These are almost perennial rumours in the run up to the Spring Budget.

What is different this time is that Danny Alexander, Chief Secretary to the Treasury, reiterated to the Daily Telegraph the Liberal Democrats’ commitment to restrict pensions tax relief for higher rate tax payers.

As such higher rate taxpayers pay income tax at 40%, contributing £100 to a pension only costs them £60. This is a wonderful income tax saving for the individual – but it costs the Government an estimated £7 billion each year.

So might there be some substance to these rumours, especially with the Government’s finances in such a perilous state?

Well here’s my view:

All the discussions about tax relief on pension contributions forget to mention that fact that when pensions come into payment they are taxed as income.  So in reality pensions are only deferring the Government’s tax take.

So what is the point of saving into a pension if you just pay the tax on the way back out?  Well the objective should be for long term compound interest to increase the value of your pension in a relatively tax free environment (remember Gordon Brown decided to start taxing pension returns in 1997), so that the investor is able to accumulate a fund which can be converted into a pension (annuity) at retirement.

Now to give another incentive for us to save now and spend later we are currently allowed to take 25% of the pension fund as a tax free lump sum.  For many people this gives them a lump of cash that can be used to pay off any loans or mortgages still remaining and basically get themselves financially sorted at the end of their working lives.

OK, so what has happened to pensions over the years that has lead to so many people no longer investing in them?

• Constant rules changes and unnecessary complexity – all Governments to blame!
• Overcharging by pension companies
• Poor investment returns from global equity markets for that last 12 years
• Dramatic crash in gilt yields, which has had the effect of reducing the final pension/annuity that people receive

So for those few people left saving into pensions it now looks like the Treasury want to stop them from doing so as well.

If the Government do remove high rate tax relief and the tax free cash lump sum I predict a massive reduction in future pension savings.

This of course fits perfectly with the Governments desire for people to spend and not save in order to help kick start the economy.  Another short term policy which is against the country’s long term benefit.

The irony is of course that a new pension scheme called NEST is about to be launched and all employers will be forced to join their employees into the scheme (or equivalent).  Employees then have to ‘opt-out’ of the pension within the first month otherwise any money contributed will be locked into the pension.

Based on my discussions with employers I predict that NEST will be another waste of time with many employees opting out as they see no value in pensions.

The Government needs to realise that the whole pension system is broken and needs to be reviewed in light of the modern world and flexible working practices. However the last time a politician was given the task of ‘thinking the unthinkable’ with pensions (Frank Field) he was given the sack for his conclusions (by Tony Blair)!

So what if you already have funds built up in a pension?

You need to take control and take responsibility for your pension rather than leave it to others:

• Identify exactly what pensions you have and what they are worth
• Identify how well your investments have performed over the last 10 years
• Make sure you understand how your pension is invested
• Identify the level of charges taken out by your pension provider and advisers
• Work out how much your pension might be worth when you want to retire
• Seek the minimise pension and contract charges
• Identify suitable investments that will meet your goals, attitude to risk and understanding of investments

Now I would of course recommend that you contact a fee only financial planner to arrange a consultation.  A good financial planner will help you with the above checklist and explain the different type of investments available.  They will also help you create your own bespoke financial plan to achieve financial freedom.

Of course I would recommend Chatfield Private Client!  A phone call to us will cost you nothing, so call us now on 0330 555 2575.

However, whatever you do, don’t do nothing as every day that goes by could be another day of suffering high charges and poor investment returns!

Now, it would be easy for me to sit here and write down a series of bullet points ranging from qualifications and experience, to independence and being paid by your clients rather than a product provider. So easy indeed that I almost started that way myself.

But, to do that would miss the real reason. At its centre is not only an awareness by an advisers that clients are placing in them one of the most valuable things they have – their trust, but also something that you can’t take an exam for or fake, and that is a real belief and pride to always no matter what put the client first and foremost.  Get it right and a client will share with you more of his inner most feelings, fears and ambitions than any other professional.

This inner belief in what is right and wrong and the decision we made as business owners and advisers to have at the centre of our business plan the words “what can we give?” instead of “what can we get?” is what makes US different, and leads clients to ask the question “Why aren’t all advisers as truthful as you?”

Jason

Why?  Simply because there is a race on with many IFA’s to adapt to the new FSA rules which come into force at the end of 2012, but instead of building a better client service they are dressing up their old service in new clothes and charging more for the privilege.

The focus of too many IFA’s is on accumulating as much ‘funds under advice’ as possible; in fact the amount of funds under advice has reached bragging rights territory at industry functions.

