Month: March 2020

There is no doubt that this is a very scary and uncertain time for the world, Britain and her businesses.

Understandably, much of our day to day business at Corinthian currently involves dealing with clients desperately seeking answers to their financial questions. As the situation across the world changes on an almost hourly basis we are doing our best to keep our customers updated.

Redundancy and your pension contributions – what should you do?

One of the main concerns for people is whether they will still have a job in a few months and what may happen to their pension if redundancy becomes a reality.  If the unthinkable does happen, you have a number of options:

• Continue to keep paying contributions from your bank account.
• Transfer to another pension with no penalty charge
• Cease contributions but remain invested
• If you’re over 55 you could start taking your pension benefits

Even if your employment continues you may have to make the difficult decision of reducing your outgoings; in which case you can choose to stop making pension contributions. Though if you do stop your employer contribution will also probably stop.

Likewise, if you are asked to work reduced hours or a shorter week your pension contributions will be adjusted accordingly.

What if I have to claim SSP? 

Given the current situation the likelihood of having to take time off due to illness is higher than ever. Unless your contract of employment states otherwise both employer and employee contributions decrease if sick pay is less than normal pay.

If salary exchange is used, employers must follow the varied contract of employment set up at the outset of salary exchange and maintain the agreed level of pension contributions during any form of paid sick leave.  Employer contributions will be based on the employee’s actual earnings during sick leave.  SSP must be paid in full in cash and cannot be reduced by the salary exchange agreement.

What about my debts?

On 17th March the Government announced that those suffering financial hardship could be given a 3-month holiday on mortgage payments; (most providers will adjust your monthly payments after the 3-month period).

No specific provision was made for loans and credit cards, but should you have issues in making payments talk to your provider as soon as possible.

Is this potentially a good time for investing?

Whilst the immediate value of many investments has fallen there is always the argument that investments should be viewed as a long-term option and so will hopefully rise again.

DON’T PANIC! If you are concerned about your investments – it’s what we’re here for.

The knee-jerk reaction is to stop paying into your fund but when stock markets are low it can in fact be a great time to invest as when they recover your pension value will increase.

What is the long-term outlook? 

We really don’t know what the final outcome of all this will be. All we know is that we will continue to tailor our advice and recommendations to our individual clients and give the best options for each personal situation.

Below are the key points from today’s Budget that will have the biggest impact on our clients and their employees.

Corona Virus Response:

Extra support for the NHS to fight the virus – £5bn emergency response fund

Employees support:

• Statutory Sick Pay (SSP) from day 1
• SSP available to those who are told to self-isolate – even if they haven’t presented with symptoms
• Government to meet cost of providing statutory sick pay for up to 14 days for workers in firms with up to 250 employees
• More help for self-employed or those in gig economy through £500m welfare boost and new £500m hardship fund

Business Support:

• ‘Business Interruption’ loans available to SMEs
• Some industries benefiting from 1-year business rates abolition where rateable value is below £51k
• £3,000 grant available to businesses eligible for small business rates relief

General Budget Update:

• National Insurance threshold to rise from £8,632 to £9,500 saving employees and the Self-Employed, between £85-£100 annually
• Corporation Tax to remain at 19%
• The reduction of the lifetime limit for Entrepreneurs’ Relief from £10m to £1m

Changes to Pensions:

• Threshold income for the tax year will be increased from £110k to £200k – this will help higher earners save for pensions with more tax efficiency
• An intention to consult on the net pay tax relief issue to provide a solution for lower earners contributing to workplace pension schemes set up on this basis
• An increase in the lifetime allowance. In 2020/21 the allowance will increase in line with CPI, rising to £1,073,100 – slightly higher than expected

Changes to finances from April 2020:

• Those aged 25 and over will get the National Living Wage of £8.72 an hour, a rise of 6.2%, with younger workers also getting more
• The full, new state pension will go up by 3.9% from £168.60 a week to about £175.20 in April

As always, if you have any concerns or questions regarding the above, please feel free to get in touch with us, as we are here to help.

‘The value of investments may go up as well as down’ – a disclaimer you could recite from memory, yet the idea of risk is still not particularly understood by many investors. In fact, unless you are of the older investment generation (who remembers Black Monday or the 2002 Dotcom Bubble Burst?) the recent drop of the FTSE-100, caused by the spread of coronavirus, may have been a worrying reality check.

The truth is that no one can predict how the current state of affairs will progress, (if we could then we’d be millionaires!) The only certainty is that the market depression looks set to remain for the foreseeable whilst the impact of the virus on China is felt in supply chains around the world.

Don’t panic! Hopefully your investments have been made with a long-term goal in mind, spanning years (ideally at least three to five) rather than months; allowing for any losses now to be recouped over the time. After all, investors who saw markets crash by 30% in the 2008/9 financial crash saw a 30% rise in the following months.

Keep Calm and Carry On! If you have a payment plan in place, or even a payment routine – carry on! By continuing to invest regularly you will be buying investment units at different prices every time and getting more for your money than you previously have been, this is known as pound cost-averaging.

Lessons Learned… Hindsight is a wonderful thing and we are now, in many ways, at the mercy of the virus. An important lesson to take from this experience is to not become complacent about investments. By keeping an eye on the markets, or engaging regular professional advice, future issues could at least be managed or the impact minimalised by acting quickly.

For many twenty-somethings the idea of securing their own home is probably far higher on the list of priorities than worrying about the shape of their finances in forty years’ time! And while this new generation of savers won’t actually be needing their pension pots until the 2060’s there’s no denying that when it comes to planning for the future ‘the sooner the better’ is a valuable attitude.

Thanks mostly to the auto-enrolment process introduced in 2012, the majority of 22-29 year olds (84%) are now paying into a pension, compared to less than 25% in 2012. But just how much should they be putting aside and how will the choices they make now affect their retirement plans?

Since April 6th 2019 (for everyone aged between 22 and state pension age earning over £10,000) a minimum of 8% of an employee’s gross monthly pay before tax is paid into their pension. This consists of 3% from the employer, 4% from the employee and the final 1% from pension tax relief.

There are two interlinked factors to consider when making pension contributions. The first is how much of your salary you can afford to put away each month. The second is to envisage the size of the pension pot you want to have available to you in the future. Many people are only making the minimum 8% provision without really understanding how much this will yield. In fact, a recent report from Scottish Widows defined ‘adequate’ as 12% of income.

Despite this, two in five of 22 – 29 year olds surveyed felt that they were saving ‘adequately’ for retirement.

At Corinthian we take the time to explain the pension conundrum to clients and their employees. We are passionate in our belief of engaging all employees at whatever stage of life they are at; we really do want them to be able to make their retirement dream a reality.

Many employees have made contributions into more than one pension scheme, this will only increase with the introduction of Automatic Enrolment, so it is imperative that people understand the options and possible benefits of consolidating these pots.

Speak to a member of the Corinthian team to discuss how we make the complex simple!