Over 240 guests, including Lt Governor Mr Adam Wood and his wife, Katie Richardson, attended the event, which was kindly sponsored by Island based corporate financial adviser MAC Group. Guests were entertained by Mrs. Christine Hamilton – famously the wife of the former British Minister for Corporate Affairs, Neil Hamilton – whose humorous and stirring speech went some way to explaining why the Institute’s annual dinner is the most popular event in the industry’s calendar.

Tickets once again sold out several weeks in advance, which is further proof of the Institute’s aim to extend its reach and increase industry solidarity and engagement in spite of a challenging international economic climate. This year, the forum again paid close attention to the requirements of its members as they continue to work in challenging times, particularly where issues such as the Retail Distribution Review begin to impact.

Jon McGowan, Managing Director of MAC Group, commented: “Not only is the CII one of the most long-standing organisations within the financial services industry, their dedication to the Island’s leading industry professionals has helped enhance community engagement and training to help improve working standards on the Isle of Man. We’re extremely pleased to be involved with such a major event, and look forward to supporting future events that will help benefit the wider business community.”

The Institute has an established history of organising and providing its members with access to CPD or Continuing Personal Development programmes and also provides a forum through which members can get advice on training and qualifications for the insurance and financial services industry. As such, the annual dinner presented guests with the ideal opportunity to both network and get up to speed on the latest industry developments in the company of their friends and colleagues.

The Institute’s annual raffle also raised a grand sum of £2,700, which will be donated to Wish Upon a Dream; an Island based charity established with the primary aim of granting the greatest wish to sick and terminally ill children on the Isle of Man. A portion of the proceeds will also be donated to the Insurance Charities.

The Institute’s President and head-organiser, Mrs. Sharon Sutton wishes to extend her thanks to all companies who donated prizes and all those who attended what was undoubtedly a thoroughly enjoyable evening for all.

By Martin Rigby, Isleofman.com

image; left to right; back row; Peter Reid, Lillian Boyle, Tim Rattray, Jason Stanley, Julie Calvert, Sue Preskey, Gillian Prestwich, Nicola Bowker, Juan Quirk, Michael Welldon, David Doyle.

Front Row; Karen Clark, David Vick, Christine Hamilton, Jon MacGowan, Sharon Sutton, His Excellency Adam Wood, Katie Richardson, Jon Everill

A new report reveals that the UK’s ‘Retirement Nation, which includes all retired people, saves the state and society at least £25 billion a year through unpaid care, community and voluntary work. But the report, ‘Our Retirement Nation’, which was commissioned by MGM Advantage, warns that the contribution made by this part of society is not fully recognised and that the government and society as a whole need to do more to understand their emotional, health and financial requirements.

MGM Advantage is calling for fundamental changes to ensure that the Retirement Nation gets the respect and support it deserves from society, the media, the financial services industry and the government. Its recommendations and key findings are:

• Respect – A change in attitude towards the Retirement Nation and greater recognition for retired people and what they contribute to the UK – only 14% of retired people feel valued by society.

• Representation – The Retirement Nation is a big part of the UK society for what they contribute (£25 billion through unpaid care, community and voluntary work), but also the help and support they need. The Retirement Nation needs a voice. MGM Advantage recommends the Government creates a Minister for Retirement.

• Education – More done to help people maximise and make the best use of their financial wealth in retirement. The first step is to help people improve their basic knowledge about retirement and finance – 31% of retired over 55s have not heard of the Open Market Option. The financial services industry, government, and media all have a role to play in achieving this.

• Simple products – Financial services and government need to continue to work together to innovate and design new retirement products that meet the needs of the Retirement Nation and are easy to understand, accessible, and offer good value – only 29% of over 55s know exactly what an annuity is.

• Ownership – People need to take ownership of their retirement planning – from building up a pension pot in their 20s and 30s to making the best retirement income decision when they retire – 54% of non-retired UK adults are not at all prepared for retirement3.

The report highlights how the UK’s Retirement Nation is collectively saving the government and society £15.4 billion a year by taking on the unpaid care of grandchildren, parents and other family members. In addition to this, retired people are undertaking voluntary work worth at least £5.6 billion a year and charitable work worth at least £3.7 billion a year.

