Government bashed for Budget attack on Pensions

On Tuesday, the House of Lords made very clear their objection to the Chancellors decision to attack 40% pension tax relief for those earning £150,000 a year. Their key criticism was that the changes were too complicated, retrospective and damaging to the ethos behind pension planning. As many of our clients will know, I am not a fan of pensions – their saving grace is the tax relief achieved on the contributions, which is invariably worth the pain of locking money up in a pension (albeit with much improved flexibility and access since “A-day”).

The number of people and amounts of money involved are relatively insignificant when compared to other aspects of public finance. In practice, there are already existing restrictions on pension payments:

1. Payment cannot exceed of 100% of earnings (capped to an absolute maximum of £245,000 in 2009/10
2. The total value in a pension cannot exceed the lifetime allowance of £1.75m in 2009/10

So in reality most people will not contribute up to £245,000 towards a pension, even if they could it would use up 14% of the lifetime allowance in a single year.

Of course, a pension is an investment – so any payments into one will invariably be buying shares, which helps to grow businesses and of course stimulate/repair many ailing companies. The implications of messing around with a fairly clear system appear to have been poorly thought through.

The Big Tax Return

Christian Aid is running a campaign which gathers momentum in July. The thrust of the campaign is to lobby for a fairer international taxation system. At the moment many very large companies can legitimately dodge tax that would be due in some of the world’s poorest countries. This of course ultimately affects some of the poorest people on the planet.

Accountancy firms that specialise in helping multinationals achieve such advantage are really merely doing what they are paid to do, however the rules could be altered so that tax is fair. Christian Aid estimates that the world’s poorest communities lose more than $160bn a year because of tax dodging.

I am well aware that many of the world’s poorest countries have inept and often corrupt Governments. This is not about aid, but about making a fairer tax system, so that hopefully the poorest countries can gradually work themselves out of poverty. Have a look at the campaign details and why not send a supportive email to the big 4 Accountancy firms who have a significant influence over changing international tax law. It’s really easy and might bring about a sense of justice that most of recognise is woefully lacking.

http://www.christianaid.org.uk/ActNow/the-big-tax-return/index.aspx

The Time is Now

Anthony Bolton is one of the most successful Fund Managers in the UK, who ran the Fidelity Special Situations Fund with enormous success from 1979 until the end of 2007. During this period, his fund (had you invested at the beginning) achieved annualised returns of 19.5% - significantly outperforming the market return of 13.5% over the same period.

Mr Bolton still works for Fidelity and oversees investment of the UK group as a whole and still plays a significant part in the work that Fidelity does. He is very highly regarded by myself and many thousands of industry experts. Invariably he is well worth listening to, so his recent comments that investors should not delay re-entering the market should be heeded. He seems to be suggesting that much of the recovery will be made in a few concentrated months. This reflects my own view that the next 3 years out of the next 10 are likely to see the highest annual growth rates, although said with the expectation that there will continue to be bad news as problems become apparent in our economy with rising unemployment, bankruptcy, and repossession levels.

For those interested, Anthony Bolton has written a couple of books about investing, “The Anatomy of a Stock Market Phenomenon” (2004) and his latest publication “Investing Against the Tide” (2009).

Lincoln National

Many doctors may remember attending “drug lunches” in the 1990’s run by the likes of Cannon Lincoln who became Lincoln National, and then Lincoln. These firms tended to sell a variety of fairly expensive basic financial products. Over the last 10 years Lincoln has made considerable efforts to market innovative products and improve investment performance.

Last week, on 15th June 2009, the North American parent company (worth around $178bn at the end of 2008) announced on that it has agreed to sell its UK presence, the Lincoln Financial Group (worth £4.19bn at the end of 2008) to Sun Life Financial of Canada for around £195m. If you still have any of these old policies, you can expect yet another rebranding, and if you have not reviewed these old policies for some time, I suggest that this is something that you make a priority.

Lincoln saw its unit-linked funds under management reduce by 23% in 2008 and also saw a significant fall in new business levels for insurance and investments.

