The Adam Smith Institute, has released up to date calculations revealing the length of time we work, on average, to pay off our tax bill. Britons have worked for a full 5 months this year to pay their taxes, with every penny earned in the UK between January 1 and May 29 taken by the taxman to support government expenditure.

This means that Tax Freedom Day, the day when people stop working for the government and start making cash for themselves, in 2011 is now May 30, 3 days later than in 2010.

The main reason for this is that the government has raised VAT, in order to help reduce the UK’s record budget deficit. Interesting to note that VAT is second only to income tax in raising revenue.

Britons as a whole work the following amount of days to pay each of the following taxes:

•Income Tax 39 days
•National Insurance 26 days
•VAT 29 days
•Corporation Tax 12 days
•Fuel duties & petroleum revenue tax 7 days
•Local taxes (business and council tax) 13 days
•Capital gains / inheritance tax 2 days
•Duties on alcohol and tobacco 5 days
•All other taxes 17 days

Have a nice tax-free day (and do some tax-planning with your adviser !)

Europe does have an image problem at the moment. The “grand bargain” that EU leaders hammered out in March to shore up confidence in the Euro zone has been an abject failure. The bond market continues to worry that the eurozone has rotten parts. Yields on Greece’s two-year bonds recently hit 24% and the repeated reassurances from the Portuguese government that its financial house was in order failed to convince, forcing them to ask for a €78 billion bailout.

Given these dramatic headlines, terms like “debt crisis” “default”, and “deflation” hardly inspire confidence, it is understandable that many investors are wary of committing cash to European stocks. Whilst that wariness is understandable, it rests on a fundamental misunderstanding of the forces that drive the earnings of European companies and, by extension, their long-term performance.

Despite the acres of media coverage devoted to the problems of Greece, Ireland and Portugal, these peripheral countries are of marginal importance when looked at in the context of the eurozone as a whole. Such economies are dwarfed by the core economies such as France and Germany.

In the core economies there is a virtuous circle of rising employment, stronger consumer demand and improving economic growth with the German economy growing by a record 3.6% last year. Such data, showing steady economic expansion, does not grab headlines in quite the way that emergency bailouts do, but it is the key factor behind the rising earnings of European companies.

To show the imbalance between the core and the periphery economies, a European Index tracker fund will typically have significant exposure to the performance of Swiss food giant Nestlé or Spanish telecoms group Telefónica, either of which will be of far greater significance than all of the companies listed on the Athens Stock Exchange combined.

Crucially, Europe’s large companies are performing well, companies whose earnings, on aggregate, are predicted to grow by 14.7% this year and by 12.7% next year.

In the short term, the gloomy headlines may well continue to obscure the underlying fundamental attractions of European companies. Image problems come and go, but in the long-term it’s profits that count.

In this week’s Money Saving Expert email, the Yorkshire account was highlighted as a recommended option for investors.

With the Cost of Living rising and interest rates at an all time low, it would not be a surprise if your savings were feeling the pinch right now.

Inflation is the measure of the rise in the costs of things like Fuel and food costs and increases in VAT mean that you may not be able to buy as much with your money in the future as you can today.

These new investments can help your savings keep up with inflation stop inflation eating away at the spending power of your money.

http://www.moneysavingexpert.com/news/banking/2011/02/post-office-to-launch-inflation-beating-savings

Giles Smith Independent Financial Services has continued its aim of promoting mutuality by opening a new agency branch of the Yorkshire Building Society.

Offering a very competitive range of products, with the added benefits of mutuality, the Yorkshire Building Society is an ideal fit for the service focussed business of Giles Smith IFS.

GOOD NEWS ALL ROUND !

A. You’ve retired, Hurrah !  No longer a wage slave, no longer a clock watcher, The world is your oyster.

B. The kids are grown up and gone.

C. Health of the elderly has never been better.

The average 65 year old male has a 76% chance of living to 80, a 59% chance of living to 85, a 35% chance of 90, a 14% chance of 95 and, for the girls, the figures are even better.

But let’s look a little closer at this retirement nirvana.