MGM Advantage, which is a retirement income specialist, warns that the role played by this major part of society is not fully recognised. Almost a third (30%) of retired people think they are undervalued and not respected by society, while just 14% feel valued, while the balance (55%) say that they are sometimes treated badly.

Craig Fazzini-Jones, Executive Director, MGM Advantage said: “This report paints a wonderfully colourful picture of the rich diversity of the 11 million people who make up our Retirement Nation and why they deserve our respect and attention for the contribution they make to the society. However, it also portrays a worrying picture about how these people prepare for and fund their retirement and sends a clear message about our responsibility to do more to support our Retirement nation.”

With the number of retired people in the UK growing significantly, MGM Advantage says that greater consideration has to be paid to their contribution as well as demands placed on society. It also believes there should be a fundamental change to the way that retired people are treated and that more should be done to challenge the pre-conceived notion of retirement.

EIS and VCT

In the UK the Chancellor’s Autumn Statement contained few surprises, the main exception being changes in the rules affecting Enterprise Investment Schemes (‘EIS’) and their collective investment variant, the Venture Capital Trust (‘VCT’).

EIS were introduced in 1994 and VCTs in 1995, both with the intention of encouraging investment in small companies by offering tax concessions. EIS invest in single companies which satisfy certain criteria and VCTs in portfolios of qualifying businesses. Up to £500,000 can be invested annually via EIS, and £200,000 via VCTs; and both schemes offer up-front income tax relief of 30%. In addition, EIS provide exemption from capital gains tax if held for at least three years, and VCTs for five years.

The first change announced in the Chancellor’s statement is that the investment limit for EIS is to be increased to £1 million p.a.. The second is that restrictions on the size of companies in which the schemes can invest are being relaxed to include companies with assets up to £15 million and up to 250 employees.

The major surprise in the Autumn statement is that a new ‘Seed EIS’ (‘SEIS’) is to be introduced to encourage investment in start-up businesses. A major accountancy firm described as “astonishing” the fact that SEIS will provide 50% income tax relief in the tax year 2012/13 on investments up to £100,000 even if investors’ own tax rate is lower than 50%. In addition, if the investment is made from gains made from the sale of other assets in the same tax year, these gains will be exempt from capital gains tax.

As a result, every £1 invested in SEIS will cost the investor only 50p. In fact, the total relief will amount to 78% if gains are reinvested and account is taken of the 28% saving in CGT.

However, the benefits of SEIS could be outweighed by the very high risk of investing in start-ups, and the difficulty in conducting due diligence suggests that it is unlikely that SEIS will be available as a retail product. Investment is likely to be confined to entrepreneurs’ friends and families.

Pensions and tax

It had been suggested that the UK Chancellor might withdraw some of the tax benefits of pension saving, notably the availability of tax-free cash (usually 25% of the value of the fund) and higher rate tax relief on contributions. In the event these fears proved unfounded, but they serve as a reminder to higher rate taxpayers to take advantage of the current concessions while they last.

There were, however, other developments on the pensions front.
The State pension age is to be increased from 66 to 67 from 2026, eight years sooner than originally planned. This may cause some people to consider working longer or saving more, but one benefit is that retirees who have not yet accrued their maximum benefit entitlement will have a chance to top-up their National Insurance contributions. We understand this will also apply in the Isle of Man.

In the UK firms with fewer than 50 employees which do not have a comparable staff pension scheme in place will be required to introduce NEST (the National Employment Savings Trust) and the operative date had been set at April 2014. However, recognising the financial burden that compulsory contributions will place on such firms, the Government has announced that the operative date is to be deferred until May 2015. Larger employers are already instructing financial advisers to provide staff briefings and advice.

We see IOM government giving consideration to NEST or similar at some point in the next few years as pressure continues to be applied to Manx budgets and people are expected to save more for their own retirements rather than falling back on the state.

On the tax front, the annual UK capital gains tax allowance has been frozen at its present level of £10,600 for 2012/13. Finally and as an aside, we see the IOM review on the taxation of investments being a way by which the tax office may be able to apply capital gains tax in all but name. Watch this space.

Junior ISAs

In the UK, Junior ISAs have been available since November 2011, when they replaced Child Trust Funds. Family and friends can contribute up to £3,600 a year into either cash or stock and shares accounts, and from April 2013 the annual investment limit will increase in line with the consumer price index.

