• A business friendly Budget, which will help employment. 
• Tax deductibility of child care costs will also help employment.
• It supports current high levels of house prices by subsidising mortgages (which is probably not a good thing in the long run) but by directing first time buyers towards new build homes, it will help the construction industry and employment.
  In a hostile environment, the Budget offered about as much as could be hoped for. By the time of the next election, growth will probably still be disappointing, the deficit will still be depressingly high, but unemployment may be much lower than many might have feared.

Good news confirmed for pension planning

• 20% increase in drawdown limits has been confirmed effective from 26th March 2013.
• GAD rates will be reviewed hopefully leading to more realistic income limits.
• Pension contribution allowances will drop in 2014/15 to £40,000 but carry forward allowance is still available.
• No loss of higher rate tax relief on pension contributions.
• Pensions lifetime allowance will be cut next year from £1.5m to £1.25m but with methods to lock into the higher limit.

The new flat rate State Pension of £144 p.w. will start in April 2016 – a year earlier than planned.

For full details of the budget, click here.

 As always – please call Moira, Bernice or Mark on 01704 571777 should you wish to discuss any aspect of how the Budget affects you.

Peter Stanyer, Independent Economic Consultant to FPC and author of  The Economist Guide to Investment Strategy, Profile Books, 2010
4th July 2012

Important information: The comments and views expressed in this publication are solely those of FPC and are provided for information purposes only. They are intended only to provide general background information and does not constitute a recommendation to buy or sell or hold any security or investment. 

Cyprus is now the fifth eurozone country to require a bail out to recapitalise the country’s banking sector.

One of a number of measures currently being proposed is a one-time tax on bank deposits, which will unnervingly extend to deposits below the €100,000 compensation limit and ‘guarantee’ which applies across Europe. Savers will be ‘compensated’ with bank equity as well as bonds linked to natural gas revenues, but this has not eased the anger that many Cypriots (and ex-pats) feel. 

Reaction to the bail-out plan has been mixed with Germany not surprisingly in favour of the plan, whereas Russia is strongly opposed with President Vladimir Putin calling the measures “unfair, unprofessional and dangerous”. 

Russian Roulette?

Whatever the source of the funds, there are considerable Russian financial interests in Cyprus. Later this week, the Cypriot finance minister is flying to Moscow to discuss extending a €2.5 billion loan facility and Russian energy giant Gazprom is said to be interested in brokering a deal in exchange for the right to exploit natural gas reserves recently discovered off shore.  EU officials clearly hope that Russia will play a key role in rehabilitating struggling banks – but at what cost?

The situation is extremely fluid, but it would appear that the principle of a tax on deposits will stand.

Due to the exceptional circumstances that apply in this instance (such as the size of the banking sector relative to the small Cypriot economy), many commentators think it unlikely that these events will immediately cause ‘contagion’ in the eurozone.

However, these extraordinary measures may erode confidence in government ‘guarantees’ and make runs on banks more likely, particularly in countries reliant on external support. We may, therefore, experience turbulence and uncertainty over the coming months.

A stark reminder that we are not out of the woods yet

We would remind all clients who are seeking higher returns on their cash deposits to continue to focus on the return of their capital rather than the return on it and not to be tempted to commit short term savings to investment.
Within our investment portfolios, fixed interest exposure is defensively positioned with limited  exposure to ‘financial’ stocks (issued by banks and insurance companies) and we avoid global bonds denominated in foreign currencies entirely. 

Managing risk remains at the core of our asset allocation policies.

As always, if you have any concerns, please contact us on 01704 571777

Car parts distributor acquired in multi-million pound deal

FPC clients, Howard Warren and Charles Colton recently welcomed a significant investment into their business from HgCapital, a London-based private equity firm. They remain directors in the business and are actively supporting HgCapital in its growth strategy with three further acquisitions already completed.

An integral part of our success

Howard Warren and Chas Colton:

“FPC has been an integral part of our success for over 20 years. When we met, our turnover was £3 million and we had 50 staff; by 2013, we had achieved a turnover of £50 million and a team of 500!

Moira and the team at FPC have been by our side throughout our journey, helping us to deal with all the challenges along the way. Their straight talking and understanding of us as a company and as individuals, has meant our financial planning has always focused on the needs of both.

Thanks to FPC’s sound investment advice, we have achieved the financial independence we aspired to whilst securing the long term future of the business we care so passionately about.

We would encourage fellow business owners to take action to review their position and make their own personal financial planning their priority in 2013.”

