Tuesday, February 18, 2020

Pension tax relief warning: Relief could be ‘halved overnight’ - what would a cut mean?

The Treasury is understood to have drawn up plans to slash the rate of relief for higher earners from 40 percent to 20 percent. The move would raise £10billion a year.


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Currently, higher earners get 40 percent tax relief on pension contributions, while lower earners are eligible for tax relief at the rate of 20 percent.

However, the proposed changes would mean everyone would instead get 20 percent pension tax relief.

According to a report in the Financial Times, former Chancellor Sajid Javid was not entirely convinced by the plan.

Downing Street has refused to comment on plans for the Budget.

Emma King, a pensions Partner at Eversheds Sutherland, said: “The pensions industry has been asking for the tax relief system to be simplified for some time.

“Cutting higher rate tax relief to 20 per cent for higher earners would simplify the position somewhat and simultaneously boost the Treasury’s coffers, so may be seen as a win/win for the Government.

“However it will not be a popular move amongst high earners who would see their pensions tax relief halved overnight.

“One way to provide some level of compensation for this group would be to change the annual allowance (AA) thresholds – the potential removal of the tapering relief for DC contributions so high earners can pay more into their pension pots, while for DB pension members, the AA could be removed completely – just leaving the lifetime allowance thresholds.”

Steven Cameron, Pensions Director at Aegon, explained what a change in the system could mean.

He said: “Currently individuals receive tax relief at their highest marginal income tax rate on their personal contributions, so moving to a flat rate somewhere between basic and higher income tax rates would be good news for non-taxpayers and basic rate taxpayers, while higher and additional rate taxpayers would see their Government top-ups reduced.

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“In terms of simple appeal, a flat rate relief of 33 percent would see the Government add £1 for every £2 from individuals.

“But if set below 30 percent, higher rate tax payers expecting to pay higher rate tax in retirement might find pension saving unattractive, undermining the success of automatic enrolment which ‘works’ because pension saving is in virtually everyone’s interest.

“Simply removing higher rate relief and granting 20 percent relief to everyone would not affect basic rate pension savers but would severely dent the attractions for higher rate taxpayers many of whom are far from ‘wealthy’.

“While there are benefits in flat rate relief, when the Government considered such changes back in 2015, it found there are many complexities to consider, and unless these are thought through and solved, changes could do more harm than good.


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“The three biggest areas of complexity relate to the tax treatment of employer contributions, how to avoid a ‘salary sacrifice loophole’ and how to apply such an approach to defined benefit schemes.

“Rushing to cut pensions tax relief could do long term damage to UK retirement savings so we urge the Chancellor and his team to avoid going too far, too fast and instead to engage with the industry to resolve issues.

“We also recommend testing any new approach with savers to understand how it might change retirement savings behaviours.”

Amid reports of HM Treasury cutting tax breaks to higher rate tax payers, Kay Ingram, Director of Public Policy at national financial planning firm LEBC, summarised the Group’s view.

Ms Ingram said: “The current system of marginal rate income tax relief on pension savings is fair to all taxpayers, who pay no tax on income paid into a pension, but who pay tax on the pension income they subsequently draw.

“Any change which restricts the rate of relief to a flat rate, or the basic rate, will hit middle aged middle earners hardest; it is likely to result in less being saved for retirement and many people forced to work longer.

“This cohort of 38-55 year olds earning above £50,000 are less well prepared for retirement.

“They did not have the advantage of defined benefit pensions to the same extent as older workers, and unlike younger workers, were not offered auto enrolment at the beginning of their careers.

“Their pensions will be largely dependent on investment returns. Guaranteed rates of return are much lower as a result of low interest rate policies, so a higher level of savings is required to achieve an acceptable retirement income.

“Their state pension age has been raised to 67/68. To remove higher rate tax relief at this stage would make it even harder for them to retire and is a step too far given that the annual and lifetime allowances already restrict the amount of relief any individual may claim.”

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Monday, February 17, 2020

Mackenzie's glitch-free BHP farewell gives successor a clean run

Given Andrew Mackenzie’s obsessive focus on productivity during his six and a half years at the helm of BHP, it is fitting that the results for the final six months unveiled by his successor were the cleanest and most productive of his tenure.

