Wealth Design News

25/03/19
This report follows the Automatic enrolment review 2017: Maintaining the momentum. In the review, the Government announced it would carry out trials on a number of different approaches to help self-employed people save for retirement. The trials focus on three areas:
1) Marketing interventions aimed at people who have previously saved – for example, after being automatically enrolled whilst employed – to encourage them to continue their saving behaviour;
2) Marketing interventions using trusted third parties for the self-employed, such as trade bodies/unions etc. to promote the value of saving and provide an easy connection to an appropriate savings vehicle; and
3) Behavioural prompts – testing messages combined with prompts through invoicing services and/or the banking sector to seek to engage self-employed people to think about starting a regular saving habit at a point when they are receiving income.

The report focuses on several areas, firstly the principles and purposes of the trials, then it looks in detail at the current savings trends of the self-employed. It then goes onto discuss the trials in detail including a call to action for those that believe they could work with the DWP on these trials.
22/03/19
Families that have their child benefit paid to a working parent are losing millions of pounds in pension rights, Royal London has warned. Calculations from the insurer showed one-earner families who chose to have their child benefits paid to the working parent rather than the parent at home with the children were losing £1bn a year in lost pension rights as the stay-at-home parent misses out on National Insurance credits towards their state pension. The warning followed correspondence between the Treasury committee and HMRC in which HMRC stated an estimated 237,000 couples were in this situation. Experts warned of the importance, If you are part of a couple where the higher earner is claiming child benefit, of checking your National Insurance record. Valuable National Insurance credits are available to those who receive child benefit but if the person in work claims the child benefit rather than the stay-at-home parent, there is a risk that these credits are being wasted.
20/03/19
The Financial Conduct Authority (FCA) has introduced rules around the use of benchmarks when presenting fund performance, in the second set of remedies published following its asset management market study. The new rules require fund managers to explain why they use certain benchmarks and to reference them consistently throughout the fund’s literature once one is selected.

The regulator found that fund managers rarely explain why or how they are using particular benchmarks. Some of the ways fund managers use benchmarks, they believe, include as a constraint on how they construct a fund’s portfolio, as a target for fund’s performance, or as a way for investors to compare the fund’s performance. When there is not a benchmark that corresponds with the way a fund is run, the regulator stated that fund managers must still be able to explain how to assess its performance.
18/03/19
The money purchase annual allowance (MPAA) has trapped almost one million over-55s, who must now live with a permanent reduction to the amount they can put into their pension tax free.

For individuals wishing to dip into their retirement pots using the pension freedom rules, tax relief is available on contributions up to £40,000 a year, but those who have already made a flexible withdrawal, instead become subject to the MPAA of £4,000 a year. Experts fear that many savers who took cash from their pensions are unaware that their tax relief limits have been slashed. Data from HM Revenue & Customs has revealed 980,000 over-55s who used the pension freedoms between 2015 and 2019 have been caught by the MPAA, the Financial Times reports.

As a result, their annual allowance has been cut from £40,000 to £4,000. The figures were released following a freedom of information request by Just Group. Industry leaders have called on the regulator to ensure people are able to receive independent and impartial guidance to prevent people from making uninformed, irrevocable choices that can cause harm.
15/03/19
Older homeowners unlocked a record £3.94bn of property wealth using equity release during 2018 – just failing to break through the £4bn barrier for the first time. The total was 29% up on the £3.06bn in 2017 and the seventh consecutive year of growth in the market as recorded by the Equity Release Council (ERC). Meanwhile the £1.08bn of lending completed in the final three months was up 26% from the £838m in the same period last year. This continued the market’s growth from the £1.02bn lent in Q3 2018 which was the first time the market broke £1bn for a quarter. Older homeowners are realising in growing numbers that property wealth can play a crucial role in supporting their retirement alongside pensions, savings and other assets.

Industry, regulators and government must continue to explore how we can help generations of retirees, both today and in the future, to adopt a more rounded approach to later life planning.

With a growing choice of products and features on offer, the market is maturing and adapting to offer a new level of flexibility to suit a range of financial needs and ambitions – from funding care costs to helping children to buy their first home.
14/03/19
The risk of a global recession has surged to the top of the worry list for credit investors even as they push down their cash balances to snap up new-year issuance, according to Bank of America Merrill Lynch’s latest survey of European money managers. Almost 30% of respondents to the bank’s poll cited a worldwide economic slump as their largest concern, the strongest consensus for any single risk since June 2017. No one cited rising bond yields or higher inflation as their top worry, while only 2% said it was Brexit.

