MONEY MATTERS


in association with Looking ahead to 2011


At the start of a new year, Dorothy Lepkowska


looks back at the key financial changes of 2010 and how they are likely to impact teachers in 2011


F


INANCIALLY SPEAKING, the writing was on the wall perhaps even as 2010 began. It was the year of the tiger, and these years are typically characterised by dramatic changes – as proved to be the case. A general election, the creation of a coalition


government, two budgets and a drastic spending review have left everyone shell-shocked and wondering what will come next. This was on top of the long-term effects of the recession, which began to bite in earnest. But 2010 also brought a number of developments


that could have affected your financial situation. Here is a summary of these and what steps you might want to take in response.


Fiscal matters


April was the month of the first changes, when a new income tax rate of 50 per cent on an income over £150,000 – and a rate of 42.5 per cent for dividends – was introduced. In June, the rate of capital gains tax increased


from 18 to 28 per cent for higher (40 per cent) and additional (50 per cent) rate taxpayers. The annual tax-free allowance for the tax year 2010/11 is £10,100. Remember that you cannot carry forward any unused allowance so it is worth reviewing your investments regularly. Any realised losses can be offset against any realised gains made within the same tax year; and where losses are greater than gains, the balance can be carried forward to offset against future capital gains.


Light (tax) relief


Pensions have been high on the new government’s agenda. While new rules limiting the amount of tax relief on pension contributions will apply to everyone, those most likely to be affected are people with high earnings and/or large pensions.


Old age tension


It has not escaped the government’s attention that many of us are living longer. The Hutton Review on public sector pensions is likely to recommend higher contributions from employees, and the government is accelerating the equalisation of the State Pension Age (SPA) so that women’s SPA reaches 65 in November 2018. The SPA for women and men will then rise gradually to 66 by April 2020. Younger teachers should bear in mind that we can expect further proposals regarding subsequent increases to the SPA.


Is there any good news?


Yes, there was some positive news during the year. The annual individual savings account (ISA) contribution limit was increased by £3,000 for everyone, not just the over 50s, and will be rising annually by the retail prices index. The 2010/11 allowance is £10,200, rising to £10,680 from April 2011. You can invest the full amount in a stocks and


shares ISA, while up to half can be invested in a cash ISA. With no further tax to pay on income or capital gains and easy access, ISAs remain very attractive, particularly to higher and additional rate tax-payers. It is therefore important to use your full allowance each year. Simon Rake, national sales manager with Wesleyan


for Teachers, said: “It may be that teachers will want to look at alternative forms of savings to supplement their pension. It’s great news that the ISA allowances have been increased and will continue to rise in line with inflation. “It’s worth remembering though to review existing


ISAs which you have in place. Often providers entice customers to open an ISA with competitive interest rates but these usually expire after a year or so and you might not be getting the return on your money that you think. It’s easy to transfer ISAs but many people fail to do this and so lose out as their money is not generating the interest it should be. “Cash ISAs are great for shorter term saving and we see many teachers using them to build up


SecEd • January 6 2011


an emergency fund to cover large and unexpected expenditure or even loss of income. Stocks and shares ISAs offer a great way of saving for the long term so are valuable in retirement planning or helping to achieve other long-term goals such as university fees for children.” It is worth remembering that cash ISAs are the


best option for people who want easy access to their funds, but the stocks and shares variety may secure a better return in the long-term because of the bigger associated risks. There was also some good news for homebuyers.


The Labour government’s final budget in March extended the “stamp duty holiday”. This means that first time buyers will not have to pay stamp duty on residential properties under £250,000 from March 25, 2010, for two years – which is great news for those looking to get on the property ladder.


What can we expect in 2011?


The good news is that 2011 is the Chinese year of the rabbit, which is usually a peaceful year. However, while 2010 saw a range of changes that will affect how you are saving and investing for your future, 2011 is shaping up to be just as eventful. A lot of attention has been focused on the £83 billion


of cuts in public spending scheduled over the coming four years, but less attention has been paid to the £29 billion of tax increases in the pipeline. In January, VAT rises from 17.5 to 20 per cent, as does the cost of insurance premiums. The tax you pay on general insurance premiums,


such as home insurance, rises from five to six per cent. Meanwhile, tax on travel insurance and items such as extended warranties, which are sold alongside motor vehicles and some consumer goods, will increase from 17.5 to 20 per cent. Employee and employer rates of National Insurance


contributions (NICs) will increase by 0.5 per cent from April in addition to the 0.5 per cent increase announced in 2008, although the level at which you start paying NIC is rising. And from April 2011, families earning more than £40,000 will see their entitlement to child tax credit reduced. The government will also respond to the reviews it


has commissioned, probably in the March Budget, if not before. This will include the Hutton Review into public sector pensions. While the government will await the Review’s final report before making any lasting decisions, it has committed to a form of defined benefit pension provision and confirmed that it will seek “progressive changes” to the level of member contributions, likely to start in April 2012. It is also likely that the default retirement age of 65 will be removed from April. Mr Rake added: “Undoubtedly this is a period of


major change across a range of issues that will affect teachers’ personal finances. The public sector pension review is likely to impact upon teachers’ pension provision and it is vital that they stay up-to-date with the outcome of the Hutton review and its implications. Taking professional financial advice from a company that understands the Teachers’ Pension Scheme will


Make time in 2011 to get financially fit


help to ensure they make the right decisions to ensure a comfortable retirement.” With rising taxes, and changes on the horizon to


teachers’ pensions and pension allowances, now is a good time to assess your financial objectives and think about any changes you may want to make. If you are


unsure about any of your finances, investments or tax issues, professional financial advice will help you understand your position and make the right decisions for you.


SecEd • Dorothy Lepkowska is a freelance education journalist.


Making time for adequate financial planning can be difficult when you work long hours and lead a hectic lifestyle.


However, planning for your future is as important as planning your career.


Why not make it a new year resolution to get your finances in shape, call us now on


0800 316 6554quoting reference 60508 and arrange a no-obligation personal review and receive


£20 M&S vouchers


FREE* Illustrative vouchers only


* Terms & conditions: For any teacher or related profession booking a no-obligation financial review by 28 February 2011. Offer based on one voucher per person and only 1 appointment can be booked during this particular promotion. No purchase is necessary. No alternative is available. Employees of the Wesleyan are excluded. If a meeting is cancelled you will not be entitled to the vouchers. You will be required to complete and return a confirmation card after your first meeting and £20 of Marks and Spencer vouchers will be sent to you within 14 days of the card being received by Wesleyan for Teachers.


Wesleyan for Teachers is a trading name of Wesleyan Financial Services Ltd, which is authorised and regulated by the Financial Services Authority. Wesleyan Financial Services Ltd is wholly owned by Wesleyan Assurance Society. Registered No. 1651212. Head Office: Colmore Circus, Birmingham, B4 6AR. Fax: 0121 200 2971. Website: www.wesleyanforteachers.co.uk. Telephone calls may be recorded for monitoring and training purposes.


We can guide you and answer your questions in many areas including the following:


• Your Teachers’ Pension Scheme benefits


• Tax efficient savings


• Protection options in the event of ill health and death


• Re-mortgaging for a more competitive product


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