Accounts can be established for any UK resident under the age of 18, but no withdrawals can be made before the child’s 18th birthday, except in the case of terminal illness or death. When the age of 18 is reached, the Junior ISA will be converted automatically into an adult ISA.

Any method of encouraging children and young people to save, and being introduced to the concept of credit being the last rather than first resort, is to be welcomed. The lack of such options being available locally is something we hope government will consider.

Deferring annuity purchase

The income available to purchasers of retirement annuities has fallen by around 20% over the past three years and now stands at historically low levels. Consequently, many retirees are asking whether it would make sense to delay annuity purchase until rates might improve

There is a good chance that the yield on gilt-edged securities, which are the main influence on annuity rates, will rise from current levels in the foreseeable future. It is also a given that annuity rates will rise with increasing age, as also will the likelihood of declining health qualifying the annuitant for the improved rates available from an enhanced or impaired life annuities.

However, it’s not a one-way bet. Every year’s deferral is a year’s annuity income lost. And with every passing year, the period between payments starting and the reaper coming to call gets shorter.

The answer is likely to be different for each individual, but a good way for investors with larger pension pots to hedge their bets would be to phase annuity purchases over a number of years.

January 2012

No responsibility can be accepted for the accuracy of the information in this newsletter and no action should be taken in reliance on it without advice. Please remember that past performance is not necessarily a guide to future returns.
The value of units and the income from them may fall, as well as rise. Investors may not get back the amount originally invested.

“RDR” is a phrase that is causing much controversy and some fear in the UK amongst those involved in providing financial advice to consumers. Not since the first UK Financial Services Act (1986) has there been such a shake up of the system of providing financial advice to consumers. The UK’s FSA has been disappointed with the results of its earlier legislation and practice on the topic and is now proposing wholesale changes that will take effect on 31 December 2012. In the mean time advisers are expected to get their houses in order in preparation for the new regime.

The proposals are wide ranging and detailed. The FSA says it wishes to push through the changes to improve consumer confidence in products and services and to address poor standards amongst financial advisers. They believe the changes will raised standards of professionalism, improve clarity and reduce conflicts of interest that have plagued the industry. Their vision is to raise IFAs’ game and to move them in to the circles of other fee paying professionals. The new rules will be in place for the start of 2011 with minimum qualifications to be achieved by 31st December 2012 and in the Isle of Man only a year later.
For an industry that is already regarded as a lifestyle choice and populated by an increasingly aged group of people, it is clear that something must be done or else the availability of financial advice will reduce as more people leave the industry and large corporations switch to a product sales model. Add into the mix the fact that currently 70% of individuals do NOT seek financial advice.

Arresting the decline in numbers of advisers, I believe can be achieved through working with government – Departments of Economic Development (DED) and Education using public/private partnerships. Broadly my ‘dream’ involves a framework of a ‘home-grown’ financial services degree with core and satellite subjects offering vocational credits and recognition towards Chartered status from certain Professional Institutes, such the Chartered Insurance Institute. After all, in these austere times, wouldn’t it make sense for the Isle of Man taxpayer to fund core subjects at higher education establishments locally, rather than non-core ones in the UK? – yes, that’s controversial I know.

However, developing the plan a stage further forward thinking companies, including IFAs, Life companies (representing the largest proportion of private sector employment in the IOM), captive insurers and General insurance Broking firms, large and small, can see a less costly and risky way of bringing in new talent to a sector where grey men in suits are the norm, where at the moment there is a dearth of young talent taking these vocational qualifications. Such a scheme would go a long way towards ensuring the future succession plans of their business, increasing profitability, especially where you throw into the mix an apprenticeship type incentive, and you have potentially the biggest ‘jobs opportunity’ advert to appear in Isle of Man Newspapers ‘job vacancies’ column. We all want the Isle of Man to succeed as a ‘Centre of Excellence’ in one form or another; most of the infrastructure needed, including mentors, both private and public is already here for Financial Services which is a vital support for all the diverse industries DED are so keen to attract and retain.

To go back to RDR, advisers need to respond to the new environment now, not least because the Island’s regulators will adopt the proposed changes and already have progress towards qualifications on their radar. UK providers changing systems to cope with RDR in time for 31st December 2012 are hardly going to go out of their way to accommodate a minority market like the Isle of Man. Does this mean those with their heads stuck in the sand need to look for another role? We’ve heard it all before about having 30+ years ‘experience’; Because, how do you know what you don’t know if you don’t know what you don’t know?