The culmination of careful planning

Partner, Moira O’Shaughnessy advises many of our corporate clients on business succession and exit planning issues. She explains how FPC can help clients plan the future they want for themselves and their business.

“The decision to exit from a business or, as in this case, to allow others to invest in your business, is one you must be confident about. You need to define the value of your business to you in terms of the income stream it could generate in the future and ensure you are compensated for the loss of the valuable inheritance tax advantages associated with business ownership. 

However, exit planning needs to start early and it is vital that you take steps in the preceding years to build financial security outside of your business. Joined-up thinking is essential, which means pensions, investment and estate planning must go hand in hand with business development.  It is our job to make that happen and to pull together the expertise of your other professional advisers, so they are all focused on helping you achieve your goals.”

A testament to teamwork

The CES transaction was a testament to teamwork and it was a pleasure to work alongside like-minded advisers, who were totally committed to our clients’ best interests. Throughout the CES sale process, FPC worked alongside  Nigel Barratt, head of corporate finance at the Manchester accountancy firm Hurst and Chris Dunn, corporate partner at  Manchester law firm Gateley. Both firms were referred to CES by FPC and had worked with them for some years.

An exciting time ahead for CES

CES UK, headquartered in Chester, supplies a full aftermarket range that includes exhausts and catalytic convertors. The business employs more than 500 people at 18 branches across the North West, Midlands, North Wales and the Isle of Man. Turnover at the business is £50m.

The company had received a number of investment approaches in recent years and took time to assess their options and choose the right partner to take the business forward. HgCapital understood the sector and have ambitious plans for the business so they were the natural choice.

According to Peter Stanyer, our independent economist, the downgrade simply reminds us that economic progress has been disappointingly slow. We asked Peter to put Moody’s downgrade into perspective and explain what it really means.

The UK joins the USA and France

On 22nd February Moody’s downgraded the bond ratings of the United Kingdom government by one notch to Aa1 from Aaa. It now joins the USA and France in having had its Aaa rating removed by Moody’s.

The list of countries still rated Aaa by the rating agencies is quite short, and includes Germany, Netherlands, Norway, Canada, and Australia. But both Germany and the Netherlands have been warned by the rating agencies that the potential cost of Eurozone bailouts puts them at risk of downgrades. 

At the moment the UK government remains AAA rated by the other leading rating agencies, Standard & Poor’s and Fitch, though both have warned that a downgrade is possible. 

Why Moody’s made the decision to downgrade

The prime reason given by Moody’s for its downgrade is that the outlook for sluggish medium term growth in the UK makes it more difficult for the government to get on top of its problem of excessive borrowing and debt.

Moody’s put the downgrade into perspective by emphasising that the credit rating of the UK government remains “extremely high”, reflecting its highly competitive, well-diversified economy and the government’s track record of fiscal consolidation. Moody’s now expects its rating to remain stable, but warns that further downgrades would be likely if there is a further deterioration in growth prospects, or if there is a wavering in the government’s commitment to fiscal consolidation.

The UK’s downgrade was not a surprise and is probably of more importance for short term politics in the UK than for financial markets. The recent weakness of sterling is largely independent of the decision by Moody’s but probably reflecting the same issues of disappointing progress in both the economy and budget consolidation. 

The weaker exchange rate raises import costs, but is mostly good for sterling profits and share prices. For UK investors, this is tempered by the certain knowledge that the vulnerability to the corrosive impact of inflation on bond holdings is increasing.

Peter Stanyer independent Economic Consultant to FPC and the author of The Economist Guide to Investment Strategy, Profile Books, 2010. 

25th February 2013

Important information: The comments and views expressed in this publication are solely those of FPC and are provided for information purposes only. They are intended only to provide general background information and does not constitute a recommendation to buy or sell or hold any security or investment. 

This Autumn Statement from the Chancellor is in effect a mini-budget. There were important announcements about the detail of tax, but from an economic perspective, the main message was “more of the same”, with further downgrading of forecasts for future growth and for cutting the budget deficit.

Despite the difficulty that the government is having in reducing borrowing, and in promoting economic growth, the current broad policy is going to last at least as long as this parliament.  

What the coalition (or at least the Conservatives) may say

They will be able to paint the Labour party’s higher spending alternative policy as being no more credible than relying on a pay-day loan to ease the financial problems of an over-indebted family.

A policy of increasing borrowing, no matter how many economists might support it, does not sound a plausible solution to a problem of too much debt. Even if the UK government loses its AAA credit rating, which seems quite likely, the convincing message about economic policy is likely to be “there is no alternative”.

