Living longer, but...
12th April 2019
A recent report shows that life expectancy is still improving, but not as quickly as was once expected.
“British life expectancy falls by SIX MONTHS for men and women”
That was one recent headline in response to the latest report of the Continuous Mortality Investigation (CMI) of the Institute and Faculty of Actuaries. While it was not inaccurate, like many such headlines it was open to misinterpretation.
The CMI research suggested that mortality improvements had slowed down from over 2% a year between 2000 and 2011, to about 0.5% now. The CMI was not the first to notice the trend. The Office for National Statistics, some large insurance companies and pension providers have all made similar observations. Various possible reasons have been put forward, including a fading benefit from the reduction in smoking, the impact of austerity and the spread of obesity and diabetes.
The life expectancy for a pension scheme member aged 65 is now 21.9 years for man and 24.2 years for women, according to the CMI. These are effectively averaged numbers, so there is roughly a 50/50 chance that today's 65 year old pensioner will live longer, even if the CMI's current calculations prove to be perfectly accurate in 20+ years' time.
Whether or not the CMI turns out to be 100% correct, there is little doubt that the timescales involved mean anyone retiring at 65 today needs to think in terms of drawing their pension for at least a couple of decades. If you are approaching retirement, that should serve as a reminder of the importance of establishing the right long term structure for drawing your future income. Make the wrong decision and it could be hanging over you for the next 20-30 years.
Footnote: While the CMI uses age 65 as a benchmark, the relevance of that specific age is fading. State Pension Age is no longer 65 but is now about 65¬, on a path of phased increases that will reach 66 by 6 October next year.
Check your April pay slip
13th March 2019
Your April pay may look much the same as March's, but it is it worth giving your pay slip a closer look.
If you are an employee, your April pay slip is always worth checking, even if you pay little attention to the other eleven you receive over a year. The items to check include:
Salary: Many employers change pay rates from 1 April, often coinciding with the start of their new financial year. If you were notified of a pay increase in March, it is worth making sure the number on the April pay check agrees with what you were promised.
Tax code: Your April pay check will be the first for the 2019/20 tax year and your PAYE tax code will have almost certainly changed from what was on your March pay slip. If you are entitled to a full personal allowance and have no deductions, your code number should increase by 65, reflecting the £650 increase in the personal allowance.
If you have a company car, then it is likely to move your code in the opposite direction. For most cars (other than those with the highest emissions), the percentage of list price that is taxable rises by 3% - £300 per £10,000 of list price. A £22,000 car will therefore more than counter the rise in the personal allowance. The higher scale percentage also means a similar increase in taxable value of employer supplied fuel. In practice you might be better off paying your own fuel bills, even if your employer pays you nothing in compensation.
National insurance contributions (NICs): The primary threshold (that is, the starting point) for NICs rises by £4 a week while the upper earnings limit (the top level of earnings on which you pay full 12% NICs) jumps by £70 a week. As a result, if your annual earnings are more than £46,600 a year, you will be paying more NICs from April. If you earn over £50,000 a year, your extra NICs will be just over £28 a month.
Pension contributions: These are generally linked to salary, although not necessarily your full pay, so should increase if you have an April pay increase. If you are in an automatic enrolment pension scheme, your contributions are usually based on “band earnings”, which were £6,032-£46,350 in 2018/19 and are £6,136-£50,000 in 2019/20. The contribution rate will rise, too. How much will depend upon your employer's contributions: you might see the rate increase by two thirds to 5% of band earnings (4% after basic rate tax relief). If your pay in April is lower than in March, the auto enrolment change could be the culprit.
For more insight on the tax, NICs and pension deductions from your pay and options to limit their impact, please talk to us.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.
Happy birthday to tax-free savings
11th February 2019
The arrival of the new tax year on 6 April means it is time to consider your Individual Savings Accounts (ISA) investments, which will celebrate their 20th birthday in April.
Over the last 20 years, the maximum annual contribution has risen from £7,000 per tax year to £20,000 for 2019/20. If you managed to set aside the maximum each tax year since 1999/2000, you would now have placed over £205,000 into ISAs and largely out of HMRC's reach.
The relatively simple single investment option has also morphed into a range of plans covering everything from retirement planning (the Lifetime ISA) to children's saving (the Junior ISA).
However, one aspect has been common throughout the ISA's lifetime: new investment is concentrated at the end of the tax year. For example, in the 2017 calendar year Investment Association data shows that net ISA investment in the second quarter was £1,421 million against a net total of £1,068 million for the entire year (the first and fourth quarter showed net outflows).
This means, if you are in that 'leave-it-until-the-last-moment' majority, now is the time to start thinking about your 2018/19 ISA investment.
The benefits of ISAs
Whilst the value of ISAs has changed over 20 years, as successive Chancellors have altered the tax treatment of interest, dividends and capital gains, the main tax advantages are largely unchanged:
- There is no UK income tax to pay on interest, whether from cash or fixed interest securities. With low interest rates and the personal savings allowance of up to £1,000, this benefit is less valuable than it once was.
- There is no UK tax to pay on dividends - This is a more valuable benefit now the dividend allowance is £2,000 and even basic rate taxpayers can face 7.5% dividend tax.
- There is no capital gains tax on profits.
- There is no personal reporting to HMRC.
One extra feature added in recent years is the ability to allow ISAs to be effectively transferred to a surviving spouse or civil partner on first death. However, ISAs ultimately remain liable to inheritance tax unless appropriate AIM-listed investments are chosen.
For year-end ISA investments, please contact us.
The value of your investment can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.
Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.