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Lifetime allowance hits more than just ‘pension millionaires’

Archive for October, 2016

Lifetime allowance hits more than just ‘pension millionaires’

Wednesday, October 26th, 2016

The latest figures surrounding the pensions lifetime allowance (LTA), which governs how much can be placed in a pension pot whilst still claiming tax relief, suggest that a considerable number of middle-income earners are being hit by the lower threshold. The amount collected from pensions exceeding the LTA by HMRC during the 2015-16 tax year came to £126 million, close to two thirds more than in the previous year. The number of pensions breaching the LTA limit also went up from 1,482 to 1,539 this year.

The LTA was set at £1.8 million in 2011-12, but has since decreased over subsequent years to the current £1 million threshold. This means that exceeding the LTA is increasingly becoming an issue not just faced by those considered to be ‘super wealthy’.

The current LTA level allows an income of around £45,000 for those retiring at 65. A general rule of thumb can be to aim for an income in retirement of around two thirds of that you are earning when you finish work, so a £45,000 pension income would be sufficient for someone who was earning around £68,000. Whilst this figure is somewhat higher than the current average UK salary, it’s also not a figure which is the reserve purely of the elite, penalising those on middle incomes.

Those with higher percentage returns on their savings are also likely to breach the LTA earlier. This means that the current limit comes down hard not only on the wealthy, but also on those who have made wise pension investments in order to enjoy a better return on their savings. As such, the potential charges for breaching the LTA may lead to those approaching the point at which they want to retire needing to stay in work longer due to the constraints on their retirement income.

If you have any questions about the potential impact of the LTA on your own retirement income, please feel free to get in touch with us directly.

US interest rates

Thursday, October 13th, 2016

Following speculation over the past few months that the Federal Reserve may increase interest rates in the US, one board member of the central banking system has recently declared they are in no rush to do so. Federal Governor Lael Brainard, who is a member of the Open Market Committee which makes decisions on interest rates, has cautioned against moving too fast in hiking up interest rates due to her concerns about the effect of global issues upon the US economy.

Whilst a number of other Federal Reserve officials have suggested that increasing rates during September was a real consideration, Ms. Brainard’s statement has quelled some concerns that interest rates could rise. However, many still predict that an increase is likely before the end of the year, with the probability of it happening recently calculated at just over 59%.

Ms. Brainard backed up her opinion by warning that the damage higher rates could cause to the unstable US economy was not a risk worth taking in attempting to increase inflation. She also alluded to international concerns around emerging markets, especially China.

The last time the Open Market Committee raised interest rates was December 2015, the first for almost a decade. A second increase has been expected by many since then, but the Federal Reserve has held off on doing so following the impact of the Brexit vote on the global economy coupled with uneven US economic data.

One person who believes that a rise at any point this year is unlikely is Donald Trump. The Republican presidential candidate has suggested that the reason for this is political, giving Barack Obama a boost during his final months as President by avoiding the economic shock that a rates increase would likely cause. However, Trump’s comments have been widely dismissed by both economists and political commentators.

Whether the Federal Reserve will introduce a rates increase either at their next meeting in early November, or whether it will happen at all before the end of 2016, remains to be seen. However, it is certainly worth keeping a close eye on what decisions the US central bank makes over the coming weeks and months.

Pensions freedom planning is essential

Thursday, October 13th, 2016

According to recent research, the introduction of pension freedoms has led to many thousands of people taking out large sums from their retirement funds, then leaving it earning them next to nothing in low-interest accounts. The figures from Citizens Advice who carried out the study suggest that around three in ten people are currently doing this, with the move appearing to be just as common amongst those with smaller pensions as those with pots valued at over £100,000.

As well as impacting upon the returns seen from their savings, these people could also be inadvertently losing a chunk of their pension through taxation. Only 25% of a person’s pension fund can be withdrawn without incurring tax, with anything more than that taxed in the same way as income. Particularly large withdrawals could therefore result in a sizeable tax bill, as well as potentially pushing those paying basic rates of tax into the higher-rate bracket.

Other perks that may be lost through withdrawing pension funds include capital gains, which are tax-free within pensions, and protecting retirement savings from inheritance tax. If the money is moved into a current account, it becomes part of an individual’s estate and therefore will possibly incur death duties.