For the economy, the announcements in the Autumn Statement did not change much

The increases in infrastructure spending are useful small beer, while the changes in taxation and benefits, extend a trend started by the coalition of reinforcing  incentives to work and to reduce the burden of welfare. Meanwhile, a range of measures to discourage tax planning, including cutting the rate of corporation tax by a further 1% and reducing still further the attraction of pension savings for large numbers of high earners are intended to increase tax revenue.

Overall the economic forecasts and the new measures confirm that there will be little scope for any fiscal easing until well after the next election

The financial crisis will have led to a decade of slow growth and of a painful correction of excess debt. Meanwhile structural change in the economy is proceeding apace and it is easy to over-interpret  those changes as indicators of a weak economy. Patterns of retail shopping will not return to pre-crisis norms and the banks will not employ as many as before, and both these changes (as well as declining North Sea oil production) are a drag on official growth statistics. But with employment levels back to pre-crisis levels, boosted by a big shift to part time work (and home working), cynics will not be surprised that the government is looking at alternatives to GDP growth numbers as indicators of how well the economy is performing.

Peter Stanyer, independent Economic Consultant to FPC and the author of The Economist Guide to Investment Strategy, Profile Books, 2010. 

7th December 2012

Important information: The comments and views expressed in this publication are solely those of FPC and are provided for information purposes only. They are intended only to provide general background information and does not constitute a recommendation to buy or sell or hold any security or investment. 

For those already drawing down income…the good news

As you will know, the lower drawdown limit that came into force from April 2011 together with plummeting gilt yields dramatically reduced the income pensioners could take each year.

In his Autumn Statement, Osborne has said, “I have listened to concerns from pensioners about drawdown limits”. He then went on to announce that the capped drawdown limit would be raised from 100% to 120% of the equivalent GAD annuity rate – reversing the changes that came into force in April last year.

This is welcome news and we understand draft legislation will be produced before the next Budget. The implementation date, however, will depend on the outcome of discussions between Government officials and the industry, but is expected to be available for client income reviews that fall after April 2013. We will keep you posted.

For those who have not yet taken retirement benefits…the not so good news

In the Autumn Statement plans were also announced to:

Cut the annual allowance for tax-incentivised pension savings from £50,000 to £40,000 and
Reduce the lifetime allowance from £1.5m to £1.25m in 2014/15

As with the reduction in the annual allowance last year and the reduction in lifetime allowance from £1.8m to £1.5m, there will be transitional arrangements to relieve the impact on those who are over, or close to these thresholds.

The FPC team will be looking at all our clients to see if and how they may be affected by these changes and will advise you if any action is needed.

In addition to commenting on the pension element of the Autumn Statement, we will be reviewing the small print relating to other financial planning issues that may affect our clients – more to follow.

If in the meantime, if you have any concerns, please do not hesitate to call us on 01704 571777.

A few of our business owner clients have told us they are concerned about the impact of Auto Enrolment and NEST. Some have been contacted by their bank and been given the impression that they had to set up a pension arrangement for their staff ‘now’ – in 2012.

Although Auto Enrolment is being phased in for all employers from October 2012, it is only likely to become compulsory for most of our clients from 2014 at the earliest. So unless you were already planning on setting up a pension scheme now, don’t worry; there is still plenty of time.

In fact,  those of you with fewer than 50 staff, only have to comply with this legislation from June 2015 with this date falling back possibly as far as April 2017 (in certain circumstances where you have fewer than 30 employees).

What is Auto Enrolment?

Employers with an Automatic Enrolment duty will need to choose a pension scheme they can use for Automatic Enrolment. They will need to make pension contributions for their eligible staff  – automatically for those who are between age 22 and State Pension Age and earn above £8,105 (and on request for some who are between the ages of 16 and 75, but earn less than £8,105 or are under 22 or over State Pension Age and earn more than £8,105).

Employers may use an existing scheme, or set up a new one with a pension provider. As an alternative, the National Employment Savings Trust (NEST) will also be available and ready to use.

What is NEST?

NEST is a pension scheme with the following characteristics:

• It has a public service obligation, meaning it must accept all employers who apply
• It has been established by the Government to ensure that employers, including those that employ low to medium earners, can access pension saving and comply with their automatic enrolment duties
• Whether the scheme an employer uses for Automatic Enrolment is new or not, it must meet certain, specific criteria set out in legislation

What do you, as an employer, have to pay?

