outguess the market, in order to pursue investment returns.
In light of the 2016/7 dividend tax changes, business owners are to reconsider the detail of their dividend v salary choices. If we look at the situation where the income in question falls above the upper earnings limit/higher rate threshold, the advantage of dividends remains, but is reduced (as the Chancellor intended):
Gross profit £1,000.00 £1,000.00
Corporation tax @ 20% N/A (£200.00)
Dividend payable N/A £800.00
Employer’ NIC @ 13.8% (£121.27) N/A
Salary £878.73 N/A
Employer’ NIC @ 2.0% (£17.57) N/A
Pre-tax amount £861.16 £800.00
Net to 40%/32.5% taxpayer £509.67 £540.00
Net to 45%/38.1% taxpayer £465.73 £495.20
However, remember that to reach this stage, at least £4,193 of employee NICs will have been paid.
The abolition of the 10% tax credit gives dividends another advantage over salary/bonus in that gross income is kept down as the table shows:However, remember that to reach this stage, at least £4,193 of employee National Insurance Contributions (NICs) will have been paid.
Gross income and gross profit cost to produce £1,000 net of tax and employee NIC income
The smaller gross equivalent achieved by paying dividends is of increased importance when the (unindexed) thresholds for child benefit tax, phasing out of personal allowance, tapered annual allowance, etc are considered. Also significant is that the gross profits cost of the dividend route is less than the salary alternative for each tax rate.
As a general rule, dividend payments are directly proportionate to shareholdings, which means the dividend or salary choice can become impossible to make when there is a mix of shareholdings and total remuneration targets.
Dividend payments rather than salary may have adverse effects where tests are generally salary-related, eg mortgage borrowing capacity. However, the issue of lost S2P no longer arises in the world of the single-tier state pension.
When considering the alternative of a pension contribution, of course, this is only feasible if the individual does not need the money for expenditure. If this test is passed, then the next question is whether a contribution with full tax relief is possible in the light of the tapered annual allowance, reduced lifetime allowance and any transitional protections in place. If none of these are a constraint, then the pension contribution is a completely tax-free exercise at the point of employer payment of the contribution.
The simplest way to consider the end value is to ignore any investment return and assume a full pension is drawn, ie 75% of the contribution attracts (retirement) marginal rate tax and the other 25% is tax free. Thus, for example, a higher rate taxpayer receives a net £700 (.75 x £1,000 x .6 + .25 x £1,000) per £1,000 of contribution. The corresponding figures for basic and additional rates are £850 and £662.50.
Comparing numbers at this stage starts to get complicated because of the dividend allowance and assumptions about how any dividend drawn would be invested (remember there is a £20,000 ISA limit from 2017/18). For a basic rate taxpayer, there is only limited advantage (via the 25% tax-free element) until the dividend allowance is exhausted. Higher and additional rate taxpayers will see more benefit, particularly if their marginal rate falls in retirement.
For those aged 55 and over, there is another avenue to consider in terms of drawing pension benefits rather than dividend/salary as a source of income and making employer pension contributions to ‘compensate’ the pension fund for the drawn benefits.
Contact us for more information on how Lexington have help you with you Financial Planning and Wealth Management contact us on 01793 7710963 now.
It’s safe to say that each of us could benefit from an increase in productivity. While increasing productivity is an almost universal goal, only a few of us have a concrete plan for doing it. These simple, actionable tips are designed to help you increase your productivity, which will lead to achieving even more throughout each day.
Create a basic plan each day
The organisational choices you make each morning (or better the evening before) sets the tone for the day that follows. Will you start your day by reacting to others, or will you set your own goals for what you need to accomplish?
Every morning, set a goal for yourself independently — not as a reaction to requests from others. Allow accomplishing the thing you set out to do to be your priority. Focus back in on your goal throughout the day to ensure you have the momentum to keep pursuing it until you can tick it off your list.
I find completing a ‘6 Most Vital 1’ list for each day very powerful. At the end of the day, before I leave the office, I write down the 6 most important actions I can take which will give me and my firm the most impact for the day and move me closer towards my goals, then I write down the Vital 1 – the one thing I absolutely need to do that day. Try it for 14 days and see how your productivity improves!
Prioritise tasks based on both urgency and setting
Each week seems to have a number of tasks to complete. Some have to do with your career, others are related to your relationships with others or your home life. As you begin to plan out your week, “chunk” your tasks based on which parts of your life they touch: Work tasks, family tasks and so on. Once everything is organised decide which tasks are the most important within each category based on urgency and immediate setting.
This should result in you having a master plan with sub-categories, and a sense of what needs to get done first in each life sphere. Achieve the most important tasks first, and make sure you aren’t neglecting any one life sphere.
You’ll find removing everything from your ‘brain’ and inbox and summarised into a schedule with time check deadlines (see below) will help free you from the pressures of multi-tasking – and you can be more present when in others company!