They were clean and productive at both an operational level – probably the most glitch-free of the Mackenzie era – and clean and productive at a financial level.

With both costs and volumes stable during the half, the driver of the 39 per cent increase in underlying earnings to $US5.2 billion ($7.8 billion), and the 15 per cent increase in underlying earnings before interest, tax, depreciation and amortisation to $US12 billion, was the $US1.5 billion benefits of higher commodity prices.

New BHP chief executive Mike Henry wants to shape BHP’s portfolio around the long-term trend towards decarbonisation of the global economy.Credit:Nine

In an illustration of the disciplines imposed by the capital allocation framework developed by Mackenzie, his chairman Ken MacKenzie and chief financial officer Peter Beaven, BHP was able to top up its base 50 per cent dividend payout ratio, which amounted to $US2.7 billion, with an extra $US1.2 billion to produce the second-biggest ordinary dividend in its history. Almost all of that benefit from the higher prices was passed back to shareholders.

The results were presented by new chief executive Mike Henry, who made it clear the relentless focus on productivity and the discipline around capital usage would continue and intensify. He wants the group to be leaner and its operations more reliable, even higher-performing and safer.

That doesn’t mean BHP will be entirely introspective. Henry wants to shape the BHP portfolio around the long-term trend towards decarbonisation of the global economy.

He wants more copper and nickel in the portfolio, primarily from within the group’s existing resource base but also via exploration and, perhaps, an entry into potash where a decision on the giant Jansen project is due this year. He’s open to offers for the group’s thermal coal assets.

The only material exceptional item in the results –the $US778 million cost of cancelling power contracts at the Escondida copper project in Chile – will both lower ongoing energy costs and dramatically reduce the group’s carbon emissions as a key part of the group’s approach to a decarbonising economy. The impact on the Chilean operations is profound – a 60 per cent reduction in emissions – and the 15 per cent cut to BHP’s overall emissions very material.

There will also be more emphasis on technology in BHP’s operations and a shift towards a higher proportion of permanent employees to enable cultural change and an enhancement of the group’s capabilities.

Henry’s vision isn’t radical but, given the foundations that he has inherited – and for which he can take significant credit as the former head of BHP’s core Australian operations – it doesn’t need to be.

It’s more a case of doing the things that BHP already does well even better, a continuation of the trend Henry established impressively in the Australian operations where, remarkably, BHP has emerged as the lowest-cost of the major iron ore producers.

In the immediate future BHP, and its peers, will be impacted by the coronavirus. So far commodity prices have generally held up better than expected. While oil prices are down about 13 per cent since the year and copper nearly 6 per cent, iron ore has slipped only about 3 per cent and is still trading significantly above last year’s levels.

The BHP view is that if the virus can be contained by the end of the March quarter there will be a quick snap back in demand for its commodities, one potentially exaggerated by the inevitable stimulatory actions of China’s government. That is, of course, a major "if’’ and a query over what the second half of the financial year might bring.

With its balance sheet in good shape, with net debt of $US12.8 billion at the lower end of its target range of $US12 billion to $US17 billion and solid cash flows – almost $US7.5 billion of net cash flows in the December half and $US3.7 billion of free cash flows – the group is in as good a condition to ride out any challenges as it has been in the past decade.

Henry has a significant number of growth projects already in his pipeline for the first half of this decade so his impact on the nature of the portfolio will be the options he exercises to generate longer-term growth.

He wants to drive more volume from the existing resource bases and an increased exploration effort as well as from buying into early-stage developments, such as BHP’s investment in SolGold to gain exposure to what appears to be a very large copper deposit in Chile.

He’s never going to say never to the possibility of a major acquisition but, separate to the reality that there aren’t obvious targets that fit BHP’s post-South32 criteria of having a few tier one basin assets, he’s also conscious of the pitfalls BHP has experienced with its past acquisitions, most notably its ill-fated foray into the US onshore shale oil and gas sector.

It is also probably the case that a big acquisition at a premium would have difficulty getting through the BHP capital allocation framework that Henry is as enthusiastic about and as committed to as his predecessor.

