Yellowtail Blog

Are you worried about having enough money for later in life?  Financial Planning Week could be for you.

You may have family members, friends or colleagues looking for some free information to help them take control of their lives by planning what they want to achieve and taking some simple steps to help them to get there. Financial Planning applies to everyone regardless of their financial situation; it’s not just for the well off.

Financial Planning Week is organised by the Institute of Financial Planning and its members (Dennis Hall is Chair of the London region), but also involves a number of other organizations (such as National Savings & Investments), keen to share their expertise and resources to help promote awareness of the need for and benefits of Financial Planning.

There’s no jargon, no product pushes, and definitely no sales gimmicks – just good useful information and guidance to help people. The overall aim of Financial Planning Week 2009 is simple. It is to get as many people as possible to take some positive action during the week in respect of making their own financial plans and improving their financial “fitness” by taking some simple steps. It does not matter how small those steps might be. They will help people to identify what they want from life and then to map out how they get to where they want to be from where they are now.

You can visit the Financial Planning Week website for more information.

Giving up smoking last month will save Mandie Martin as much as £3,500 a year, but the 25-year-old radio worker is still struggling to build a savings cushion and get on to the property ladder.

She says: “I used to withdraw £10 from the cash machine every morning to buy cigarettes on the way to work — and I’d spend the change on coffee and a banana. I’ve stopped that now, so I should be able to start saving for once. Now seems an obvious time to review my finances.

Financial CV

Income £774 a month, after rent, phone and gym bills.

Rent £200 a month.

Objectives To get into better financial habits and start saving. Also wants to get on the property ladder with her boyfriend, possibly using the Government’s HomeBuy scheme, provided that the timing is right.

Dennis Hall gives Mandy advice in this Times Money Makeover.  You can read the rest of the article on the Times website.

Cara Martin, 28, is a qualified social worker and works full time in adult mental health for the Belfast Health and Social Care Trust. She lives at home with her parents in the family home in the south of the city. “My financial goals include increasing my personal savings and working towards buying my own home within a year,” she says.

Besides getting a foot on the property ladder and increasing her savings, Cara would also like some investment advice. “I am sceptical of the risks of making a bad investment and would like to have solid advice to help me make the correct choice when investing my money.”

Case notes

Income: £22,000 per year
Monthly outgoings: £400 rent, £134 for a car, £15 for private health insurance, £15 for mobile phone.
Debt: £20,000 student loan
Savings: None

Read the rest of the article on the Independent website, with advice given by Dennis Hall of Yellowtail Financial Planning and two other advisers.

The economic crisis has prompted many people to seek help from personal finance books, with Amazon reporting a significant uplift in sales.

Classics of the genre promise a quick route to riches, while recent examples, written since the start of the downturn, tend to be more cautious and realistic in their claims.

Times Money has looked at the five bestselling financial self-help books at Waterstone’s and asked financial planners for their views on the key ideas, rating the books from one to five stars. All have a snappy style and are accessible to the novice, but some are considerably more helpful than others.

Yellowtail’s Zac Ghadially  rates the five bestsellers.

Read the rest of the article on the Times website.

What is a Power of Attorney and how does it work?

A power of attorney is, generally speaking, a document where you give another person (your attorney) the authority to manage your affairs and act on your behalf. There are different types of powers of attorney. This briefing relates specifically to those residing in England & Wales.

Lasting power of attorney (LPA)

A Lasting Power of Attorney is designed to be used in cases where you lack capacity to act, due to such factors like illness, accident or the onset of dementia.

You must create your power of attorney whilst you still have the legal capacity to do so. By planning ahead and making an LPA, you are able to give your instructions whilst you are of sound mind, in anticipation of the possibility of not being able to do so in the future.

It makes sense to give consideration to establishing an LPA at the same time as you create your will as much of the required activity is very similar. Like not creating a will, if left too late, friends and relatives who need to administer the sufferer’s financial affairs must nominate a receiver through the courts. This can be a long and expensive procedure. Having an LPA in place will provide you with the peace of mind that your financial affairs will be in order should you be unable to manage them yourself.

