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To read further on the triple lock pension pledge, heres the link I mentioned in my video by the BBC, 👉🏼 👉🏼 👉🏼 👉🏼 click here.
To read more on the topic of Retirement Planning, heres the link I mentioned in my video by the The Motley Fool, click here.
Treasury ‘considers pension tax raid’ to pay for Covid pandemic spending. Taxes on pension contributions could increase this autumn under spending plans being considered by the Treasury, according to reports. Officials are believed to be looking at several different ways of raising money to pay for the surge in public spending during the Covid pandemic.
To read the full article published by the Independent, click here.
Regulated advice should be the place to start. There are those that have done this that would now wish they had not and there are those that have benefitted greatly. The common denominator between both parties is likely to be the quality of the advice that they were given at the outset. If you’re an expat that has recently begun to consider this aspect of your finances and has made the decision that gathering information could potentially be beneficial if not educational at the very least then begin with getting proper advice. Pensions can be complex and understanding the nuances is key. You can read the full guide on my Pension Transfer Advice page.
Tax on UK pensions – nobody wants to read this! However, this article appeared in the FT last week and outlines some of the questions being considered. Further, it highlights how paying for the Covid Stimulus is going to need to happen at some point, not just in the UK, but for most global economies who have propped up workers.
1 – should pensioners pay a higher level of income tax? They have:
- Received tax relief on contributions made
- Had the option for a Pension Commencement Lump Sum meaning that only 75% is taxable anyway (from an occupational pension scheme)
- Potentially never really contributed their own money anyway to some of the defined benefit style schemes
2 – should the 25% pension commencement lump sum be reduced?
Case for pensions tax rise’ to aid Covid recovery
Think-tank head advises MPs’ committee looking at future tax options
Taxes on pensions paid to millions of retired workers could be raised to help the country’s finances recover from the Covid-19 crisis, MPs were told this week.
Paul Johnson, head of the Institute for Fiscal Studies, a think- tank, said there was a case for retirees to pay higher taxes on money drawn from occupational, or workplace, retirement plans.
“Pension tax relief restrictions and pension tax relief have raised lots of money over the past decade,” Mr Johnson told the Treasury select committee’s “Tax After Coronavirus” inquiry. “There has, of course, been no increase in the tax on pensions in payment.”
Mr Johnson said those who had already reached pension age had been “protected” from tax rises, so there was a case for “at least a modest increase in tax” on occupational pensions in payment.
Occupational pension incomes were “extremely well tax-relieved”, he added, because employers did not pay national insurance on their contribution to an employee’s pension.
In a traditional final-salary type company pension, the bulk of funding for the retirement benefit is made by employers not employees.
Mr Johnson did not specify how additional tax could be raised from occupational pensions in payment.
Currently, when money is taken from a personal or workplace pension, a quarter is tax free, with income tax payable on the remaining 75 per cent.
The amount of tax paid depends on total income for the year, after taking into account the tax-free personal allowance, currently £12,500.
Giving evidence to the same inquiry, Mike Brewer, deputy chief executive and chief economist at the Resolution Foundation, a think-tank, said that “for reasons of intergenerational fairness, we need to look at the tax treatment of pensions”.
“The government’s strategy has not been clear on that,” said Mr Brewer. “There has been a lot of tinkering, but a clear strategy would help and there is more to be done.”
The Treasury committee was investigating tax options to repair the public finances after Rishi Sunak, the chancellor, spent more than £350bn on emergency measures to prop up the economy in the wake of the Covid-19 crisis.
This week, Boris Johnson warned the UK’s economic outlook was “about to get tougher” and Mr Sunak admitted tax rises would be required to pay for the economic chaos wrought by coronavirus.
Mr Sunak said the government would “need to do some difficult things”, but this did not mean a “horror show of tax rises with no end in sight”.
Philip Booth, senior academic fellow at Institute of Economic Affairs, told the inquiry that the pensions tax-free lump sum could be made less generous to help repair the nation’s finances.
“I would severely limit the tax-free lump sum that it is possible to receive from pensions . . . which would allow a lot of pensions tax simplification instead of the route that the government seem to be proposing, which is to allow tax relief only at the basic rate, which I think would cause a degree of chaos,” he said.
