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How mooted pension tax relief reform plans could hit savers

Please see below article recently received from AJ Bell, which warns of the potential impact that tax relief reform could have on pensions and investors.

Recent press reports suggest the Treasury is eyeing cuts to pension tax incentives to help pay the cost of COVID. Reforms said to be under consideration include introducing a flat rate of pension tax relief, cutting the lifetime allowance or taxing employer contributions.

Beyond the political fire and brimstone a pensions tax raid would cause among Conservative backbenchers and voters, there would be significant practical implications for any of the proposals floated by the Treasury.

Cutting tax relief for individuals risks undoing the groundwork laid by automatic enrolment and sowing mistrust in the stability of the retirement savings framework.

Hitting employers, meanwhile, might raise a fast buck for the Chancellor but would risk strangling off the UK’s pandemic recovery.

There were always going to be tough fiscal choices as the country slowly shifts away from dealing with the health emergency of Coronavirus and focuses on the financial hole blown in the Exchequer’s balance sheet.

It is critical any proposals for pension tax reform consider both short and long-term priorities, and in particular the challenge of ensuring current and future generations’ retirement prospects are not fatally damaged.

Introducing a flat rate of pension tax relief

Given the priority of the Government is to raise cash for the post-COVID economic recovery, a flat rate of pension tax relief would likely need to be set well below 30% to achieve this.

In fact, analysis carried out by the respected Pensions Policy Institute* suggested setting a flat rate of pension tax relief at 30% would actually cost the Government money, while a rate of 25% might save between £2-£3billion a year and 20% around £6-£8 billion a year.

Such huge savings would clearly come at a cost to individuals. For example, if a flat rate of 20% was introduced, a 35-year-old earning £60,000 and paying 4% of salary into a pension could miss out on £50,000 of retirement income by the time they are 67. Those earning more or making larger contributions would face an even bigger hit to their plans.

However, the big challenge in going down this road – both practically and politically – lies in the public sector, where some workers continue to enjoy generous guaranteed defined benefit pensions.

In order to apply a flat rate of relief to these pensions a tax charge would need to be calculated and applied directly to employees by HMRC.

Doctors and senior NHS staff who have been on the front line dealing with the pandemic would likely end up with tax bills running into thousands of pounds as a result.

Reduce the pensions lifetime allowance from £1,073,100 to £900,000 or £800,000

The lifetime allowance has been tinkered with relentlessly by successive Governments, reducing from £1.8 million a decade ago to just £1 million by 2016/17. Two years later it was pegged to CPI inflation – but this link was removed for the rest of this Parliament by Rishi Sunak in March. This constant tinkering has led to huge complexity and uncertainty for retirement savers.

If we were to get yet another cut to the lifetime allowance to £900,000 or even £800,000, as has been suggested, more diligent savers would be at risk of breaching the limit.

To put this in context, reducing the lifetime allowance to £800,000 would mean after tax-free cash has been taken the retirement income someone could take at age 66 would be well below the average salary in the UK.**

This would feel like an extremely low bar to set for people’s retirement aspirations.

Tax employer pension contributions

Of the pension tax proposals floated this was the one with the least amount of detail attached – which is saying something.

At the moment employer pension contributions are exempt from National Insurance, so it is theoretically possible the Treasury could reverse this position – or perhaps apply a limited charge – in a bid to raise revenue.

However, going down this road would cause uproar among businesses already struggling to deal with the fallout from the pandemic. It could also be counterproductive if landing these firms with extra costs forced them to hold off on investment.

Over the long-term, any increase in the costs of providing pensions would likely see a damaging levelling down of provision.


Pension tax reliefs have been under review since Gordon Brown was the Chancellor in 1997, remember his tax raid?  Every government looks at them.

Whilst changing tax reliefs could save money for the State, we need to look at the bigger picture.  What would be the impact on pension savings?  If people save less in pensions, they will rely more on the State.  This is not what any government wants.

I think tinkering with employer pension contributions tax relief would be particularly damaging.  Employers need to help fund employee’s pensions.

Hopefully, we won’t see any change in this area, but we also know that we need money now too to support the country in key areas, covid debt interest payments (long term repayment?), to re-build the NHS/Social Services/Residential Care etc., and to help kick start the economy in the UK.

The other issue is timing, Rishi Sunak needs all of us to go out and spend money now to help the economy recover.  He can’t scare us into not spending, we will fall back into recession.

Steve Speed


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Pensions and Divorce Blog

Please see below an article on Divorce Law reforms from FT Adviser, which caught my eye as this is an area of advice we get involved in and I think helps highlight just how long it can this process can take:

Couples seeking a no fault divorce under new legislation will now have to wait until 2022, the government has confirmed.

The implementation of the Divorce, Dissolution and Separation Act will now come into force on April 6, 2022, not in October as the government had originally planned.

In a written answer to a question posed by Conservative MP Jane Stevenson, published yesterday (June 7), Chris Philp, parliamentary under secretary of state at the Ministry of Justice, said the original implementation date had been “ambitious”, although the bill received Royal Assent in June 2020.

He said the government had started work to identify, design and build the necessary amendments to court forms and also to amend the online digital divorce service while rules are being finalised.

But he admitted these amendments will not be finished before the end of the year.

Philp said: “The Ministry of Justice is committed to ensuring that the amended digital service allows for a smooth transition from the existing service which has reformed the way divorce is administered in the courts and improved the service received by divorcing couples at a traumatic point in their lives. 