These IFA’s just want as much of your money as possible so they can charge you 1% of your wealth every year.  Of course as the money start to accumulate ‘under advice’ their income rapidly increases, but what happens to yours?

Well let’s look at two investment portfolios both of which increase in value by 7% every year, but where the second portfolio suffers a 1% asset based fee:

So over 20 years the 1% ‘wealth manager’ fee has reduced your wealth by over £66,000!

Now if your IFA is able to add more than 1% additional value every year then they are good value for money.  But what if they are just peddling the same old underperforming high charging investment products they always did?

What extra value has your IFA (or wealth manager) brought in to your life?

Have they identified how much money you need to continue your desired lifestyle (or even your current lifestyle)?

Have they drawn up a plan to get you to your financial goals?

Have they even asked you what you want?

Or have they worked out that £50million of assets under management will pay them £500,000 every year and then later they can sell their business (i.e. your goodwill and business) to someone else and then retire early?

If your are working with a genuine lifestyle financial planner you will already know how much money you need to fund your lifestyle and have a plan in place to achieve your goals.

If however you don’t know how much money you need or how you are going to accumulate sufficient funds then you need to ask your adviser why and for what purpose they are charging you 1% of your investments every year.

At Chatfield we advise YOU and not your money. 

We tell the truth about money, even if it’s not what you want hear.  We will work with you to create a plan to achieve YOUR goals and we will be with you for the journey towards YOUR brighter more secure financial future.

We work on agree fixed fees and do not hide behind percentage based fees, as we KNOW that 1% can be a lot of your money when compounded over the years.

With the coming new rules being introduced by the Financial Services Authority from the end of 2012 independent financial advisers can no longer hide behind commissions and will have to agree their fees with you.  Make sure they tell you in pounds and pence what they will be charging and they don’t try bluff you with percentage based fees.

Oh and it might also be enlightening to ask your IFA how much they have earned in commission/fees from you over the last say 5 years……..then you can be the judge as to who has received the best value for money.

Adrian

One of the main reasons for regulating any industry is to protect consumers. At Chatfield we take our regulatory obligations very seriously and we are very proud that we take time to explain why we recommend particular action and are totally transparent about what we charge too.

Sadly that cannot be said for others in the financial services industry. Although we have seen sharp practices amongst those who like us are regulated by the Financial Services Authority (FSA), there is another field of unregulated advice where it really is buyer beware. If anything goes wrong here, investors have little or no form of compensation or redress.

We have reported organisations to the FSA for illegally promoting weird and wonderful schemes (invariably these are offshore and often involve overseas property or, another favourite, currency trading) but the proliferation of schemes promising lucrative returns is relentless.

A few things to ponder here: 

1.  Risk and return are related. It is not possible to get high returns without taking high risk.

2.  If any one of the companies involved is offshore, what are they trying to hide from?  

3.  Why are the parties involved not regulated by the FSA? What happens if things go wrong?

4.  If the returns look too good to be true, they probably are.

5.  If I developed such a good investment, I would keep it all to myself, not promote it to the general public!

The ability of these unregulated schemes to lose lots of money, lock it away for years and apply layer upon layer of charges is far too high.

If you are in any doubt about investing in a particular scheme, give Chatfield a call. We will quickly be able to identify the strengths and weaknesses of the so-called sure fire winner.

Philip

Every day people complain about the taxes they have to pay and understandably so.  We have to pay tax on what we earn, we pay tax on much of what we buy and then we might even end up paying tax on death.

That is a lot of tax.  However it is the price that we pay in order to that we can have roads, hospitals, schools, social benefits, our bins collected, street lighting, and so on.  So whilst sometimes it can feel that the tax system isn’t very fair we do all at least get something of value in return.

Funny thing though is if you ask most people how much they pay in tax they don’t know! Generally the answer is ‘too much’.

It’s that same with pension and investment charges, in that most people have no idea what they are paying in charges.

Yet it is often the case that the more you pay in charges to pension and investment providers the less benefits you get!  You would expect to get better investment returns if you paid a fund manager more money in comparison to just  buying a fund that followed an equity index, for example the FTSE All Share Index.

Well the evidence suggests that the amount you pay in investment charges has no relation to the investment returns you will receive. In fact research shows that most highly paid fund managers can’t even beat their own benchmark targets, so essentially the more you pay the less you get!

So before you decide to campaign for lower taxes please make sure that you are not being robbed by overcharging investment and pension providers first, because at least you get something back for you tax payments.

Adrian

We will be attending the next stage interviews later this month with the final results being announced at the Awards ceremony in March 2012.