THE PARTY’S OVER
Well, the new Government has shown us their plans for the future which, to paraphrase the advert, in the short term looks neither bright nor Orange. There is no doubt we had to start the painful process of tightening our belts, which I believe is long overdue, and now we know how they plan to do this, we can finally look at how to make effective financial planning.
Starting with the good news, at last the Government has indicated that the compulsion to purchase an annuity, or go into Alternatively Secured Pension (ASP) which for most people is not that attractive, with a pension fund at age 75 is going to be reviewed in the next year. The announcement that anyone reaching their 75th birthday after the Budget can keep their pension fund in Income Drawdown until age 77, by which time the new rules regarding pensions will be enacted, suggests that the compulsion to use their fund to buy an annuity at any age may be removed altogether. Hallelujah!!
Hopefully the new Government will grasp the nettle and also remove some of the ridiculous and bureaucratic legislation regarding pensions such as the Lifetime Allowance which means that anyone with total pension funds exceeding £1.8m has to pay tax of 55% on the excess. If ever there was a piece of legislation that stifled investment this is it. There is much need for simplification to pension legislation, and I would not be surprised if we returned to the old rules where there was greater restriction on the amount that could be contributed but no restriction on the fund size at retirement. There is also a likelihood of higher rate tax relief being further reduced, or withdrawn altogether, and with this background I believe there is a limited opportunity for anyone who is currently a higher rate tax payer, but has not exceeded total earnings of £130,000 in the last three years, to make a sizeable contribution to their pensions which would attract 40% tax relief, as they may not be able to do so to the same extent in the future.
The news regarding Capital Gains Tax (CGT) was not nearly as bad as had been suggested, and the fact that the annual exemption of £10,100 per person remains, and that the highest rate of CGT is now 28% means that using this allowance for long term saving is still attractive. It was interesting to hear the Chancellor say that increasing the highest rate above 28% would be counterproductive as doing so would actually result in less tax being received by the Treasury. If they extend this logic to Income Tax, I suspect we may well see the removal of the 50% tax rate in the next year or so.
ISAs remain untouched, and in the current high taxation environment making full use of this valuable allowance makes even more sense, although probably via stocks and shares rather than cash. It has also been announced that the allowance will increase in line with the Consumer Price Index in the future.
The bad news, however, is that as well as each of us having less money in our pockets, and being forced to pay more for goods and services once VAT rises, the aggressive cutting in Government spending means that interest rates will have to remain at their current levels for some time to avoid the threat of recession. Although this is good news for borrowers it is not nearly so good for savers. In fact I am writing this having just received a call from my bank suggesting I consider moving some cash from my current account into a "super saver account". The "super" rate of interest on this account? 0.4%! This means that for every £10,000 in the account net interest of £24 a year would be added for a higher rate tax payer. Goodness knows what rate the “non-super” account attracts.
It is definitely a time for cash held on deposit to be no more than necessary, as in real terms its value is being eroded on a daily basis, which will only get worse once the VAT rise comes in to being.
All in all the Budget was roughly what we could have expected, and hopefully the change to pension legislation is only the start, and simplification of the tax system is next on the agenda.
STEPHEN GALLACHER
For those of you who are golf fans, you may have noticed that ASAM is sponsoring Stephen this year. Last year Stephen was hit by illness which had a major impact on his ranking both on the European Tour and Worldwide. However, this year, as his health problems have abated, Stephen has performed brilliantly and as a result he has already secured his tour card for next year and has risen to 136th in the World. He has also qualified for the Open Championship at St. Andrews in a couple of weeks, and as he is playing in the Scottish Open the week before, hopefully you will see quite a lot of him on TV over the next couple of weeks.
JUNE 2010 FACTS
MARKETS AND MANAGERS WE MET LAST MONTH
FTSE All Share
1 year return +13.0%
5 year return -4.4%
S&P 500
1 year return +11.6%
5 year return -14.9%
FTSE Eurofirst 300
1 year return +12.9%
5 year return -15.1%
Standard Life UK Equity High Income (Karen Robertson)
1 year return +11.1%
5 year return +10.7%
Neptune European Opportunities (Rob Burnett)
1 year return +14.7%
5 year return +77.5%
Gartmore European Select Opportunities (John Bennet)
1 year return +14.4%
5 year return +39.2%
Threadneedle American Select (Cormac Weldon)
1 year return +22.4%
5 year return +25.0%
(source - ft.com 1 July 2010)
Best Bank Accounts
West Bromwich Building Society paying 2.60% gross available only over the telephone and postal system with instant access.
Halifax Web Saver Extra Account paying 2.6% gross available only over the internet.
(source –Moneyfacts July 2010)