Yes, you have retired but, on average most pensioners see their disposable income drop by around 65%, no yachting around the Caribbean just yet then.

Just when you thought you had escaped………40% of “children” still receive some level of financial support from their retired parents (won’t they ever leave us alone !).

Increased longevity is the ultimate life bonus but someone has to pay for it, what some American economists have dubbed, the “retirement smile“.

Don’t Panic ! You’re not doomed to a retirement living in a tent, bailing out your spendthrift offspring with only the prospect of elderly ill-health to look forward to.

It is essential that you make plans though. There is every possibility that your 45 years of working will have to finance 25 years, or more, in retirement.

In retirement you need to make the most of what you’ve got, generate tax-efficient income, adjust and plan your lifestyle, manage your money with dedicated retirement pension banking to make sure your money doesn’t run out before you do! Contact us now to review your retirement plans.

If ever there is a time to take financial advice, it is at retirement.

From the 6 April 2011 the requirement to purchase an annuity with your pension fund will cease. The key headline changes are:

• No requirement to annuitise at any age, and the new rules are effective from 6 April 2011.
• Alternatively Secured Pensions (ASP) will be scrapped and replaced by lifetime capped income drawdown.
• Capped income drawdown will allow annual withdrawals between £0 and 100 per cent of the basis amount (GAD maximum), which is broadly in line with the amount that an annuity would pay. The current limits are 120 per cent pre age 75 and 90 per cent after age 75.
• The requirement to take an income of 55 per cent of the basis amount after age 75 will be scrapped.
• The capped drawdown limit (basis amount) will be reviewed every three years rather than the current five years before age 75 and every year after age 75.
• A new flexible drawdown option will be introduced, allowing withdrawals above the capped drawdown limit as long as a minimum guaranteed lifetime income of £20,000 can be verified.
• Tax on death benefits from benefits already drawn down (vested) whenever death occurs will be charged at a rate of 55 per cent, but the lump sum paid on death will not form part of the individual’s estate for inheritance tax (IHT) purposes.
• Tax-free lump sums can be withdrawn after age 75.

From 6th April 2011, Unsecured Pensions (USP) and Alternatively Secure Pensions (ASP) will cease and two new, different options – Capped Drawdown and Flexible Drawdown – will be available.

Take a deep breath !

Tax Free Cash

You will now be able to draw 25% of your accumulated fund as Tax Free Cash to spend or invest as you wish. This will include benefits accrued in Additional Voluntary Contributions (AVC’s), Free Standing Additional Voluntary Contributions (FSAVC’s) and Protected Rights (Contracted Out) pension funds.

The more tax free cash you choose to take, the lower your income will be. You may also only take tax free cash once, so think about your personal situation before you make your decision.

Triviality

If, when you come to come to draw benefits from your pension fund, you find it is small, you may be able to take the entire fund as a lump sum. If your total pension fund is less than 1% of the lifetime limit (i.e. £18,000 for the tax years to 2011-11), then you may elect to receive your fund as a lump sum, of which 25% will be tax free, 75% being subject to income tax. The link to the lifetime allowance will be removed from the 6th April 2011. 

Pension Death Benefits

The differences between death benefits depend primarily on whether you are in receipt of your pension.   

Death Before Retirement – The value of your pension benefits will be measured against the Lifetime Allowance, and is normally paid to your beneficiaries or estate without any tax charge. Any benefits valued over the Lifetime Allowance (£1.80m for the tax years to 2010/11) will be paid to your beneficiaries, or estate, subject to the Lifetime Allowance Charge of 55% if paid out as a lump sum, or 25% if payable as a spouse or dependents income. Any pension payable would be subject to Income Tax.

Death After Retirement – Annuities – Any spouse or dependents benefits incorporated into the annuity will be taxed at the recipient’s income tax rate. Lump sum benefits payable under the Value Protected Annuity will be subject to a tax charge of 35%.

Unsecured Income – Income Drawdown (to age 75) – We are awaiting clarification on how capped and flexible drawdown will operate in practice.

