Divorce and the best way to treat pension pots

The tricky task of dividing pensions fairly in a divorce and stamping out ‘unintended discrimination’ against women is tackled by top lawyers in a newly published guide. Pensions are often a family’s second most valuable asset after a home, but the legal experts found a widespread lack of confidence among colleagues in the profession about how to split them, and a substantial proportion of unfair outcomes.
Previous research has found divorcing women could be forfeiting thousands of pounds of pension cash, and a charity has called for lawyers to prompt couples to discuss the topic during the process. The new good practice guide seeks to address this by demystifying pensions jargon, encouraging fairer settlements, and reducing the risk of claims against lawyers by former clients. The aim of this guide is to help judges and practitioners navigate their way with more confidence through the tricky field of pensions on divorce, and ultimately improve the fairness of outcomes for those going through divorce.
Additionally, the Government plans to tackle the causes of financial inequality in later life by intervening at points where women are likely to face disadvantage from school to employment, divorce and retirement. It will target inequalities in the labour market that lead to women to retire, on average, with pension savings up to 40% lower. This will include by reviewing equal pay legislation, redundancy protection and maternity discrimination.

Weekly Market Commentary 27 September 2019

Boris and Donald Stir up Stronger Political Headwinds
This week much of the news has been dominated by two political scandals; the court ruling that Boris Johnson acted unlawfully by proroguing parliament, and the developing news that Donald Trump tried to pressure Ukraine into investigating a political rival by withholding military aid. While both could turn out to be fatal for their perpetrators eventually, the immediate impact is surprisingly little. MPs have secured an extra couple of weeks back in parliament but they may not be able to do much with it. Likewise, in the US, Democrats and Republicans remain at loggerheads over impeachment.

While these developments are just part of the background now, they may yet snowball. Both leaders enjoy popular support among their base and have so far been immune to things that would have easily finished off their predecessors; it’s easy to see a line being crossed where that support evaporates. Given the signature policies of both leaders, Brexit and trade wars, this could have a massive impact on markets.

UK: Thomas Cook Collapses
Thomas Cook entered liquidation this week, immediately ceasing all activities and leaving approximately 155,000 people stranded abroad, leaving the government to help ATOL fly the holidaymakers back home. While the news came as a surprise to many, if you look at their recent track record, it’s a wonder they managed to stay  afloat for so long. In a bid to stay ahead of a highly competitive market back in 2007 the 178-year travel provider entered a merger of equals with MyTravel. The problem was that MyTravel barely made a profit in the prior six years and didn’t generate the required revenue ultimately ending up with the group suffering heavy losses.

In 2011 with the internet revolution in full swing, Thomas Cook bought Co-op Travel saddling the company with 1200 stores. Within the same year, the company had a near death experience and needed short term funding which was provided but at high rates and its debt pile grew to £1.1bn. Over the last 8 years the company has paid out £1.2bn in interest.

US: Economy Grows at a Modest Pace
In the US figures for the second quarter paint a picture of a slowing economy propped up by consumer spending. The fall in business investment activity was revised from 1.1 per cent to 1.4 per cent indicating that the trade war continues to bite, and doubts are starting to set in as to how long consumer spending can stave off a recession. Overall GDP growth was at two per cent for the quarter.

However, not all the blame can be attributed to the trade war. Productivity, which is measured by the amount of goods and services produced against the number of hours worked, is also in decline. And given the labour market is tight, higher total output would have to be come via increasing the hours worked. Good luck telling the Americans that. Generally, a big spike in productivity tends to come from technological innovation like the transistor or the internet so unless we have another technological leap expect productivity rates to stay modest.

India: Government Cuts Corporate Tax Rates
India’s latest effort to combat sluggish economic growth this week was a cut to the basic corporate tax rates from 30 per cent to 22 per cent. The nation, which has lowered interest rates four times this year, will bring tax rates closer to the likes of China, UK and the US, with the aim of becoming more globally competitive and boosting its profile to foreign investors.

