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The firm has continued to excel in 2011 with some significant results for our clients. In the continuing economic uncertainty, it is important that you have a trusted, skilled and adaptive practitioner in your corner. We look forward to continuing to meet our clients’ objectives in 2012.
Speaking on behalf of the family, Colin’s father Jimmy McRae said: “We still believe we will never know what caused the crash but we were never in any doubt as to Colin’s prowess as a fine pilot. Everybody knows from Colin’s rallying career that safety is always an issue and that his reactions and eye and hand co-ordination were world class.”
“The McRae family and the Crown sought a finding that private aircraft should be fitted with a flight data recorder. Had a flight recorder been fitted to the aircraft, it may have been possible to determine what occurred in the final seconds of the flight and what actually caused the helicopter to crash. This would prevent uncertainty as to the cause of the crash and allow lessons to be learned from tragic accidents such as this.”
Mr McRae added: “The past four years have been extremely difficult for all the families concerned and we hope that now we can move forward.”
The McRae family’s solicitor, Mr Peter Watson, one of the UK’s most experienced legal experts in the field of air crashes, said: “Although Colin’s licence was out of date this played no contributory factor whatsoever to the accident.”
The McRae family request privacy and will not be making further comment.
For further information contact:
Gary McQueen at Media House on 0141 220 6040 / gary@mediahouse.co.uk
The Supreme Court on 27 July 2011 provided its decision in the case of Autoclenz Ltd v Belcher and Others [2011] UKSC 41. The case concerned the legal status of contractual workers. The outcome has made it easier for contractors assumed to be self-employed by an employer to claim that they have status as workers, even in the event that their contract states otherwise.
The Supreme Court’s Decision
The case concerned valet workers who were trying to claim that they were workers within the meaning of the National Minimum Wage Regulations 1999 and of the Working Time Regulations 1998 and that, as workers, they were entitled to be paid the National Minimum Wage and to receive statutory paid leave. These regulations define a worker as an individual who has entered into or works under
The workers’ contracts described them as "sub-contractors", a term which can be commonly used by small businesses. The contracts themselves bore many hallmarks of a sub-contractor’s employment contract including clauses such as;
‘the sub-contractor is self-employed and will pay his own tax and National Insurance contributions’
and
‘the sub-contractor is not an employee of Autoclenz’.
So what persuaded the Supreme Court to disregard the written agreements and instead find that the documents did not reflect what was actually agreed between the parties? There may be several reasons why the written terms do not accurately reflect what the parties actually agreed, but in each case the question the court will ask is:
‘What is the true agreement between the parties?’
This means that what matters is the reality of the situation. For example, if no one seriously expects that a worker will use his right to substitute someone else to do his work for him, the fact that the contract provides for this unrealistic possibility will not alter the true nature of the relationship.
The Supreme Court said that where there is a dispute as to the genuineness of a written term in a contract, the focus of the enquiry must be to discover the actual legal obligations of the parties. In practical terms this means the actual work involved can be considered more important than the concrete terms of the contract. In a dispute, the Employment Tribunal will examine all the relevant evidence such as the contract itself, evidence of how the workers conduct themselves at work and how they perceived their co-workers.
Fortunately for businesses, Employment Judges have a good knowledge of the world of work and a sense of what is real and what is window-dressing. The conclusion here that the valets were workers in all but name was the correct decision based on all the evidence. The inclusion of the words ’self-employed’ in the contract bore no practical relation to the reality of the employer-worker relationship. The contracts contained obligations consistent with employment and the obligations which were not consistent were found to be unreal. In addition it was emphasized that the workers;
All of these factors will persuade the Tribunal that the self-employed sub-contractors are in actual fact workers of the business. As such the workers were entitled to claim the National Minimum Wage and holiday pay.
How This Can Affect You
Employers
Employers should be aware of the potential liabilities which can arise from an incorrect assessment of employee status. This ruling demonstrates that there is no point in drafting a perfect contract of ’self employment’ unless it reflects the true nature of the relationship between parties. The decision has not changed the law; it has merely provided clarification to organizations which seek to avoid their responsibilities as an employer by hiding behind sham contracts which describe their employees or workers as ’self-employed contractors’.
It is important to note that an Employment Tribunal will not only look at the terms of the contract, it will also look at the circumstances of the real relationship between the employee/worker and the employer – not just what the parties have stated their relationship to be. This approach is employee-friendly to take into account the fact that employers have more bargaining power when the contract is formed.