With every annuity purchase you are able to source the market to find the provider who will offer you the best rate for your money (known as the open market option). You may select a level annuity, which will pay a fixed income for life, or an escalating annuity, which either increases each year at a fixed rate or one that rises or falls in line with inflation.

In exchange for your pension fund the chosen company provides a promise to pay you an income for the rest of your life. You may chose to incorporate spouse’s benefits and / or guarantees but this will reduce the initial income payable.

Value Protected Annuity

The value protected annuity offers a residual balance to be paid to your estate upon death. If the gross income paid is less than that used to purchase the annuity the balance is repaid to your estate, subject to a 35% tax charge.

However, value protected annuities are not currently permitted past the age of 75, therefore, if you have already passed the age of 65 you will need to consider whether a traditional annuity with a 10 year guarantee is more suitable than a Value Protected Annuity.

Enhanced or Impaired Life Annuities

These may offer higher income payments for those who are smokers or who have medical conditions that may reduce their life expectancy. Some companies also offer higher annuities depending on your occupation or where you live. 

Once your annuity is in payment you will not be able to change any aspect of it so you need to think carefully about the type of annuity you need.

Unsecured Pension

The unsecured pension is often described as income drawdown and there are two different types.

1. Short Term Annuity

The short term annuity will allow you to use part of your pension fund to buy a fixed term annuity lasting up to 5 years with the remainder of your fund being invested within an unsecured pension plan. This will offer more choice as to when you purchase an annuity, but you need to be aware of the risks of investing the remainder, as the value of your fund can fall as well as rise and will affect the income you may draw in the future.

2. Income Drawdown (Capped and Flexible)

Income drawdown allows you to draw 25% tax free cash and vary the income taken between certain limits depending on your circumstances.

The remainder of the funds are invested in accordance with your risk profile in order to potentially increase the return on your pension plan, and make up for charges and income withdrawn at the same time as sustaining future income. Decisions need to be made carefully as your residual pension fund could fall as well as rise, leading to a lower income than could have been obtained by purchasing a Traditional Annuity.

Capped drawdown gives flexibility but uses a ‘cap’ to limit the amount that can be withdrawn. The maximum income for Capped Drawdown will be limited to 100% of GAD rates for those below age 75 – reduced from 120% under USP. Furthermore, the government has also published new revised drawdown tables which will reduce the GAD maximum further for those aged below 75.

Those aged above 75 will see an increase in their maximum drawdown to 100% of GAD rates (from 90% under ASP currently) and will also be able to benefit from new, higher drawdown rates above age 75.

Flexible Drawdown gives greater scope in terms of income that can be drawn down each year.

From April 2011, in order to make use of the flexibility possible within “Flexible Drawdown”, you will need to meet the “Minimum Income Requirement” (MIR). This is initially set at £20,000 p.a. and can be secured from a variety of sources.

To count towards the MIR, the income must be:

• Pension income (either state or private).
• Guaranteed for life.
• Already in payment at the point at which flexible drawdown is taken.

As with many investments, there are also risks associated with Drawdown Pensions. For example, capital erosion and the dependence on fund performance might impact levels of future income (see later sections). To a lesser extent, (because of the introduction of the minimum income requirement) these also apply to Flexible Drawdown.

There are many advantages to an unsecured pension over traditional annuities, primarily, flexibility and potential protection of the fund for your beneficiaries. There are also significant disadvantages, primarily risk and cost. Sign up for more information on retirement, pensions and annuity rates below.

If ever there is a time to take financial advice, it is at retirement.

You need to know about the basic State Pension. How much it will provide you with and whether it will be enough ? If it helps, the short answer is probably no.

Anyone who has worked and paid enough National Insurance (NI) contributions for a set number of years should be eligible for the basic state pension. It is currently paid to women over the age of 60 and men over the age of 65. But be aware that from 2010 the qualifying age for women will be gradually increased, until it too reaches 65 in 2020. The retirement age for men is also on the way up.

Most people believe everyone receives the full basic State pension on retirement – but thousands do not. The amount you are entitled to depends on the number of years you have worked and the amount of National Insurance contributions you have paid.