“Following detailed design work, it is now clear that these amendments, along with the full and rigorous testing of the new system ahead of implementation, will not conclude before the end of the year.

“While this delay is unfortunate it is essential that we take the time to get this right.”

The no-fault law will require divorcing couples to provide a statement of irretrievable breakdown and replace the need for evidence of conduct, such as adultery or unreasonable behaviour, or proof of separation. 

According to the government, the act provides for the biggest reform of divorce law in 50 years and will reduce conflict between couples legally ending a marriage or civil partnership as they will no longer have to blame each other for the breakdown.

A Ministry of Justice spokesperson said: “Our changes will help divorcing couples to resolve their issues amicably by ending the needless ‘blame game’ that can exacerbate conflict and damage a child’s upbringing.

“These measures represent the biggest reform to divorce laws in 50 years, so it is right that we take time to ensure they are implemented as smoothly as possible.”

Alongside the no fault rules, the Divorce, Dissolution and Separation Act will remove the possibility of contesting the decision to divorce, as a statement will be conclusive evidence that the marriage has irretrievably broken down.

It also introduces a minimum period of 20 weeks from the start of proceedings to confirmation to the court that a conditional order of divorce may be made.

Kate Daly, co founder of divorce service Amicable, said: “We’re disappointed to hear the no fault divorce bill is due to be delayed until 2022. It’s the biggest reform to UK divorce law in 50 years, so we cannot afford to rush it, but we see first-hand the emotional toll that divorce proceedings can cause when conducted in an acrimonious, fault-finding manner.”

She added: “At Amicable, we have helped thousands of people untie the knot harmoniously, and many of people we have spoken to are holding off until the new laws come into place. Waiting longer could prove incredibly challenging emotionally, and has additional implications such as not being able to finalise financial arrangements. 

“The Ministry of Justice should solve these technical issues as a priority to help people reach productive agreements.”

This latest deferral frustrates those awaiting amendments to what is already a lengthy and emotional process. This deferral doesn’t help reaching a financial settlement, including what assets, such as Pensions, that need to be included and what split is appropriate.

This is a complicated subject matter and something I will be writing about in greater detail via additional blogs over the coming weeks to show where we can add value and how we can help once the divorce is finalised.

Please continue to check our Blog content for advice and planning issues and the latest investment, markets and economic updates from leading investment houses.

Please keep safe and healthy.

Carl Mitchell – Dip PFS

Independent Financial Adviser


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PruFund range of funds – EGR and UPA announcement

Please see below for Prudential’s latest announcement regarding Unit Price Adjustments for the PruFund range of funds, received by us late yesterday 25/05/2021:

At this quarter’s review, we’ve announced no change to the Expected Growth Rates (EGR) and upward Unit Price Adjustments (UPA) to a number of the PruFund range of funds this quarter end.

PruFund UPA announcement 

Today we’ve announced there’s upward UPAs to the following PruFund funds:

FundUPA applied 
Prudential Investment Plan  
PruFund Growth Fund +3.56%
PruFund Risk Managed 4 Fund +5.33%
PruFund Risk Managed 5 Fund 
Trustee Investment Plan 
PruFund Cautious Pension/ISA Fund +2.00%
PruFund Growth Pension/ISA Fund+3.91%
PruFund Risk Managed 2 Pension/ISA Fund +2.09%
 PruFund Risk Managed 3 Pension/ISA Fund +3.22%
 PruFund Risk Managed 4 Pension/ISA Fund  +2.67%
Prudential ISA 
PruFund Cautious Pension/ISA Fund +2.00%
PruFund Growth Pension/ISA Fund +3.91%
PruFund Risk Managed 2 Pension/ISA Fund +2.09%
PruFund Risk Managed 3 Pension/ISA Fund +3.22%
 PruFund Risk Managed 4 Pension/ISA Fund  +2.67%
PruFund Risk Managed 5 Pension/ISA Fund +3.45%
Prudential Retirement Account – Series D 
PruFund Cautious Pension Fund – Series D+2.00%
 PruFund Growth Pension Fund – Series D+3.91%
PruFund Risk Managed 2 Pension Fund – Series D+2.09%
 PruFund Risk Managed 3 Pension Fund – Series D  +3.22%
PruFund Risk Managed 4 Pension Fund – Series D   +2.67%
Flexible Retirement Plan 
PruFund Cautious Pension/ISA Fund+2.00%
PruFund Growth Pension/ISA Fund +3.91%
PruFund Risk Managed 2 Pension/ISA Fund +2.09%
PruFund Risk Managed 3 Pension/ISA Fund +3.22%
PruFund Risk Managed 4 Pension/ISA Fund +2.67%
International Prudence Bond / Prudential International Investment Bond 
PruFund Cautious (Sterling) Fund +2.00%
PruFund Growth (Sterling) Fund+2.88%
PruFund Growth (Dollar) Fund+2.95%
PruFund Growth (Euro) Fund+2.68%

Please note UPAs also apply to the protected versions of the fund where applicable.

On the monthly PruFund Investment Date, a UPA is applied if the unsmoothed price is:

  • 4%, or more, higher than the smoothed price, for our PruFund Cautious, PruFund Risk Managed 1 or PruFund Risk Managed 2 funds, or
  • 5%, or more, higher than the smoothed price for our PruFund Growth, PruFund Risk Managed 3, PruFund Risk Managed 4 or PruFund Risk Managed 5 funds.