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Martin Lewis: This one choice you make with a mortgage could save you nearly four grand

One of his first meetings was with a gentleman, aged in his early fifties, who was looking to purchase a home outside of London for around £125,000. Martin Lewis proceeded to ask the man what his income was and he revealed that he earned between £18,000 – £21,000 a year. Mr Lewis detailed that it may be tough for him but: “It’s a good time to look for mortgages”. As he explained, a lot of mortgage providers these days do not work out what they can give based on multiples of salaries.


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Many modern mortgage lenders focus on affordability tests instead. Mr Lewis suggested finding a mortgage broker who would be able to detail what options were available and the choice of what to do should be made from there.

Interestingly, Martin Lewis advised the man to consider buying a home with a friend. He highlighted that mortgages do not need to be bought exclusively by couples.

Buying with a friend is a good way to get on the ladder but Mr Lewis advises making sure a legal contract is set up.

Martin Lewis went on to meet a young woman who was applying for Jobs in Cardiff as her partner is also working in the City.

The couple were aiming to purchase a house together and Martin stressed the concept of merging their ISAs. With Lifetime ISAs specifically, the size of the bonus received is higher when the amount in the pot is high.

Merging two ISAs together makes sense for taking advantage of these bonuses. Affordability also came up again with Mr Lewis detailing that when applying for mortgages being frugal will pay off. Lenders want to see that their funds will be paid back effectively.

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Martin Lewis went on to cover this in much more detail, he specifically pleaded with mortgage applicants to take one specific action.

He detailed that one of the most important aspects of mortgage applications is the “loan to value ratio”.

This ratio effectively means the more equity that a person has on their home, the lower the mortgage repayments will be.

In comparing five percent deposits with 10 percent deposits Mr Lewis had this to say:


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“Now, five percent deposit mortgages have got cheaper in recent years. Here they are, but id still try and push you, urge you to try and get to at least 10 percent because this has the biggest single drop.”

He used a five year fixed rate mortgage and a two year fixed mortgage as an example. On a five year fixed rate mortgage a person would only pay £845 a month and a two year would be £785 with a 10 percent deposit. He continued:

“That’s 60 quid cheaper, over the five years you’d save nearly four grand. So a first timer if you could wait a little bit longer to get over that boundary, great. If you’re remortgaging, if you had savings you could use to get over a boundary, really good stuff.

“Now don’t tell anyone I told you his but I hear rumours from underwriters that if you go exactly to a boundary, say the 85 percent level, it could look as if you’re struggling so you might be less likely to be accepted.

“But if you go 100 pounds beyond it, it eases acceptance. Don’t know how true it is but you might as well try.”

Mr Lewis rounded off his advice by examining remortgaging rates. A middle aged woman asked him if she should remortgage her 10 year fixed mortgage that has a get out clause. He detailed that she could probably get a cheaper mortgage, saving roughly £800 a year.

However, remortgaging will likely mean fees and penalties from the existing mortgage lender for switching early. He detailed that while it is worth remortgaging, these types of fees need to be factored in. He advises always using comparison sites and brokers to find the best deals.

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China Moves to Delay Parliament for First Time in Decades

China is considering delaying its most high-profile annual political meeting for the first time in decades, as the government attempts to contain an outbreak of a deadly new strain of coronavirus.

The Standing Committee of theNational People’s Congress will meet Feb. 24 to consider a delay of the annual meeting of the full parliament planned to convene March 5, the official Xinhua News Agency said Monday. The Standing Committee will also consider measures to curb practices that may have contributed to the deadly strain of virus jump to humans, including a ban on the wildlife trade and the consumption of wild game.

Some 3,000 members of China’s rubber-stamp parliament, the National People’s Congress, were expected to convene in Beijing for about two weeks of meetings attended by President Xi Jinping and other top leaders. The annual political pageant also includes meetings by the Chinese People’s Political Consultative Conference, an advisory body made up of around 2,000 representatives from companies, ethnic minorities, cultural organizations and other groups.