Sound financial advice will be important to all clients. In the current economic climate where negative headlines like the ‘Isle of Man Bank Adviser sells terminal cancer patient annuity’ are sadly, all too common and call into question impartiality and conflict of interest (with targets for bonuses?). As circumstances and appetite for risk change as a result of external influences, all clients should regularly review their plans and financial goals, then go and employ the best adviser for the job. You can be sure Thornton Associates Ltd, as the Isle of Man’s first firm of Chartered Financial Planners will be ready and able to help clients, both existing and new.

Sharon Sutton FPFS Chartered Financial Planner

The prospect of redundancy is becoming very real for more and more people, in light of worsening economic conditions and cutbacks in government and company spending.

Redundancy may occur for a number of reasons and with every redundancy comes a whole series of important decisions to make about your life, and how you (and maybe your family) will cope with losing your income.

Every redundancy is different because every person who experiences redundancy will have very different circumstances, goals and objectives. However, there are some common areas of concern that may need to be addressed.

Legal advice can ensure that you maximise the benefit of your redundancy package. Financial advice ensures that you structure your finances in the most effective way.

Proactive steps

The best planning for redundancy takes place long before the subject is even raised by your employer.

The two most valuable things you can do in anticipation of redundancy are to cut down on your expenditure and create an emergency savings fund.

Emergency fund

This will give you sufficient breathing space to assess all of your options and, if necessary, find new employment. We would recommend an emergency fund equivalent to three to six months’ typical expenditure. This money needs to remain accessible in the event of a real financial emergency but not too easy to access, in case you are tempted to dip into the fund. A high interest bank account is often a sensible home for your emergency fund.

Unemployment cover

Before you all rush off to seek such a policy, it is usually only available when attached to another plan as a ‘bolt on’ such as mortgage protection life cover and usually at outset of the policy. This needs to be done before impending redundancy or you won’t be able to make a successful claim. Such plans typically cover the monthly repayment of your mortgage and only normally last for 12 months because the insurer usually expects the claimant to have secured replacement employment during this time. Involuntary redundancy is not covered, nor is being fired. Often there is a 30 or 60 days ‘wait-period’ before paying a claim.

Redundancy payments

Assuming you have worked continuously for your employer for at least two years, you should be entitled to a redundancy payment. Statutory redundancy payment is not subject to income tax or National Insurance contributions. The amount of redundancy pay you receive will be covered in your contract of employment.

The first 30,000 of any payment on termination of a contract is tax-free as long as it is not in lieu of actual pay; eg for gardening leave.

Statutory redundancy pay

The total amount of redundancy pay you receive will depend on a number of factors, including how long you have been continuously employed, your age and your weekly pay.

In the Isle of Man the amount of a redundancy payment is one week’s gross pay for each complete year for which the employee has been continuously employed. A week’s pay is capped at a maximum of £480 a week. Refer to Isle of Man Employment Rights: a Summary which can be downloaded; http://www.gov.im/ded/employmentrights/rights.xml

Help from the state

Depending on your financial circumstances, you might qualify for help from the state when you are out of work. Your first port of call should be Job Centre, which will be able to tell you about your entitlement to payments or benefits. If you or your family/partner has over £13,000 you will not be entitled to receive the income-based component of jobseeker’s allowance.

However, you could still qualify for the contribution-based jobseeker’s allowance, assuming you have paid or been credited with class 1 national insurance contributions in the relevant tax years. This can provide up to £67.50 per week if you are aged 25 or over. It is £53.45 per week for under 25’s.

Loss of protection benefits

Redundancy often results in the loss of valuable employee benefits previously provided by your employer as part of your remuneration package. These employee benefits might include death in service and private medical insurance.

Redundancy (like any life event) should serve as a prompt to evaluate your protection requirements, identify any shortfall in cover and put in place a suitable protection arrangement.

Make sure you shop around to identify the most competitive provider as the costs vary between the most and least expensive provider of these financial products. Also make sure the cover is eligible for Isle of Man residents.