Growth rates aren’t guaranteed. The value of an investment can go down as well as up. Your client may get back less than they have paid in.

More information on the EGRs and UPAs for each product is available on PruAdviser.

Prudential have said that they have had a strong 6 month performance since the 25th November last year.  It’s important to note that PruFund funds lag both a rising and a falling market.  The increases or reductions in PruFund via UPAs are formulaic and non-discretionary.  They are based on the maths and the difference in fund value between the underlying assets and the ‘smoothed’ price.

M & G’s Treasury & Investment Office (TIO) who manage PruFund for Prudential are in the middle of a Strategic Asset Allocation review.  Within the next month or two we will find out how they change their assets focusing on long term returns.

The Expected Growth Rates (EGRs) have remained the same.  For example on PruFund Growth 5.70% gross per annum.  EGRs give you an indication of what the TIO think long term returns will be over 15 years plus.

These upwards Unit Price Adjustments are some very positive news and demonstrate the recovery in the markets as a whole. These UPAs combined with previous UPAs over the past 12 months have brought the majority of the PruFund range of funds back to positions similar to those before the drops caused by the Coronavirus Pandemic.

Hopefully this trend of recovery and positive performance continues as we see mass vaccine rollouts worldwide and lockdown restrictions gradually eased. Although we may not be out of the woods yet and there are no guarantees, this increase in the UPAs is a reason for optimism.  

Take care.

Paul Green DipFA


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Everything you need to know about the state pension

Please see below for one of AJ Bell’s latest articles, received by us yesterday 13/05/2021:


The current UK state pension age is 66 for both men and women. It used to be the case that women received the state pension at age 60 and men at 65, but this was viewed as discriminatory and so successive Governments legislated to equalise the state pension ages of the sexes.

This happened in 2018, at which point the state pension age for men and women was slowly increased to 66 by 2020.

The state pension age is scheduled to rise again to 67 between 2026 and 2028. As with the increase to age 66, there will be a two-year transition where some people will have a state pension age somewhere between 66 and 67.

After 2028 the next intended increase in the state pension age is to 68 between 2044 and 2046. However, the Government has stated it wants to accelerate this move so it happens seven years earlier, between 2037 and 2039.


For those who reached state pension age before 6 April 2016, there were two primary components: the basic state pension and additional state pension. This additional element consisted of:

  • Graduated Retirement Benefit built up between 6 April 1961 and 5 April 1975;
  • State Earnings Related Pension Scheme built up between 6 April 1978 and 5 April 2002;
  • State Second Pension built up between 6 April 2002 and 5 April 2016.

The full basic state pension is worth £137.60 a week in 2021/22 and rises each year in line with the highest of average earnings, inflation or 2.5% (the ‘triple-lock’). You needed at least 30 years’ National Insurance contributions to qualify for the full amount – for those with less than this, a deduction would have been made.

The triple-lock does not apply to any additional state pension entitlements you have, which instead increase each year in line with CPI (consumer prices index) inflation.


The Government decided the state pension system was too complicated and so, for those who reached state pension age on or after 6 April 2016, a reformed system was introduced.

Rather than having two tiers of state pension – the basic and additional state pension – people now build up entitlements to a flat-rate amount. In 2021/22 the full flat-rate state pension is worth £179.60 a week and also increases in line with the triple-lock.

You need to have at least a 10-year National Insurance contribution record to qualify for any state pension under the reformed system, and a 35-year National Insurance contribution record to qualify for the full amount.

Those who had built up state pension entitlements under the old system and had not reached their state pension age before 6 April 2016 had a ‘foundation amount’ calculated. This foundation amount was the higher of:

  • Total benefits built up under the basic state pension and additional state pension, with a deduction made to take account of any years the individual was ‘contracted-out’;
  • Total benefits the individual would have built up had the reformed state pension been in place at the start of their working life, with a reduction applied where the individual was contracted-out.

The idea behind this was to ensure those who had built up entitlements under the old system which were more valuable than the reformed state pension would not lose out.

Anyone with a foundation amount equal to the full flat-rate state pension at 5 April 2016 would not have been able to build up any extra state pension – even if they add more qualifying years to their National Insurance contributions record.

Those with a foundation amount below the full flat-rate state pension could continue to build up qualifying years via National Insurance contributions and boost their state pension entitlement.

People with a foundation amount worth more than the flat-rate state pension would receive the full flat-rate amount plus a ‘protected payment’ to reflect the extra entitlement built up under the old system. They would not gain any extra pension for further qualifying years they accrue.

While the flat-rate element of this pension will rise in line with the triple-lock, the protected payment increases by CPI inflation only.


‘Contracting-out’ was an option previously open to people whereby, in exchange for lower National Insurance payments, employees agreed to opt-out of the additional state pension, meaning they would not build up an entitlement towards it.

For those reaching state pension age after 5 April 2016, any years they contracted-out will be deducted when figuring out your foundation amount.

You can check if you were contracted-out by contacting your pension provider or reviewing an old payslip. If you don’t have either, try the Government’s pension tracing service here.


It is up to you to claim your state pension from the Department for Work and Pensions. However, it is also possible to defer taking your state pension – and you’ll receive an uplift for doing so. The level of this uplift will depend on when you reached state pension age.