While the decision was widely expected, it represented an acknowledgment by the Communist Party that the health crisis that began in the central province of Hubei had disrupted basic mechanisms of government. China has held its so-called Two Sessions in March every year since 1985, when then-paramount leader Deng Xiaoping formalized the legislative calendar as part of his reforms after Mao Zedong’s turbulent rule.

Zang Tiewei, spokesperson for the NPC’s legislative affairs commission, was cited as saying the body’s deputies were needed back home, among which a third are local officials. “In order to ensure that people’s attention is focused on the prevention and control of the epidemic and that people’s lives and health are given top priority, the chairman’s council, after careful assessment, considered it necessary to postpone,” Zang said, according to Xinhua.

High Risk

China unveils its annual economic targets, defense spending projections and other key policy decisions during the NPC meetings. The party has also used the occasion to announce major policy changes and personnel reshuffles, like Xi’s 2018 decision to scrap term limits, which paved the way for him to rule indefinitely.

This year the NPC had been expected to deliberate on a draft Civil Code, consisting of sections on property, contracts, personality rights, marriage and family, inheritance and torts. Xinhua also said the Standing Committee would continue to deliberate proposals for appointments and removals, without elaborating — hinting that further personnel reshuffles could be underway despite the cancellation.

Officials faced the risk that some attendees could unintentionally transmit a virus that has already sickened more than 70,000 and killed almost 1,800 in China. And gathering political leaders at great expense in the capital while many Chinese remain cooped at home could also prompt public criticism.

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The municipal government of Beijing has instituted rules requiring 14-day self-quarantines for new arrivals in the capital, meaning deputies would’ve had to arrive by this week to attend the meeting without a special exception.

Xi has ordered “all-out” efforts to contain the crisis, which has already proved more deadly than the SARS epidemic that killed almost 800 people across Asia 17 years ago and led to widespread criticism of China’s response. Beijing has taken unprecedented steps to slow the latest outbreak, including banning travel from the hardest-hit areas in central China.

On Feb. 13, China abruptly replaced the top leaders of Hubei and its capital Wuhan. Shanghai Mayor Ying Yong was named to replace Jiang Chaoliang as provincial party secretary, in a rare political shakeup.

A flurry of municipal legislatures across China had delayed their annual meetings in recent weeks, including the cities of Jinan, Qingdao, Wenzhou and Zhengzhou. The provinces of Sichuan and Yunnan also postponed their legislative meetings.

“Though it’s a rare move, in reality the possible delay of the legislature meeting wouldn’t have much tangible impact on legislative work,” said Yang Dong, a law professor at Renmin University in Beijing. “The main focus of this year’s NPC meeting is to vote on the long-expected Civil Code. But other than that, there are no other urgent issues like major personnel reshuffles that need to be addressed.”

— With assistance by Yinan Zhao, Dandan Li, Peter Martin, and Jon Herskovitz

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Sunday, February 16, 2020

Bendigo Bank kicks off $300m capital raise, cuts dividend

Bendigo and Adelaide Bank has kicked off a $300 million capital raising as it reported a sharp profit drop and announced it was cutting its interim dividend.

Chief executive Marnie Baker blamed low interest rates and rising regulatory pressure at the release of its half-year results on Monday, adding that ongoing technology investment and compliance costs were also impacting the lender.

The bank's statutory net profit was down 28.2 per cent to $145.8 million and the company has trimmed its interim dividend from 35¢ to 31¢. The company also reported a two per cent drop in cash earnings.

Bendigo Bank chief executive Marnie Baker delivers the bank’s half-year results. Credit: Wayne Taylor

"We feel this reduction was required given the capital raising to ensure sustainability of the dividend, retain funds for growth and to enable us to continue to deliver our strategy," Ms Baker said in a release to the ASX.

Ms Baker pointed to the growth in the bank's total lending that was up 2.8 per cent from the same time last year, with losses in agricultural lending caused by drought offset by strong demand for residential lending.

Small business lending was also up by 15.6 per cent with lending applications up by 45 per cent and settlements up by 35 per cent.

“Our Consumer Banking division performed strongly, driven by investment in processing capacity, to support settlement growth, new mobile relationship and business development managers and new and enhanced third party white label partnerships," Ms Baker said.

