Industry Voice: I’ll think about my pension next year

“I’ll think about my pension next year”. It isn’t unusual for clients to make this statement. Often they think they can leave it until they have more money, have paid off the mortgage, built up the business and so on. That strategy used to work. However, the reduction in Annual Allowance (AA), removal of year of vesting exemption and the potential for the tapered Annual Allowance to apply at some point makes it harder to build up the same size of funds as before. Making sure allowances are used could be crucial.

Carry forward – how does it work?

As unused Annual Allowance can only be carried forward from the three previous tax years and only after the current Annual Allowance has been fully used. However, what is sometimes forgotten is that you have to have been a member of a UK registered pension scheme for any year you are carrying forward from.

Making use of prior year’s unused allowance requires that the current year’s allowance is used first. This means carry forward is only appropriate for clients with relevant income over their 2017/18 Annual Allowance (unless the contribution is made by an employer, as employer contributions are not limited by the individual’s relevant income). You then go back to the furthest away tax year, in this case 2014/15 for any excess that is using carry forward.

Planning around using carry forward

To ensure that unused allowance from 2014/15 can be used up this year using carry forward first identify unused allowance from pension input periods ending in 2014/15. Second, make a sufficiently large pension contribution so total inputs are at least the unused allowance amount plus the relevant Annual Allowance for the 2017/18 tax year.

It should always be remembered that if the contribution is to be made as a personal contribution (that is, not an employer contribution) the pension member will need to have sufficient ‘relevant income’ to support any level of pension contribution.


Stock Prices Slide as Market Volatility Returns

One of our favoured Investment houses, SEI, has commented on the current position of the Stock Market’s volatility.  The extended period of calm for equity markets in recent years has come to a halt, pulling global markets lower.

While declines can be disconcerting, they are a normal development in the course of market movements.  The volatility serves as a reminder of the value of focusing on achieving goals rather than on daily stock price movements.

They comment that Investors have enjoyed a long period of relative calm in financial markets, making the return of market volatility an unwelcomed interruption. Volatility can be unsettling, but its been seen it before. Market movements of 2% or more have been frequent occurrences at various periods in the past, and declines of 10% or more have historically occurred about every two years.

In their view (and ours), putting energy into developing and maintaining an investment plan that is designed to help you achieve your goals within a timeframe and level of risk of your choosing is the prudent approach. This is the foundation of investment strategy. The objective is to create diversified portfolios designed to provide more consistent returns over time.

And as I constantly tell clients, it’s not the timing of the market, it’s the time in the market!

The disappearance of the Cofunds brand name

Aegon is dropping the Cofunds brand name as it moves users onto an upgraded version of the platform.

After acquiring Cofunds in August last year, Aegon has been working on integrating the platform with its Aegon Retirement Choices offering, bringing many of Cofunds’ features into ARC.

The decision to dispense with the Cofunds branding puts to bed one of the oldest names in the UK platform market.  

Brexit and Diversification

Since the UK electorate’s decision to leave the European Union (EU), the past 17 or so months have been interesting ones, to say the very least, for UK equity investors, and none more so than for those of us focused lower down the market capitalisation scale.

But the UK market is a diverse and internationalised one and, somewhat surprisingly perhaps, the FTSE 250 index among others, generate around 40% and 50% of their collective turnover from overseas earners. As such, our view of the world is still firmly coloured from a global perspective.

Many Investment managers like to look ahead and hold a 12-month view of the prevailing global economic and financial market conditions. And according to many, on current evidence, relative to history, we are in the midst of a period of reasonable if not spectacular growth. The US, China, Japan and, belatedly, the Eurozone, are all showing signs of increasing momentum.

By contrast, commentators feel that the UK looks stuck in the limbo of a rather slower pace of growth. Brexit-related uncertainty does now seem to be weighing on consumption and investment across the UK economy and, anecdotally at least, international investors are being put off by the apparent lack of progress in the UK’s exit negotiations.

All of which I would suggest, are good reasons for using the Multi Manager Diversified approach we use with the vast majority of our clients.