The contributions will be phased in gradually, so you can build the expectation into your business plans rather than having to jump straight in at the 3% per annum level.  Contributions will not be payable on an employee’s total salary, but are limited to qualifying earnings between two levels- currently those that fall between £5,564 and £42,475.

For Auto Enrolment refer to The Pensions Regulator website  for a step by step guide of how you can fulfill your new legal duties.

The NEST website  can give you extremely useful guidance on how you can use NEST to fulfill your obligations. It gives guidance from getting started, what to do and when, getting set up and how to comply with the legislation as far as communicating with staff and deducting contributions.

Any questions?

If you have any concerns or queries, please email Bernice or call on 01704 571777.

Changes in legislation from January 2013 mean that many investment companies and financial advisers will need to dramatically change how they do business. Fortunately we’re not one of them.

What is the Retail Distribution Review (RDR)?

The RDR has been in development for seven years as part of the Financial Services Authority’s consumer protection strategy. It will affect how investment companies, banks and financial advisers operate in terms of:

• Commission charging
• A clear service proposition
• Appropriate qualifications
• Capital adequacy
• Being a restricted or an independent adviser

Investment companies will be contacting you soon – but don’t worry

All investment companies must give 90 days notice of any change to their standard terms, so if you haven’t heard from them yet, you soon will. That’s because they need to communicate changes relating to adviser charging. i.e. how they will pay advisers like FPC in the future.

You need take no action at the moment – we will contact you with more details over the coming months to ensure that any RDR-related paperwork is signed. Any changes will be covered as part of your regular review process.

Don’t worry…at FPC RDR is more evolution than revolution

You’ll enjoy the same level of expertise and guidance as always, safe in the knowledge that we’re looking after your interests.

As always,  please do call us for clarification at any time on 01704 571777.

Inheritance Tax (IHT) remains unpopular with the general public and has been the subject of a long-running campaign in a national newspaper calling for its abolition. That’s a lot of attention for a tax that was paid by only 3% of estates in 2008/09 and raised just 0.5% of all tax revenue in 2009/10.

The recent Mirrlees Report, published by the Institute of Fiscal Studies, has concluded that “Inheritance Tax is no longer fit for purpose.”

FPC Financial Planner, Paul Welsh has explored the implications for our clients and shares his findings below:

This report attempted to explore and define the characteristics of a good tax system and then went on to recommend various changes that would affect estate planning strategies, including the following:

• Replace IHT with a ‘wealth transfer tax’, whereby any gift made by an individual during their lifetime or upon death is subject to a tax charge.
• As an absolute minimum, the exemption for business property and agricultural property should be restricted. It currently enjoys a 100% relief in most circumstances.
• The capital gains tax exemption that applies on death (where the ‘cost’ value of an asset is rebased to its value at the date of death) should be removed.

Inevitable change?

Policymakers may well disregard this independent academic study, but given IHT’s unpopularity, it is easy to envisage that politicians may attempt to curry favour with voters by making major changes to the IHT system.

In addition, the recommendations in this report follow an analysis by the Office of Tax Simplification, which states that IHT requires a complete overhaul. The call for change, therefore, appears to be gathering steam!

Our view

Anyone who is contemplating estate planning strategies such as gifting programmes, business exit planning and trust planning, may well be wise to take advantage of the current exemptions whilst they still exist.

Estate planning is always on our ongoing review agenda, but do call us for guidance now if you feel you need to understand your position and options in more detail.

Also remember, if you have friends or clients with similar concerns, we can help them too, so encourage them to visit our services

Dilnot has, therefore, suggested that any tax rises or benefit cuts designed to pay for the proposals, should be focused on this group of better off pensioners.

The Dilnot Commission proposed changes, which would involve a degree of co-payment between individuals and the state, and a much less harsh means-test on assets than in the current system. The proposals would cost money: £1.7 billion a year in the short term.

Suggestions in the report include:

• Impose National Insurance Contributions (NICs) on employment income of pensioners
• Only give winter fuel payments and free TV licences to those on Pension Credits
• Impose Capital Gains Tax at death
• Reduce generosity of tax free lump sum in pensions
• Impose NICs on pension income
• Restrict tax relief on pension contributions to the basic rate.

The institute exists to provide economic analysis independent of government, political party or any other vested interest, but whether any of the recommendations it makes are ever implemented is entirely in the hands of politicians. The cynic might comment that as pensioners make up a significant (and growing) proportion of the voting public, the politicians will be loath to make changes that could jeopardise their popularity!

If you are interested in reading the report, you can access it here: Pensioners and the tax benefit system