Pensions tapered annual allowance changes?

Pension experts have dismissed a solution to raise the tapered annual allowance threshold income, calling it a sticking plaster which would not solve the underlying problem. Treasury officials have discussed raising the tapered annual allowance threshold income from the current from £110,000 to £150,000, a level at which pension contributions are counted as earnings and lower tax-free allowances start to kick in. It was argued such a solution would solve the problem for most doctors who have been turning down additional work for fear of large tax bills, since consultants’ median earnings are £112,000 and it is estimated that 90 per cent would fall below the new limit. This solution would not be exclusive for NHS pension scheme members and would be applied to all taxpayers.

Introduced in 2016, the taper gradually reduces the annual allowance for those on high incomes, meaning they are more likely to suffer an annual tax charge on contributions and a lifetime allowance tax charge on their benefits. It means that for every £2 of adjusted income above £150,000 a year, £1 of annual allowance will be lost. The British Medical Association, which has been campaigning for the tapered annual allowance to be scrapped, has already criticised the proposed solution. But experts believe that simply raising the threshold income would not remove any of the complexity of the taper, nor the threat of doctors facing a ‘tax cliff’ when their income increases through promotion or taking on additional work.

The Boris Bounce

Funds and trusts invested in the UK have seen a significant bounce since December’s General Election saw Boris Johnson’s Conservative party win a decisive majority. After years of stunted flows amid uncertainty over the UK’s political backdrop, the average UK All Companies fund climbed 5.1% between 12 December 2019 and 10 January 2020, according to AJ Bell. But UK smaller companies funds performed even better, up 7.8% on average, with the top performer, VT Teviot UK Smaller Companies, up more than 11%.

Investment trusts focussed on British firms have been the real winners since the election, however, with UK All Companies trusts delivering 8.2% on average, UK Smaller Companies 8%, and UK Equity Income 5.1%. The more than 5% gain for UK All Companies funds compares with a loss of 0.08% during the previous 30-day period and a return of only 1.74% during the same period the previous year. The UK Equity Income sector has also risen 5.1% since the election. Sentiment towards UK stocks has dramatically improved since the December general election, as evidenced by widespread gains among UK focused funds and investment trusts. The large majority gained by the Conservatives fuelled a Boris Bounce as investors hurried back into domestically focused companies that had been out of favour for so long.

Tax rebate for PPI claimants?

If you’re one of the millions of people who’ve shared in the £34billion of PPI repaid (so far), you may have paid tax unnecessarily. If so, and your payout happened in the last four tax years, you are due money back. The money you get paid back for PPI can have up to three main elements:

  1. A refund of the PPI you paid.
  2. If the bank (outrageously) added an extra loan to your original loan just to pay for the PPI you get back any interest you were charged on this extra loan.
  3. You get Statutory Interest (at eight per cent a year) on the total of both those sums, for each year since you got the PPI.


Only the third element is taxable. Any tax taken is usually shown on your payout statement. Tax is due because this Statutory Interest is designed to return you to the position you’d have been in if you hadn’t had PPI. If tax is due on PPI payouts, most firms deduct it automatically, at 20 per cent, before you get the money. That has always been an issue for non-taxpayers. However, since April 6, 2016, far more people have been owed tax back, as that’s when the personal savings allowance launched. It allows most taxpayers to earn £1,000 a year of savings interest, tax-free. Since then, while most savings interest has been paid without any tax taken off, PPI still has 20 per cent automatically deducted. Therefore, oversimplifying somewhat, it counts as savings interest, as if you’d earned it on that saved cash.

Trusts under the spotlight

A series of government moves over the past few decades have reduced their tax advantages and made trusts much less attractive to wealthy families. They are likely to become less popular still from March, when a new requirement will force thousands more trustees to list on a government register that is partially open to the public, or risk penalties. Since 2017, certain types of trusts have had to report information to a government online register called the Trusts Registration Service (TRS). This came into being as result of an EU-wide directive to tackle money laundering. To comply with the rules, all UK trusts that have to pay a tax liability such as capital gains tax (CGT), income tax, inheritance tax or stamp duty must report information to the register.