Lincoln took over a number of businesses that focused on the medical market in the 1980s and 90s, which include Citibank Financial, Laurentian Life and Liberty. At the time, they had a direct sales force that were incredibly pushy - Lincoln re-invented their business model and focused on the IFA market which has been a very successful remodelling of their offering, moving to products that are truly worthy of consideration by IFAs.

Give Up a Car Journey Week (29 June – 4 July 2009)

Next week, there is an initiative to get us all to use our cars less.

The idea is to swap a car trip that you would normally conduct and either walk, cycle or use public transport. As petrol prices have continued to rise with the national average for a litre of unleaded being £103.2 or £105.2 for diesel (petrolprices.com) it would seem logical to reduce expenses, get a little exercise and do a bit more to help improve the environment. If you are able to get involved, why not sign up for the experiment…perhaps it will be life changing.

See www.changeyourworld.org.uk

Royal Fail

Any sympathy that I have for Royal Mail gets tested each day. As a business in London, our post does not arrive before 12-1pm each day in a decidedly hapless fashion. This has gone on since we moved to our new premises 2 years ago. This means that my team have half the time they could have to open, scan, note and respond to the day’s post. A business like ours tends to get a reasonable amount of post each day from clients, some incredibly important and time sensitive – such as mortgage applications.

Every year the prices go up, the service seems to worsen and to cap it all there was no post on Friday due to strike action, or at least that is what appears to have been the case. Any sense of nostalgia about the Royal Mail is being gradually ebbed away and in my frustration I imagine that privatising the entire thing would make for a better and more competitive service, which seems a pretty easy objective to achieve.

As the Government seem keen introduce a new tax to ensure basic broadband is available everywhere (nothing quite like low targets is there?). I suggest giving everyone a scanner and email connection that can remove the vast majority of mail anyway.

Mortgage News for Doctors

Mark (Hall, Mortgage Partner at Solomon's) has an article published in this months (June 2009) edition of Independent Practitioner Today.

If you are a Consultant or GP with the need for some helpful business input directly from specialists and practitioners themselves, ask for a free trial copy. This can be obtained from www.independent-practitioner-today.co.uk.

Don’t forget to check our specialist mortgage site www.doctorsmortgages.co.uk and let others know about it as well. Mark is securing some excellent mortgages for our clients at the moment.

Public Sector Final Salary Scheme Warning

The current financial crisis has added fuel to the fire, for those concerned that the large Government backed final salary schemes are “expensive”. In reality the NHS, Teachers, Civil Service, Local and Central Government pension schemes are likely to alter considerably at some point over the next 20 years. The political will to end these final salary schemes has been muted due to the vested interests of politicians and the civil service but also due to the likely anger and protest that such a move would likely generate from the vocal unions and members of such schemes.

The Policy Exchange appears to have proposed replacing public sector pensions with investment based schemes (as is now the norm for the commercial sector). It is estimated that such a move would save around £12bn a year. At the moment, members of most public sector schemes contribute to their pensions – a doctor will pay 6% of salary. This money is not really paying for the pension of the individual, but for those already in retirement or perhaps their widow/er, much like everyone’s National Insurance is not really securing a pension for retirement, but helping to pay for those already retired.

Most of us are taxpayers, irrespective of age, so it is a myth to think that only those that are earning a living are paying tax - those with pensions (including the State pension) are also liable for personal income tax. The new proposals would tackle the issue of payments towards pensions being actually for the future but applied in value in the present. In other words, moving away from the promise of tomorrow based upon assumptions about there being sufficient future employees (and money) to pay towards the scheme.

This would seem to have won approval with the electorate (if well communicated) as there is the sense that once the money is set aside in a given year, for say the NHS pension, no more would be forthcoming. The price is fixed, the deal is done, end of discussion. There would then be no alarm bells asking if there is enough money in the pot at the end of 40 years, you get what is there. Perhaps more importantly, this is the sort of idea that post-modern politicians seem to like (by like, I mean find easy to sell as policy) – fixed sums that don’t become a gaping chasm that needs filling with public funds.

Of course any changes of such magnitude would require all of the political skill available to prevent a potentially huge amount of protest from public sector employees. However, despite the inevitable anger, there are relatively few alternatives and unfortunately the numbers won’t go away.