For once, the government has simplified matters and as long as you have 30 years full NI contributions you should get a full state pension. But if you haven’t always been in work you may get less than you expect. Fortunately, it is possible to make up some lost ground if you are likely to lose out.

You could be in for a shock if you have missed contributions – the fewer credits you have, the smaller your slice of the State pension will be. If you have 15 qualifying years you will get only 50% of the basic pension – if you have less than that you may get nothing.

You can make voluntary contributions to make up an incomplete contributions record. But you must do this within certain time limits. You must pay by the end of the sixth tax year after the one you missed. So, effectively, you can make up only a maximum of six years of contributions.

Checking your entitlement

If you are coming up to retirement in the next few years, the best way to check is to get a State pension forecast using form BR19 from your local benefits agency or write to Retirement Pension Forecast and Advice Unit, Pensions and Overseas Directorate, Tyneview Park, Newcastle Upon Tyne, NE98 1BA. You can also fill in an application form online at :
http://www.thepensionservice.gov.uk/

The forecast will tell you the amount of basic pension you have already earned, and what you can expect at retirement taking into account what you might earn before you retire. It will also tell you if there is anything you can do to improve your pension, but you will have to follow this up yourself. If you are already retired and discover that you could qualify for a fuller pension by paying extra contributions, you can still do so – for up to six years.

The State Second Pension

Up to April 2002, the additional State Pension was called the State Earnings-Related Pension Scheme (Serps). Serps was based on your record of National Insurance contributions and your level of earnings as an employee.

In April 2002, the State Second Pension (S2P) reformed Serps to provide a more generous additional State Pension for low and moderate earners, and to extend access to include certain carers and people with long-term illness or disability. (Any Serps entitlement already built up is protected both for those who have already retired and for those who have not yet reached State Pension age.)

When you make your claim for a State Pension any S2P due to you will also be calculated. You will still be able to opt out of the second state pension and can ask that your NI contributions be redirected towards a company pension scheme, a personal pension or a stakeholder pension (although this is planned to be phased out in 2012).

The Government wants to help lower-paid workers, so benefits are concentrated at this end.  Anyone employed by a company and earning more than the National Insurance Lower Earnings Limit will qualify for S2P. Also, certain carers and those who can’t work through illness or disability will be treated as though they were earning at the Lower earnings limit, but to qualify they must meet certain conditions. As under Serps, both the self-employed and unemployed are excluded.

The most important thing is to make sure that you do. Start out, that is.

The earlier you start, the more you will probably have at the end. However, it is important to maintain a sense of balance. If you are in your early twenties, earning a small wage and trying to scrape by, it might not make sense to put a huge slice of your earnings into a pension. But if you can afford to start saving, you should.

Pensions are much more flexible than they used to be and most pensions now allow you to stop contributing, or to take payment breaks whenever you need without any penalties, So you are not necessarily tying yourself in to a contract forever.
Don’t put off starting a pension. If you are unsure about having retirement pension capital, you can arrange to pay a modest amount by direct debit from your current account shortly after payday it can be a painless way to prepare for the future. But remember to increase your contributions whenever you can afford to – for example, if you get a pay rise.

The Good Old Taxman

No seriously !  You get tax relief on most of the contributions you make to company and private pensions. This means that any contributions you make will effectively be topped up with extra money from Her Majesty’s Revenue and Customs (HMRC), a valuable concession. The higher your tax rate, the more valuable this tax relief will be. A basic rate taxpayer has to find just £80 to see £100 go into their pension, after the Revenue’s top-up (that’s 25% “instant” growth). A higher rate taxpayer would only need to find £60 of their own money to see £100 eventually go into their pension (that’s a pretty amazing 66% growth).

As a basic rate taxpayer you get the relief automatically. It is slightly more complex for higher rate taxpayers, however. The basic rate tax relief is added automatically, but you have to reclaim the difference between basic and higher rate tax when you fill in a self-assessment tax return.

