Pension costs and transparency inquiry

The Work and Pensions committee is launching their pension costs and transparency inquiry (link)[1]. According to the committee, they are seeking your views on whether the pensions industry provides sufficient transparency around charges, investment strategy and performance to consumers:

The Inquiry will examine whether enough is being done to ensure individuals:

  • get value for money for their pension savings;

  • understand what they are being charged and why;

  • understand the short- and long-term impact of costs on retirement outcomes;

  • can see how their money is being invested and how their investments are performing;

  • are engaged enough to use information about costs and investments to make informed choices about their pension savings; and

  • get good-value, impartial service from financial advisers.

Eight Questions

I became aware of this latest inquiry from Henry Tapper, founder of the Pensions PlayPen and a director of First Actuarial. The inquiry has asked for submissions to eight questions, which I copy from Henry’s blog (link) [2] with his highlighting:

  1. Do higher-cost providers deliver higher performance, or simply eat into clients’ savings?
  2. Is the government doing enough to ensure that workplace pension savers get value for money?
  3. What is the relative importance of empowering consumers or regulating providers?
  4. How can savers be encouraged to engage with their savings?
  5. How important is investment transparency to savers?
  6. If customers are unhappy with their providers’ costs and investment performance/strategy, are there barriers to them going elsewhere?
  7. Are independent governance committees effective in driving value for money?
  8. Do pension customers get value for money from financial advisers?

Paul Lewis weighs in

Paul Lewis (of, among others, Radio 4 Moneybox fame) was quick to offer his pithy answers.

For the most part, I agree with Mr Lewis. Here are my responses to those eight questions.

Do higher-cost providers deliver higher performance, or simply eat into clients’ savings?

They do not deliver higher performance – FACT. The evidence from the FCA is unambiguous: “there is no clear relationship between charges and the gross performance of retail active funds in the UK”. The FCA produced a comprehensive, detailed analysis of this (link)[3]. This is the same for not only individual savers but also for institutional pension schemes investing hundreds of millions or pounds.

Is the government doing enough to ensure that workplace pension savers get value for money?

No, the government isn’t doing enough. The FCA has found time and again that people do not have trust in pensions (link)[4]. It’s not possible to think you are getting value for money if you think you are getting mugged off. In fact, the government isn’t doing enough to help people save full stop. 2% contributions for auto-enrollment will not leave anyone with enough in their nest egg to worry about value for money.

What is the relative importance of empowering consumers or regulating providers?

You can’t put it in the consumers’ hands and expect them to correct deficiencies in the market. The providers have the ability and funds to make life easy for consumers. Besides, this isn’t the right question to be asking. I’m sure readers of this blog are very interested in their finances and investing, but most people aren’t. They don’t want to be empowered, they want someone to make it easy for them so they don’t have to worry about something they’re not interested in.

How can savers be encouraged to engage with their savings?

I echo Mr Lewis: Do savers need to be engaged? Do they want to be engaged? I think the answer to both is: No. It’s better to make saving and investing as painless as possible than to encourage forced and painful engagement.

How important is investment transparency to savers?

Very. Lack of transparency leads to lack of trust. Lack of trust leads to lack of saving. It’s important to remember that opacity comes from somewhere. It is a symptom of a market that is too complex and not focused on consumer outcomes.

If customers are unhappy with their providers’ costs and investment performance/strategy, are there barriers to them going elsewhere?

Yes. Both in time and money. But most importantly, in hassle. It can be utterly painful to switch providers and you often have a nerve-wracking wait while your money is being transferred in the ether. These are savers life savings yet time and again providers flout the transfer guidelines. ISA transfers that should take 30 days, can take half a year. This has been a problem for years and the regulators have done little about it. It’s all well and good encouraging savers to shop for the best deals, but if doing so is painful, then savers will not do it. (link)[5] (link)[6]

Are independent governance committees effective in driving value for money?