Types of LPAs

The new lasting power of attorney comprises two documents, one for your financial affairs and one for your personal welfare. These documents are called Lasting Power of Attorney – Personal Welfare and Lasting Power of Attorney – Property and Affairs. They are described below in greater detail.

Personal Welfare LPA

The Personal Welfare LPA deals with matters relating to your personal welfare, i.e. your social and health care needs – it’s like a living will. If in the future you lack the ability to look after your own personal welfare, this document will entitle your personal welfare attorney(s) to do the following types of things:

• Deciding where you live.
• Making day-to-day decisions, what you will eat or what clothes you will wear.
• Making decisions about what medical care you will receive, including (if you agree to it in the LPA) whether or not you will receive life-sustaining treatment.
• Deciding when and where you will go on holiday.
• Deciding what social activities you might participate in.

Your attorneys are restricted from doing any of the following:

• Consent to place a child up for adoption or consent to the adoption of a child
• Consent to sexual relations
• Give you medical treatment for a mental disorder or consent to you being given medical treatment for a mental disorder if your treatment is regulated by Part 4 of the Mental Health Act 1983
• Decide to vote on your behalf
• Consent to marriage or civil partnership
• Consent to a decree of divorce or dissolution of a civil partnership on the basis of two years’ separation

When it comes into effect?

Your Personal Welfare LPA must be registered before it can be used. However, after the document is registered, your attorney(s) cannot begin to act on your behalf until you have lost capacity to make decisions for yourself. It is wise therefore to register the document as soon as possible so that it will be ready for use when your attorneys need to use it.

Property and Affairs LPA

The Property and Affairs LPA deals with matters specifically related to your finances. For example if one day you lack capacity to look after your own financial affairs, this document will enable your property and affairs attorney(s) to do the following types of things:

• Opening, closing or operating bank accounts
• Claiming and receiving on your behalf, for example, all pensions, benefits, allowances, services, financial contributions, repayments, rebates
• Making all tax returns and adjusting and settling any claim for tax
• Paying your household expenses
• Buying, leasing, selling property
• Paying for private medical care and residential care costs

When it comes into effect

The Property and Affairs LPA comes into effect as soon as it is registered with the Public Guardian unless you specify in the document that you don’t want it to come into effect until after you lose capacity. This is different from the “Lasting power of attorney – Personal welfare” which can only be used after you have lost the capacity to make decisions on your own.

Safeguards

It is very important that you trust the person(s) whom you appoint to act as your attorney(s). A lasting power of attorney is a very powerful document. However, you should be aware that there are a number of safeguards in place to help prevent abuse of the system by any of your attorney(s). These safeguards are the following:

• Your LPA must be registered. This registration process acts as a safeguard because certain people have the right to object to the registration.
• You, the donor, or your attorneys have to give notice of intention to register your LPA, giving all the ‘named persons’ in your LPA the chance to object
• Your attorney(s) must follow the Code of Practice which provides guidance on the Mental Capacity Act 2005. If they do not, and neglect their duties toward you, they can be found guilty of a criminal offence, with possible imprisonment
• If any evidence is presented to the Office of the Public Guardian of your attorney(s) not looking after your best interests, the Public Guardian will look into the matter and decide what action should be taken
• You have the option of placing restrictions in the LPA about what you want/do not want your attorneys to do

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• Journalists have voted Yellowtail’s Managing Director Dennis Hall as one of the top 20 Media IFAs of 2008

• Voting has been conducted by journalists via Unbiased.co.uk’s Blue Book online

• Thriving demand for independent financial advice commentary during the recession increases the need for Unbiased.co.uk media services in 2009

Unbiased.co.uk media services is now in its 12^th year, and continues to put journalists in touch with IFAs who can provide expert commentary on a range of financial topics.  It enables journalists to always present the best financial advice proposition to their readers, listeners and viewers, and resulted in over 5,000 press articles mentioning Unbiased.co.uk media services IFAs in the past 12 months.