The government is expected to confirm its position at the Budget, due in November.
You may also be interested in my advice on UK Pension Transfer.
Getting furloughed was probably a concept that not many of us had even heard of in January, but it is fair to say that the bulk of us are very aware now.
But what has been the impact upon you and your money? This can obviously be broken down into different concepts and will be very different for different people. If you are a young employee, then the market impact of Covid will probably not hugely effect your retirement planning 30 years from now a great deal, even if it has had a detrimental impact upon the value of pensions, savings and investments in the recent months. However, it may well have impacted your immediate income due to a wage reduction, or worse job loss.
If you are already a pensioner and your money was invested too aggressively the last few months have probably been uncomfortable. If you are somewhere in the middle, you will also have found the last couple of months difficult.
So what comes next? At the end of March we looked at ‘How Low Can We Go‘, at which point the S&P 500 stood at around 2,500 points with Goldman Sachs telling us we may see it fall to 2,000 points. However, since then we have seen double digit gains despite reasonably poor results being announced by the vast majority of S&P 500 firms. A few weeks after this article I sent out ‘Timing The Market‘ which essentially highlighted the fact that nobody was really in a position to be able to predict how Covid was going to move markets.
So has this theory been proven correct? The below article from Bloomberg talks us through the spin that CEOs are putting on figures and the bits that investors are grabbing at. The recent negativity is almost being looked through and some form of economic recovery taking place once lockdown is lifted being priced in. Will this come to fruition? Again, it is difficult to say.
For now, however, even if furloughed or worse, there could be some optimism that the value of your pensions and investments should be higher than it was a month or two ago.
Listen to the Numbers, Not the Spin
By John Authers
Silence Is Golden
The first-quarter earnings season is limping to a close this week, bringing two childhood sayings back to mind. First: “If you can’t find anything positive to say, don’t say anything.” And second: “Do as I say, not as I do.”
Companies are following the first. Investors appear to be observing the second, responding to what companies are saying rather than the cold facts of the numbers they are announcing.
Executives are deciding to withdraw their guidance in record numbers, making the responsible decision that if the pandemic is making them uncertain about the future they are best keeping their own counsel. As the quantitative team at BofA Securities Inc. shows, the preponderance of the 114 S&P 500 companies withdrawing all guidance come from the highly cyclical consumer discretionary and industrials sectors:
The guidance from those still offering it is running more negative than at any time since the worst of the Great Recession. Without company suspensions of guidance, we can assume that it would have been even worse:
As for the projections of brokers following companies, they are terrible — although they do appear to have hit bottom. This is what has happened to consensus projections for the first quarter, again from BofA:
Meanwhile, earnings momentum, where the number of positive upgrades by analysts is shown as a percentage of all changes in forecasts, has also dropped coyote-like off a cliff, but appears to have reached a trough, as shown in this chart from Societe Generale AG’s cross-asset research. This is true both for the U.S. and the world:
As for forecasts for the next year, they have been hit as never before. This chart shows Bloomberg’s own measure of prospective S&P 500 earnings, and actual trailing numbers.
The market’s ability to look through this has been nothing short of extraordinary. Prospective earnings multiples haven’t been this high since 2001:
Looked at in broader perspective, the market doesn’t look quite this rich, but still looks overdone. This is the latest read-out of the cyclically adjusted price-earnings multiple, or CAPE, as taken from the website of Robert Shiller at Yale University:
My rough and ready estimate is that the ratio has increased to a little above 27 since Shiller revised it last month. That makes it less overblown than it was a few years ago, and far cheaper than at the top of the bubble in 2000. But it is still way above the historic average, above its peak in 1966 and also above its level before share prices collapsed in 2008.
Why are markets this positive? My guess is that investors are drawing the best possible conclusions from what clues companies are giving them during earnings calls. There are numerous attempts to quantify guidance these days, and BofA’s suggests that executives become far more negative in their Q&A sessions with investors than they have been in the officially drawn up management guidance, which tends to be far more positive:
This effect is most marked in health care (where executives had to express opinions on the virus itself during their Q&As) and — much more intriguingly — in technology.
