Q. I have found your recent explanation of annuities and at retirement options very informative, especially as I am approaching retirement. I have only been a member of my employer’s money purchase pension scheme for the past few years (having had an extended career break to raise my children). My pension savings are unlikely therefore to provide me with a meaningful pension if I elect to purchase an annuity. A friend suggested that I may be able to use my private pension savings to boost my state pension. Are you able to shed any light on this?
A. Yes. The Government outlined plans – during the Chancellor’s Autumn Statement – to enable anyone who has reached state pension age or who will do so before April 2016 (when the new flat-rate state pension is introduced) to pay between £900 and £25,000 to top up their state pension. It is expected that the government will increase a person’s state pension by £1 per week for each £900 they pay in.
It has been reported that the Pensions Minister, Steve Webb, wishes to extend the principle to enable those retirees with pension savings of less than £18,000 (the limit at which a person is able take their entire pension savings as a lump sum) to use their fund to purchase additional state pension (rather than taking it as a cash lump sum or purchasing an annuity). It has been suggested that the conversion rates would be similar to those for people who purchase additional state pension prior to April 2016.
However, it is unlikely that such a change will be made in the near future (especially as it has been suggested that the Treasury does not support the measure). It is, in my opinion, more likely that the proposal forms part of the Liberal Democrat’s manifesto at the next general election.
Q. I have heard a rumour that the higher rate of income tax is set to be abolished. Is this correct?
A. No.
The Chancellor of the Exchequer, George Osborne, delivered his annual budget statement on Wednesday and, as such, it is that time of year when such rumours circulate.
I suspect that you have seen a report regarding proposals put forward by Renewal, the conservative pressure group. Renewal has advocated scrapping the higher rate of income tax – currently 40% in respect of earnings in excess of £41,450 – in order to relieve financial pressures on families and “middle earners”.
It advocated also that the additional rate – currently 45% in respect of earnings in excess of £150,000 – be reduced to £62,500 (meaning that a great many more people would pay tax at the 45p rate. However, Renewal estimated that these measures would result in a tax cut of up to £2,000 a year for middle earners.
Renewal’s proposals are a response to calls for the coalition government to reduce taxes for middle earners – or the “squeezed middle” as they are often called (i.e. those people earning between £40,000 and £60,000).
Renewal has stated that only those people earning in excess of £85,000 would be worse off under their proposals. It argues that “the very richest would pay a little more and the majority of working people would benefit, some of them considerably.”
However, I would be surprised if we saw such a radical change to the income tax system, especially before the next general elections (scheduled for May 2015).
Q. I am in the process of getting divorced from my wife. During our marriage (of more than 25 years) I took responsibility for managing the family finances, including our savings, investments and pensions. I provided full details of the extent of our assets to my wife and her solicitor approximately six months ago. However, they have requested that I provide up to date information/valuations, which is likely to cost money/incur fees. Do you think this is reasonable?
A. First, it is not possible to provide you with definitive advice (and the most cost-effective means of obtaining up to date valuations) without having a greater understanding of your financial circumstances (and this would not be the most appropriate forum in which to do so in any event).
However, depending upon the nature of the matrimonial assets, it may be reasonable that you obtain an up to date valuation of some, if not all, of those assets. It would appear that your financial negotiations have gone on for a number of months and, depending upon the nature of the assets you hold, their value may have changed significantly. It is important – to both you and your wife – that you have an accurate understanding of your matrimonial assets when seeking to divide the same. If you do not – and you divide your assets based upon inaccurate, out of date, information – it is possible that one of you will receive an unfavourable settlement.
The need to keep abreast of the value of matrimonial assets has been thrown into sharp contrast in recent months, particularly by the extent of media attention given to the case of Nightingale v. Nightingale. In that case, the couple are finalising the financial settlement arising out of their divorce proceedings. Mrs Nightingale was expecting to receive approximately £1.6m in respect of the sale of shares, held by her ex-husband. However, those shares had been disposed of at an apparent undervalue, resulting in Mrs Nightingale receiving just £83. In January, the High Court froze a number of Mr Nightingale’s assets to prevent him from putting them beyond the reach of his ex-wife.
If you do not consider it necessary and/or reasonable to obtain up to valuations of your assets, I recommend that you raise the issue with the solicitor who is handling your divorce. In the event that they consider it reasonable to obtain up to date valuations of some or all of your assets, I suggest that you seek assistance from a chartered financial planner who specialises in advising clients in respect of divorce proceedings (asking whether they are an Affiliate Member of Resolution, the specialist body for divorce lawyers, is a good way to test this).
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
0191 217 3340