For those who reached state pension age before 6 April 2016, the rate of uplift is 1% for every five weeks you defer, subject to a minimum deferral period of five weeks. This works out at a 10.4% increase in your state pension if you defer for 52 weeks.

Based on the 2021/22 basic state pension of £137.60 per week, this works out at an extra £14.71 per week if you deferred for one year.

For anyone who reached state pension age on or after 6 April 2016, the deferral rate is 1% for every 9 weeks they defer, or just under 5.8% for every 52 weeks.

This increase is applied to the flat-rate state pension. Based on someone receiving the full flat-rate state pension for 2021/22 of £179.20 a week, a person who deferred for 52 weeks would get an extra £10.42 a week.

Both of these examples assume there is no annual increase in the value of the state pension. If there is an annual increase, the amount you receive could be larger.


Whether or not state pension deferral is the right option will depend on your personal circumstances.

For some it simply won’t be possible as they need the state pension income as soon as possible, while for others it might depend on their health and lifestyle. But if you are in good health then it could be worth considering.

Take someone who reaches age 66 in 2021/22 and is entitled to the full flat-rate state pension of £179.60 a week in 2021/22. If they defer taking this income for one year they will forgo £9,339.20 in return for an extra £10.42 a week for the rest of their life.


Based on the state pension increasing by 2.5% each year, it could take 15 years to take as much total income via deferral as you could have done by taking the state pension at age 66.

For someone with a state pension age of 66, this implies the point at which they might be in ‘profit’ from deferring the state pension could be around age 81.

Given average life expectancy for a 66-year-old man is 85 and a 66-year-old woman is 87, this suggests that, provided you are in good health, delaying receiving your state pension could pay off financially.

State Pensions are a complex area as legislation has changed frequently over the last few decades. Whether or not you should draw on your State Pension at your State Pension age depends on your own specific circumstances. It’s a good subject to pick up with your I.F.A.

A great starting point would be to get an up-to-date State Pension forecast, these are the contact details for the dwp:

  • Or call the Future Pension Centre on 0800 731 0175 and request a paper copy

Please continue to utilise these blogs and expert insights to keep your own holistic view of the market up to date.

Keep safe and well.

Paul Green DipFA


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Will ‘peak pension freedoms season’ return after pandemic-induced withdrawals slump in 2020?

This email was received yesterday, 11/04/2021, and this article was written by Tom Selby, a Senior Analyst at A. J. Bell.

Until 2020, the beginning of a new tax year has traditionally been peak pension withdrawal season, with UK savers taking advantage of a fresh set of tax allowances to access larger amounts from their retirement pots.

In fact, before the pandemic hit withdrawals in the first three months of the financial year had been between 10% and 33% higher than in subsequent quarters.

That all changed last year, when retirement income investors spooked by the uncertainty of lockdown – not to mention double-digit market falls – tightened their belts, with year-on-year withdrawals dropping 17%.

This likely reflected people choosing to either delay accessing their pension, pause withdrawals or reduce the amount they were taking as income in the face of profound uncertainty.

While most of us still have fewer things to spend our money on at the moment – particularly given restrictions on foreign travel – the success of the coronavirus vaccine and more stable market conditions mean we should expect to see a significant jump in withdrawals in the coming quarter.

For those accessing their retirement pot during this period, there are various pitfalls and bear traps to watch out for.

Source: HMRC

1. Taking taxable income flexibly from your pension will trigger an irreversible £36,000 cut in your annual allowance

Anyone considering taking taxable income from their retirement pot for the first time needs to be aware of the severe impact it will have on their ability to save tax efficiently in a pension in the future.

Taking even £1 of taxable income will trigger the money purchase annual allowance (MPAA), reducing the amount most people can save in a pension each year from £40,000 to just £4,000.

Furthermore, if you trigger the MPAA you will lose the ability to ‘carry forward’ unused pensions allowances from up to 3 previous tax years, meaning in some cases the impact will be a £156,000 reduction in the potential annual allowance in the current tax year, from £160,000 to £4,000.

To avoid an annual allowance cut, savers who have the option should consider using money held in vehicles such as ISAs or cash savings accounts first. For those who only have their pension, just taking your 25% tax-free cash will also allow you to retain the £40,000 annual allowance.

2. Your first taxable withdrawal will be subject to emergency ‘Month 1’ taxation

Since the pension freedoms launched in April 2015, around £700 million has been repaid to savers who were overtaxed on taxable withdrawals.

When you first take a flexible payment from your pension, HMRC will automatically tax it on an emergency ‘Month 1’ basis. This means that the usual tax allowances are divided by 12 and then applied to that first withdrawal.

For example, if someone made a £12,500 taxable withdrawal in 2020/21 and had no other taxable income, they might expect to be charged 0% income tax as the withdrawal is within their personal allowance.

However, because it is their first taxable withdrawal only £1,042 (£12,500 personal allowance divided by 12) is taxed at 0%. The next £3,125 (£37,500 basic-rate tax band divided by 12) is taxed at 20%, with the remaining £8,333 taxed at 40%.

In total, rather than paying zero tax they would face an initial – potentially shocking – bill of £3,958.

For those taking a regular income this shouldn’t be a problem, as any overpaid tax in the first month will be ironed out via your tax code. However, where it is a single payment over the tax year there are two options – wait until the end of the tax year for HMRC to hopefully sort it out, or sort it out yourself by filling out one of three forms.