This attempt at quantification gives little reason for optimism. But an exhaustive subjective analysis by the quantitative team of Bankim Chadha at Deutsche Bank AG found that executives were spinning a positive story about the issues that most worried investors. In particular, they found that companies were trying to avoid their mistake of 2009 in not being ready for recovery, while those exposed to China made positive noises about the speed of the return to normality there.
This is the key section from Chadha’s report:
This view reflects their experience of a gradual rebound in China and the tentative stabilization seen through April in other regions. Many companies highlighted the rebound they are already seeing in China as the economy re-opened, with supply and production largely back to pre-outbreak levels and demand also improving gradually. As Caterpillar noted “all of our facilities are operating in China again and our suppliers are doing much better in China as well,” while Starbucks thinks “barring any new disruptions, our business in China is on a path to substantial recovery.” However Yum China pointed out that while “approximately 99% of our stores are open,” their “volume has not yet returned to pre-outbreak levels.”
Looking through the other quotes identified by Chadha’s team, I found reasons for concern, and a lot of the positivity was conditional on the economy reopening. The following quotes come from the CEO of Fastenal Co. (which has beaten the S&P by 10% since announcing results April 14) and Abbott Laboratories Inc., which outpaced the market by 6% in the first week after announcing April 16, but has now given that all back. I would characterize both as very guardedly optimistic, but maybe people in the markets are picking up on a dog whistle of greater positivity:
Fastenal: At this point, we just don’t know. The message that I’ve given our team is with shelter-in-place orders, you see a bunch of customers, a bunch of businesses that are shut down. You also see examples where our business is operating. And I believe the bias right now towards pieces of the economy turning back on is stronger today than it would have been a couple weeks ago. And I’ve said to our team we [are] actually prepared for elements of the economy turning back on as we get into May. I don’t know if that’s going to happen, but elements of our economy [are] turning back on. So I wouldn’t see the drop-off being as acute as you saw back in 2009.
Abbott: We can see a recovery into Q3 and into Q4 especially for these more elective procedures… It will be a V-shape. I don’t think it will be — I think the right-hand side of that V-shape will be definitely a little less steeper than the left-hand side of that V-shape. But I think we’re going to see that recovery in Q3 and Q4, at least that’s what our data is suggesting.
I would want something a little stronger and less conditional before bidding up stock prices as far as they have gone. But it appears the market is hearing what it wants to hear.
If you are a human then this article impacts you! Read it then get in touch!!
“This global retirement crisis is a slow-ticking time bomb, not as dangerous as climate change but almost as consequential for financial markets, living standards and much else. This year, almost one in 10 people in the world will retire, according to the United Nations; by 2070, it’ll be about one in five.”
Life expectancy keeps increasing which is arguably a good thing. However, the downside is that the cost of funding the period commonly known as ‘retirement’ is increasing with it and the provision that you can expect to get from the state is highly unlikely to be sufficient to fund the lifestyle that you want.
Are you saving enough to sustain the lifestyle that you want? Have you ever sat down and calculated what you would need to do and when? Have you considered the level of income that you would like and when you would like it to start?
What level of investment growth would be needed on your monthly savings in order for you to achieve your goals? – All of these things are actually not difficult to answer and can be easily calculated.
If you want to give yourself the best chance of not becoming one of the statistics given below then drop me a line.
France’s Pension Riots Are a Warning to the World – by Andreas Kluth
In nearly every rich country, the retirement age will need to rise to make pension systems sustainable.
When it comes to retirement, France is like other countries, only more so: Everything about its system is untenable. It’s untenable that it has 42 separate public pension schemes — one for train drivers, another for opera singers, and so on. It’s untenable that the French think they have a God-given right to retire at 62 or even earlier. And it’s untenable that they tend to riot in the streets every time the government tries to confront these realities.
If they chose a slightly different perspective, the French might actually have reason to celebrate. After all, like people across almost the whole world, they can expect to live longer. The only problem is that unless they also work longer, this means they’ll need to draw their pensions for more years. Moreover, because of lower fertility in recent generations, fewer young people will be financing these pensions.