Somewhat. But IGCs (link)[7] will naturally be focussed on compliance as their number 1 priority. Value for money will always be a distant second. So when there is any ‘doubt’, bureaucracy is followed and improving investors’ outcomes is sidelined.

Do pension customers get value for money from financial advisers?

Rarely. That’s because it’s not cost-effective for most IFAs to offer non-regulated services. It’s these services: planning, asset allocation, behaviours, guidance that are the biggest determinants of financial success or failure. The regulatory regime forces IFAs to focus on products and makes it non-cost effective for the most people to access financial advice (the ‘advice gap’). IFAs need to buy food for their family too (and cover their insurance and compliance costs), we can’t expect them to reduce their prices to a loss or do it for free.

Your thoughts!

You can send your own responses to the committee, and I urge you to do so. (link)[8] The committee opened up responses on its ESA/PIP inquiry and received a flood of submissions that greatly contributed to the committee’s findings.

I would really like to hear your thoughts – please do leave a comment on your responses to some or all the questions.

 

All the best,

Young FI Guy

 

Links:

[1] – https://www.parliament.uk/business/committees/committees-a-z/commons-select/work-and-pensions-committee/news-parliament-2017/pension-costs-17-19/

[2] – https://henrytapper.com/2018/08/05/thinking-the-unthinkable-franks-at-it-again/

[3] – https://www.fca.org.uk/publication/market-studies/ms15-2-3-annex-4.pdf

[4] – https://www.fca.org.uk/publications/market-studies/retirement-outcomes-review

[5] – http://www.thisismoney.co.uk/money/experts/article-6002491/TONY-HETHERINGTON-leaving-investment-service-Smart-idea.html

[6] – https://www.telegraph.co.uk/finance/personalfinance/savings/11512350/Shambolic-Isa-transfer-errors-continue-to-hit-savers.html

[7] – https://www.fca.org.uk/firms/independent-governance-committees

[8] – https://www.parliament.uk/business/committees/committees-a-z/commons-select/work-and-pensions-committee/inquiries/parliament-2017/inquiry11/commons-written-submission-form/

Financial Opportunities for Millennials and how to exploit them

Last time out I looked at some of the financial challenges Millennials face. Whilst there are lots of big challenges standing in the way of Millennials; there are also great opportunities. If my last post was sanguine, I hope that this one is optimistic.

Let’s have a look at five opportunities that Millennials can exploit to help them achieve their financial goals.

1. Knowledge

In the space of fewer than three decades, we’ve been able to compile the complete knowledge of human knowledge on the internet. That knowledge is free, easy to access and readily available. With a smartphone, you can access it anywhere in the world, from Siberia to Syndey. It’s remarkable. And an unprecedented point in human history. Like never before, we can avoid so many mistakes and costly lessons. We can learn new skills and take advantage of new opportunities. For those willing to learn and put the brain matter to work, we can learn how to successfully save, invest and plan our future. That’s a huge opportunity.

2. Protection

In my challenges post, I talked about how the Government can’t take all your money anymore (at least in Western Democracies). But more than that, savers and investors are protected like never before. Governments have set up regulatory bodies which actively police against mal-intentions. The days of Robert Maxwell and Equitable Life are long past. That’s not to say we can’t do better. There are still lots of regulatory issues out there: you need only look at the Port Talbot British Steel fiasco. But things are so much better than they were.

For Millennials, it requires us to put some trust and faith in ‘the system’ that is sorely lacking amongst older generations who have been burnt. I’m not imploring blissful ignorance of the shortcomings in the financial sector. A wary trust that investing early in a diversified investment portfolio is the best way to provide for our financial future.

3. Accessibility of financial services

Perhaps even more important than investor protection is the increasing accessibility of financial services. Not long ago investing in the market meant ringing up a stockbroker to place a deal or going to see an adviser in person to buy a product. The internet has washed all that away. It’s easier than ever to set up a brokerage account and get started. You can start investing in the market from only £10 a month.