Part of the problem is that many see pension schemes as complicated, with their bank or building society account looking like a simple alternative where their money can be easily accessed. A ‘Retirement Quality Mark’ is set to be launched in September to help savers with the best ways to access their savings without sacrificing the benefits a pension fund provides.

Whilst the findings are concerning, it is worth remembering that there are many people who have taken advantage of pension freedoms since they were introduced last year and have been able to pursue interests and investments in a positive way. Withdrawing larger amounts from your pension pot in one go can be hugely beneficial as long as you do so with a plan set out to ensure you are using the money wisely and not opening yourself up to additional taxation that could have been avoided. If you have any questions around accessing your pension, please feel free to get in touch with us directly.

Europe facing increasing retirement ages

Thursday, October 13th, 2016

Whilst the Brexit result of the EU referendum may have made many in the UK feel more distant from their European neighbours, it seems that the retirement proposals of a number of countries may be closer to our own than you might think. The Bundesbank, Germany’s central bank, recently made a muted proposal to raise the retirement age to 69 by 2060.

Whilst recent pension reforms have taken place in Germany, the bank has stated that these won’t protect citizens from pension payment levels dropping from 2050 onwards, and those who don’t have state-supported private insurance could be hit sooner than that. Current plans by the German government include raising the retirement age to 67 by 2030, but the Bundesbank has said that these measures don’t do enough to counteract the widening gap between the number of retirees and those contributing to pension schemes.

Other countries across Europe are pushing forward plans to gradually increase their retirement ages. Italy has made the decision to raise its retirement age to 66 for both men and women by 2018, in an effort to combat the high levels of public debt seen in the country. France’s previous retirement age of 60 was one of the lowest on the continent, but the French government recently raised this to 62 for those who have made social security contributions for the whole of their working life. For those who haven’t, the retirement age in France is now 67.

The UK state pension age is set to rise to 66 from 2020 onwards, going up again to 67 between 2026 and 2028. There are plans by the government to review the retirement age every five years in order to properly support the ageing population. However, with reports of more and more people choosing to continue working part time, in a different role or even a new industry altogether after becoming a pensioner, there is an argument to be made for the concept of retirement undergoing a radical rethink for future generations.

What’s happening at Deutsche Bank?

Thursday, October 13th, 2016

Deutsche Bank has been in the press for the wrong reasons recently, as it battles to reduce a $14bn penalty from the US authorities for mis-selling mortgage bonds.

However, unfortunately, the problems of Deutsche Bank don’t end there.

German banks are traditionally cautious, with the sector dominated by savings and co-operative banks and not-for-profit institutions. Deutsche Bank however, has followed a different path, aggressively pursuing expansion overseas in much the same way that Royal Bank of Scotland did. This started in 1998 with the purchase of the UK merchant bank, Morgan Grenfell, and continued with global expansion.

For a decade, the plan worked: profits soared and the share price rocketed. Deutsche Bank even managed to weather the financial crisis of 2008 without seeking help: but in doing so, critics argue, it became arrogant, less risk-averse and started to cut corners.

The bank is now paying a heavy price for those risks: the $14bn fine for mis-selling mortgage bonds comes on top of penalties for manipulating LIBOR rates and fixing gold prices. Unsurprisingly, the bank has few assets left – apart from a famously impressive art collection – and is struggling to retain its key staff.

The IMF has called Deutsche Bank, ‘the world’s most dangerous bank’ – not surprisingly because after 25 years of expansion, it is linked to a myriad of financial institutions around the world. As one insider at the IMF remarked, ‘If Deutsche Bank goes down, everyone else has a problem too.’

Right now, the person with the biggest problem is Angela Merkel. Deutsche shares have recently been at a 30 year low and the German government has been forced to deny reports of a bailout in which it would take 25% of the bank. With the hard line Germany has taken over any potential bailout of the Italian banks, things may get difficult for Mrs Merkel from here, but don’t think for a minute that Deutsche Bank is purely a German or a European problem: it has the power to affect us all.

Key findings from LV’s saving and retirement report

Wednesday, October 5th, 2016

A recent report from Liverpool Victoria has revealed some startling statistics on savings and retirement in the UK. Perhaps most worrying are the figures surrounding those who have nothing saved for when they finish working: over a quarter of those yet to retire have no pension pot, with one in five of over-55s included in this figure. Additionally, 15% of those aged 55 or older admitted they didn’t know how much they would need to support themselves during retirement, and 14% didn’t know how much they had saved.