By complementing monetary policy changes with fiscal loosening, it is also hoped that consumers will spend more, taking advantage of reduced consumer goods costs and low rates. New manufacturing companies are set to reap the most from the reduced rates. Their corporate tax rate will shrink from 25 per cent to 15 per cent, but only if they incorporate the company at the start of October and commence production by the end of March 2023.

Lifetime ISAs

LISAs became available from 6 April 2017 and while the LISA is similar other to ISAs, the key differences are that an account can only be opened by those aged between 18 to 40 and payments can’t be accepted once the saver attains age 50, the subscription limit is restricted to £4,000 per tax year, a Government bonus of 25% is paid on qualifying payments and withdrawal charges of 25% can be deducted by the LISA manager in specified circumstances.
The main aim of the LISA was to provide funds for house purchase or retirement.

IHT investigations rose by 183 in 2018/19

In 2018/19, HMRC launched 5,537 investigations into IHT returns, against 5,354 in 2017/18. The 3.4% increase is smaller than last year, but then HMRC puts the number of IHT liable estates at ‘about 22,000’ in 2018/19, 2,500 fewer than in the previous year. The decline is almost certainly due to the impact of the residence nil rate band, (RNRB). Many of the returns received in 2017/18 would have related to deaths before 6 April 2017, which would have been before the RNRB came into being.
The simple maths suggests that HMRC are investigating 25% of the tax returns of estates that pay tax. However, that is an illusion. As the Office of Tax Simplification (OTS) indicated in its recent report, only about 9% of estate returns result in an IHT liability, suggesting investigations cover only about 2.5% of all returns.
Unfortunately, that proportion is also misleading, as HMRC are going to concentrate their efforts on larger estates where they can get more tax bang for their investigative buck.

First-Time Buyer Study Published by Santander

According to research results published by Santander, just one in four under 34s will get on the property ladder by 2026. Santander’s report calls for urgent action by the Government and industry to think radically and work together to explore a range of new ideas to ensure the home ownership dream is kept alive for future generations.

Pensions Advisory Group – Guide to the Treatment of Pensions on Divorce

A Nuffield Foundation funded study found there was a lack of confidence amongst practitioners on the issue of pensions and divorce.  Of 369 court files they studied, 80% had at least one relevant pension yet only 14% contained a pension sharing order. Offsetting remained the most common way of dealing with pensions, but they found little consistency or agreement on how they should be valued.
As a result of the study they established an interdisciplinary Pension Advisory Group, whose purpose was to provide in depth analysis of how pensions and divorce should be approached, particularly in respect of the valuation of pensions.  The group included members of the judiciary, solicitors, barristers, academics and pensions experts.

Weekly Market Commentary 20 September 2019

Key Central Banks Send Dovish Signals
This week we saw more central bank action, as the world’s major monetary policy makers try to cope with a slowing global economy. In the US the Federal Reserve cut rates by a quarter per cent, following the lead set by the European Central bank last week. The move wasn’t enough to please the president, who has been a vocal supporter of more aggressive action, but still enough to split opinion in the bank. While there is a real fear that a slowdown is coming, the US economy is stubbornly showing few signs of actually slowing down. Policy makers are wary of fighting a phantom recession but delaying might mean the slowdown coincides with the election, hence the tweets.

Elsewhere the Bank of England declined to join the party this time round, but rather set the scene for a rate cut in the near future. The bank is as clueless to how Brexit might turn out as the rest of us but is clearly getting ready with a range of policy actions just in case.

Oil: Who attached Saudi Arabia’s Supply?
Tensions within the Middle East dialled up a notch this week as Saudi oil facilities were attacked over the weekend. The strategic drone and cruise missile attack hit Saudi Aramco’s processing facilities at Abqaiq, whose key role is to stabilise crude oil for transportation. In turn, oil prices jumped as high as 20 per cent the day trading reopened.