There is also so much readily available information out there. Sites like Monevator and Candid Money have led the way in making almost every aspect of investing available for the layperson. If you invest in a product you can transparently find information on: exactly how the product works; what the aim of it is; and how much it costs.

Again, things aren’t perfect. Investors deserve greater transparency (thankfully we have some great people on our side such as The Transparency Task Force and the Evidence-Based Investing Conferences). But the days of people being locked out of the market are gone. Anybody can, and should, start investing for the future today.

4. Flexibility of opportunities

A comment on the challenges post beautifully captured this opportunity (thank you Roberto Sans):

Another thing widely available now and near impossible a generation ago was the fantastic geographic mobility that we enjoy today. I you have marketable skills in a country different from your own you can just move and work there for a while but you do not have to lose all contact with your friends and family. You can be in touch by social media, Voip telephony and cheap flights.

Whilst in some respects it is lamentable that the old ‘job for life’ or ‘company man’ has faded into extinction, it’s never been easier to move jobs, careers and countries. Prior to WWI the merchant and aristocracy of the world moved freely around the world picking up the best opportunities. Skilled tradesmen would often be prevented from leaving their own towns and cities.

The horror of WWI and mutual distrust between countries led to the creation of the modern passport, preventing the movement of people and skills. Since that point 100 years ago it has become easier and easier to move to find new opportunities. An example is how I, sitting in London, can communicate to people all over the world (and vice versa).

So for Millennials, the relaxation of physical constraints in where and how they work presents many opportunities. My advice to Millennials would be to look out for those opportunities, and jump at them when you get the chance.

5. People

I’m no Cassandra when it comes to social media, but there is a great aspect to it. Like never before I can talk and listen to a range of viewpoints that were previously unavailable. I can find immediate insight from leading experts in investing, pensions and saving through Twitter. We can keep in contact with people from around the world with social media and VOIP.

Perhaps more than that, I can speak to and learn from my Italian, Malaysian Chinese and Albanian neighbours. I can learn from their cultures and experiences in other countries. What aspects of life are better here (or worse). Or simply thinking about life from a viewpoint other than my own. Because when you work, you’re clients and customers are going to be different to you; and the more open you are to understanding what makes them happy, the easier your job will be.

Over to you

What opportunities do you think are available to Millenials? Do you agree with the opportunities I’ve written about? Or do you think I’m overly optimistic? If you had to give some advice to a Millennial, what would it be?

 

All the best,

Young FI Guy

[p.s. thank you to all those that read and commented on challenges post. I felt quite down about it after struggling to write it and feeling unhappy with the quality of my writing. Thank you all for giving me the encouragement to keep going!]

Financial challenges Millennials face and how to beat them

Last weekend Monevator linked to, and discussed, a Financial Times article on money-saving tips between a Gen X’er and a Millennial. The post got me thinking about the financial challenges facing Millennials. As I mentioned over on Monevator, I think things are financially difficult for Millenials. Unfortunately, however, that conversation then tends to go down one of two lines. Either older generations raise their arms in anger: “don’t you know how difficult it was for me!”. Or younger generations blow their lids and blame their ancestors for all their hardships.

Neither reaction is helpful in dealing with the challenges Millenials face. The reality is, blaming other people won’t make things better. Likewise, dismissing these issues means that we collectively lose out on debating how we can overcome these challenges.

As I’ve talked about before: today the greatest ever time to be alive. But, I think the important thing to remember is not that life today is not more or less difficult than before; life is different. Hardships that our parents and grandparents would suffer have evaporated away. Only to be replaced by new challenges. That means that some things that worked in the past are no longer quite as effective. We need to update the tools we use to build our financial future.