Employers should be wary of using ’sham’ contracts which create a business-to-business relationship with a ‘client’ when in reality the relationship is that of worker and employer. The Court stated that only one party needs to claim that a clause in the contract does not reflect their intentions in order for the clause to be considered a sham.
First Interests - Workers
So what should you do to ensure that your employees and workers/contractors have the correct status in your business? The judgment says that the fundamental question to be answered is ‘what is the true agreement between the parties?’ If the relationship between you and the individual is one where the worker;
Then the worker is likely to be a worker. This is a broader category than ‘employee’ but normally excludes those who are self-employed. A worker is any individual who works for an employer, whether under a contract of employment, or any other contract where an individual undertakes to do or perform personally any work or service. Workers are entitled to core employment rights and protections.
Secondary Interests – Self-Employed Contractors
If your ‘worker’ is in reality a self-employed contractor then their rights are limited because they are, in effect, their own boss. Employment legislation in general does not cover self-employed people. However, self-employed people will benefit from health and safety protection and, in some cases, protection against discrimination. Self-employed people can be identified by several factors;
Self-employed individuals are responsible for their own tax payments and national insurance contributions. In addition to this they have almost no protections in terms of employment law. This is a huge difference in treatment compared to employees which emphasizes how important it is to have the correct employee status. It is extremely important to have up to date contracts in place that you agree with, especially if changes are introduced to a long-standing contract.
Should you require any assistance in respect of this summary please do not hesitate to contact Laura Salmond or Elizabeth Smith of our Employment Law Team who will be happy to assist.
This bulletin is written as a general guide only. It is not intended to contain definitive legal advice which should be sought as appropriate in relation to any particular matter.
Tax laws change every year and sometimes more often than that. You need to review your personal finance situation regularly to make the most of your reliefs and allowances, and to ensure you save tax wherever possible.
These Tax Tips are designed to act as prompts to help you judge which ideas might be relevant to you or your business.
This guide has been revised in the light of the changes to the law contained within the 2011 Budget.
Click here to download the Tax & Wealth Planning Guide
This publication is for general information only and is not intended to be advice to any specific person. As with all tax planning, you are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this publication.
The publication represents our understanding of law and HM Revenue & Customs practice as at July 2011.
This edition of the newsletter is to inform readers on the upcoming changes to the law that will be happening in October 2011 relating to agency workers. If you are an agency worker, an agency, or a business which uses the services of agency workers this will affect you.
In 2008, there were estimated to be around 1.4 million agency workers in the United Kingdom. This growing number highlighted a need for progressive change and the passing of a law, called the Agency Workers Directive 2008. This was introduced to ensure that agency workers obtained the same employment rights as those in the equivalent permanent job, recruited directly by the employer. These included the following rights:
However the Directive remained unknown to the vast majority of the public. In March 2011, 37% of people who took part in the survey admitted they were unfamiliar with the Agency Workers Directive 2008. At present the agency sector is a major part of the UK work force (approximately 5%) performing a wide variety of roles in many different organisations and they are supplied through around 16,000 agencies.
It was decided that refreshed legislation was required to implement the Agency Workers Directive 2008, which was named the Agency Worker Regulations 2010 (the ‘2010 Regulations’). Implementation of the 2010 Regulations is based on the agreement reached on 20 May 2008 between the Confederation of British Industry (CBI) and the Trades Union Congress (TUC), that agency workers should receive equal working treatment and basic working and Explanatory Memorandum to the Agency Worker Regulations 2010 employment conditions after 12 weeks in a given job. Once an agency worker has worked in the same role for the same end-user for 12 continuous calendar weeks (regardless of how many hours he or she works each week) they will qualify for equal treatment. It does not matter whether he or she has completed the 12 weeks in a single assignment or in a number of assignments, and whether it is through the same agency or different agencies.
The Government has a twin objective of flexibility for UK employers and fairness to workers. It should be noted that the Directive does not change the agency worker’s contractual relationship which remains with the employment business (agency). The Regulation also provides further provisions including access to shared facilities such as canteens, vacancies, the provision of information to workers representatives’ about the use of agency workers and the protection of pregnant and new mothers who are agency workers.