Once you’ve filled out and sent off the relevant form, HMRC says you should receive a refund of your overpaid tax within 30 days.

View the tax refund form

  • If the withdrawal used up your entire pension pot and you have no other income in the tax year, use form P50Z;
  • If the withdrawal used up your entire pension pot and you have other taxable income, use form P53Z;
  • If the withdrawal didn’t use up your pension pot and you’re not taking regular payments, use form P55.

3. Think about the sustainability of your retirement plan – and beware big withdrawals during falling markets

Last year saw the first bear market – characterised by falls in stocks of more than 20% – since the pension freedoms launched in 2015. The pandemic and global economic shutdown brought into sharp focus the importance of understanding the investment risks you are taking and managing withdrawals sustainably.

This is particularly the case where large withdrawals come at the same time as big falls in markets, a phenomenon often referred to as ‘pound-cost ravaging’.

As an example, someone taking a 5% inflation-adjusted income from their fund who suffered a 20% hit in their first year of drawdown and 4% growth thereafter could see their pot run out after 18 years – three years sooner than if they suffered the hit 10 years into retirement.

To put this into context, whilst on average life expectancy at 65 is 18.6 years for men and 21 years for women, a man has a 1 in 4 chance of living another 27 years, while a woman has a 1 in 4 chance of living another 29 years.

Savers wanting to manage withdrawals sustainably and avoid selling down their capital at a low point in the market could use other cash resources – such as ISAs, savings or their 25% tax-free cash – in order to keep their underlying pension intact.

Taking a natural income has also been a good strategy previously, although finding companies paying the dividends needed has been a real challenge over the past 12 months.

For those who do take capital withdrawals from their pension, the key is to have a plan in place and review your income strategy regularly, ideally with the help of a regulated adviser, to ensure you aren’t risking running out of money early in retirement.

4. If you’re just taking your tax-free cash, don’t forget about the remaining 75% of your fund

The vast majority of savers cite accessing their 25% tax-free cash as the main reason for entering drawdown*. This is understandable given this is one of the main tax benefits of saving in a pension.

Although accessing your tax-free cash won’t necessarily mean a change in your underlying investments, it is worth using this as an opportunity to review your retirement plans and ultimate goals.

For example, someone planning to take a regular income after accessing their tax-free cash will likely have a different asset allocation to someone who doesn’t plan to touch the remaining money for 15 years.

While many will understandably be spooked at the prospect of investing at the moment, it is worth remembering that short-term volatility has historically been the price you pay to enjoy longer-term growth.

Investors also need to be aware of and comfortable with the risks they are taking.

Although investments can go down in value as well as up, the value of cash will be eaten away by inflation over time.

5. Do you want to spend your pension or leave it to loved ones after you die?

Pensions are no longer just about providing an income in retirement. Since 2016, savers have been able to pass on leftover pensions tax-free if they die before age 75.

Where the pension holder dies after age 75, the remaining funds will be taxed at their recipient’s marginal rate when they make a withdrawal.

For those who want to leave assets to loved ones, it therefore often makes sense to leave as much of your pension untouched as possible in order to minimise your tax bill.

This means when you come to flexibly access your pension for the first time, you should think not just of your retirement income strategy but also your IHT plans.

It’s also important to ensure your nominated beneficiaries are up-to-date so the right people inherit your pot.

Useful input from Tom at A. J. Bell.  There is nothing new here, since the new ‘Pension Freedoms’ were introduced in April 2015 we have had the freedom to withdraw capital and/or income from age 55 from our fund value based pension pots with greater flexibility.

However, we have had some form of Pension ‘Drawdown’ legislation in place since 1995.

This is a key area for independent financial advice.  The pitfalls are substantial if you don’t fully understand what you are doing.

In general terms, it’s probably better for the majority of the population not to access their pension funds until they retire or at least semi retire.  There are exceptions to this.

My focus as an IFA is in the following areas:

  1. Overall tax efficiency, holistically and with your partner if applicable
  2. Sustaining your pension assets for potentially a long-term retirement.  We are living longer on average
  3. Retaining your ability to fund pensions at a good level if at all possible
  4. Building your assets for your eventual full retirement, a variety of assets to aid tax efficiency and risk control

Retirement planning is not a ‘one size fits all’ approach.  We need to carefully take into account our client’s circumstances, plans and objectives.

The earlier you start planning for retirement the better.  We can do a lot more with a 15 year term to retirement than we can with a few months.  However, even if you are coming to this ‘Pension Freedom’ late, near drawing benefits, please do take advice.

Steve Speed


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Budget 2021: look to the long term, Rishi

Please see below article received from Jupiter yesterday evening, which analyses whether the measures announced by Rishi Sunak in Budget 2021 will sustain the UK’s economic and financial market recovery in the years ahead.

In every downturn, the UK Government’s finances turn down sharply. Tax receipts fall as job losses, bankruptcies and subdued spending impact the three big sources of revenue for the Treasury – income tax, National Insurance and VAT. But Government spending must rise to cushion the impact of a recession, through unemployment benefits and welfare payments.

There is always a moment at the depths of a downturn when the Government’s budget deficit looks awful and the prospect of a return to more balanced books nigh impossible.

Clearly this pandemic has a rather different dynamic, as the Government measures to support the economy from complete collapse during extended lockdowns, has pushed their spending to levels unprecedented outside wartime. Roughly 75% of the increase in the budget deficit has arisen due to these support measures – about £200bn. Today’s extension of such support until September will only increase the scale of this spending, all funded through borrowing.