Global Graying
Why pension systems are unsustainable without reform
Source: United Nations World Population Prospects: The 2019 Revision; OECD
Note: OECD averages
This global retirement crisis is a slow-ticking time bomb, not as dangerous as climate change but almost as consequential for financial markets, living standards and much else. This year, almost one in 10 people in the world will retire, according to the United Nations; by 2070, it’ll be about one in five.
The crisis isn’t evenly distributed. Africa, for once, has less of a problem, because of its relative youth. In North America, the problem is big. In Asia and Europe, it’s huge. The world’s “oldest” country (demographically) is Japan, and one of the fastest-aging is South Korea. The oldest continent is Europe, and countries such as Greece, Poland, Portugal, Slovakia, Slovenia and Spain are among those aging fastest.
Policymakers really only have three big dials to address this dilemma.
One is the contribution rate: how much people of working age are required to pay into the system. That rate is trending upward in rich countries. This represents an increasing burden on young people trying to get started in their careers (and questioning whether the system will even be around when they themselves retire). The alternative to making workers pay more is to fund shortfalls out of government coffers, which is a great plan to create the next sovereign-debt crisis.
The second policy dial is the replacement rate: the income level of retired people relative to what they made when they were still working. These rates range from as low as about 30% in Lithuania, Mexico or the U.K. to as high as 90% in Austria, Italy, Portugal or Turkey. Because most pension systems are unsustainable, these levels will go down almost everywhere. That means many old people will end up poor.
That leaves the third dial: the retirement age. Increasing it is the simplest way to make pension systems more sustainable, while simultaneously taking pressure off younger generations and promising more income to the old. What’s important is that the total time people spend in retirement doesn’t keep lengthening. That means the pension age should not only be raised immediately but also indexed to future gains in life expectancy.
Unfortunately, only one country, Estonia, has recently raised its retirement age. A few others, notably Denmark, have had good pension policies all along, so that their systems are in effect demography-proof.
By contrast, most other rich countries (defined here as the 36 members of the Organization of Economic Cooperation and Development) are headed for trouble. Only slightly more than half have legislated future increases in the pension age, and even those increases are adding only half as many years as life expectancy will rise by over the same period. In other words, they’re insufficient.
Danish Delights
Most countries are raising retirement ages too slowly
Source: OECD Pensions at a Glance 2019
More worrying, quite a few governments are backsliding, by actually lowering the retirement age, loosening rules for leaving the workforce early or breaking links to life expectancy they had previously created. Among these policy delinquents are Canada, the Czech Republic, Italy, Poland, Slovakia and Spain.
The reasons for this dynamic aren’t exactly mysterious. The effects of demographic change, like those of climate change, will be revealed gradually over decades. By contrast, a week is a long time in politics. Leaders who take a long view must sell their constituencies on changes that disrupt old habits and seem to bring nothing but inconvenience.
Voters tend to reward such honesty and foresight in their leaders by firing them or rioting. All the more reason for calmer minds to speak up and praise the courage of those politicians who dare to reform.
One of the biggest news stories in Europe last week was surrounding the strikes in France over proposed pension reforms. Should this come as a shock? We have seen similar protests recently in Chile and Spain and the topic has been breached by political parties in the UK with the forthcoming General Election.
So what is the issue? Well, in a nutshell, people are living longer and, therefore, funding their retirement is becoming more expensive. Is the burden of funding this stage of life the job of the state or the job of the individual? Should individuals be saving throughout their working life in order to ensure that they can enjoy life to the full post working or should the state pay this for them?
It is easy to say that the answer is that people should simply save more money. Undoubtedly that is apart of it, but what vehicles do they use? What if they retire in a different country to that which they have a pension? What if they move around during their retirement? What if they can’t afford to save more? Get advice. These are all the kinds of questions that have answers and can be talked through.
One thing that cannot really be argued with is that those of us who plan early and commit to funding our future are much more likely to be in a position where we can enjoy our retirement and make the most of that stage of life.
See below recent BBC News Article:
Macron pension reform: Strike continues for second day
The second day of a strike over French President Emmanuel Macron’s planned pension reforms has disrupted key services across the country.
Public transport, schools and hospitals have been affected by the action.