As it can take a number of weeks to underwrite some forms of financial protection, particularly if you require substantial amounts of cover or have a complicated medical history, it is worth starting this process early when the topic of redundancy is first raised by your employer. This will put you in the position where you can put the new cover on risk as soon as existing benefits come to an end, therefore preventing any time gaps in your cover.

Pensions

Depending on your age at the time redundancy occurs, retirement is likely to be a serious consideration. As this is likely to be early retirement (or at least earlier than originally planned) you will need to look carefully at affordability. After all, you are younger so your pension benefits will have had less time to accumulate and will need to last for longer.

Early retirement prompted by redundancy is a good opportunity to re-evaluate your lifestyle and the associated living costs. Your pension might produce lower benefits than originally predicted, but this is all relative. Lower pension benefits are manageable when combined with a lower cost of living.

Dealing with debt

Debt is a drag on your ability to meet your other financial objectives. The global ‘credit crunch’ has highlighted some of the risks of funding your lifestyle with unsecured debt. What starts off as cheap and easily accessible can quickly become expensive and in short supply.

There are two main types of debt – unsecured and secured.

Unsecured debt typically includes items such as credit cards, store cards, personal loans and overdrafts, is usually short-term and more expensive than secured debt.

Secured debt usually refers to your mortgage. It is secured because there is an asset (e.g. your house) guaranteeing the value of the debt.

Time for advice

As a result of the complex interplay between the different areas of your personal financial planning, it is important to seek professional independent financial advice to ensure you have considered all of your options and made the most suitable decision based on your personal circumstances.

It makes sense to seek advice at an early stage of the process as otherwise you could be in a panic to make important decisions ahead of tight deadlines that have been imposed. It can take time to request detailed information and conduct analysis ahead of providing advice to a client who is being made redundant.

Finding an adviser

The best way to find a good adviser is usually to ask your friends, family or colleagues for a recommendation or search for a local adviser online using one of the many internet search engines; e.g. www.unbiased.co.uk or www.findanadviser.org

 The author, Sharon Sutton was made redundant once……….11 years ago

sources; www.gov.im, Informed Choice Ltd – Martin Bamford’s Guide to Redundancy 2009

What happens if the tax return is not filed by the due date?

There are a number of important points here.  Firstly, you may be liable to a penalty of £100.  Secondly, you should still file the return as soon as possible after the deadline because the closer you get to 31^st October the greater the risk you will receive a default assessment.

What happens if I receive a default assessment?

A default assessment is an assessment raised by ITD which is an estimate of your liability.  It is important to realise that this does not excuse you from the requirement to complete and file the income tax return.  Also, you should pay what you believe to be your true liability because interest may arise if it proves to be higher than the default assessment. 

What if I think my liability is less than the default assessment?

You should still pay what you believe to be your liability and you can request ITD to postpone collection of the balance but they may only agree to this if the outstanding tax return has been completed and filed.

So it’s still important to complete and file the return?

Absolutely, for many reasons.  Firstly it is your legal responsibility to complete the tax return not your agent, who may be your accountant.  It is you who will be prosecuted not your agent.  Secondly, if the return is not filed with ITD by the following 6^th April, you will receive an additional penalty of £200.  Finally, it is possible for the default assessment to become final and conclusive, in which case it may not be revised even if your true liability is less, which could have serious consequences.  For example you may lose your entitlement to deductions and other reliefs.

Any other reasons?

Plenty.  If you are a subcontractor then outstanding tax returns may affect your ability to get a subcontractors certificate.  As a business it may be difficult to get government contracts because your tax affairs are not up to date. Finally if you are seeking a loan the lender may want confirmation that your tax affairs are up to date because they want comfort that there are no liabilities which have not been taken into account.

Can the return be filed online?

Yes.  It is possible to manage all your tax affairs online including filing your tax return, certain other returns and receiving assessments and notices from ITD and reviewing previous returns and assessments. You can also pay any outstanding liabilities online.  You should consider online filing as an alternative.  Register and enrol at www.gov.im/onlineservices

Any other points?

You shouldn’t delay filing your return just because you are missing some figures, for example you may not have received an interest paid certificate.  You can estimate the figure on your return but you must be careful to tick the box to show that it is a provisional amount.  This is equally important with income.  If you do not then you may be making an inaccurate return and could be liable to interest and penalties.