So today I’m going to look at some challenges for Millenials and they can go about making the best out of them. Now do bear in mind this isn’t exhaustive. Society is, as always, rapidly changing. I couldn’t write about every change and hope to not put you all to sleep. So there are things, that you may rightly think are missing. That’s not to say I don’t think they aren’t important. But, I’ve looked to write about some changes that are perhaps less talked about or to discuss them in a less-conventional light.

The challenges

1. The death of the DB pension

Very few Millenials have the benefit of a Defined Benefit (DB) pension. Most DB schemes have been shuttered over the past 20-30 years. Replaced by a combination of employment and private Defined Contribution (DC) pensions.

The reality is, DB schemes are generally speaking much more generous than their DC counterparts. But for me, there is an even more important element in the transition from DB to DC that is overlooked. That is, in DB schemes, people were in effect outsourcing their investment and retirement planning – the pension scheme did it all for them. It was entirely possible for a steelworker to never think about saving and investing and still be sure that they would have a financially secure retirement.

With DC pensions that is not the case. It is incumbent on everyone – from Wall Street bankers through to street sweepers – to actively engage in managing their investments. Do I think that is sensible? No, it’s bloody stupid. But that is the world we are in now. That means, every Millennial should know exactly how much is going into the pension, how it’s being invested, where it’s being invested and what that means for their retirement. It means, working out if you need to be putting away more money and how that savings pot can be converted into a future income.

Once upon a time, it was fine (though highly discouraged) to have a laugh about not being ‘good with finances’. Now you cannot afford to not be ‘good with finances’.

2. The importance of capital

Capital has always been important. If you could summarise Thomas Piketty’s famous tome (with the shocking title) Capital in the Twenty-First Century in one sentence it might be: having lots of money makes it easier to have lots of money. In a way, that’s a universal truth. But we don’t have to go far back in time to when Western Governments (or autocrats) could expropriate your assets at will. Likewise, expropriation is a real threat to billions of people even today.

We needn’t travel very far to a time when many governments would pursue inflationary policies that could quickly wipe away the value of large stash of cash. Today, most modern economies have independent central banks that explicitly target managed inflation. Together, these two things mean that a pot of capital today is the more secure than at any other point in human history (although, we can never be sure that a catastrophic event is around the corner to wake us from our bliss). It also means that those who have capital now can rapidly accumulate more of it than ever.

Is that a good thing? That’ll depend on how you feel about inequality, capitalism, socialism and politics. But it’s a fact of life. So what can you do about it? Ironically, we can learn a lot from the poorest people in the world.

If you go to many ‘developing countries’ (I don’t like that phrase, but that’s for another day) you’ll often find half-built houses. The reason is not that they are too lazy to finish their homes. It’s that bricks are like a bank account. When they’ve saved enough, they buy a brick and add it to their home. They do this because a house can’t be stolen by the government or criminals nor inflated away by a dictator.

Millenials need to adopt this brick-by-brick strategy. Each month we need to squirrel away want we can. Instead of bricks, we stick the money in a brokerage account and buy a cheap global investment tracker fund. It might only be a brick at first. But one day it might become a course each month. Then maybe even a wall. Step-by-step we build our financial future. But until we start, we can never hope to finish.

3. Student loans

There’s not much debate about it: the cost of going to university has rocketed. Since I left uni nearly a decade ago, the cost has more than doubled. Graduates are left with over £50,000 of student loans (and it can be even more in the US). I’ll avoid the debate on tuition fees (at least for now). For those thinking about going to university, or for parents with children thinking about going to university, I would really encourage thinking carefully about whether it is the right thing. The math has changed. It used to be that going to uni was a ‘no-brainer’. But the equation has changed.

Firstly, student loans are an immense drag on finances. This is exasperated by being at the worst possible time (as we saw in point 2, getting capital as soon as possible is very important).