At least 800,000 people protested on Thursday, with clashes reported in several cities. Unions have called for more mass demonstrations on Tuesday.
Workers are angry about the prospect of retiring later or facing reduced payouts.
France currently has 42 different pension schemes across its private and public sectors, with variations in retirement age and benefits. Mr Macron says his plans for a universal points-based system would be fairer, but many disagree.
- Why are French workers on a nationwide strike?
- In pictures: The pension protests rocking France
- How could French strikes affect UK travellers?
The strike over his pension plan has drawn people from a wide range of professions, including firefighters, doctors and transport workers. Some have vowed not to stop until he abandons his campaign promise to overhaul the retirement system.
“We’re going to protest for a week at least, and at the end of that week it’s the government that’s going to back down,”
“We’re going to protest for a week at least, and at the end of that week it’s the government that’s going to back down,” 50-year-old Paris transport employee Patrick Dos Santos told Reuters news agency.
Prime Minister Édouard Philippe announced that he would unveil details of the pension reform plans on Wednesday, insisting that the change would be gradual and “not brutal”.
What is the latest?
Rail operator SNCF said about 90% of its high-speed TGV trains were cancelled on Friday, while airlines including Air France, EasyJet and Ryanair dropped flights.
At least nine of the 16 metro lines in Paris were closed at rush hour, while others ran limited services.
Traffic jams of more than 350km (217 miles) were also reported on major roads in and around the capital on Friday morning. Some commuters took to bikes and electric scooters in an effort to avoid the transport chaos.
Eurostar has said it will operate a reduced timetable until 10 December, with 29 services planned for Friday cancelled.
Some schools remained shuttered and hospitals were left understaffed.
It came as unions called for more mass protests on Tuesday. “Everybody in the street on Tuesday, December 10, for a new day… of strikes, actions and protests,” Catherine Perret, a senior member of CGT, France’s biggest public-sector union, told reporters after a meeting of four unions.
Education Minister Jean-Michel Blanquer said fewer teachers were expected to strike on Friday than the previous day, as he argued that the current pension system was in need of “deep reform”.
“It would be much easier for us to do nothing, like others before us,” he told local channel BFMTV. “But if every presidency reasons in this way, our children will not have an acceptable pension system.”
Minister for Solidarity and Health Agnès Buzyn told radio network Europe 1 the government had heard the protesters’ anger and would meet union leaders to discuss the reforms on Monday.
She noted that the government had not yet laid out the details of its plan, and said there was “a discussion going on about who will be affected, what age it kicks in, which generations will be concerned – all that is still on the table”.
Mr Macron has not commented publicly on the strike, but an official speaking anonymously to AFP news agency said the president was “calm” and determined to carry out the reform in a mood of “listening and consultation”.
What happened on Thursday?
French police said 800,000 people took to the streets across the country, including 65,000 in Paris.
Union leaders put the numbers higher, with the CGT union saying 1.5 million people turned out across France.
The disruption meant popular tourist sites in Paris, including the Eiffel Tower, were closed for the day and busy transport hubs like the Gare du Nord were unusually quiet.
In the capital there were reports of vandalism and police used tear gas to disperse protesters. In total, 71 arrests were made across the city, police said.
Clashes were reported in a number of other cities including Nantes, Bordeaux and Rennes.
Rail operator SNCF said 90% of regional trains had been cancelled by the disruption on Thursday. Hundreds of flights were also cancelled, with airlines warning of further disruption to come.
Who is striking and why?
Teachers, transport workers, police, lawyers, hospital and airport staff were among those who took part in Thursday’s general walkout.
Many other workers reportedly pre-empted the disruption by taking Thursday and Friday off, but it is unclear how long the “unlimited strike” action could last.
The Macron administration will hope to avoid a repeat of the country’s general strike over pension reforms in 1995, which crippled the transport system for three weeks and drew massive popular support, forcing a government climbdown.
Mr Macron’s unified system would reward employees for each day worked, awarding points that would later be transferred into future pension benefits.
The official retirement age has been raised in the last decade from 60 to 62, but remains one of the lowest among the OECD group of rich nations – in the UK, for example, the retirement age for state pensions is 66 and is due to rise to at least 67.