Trusts that are outside the UK but trigger UK tax must also do so, as must all trusts that are required to fill out a self-assessment tax return anyway. Currently the register is not publicly available, with access limited to law enforcement authorities. But from March, the next phase of the EU directive (the fifth Anti Money-Laundering Directive) is set to increase the number of trusts that must submit reports. It will also partially open up the register to the public, including journalists, leading some to worry about an erosion of privacy. Despite the UK’s imminent departure from the EU, the government is committed to implementing the directive and passing it into domestic law before Christmas. tax experts warn that hundreds of thousands of trustees and beneficiaries could be affected and need to understand better the possible impact of the changes.

Market Update 21st February 2020

 Pace of Active Manager Consolidations Shows No Sign Of Slowing

Bar a few mega merges, last year we mainly witnessed a consolidation of small sized asset managers. Downward pressure on pricing from regulatory changes and ever-growing inflows into cheaper passive alternatives have left beleaguered boutiques more open to the idea of merging. The industry consolidation we saw last year shows no signs of stopping this year with the focus seemingly shifting from small to mid-sized firms.

This week, Jupiter announced its intention to buy Merian Global Investors while Canadian investment giant Franklin Templeton made an unexpected acquisition of rival Legg Mason for $6.5bn. As much as Franklin boss Jenny Johnson argues that it’s an offensive move, the firm has been bleeding assets for a while now so it’s hard not to see it as anything but defensive. With the squeeze in charges and the popularity of passive instruments showing no signs of abating, this is now the new normal. Despite the increase in consolidation for smaller fund houses, it may not be enough to bring costs down to a level to compete with the largest of players nor for it to be attractive enough against passive alternatives.


JAPAN: VAT Might not have been a good idea

Japan’s economy shrank at the fastest rate since 2014 as a questionable timed tax hike, coming in amidst the trade war played a part in the downturn. Typhoon Hagibis was also another factor in annualised GDP falling 6.3 per cent last quarter. It appears that Japan hasn’t learnt from a similar sales tax raise in 2014 which led to consumers closing their purse strings and plunging the nation into recession. Last quarter had a similar theme as spending fell 2.9 per cent.

Unfortunately for the Japanese it appears things won’t get better this quarter. Worries over a technical recession which happens when an economy contracts over two consecutive quarters is rising due to the anticipated strong impact from the Coronavirus. Only a few days after the announcement, Korea also sounded the warning bell saying it must do everything it can do support the economy which was just showing signs of recovery pre-virus outbreak.


UK: Housing Market showing early signs of recovery

The dispelling of Brexit gloom coupled with the unusually warm weather this time of the year has led to house buyers flocking back into the property market. Transaction activity rose last month and with it so did property prices. Asking prices rose £2500 for the month of January alone and the average asking price for a home now stands at around £309,399 – just £40 shy off historical records.

Commercial real estate is also showing tentative signs of recovery. A few months of relative calm after a decisive victory has helped lift sentiment and whet the appetitive for further buying and selling for investors. This renaissance also appears to extend to UK commercial property fund managers. Last year saw the sector hit with almost £2bn in outflows and funds with a high exposure to the retail sector punished. This week BMO UK Property fund switched its pricing from “bid” basis which tends to happen when these funds are experiencing outflows to “offer” indicating the fund is gearing up for an acquisition.



EU: Commissioner fights against US Tech Dominance

A long running fiery battle between Google and the EU started in 2010 over accusations that the search engine was pushing rivals from search results to promote its adverts and Google Shopping service, looked to have been simmering down and heading towards a settlement in 2014. But the arrival of EU Competition Commissioner Margrethe Vestager promptly reversed this course and instead handed out $9bn in fines against Google. The former Danish finance minister has since become well known for her dogged pursuit of US tech giants culminating in Donald Trump describing Vestager as the worst person he’s met.

Despite infuriating Trump, Vestager and other EU officials this week published a new digital strategy which will rein in Silicon Valley. The new strategy will focus on fair competition, digital protection for individuals and sustainability. Fair competition will mean opening up high quality data, which are currently hogged by big tech, effectively allowing tech start-ups compete on a level playing field.

