February 17th, 2012
Capital gains tax . CGT . IHT . Income Tax . Inheritance Tax . ISA . pension . Tax Year End
My blog post with tax year end tips on use of
Income Tax – personal allowances
Capital gains tax
Inheritance Tax
ISAs
Pension
http://greenfinancial.blogspot.com/2012/02/end-of-tax-year-tips-2011-12.html
February 2nd, 2012
Green Financial has to pay a levy each year to help fund the UK regulator and a consumer facing money website and helpline.
The Financial Services Authority, the regulatory body that oversees Green Financial Advice, has proposed to raise annual costs by 15.6% from £500.5m for 2011/12 to £578.4m for 2012/13.
This follows a 10 per cent increase last year.
The consumer facing Money Advice Service for 2012/13 budget has almost doubled from £43.7m for 2011/12 to £86.8m in 2012/13.
I will be standing on Putney High Street rattling a collection tin. All donations gratefully received
Green Financial also pay into a fund called the FSCS. Advisers are facing a Financial Services Compensation Scheme annual levy of £33m for 2012/13.
The investment intermediation sub-class [catchy name huh, I'm so delighted to be a sub-class] faces an annual FSCS levy of £33m
The levy relates to compensation clains for Keydata, Wills and Co and Arch cru [none of which I was involved in, in any way]. However the levy does not include likely compensation claims for MF Global [which again, I was not involved in]. Advisers could face a further interim levy of £40m before the end of March in relation to MF Global claims.
Continues to rattle tin on high street.
February 2nd, 2012
Auto enrolment, contribution levels, eligible employee criteria and important dates
There is a quick update to the workplace pension reform here:
http://greenfinancial.blogspot.com/2012/02/workplace-pension-reform-quick-update.html
It includes links to useful Government web pages
January 20th, 2012
Green Financial . TP . true Potential
The shares were offered in return for placing business on the platform.
We have rejected the offer and elected not to participate in order to avoid any suggestion of conflict of interest.
Green Financial place independence and doing the best possible job for our clients at the heart of everything we do.
As you can read below, technically it appears there would be no legal conflict of interest. Green Financial recognise that TP is a great piece of software as a back office and client site system and the wealth platform element has much to recommend it to many clients. But not all clients.
We will continue to only recommend TP as a wealth platform if we believe that is the best solution for a client and we will NOT receive any shares or inducement for placing business on it.
We asked the company if this represented a conflict of interest. Their response included:
“…whether a conflict actually exists when the units being offered represent no current or real value and are issued within a trust of a non-authorised entity, True Potential LLP, which is a completely separate legal entity and has no bearing or influence over the regulated Platform nor over the advisers giving advice to their clients.
The actual rules state that for the purposes of identifying the types of conflict of interest that arise, or may arise, in the course of providing a service and whose existence may entail a material risk of damage to the interests of a client a firm must take into account, as a minimum, whether the firm or relevant person directly or indirectly linked by control to the firm:
What is important here is identifying the risk, loss or damage to your client – if the platform is suitable for your client then there is no loss or disadvantage and in turn no conflict.
Furthermore the FSA guidance states that the circumstances which should be treated as giving rise to a conflict of interest covers cases where there is a conflict between the interests of the firm and the duty the firm owes to a client or between the differing interests of two or more clients to whom the firm owes in each case a duty. It is not enough that a firm may gain a benefit if there is not also a possible disadvantage to a client or that one client to whom the firm owes a duty may gain or avoid a loss without there being an associated possible loss to another such client – this guidance means that if there is no loss to a client or no client loses out as a result of another client being placed on the platform then there is no conflict.
It is worth noting another wrap platform we used recognised our excellent quality and volume of business by offering a 0.05% benefit. Rather than take this money we passed it on to all client accounts as a discount and it is disclosed on literature if it benefits a client.
Green Financial continue to believe that our remuneration should be based on the agreements between you the client and us for the work that we do for you.
