Weekend press review: Oops! HMRC removes pensions calculator

by | Apr 23, 2018

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The Financial Times leads on a summary of the tax traps that would-be retirees need to negotiate as they prepare to take it easy.

First off is the need to stay well clear of the £1 million lifetime pensions allowance threshold. Exceeding the allowance, the FT says, may open your up to substantial excess tax charges – but it may be possible to use some of your protections under the higher pre-April 2016 allowances. You can, of course, only do this if you haven’t taken any pensions benefits already.

In a similar vein, the April 2016 changes brought in tapering restrictions for higher earners (above £150,000 p.a.) which may reduce the allowable savings limit from £40,000 all the way down to £10,000. It may be possible to “carry forward” contributions from up to three previous tax years which should make a difference.

 
 

Thirdly, VCT and EIS are still attractive alternatives to a pension scheme for more affluent investors. Again, there’s no news here for advisers.

And it mentions that IHT burdens have been reduced by recent rule changes as long as you know what you’re doing. And finally, gifting can reduce the IHT complications from bequests before death but again, only as long as you’re well advised.

The detail is complex; our time here, however, is short. Check the FT for more details.

 
 

In a similar vein to our first item, the Telegraph is among the many news sources reporting on HMRC’s decision to pull a pensions calculator off the air because it was giving so many consumers wrong advice. The taxman’s official guidance as to the allowable pension contributions was telling some people that they could only contribute £10,000 p.a. when their actual eligibility was £40,000.

Or so says Royal London, which says that the figures for 2017/18 and 2018/19 are both wrong. In effect, the pension provider says, the calculator is failing to take account of consumers’ eligibility to carry forward unused contributions from previous years. And, according to the Telegraph, this is the second time in seven months that HMRC has been forced to apologise for this sort of error. The Telegraph says there are further examples of out-of-date information with regard to child benefit, or to stamp duty surcharges on second homes.

The details are complex, the need for guidance is considerable. Suffice it to say that HMRC is apologetic. Let’s hope that it’ll still be apologetic next spring when the next round of tax assessments fall due.

 
 

The Financial Mail on Sunday’s Fund Focus column reports on the Templeton Emerging Markets Investment Trust which has recently seen Manraj Sekhon from Fullerton Fund Management take over as chief investment officer.

The article reports that Carlos Hardenberg, who succeeded Mark Mobius at the helm in October 2015, left for pastures new last month. Up has stepped Chetan Sehgal, senior research analyst, to take over the trust’s running, an individual with 22 years’ experience of emerging markets. Jeff Prestridge says that he is in positive mood , and that there will be no significant changes in the investment philosophy. He still sees opportunities in technology, particularly in China, and sees most emerging markets still in a “sweet spot”.

FMoS also focuses on lots of other consumer issues such as how to protect your contactless card, the rise in interest rates on student loans and fixed rate mortgages – we’ll spare you the details here.

Apparently most of us are misjudging quite how long we are likely to live, according to the Sunday Times which looks at research from the Institute of Fiscal Studies (IFS). It reports that the research shows that, on average, 65 year olds believe that they have just a 65% chance of reaching 75, whereas the official estimate is 83% for men and 89% for women. However, older people are most optimistic with 80 year old men seeing a 32% chance of reaching their 95th birthday, against the official estimate of 17%.  These beliefs affect spending patterns of course, with those who are optimistic about their longevity, being less likely to spend. The article goes on to give some pointers on how much people could look to spend in retirement and also roughly how much they might be able to drawdown from their pension pot and be “reasonably confident” they will not run out of money. They quote studies suggesting that a 65year old could take out 3% to 4% in this light, although as advisers will know, these figures are by no means a certainty and are affected by many factors.

Also in the Sunday Times, bonds are on Ian Cowie’s mind. Firstly he issues a solemn reminder that it is 30 years since the awful Barlow Clowes scandal which caused financial distress for thousands of investors. Moving on to today, he highlights how many pensioners are attracted to fixed income investments. He reminds readers that whilst pooled funds reduce risk through diversification, they can “make bonds riskier” as the holder will not hold the bond until redemption for a fixed repayment as direct bondholders can. He also reminds of the strong performance of bonds and bond funds over the last 20 years. However, he reports that many advisers are seeing risks in the popularity of bond funds at the moment and confesses to not holding any bond funds in his personal account.

The Sunday Telegraph Money section is doing its best to give readers the investment yips, with its focus on how to protect yourself against a market crash. James Connington refers to many expert investors who are predicting a crash or correction is imminent, including Dr Mark Mobius (yes, he of former TEMIT fame) who last week predicted the American market is set for a 30% fall.

Connington also highlights a recent global survey of fund managers conducted by the Bank of America Merrill Lynch (BofAML) which he says “revealed that managers have increased cash balances, reduced their allocations to shares to an 18 month low, and increased levels of insurance against a fall in share prices.” However, he does also mention that not everyone thinks a crash is set to happen, that 40% of BofAML managers don’t expect markets to peak until 2019 or beyond.

Ok, that’s the scare stories over. On the Telegraph’s list of things to consider to defend yourself against market collapses, are “bomb-proof funds”  -their term not ours – and as examples they cite multi-asset and absolute return funds. Bond funds are on the list too, but with a caveat of looking at those with a focus on short duration bonds and strategic bond funds. As you’d expect, gold gets a mention. And for those investing individual shares advice is to look for those companies with strong balance sheets.

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