David Elms, chief executive of Unbiased.co.uk commented, “Over the past year, turbulent markets have meant the need for independent financial advice commentary has increased. This is reflected by Unbiased.co.uk’s Blue Book online receiving over 26,000 online enquiries from journalists wanting to speak to a Media IFA.  There are currently 222 Media IFAs listed in Unbiased.co.uk’s Blue Book, ready to deal with journalist enquiries.”

This year’s Media IFA of the year was chosen directly by journalists themselves, via Unbiased.co.uk’s Blue Book online.  Journalists who register on the Blue Book can create their own personal list of favourite Media IFAs and Dennis was voted 19^th favourite Media IFA of the year after only his second year in the “Blue Book”.

Journalists needing to speak to IFAs for their articles or to find case studies can log on at www.unbiased.co.uk/bluebook to find media-friendly IFAs who specalise in a range of financial topics.

Dennis appeared on CNBC to discuss the benefits of offshore savings and investments.

Watch the video on the CNBC website.

The only conclusion that I can draw from the proposed change to pension tax relief for high earners, is that it kills pension planning stone dead. The likelihood is that after paying a top marginal rate of 50% on their earnings, most will be paying 40% on their retirement income, yet tax relief on pension contributions will be restricted to 20%. This hardly seems equitable given that pensions generally only defer taxation. The tax pendulum has now swung so far in the government’s favour high earners need to find other retirement funding strategies.

So what do these proposals actually mean, let me take a look in detail. From April 6th 2011 the Government intends that individuals whose income is £150,000 or more will no longer receive tax relief at their full marginal rate of tax (currently 40%) on pension savings/contributions. Of course, as with the pension simplification exercise, it’s far from straightforward.

It has been outlined that the relief is to be reduced by a tapering mechanism so that those earning more than £180,000 receive relief at the basic rate only (currently 20%). This doesn’t only apply to personal contributions, as the budget papers refer to Pension Savings, which includes pension contributions (employer or employee) to money purchase arrangements, as well accrual of final salary benefits. Although the budget talked about the introduction of the reduced rate of tax relief taking effect from April 2011, in a surprise move the chancellor announced measures designed to pre-empt the reduction in tax relief.

Restricting relief before 2011

Legislation is being introduced designed to undo any tax reliefs that would be received by high earners trying to accelerate their pension contributions (or final salary benefits) prior to 2011. These restrictions are effective immediately – i.e. from 22nd April 2009.

High earners who have already made (or expect to make) contributions greater than £20,000 in the 2009/10 tax year, need to act quickly to avoid incurring a tax charge as a result of this “anti-forestalling” legislation. This is especially important if contributions have historically been made at irregular intervals.

With immediate effect the budget introduced a new “special annual allowance” of £20,000 maximum. For high earners, tax relief on pension savings above this allowance will only be at the basic rate of tax. The Revenue will recover any tax relief given at a higher rate than basic rate through a “special annual allowance charge” via self-assessment tax returns.

The special annual allowance charge will apply only if an individual:

• has “relevant income” greater than £150,000 in the tax year of the savings or the previous two (so for savings assessed for 2009/10, any tax year from 2007/08);

and

• the individual increases the level of their pension savings beyond their normal regular ongoing pension savings.

This means that an individual who is earning (or has earned) more than £150,000 yet simply maintains their level of regular pension savings as it currently stands should not be affected by the anti-forestalling legislation.

Pension savings greater than the normal regular ongoing pension savings made between 6th April 2009 and 21st April 2009 are not subject to the special annual allowance charge but will reduce the special annual allowance available in 2009/10.

Further clarification

“Relevant income” is defined as total income for the tax year less any normal deductions for reliefs (including pension contributions up to £20,000). Importantly, any salary sacrifice in respect of pension contributions or benefits must be added back to the income figure if the agreement took place on or after 22nd April 2009.

