Monday Morning Finance Update
Markets:
PIGS An interesting acronym which stands for Portugal, Ireland, Greece and Spain
Worries over the possibility of Greece defaulting on some of its loans spilled over into worries about the sovereign debt of Portugal, Ireland and Spain. This spooked the markets and was largely responsible for the dramatic drops in the FTSE100 index, and other global indicies, at the end of last week
In addition Bill Gross, the manager of PIMCO, a large institutional bond fund, made a statement of the UK that ‘Its gilts are resting on a bed of Nitroglycerine’, Jim Leavis head of retail fixed interest at M&G is more relaxed saying that sovereign defaults have fallen below their historic average, he counters Bill Gross’s statement with the riposte that ‘nitroglycerine is one of the oldest and most useful drugs for restoring patients with heart disease back to good health.’
Tories make a Statement on Pensions:
George Osborne has indicated that should the Tories win the forthcoming general election they would scrap the rule enforcing individuals to buy an annuity at 75 years. This would be a popular move and encourage more people in drawdown to keep their funds invested for longer.
The use of pension drawdown is only suitable for those people with a sizeable pension pot. Most people who retire with smaller pots are better served by buying an annuity.
Pension Planning for High Earners
From April those earning in excess of £100,000 will suffer a reduction in their personal allowance of £1 for every £2 earned over. This means that those in the bracket between £100,000 and £113,000 are effectively paying a tax rate of 60% on this tranche of money. (40% higher rate tax and 20% on the personal allowance.
One way for employees to avoid this is to negotiate a salary sacrifice with their employer. For someone earning £110,000 a pension contribution made by the employer of £10,000 would leave the personal allowance in tact. There would also be the advantage for both the employer and employee of reduced National Insurance Contributions (NICS).
What is Bed and ISA?
We are approaching the end of the tax year and if you haven’t made use of your allowance and you have assets invested outside of ISAs this can be a useful tool. Although ‘bed and breakfasting’ –( Selling shares on one day and buying them back the next to realise the capital gain) has been stopped, it is still possible to sell shares on one day and buy them back in an ISA on the same day. It is also possible to Bed and SIPP if you have your own Self Invested Personal Pension.
Beware of Savings Accounts with Strings Attached
Many building societies and banks are offering savings accounts which appear to be offering competitive rates of interest. Yorkshire and Clydesdale Bank are offering rates of £4.5% gross on a one year bond. This only applies if you invest an equal amount in an Investment with Axa. Nationwide is offering 4.25% but only if you invest an equal amount into a six year stockmarket linked product with Legal and General. This is a structured product linked to the performance of three indicies FTSE100; Dow Jones Eurostoxx 50 and the S&P 500. If the indexes do well investors may receive a growth of up to 50% of their capital. If they remain the same of fall the rate over the term is 7% which works out at 1.16% per annum. Not a sensible return for the risk involved and the lack of access to capital.
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