The bank was put in a trading halt as the capital round kicked off, aimed at institutional clients to raise $300 million to support the growth of its residential mortgage business and beef up the bank's investment in technology.

More to come

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McDonald’s UK: Customers could get £5 off their order - how you can access deal

The fast food giant is offering its customers a £5 discount on orders – however the deal is only available if it’s purchased in a particular way. McDonald’s customers can only access the deal via the McDonald’s app.


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They can then get the £5 discount on spends of £15 or more on one single order.

This is provided the order is made on the My McDonald’s App.

In order to be eligible, customers must be at least 16 years old, ,and they must have downloaded, registered, and signed-in via the My McDonald’s App.

Those looking to access the offer should also be aware that it is only valid when ordered via the “Deals” section of the app.

This can be done by clicking on the offer in that section, and then by placing the order for at least £15 at a participating McDonald’s restaurant.

The save amount of £5 will subsequently be discounted from the purchase price prior to payment.

It’s worth being away that the offer is only available once per person, and it can’t be used alongside any other offer or promotion, McDonald’s says.

Those interested in the deal may want to be aware that the offer will expire in the near future – at the end of February.

This particular offer has been available from January 26, 2020, and lasts until 23:59 on February 29.

The deal is only available for mobile orders, and McDonald’s says the offer “excludes Drive Thru for first time users of the app”.

Latestdeals.co.uk lists this current deal on its website, and states that this is “in-store only”.

This week, McDonald’s announced customers could get hold of its Big Mac “special sauce”.


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The sauce is available in 50ml pots for a price of 50 pence each.

They will be available 24 hours a day, McDonald’s said, with the packs having a seven-day shelf life.

Michelle Graham-Clare, Vice President Food & Marketing, McDonald’s UK & Ireland, said: “For years, customers have been desperate to get their hands on the world-famous Big Mac® Special Sauce, many have attempted to recreate it at home to no avail.

“So we are delighted to finally bring these dipping pots to the UK and Ireland.

“We are looking forward to seeing the imaginative ways our customers attempt to ‘Mac It Better’ in kitchens across the UK, by adding our iconic Special Sauce to their breakfast, lunch and dinner.”

Elsewhere on the topic of money saving this week, Martin Lewis revealed where savers should look in a bid to get the best interest rates on a joint account.

The Money Saving Expert founder appeared on Good Morning Britain, revealing the “top” easy-access joint savings account was currently an offer from Marcus by Goldman Sachs.

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Saturday, February 15, 2020

Virus crisis could mean $7b drop in airline revenue: ICAO

MONTREAL • The coronavirus outbreak could mean a reduction of US$4 billion to US$5 billion (S$7 billion) in global airline revenue, said the International Civil Aviation Organisation (ICAO) on Thursday.

The United Nations agency reported that 70 airlines have cancelled all international flights in and out of China and 50 others have reduced their operations.

Preliminary estimates show this has meant a reduction of nearly 20 million passengers compared with expectations for the first quarter of this year. That figure equates to potential lost revenue of up to US$5 billion, the agency said.

In China, the virus has killed more than 1,300 people and infected over 64,000. Overseas, nearly 600 cases have emerged in around 30 locations.

“Prior to the outbreak, airlines had planned to increase capacity by 9 per cent on international routes to/from China for the first quarter of 2020 compared with 2019,” the ICAO said in a statement.

The reality has been a reduction in foreign airline traveller capacity of 80 per cent.

Japan looks to be the hardest hit from a reduction in Chinese air travellers in the first quarter, the ICAO said. The country could lose US$1.29 billion in tourism revenue, with Thailand not far behind at a US$1.15 billion loss potential.

The ICAO said the effects of the coronavirus outbreak on the airline industry are expected to be larger than in the 2002-2003 severe acute respiratory syndrome epidemic as flight cancellations are more widespread this time.

In addition, China’s international air traffic has doubled and its domestic air traffic increased fivefold in the last 17 years.

The Chinese authorities have locked down Hubei province, the epicentre of the outbreak, and restricted movements in several cities in an effort to contain the virus.


Have a question on the coronavirus outbreak? E-mail us at askst@sph.com.sg

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