It is important that organisations using agency workers are made aware of the effect this new Regulation will place upon them. In the event of an alleged breach of the Regulation Agency workers will be able to make a claim to an Employment Tribunal and if the Tribunal uphold the claim then the worker will be entitled to receive compensation subject to a minimum compensatory award of two weeks’ pay.
According to the Explanatory Memorandum to the Agency Worker Regulations 2010 there is no doubt that organisations and agencies will feel the financial burden that this Regulation will impose. It is estimated that based on a 12 week qualifying period, the annual cost to businesses, charities and voluntary bodies hiring agency workers will be up to £1,516m. The estimated cost to agencies will be anything up to £32m. The impact on the public sector, as a hirer of agency workers, under the 12 month qualifying period, is estimated to be up to £349m and overall the impact of administrative burdens is to increase by £65m in 2005 prices.
The regulation affects all sizes of organisation and agency and does not take a differential approach to small businesses and large businesses. This may sound daunting to small business owners however guidance is available in the form of small business representatives will be invited to join a Working Group comprising a representative sample of stakeholders, to closely examine the practical implications of the Regulations and assist in particular with the development of guidance. The Working Group is likely to develop standardised templates for information collection and recording, and more generally the issues on which stakeholders have requested that information be provided. The Department of Business, Innovation and Skills (BIS) is currently working on guidance notes providing some detail about how the Agency Worker Directive and Regulations 2010 should work in practice. BIS confirmed that this guidance is likely to be published in February/March next year however it is advisable that organisations view the Agency Worker Directive and Regulations 2010 prior to them coming into force.
The Association of Professional Staffing Companies (APSCo) which is the UK’s leading professional recruitment industry body recommend that organisations carry out an impact assessment before they sensibly decide on Agency Worker Regulations Strategies. APSCo state that having advised on contingent workforce issues for the last 15 years they know that hirers use and engage the services of non-employed individuals in a variety of different ways. Some of these workers and supply arrangements will fall within scope but others will not. For some, identifying who is and who is not an ‘agency worker’ will be relatively straightforward but for the majority of large hirers this will be a complex and time consuming exercise. Deciding which supply arrangements actually fall within scope (and to what extent) will reduce the size of the subsequent compliance exercise. Recruiters can of course assist hirers with this exercise and many major hirers have started to look to their preferred or managed service provides to help them with their Agency Worker Regulations 2010 strategies.
ASPCo have laid down the following guide to assist what organizations should consider and the starting point for this will be to look at the ways in which non-employed resource is used and supplied across hirer organizations. This will include:
Hiring organizations operating in heavily unionized sectors will also need to think carefully before relying on any arrangements designed to ‘get around’ the Agency Worker Regulations 2010. The unions have always supported the Directive and were instrumental in the getting the Government to vote in its favour in 2008. APSCo think that it is likely that the unions will encourage and support test cases in favour of agency worker rights.
It is relevant to point out that not all non-employed resource will fall within scope. The genuinely self-employed and those working under the supervision and direction of the supplier rather than the hirer will not fall within scope. Managed service arrangements, whilst not expressly excluded, will fall outside scope unless, in reality, the hirer, rather than the managed service provider, supervises and directs the staff .
What is important is that organisations hiring agency workers are aware of these regulations coming into force and what the new changes are in order to avoid any potential costly and time consuming litigation. Taking the recommended steps aforementioned will give organisations some protection against the danger of being litigated against and taking the steps will indicate that the organisation is making an attempt to operate as compliantly as possible.
Should you require any assistance in respect of this summary please do not hesitate to contact Laura Salmond or Elizabeth Smith of our Employment Law Team who will be happy to assist.
This bulletin is written as a general guide only. It is not intended to contain definitive legal advice which should be sought as appropriate in relation to any particular matter.
Professor Peter Watson who represented the family of Flt Lt Richard Cook, said: “The findings of the independent Inquiry by Lord Phillip largely reflect the conclusions of the Fatal Accident Inquiry before Sheriff Principal Sir Stephen Young in 1996. It also reflects what the initial RAF investigation found - namely, that there was no basis to hold the pilots negligent.
“The RAF’s own procedures prevent such a finding unless there are compelling reasons for doing so. Such reasons never existed.
“The initial Board of Inquiry findings were ordered to be altered by senior officers who had not taken part in the inquiry. Many will find this extraordinary.
“The version of the Chinook which crashed had been newly introduced to service and had suffered many technical problems. Indeed, the RAF themselves pursued claims for compensation arising from faults.