In the UK, graduates get 9% added to their marginal tax rate. It might not seem much, but it is a large amount of money to lose every month (even at the UK average, that’s 1% of earnings, and as a graduate, I’m sure you’d hope to earn more than average). If you earn less than £60,000(!) you won’t even be repaying the principal (on a debt of £50,000 under plan 2). Sure, you will have your ‘debt’ wiped after 30 years, but that is 30 years of having somewhere between 1% and 6% knocked off your savings rate. That is, putting it mildly, going to really set you back in building a savings pot.

Secondly, it is possible to pursue a number of professions without needing a university education. Taking my profession as an example (accountancy), many firms now offer school leaver programs (including one of my old employers) as well as there is a number of professional qualification paths that don’t need a £50,000 trip to a red brick. If I had one bit of career advice, it is to get a profession. Be that as a doctor, engineer, lawyer, accountant, carpenter, architect, plumber, programmer, surveyor. Most professions don’t need you to be academically minded; many don’t need a degree.

Put those two things together: uni is more expensive and it’s possible to go down your chosen career path without going to uni; it means it’s not necessarily a straight-forward choice. Going to university is still the right call for a lot of people. But it might not be for a growing part of society.

4. Winner takes all

I may be talking total nonsense, but I perceive a growing ‘winner takes all’ mentality in society. We see it in the intractable attitude of either ‘side’ in the Brexit debate or in discussing Donald Trump. One side is the winner – one is the loser. The loser needs to shut up and like it or lump it. The winner is entitled to ignore the losers grumblings.

It’s infected our workplaces – you win the rat race or you are a career failure. The days of plodding along as Joe Average are dwindling.

Of course, that’s, in many respects, a bit of hyperbole. But as sure as some days we are winners, we will be losers. We learn in both winning and losing. Listening to and learning from others is a massively under-appreciated. Just speaking from personal experience, I’ve learnt a great deal from starting this blog. Particularly, where readers have picked up on things I’ve got wrong or overlooked. It’s not really even about being right or wrong, or winning and losing. It’s about a mindset of being open to being wrong or failing. And what is more “If you can meet with Triumph and Disaster; And treat those two impostors just the same” you’ll be a man (or woman).

Over to you

What do you think are the biggest financial challenges facing Millenials? Do you agree with the challenges I’ve written about? Or do you think I’m talking utter b*llocks?

 

All the best,

Young FI Guy

[p.s. I would say that this to be the most difficult post to write so far on the blog. The idea started with 5 challenges and 5 opportunities. But it became clear that would be too long, so I thought I’d save the opportunities for another day. I then got really bogged down. I couldn’t even finish my ‘5th challenge’ on housing costs; I felt like I was just writing the standard tropes. Maybe I’ll revisit that particular issue in another post. I think the advice I’m setting out is still helpful – although maybe it’s a bit cliche and a bit abstract. Maybe the issue with this post is that there isn’t a clear message or theme. I know you’re probably “not meant to say this” but sorry if you read this post and think it’s sh*t.]

Happy New Tax Year!

As you’ve probably already worked out I’m a few shades different from normal. Mrs YFG has got pretty used to that over the years but one thing she still finds funny is how much I enjoy the new tax year. Every 6th of April is like a mini-Christmas to me. Now before you start calling the authorities that there is a madman on the loose – let me explain why. I’m one of those guys who likes a good deal – a bit like Harry Redknapp without the bulldog and bank accounts. And to me there seems few better deals than the annual ISA and pension giveaways that save investors 000s of pounds each year in saved income and gains taxes. Each 6th of April I’m like a squirrel, burying my nuts out of the grubby hands of the taxman.

In this post I wanted to outline what I do each new tax year and why. And then share a few comments on things that have changed this tax year. This is by no means the “warts-and-all” tax guide which I’m sure has been prepared by people much smarter and less lazy than me. But hopefully it’ll give an example of the things I think about.

