Pension Reform Has Changed The Retirement Landscape

Simplified set of rules ends the previous tax frameworks for pensions

Duncan Brown FCII
Director, MDM Associates Limited
Independent Financial Advisers based in Ripley, Surrey.

You can find the following discussion, amongst others, in our latest newsletter.

From 6 April 2006, also called ‘A-Day’ or ‘pensions simplification’, life changed for retirement savers as the government brought in a new simplified set of rules, effectively bringing to an end the eight previous tax frameworks for pensions.

All pension policyholders are now able to take up to 25 per cent of the value of their fund as a taxfree lump sum when they come to take benefits. This new rule has created a level playing field between different pensions.

Another rule introduced is that you and your employer are now able to pay up to one annual allowance into your pension. During the current tax year (2008/09), this is capped at £235,000, with the limit set at £3,600 for low or non-earners paying into personal and stakeholder pensions.

A further move designed to encourage us to save more is the greater ease with which people can now save into a number of different pensions at the same time under the new rules. As well as the annual allowance, there is also a limit on your entire pension savings, including any private pensions, occupational pensions and freestanding additional voluntary contributions.

In this current tax year, this amount is £1.65m. If you exceed £1.65m, you will be subject to the new lifetime allowance charge, or recovery tax, which will be charged at up to 55 per cent on any excess. A pension fund of more than £1.65m might sound like the preserve of the very rich, but it is likely that more individuals will be in danger of breaching the lifetime limit than they realise.

If you are close to or have already exceeded the £1.65m threshold, please contact us to discuss the options available to you.

The value of investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not a guide to future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent finance acts.

Market Musings

A difficult month

Chris Mealing
Director, MDM Associates Limited
Independent Financial Advisers based in Ripley, Surrey.

More turmoil, with the FTSE100 falling back to November's low by the end of the month and bad news coming out of the woodwork all over the place. Everything is being driven by politics - and this is about the most fickle of all market drivers, not to mention virtually never before being the prime driver within living memory. The banks were at the fore-front of it all and February's casualties - HSBC and Lloyds - accounted for over 10% of the FTSE's 300-odd point fall alone. On the plus side for holidaymakers, the pound recouped some of its recent losses, although that damaged European and - to an even greater extent - Japanese investments' returns for Sterling-based investors.

Many sought sanctuary in the perceived safe-haven of gilts - pushing prices higher, making them all the more precarious in due course.

As suggested last month, there was a significant difference between good and bad corporate bond funds, amounting to 7½% difference over just the one month alone between them - what this will translate into over the full year is anyone's guess!

And another thing…..

So what's all this about "swinging singles"?

The graph depicts what has, unfortunately, become a common phenomenon of late - namely swinging unit prices. This is where the single price quoted for units in a fund does not allow for the entry and exit costs - which are usually charged separately - so, as price spreads on the underlying investments have widened in thin trading markets, especially in corporate bonds, the price of units has swung quite violently against those either buying or selling units, depending on which is greater on a given day. As you can see, this has been around 6%-7% on an almost daily basis. For this reason any fund switching should only be undertaken with great care.

If you add the swinging price scenario to the marked variation in corporate bond fund per-formance (best = FTSE+15% [ie up a bit], worst = FTSE-1% year to date [ie down 14%) you can see that you almost need to take more care over the choice of fund than the asset class AND need to be very careful about making any switches.

So, what do the investment houses think?

On a 12 month view on the basis of +/-5% the consensus is neutral on just about all assets, with the exception of being negative on all property and positive on corporate bonds and US and Pacific ex-Japan equities. As ever, this masks significant variations, with some entirely positive on equities, although all are mixed on the other asset classes.

As stated last month, we are in for a bumpy year, but it is when the outlook appears darkest that the best investment opportunities are usually to be found. Provided you have a few years' investment horizon this will prob-ably be the year you should not miss out on making your ISA investment.

If it helps, smaller companies look set to bounce more than larger companies (when they do), and emerging markets have less debt to clear out before they can make progress; also, it would appear likely that upward pressures on commodities will resume even if the world economy does not perk up much, as emerging markets become more urbanised; leading sectors out of a recession include industrial transport and technology. A long shot but a tech fund could be interesting

The above is not intended to imply any advice.

(All data: source: Sharescope: to 28/2/09)

Norwich Union

Lisanne Mealing
Managing Director, MDM Associates Limited
Independent Financial Advisers based in Ripley, Surrey.

Another British firm falls to its new trendy international name. In April Norwich Union will finally lose its British identity and take on 'Aviva' as its sole identity.

What do we feel about this? The end of a tradition or doesn't it really matter?

Small is beautiful, right?

Tech Talk

With Peter J Smith

IT Director at MDM Associates Limited, Independent Financial Advisers based in Ripley, Surrey.

Small is beautiful, right?

It’s a good bet that if you are reading this you already use the Internet on a daily basis. Traditional use and access to the web is most often done on a home computer or a laptop.

However in recent months there has been a sea change, the number of web accessible devices has mushroomed. Apple introduced the iPhone and Google have got in on the act with Android, its new operating system for mobiles phones.

What does this mean for the average user? In plain language it means that more and more information, especially in graphical format, is available to anyone with a mobile phone and a data plan. Stock tickers, instant updates, twitter alerts and access to blogs are just a few of the available information sources that are being increasingly used to find out what is going on the financial markets or just the world around you.

The biggest problem is screen size and the ability to read all the information that you can access in this techno logical wonderland. If you have an iPhone or similar the screen size is just about readable for a few web pages and twitter alerts but what about some serious Internet access and logging into your portfolio?

Lugging around your desktop replacement laptop is absurd and the cost of a small ultraportable is often outside the budget. What we really need is a cheap alternative that can be carried around and is, above all, useful.

Step up to the plate…..Netbooks.

A net who? You may ask. A Netbook is a small laptop that is just slightly larger than a paperback novel, weighs a tad more and slips into a handbag or small briefcase with ease. They run Windows or a version of Linux (a cheaper simpler operating system) and are mostly powered by the new Intel Atom chip.

With a price point of £150-£300 pounds (excluding the £800 plus Sony version) these Netbooks allow all of the functionality with a fraction of the price of an ultraportable laptop.

Now, I am a convert! I have an ultraportable but it is still “large” and after a short trial use of a Toshiba Netbook I am happy to carry it around with me in situations where I would leave my regular laptop at home. The convenience of the size and weight outweigh the smaller screen size and, once all my applications and data were loaded on, I could work as freely as before.

They are not for everybody and the sight of a big rugby playing executive typing on a small Netbook keyboard is quite amusing. If you get a chance pop down to your local PC store and take a look. Your mobile phone might just remain that and the Netbook could prove that small is beautiful after all.

MDM Spring Newsletter

Lisanne Mealing
Managing Director, MDM Associates Limited
Independent Financial Advisers based in Ripley, Surrey.

Our Spring newsletter is due for publication in the next week or so, so please look out for this important issue giving a current overview of the market and the all important end of tax year planning! Please read and send feedback. You can subscribe and receive a PDF or download from the website.

MDM Comment on Interest Rate Drop

Lisanne Mealing
Managing Director, MDM Associates Limited
Independent Financial Advisers based in Ripley, Surrey.

As you know, Bank Of England just dropped rates to 0.5% - how do you feel about this? Word on the street is that there is an increase in enquiries from 1st time buyers in the mortgage market. To obtain a decent rate they need to have a good deposit probably in the region of 15%, however those ready to act can probably tie themselves into a reasonable rate from between 2 to 5 years. Borrowing is coming down but a fixed rate may help budgeting in the longer term.

What's your view?