“Those who ordered a finding of gross negligence have now been shown to have acted wrongly. They need to explain their conduct which has caused such hurt to the families and damaged the reputation of two fine pilots.”
The aim of this edition is to enlighten readers on the new Bribery Act 2010, which is a piece of legislation coming into affect over various periods of 2011.
Scotland, like most of the free market economies of the world, faces an all too familiar problem which inevitably arises when human temptation meets the possibility of easy money. That problem is corruption. Corruption, of which bribery is a major part, plagues not only international trade and politics, but exists even in small, intimate businesses and firms.
While arguments exist which assert that anti-bribery legislation has stunted competition within the market, one must not let these criticisms mask the fact that the government considered that such legislation was crucial.
Not only does anti-corruption legislation ensure that all businesses are on a level playing field; the successes and failures of a business will be a reflection of the skill and labour invested into a project rather than the ability to line the pockets of particular individuals; it also ensures that major corporations and governments play by the rules of that field. It would be unjust in the view of Bribery Act 2010 authors, if rules and regulations could be avoided and unfair advantage obtained, simply by paying off those sent to enforce them.
With this in mind, it is perhaps now clear why Scotland has a long and fruitful history of anti-bribery legislation. The most recent of these – referred to in the April edition of this newsletter – is the Bribery Act 2010. Several sections of this Act are now in force†, and have been since 8th April 2010. However, the remainder of the Act is now in force with effect from 1 July 2011.
† Specifically s.16, parts of s.17, s.18 and parts of s.19
The Bribery Act 2010 creates two general offences of bribery;
1. giving of bribes
2. accepting bribes
The Bribery Act 2010 also creates two specific offences of bribery;
3. bribing a foreign public official; and
4. the new corporate offence of failing to prevent bribery.
Bribery in these context covers not only monetary bribes, but also extends to any advantage gained. This wider concept will bring a vast scope of activities under the umbrella of bribery, and so it will be important to remain vigilant as to whether an action may ultimately be considered a bribe.
However, this should not cause an undue amount of worry; various limits on the scope of rules do exist. The key focus of these limits is the party’s intention and knowledge. Both factors can greatly affect the outcome of what is and is not, legally speaking, a bribe.
On the other hand, the scope of the Act is widened by various provision; for example both general offences can still be committed if the bribe is through a third party.
The offence of bribery of a foreign public official is committed where a party bribes a foreign public official, intending the bribe to influence that official in their capacity as a foreign public official.
The bribing party must also intend to obtain or retain business or a business advantage.
Importantly, the acceptance of such an advantage must not be compulsory by virtue of the law of the official’s home state. Although somewhat ambiguous, this requirement for compulsory acceptance to be in written law extends only to UK law, the rules of the public international organization of which the official is a member and lastly the legislation or published judicial decisions of the official’s home state.
What is clear here is that mere custom or convention within that country is not sufficient to bypass the offence. Entertaining though the Hollywood image of a shady character exchanging a briefcase teeming with currency with this or that crooked official may be, this sight – while familiar on our screens - is unlikely to transcend into real world business. The key reason for this is that, regardless of how routine it may or may not be, the obligation to accept must nevertheless be written in law.
The final key offence within the Bribery Act 2010 is a corporate offence of failing to prevent bribery. This new offence can be committed simply by a company allowing bribery to occur on behalf of that company. There is no need for any positive action. Notably, this offence is one of strict liability and can also be committed vicariously through employees, agents, etc.
What is clear then is that this provision has a very wide scope, especially when combined with the fact that it is can be committed by any commercial organisation trading in the UK, regardless of where that organisation was formed.
Although there is not yet case law to demonstrate penalties that can be imposed where there is a breach of the Bribery Act 2010, the Act imposes a maximum jail term of 10 years for Bribery. The Act refers to unlimited fines at this stage and it should be noted that both a Company and its Directors could be subject to the penalties.
According to the Department for Business Innovation & Skills, "studies by a range of professional service providers such as KPMG, Ernst & Young, Price Waterhouse Coopers and Control Risks show that a significant number of UK companies have lost business to a bribing competitor or turned down overseas opportunities due to overseas corruption".
What is evident then is that anti-bribery legislation is advantageous to both large and small businesses, and is crucial for ensuring fairness within the economy.
However, responses from the business community have not in fact been uniform. There is a tendency amongst larger companies to criticise the anti-competitive elements of the Act, arguing that it runs counter to basic business networking principles.