What I get up to in the new tax year

Firstly, I max my ISA allowance of £20,000. Unfortunately, there was no increase to this year’s allowance, but given we got a hefty £5k increase the year before, I’m not gonna protest too much. In the past this usually involved me dumping the £20,000 I had saved up in my bank account each year. Now I’m a lazy layabout on/off worker, I only manage to save up a little bit of cash to chuck into the ISA pot. The rest of the allowance I make up using something called “Bed & ISA”. This involves selling my investments outside of a tax-wrapper and re-buying them in the ISA. Most brokers, including mine, only charge a single transaction fee (or make it completely free) to do this, making it cheaper that manually doing the transactions. When Bed & ISA-ing there are a few things to think about:

  • Defusing capital gains – by selling investments that have made some gains, I can use up your Annual Exemption of £11,700 (18/19) so that I don’t have potential CGT to pay. Once within the ISA there are no capital gains, so I won’t have to worry about this ever again. The issue is, if I sell too many assets (c.£45k) or make too many gains after losses (£11,700) I would need to file a self-assessment. You can read more about this at the excellent Monevator website.
  • Realising capital losses – on the other token, if its been a rough time for some of my investments I can sell them and claim a capital loss in a self-assessment. This can be used against future capital gains (with a few rules, check out the .gov website for all the gory details). Bear in mind that losses are used first against gains in the same year, so if I’ve also sold assets with a gain, less than the Annual Exemption, I would “lose your losses”.
  • Reducing your income tax bill – the other tax element is my income tax bill. There are two elements: (i) interest income; and (ii) dividend income. Starting with interest income, this results from the distributions of Bond funds and ETFs (to qualify, a fund/ETF must, generally speaking, hold over 60% in fixed income or cash-like assets) and from direct holdings of Gilts and Corporate Bonds (bear in mind that you don’t get charge capital gains tax on Gilts, making the need to protect them in a tax-efficient wrapper much lower). Dividend income arises from distributions from equity funds and direct share holdings. There’s also potentially different rules for REITs and you need to consider the effect of withholding tax, generally reclaimable in a SIPP but not in an ISA. All the above also applies for Reporting Funds if you have non-Reporting Funds, as defined, first give yourself a smack on the bottom and then read this, again from the great Monevator website). Interest and dividends are tax differently. Here’s the break-down:
    • Interest – you get an interest allowance of £1,000 (basic rate payers) or £500 (higher rate payers). So if your interest income from all your un-sheltered investments (remember, including bank interest) is less than these amounts you won’t have tax to pay! This can make interest paying investments less of a priority to shelter. But…
    • Dividends – In dark days gone past dividends would be paid after “deducting” a confusing notional dividend credit. In short, if you were basic rate payer you didn’t have to pay any more tax on your dividends. In 2016/17 the government finally scrapped this mind-bendingly confusing system and gave everyone a dividend allowance of £5,000, now £2,000 (see more on this below) and jacked-up the dividend rates (which are higher than for interest income). If you earn total un-sheltered dividends of less than £2,000 you don’t have tax to pay. This means that if you are likely below the allowance then sheltering dividend paying investments may be less of a priority, but if you are above the allowance then it’s more of a priority.

Back to the real world

So this tax year I’m doing the following:

  • Transferring £4,000 in cash from my savings into my stocks and shares ISA.
  • Bed & ISA-ing £16,000 of an equity ETF and re-buying it in my stocks and shares ISA. This is because this investment has a substantial gain (the total holding has a gain above the Annual Exempt amount), so by selling I’m defusing part of the gain and lowering the likelihood of having to pay CGT in the future. Secondly, I’m over the dividend allowance, so the distributions from the fund are taxable, and at a higher rate than my interest income.

As another example, I’m helping a family member do the following:

  • Bed & ISA-ing £20,000 of a bond ETF re-buying it in their stocks and shares ISA. They don’t have capital gains to worry about at the moment and they are below the dividend allowance, but above the interest allowance. So they don’t pay tax on dividends but do on interest. So moving the bond (rather than equity) investments reduces their tax.

New tax year changes for 2018/19

I wanted to close by writing about some (but not all) of the 2018/19 tax changes.