We are very happy to provide any information we can to assist with the completion of your tax return.  The earlier you get the information the sooner the return can be done.

It is likely more stable conditions will return in due course –when the politicians come back from holiday in September and face up to their issues. Of course volatility is affecting even the best quality holdings as prices are forced downwards by indiscriminate sellers who need liquidity. We’ve seen it happening before not so very long ago.

I like the following commentary by Alan McIntosh, Cheviot CIO, on the latest market conditions. 

“Market update – reading the mood music

The recent rally in markets evaporated yesterday on further disappointing economic data. The US Philly Fed survey, which measures business conditions, fell to its lowest in two years, when the US was last in recession. Bear in mind, however, that this survey was conducted while the US was suffering the paralysis of negotiations over the debt ceiling and may be unduly pessimistic. Nevertheless, if the US does go back into recession later this year or early next, much of the blame rests firmly with the ineptitude of the politicians. In Europe, things are not much better. The Merkel / Sarkozy meeting gave us precisely nothing other than the prospect of a financial transactions tax. As they return to the beach, the ECB is left on its own to put out the fires in euro land. Banks were particularly hard hit yesterday. They are seen as a proxy for the woes of sovereigns. Markets are registering the seeming inability of the authorities to grasp the issues facing their economies.

Stockmarkets, if not pricing in outright recession in the US and Europe, are certainly factoring in much slower economic growth next year (and therefore lower corporate profits). Gilts and US treasuries continue to see lower yields, with investors willing to accept substantially negative real yields for “safety”. One can’t help but feel, however, that this will end in tears, since the finances of the UK and US are hardly solid.

Defensive shares are holding up comparatively well, offering solid cash flows and dependable yields. The trailing yield on the All-share index is now 65% higher than that of a 10-year gilt. On any sensible assessment of value, that is surely wrong. Nevertheless, investors are extremely risk averse at present and you would be forgiven for thinking that the mood music was closer to Mozart’s Requiem than Beethoven’s Ode to Joy.”

Last week banking shares suffered the steepest losses on the FTSE 100, on mounting concerns over the eurozone’s debt crisis. Resources stocks also dominated the loser board, amid fears that weak global growth will sap demand. Meanwhile, the yield, or implied interest rate, on benchmark US 10-year treasury notes fell 12 basis points to 2.05%, after touching a record low of 1.98% in an investor flight to safety. Similarly, gold prices jumped 1.7% to $1,819 an ounce, after hitting yet another record high at $1,826.

‘The gold market is telling us that we are potentially heading towards a second and perhaps more damaging economic crisis,’ warned Ross Norman of bullion brokers Sharps Pixley.

You could be forgiven for thinking ‘lets buy gold’, but…. buy gold at its highest point in years? This is very much like all those people who purchased property at the height of the boom or all those people who got on the dot.com bandwagon at its high point. I can’t say for certain you’re wrong but buying an asset as it screams towards a ‘peak’ should be considered with extreme caution. If anything, if you already hold gold, consider taking some profits.

Surely it makes more sense to look out for those so many now undervalued companies that were cheap before and are now at below bargain basement levels. FTSE 100 is at a one year low and it seems more right to buy shares now – that is if you are in it for the long term.

If the Euro fails maybe gold was a good idea, but if, as seems more likely, we bump along the bottom for a while and the Euro survives, then buying and holding gold could cost you dear. Companies as a whole are very profitable; it’s just the lack of clarity going forward that ’causes young men to panic’ as one IFA posted recently on Citywire.

The moral; have enough money to do with in life what you want to do (for the short to medium term). For the rest; have a diversified, risk-rated, managed and monitored portfolio – and pick a team you know to be qualified, licensed and above all that you trust to provide that service for you.

Thornton Associates Ltd are the first firm of Chartered Financial Planners in the Isle of Man with years of experience in looking after and advising British Expatriate clients from an offshore base.

If you are a client of MNAFS and require a relationship with a strong, well established and quality firm of  licensed Independent Financial Advisers (IFA’s) with a demonstrable commitment to providing a reliable and ongoing service from a well regulated base such as the Isle of Man, we would be pleased to assist with your financial planning, now and in the future.

To find out more about Thornton Associates Ltd (TAL)  and how we work visit our website on www.thorntonfs.com