On the other hand, smaller businesses generally welcome it as they stand to benefit from the Act for reasons set out above.
Secretary of State for Justice, Kenneth Clarke assures the business world he has "listened carefully to business representatives to ensure the Act is implemented in a workable way – especially for small firms that have limited resources".
Indeed, the Guidance Paper issued by the Ministry of Justice in relation to the Bribery Act 2010 makes it clear "the Government does not intend for the Act to prohibit reasonable and proportionate hospitality and promotional or other similar business expenditure intended for these purposes."
Reassuringly then, it is clear that a business simply pursing legitimate aims by reasonable means will not fall prey to the 2010 Act. However, this is not to say that the Act is not far reaching, simply that it is sensitive to the individual circumstances of a case.
Should you require any assistance in respect of this summary please do not hesitate to contact Laura Salmond or Elizabeth Smith of our Employment Law Team who will be happy to assist.
This bulletin is written as a general guide only. It is not intended to contain definitive legal advice which should be sought as appropriate in relation to any particular matter.
Following today’s Judgement at the Appeal Court, High Court of Justiciary, we are pleased to note that the Appeal Court has quashed the convictions of these police officers who have been battling for two and a half years to establish their innocence. The Appeal Court in a majority decision confirmed they acted lawfully and the result of today’s decision leaves their integrity intact. Both officers look forward to continuing with their careers serving the public.
6 April is often an important date in the pensions world.
In 2006, 6 April marked the start of a new pension tax regime, and in 2011 it saw the start of another round of major pension tax changes, adding more complexity to 2006’s ’simplified’ rules.
The special annual allowance (SAA) rules came to an end. These had been introduced in April 2009 to limit pension contribution tax relief for high earners. In addition, the annual allowance was reduced from £255,000 to £50,000 as part of a series of measures to recoup the tax revenue that would otherwise have been lost from the SAA’s abolition.
New ‘carry forward’ rules began, which mean that you can bring forward unused annual allowance from the three previous tax years to set against pension contributions greater than your current tax year’s annual allowance. The effective requirement to purchase an annuity or scheme pension at age 75/77 was withdrawn (77 for members who reach their 75th birthday on or after 22 June 2010).
The framework for income drawdown – drawing income directly from your pension fund – has been revised. In most instances the future maximum you can draw has been cut. Flexible drawdown now allows you to draw as much of your fund as you wish, provided you satisfy a minimum income requirement, currently set at £20,000 a tax year.
The flat tax charge on lump sum death benefits from drawdown funds and annuities has increased from 35% to 55%, although the inheritance tax treatment has been relaxed. Alternatively secured pensions, which used to be the only alternative to annuities and scheme pensions from age 75/77, have been scrapped. These reforms have made redundant some retirement planning techniques which emerged after 2006. However, they have also opened up new opportunities, both in retirement and estate planning. All of this means that a post-6 April review of your pension planning is now a priority.
The value of tax reliefs depends on your individual circumstances. Tax and pensions laws can change. The FSA does not regulate some forms of estate planning.
Mr Osborne’s second Budget managed to produce a few surprises, in spite of all the changes his first Budget contained
There was an expectation among some commentators that the Chancellor’s second Budget would be a dull affair, as he had set the course for the next five years in his June 2010 ‘emergency’ Budget. However, there were still a few unexpected announcements, alongside results from the many consultations launched last year.
Income tax The personal allowance rose by £1,000 for 2011/12, to £7,475. The Chancellor promised a smaller rise of £630 next tax year, based on his Budget inflation assumptions. However, the increase in the personal allowance will be matched by a reduction of the same amount in the basic rate limit, so the starting point for higher rate tax will remain unchanged. This follows on from the 2011/12 cut of £1,400 in the 40% tax starting point (i.e. the band decrease of £2,400 less the £1,000 increase in the personal allowance).
Indexation of taxes From 2012/13, increases to allowances and bands for direct taxes (e.g. income tax and inheritance tax) will generally be made in line with the consumer prices index (CPI) rather than the retail prices index (RPI). There will be several exceptions, notably to age-related income tax allowances, but the overall effect is a subtle increase in tax because allowances and bands will probably rise more slowly in the future. For example, over the last ten years to March 2011, the RPI rose by 35%, against 26.4% for the CPI.