European investors have been piling into credit so far this year, adding corporate hybrids, insurance and subordinated bank debt alongside defensive positions in utilities, according to BAML. That’s pushed cash allocations down to 3.5% and left a majority of investment-grade money managers feeling that spreads are too tight. Investors are also sceptical that another round of cheap central bank funding for European lenders from the ECB will provide much of a boost -- they believe the policy has been so well signalled that it’s now priced in. Even so, almost a quarter of respondents expect tighter senior bank spreads as a result.
13/03/19
The UK government has unveiled proposals aimed at increasing workplace defined contribution (DC) schemes’ investment in so-called illiquid assets, such as infrastructure. Less liquid assets such as small and medium-sized companies or housing were attractive from a diversification and returns perspective for schemes, and were also important sectors of the economy, according to the government. To get more DC schemes investing in these assets the Department for Work and Pensions (DWP) announced plans for a new way of accommodating performance fees – often associated with illiquid assets – within the 0.75% charge cap on default funds used by auto-enrolment pension schemes. It also proposed a measure aimed at encouraging consolidation, which would require some or all smaller DC schemes to evaluate every three years whether the scheme ought to be merged with a larger scheme and wound up.
11/03/19
The money purchase annual allowance (MPAA) has trapped almost one million over-55s, who must now live with a permanent reduction to the amount they can put into their pension tax free.

For individuals wishing to dip into their retirement pots using the pension freedom rules, tax relief is available on contributions up to £40,000 a year, but those who have already made a flexible withdrawal, instead become subject to the MPAA of £4,000 a year. Experts fear that many savers who took cash from their pensions are unaware that their tax relief limits have been slashed. Data from HM Revenue & Customs has revealed 980,000 over-55s who used the pension freedoms between 2015 and 2019 have been caught by the MPAA, the Financial Times reports. As a result, their annual allowance has been cut from £40,000 to £4,000. The figures were released following a freedom of information request by Just Group. Industry leaders have called on the regulator to ensure people are able to receive independent and impartial guidance to prevent people from making uninformed, irrevocable choices that can cause harm.
08/03/19
It is well known that gifts to charities and political parties are exempt from inheritance tax (IHT). The key is to ensure that the intended recipient is indeed a charity or a political party (both as defined in legislation). Under section 24, only donations to a political party that, at the last election preceding the transfer of value, had at least two MPs or one seat and 150,000 votes will be exempt. The UK Independence Party (UKIP) did not fulfil this condition.
The UK Tax Tribunal (First-tier) has therefore decided that HMRC was within its rights to charge £163,000 of inheritance tax on nearly a million pounds of donations made by campaigner Arron Banks (via his companies) to UKIP before the Brexit referendum in June 2016.

Mr Banks argued that the gifts ought to have been tax-exempt as donations to political parties and that denying the exemption was a breach of his human rights. However, the Tribunal held that UKIP was not a political party under the relevant legislation because its two MPs had not been elected at a general election (Banks v HMRC, 2018 UKFTT 617 TC).

FE Analytics comments “Since we have also mentioned charities, it is interesting to note that a recent report concluded that more than 50% of private “charitable” trusts did not pass the “public benefit” test (necessary for a body to be considered a charity). We will come back to this topic in a future bulletin but this should also be a reminder that, when making a Will, if a legacy is to be left to a charity (especially if it is intended to take advantage of the reduced 36% IHT rate on the rest of the estate), it is essential to ensure that the intended donee is in fact a charity for these purposes. Often gifts are made to local clubs and associations or schools and not every one of these will actually be a charity.”
06/03/19
Despite a more challenging fourth quarter which saw equity markets plummet, global dividends rose by almost 10% in headline terms during 2018, with the Janus Henderson Global Dividend Index ending the year at a new record of 187.3. This means the world's companies paid their shareholders a staggering $638bn more in 2018 than in 2009, when the index was launched. On a core growth basis, the 2018 figure was equivalent to an increase of 8.5%, which is the best performance seen since 2015, and above the long-term trend of 5%-7%. Almost nine in ten companies around the world raised their pay-outs or held them steady during the period. Emerging markets, Japan and North America performed strongly, though Europe lagged behind, while 13 countries delivered record pay-outs, including Japan, the US, Canada, Germany and Russia. European dividends however, rose more slowly, up 5.4% on an underlying basis. They were held back by slow growth in Switzerland and a big cut from Anheuser Busch in Belgium.

Nonetheless, 90% of European companies increased their dividends with strong performance from Germany, France and Spain. Headline growth benefited strongly from positive exchange-rate effects earlier in the year. Looking at the year ahead, most commentators believe dividend growth is expected to be more in line with the long-term trend. Corporate profit expectations have fallen as global economic forecasts have been revised down, although most observers still expect companies to deliver positive earnings growth in 2019. Dividends, afterall, are much less volatile than earnings.