Budget 2013: I don’t think it was that bad

This might be an unpopular view, but bear with me.

Budget 2013 brings a rise in personal allowance, so most earners will get a £1,335 increase on the yearly tax threshold. This was expected, as was the change to personal allowance. The further increase which was planned for 2015 has been brought forward a year, which was a surprise. It might free up a tiny bit more money to be spent, but did George do enough to boost the economy?

I thought that the help provided for buying new homes was welcome, although there’s been some confusion since. I’m sure some will exploit the system, but a 5% deposit will be a lot easier for first time buyers. Because the mortgages are for new homes only, this will hopefully encourage construction and house prices may rise because of this. Guaranteeing some mortgages should get the banks lending. We can only hope.

More industry specific were the changes to limited liability partnership partner status, which go further to prevent disguised employment and the artificial share of profits with partners; and the promise of closure of offshore PAYE umbrella schemes. Both of which have cost millions in lost employers’ national insurance.

Corporation tax is getting cheaper and cheaper, I assume to offset against the avoidance measures being imposed. We must keep the large employers happy, after all.

All in all I thought it was a good budget and I hope George has done enough to get the economy going again.

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Auto-enrolment: the get rich scheme for pension companies

I recently attended a meeting with the pension regulator and found it amazing how complex auto-enrolment is and how easy it will be for a business to get it wrong.

It was good to hear how the enforcer will be looking for them to get it right. The message from government is that they are really serious about getting people to pay and save for their retirement.

While this is a step forward, in my opinion, there are two main reasons that people will choose to opt out: the time that the scheme’s being brought in, and the way that it’s administered.

According to research recently carried out for Aviva, more than a third of UK workers have said they will opt out. The main reason? Finding the spare cash to contribute. These are austere times, after all.

As for the administration, the process of buying annuities is flawed, in my opinion, and until that’s resolved people will still look to opt out or only contribute the bare minimum.

The question is, how come the pension scheme companies make all the money?

Quite simply, when you’ve purchased your annuity, the money has gone from the pension pot.  So a £100,000 pension will buy you a pension of say £100 per week, and this will pass to your spouse upon your death. When they die, the pension company pockets the fund.

So, a £100,000 investment giving a 5% return will effectively cover the annual pension.

All your savings through the years don’t pass to your estate, but go on making the pension scheme providers rich. Nice work if you can get it.

Rant over. Auto-enrolment is here and operational. It’s the biggest burden on employers for many years; not only because of the high cost in administering the information but the additional cost of 1%, increasing to 3% in employers’ contributions, to boot.

A nice treat from the government there, at a time when businesses are recovering from the recession, it’s all they need. Thankfully most small companies have until next year to start their schemes and the micro business until 2017, so we might not all be in it together today, but it’s something employers need to be planning for.

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