Company car tax There was a general company car tax increase for 2011/12, following on from a rise in 2010/11. Alistair Darling announced planned 2012/13 increases in his December 2009 Pre-Budget Report and Mr Osborne did not alter those plans, instead revealing yet another tax rise, this time taking effect in 2013/14.
Entrepreneurs’ relief The lifetime limit for entrepreneurs’ relief was doubled to £10 million, with effect from 6 April 2011. Gains up to the limit are taxed at 10%, rather than 18% or 28%. Only a few highly successful entrepreneurs are likely to benefit.
If you sense that the Chancellor was giving nothing away, you may be right. The state of the Government’s finances is such that Mr Osborne has no scope for largesse and he is still looking for ways of extracting extra revenue. To save tax, you should look to your own financial plans, not the Chancellor’s.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Services Authority does not regulate tax advice.
The personal allowance rose by £1,000 in April – it might be a good idea to use it.
The basic personal allowance is now £7,475, which broadly speaking means that the first £7,475 of your income is not taxed. However, if your income is over £100,000, your personal allowance may be lower, or even zero, because of changes introduced from 2010/11.
If you or your spouse/civil partner has insufficient income to cover the personal allowance, it could make good financial sense to rearrange or restructure your investments. The aim should be to put additional income where it is needed.
You need to choose the right investments to maximise your tax savings. For example, shares or dividend-paying funds are not as attractive as deposits or bond funds because dividend tax credits are not repayable, while tax deducted on interest is reclaimable in full by non-taxpayers. If your total income is less than your personal allowance, it will usually be possible to arrange for deposit interest to be paid gross by completing HM Revenue & Customs form R85. For co-habiting couples, matters can be more complicated.
Transfers of investments will count as gifts, raising the spectre of inheritance tax. There could also be capital gains tax, which does not apply to transfers between married or civil union couples living together.
Every child has their own personal allowance, but taking advantage of this is not straightforward. Long-standing anti-avoidance legislation means that if more than £100 of income is generated for a minor unmarried child from capital given by a parent, then the income tax liability falls on the parent. Non-parental gifts, e.g. from grandparents, are not subject to this rule.
The value of tax reliefs depends on your individual circumstances. Tax and pensions laws can change.
An interesting swap
John and Ann have a joint investment in corporate bond funds, which together produce interest of £2,000 a year before tax. They also have similarly valued joint holdings in global growth funds, which pay no dividends.
The Government has finally revealed its thinking on the future of state pensions, and it really is food for thought.
After nearly six months of rumours, in early April the Department of Work and Pensions (DWP) published a consultation paper on state pension reform. In it, the DWP puts forward two options, both of which aim to produce a pension above the level of the pension credit standard minimum guarantee (£137.35 a week for a single person in 2011/12):
Option 1 This would see S2P become a flat-rate pension in 2020, a stage it is not currently scheduled to reach until the mid- 2030s. Ultimately, someone with a 30-year national insurance contributions (NICs) record would look forward to £145 a week (in current terms) from state pension age, provided by two flat-rate state pensions. Contracting out of S2P would remain an option for defined benefit occupational pension schemes (it is disappearing for defined contribution arrangements from 2012/13).
Option 2 The paper describes this as ‘a more radical approach’. S2P would be scrapped and there would be one single state pension, calculated on an individual basis, with no special rules for marriage, divorce or bereavement. This option would include the self-employed, who currently accrue only basic state pension. A 30-year NICs record would produce around £140 a week of pension, but any longer contribution record would not yield a greater pension. All contracting out would end, and the savings element of pension credit would disappear for new pensioners.
The second option is probably the DWP’s preferred route. However, creating an affordable single pension regime raises difficult transitional issues in dealing with existing second tier state pension entitlements and contracted-out benefits. The state cannot afford to pay £140 plus all existing S2P and contracted-out benefits. In both instances, the paper points to some form of offset. For example, the £140 a week could be a combination of state benefit and the contracted-out element of private provision.
Neither of these proposals will become a reality soon, and indeed may not happen at all. In any event, they are a sobering reminder of the kind of income the consultation paper’s authors were considering as an “adequate” retirement income – could you live on £140 a week? What either proposal should do is establish a base on which to build a private pension, removing the present risk that such provision will simply replace what the state would have paid under pension credit. This article is based on our understanding of the Government’s current position, which is subject to change.
