Doctors earning £100,000+

One of the points that the Chancellor made in his Budget last week was that employees of state institutions, (such as the NHS) with earnings over £100,000 would be making larger payments towards their employer pension scheme. Doctors have already seen pension contributions rise from the standard 6% of pensionable pay to typically 7.5% if earnings are up to £105,319 but 8.5% if they are more than this. Many of our clients with various awards are therefore paying 8.5% towards the NHS Pension Scheme already. The Chancellor seems to be suggesting that this will rise.

There is increased pressure on the State purse and I imagine that the retirement age on the NHS Pension Scheme will gradually be increased to something more in-line with the State Pension.

As the new 50% tax regime comes into effect (assuming it will) from April 2011, the Chancellor made his restrictions on pension provision even tougher. Having originally advised that those earning £150,000 now cannot make pension contributions above £20,000 if they are to obtain 40% tax relief, this has now been reduced to £130,000 catching even more people. To say that pension rules have now become complicated would be a masterful understatement. The Government promised us all a new regime of Pensions Simplification from 6^th April 2006. This has been made a complete nonsense with rule upon bureaucratic rule ever since.

The framework for pension planning is undergoing some fairly significant testing at present, all in the name of saving money. Regrettably, I suspect that this will have precisely the opposite effect. The Government’s anti-forestalling measures for this and the next tax year are “problematic” for most Consultant doctors. The restrictions on contributions towards pensions are still somewhat undefined, but one possible interpretation would be that anyone earning more than £130,000 and contributing more than £20,000 a year (employee and employer) towards “pensions” will suffer a 20% tax charge on the excess. This rather uncomfortable point has yet to be properly clarified.

It is therefore important that we receive accurate information about your pension benefits. Unfortunately, the NHS Pensions Agency made this exercise more difficult from October this year. They now only provide us with very basic details about pensionable service rather than the full service history that we normally request. I might add that the NHSPA have always been very helpful to me and I think that I am still one of the very few IFAs that has ever taken the time to make a personal visit to Hesketh House and understand the practical problems that the administrators have.

Consultants also have an above average change of an HMRC investigation, so I think it safe to say that ensuring that you are well advised is more important than ever.

Interest Rates held at 0.5%

Interest rates have been held at 0.5%, which have now been at this level for 9 months, since March, which coincidentally was the bottom of the stockmarket dip in the current recession.

For those with debt this is of course continued welcome news – but now really is the time to make those overpayments to reduce your debt. Never has the impact of interest been so modest of your total debt. The news is less welcome for those reliant upon cash deposit savings or approaching retirement and possibly considering buying an annuity. The city seems to be of the mind that interest rates are likely to remain at this level for a further 12 months with very little change. If this forecast becomes reality, 2010 should be the year that you reduce debt and seek alternatives to cash to improve income.

Politically, we have an election to come in 2010 and I imagine that if there is a change of Government, as many expect, some of the detail of the hard facts of the current Government spending will be published. Depending on who and what you believe, this will create two possible outcomes. Panic (at the numbers), or relief (that they are not as bad as feared). How the markets interpret this remains to be seen, but my own view is that caution should be exercised.

Here’s one for the statisticians – only 12 months ago the Bank base rate was 2.0% some 400% higher than it currently is at present. Our media loves this sort of mathematical frightener – imagine a 400% increase in interest rates now as a headline…. Still only 2.0% which is frankly “as cheap as chips”!

Pre-Budget Report 2009

I have had a look at the 216 page pre-Budget report from the Chancellor today. This will certainly help me sleep tonight.

In short, there is little that we did not know, or more accurately expect. I am of the view that whatever one’s political persuasion, the announcements made today may never come into effect with a change of Government. It is very difficult to remove the political manoeuvring from the detail with much success.

The key points that will impact our clients are as follows:

^· The personal allowance is frozen at £6,475 however from April 6^th 2010 those with a taxable income over £100,000 will see the personal allowance reduce by £1 for every £2 over £100,000. In other words once your income is £112,950 you will lose your personal allowance entirely. Remember the personal allowance is the amount of income that can be earned before you pay any income tax¹.

· Those earning £130,000 or more will have a pension contribution restriction of £20,000 which includes all payment from both employees and employers. This comes into effect from April 2011 but the Government announced².

· Those earning over £150,000 have the same restriction but also pay income tax at 50%

· VAT will return to 17.5% from 1^st January 2010³. Our invoice for services which is issued before 31^st December will be charged at the current rate of 15%. We agree a monthly payment facility with our clients to pay this over 12 months. So even though VAT will rise this will not apply to anyone invoiced before 1^st January 2010.

· Public sector workers (doctors) will be expected to pay more into their employers pension scheme (no detail was provided)⁴.

· National Insurance contributions will rise by 0.5% for employees, self employed and employers from April 2011⁵.

· 50% tax on bonuses over £25,000 to bank employees⁶.

· The inheritance tax nil rate band is frozen at £325,000 until 2011⁷.

· ISAs have a £10,200 allowance for all (not just the over 50’s) from April 6^th 2010⁸.

· Public sector pay awards are likely to be restricted to up to 1% a year from 2011 to 2013⁹.

Tomorrow I will provide a guide to the Budget which I hope you will find of use.

¹: Section 5.4, p74 & B5, p175

²: Section 5.28 & 5.49

³: Section 5.20, p74

⁴: Section 6.51, p113 & Annex B82 p196

⁵: Section 5.20, p74

⁶: Section 3.38, p50

⁷: Section 5.92, p94

⁸: Section 5.38, p83

^9: Section 6.49, p112

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