We will remain independent and will not accept money or shares for placing volumes of client business with a provider.
January 16th, 2012
income . pension . retirement
Recent research indicates 49% of households with 2 children are not saving for retirement
This blog posts looks at the financial impact this can have as well as the benefits of even a modest pension contribution during the years children are at home
http://greenfinancial.blogspot.com/2012/01/retirement-2-children-49.html
click here to read about the new KIID rules for investment documentation
http://greenfinancial.blogspot.com/2012/01/you-must-be-kiidding.html
January 11th, 2012
Pension Insight magazine editor Bob Campion recently wrote that the gradual reduction in maximum state pension benefits could end up costing some people £144,625.81.
He calculated this is the amount you’d need to buy an annuity to replace the lost £6,326.84 a year if the maximum state pension reduced from £13,606.84 to £7,280
The £13,606.84 is the theoretical maximum for someone with full basic state pension (BSP, currently £102.15pw in 2011/12 available to those with more than 30 years NI contributions) and maximum second state pensions (SERPS and S2P). This contrasts with the maximum £7,280 payable if we move to the proposed 3140 per week flat rate system. It would affect most higher earners and those who do not qualify for any kind of pension credits or means tested pension top ups. At present almost 1 in 2 pensioners are eligible for top ups of some kind but for those who do not qualify for state assistance over and above the basic state pension the changes to state pension rules looks likely to mean a significant reduction in available benefits over the coming decades, with less effect on those retiring sooner, especially in the next 10 years.
As a point of interest if the new rules all come in when proposed (but it looks likely they will be brought forwards) it will be into the 2080’s before everyone is on the same rate. Until then there will be a mixture of different regimes and people will have multiple pensions (private and state) with different rules and retirement ages applying depending on age and pension structure.
This makes it nigh on impossible to accurately calculate one’s own state pension benefits until the point you reach them. Indeed even the DWP are not really sure what income a pensioner will get until they reach state pension age (65 and rising). As an IFA it makes it financially impractical to charge a client to work this out. The time and cost involved outweigh the benefit!
Contracting out (called SERPS up until April 2002 and S2P afterwards) will soon no longer be available from money purchase schemes, which includes personal pensions and SIPPs – see also http://greenfinancial.blogspot.com/2011/12/contracting-out-serps-s2p-all-that.html
It used to be the case, that as an IFA, I could estimate whether it was ‘worth’ contracting out or not. There were a multitude of individual factors but the biggest was often if aged under or over 45. So the ending of contracting out from money purchase schemes is a welcome simplification but as indicated above the change to the new regime will bring complification [ED: not a real word but should be] well into the 2080s. Again, on the plus side, the new rules should benefit lower earners. But what is the detriment to higher earners?
The loss of the income as stated at outset in this article is one but there is another. The impact on attaining qualification for the new ‘flexible drawdown’ – download Green Financial guide here http://www.iangreen.com/downloads/Flexible.pdf or view on facebook here http://www.facebook.com/media/set/?set=a.279726955386751.88831.136170059742442&type=1&l=b96248bd07
This requires a lifetime pension income provision of at least £20,000. So having state benefits of £13,000+ goes much further towards this than £7,280! If you had the £13,606 to buy a comparable annuity to top up to £20,000 would mean you’d need a personal pension of about £93,000 to buy the annuity. At the lower state pension income you’d need more like £200,000 to top up.
To repeat a fact I tweeted last year, to purchase an annuity (so income for life) on the same terms as the state pension a 65 year old male would need a private pension fund of £310,343.19
So in summary, pension and state pension simplification is of course welcomed by all, especially me as I will be far better placed to assist clients in calculating what there state pension entitlement might be. But the journey to a simple state pension regime is far from defined and will be a long journey whatever direction it takes. Under current proposals I’ll be aged 109 when all pensioners are on a flat rate pension income!