Whilst tax receipts have fallen during the pandemic, they have done so only modestly – testimony to the success of the support in limiting the rise in unemployment and bankruptcies thus far. Tax receipts as a percentage of GDP have remained roughly in line with their long run average of 37% of GDP.

Government spending, by contrast, has risen from its more usual level of 40% of GDP to 55% and rising. Hence the Chancellor’s desire to ‘level with the British people’ on the unsustainability of current levels of borrowing and spending by Government and the need to rebuild public finances in the future.

The risk of raising taxes too soon into the post-pandemic recovery is that it saps the strength of the recovery. I believe there is bound to be a surge in consumer spending as individuals and families enjoy their freedom from lockdown to shop, eat out and holiday. But it won’t be until well into 2022 before we know the full scale of the likely bankruptcies to come, the peak levels unemployment will reach – today’s more upbeat forecast notwithstanding – nor the longer-term psychological impact on consumers of the pandemic on spending and saving habits.

Crucially, though, the Chancellor needs to remember the lesson of all his predecessors in the depths of a recession. The cyclicality of Government finances means that as the economy recovers, automatically Government spending will fall and tax receipts will rise. The end to Government support measures and a resumption of consumer spending will boost VAT receipts just as the support cheques cease to be written; in this regard, I believe the transition measures announced today are to be welcomed.

Clearly though, one of the most significant of today’s announcements is the planned increase in Corporation Tax as of April 2023 from the current 19% to 25%. While this does indeed give businesses clarity, it is nevertheless a substantial increase, which will in time impact on companies’ ability to return profits to shareholders, and at variance with widely held expectations that such hikes would begin sooner and would be more gradual in their introduction.

Investors will be considering the impact of this pending rise and will be asking themselves to what extent it can be offset by the generous-sounding 130% “super deduction” on business investment. While this is, in my view, an innovative and progressive policy, taken together with the upcoming rise in Corporation Tax, it is likely to mean that the economic growth benefits resulting from the policy will be somewhat front loaded.

Meanwhile, the decision to maintain income tax, National Insurance and VAT at their current levels should provide some support consumer confidence and household budgets as the country emerges from the pandemic. Nevertheless, the Chancellor’s explicit announcements of upcoming fiscal drag – the result of not adjusting taxation thresholds to take account of future inflation – reflects the reality of the situation of the post-pandemic economy. Although this is undoubtedly a progressive policy, put simply, the higher inflation rises, the more the Treasury is likely to benefit. Over time, should we enter a more inflationary environment, in public finance terms this may well turn out to have been a prudent decision, given the impact of rising inflation on the cost of servicing our national debt.

Turning to the UK equity market, it was no surprise to see rising share prices among those businesses that should be beneficiaries of further support to the domestic economy, such as banks and leisure stocks, alongside housebuilders. The latter may well benefit from the extension of the stamp duty holiday and mortgage guarantee programme, as well as a more benign backdrop through the extension of Government support through the summer’s transition from lockdown and re-opening to the end of measures such as the furlough scheme.

Looking to the longer term, to my mind, the truly prudent but wise Chancellor will not risk the upturn by setting out a plan for increased taxation in the years ahead, but keep his powder dry to see just how radically Treasury finances improve over the coming year, without any action on his part whatsoever. While today’s Budget announcements appear well placed to support the transition to life after the pandemic over the next couple of years, it remains to be seen whether the “front-loading” of business incentives to spend now but be taxed later leads to a slowdown in growth thereafter which might not have been necessary.

We will continue to publish relevant content and news as the vaccine roll-out in the UK continues to expand and the light at the end of the tunnel brightens. Please therefore, check in again with us soon.

Stay safe.



Team No Comments

Normal Pension Age Update re early access to pension benefits

HM Treasury and HMRC quietly launched additional proposals on 11/02/2021 with the potential to have a much greater effect on retirement planning over the coming years.

The proposals

The main proposal is this: anyone who was a member of a registered pension scheme on 11 February 2021 (the date of the consultation) and had a right to take pension benefits before age 57 on that date, would keep that right as a protected pension age. That protected pension age (which in most cases would be 55) would be scheme specific and work similarly to existing protected pension ages. This would mean:

  • Anyone joining a new pension scheme from 12 February 2021 onwards would have an NMPA of 57 from 2028 for that scheme, although they may have other pensions that they could still access before age 57.
  • From 12 February 2021, anyone who transfers to a new scheme would lose the right to take benefits from that pension before age 57 (assuming the original scheme offered that right), unless they completed a block transfer.

One key difference highlighted between the rules for existing protected pension ages and these proposals, is that clients would not need to crystallise all the benefits within a scheme on the same date in order to keep their protected pension age.

Next steps

The timing of proposals like these is always difficult. The consultation doesn’t close until 22 April, and we don’t expect to see draft legislation from the Treasury until the summer. However, if the proposals do go ahead as they stand, transfers that take place from today could affect when clients are able to take benefits. While many people may not expect to retire at 55 or 56 (and until yesterday might have assumed it simply wouldn’t be an option), it still adds an additional consideration into people’s pension planning.

It’s still early days, and I’m sure you’ll see more about the industry’s thoughts about the proposals over the coming weeks. What seemed like a very straight forward upcoming pension change has suddenly become something to keep a keen eye on.