  • The Dividend Allowance – as mentioned above, this is cut from £5,000 to £2,000. Now, I’m gonna try to be calm, but this change has made me very angry. Firstly, the new allowance lasted only one year before being substantially changed. Now investors should be investing for the long-term, so when a major change to taxes is implemented (which it was, in moving from the old dividend credit system) investors are really punished when these changes last in the months not years. This is a particular bad as the allowance accompanied the pension freedoms. Many quick-thinking people may have cashed in investments from their pensions believing that they would not be stung by taxes on their investments but have easy access to them only to see the allowance slashed. I’ve also seen a number of commentators state that the case for S&S ISAs reduced because of the dividend allowance. Those not using their allowance last year might be ruing their choices. But there’s a double kicker:
  • The Money Purchase Annual Allowance (MPAA) – has been cut from £10,000 to £4,000. Broadly speaking, this is the annual amount you can put into the a pension after en-chasing a money purchase pension. So, you may have taken money out of pension, using the much touted flexibilities, thinking you won’t pay tax on your dividends and you could always put it back in to a pension at a good rate. Unfortunately, the government changed the rules drastically, again after only one year. Even worse, these changes have been enacted retrospectively from April 2017 (so anyone who hoped to stuff their pockets before the change was in legislation may come up short). I understand why these changes were made (limit pensions re-cycling and to raise tax rates on higher payers) but to investors the continually changing rules make it very difficult to plan for the long-term.
  • Auto-enrolment – From April 2018 the automatic (unless you opt-out) rate put into your pension goes up from 1% to 3% (and 1% to 2% employer contribution). There’s been a flood of articles on this in the mainstream media, but given this changes has been on the cards for years its hard to see how this is a shock. Maybe we might see more “shock” when the rate goes up to 5% (3% employer contribution) next year. Hopefully a savvy finance type you are already getting the max contribution from your employer (https://youngfiguy.com/pensions-isas-the-basics).
  • The Annual Exemption for Capital Gains nudged up from £11,300 to £11,700. The Personal Allowance also nudged up from £11,500 to £11,850, the bands for higher rate also nudged up. They didn’t for Additional Rate payers, so if you are one, please feel free to sob into your champagne…
  • The Buy-to-Let Mortgage Offset reduced from being allowed to deduct 75% of your mortgage interest on BTL income down to 50%. Apparently this is less of shock (maybe because the mainstream media went a bit mad when it was first announced). It’s going down to 25% next year, and finally to 0% in 2020/21 (just to prepare you in-case you drop your monocle in your soup when you read about it in the Telegraph next year).
  • Student Loan thresholds are going up. They are nudging up slightly for Plan 1 payers (those before 2012). More importantly, for those post 2012 (with the enormous, higher than commercial rate loans) the threshold is jumping up from £21,000 to £25,000 (as well as the interest thresholds). The threshold had been controversially ‘frozen’ at £21,000 since 2012, and by controversial I mean the Government had made a desirable retrospective money grab, breaking promises given to students. Thankfully, the thresholds are due to increase with average earnings from next year on-wards (well until the Government changes its mind again).
  • Finally, the Lifetime Allowance (LTA) is (finally) increasing from £1,000,000 to, wait for it, £1,030,000, in line with CPI (3%). No accounting for the dramatic earlier cuts or the lack of an increase last year. Finally, a little bit of good news for those who’ve done the responsible thing and built a great nest egg for retirement. Unfortunately, there’s no cast iron guarantees that the Government will keep increasing the LTA in line with inflation. So good luck forecasting 10/20/30/40 years into the future.

I hope you’ve enjoyed the post. I also sincerely hope I haven’t made any mistakes or typos – if I have please let me know! Please remember you should do your own research or speak to an authorised financial advisor or financial planner before making any and every investment decision. If you make an investment or decision on the basis of any of the information above you do it at your own risk.

All the best,

Young FI Guy