For those retiring in the next ten years, there is not so much to worry about as the status quo all but applies, with changes to retirement age (upwards, see link to calculator below to work out yours) being the main factor coming slowly in.
But for those retiring 10 years out, especially those who aspire to or consider they will have taxable income at the higher rate of tax it is well worth making sure your pension – and most importantly forecast pension income – is reviewed to ensure it is on track to meet your aims.
If you are a pension or retirement income client of Green Financial or would be interested in becoming one, please do contact us. We’d love to help if possible.
Further Reading and Resources
28 page Green Financial Retirement Planning Guide – http://www.iangreen.com/downloads/Retirement.pdf
Government Money Advice Service – http://www.moneyadviceservice.org.uk/yourmoney/pensions_and_retirement/default.aspx
State Pension Age Calculator – http://pensions-service.direct.gov.uk/en/state-pension-age-calculator/home.asp
Getting a State Pension Forecast - http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/StatePensionforecast/DG_10014008
Green PEAs – The Green financial Pension Evaluation and Analysis Service for personal pensions - http://www.iangreen.com/pensionperformance.php
December 23rd, 2011
Wishing Green Financial Blog readers,
Clients, friends, suppliers and associates
a very Merry Christmas and a Happy New Year
Are you a Green Financial Client that was Born in the USA?
Are you a US citizen, or married to a US citizen?
Or are you a green card holder or temporarily resident in the country or even just own a holiday home in the US!
If you are one of the above and a Green Financial client we may need to talk soon.
Chewing the FATCA
“The US-instigated FATCA (Foreign Account Tax Compliance Act) threatens to be a costly administrative headache for financial institutions in the UK”, says Cherry Reynard on www.adviser-hub.co.uk ,
It brings responsibilities for advisers such as Green Financial too.
And for added responsibility, read added cost 
AdviserHub reports:
“As government coffers weaken around the developed world, policymakers have been implementing increasingly draconian legislation to generate revenue and the Foreign Account Tax Compliance Act (FATCA), introduced by the US tax authorities in March 2010, is one of the more far-reaching examples.
Some commentators, including Robin Stoakley, managing director of Schroders’ UK intermediary business, have even gone so far as to suggest that the impact of FATCA could be as significant as that of the Retail Distribution Review (RDR) (see other Green Financial Blog Posts).
It certainly threatens to be a costly administrative headache for UK-based financial institutions.
The legislation is designed to crack down on offshore tax avoidance on ‘US accounts’ of more than $50,000 (£32,000). Crucially, this is not limited to US citizens but may include other individuals potentially subject to US tax, such as those with a holiday home in the US, green card holders or those who are temporarily resident in the country.
The US authorities’ aim is to ensure that tax is paid on individuals’ worldwide income where appropriate. One of the thorniest areas of FATCA may be where US citizens are married to non-US citizens. The legislation is not yet clear on whether the income of the non-US spouse potentially falls within its scope.
This would seem to present few problems for UK-based fund managers, advisers and administration platforms were it not for the requirement that any investor holding US assets effectively ‘prove’ that they are not US citizens. This means that UK financial institutions will have to undertake a significant data-gathering exercise to ensure their clients do not fall within the remit of the legislation.
Compliance process
According to a report by KPMG, FATCA and the funds industry the data that is required for FATCA compliance in the investment funds industry is, in most cases, not held by one person. As such, advisers like Green Financial will also form an important part of the compliance process in that they will need to provide details of clients. Problems could also arise where nominee structures are held.
The KPMG report suggests as many as 32% of investment fund managers expect to have to adapt their product range to comply with FATCA. Fund of funds have a particular problem with only around 10% saying they can determine the amount of US-sourced investments.
Research by Schroders suggests the legislation may cost as much £400m for the financial services industry, potentially raising administration costs for advisers.
The full details of the legislation have yet to be finalised, with further guidance expected shortly, but Foreign Financial Institutions (FFIs) will have to register with the US’s Internal Revenue Service (IRS) by 30 June 2013 under the new rules. The deadline for full implementation of the legislation was originally January 2013, but some parts have now been moved back to 2014 and beyond.