The move would remove the most advantageous pensions for a number of jobs and unions fear the new system will mean some will have to work longer for a lower pension.
Great news for those entitled to a UK State Pension. Whether this level of increase as a result of the ‘triple lock’ is sustainable is an entirely debatable point, however, as the below article from MoneyWise eludes, the chances of seeing it debated in the campaigning for the forthcoming General Election are quite slim.
Did you know that if you are a British expatriate you can continue to contribute towards your State Pension? Further, the chances are that doing so would be beneficial. If you would like further information on this then please do not hesitate to let me know and I can talk you through it.
State pension will rise by £343 a year from April 2020
Retirees on the new state pension will receive a guaranteed increase of 3.9% from April.
The amount by which the new state pension rises is determined by the so-called state pension ‘triple lock.’
This guarantees that the state pension will rise in line with inflation, wage growth or 2.5%, whichever is highest for the September figures.
Inflation for September 2019 was today confirmed at 1.7% on the CPI measure. This means the state pension will rise in April 2020 by 3.9%, the wage growth figure for the three months to July 2019.
See the table below for the amount by which state pension payments will increase.
2019/20 |
2020/21 |
Increase (per week) |
|
New State Pension |
£168.60 |
£175.20 |
+£6.60 |
Basic state pension (single) |
£129.20 |
£134.25 |
+£5.05 |
Basic state pension (married) |
£206.65 |
£214.75 |
+£8.10 |
Source: Royal London, 16 October 2019. Pension rates in 2020/21 based on 3.9% uprating, assuming rounding up to nearest 5p.
Steve Webb, director of policy at Royal London and former pensions minister notes that the removal of the free TV licence for many will offset these increases.
“The pension rise will be great news for those not affected by the TV licence changes.”
“But there is a sting in the tail for around 1.7 million single people over 75 who will experience a squeeze in their standard of living once they have paid over £150 for a TV licence next year.”
“This makes it all the more important that older pensioners check if they might be entitled to claim pension credit so that the poorest pensioners do not face this squeeze.”
The weekly increase in the new state pension amounts to £343.20 per year. However, this is reduced to around £193 when factoring in the added cost of a £150 colour TV licence over 75s will have to pay from next year.
Political problems
Added to the TV licence fee issue, which is the subject of much debate, the triple lock continues to be a contentious political policy.
Tom Selby, senior analyst at AJ Bell, explains:
“Such a bumper increase clearly comes at a cost to the Exchequer, and with a general election seemingly inevitable the commitment of politicians to this policy is likely to be tested.”
“On the one hand the triple-lock is quite an odd policy, increasing the real value of the state pension arbitrarily when earnings and inflation are low.”
“It could be argued a more rational policy would establish what level a ‘fair’ state pension should be, raise the benefit to that amount and then remove the 2.5% element.”
“However, it is likely the issue will become weaponised in the cauldron of an election battle as politicians desperately seek voter approval.”
“Given older people usually head to the ballot box in the greatest numbers, it is extremely unlikely any party will propose significant changes to this popular policy in their respective manifestoes.”
Inflation and wages
Inflation remains below the Bank of England target of 2%. The most recent figures reported by the Office for National Statistics (ONS) today show the CPI measure of inflation saw price rises of 1.7% in September.
The CPIH measure, which includes housing costs and is widely perceived to be more accurate showed the same, at 1.7%.
Wages, reported the day before, grew by 3.8% in the three months to August. this was slightly down from 3.9% in the previous period. The earlier 3.9% figure, for the three months to July, is what is referred to for the state pension increase decision however.
Any more questions? Feel free to get in touch!
We all know that dealing with financial consultants in Dubai can seem extremely daunting at first, but with the right advice and structure put in place, you can save for future.
Adrian Cartwright ACSI | Financial Consultant Dubai | Dubai Marina
WhatsApp: +971 52 855 7084
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Located in Dubai, Adrian Cartwright FNCSA, represents clients throughout the United Arab Emirates, including, but not limited to the cities of Dubai, Abu Dhabi, Sharjah, Ras Al Khaimah, Fujarah, Um Al Quain, Ajman.
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