Inflation has not been within the Bank of England’s (BOE’s) limits since 2009, and it is still on the rise. What are the implications?
Buying power down Inflation is not a problem when economic growth is strong. But a combination of high inflation and stagnant wages means that the purchasing power of the average Briton has been slumping for years now, beginning in 2003.
What savers need to earn With inflation zooming ahead, a healthy return on investments is needed to stop savers from losing value in real terms, especially if interest payments are not tax-free. Basic rate taxpayers need to earn more than 5% a year to counter inflation on taxed investments, rising to more than 8% for those paying the top rate of 50%.
Missing the target Even worse, those estimates assume that the BOE will, on average, hit its 2% target. In the past five years, 2% has been pretty much a floor rather than a target. And while both the retail prices index (RPI) and consumer prices index (CPI) fell in March, the BOE expects them to pick up again through 2011, with CPI hitting 4-5% and remaining above target into 2012/13.
More fiscal drag in future The normal default basis for indexing income tax and all other direct taxes will be changed from the retail prices index (RPI) to the consumer prices index (CPI). This change will start from 6 April 2012 and matters because it will mean that over the years tax allowances and thresholds will rise more slowly than they would have done.
On average, CPI is reckoned to rise 0.5% a year more slowly than RPI. That is a big difference when the target rate of inflation is just 2%. So in the long term more people stand to pay more income tax at 40%, invest less in ISAs, pay more capital gains tax and more inheritance tax. That’s the impact of what economists call ‘fiscal drag’.
What about interest rates? The BOE is in a classic ‘Catch 22′ situation: inflation is certainly rising fast enough to justify a hefty hike, but the economic recovery is so fragile that any increase in borrowing costs could hamper gross domestic product growth. However, UK interest rates tend to be highly correlated with those of Europe, and the European Central Bank has raised rates already, so some argue that the UK cannot be far behind.
Inflation rates have big implications for UK savers, and it is vital to incorporate them into financial planning to keep savings from being eroded.
Belgians, gender and annuities might be an unlikely combination, but it could be important for your retirement income.
In March, the European Court of Justice (ECJ) issued a landmark ruling on a case involving sex equality and insurance premiums brought by a Belgian consumer group, Test-Achats.
The question before the judges was whether the exemption from the European Union’s equal treatment rules allowing insurers to calculate sex-based premiums was valid.
The ECJ’s decision was that sex equality meant just that and gender-based premiums – whether for car insurance, life cover or anything else – must end. The court did not rule that the change should be immediate, but deferred its implementation until 21 December 2012. One consequence will be that insurance companies will no longer be able to offer higher annuity rates to men than to women, based on the fact that women live longer.
What next?
From December 2012 all annuities will have to be on a unisex basis. It is not yet clear what this will mean in practice. Men could find their annuity costs rise to match women’s.
If you are a man planning to retire in 2013, you might want to reconsider your plans.
Ex-motorsports boss Max Mosley has lost his European Court of Human Rights bid to force newspapers to warn people before exposing their private lives.
• Mosley had made calls for tighter privacy laws but these were denied by judges in Strasbourg who made a landmark ruling in favour of Freedom of Expression.
• Judges in Strasbourg agreed that the publication resulted in “a flagrant and unjustified invasion” of Mosley’s private life. But they ruled that, under the ECHR, the media was not required to give prior notice. They considered the pre-notification as law would be problematic when the public interest was at stake.
• The court added that instituting a pre-notification system would “only be as strong as the sanctions imposed for failing to observe it” and that fines would have to be “set at a punitively high level” to deter newspapers.
• This would “run the risk” of being incompatible with Article 10, Freedom of Expression, and that it “might operate as a form of censorship prior to publication“.
• The Court stated that the right to a private life was already protected in the UK under Article 8, and cited a previous parliamentary inquiry that had rejected the need for “pre-notification”.
• Mr Mosley commented on the judgment stating: “I think it’s absolutely essential to do everything one can to preserve people’s privacy - people’s freedom in that sense - and whatever I can do in that regard I am going to do.” Despite being disappointed, Mr. Mosley took solace from the fact that the Court had been extremely critical of the News of the World.
• Lord Norman Fowler, Chairman of the House of Lords Communications Committee, last night insisted the court had made the right decision, saying: “What Max Mosley wanted had a much wider implication which could have stopped stories of genuine public interest from being published. That would not be right.”
• An appeal is currently being considered.
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