Cost of living rises by £1,400

The chancellor Sajid Javid has announced the date of next UK budget, with a pledge to tackle the cost of living and tear up strict budget rules to hike borrowing for infrastructure spending. The 2020 budget will take place on 11 March after a planned budget last November was cancelled in the run-up to the election, HM Treasury confirmed in a press release on Tuesday. Business leaders said it was the new administration’s “first opportunity” to show it understood firms’ concerns amid continued political uncertainty over Brexit. Javid said the British public had “told us they want change,” in a signal of the government’s changing priorities since the Conservatives’ landslide election victory last month. Officials said Javid would use the budget to:

  • Fulfil government pledges on tax to “help tackle the cost of living for hard-working people.”
  • “Level up” across the country through “billions” in investment, rewriting previous’s spending rules and taking advantage of low interest rates to increase borrowing.
  • “Build on” recent announcements to boost spending on public services and tackle the cost of living, including hospital investment, vocational training and a significant hike in the minimum wage.

News Update 14th February 2020

 Sajid Javid succumbs to Johnson’s power grab

This week we saw an unexpected change in Downing Street, when the chancellor decided he would rather go through the hassle of moving house than put up with the Prime Minister and his aides trying to take control of the Treasury. Boris Johnson and his advisers have taken an unprecedented step of trying to have complete control of all government departments firmly in Number 10. The one small mercy for Mr Javid is at least he won’t have to go through conveyancing.

While direct control will no doubt be more efficient, as the hidden agendas and power struggles that characterise Westminster will be swept away, we are all aware that good governance requires challenge and oversight. With no one at the cabinet table likely to tell the boss he’s had a terrible idea, the more likely it is a bunch of terrible ideas are about to become policy. Given some of the policies that have made it out of even the most independently minded cabinets, maybe their insights won’t be missed that much.

US: Jobs report gives the economy a positive  start to the year

The pace of hiring within the US kept up its run last month as employers added another 225,000 jobs to the economy – easily beating economic forecasts of 164,000 jobs. Notable job gains occurred in construction, transportation, warehousing and healthcare. Unemployment rates continued to remain low at 3.6 per cent. All this will be pleasing news for President Trump who has made a burgeoning economy a key point in his re-election campaign.

Speaking of election campaigns, the Democratic nominations shook off the technical debacle last week to move onto the second contest in New Hampshire. Results saw Bernie Sanders, Pete Buttigieg and Amy Klobuchar do well while the wheels fell off for early favourites Joe Biden and Elizabeth Warren. While Sanders has performed well in the early states, Iowa and New Hampshire are not very representative of the country and even less representative of Democratic voters. Biden will be hoping to come back in more diverse states like Nevada and South Carolina which are up next.

GERMANY: Coronavirus puts economic growth into quarantine

The tender green shoots of recovery for Germany are at significant risk of getting trampled on by the Coronavirus. Germany, a key economy for the Eurozone, flirted with recession last quarter and the final figures released this week showed a country in stagnation. But its reliance on exports to China make it vulnerable to the sudden stop in activity seen as part of the efforts to combat the virus. This could tip Germany’s, and possibly the Eurozone’s GDP growth negative for the quarter.

For Germany, industrial output was down 3.5 per cent for the month of December while new orders slowed by two per cent. Vehicles are Germany’s biggest export thus global supply chain disruptions alongside the disruption to China could have a strong material impact on GDP growth. For the wider eurozone, sharp drops in factory output for France, Italy and Germany helped drag down industrial production to 2.1 per cent.

EMERGING MARKETS: Cutting season continues

Mexico joined a list of emerging economies in easing monetary policy this year. The nation cut interest rates four times last year, each time by a quarter basis point and the central bank continued the trend at the latest meeting this week. Rates now stand at seven percent.

By cutting rates, Mexico hopes to boost a moribund economy which last year contracted for the first time in a decade. Uncertainty around the free trade agreement and manufacturing weakness were two of the key reasons why the economy struggled last year.

However, early indicators (pre-coronavirus) all tilt towards positive growth this year. Consumer confidence is improving, core inflation remains stable and vehicle production, which is Mexico’s key export, increased in January.

The allure of gold funds – which way next?

Gold had a good year in 2019. In dollar terms, it was up in price 19%. Priced in pounds, it rose by 15%, finishing the year at a tad over £1,157 an ounce. It’s the fourth consecutive year that gold prices in sterling terms have risen. Yet, according to investors and some financial experts, gold has further to go – much further, even. They believe 2020 should be another excellent year for an asset that many consider a safe haven – in both calm and stormy times.