“Normal regular ongoing pension savings” for money purchase arrangements it refers to the level of payments that have been made before 22nd April 2009 which are at least quarterly; and for a final salary arrangement, it includes all benefits provided they are calculated under scheme rules that do not change on or after 22nd April 2009.

Calculating Pension Savings For the special annual allowance the basis of calculating the value of pension savings is similar to the existing Annual Allowance calculation. Brief this means that for money purchase arrangements, the value is the total contributions made in relation to that individual, including any from the employer, in the tax year;

And for final salary arrangements this means the increase in accrued rights over the tax year multiplied by 10. If an individual triggers the special annual allowance charge, the law will allow (subject to the pension scheme’s own rules) the member to unwind the pension savings that gave rise to it.

Note: This is a very short summary that aims to cover the broad implications of the budget proposals. The technical notes run to approximately 100 pages and we have barely covered the basics.

The big hurrah that greeted Alistair Darling’s increase to ISA limits is worth just £10.40 for those saving in a cash ISA, and even less if you’re a basic rate tax payer.  So the widely reported big incentive to encourage savings turns out to be marketing over substance – for now that is.

He (the chancellor) announced that the limit on ISA savings will be raised to £10,200, for the over 50s in the current 2009/10 tax year and for everyone else from April 2010.  But buried in the fine print was the news that the increased limit won’t be available until 6 October for the over 50s.  In keeping with the existing ISA rules half of the annual allowance can be invested in cash or the entire amount in Stocks & Shares based ISA.

So, what does it actually boil down to? Well the best ISA rates we could find right now will pay 3.5% interest, whether they are still paying that in October is another matter, but let’s press on.  The additional £1,500 invested in an ISA from October 6th would generate interest of £26.02 in the current tax year.   For a 40% tax payer the tax saving is a mere £10.40

Of course it’s better than nothing, yet the amount of newspaper column inches given over to a £10.40 tax saving this year is disproportionate to the size of the tax benefit.   Yet, if as we predict interest rates and inflation begin to rise, the tax benefits will become substantially higher in the coming years.

I was having lunch with Nick the Stick, so called on account the walking stick he uses to get around. Nick has a wicked sense of humour and refers to himself as a Raspberry Ripple, (if you understand cockney rhyming slang you’ll know why) recently he has taken to using the term impaired life after I mentioned it in a letter about annuity rates.

It was our regular half yearly visit to Lemonia in Primrose Hill, a family run Greek Cypriot restaurant: it’s Nick’s favourite, he celebrates everything with lunch at Lemonia. Last year was his 65th birthday; to commemorate I gave him a gold watch for his retirement. It was symbolic really as Nick hasn’t worked since breaking his neck some twenty years ago.

The unsung hero is the accountant who pushed Nick into making substantial pension contributions when he was working. The accountant has long since retired so for the past few years I have been advising Nick about his pension. I became involved following the collapse of the dotcom boom; with retirement looming large Nick was worried, and so was I.

His pension was invested in the With Profits fund, a misnomer if ever there was because despite the preceding dotcom boom the fund had hardly grown. Things didn’t look good for the With Profits fund so I set about restructuring his portfolio to provide some diversity. I wanted to capture growth but also introduce some security.

A reasonable chunk of the fund went into shares and property, and the fund grew significantly from 2003 onwards. But with retirement looming, and an eye on the bubble that was beginning to form, we gradually took profits and moved more into cash and government bonds. Nick said I was being too cautious; after the euphoria of annual double digit growth the investments looked boring.  “Don’t be greedy Nick” I said, “the fund is now large enough to give you the income you want, let’s not push our luck”.

Back to the Lemonia, we were well into our second bottle of wine, and Nick was looking back at the decisions we had taken. “Do you know” said Nick, “I think boring is the new exciting – Cheers!”