Looking at the concerns people have about their retirement, over half of people aged 35-44 said they were worried that they aren’t financially prepared to retire. But only around a quarter said they would think about getting independent pension guidance, with around a fifth admitting they didn’t know where to go for advice on retirement.

Many were also worried about when they would be able to give up work, with 38% of those in the 45-54 bracket worried that they won’t be able to retire at the age they would like to. However, only one in two people in the same group are making contributions to their pension every month and 29% of them said they weren’t prepared to forego any of their regular forms of expenditure to pay into their pension pot. The list of luxuries that could be given up included gambling, takeaway food, holidays abroad and music streaming services.

Elsewhere, the report offered some less surprising statistics. 36% of respondents said they saw household bills as being their highest monthly expense during retirement, with mortgage or rent payments coming in second with 19%. Even though retirement age and financial readiness came high in the concerns respondents had about their retirement, the most cited worry across all age groups was maintaining good health as they got older.

October market commentary

Wednesday, October 5th, 2016


September was the month when nothing much happened on the world’s stock markets. Three of the 11 major markets on which we report were up, three were unchanged and five were down – but none of them by very much. The UK led the way, albeit only up 2%, while Japan and China were the laggards, both markets declining by 3% in the month.

One thing that was definitely up was the price of oil: at the beginning of the month the price rose after Russia and Saudi Arabia agreed to discuss ways to ‘stabilise the market’ and at the month end the oil producers cartel, Opec, agreed a preliminary deal to cut production for the first time in eight years. Brent crude rose 6% to nearly $49 a barrel on the news.

There was widespread international condemnation as North Korea claimed a fifth successful nuclear test. South Korean President Park Guen-hye called it an act of “self-destruction” and the US warned of “serious consequences.” Meanwhile, life in North Korea continued in its normal, rational way as Supreme Leader Kim Jong-un banned sarcasm, apparently worried that people would, “only agree with me ironically.”


UK Prime Minister Theresa May began the month at the G20 Summit in China, where she found very few people agreeing with her, ironically or otherwise. Japan’s government warned that Brexit could result in the country’s firms moving their European head offices out of the UK, “if EU law ceases to be applicable.”

That will perhaps be tested sooner rather than later: we will report on this fully in next month’s Bulletin, but the Prime Minister has now confirmed that Britain will trigger Article 50 and begin the formal process of leaving the EU, “by March 2017.” With new Chancellor Phillip Hammond also saying that he will abandon many of his predecessor’s key targets, there’ll be plenty to write about next month!

For September, most of the economic news for the UK was good. Figures reported at the beginning of the month showed the manufacturing sector had rebounded sharply in August, with the Purchasing Managers’ Index rising to 53.3 from July’s figure of 48.3 – with any figure above 50 indicating expansion.

There was also good news for the services sector, with the PMI jumping from a seven year low of 47.4 to post its biggest monthly rise in 20 years, up to 52.9. These two pieces of good news prompted most commentators to suggest that any recession in the immediate aftermath of Brexit was now unlikely.

Figures for July showed that the UK trade deficit had shrunk from £5.6bn in June to £4.5bn and UK car production hit a 14 year high in August as 109,004 vehicles rolled off the production line, up 9.1% on August 2015.

In the face of all this positive news, the OECD toned down its warnings of post-Brexit gloom – but there were still a couple of dark clouds on the horizon. The British Chambers of Commerce cut its forecast for UK growth for this year from 2.2% to 1.8%, and the BBC reported that small business confidence was down for the first time in four years.

What of the UK numbers? Inflation held steady at 0.6% and the Bank of England kept interest rates on hold at 0.25%. And as reported above, the FTSE-100 index of leading shares was up 2% to close the month at 6,899: it is now up 11% on a year-to-date basis.


By now you could probably write the opening paragraph of this section yourselves. Another month, another problem for Volkswagen. Or two in this case, as Australia announced plans to sue the beleaguered car maker, and the bill for the emissions scandal in the USA came in at $10bn.

Another German institution appears to be under threat, with the IMF recently describing Deutsche Bank as ‘the world’s most dangerous bank’ – the weakest link in a chain of globally significant institutions. Shares in the bank are at their lowest level for 30 years with Chancellor Angela Merkel having apparently ruled out any prospect of state aid.

With Commerzbank announcing plans to end dividend payments and cut 9,600 jobs, these are not happy times for the German banking sector.