Yemeni rebels claimed credit for the attack, but the US and Saudi Arabia are keen to pin the blame on Iran. Iran have threatened “all-out war” if the sovereign state is attacked.  Saudi Arabia quickly moved to reassure the market that it can recover quickly. Saudi’s energy minister Prince Salman confirmed that they would be able to fully restore production by the end of this month. Energy company stocks benefitted from the supply disruption while airline company shares took a hit with the likes of United Airlines and American Airlines down 2.5 and 7.0 per cent the day after the attack.

Global: Growth Figures revised downwards by OECD
The Organisation for Economic Co-operation and Development (OECD) revised down global growth figures this week. Rising trade tensions and policy uncertainty continues to plague growth for both developed and emerging economies. Global GDP growth is expected to slow to 2.9 per cent in 2019 and 3.0 per cent in 2020 – the weakest levels since the 2008 financial crisis. The Paris based think tank also believes growth could continue to remain in the doldrums unless “firm policy” action is taken by governments.

For the UK, the OECD predicts that losing unfettered access to Europe in the event of a NoDeal will shave close to three per cent off UK growth over the next three years (compared to continued EU membership). They also predict that crashing out of Europe would see living standards affected by what will effectively be a permanent “Brexit tax” that would be an economic deadweight for generations.

Central Banks: Fed Continues down Dovish Path

This week, in a widely expected move, the Federal Reserve (Fed) announced an interest rate cut by a quarter of a percentage point. The consecutive rate cut now sees the key interest rate fall to 1.75 per cent. One person who wasn’t happy with the Fed move is President Donald Trump. Trump would have liked to have seen a steeper cut to a level below or more aligned with interest rates seen across other developed countries.

However, the all-important rate news was partially drowned out by market confusion as to why the Fed had to pump money into the markets over three consecutive days. The spike in overnight rates lending and the Fed’s subsequent firefighting wasn’t a signal of an impending financial collapse like in 2008. It appears the mismatch in the demand for funding and availability of cash was caused by American companies dashing to withdraw from money market funds (a key component in the repurchasing market) in order to pay tax bills.

Personal Allowances

This Technical Connection’s video is an overview of the income tax personal allowances, mainly focusing on the personal allowance, the personal savings allowance, the dividend allowance, the married couples allowance and the marriage allowance; https://youtu.be/jLhKVB0Crmg

Mortgage rates to be slashed for green homes

Homeowners could reduce their mortgage rate, save money on their energy bills and reduce emissions from their homes under new government proposals. A £5m fund has been launched by the Department for Business, Energy and Industrial Strategy (BEIS) to the financial sector to increase the number of ‘green’ mortgages available. Households that successfully upgrade the energy rating of their home will be rewarded with access to discounted ‘green’ mortgage rates.
The government has committed to producing net zero emissions by 2050, and essential to this will be improving the energy efficiency of the 17 million homes currently with an Energy Performance Certificate below band C. Currently, green mortgages favour homeowners in new properties who find it easier to make their homes more ‘green’. Older properties can be a challenge to make more environmentally friendly with homeowners unable to increase their rating sufficiently to make any meaningful savings on their mortgage. BEIS has said that a separate £10m innovation fund will be launched to help the industry find ways to retrofit older properties with environmentally friendly technology, with minimum disruption to homeowners.
Green mortgages have been available for several years, but have not yet reached the ‘mainstream’, remaining a niche product. They tend to be available from smaller lenders such as the Ecology Building Society, which rewards customers with a 1% discount on their borrowing if it is used to make ‘green’ improvements such as having their loft insulated or solar panels installed. Barclays launched a green mortgage last year, but it is limited to giving buyers of new-build energy efficient homes access to lower interest rates and is not available to homeowners that improve the energy efficiency of their existing home. And BNP Paribas working in partnership with Eon are developing a green mortgage plan to enable homeowners to extend borrowing on their mortgages with a linked ‘energy efficient home improvement’ loan.