Once registered, FFIs are expected to work with the IRS to attain ‘Participating FFI’ status. This will include demonstrating they have procedures in place to pick up US accounts among their existing clients and to implement proper account opening procedures in future.
Draconian penalties
The penalties for non-compliance are draconian. Withholding tax of 30% on income and asset disposals is payable for so-called ‘recalcitrant account holders’ – in other words, those that do not provide reasonable disclosure – and for non-participating Foreign Financial Institutions (NPFFIs).
These are called ‘Passthru’ payments and, according to RBS Dexia, may include US-sourced interest, dividends and gross proceeds on disposition of assets as well as non US-sourced interest, dividends and gross proceeds on disposition of assets multiplied by the pro-rata ratio of US to non-US assets.
Some groups are defined as ‘deemed compliant’. These are accounts the IRS views as exempt from FATCA’s rules and include certain holding companies, start-up companies, hedging/financing centres of a non-financial group and certain insurance companies. Pensions are currently under review. In practice the IRS has been tight in its definition and relatively few institutions are deemed compliant.”
Adviser Hub concludes:
“Broadly speaking, fund and wealth managers have gone one of two ways in tackling the legislation. Some are moving towards full compliance, whereas others are moving out of the market altogether. In practice the latter may not be easy, given the spread of the legislation although, in July, HSBC said it planned to sever its ties with wealthy US customers who bank offshore to aid FATCA compliance. Some groups are making a virtue of necessity, setting up US tax-compliant investment vehicles through which US citizens can invest.”
We at Green Financial will be working with our UK based clients to ensure full compliance with any new rules. If you think this may apply to you in any way, please do contact us to discuss.
December 13th, 2011
contracting out . income . pension . retirement . S2P . SERPS . state pension
What does this mean?
Many people have built up pension pots since the 80s based on the fact they contracted out. This pension was known as ‘protected rights’. What happened, in simplistic terms, was rather than have a portion of their National Insurance (NI) contributions build up a second state pension (not to be confused with the basic state pension, which is not affected by this) their NI was diverted into a separate pot often alongside their personal pension contributions from earnings. The personal contributions were known as ‘non-protected rights’ or ‘ordinary benefits’. This could even be done if you didn’t make any personal contributions yourself. I remember meeting a pension salesman in the mid 90s who built his entire career based on contracting out New Zealanders whilst they worked here in the UK.
The contracting out pension was once referred to as SERPS (State Earnings Related Pension Scheme) and in more recent times S2P (State 2nd Pension).
From 6th April 2012 there will no longer be the option to ‘contract out’ of S2P.
The change won’t affect any past benefit accrued in the tax years before 6 April 2012 – they’ll remain invested in the same way you have them now. However, there will be more flexibility over how you draw the benefits from the pension.
The rules and flexibility over accessing SERPS and S2P have changed in recent years. The latest big change is that at the moment (pre April 2012) you are forced to take a pension that also pays a pension to your spouse or civil partner when you die but after April 2012 this will no longer be the case – although you could if you wanted to of course.
Further reading is available on the Government website : www.direct.gov.uk/en/pensionsandretirementplanning/statepension/DG_180010
What do you have to do now?
For most people the answer is nothing, the changes happen automatically.
However now might be a good time to review your pension contributions and what you might expect from your pension when you retire to see if it will be sufficient for your needs. It is important now, more than ever, to work out as best you can what the state will provide and therefore what gap needs to be made up personally.
I have more information on how I can help in reviewing your pension on my website: http://www.iangreen.com/pensionperformance.php
Or my Guide to retirement guide on facebook:
http://www.facebook.com/media/set/?set=a.279745942051519.88838.136170059742442&type=1&l=e9d045b20c
(also available with many other guides here http://www.iangreen.com/education.php )