Set deadlines and schedule time
Now that you’ve prioritised your tasks in all areas of your life, set deadlines for each task. Schedule out the time to complete your tasks within your deadline. Leave extra time in your schedule each day for those unexpected problems that crop up, and stick to your deadlines.
Conduct a habit audit
Periodically, you should audit your day-to-day patterns, both at home and work. Is each habit that you have useful to you? Identify those habits and patterns that do not support your overall strategy and goals so you can change or eliminate them.
Let it go
Each of us fails to achieve our goals occasionally, and as we look back on our past performance it is easy to see things we should have done differently. Make use of this kind of insight as you set new goals, but don’t dwell on your failures. Focus instead on what you’re going to do next.
Along these lines, 90% of your strategic thought should be focused on problem-solving, not problem identification. Anyone can point out where things are going wrong. It takes more thought and fortitude to correct problems, and sometimes it takes multiple attempts, so don’t waste excess time on the problem itself rather than the solution.
Show yourself the “money”
Make assessing your progress and enjoying the fruits of your labour part of your routine. Check in with yourself to confirm that you are in fact accomplishing your goals and tasks. When you do succeed, allow yourself to enjoy that feeling of achievement. In this way, you train your mind to focus on goals, attain them and derive pleasure from a job well done. This also reminds you that you are highly competent and capable of setting, accomplishing and even beating goals.
Allow yourself to sit, think and plan
It can be difficult to slow down when you are stressed about getting more done, but careful planning and insight can save you hours or even days of wasted effort. For each goal on your list, ask yourself these questions:
Is this goal important?
What part(s) of my life does this goal impact?
How does this goal support my overall strategies?
Do I have a plan for achieving this goal? How can I improve it?
Once you have your answers, adapt these goals and plans for maximum utility.
No one can create extra hours in the day, but you can manage your time well. Great time management is the key to feeling like you’ve got all the time you need. Take these concrete steps to increase your productivity and gift yourself with more time to do and achieve more.
For more help with Financial & Business Planning please contact Lexington Wealth on 01793 7710963 now.
Comments Off on Conservative Party Conference what’s the plan?
The, just passed, Conservative Party Conference may lead some to conclude that the new government is quite different to the immediate past one. Fundamentally different.
The world it is operating is different. Thanks to the vote for Brexit, it’s an even more uncertain one, despite what some may strive to tell you based on economic performance since the vote.
On the big questions, like “what sort of Brexit will we get?” there is uncertainty and on the questions that the financial planning and financial services will have a direct interest in …there is uncertainty.
Most will accept, as pretty much ever was the case, that fiscal (broadly, tax) policy will be influenced if not heavily determined by (self -evidently) the political views of the ruling party and also the performance and predicted future performance of the economy.
Politically the Prime Minister has made a big play for the centre ground. This was clear before the party conference, actually from her first day in office when she made her maiden speech as PM outside Downing Street. At the conference she put her position beyond doubt.
Here are some extracts from her Conference speech:
“Our economy should work for everyone, but if your pay has stagnated for several years in a row and fixed items of spending keep going up, it doesn’t feel like it’s working for you.
“Our democracy should work for everyone, but if you’ve been trying to say things need to change for years and your complaints fall on deaf ears, it doesn’t feel like it’s working for you.
“And the roots of the revolution run deep because it wasn’t the wealthy who made the biggest sacrifices after the financial crash, but ordinary, working class families.”
“If you’re well off and comfortable, Britain is a different country and these concerns are not your concerns. It’s easy to dismiss them – easy to say that all you want from government is for it to get out of the way but a change has got to come.
“It’s time to remember the good that government can do. Time for a new approach that says while government does not have all the answers, government can and should be a force for good; that the state exists to provide what individual people, communities and markets cannot.”
“People with assets have got richer,” Mrs May said. “People without them have suffered. People with mortgages have found their debts cheaper. People with savings have found themselves poorer. A change has got to come. And we are going to deliver it.”
It couldn’t be much clearer could it?
Inclusiveness. And this, over the course of the parliament, to the extent that it doesn’t damage the economy, you could expect to see some redistributive tax measures.
So what of the economy? Well, most seem to accept that after a pretty stellar post Brexit vote performance, the forecast going forward are pretty much uniformly pessimistic. There are exceptions – and given the inherent uncertainties …no one can truly know.
We do know that even before officially becoming Prime Minister, Theresa May had said that the government would no longer seek to reach a surplus by 2020. This was, as you will recall, a key target of the previous Chancellor.
The current Chancellor is accepted as being less “showy” than the last and his policies, aligned to the general overriding narrative are likely to reflect that. As for the Bank of England, the Chancellor seems committed to “doing whatever is necessary to keep growth from suffering too much”.
Monetary and fiscal policy have both been considered. The former in the shape of QE and low interest rates. Detail on the latter will be clearer on 23rd November – the date of the Autumn Statement.
Early in his time as Chancellor Mister Hammond said the following,
“Over the medium term we will have the opportunity with our Autumn Statement, our regular late year fiscal event, to reset fiscal policy if we deem it necessary to do so in the light of the data that will emerge over the coming months.”
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