Brexit: take steps & tread carefully

16 November 2016

It’s fair to say that the UK’s decision to exit the EU is likely to have long term economic implications, but what will be the Government’s resulting monetary and fiscal policy and how will this affect you and your staff? We know the direction of travel, but what conditions can we expect along the way?

We are entering a period of certain uncertainty. And it’s certainly a time to tread carefully. So how can you help your members? Here are some possible options...

Help your members plug the leak!

Unbiased UK recently publicised that the UK ‘wasted’ around £4.6bn in unnecessary tax in 2015. Pensions were identified as the biggest cause with around £1.9bn could be saved by paying more into pensions. It’s worth noting that non tax payers contributing through net pay arrangements, such as group money purchase pensions and AVCs, will not benefit from basic rate tax relief. This would equally apply if they use salary sacrifice. Whereas non tax payers making contributions through personal or group personal pensions, on a relief at source basis, will see their contributions attract tax relief from HMRC.  

Unbiased also referred to other opportunities to save tax, such as moving cash deposits into cash ISAs and other tax advantaged products. There’s also the risk of incurring inheritance tax by not planning ahead and exposure to capital gains tax on profits made on investment assets outside on a tax free wrapper. This list goes on. But how can you raise awareness of this issue?

Action - circulate a link to the 2016 TaxAction Report produced by Unbiased and sponsored by Prudential. It gives a clear value of the benefits of using tax-saving vehicles such as pensions, while highlighting the financial impact of not doing so.

Carrying it forward?

Arguably few are fortunate enough to be able to make maximum use of annual allowances (£40,000 for the 2016/2017 tax year). However, those close to retirement and/or who are able to make significant pension contributions may be considering this option.

Once this year’s allowance is used up, it’s possible to carry forward any unused allowances from the previous three years, starting with the latest year first. Are your members aware and, where possible, making best use of any remaining allowance? Again, financial advice is essential, but your members may find our ‘Questions & answers’ useful which you can download here.

Action - create a communication to members leading up to the end of the 2016/2017 tax year end to explain that they could lose any remaining allowance in the 2013/14 tax year, but don’t forget they will need to use the 2016/2017 allowance first!

Flexibility should be handled with care

New pensions freedom creates greater access to pension savings. However, at a time when the future looks uncertain it’s important to make choices even more carefully.  Accessing benefits flexibly has a number of implications including: the possibility of paying greater levels of income tax; potentially affecting means tested State benefits; and exposing funds to greater levels of risk. It’s also worth remembering that taking benefits flexibly will reduce the available annual allowance for maximising pension contributions and make affect any defined benefit pensions. There’s also a greater possibility of being exposed to scams.

Action - remind staff to take financial advice or arrange an appointment with Pension Wise before accessing their pension savings flexibly.

The Autumn Statement is coming - watch this space!

Normally running up to a major Government announcement, like the annual Autumn Statement or Budget, rumours fly. However, it’s a time to be cautious and not rely on speculation. We’ll let you know on www.pru.co.uk  the key topics and what this means for your members, and it’s worth putting time in people’s diaries to consider the implications of any significant announcement from a corporate and personal perspective.

Action - check www.pru.co.uk for what Autumn Statement/Budget means. Prepare a simple communication for staff. Put time in senior managers’ diaries to discuss the changes and what this could mean to the business and their teams.

Financial advice can’t be replaced

Most of us will think that we know our financial position well. But in reality we tend to overestimate the value of our money and underestimate investment risk. Gaining a clear picture of one’s financial position requires skill and knowledge of a professional adviser. Regrettably though we often realise this when it’s too late. The seismic events this summer has meant that professional advice is even more important, especially now as we enter a period of extreme volatility. If your organisation offers members access to financial advisers and/or any financial assistance in paying for advice, this is likely to be highly motivational as it demonstrates your commitment to their financial well-being.

Action - check that your members are reviewing their financial position with their financial adviser. If they don’t have one, perhaps arrange an affordable financial advice service from your own firm’s advisers or suggest they find an adviser at: www.unbiased.co.uk

So, yes, the future is largely unknown. But there are some simple steps you can take, to help your members build a more certain future. You’ll hear more suggestions from us in the next editions of Oracle.