…Or for EU chief Jean-Claude Juncker, who announced that the EU, “is facing an existential crisis” as member states co-operate less and less. His mood won’t have been helped by this weekend’s statement from Theresa May, or the referendum result in Hungary.

Meanwhile Austrian Chancellor Christian Kern became the latest European politician to berate multinationals like Amazon and Starbucks. “Every Viennese café, every sausage stand pays more tax in Austria than a multinational corporation,” he fumed.

So how did European sausage stands perform on the stock markets? They didn’t is the answer: the German market was down 82 points (just under 1%) at 10,511 whilst the French index had its second consecutive month of going virtually nowhere. It closed September up just 10 points at 4,448.


We’re now barely a month away from the US Presidential Election – due on November 8th – and Hillary Clinton remains the firm favourite: with new revelations coming out almost every day, the only safe prediction is that the contest will get a lot more heated and divisive before polling day.

US jobs figures for August were slightly disappointing, with 151,000 jobs created – down sharply on July’s revised figure of 275,000. The average monthly increase over the past 12 months has been just over 204,000 so these figures suggested that a rise in US interest rates might be delayed – although most commentators still expect a rise by the end of the year.

In company news, Apple launched the latest version of the iPhone, and media giant Liberty Media bought control of Formula One. Twitter shares were up on news of a possible takeover, and Yahoo conceded that ‘state-sponsored hackers’ had stolen data on 500m users, the largest publicly-disclosed data breach in history.

On Wall Street, the Dow Jones index was down 1% at 18,308. It is up by 5% for the year to date.

Far East

Fresh from warning North Korea about “serious consequences,” President Obama urged China to speed up measures to tackle over-production of industrial goods. Call me an old cynic but I suspect both will be roundly ignored.

Experts – this time it was former IMF chief economist Ken Rogoff – continued to warn about the slowdown in China, as suggestions continued that the economy is slowing down far more quickly than official figures suggest.

The Bank for International Settlements was the latest institution to warn about a possible banking crisis in China, as the banks continue to extend credit in a bid (presumably Government backed) to fend off the slowdown. This extension of credit may help to explain the record levels of Chinese investment overseas, with data for 2015 now showing that Chinese companies have invested more overseas (£111bn) than overseas companies invested in China.

Meanwhile the Bank of Japan was busy overhauling its massive stimulus package for the Japanese economy, setting long term targets for the economy and apparently abandoning its 2% target for inflation.

Despite the overhaul of the stimulus package – which initially sent world stock markets higher – it wasn’t a good month for the Japanese index, which was down 3% at 16,450. China’s Shanghai Composite Index was down by a similar amount to 3,005. The South Korean market was virtually unchanged at 2,044, with Hong Kong the only Far Eastern stock market to move up, although only by 1% to 23,297.

Emerging Markets

In Brazil, the new government of President Michel Terner has announced a privatisation plan in a bid to revive the country’s struggling economy. It plans to sell off four airports and two port terminals, as well as offer contracts for a range of projects from building new roads to operating mines. “The state cannot do it all,” said the new President.

Meanwhile, ex-President Lula and his wife have been accused of widespread corruption: with recent President Dilma Rousseff impeached for breaking fiscal and budget laws, politics in Brazil is coming to resemble Game of Thrones – but at least without the bloodshed.

Despite the ever revolving door of the courthouse, the Brazilian stock market was up 1% in September to 58,367. It’s now up by 35% on a year to date basis – easily the best performance among the markets we cover.

The Russian stock market was more or less unchanged in September at 1,978 while the Indian market fell back 2% to 27,866. They are respectively up 12% and 7% for the first nine months of the year.

And finally…

Numbers in China are often considered to have lucky or unlucky connotations. The number four is unlucky (because it sounds like the word for ‘death’) whilst the number eight – sounding like the word for ‘prosperity’ – is considered lucky.

But surely a group of Chinese investors were taking it too far when they bought 333 Kent Street in Sydney’s central business district? The price they paid was A$88,888,888.88, with the estate agent (who undoubtedly considers the number eight very lucky) reporting that this wasn’t the first time Chinese buyers had submitted ‘lucky’ bids.

On the off chance that the same investors are reading this Bulletin and would like a souvenir, various bits of the office are available including the mouse, keyboard and coffee cup used to produce this bulletin. Shall we start the bidding at £888.88?