Pensions are one of the very few ways to save where HMRC adds a contribution to help your fund grow faster. There are often rumours that tax relief on pensions may one day be removed, especially for higher rate payers (those earning over £130,000 p.a. already have some limits placed on their contribution entitlements). But ask yourself why they offer this valuable concession ? Clearly they want people to provide for themselves on old age, because the cost of the state providing an adequate benefit is going to be prohibitive.

There are limits to how much money you can put into a pension because the Government doesn’t want to give away too much in tax relief on contributions, although the limits will rarely affect most savers.

The maximum amount you can contribute to a personal or stakeholder pension is equal to 100% of your earnings, assuming they do not exceed the annual allowance. This has been set at £255,000 for the tax years until 2015/16. Above this amount, you will not qualify for tax relief, and contributions in excess of the annual allowance will be subject to a special charge of 40%.

If you do not have any earnings, you can still pay up to £2,880 a year into a pension plan. With tax relief added by the Revenue, this becomes £3,600. It is possible for parents or grand parents to make such contributions on behalf of children and/or grandchildren.

If you can afford to contribute more than annual allowance, funding a decent level of income in retirement is unlikely to be a major problem. For the rest of us the important thing is to get started.

Tax treatment of relief depends on the individual circumstances of each client and may be subject to change in the future. Levels of, bases of, and reliefs from, taxation are those currently applying and are subject to change.

Almost everyone insures their car (they have to by law), almost everyone insures their house and contents (the mortgage lender usually insists). But when it comes to insuring the most valuable thing, YOU ? Well, let’s just cut straight to the statistics:

• One in 5 adults have a mortgage with no associated life cover (2.2 million nationally).
• Almost half of all parents with dependant children have no life cover protection.
• 1 in 4 men now aged 20 will not live to 65.
• More than 1 in 3 people in Britain will develop cancer at some time in their lives.
• Over 270,000 people in Britain suffer a heart attack each year.
• Around 100,000 people each year in England and Wales suffer their first stroke.
• A man has a one in four chance of suffering a critical illness before retirement age. For a woman it is one in five.

Let’s, again, cut straight to the chase – Life insurance is a cheap product. It’s also a “no-lose” product. Most people will never claim on it (yippee, they’re still alive), those who do claim, will provide a remarkably different life for their dependents to those without cover, what other life insurance questions do you need to ask?

Insuring against long-term illness or critical illness is more expensive but needs to be investigated too, particularly if you are the sole “breadwinner” in the family.

Not convinced ? Think the state might provide ? (don’t even go there). Keep it simple and ask your self one question, “If I (or my partner) disappeared today how long would it be before our financial situation, and our life as we know it, fell apart ?”.

More information on;

• Life Insurance
• Critical Illness Insurance
• Permanent Health Insurance (PHI)

Finding the best way to finance your home

For the vast majority of people taking out a mortgage is probably the largest financial transaction and commitment they are ever likely to undertake. It should be fairly obvious that you should seek independent mortgage advice which is individually tailored to your needs and requirements, but many people don’t. It’s also important to realise that buying your home is not an investment, although hopefully you will end up better off in the long term, it’s a financial transaction designed to provide a home for you and your family. If it ends up showing a profit, that’s a bonus. Property prices can fall as well as rise. We have provided generic mortgage information on the subjects below, to get you started. Just click on any of the tabs on the left of the page for more detail.

Key Types of Mortgages
Your mortgage is the largest financial transaction you are likely to made, and there are several key types of mortgage, such as Capital and interest, interest only, split and flexible mortgages. Make sure you know which is right for you.

Different Interest Rates for Mortgages
There are many different types of interest rates in the market. We can provide a wealth of knowledge and mortgage loans advice on the different interest rates such as variable, discounted, fixed rate and more.

Mortgage Fees and Costs
A headline rate can often disguise an expensive deal overall once all the “extras” have been take into account. We discuss all of the different types of fees associated with buying your home, such as valuation fees, arrangement fees, legal costs as well as stamp duty and more. Our typical fee for arranging a standard mortgage is £250 (this can vary depending on personal circumstances) or we can receive commission from the lender.

Your home may be repossessed if you do not keep up repayments on your mortgage.