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February Newsletter 2012

We hope the year has started well for you despite the doom and gloom and fears of sinking back into recession.

Here are some updates on changes that may affect you in the forthcoming months, and actions that you might want to take.

Also, a reminder of the end of the tax year coming… remember to make use of tax efficient savings, ISA allowances, pension contributions. Good to plan early, rather than leave until the last minute.

Finally, we will send the annual tax tables through to you first thing on Thursday 22nd March.

POSTPONED – Pension Reform Auto-Enrolment Dates

Good news for many businesses, Pensions minister Steve Webb has confirmed the revised staging dates for automatic enrolment following the Government’s decision to delay the reforms for small and medium sized businesses.

Medium sized employers, which includes companies with 50 to 249 employees, have had their dates pushed back by around 6 months to between April 1, 2014 and April 1, 2015

Small employers, which include firms with fewer than 50 employees, will have a postponement of approximately 12 months as their staging dates will now be June 1, 2015 to April 1, 2017.

The full list of staging dates can be viewed here: Staging Dates

Under the new timetable, all employers with an existing staging date on or before February 1, 2014 will not be affected.

New employers setting up in business from April 1, 2012 and September 30, 2017 will have auto-enrolment dates between May 1, 2017 and February 1, 2018.

As a result of this delay, the increase in the minimum rate of employer pension contributions from 1 per cent to 2 per cent of banded earnings will be delayed from October 1, 2016 to October 1, 2017 allowing businesses an extra 12 months to plan and prepare.

Employer contributions will then increase to 3 per cent from October 1, 2018. Webb says the Department for Work and Pensions will publish a consultation on the detail of these changes “shortly”.

S2P – Contracting Out to be Abolished

From 6 April 2012 many employers and employees will see their National Insurance contributions rise as a result of the Government’s plans to abolish contracting out of the additional State Pension. By bringing into force the relevant provisions of the 2007 and 2008 Pension Acts, those on a ‘defined contribution’ basis will automatically be brought back into the State system and will start to accrue entitlement to additional State Pension instead.

Employers and employees in money purchase/defined contribution occupational schemes will both then pay the standard rate National Insurance contributions instead of the reduced rate.

If you are in contracted out stakeholder or personal pension schemes, your pension provider should have written to you to inform you of these changes. After 6 April 2012, HMRC will no longer pay the National Insurance rebate into your pension scheme in respect of earnings paid in tax years beyond this date.

More details are available on the DirectGov website:

For individuals click here: Individuals

For employers with defined contribution occupational schemes click here:Employers

It is well worth bearing in mind that there are proposals for a flat rate state pension for all, which could mean you have a potentially lower pension in retirement even without the removal of contracting out.

Increasing your personal contributions to counteract this might be an option and if you’d like to explore this route, we can have a look at your own circumstances and advise you on whether this would be an appropriate solution for you. Please click to contact us.

Higher Rate Tax Relief – act now before it’s too late

We know there’s a lot of noise in Westminster at the moment regarding higher rate tax relief on pension contributions. The Chancellor is heavily tasked with reducing costs andremoving higher rate tax relief on pension contributions could save the Treasury significant amounts.

Therefore if you are a higher rate tax payer and were considering making a pension contribution to benefit from the higher rate tax relief currently available we would suggest that you consider doing this sooner rather than later.

ISA Contributions Deadline: 5th April

Your Individual Savings Account (ISA) allowance deadline is fast approaching (5th April 2012). If you don’t use your annual ISA allowance by this date you will lose it and you could end up paying more tax than you need to on your investment growth.

Stocks and Shares ISAs are a tax efficient way of investing, typically for 5 to 10 years or more, and currently you can invest up to £10,680.

Alternatively, if your time horizon for saving or your circumstances mean that a Stocks and Shares ISA is not appropriate then you could consider using your Cash ISA allowance (up to £5340).

Click here to download our useful ISA guide: [link updated] ISA 2014/15 allowances

The ISA allowance for the next tax year will increase to £11,280.

Should You Rebalance Your Investments?

Do you know the specific fund(s) that are held in your Pension or ISA? Have these funds changed over time? Was the original choice made based on your attitude to investment risk? And how might that have changed over the years?

Different funds within your investment will have performed differently, so unless you have made changes to ‘rebalance’ your investment, then over time the investment mix will have altered and over many years could end up being significantly different to the original investment!

Furthermore, this could be completely out of kilter with your current attitude to risk, which may also have changed over time particularly in relation to your age and circumstances.

Regular reviews are essential to ensure that the way your money is invested remains appropriate for your needs. A review will look at the proportion of each asset held in the fund and if appropriate, the funds will be rebalanced to ensure the fund stays in line with its original risk level.

If this is a concern for you, please call us on 01926 651122 or email us for more