An asset that most experts insist should always be considered by investors looking to build a broadly diversified investment portfolio, sitting alongside other long-term investments such as equities, bonds and property. This is despite the fact that, unlike other assets, gold is non-income producing. It’s all about the price with gold – it rises and you win, it falls and you lose. The latest poll conducted by precious metals dealer BullionVault suggests that confidence to deliver strong price gains this year remains sky high.

Nearly four in five of BullionVault’s clients believe that gold prices will rise by more than 10% in 2020. Of course, you would expect precious metals investors to talk up an asset they have a financial interest in. But BullionVault’s clients are not exclusively gold investment fans. Indeed, they typically hold no more than 10% of their investments in gold. The consensus among commentators is that fear will drive the gold price even higher – resulting from potential geo-political and global economic risks such as rising tensions between the US and Iran.

Clean energy funds to balance your portfolio

Renewable energy from sources like wind, waves and geothermal heat, has been the topic of great discussion over recent years. There has been an increase in pressure to reach 100% renewable energy as soon as possible. Some countries are targeting 2030, while many skeptics think it will take much longer than that. One thing is for sure, there is a lot of money going into climate change. That should excite those looking to invest in renewable energy. In recent years, there has been an uptick in renewable energy investments from manufactures and installers, which many think may spur the industry’s growth rate. The potential for expansion or contraction only increases the reward opportunity as well.

While investments in renewable energy continue to grow, there is still plenty of money poring into fossil fuel projects. In a recent article, Fessler noted that the European Union has funneled 13.4 billion pounds into fossil fuel projects over the last 5 years. JP Morgan Chase & Co. was also listed as the world’s biggest funder of fossil fuels. the decline in unsubsidized costs to generate wind and solar power creates a significant impact. The reduction puts renewables on track to become cheaper than all but the most efficient gas plants by 2023.

NHS England confirm their sticking plaster – will the new government find a cure for pensions tapering?

The NHS and the issues relating to pensions tapering featured prominently throughout last year.  The impact of the annual allowance charges caused by tapering lead to many senior clinicians refusing to take additional work, reducing hours or even choosing to retire early.

Initially, potential solutions looked at making adjustments within the scheme to try and resolve the issue, firstly with the idea of introducing a 50:50 option, followed swiftly by more flexible options to allow senior clinicians to try and manage their accrual. However, these options all involved a reduction in pension benefits and any changes weren’t planned until April 2020.

It became clear that more immediate action was required to try and resolve the issue in the current year and in September 2019 the NHS issued guidance for employers to offer local solutions. These options were complex and most had significant drawbacks and so showed little sign of solving the problem.

With the election looming and the NHS becoming a key issue, NHS England took drastic action at the end of November 2019 to try and temporarily resolve the issue and announced that they would cover clinicians’ annual allowance charges for the 2019/20 tax year.  There was initial scepticism amongst clinicians and the British Medical Association (BMA) and other representatives sought clarification around the process and that the offer was watertight.

On the 7 December Matt Hancock the Secretary of State for Health and Care issued a statement confirming agreement to support the proposal and outlining that the process will involve a binding contractual commitment. The agreement will involve the clinician making a Scheme Pays election in relation to the excess accrual within the NHS scheme in the normal way. When the member takes benefits the Scheme Pays deduction will be made. The contractual commitment will then provide a payment equivalent to the annual allowance deduction. Where an NHS trust or foundation ceases to exist the liabilities would be transferred to another NHS body or the Secretary of State.

The measure applies to all pension inputs to the NHS schemes in the 2019/20 tax year excluding additional voluntary contributions. The additional statement and clarification provides reassurance that clinicians can take on additional work in this tax year without the concern of annual allowance charges arising in the NHS scheme. However, due to the potentially very long-term nature of the commitment not all clinicians will be convinced. More importantly, this is a temporary solution and will only resolve the issue for 2019/20.

Whilst the Conservative Party included a commitment to review the impact of tapering on the NHS in their manifestos there was no specific reference to the removal of the tapered annual allowance. Although the solution appears to be good news for affected clinicians in the current tax year, tapering has caused wider issues in the public sector and beyond. It appears that the only real cure would be to remove tapering entirely. Whether the Government will be willing to make this more drastic move we will have to wait and see.

It’s also important to note that the proposals above only apply to NHS England. We understand NHS Wales have made a similar commitment but have not yet seen official confirmation. We also understand that for the Scottish scheme they have offered to pay the employer contributions as additional salary if the members choose to opt out to avoid annual allowance charges.