A new report by the Work and Pensions Select Committee, chaired by Frank Field MP, has called on pension schemes to be forced to publish charges in full, including transaction costs. At present, new rules ushered in last April recommend pension schemes publish this information, but disclosing was made voluntary rather than mandatory.
In light of this, the Work and pensions Select Committee is concerned that take-up will not be high and has called for disclosure of all charges to be made mandatory. The hard-hitting report states that the government and regulators should not wait for the industry to fail to act voluntarily, as they have been done so many times in the past. The report notes: “We fully recognise that value for money is not solely about costs, but costs inevitably form an important part of the equation. Complexity and layers of intermediaries mean that many trustees do not have access to suitable information to make judgements about the costs of managing their schemes.” In addition, the report called on the Financial Conduct Authority to cap pension charges at 0.75% for its proposed four ready-made investment solutions, so-called investment pathways. At present, there is no charge cap in place.
Insurance ‘stealth tax’ on the rise
Britons are paying the taxman record amounts despite the latest headline-grabbing giveaways. Details of HMRC’s tax receipts published this week show they received £622.8bn in personal taxes for the 2018-19 tax year – up almost £29bn in just 12 months. Income tax is Britain’s most expensive personal tax – raking in £190.5bn. Despite rises in the personal allowance, the taxman made £27bn more from income tax alone in the last tax year than it did in 2014-15. Second priciest is National Insurance, earning HMRC £137.2bn, followed by VAT at £131.7bn. Capital gains tax was up almost £1.5bn in a year – to £9.2bn – largely because of landlords selling off their bricks-and-mortar assets after a slew of changes (like the removal of tax relief on mortgage interest) started hitting them in the pocket. Of particular note, the government collected £6.3bn of Insurance Premium Tax (IPT) in the year ending 30 June 2019 according to figures from accountancy firm, UHY Hacker Young. The organisation calculated that this was a 7% rise on the year before. This means IPT receipts have more than doubled since £3bn was gathered in 2013/14 year and commentators believe IPT is becoming the Treasury’s golden goose providing a quick and easy way to raise money.
What Boris means for your money
As was widely expected, Boris Johnson won the Conservative Party leadership race, making him the next Prime Minister of the UK. Mr Johnson’s tenure as Prime Minister is likely to be overshadowed by Brexit, just as it was for his predecessor Theresa May. How Mr Johnson approaches Brexit will have significant implications for markets and by extension investors. Details, however, are still light and the markets response has been fairly muted so far. Commentators believe Investors should hang tight before building a portfolio full of Boris’ latest ideas. But beyond Brexit, Johnson laid out a number of policy proposals which, if implemented, would have an impact on people’s personal finances and pensions:
During the leadership race Mr Johnson promised to reduce Britain’s tax burden, most prominently claiming he would raise the threshold for the 40% higher-rate income tax from £50,000 to £80,000. That would benefit roughly four million people, giving tax payers back £9 billion. That windfall, however, would not be evenly spread. According to the IFS, though, this will likely benefit roughly the top 10% of earners.
There has also been speculation that Johnson plans to scrap stamp duty on homes worth less than £500,000, saving buyers as much as £15,000. The risk, however, is that scrapping stamp duty for certain homes will stimulate demand, further pushing up house prices – assuming little is done to address the stock of housing.
Another big area of focus for Mr Johnson should be the self-employed pensions gap, according to Jon Greer, head of retirement policy at Quilter.
The self-employed are currently exempt from auto-enrolment. As a result, there are fears that there will be a growing gap between those who have contributed to a pension through auto-enrolment and those who are self-employed who have not.
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