Our Comment

We need to see what the outcome is in the summer, but this is one to watch for those who are considering retiring early at age 55 or if you thought you might access your pension benefits, typically tax free cash, early at age 55 from 2028.

In real terms this will only be a few people, most in the UK haven’t got the pension assets they need for early retirement and shouldn’t access their pension funds too early either.

However, if you are one of the few that may have a plan to retire early or access your pension benefits early, at age 55, from 2028 you now need to be careful about any pension switching or consolidation. Let’s see what we get at the end of the consultation, hopefully draft legislation in the summer.  Watch this space.

Steve Speed


Technical content cut and pasted from Curtis Banks Technical Update.

Team No Comments

Restart of dealings in Legal & General UK Property Fund and the Legal & General UK Property Feeder Fund

An update received today from Legal & General about their intentions to re-open their UK property fund:

We wrote to you on the 18 March 2020 to tell you that we had suspended dealings in our property funds. We are now pleased to say that we are intending to re-open the funds. We intend the timeline for re-opening to be:

1. From 12 October 2020, 12.00 noon – you will be able to place buy, sell or switch instructions through My Account or by calling us on 0370 050 2617;

2. On 13 October 2020 – the first trading in the funds will take place at the valuation point of 12.00 noon.

3. From 13 October 2020 – the funds will be open for dealing as normal. In line with our normal procedures, we will not be able to process online or telephone instructions submitted before 12.00 noon on 12 October.

If you send us postal instructions before the 13 October, we will hold these and trade them at the valuation point of 12.00 noon on the 13 October. After that, we will deal any postal instructions at the valuation point immediately after we receive your instructions.

We’ve provided some more information below about the funds. We recommend you speak to a financial adviser if you are unsure whether this investment remains suitable for your personal circumstances, investment goals and risk appetite.

Why did we suspend dealing in the funds? Given the global COVID-19 outbreak, on 18 March the funds’ independent valuer, Knight Frank LLP, introduced a “material uncertainty clause” to its valuations of the properties held in the funds. This meant we could not be confident about the value of the properties held in the funds and the prices we set to enable you to buy, sell or value your existing investments. Without a reliable price, we took the difficult decision to suspend dealing in the funds, taking into consideration our regulatory responsibilities and the overall best interests of investors. We wrote to all investors on 18 March to inform you of this decision.

Why are we re-opening the funds? As financial markets have begun to stabilise, the independent valuer has removed the material uncertainty clause from almost all properties. We are confident that the funds now meet the following key criteria. Providing no new material issues come to light and it remains in the best interests of investors, we can re-open the funds on 13 October:

1. Material uncertainty clauses now apply to well below 20% of the properties in the funds and the risk of going over 20% following re-opening is limited

2. We are satisfied that valuations from the independent valuer remain accurate and are supported by transactions taking place in the market

3. The funds’ available cash position remains well-placed to meet investor intentions and still has sufficient cash to manage the funds

IMPORTANT INFORMATION The value of an investment and any income taken from it is not guaranteed and can go down as well as up, you may not get back the amount you originally invested. Legal & General (Unit Trust Managers) Limited. Registered in England and Wales No 1009418. Registered office: One Coleman Street, London EC2R 5AA. Authorised and regulated by the Financial Services Authority.

Having considered all relevant factors, we now consider that the exceptional market circumstances that drove suspension no longer apply and that it is in the overall best interests of investors to re-open the funds. We are pleased to be in a position where we can again rely on the accuracy of property valuations from the independent valuer. These values reflect discounts arising from the impact of COVID-19. We decided to resume trading in the funds on 13 October 2020 so as to allow sufficient time to communicate the decision to all investors in the funds in writing, and particularly to allow you to consider and potentially take advice on your investments.

Cash levels Over the course of suspension, we have proactively engaged with many investors, whilst closely monitoring and recording their intentions to hold, redeem, or add units in the funds. In view of these conversations, we believe the funds are currently well placed to pay investors who wish to cash in their investments, and retain sufficient cash to manage the Funds on an on-going basis. Currently the funds hold 26% cash, in addition to 3% held in Real Estate Investment Trusts (shares in other property funds). We will continue to engage and monitor the amount of cash we need, reviewing this up to the point of re-opening the funds.

The funds’ investments We believe the funds are well placed for investors looking for long-term investment in the UK property market. They are well diversified across sectors and geography, with property in locations we believe to be strong. The funds’ investments are currently weighted more towards industrial and alternative properties which we believe to have better long-term prospects, and less weighted to retail properties, which is currently the weakest part of the market.

Our outlook for the funds Although COVID-19 has resulted in many short-term challenges, we believe that the vast majority of this has already been felt. Whilst some sectors will take longer to recover than others, the stimuli put in place by the UK government have served to limit the damage. The funds’ investment manager, Legal & General Investment Management Limited, has many on-going initiatives which we expect to create value for investors over the short-term and we expect UK property to continue to deliver positive returns over the next five years. We believe that property is still an attractive diversifier in any balanced portfolio and is well positioned for investors with long-term horizons. We will provide further information and inform you once dealing in the funds has resumed via https://www. / our website

Not all Fund Managers are in the same position with their property funds in the UK.  A lot of ‘bricks and mortar’ funds are still suspended from trading to protect the underlying asset values for investors.

The other option is to buy a share based property fund but this does not have the same qualities for diversification, using a range of assets for volatility control/lower volatility overall.  Share based property funds correlate to typical equity funds and will demonstrate similar volatility to them.

Steve Speed


Team No Comments

Legal and General: Of Gilts and Gold

Please see below for the latest blog from Legal and General’s Investment Management Team regarding their ‘key beliefs’ in relation to the markets:

This week, we look at the investment case for three strategies that should in theory be defensive: holding UK sovereign bonds, owning gold, and diversifying by equity factor.

As with all Key Beliefs emails, this email represents solely the investment views of LGIM’s Asset Allocation team.

A furlough bar to clear

We have been tactically underweight UK gilts for almost exactly six months now. This has been largely based on our view that: (1) a furlough extension was inevitable; (2) negative rates were not on the cards; and (3) the distribution of potential returns was likely to be negatively skewed given those first two factors.

Thursday saw Rishi Sunak extend the furlough scheme for another six months, but the new version is considerably less generous than its predecessor. Employees must now work a minimum of a third of normal hours and employers and workers must bear a greater share of the burden. This incentivises companies to retain one full-time employee rather than two employees working reduced hours, and we believe it will result in further redundancies and pressure on household incomes in the coming months.

Meanwhile, the debate on negative rates has ebbed and flowed at the Bank of England without much clear direction. The latest hints from Governor Andrew Bailey have seen the short end of the curve price out negative rates in the near term, but the Bank’s inconsistent communication on this issue makes it hard to have much confidence in the outlook.

Given these two developments, the third argument above has become harder to defend. While we maintain a negative view on gilts over the medium term, the changing balance of risks has led us to call time on our tactical position.

Going for gold

Given its perceived status as a safe-haven asset, gold is never far from our thoughts when assessing the multi-asset opportunity set. While we maintain a positive long-term bias on the metal, we need to stay price sensitive too. Having closed a tactical overweight back in July, at current levels we believe it’s time to scale back in again.

With interest rates close to zero in most developed markets and increasingly limited space for monetary policy against an uncertain backdrop, finding candidates to diversify the cyclical nature of equities and other risky assets has rarely been more challenging. Gold is, in our view, less exposed than many assets to innovative, unconventional future measures to ease policy, and we therefore believe it offers something different from fixed-income assets in that regard.

No investment is without risk, however. Gold price movements have historically closely tracked a combination of real yields and the US dollar, but there is the possibility that this relationship could be changing. In particular, with yields pinned close to zero it could be that inflation expectations and realised inflation become the more important future drivers of fair value. Given inflation expectations have tended to behave similarly to equities, that would seem at odds with gold’s expected role as a safe haven and diversifier.

Factor fiction?

A wide range of equity risk factors (or styles) have been identified in the academic literature, yet there remain relatively few that are both compensated (i.e. deliver a positive risk premium over time) and transparent (i.e. there is a plausible and widely accepted rationale for their persistence). Five factors have historically exhibited both characteristics: value, low volatility, quality, size, and momentum.

While individual factors can go through sustained periods of relative under- or outperformance, they are likely to do so at different times, so it follows that a balanced portfolio of factor exposures should provide a diversified and cost-effective way to gain exposure to the range of equity risk premia over time.

This year has nevertheless been tough on US equity factor portfolios, largely because of the outsized influence of technology stocks. The outperformance of the largest stocks in the market-cap weighted index has weighed heavily on the returns of any diversified equity strategies which move away from the ‘tallest trees’ in the index. Some of that underperformance has reversed recently as some of the froth in tech has been removed, but we believe it is too early to call a sustained rotation in the US.

The same cannot be said of factor portfolios outside the US, however, where there is much less of a tech bias. The recent bout of risk aversion has seen non-US factors behave more in line with expectations, with quality and low-volatility stocks outperforming, while value has been relatively flat. Where we have allocated to a basket of non-US equity factors, their positive contribution has been an effective diversifier over the past couple of weeks.

Detailed and focused opinions from market leading investment managers such as Legal and General can be a useful addition to your overall view of the markets.  

Please keep reading our blogs to ensure your holistic view of the markets is well informed, diversified and up to date. 

Keep safe and well.

Paul Green


Team No Comments

Tax & Politics

I listened to a technical webinar at the end of last week presented by Prudential and their senior political and technical staff here in the UK.  Following the cancellation of the Budget (was this previously a pre-Budget debate?) they were discussing what taxes might change when and the politics behind it.

Basically, it is a trade-off between what value any new tax might have (how much will it raise for the State?) balanced against the potential political damage any specific tax change may do.

Thankfully, on this basis a lot of the potential tax changes were discussed and dismissed as unlikely.  I don’t think this is the end of the matter, we will need additional tax for the State to pay for the support during the pandemic and strengthen our recently exposed weak spots, the NHS, residential care, social services etc.

We will also need more money to kick start the economy and help us deal with Brexit, fudged deal, or no deal.  As this is the case, when the economy is recovering, and the consumer is spending freely again (post vaccine?) we will see changes to the tax system.

Given the state of our economy and the outlook, the only thing we know with certainty is the tax position and legislation we have in place right now.  If you have the means, why not take advantage of the tax reliefs and planning opportunities that are available today?

It makes good sense to press on with any beneficial planning now using what reliefs are available today, we know the rules now.  For example, pension funding with higher rate tax relief within the pension contribution limits we have currently.

If you would like to discuss your own personal situation, please get in touch.

Steve Speed