The workers with hidden losses from the coronavirus refund scheme

The workers with hidden losses from the coronavirus refund scheme

Workers slip through the cracks of the government furlough system

Brean Horne
Wed, 05/06/2020 – 14:10

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Furloughed hospitality workers in the UK could be missing out on up to half of their income due to little-known exclusions in the coronavirus job retention scheme. 

Currently, the government initiative allows employers to apply for a grant that covers 80% of their employees’ usual monthly wage costs, up to £2,500 a month. 

However, the scheme does not include tips, including ‘tronc’ payments – a system used to distribute service charges among staff.

Cash received through the tronc system can make up 50% of hospitality workers’ income, who are often on minimum wage. 

Those working in hospitality were already among the worst affected by the coronavirus crisis even without the issue of missing tronc cash, according to recent research.

One anonymous worker at a Soho restaurant and bar says tronc payments make up around 26% of his normal income, and that up to 80% of hospitality workers receive this money.

“Usually I would be able to pay my rent, bills and other costs with money spare to save, but now I am £50 short on my rent even before getting to the rest of those payments,” he says.

“I have been forced to dip into my savings, which are now depleted, and have had to borrow money from my family just to live.”

For many hospitality workers, tips and tronc payments are a guaranteed amount of their income and not a variable, meaning these are considered part of their hourly rate, not a bonus.

‘These earnings are regular and needed for our staff to pay their bills.’

One restaurant chain boss,Des Gunewardena, is calling on the government to change the furlough rules.

Gunewardena is chief executive of D&D London, a restaurant group that employs 2,000 staff.

Employees at the chain’s UK restaurants, including Quaglino’s, Bluebird and German Gymnasium, are receiving far less than their normal income under the furlough scheme.

 “Our UK employees are receiving, under furlough, even with the addition of universal credit, only some 50% of their normal wages,” says Gunewardena. 

Workers in other countries have been able to recoup a higher proportion of their income because their governments had more generous schemes.

“In the US the FED stepped in to add $600 per week to the standard 50% of earnings (including tips) to improve average New York waiters’ earnings to close to 100%,” says Gunewardena. 

His employees in Paris were also able to recover larger amounts of their total income. 

He continues: “In France unemployment benefit was already relatively generous, but the government improved the 75% salary offered to be based on a 39 hour not a 35 hour week. So our staff receive 85% of normal earnings.”

In a letter to the Chancellor, Gunewardena called for the government’s exclusion of tronc payments to ensure that hospitality workers are protected.

“The exclusion of service charge from furlough earnings appears to be an unfortunate anomaly that will affect hundreds of thousands of workers in UK restaurants.This is deeply unfair, discriminatory, and sends a clear message to restaurant staff in the UK that they are not valued,” he says.

What does HMRC say?

A spokesperson from HMRC says: “The Coronavirus Job Retention Scheme is absolutely vital to protect jobs. 

“It is one part of a raft of unprecedented measures to support our economy through these challenging times.

“This includes targeted support for the hospitality sector with business rates holidays, VAT deferrals, eviction protection and over £8.6 billion worth of cash grants so far to hundreds of thousands of businesses.”

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RACHEL LACEY: “I’ve lost thousands of pounds — now it’s time to practise what I preach”

RACHEL LACEY: “I’ve lost thousands of pounds — now it’s time to practise what I preach”

Just because there are fluctuations in the stock market you should not panic-sell

Rachel Lacey
Wed, 05/06/2020 – 13:09

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Over the past few weeks, I have lost literally thousands of pounds. It wasn’t a scam, a bad loan to an unreliable friend or a disastrous trip to the bookies. Like millions of others in the UK, I just had money invested in stocks and shares.

I am not a seasoned investor or an active trader by any stretch, but over the past 15 years I have been drip-feeding money into the stock market.

It started with a Stocks and Shares Isa just before I got married. Then we started squirrelling a bit of money away every month, not with any specific goal in mind other than our own financial security.

After the kids came along, we opened Junior Isas for them too — not paying in much, just enough to harness the powers of compounding returns and give them a bit of a financial leg-up when they turn 18. Now, I also run a Sipp from the same investment platform.

Totted up it is not a huge fortune, but it is our fortune. Our family’s nest egg.

Quite how large or small this fortune actually is now I couldn’t say. Not because I don’t want to share such intimate information with Moneywise readers but because I can’t. I can’t divulge it because I’ve not logged on to the platform since markets started to bomb in February.

Some would say as a financial journalist that I should, but I just know it will be a horror show. What with my husband and I trying to work from home, provide some semblance of an education for our kids while school is out and keep an eye out for our parents, we have got enough to deal with, without the brutality of seeing our account balance in black and white.

If I saw it, I know it would stress me out. It would feel a whole lot more real.

You could say I am burying my head in the sand. Maybe I am? But even if I did log on to face the music what would it achieve? Those investments are for the long term and I am a buy-and-hold investor, so it is time for me to practise what I preach. I won’t panic and I won’t sell the investments I’ve put my faith in.

If I’d cashed in my investments all I would have done was crystallise my losses — and miss out on the big bounce, which saw the FTSE 100 rise by more than 9% one day last month, making it its best day since the financial crisis in 2008.

I am also reminding myself that as the cost of shares has fallen, future contributions will be able to buy more shares, putting me in a better position when the markets do eventually recover.

All I can do is keep calm and carry on.

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I sold my buy-to-let that I used to live in years ago. Must I pay capital gains?

I sold my buy-to-let that I used to live in years ago. Must I pay capital gains?

Please help me work out my tax position on the home where I first lived in 1984. The title deeds were signed over to me in around 1998 when I divorced. 

About five or six years ago I was made redundant, so I moved in with my partner and rented out my house. I told my mortgage lender at the time and my mortgage was converted into a buy-to-let mortgage.

I cleared the mortgage and sold the property in 2019. Do I have to pay capital gains tax (CGT)?  I paid tax on the rental income but I am getting conflicting advice about whether I have to pay CGT.

Patrick Connolly
Wed, 05/06/2020 – 12:32

From
LB/via email

Normally, when you sell your main residence you do not have to pay CGT as you are entitled to principal private residence relief. However, if at some point it was your second home or used as a buy-to-let property, as was the case here, then any sale may be subject to CGT.

The rules are quite complicated, but broadly any periods where the property was your main residence are not chargeable and any periods where it was not your main residence are chargeable. However, as it was your main residence at some point, your final nine months of ownership are not chargeable even if you were not living there.

You may also qualify for letting relief, which can reduce the amount of tax payable if you let out part or all of your home after you have lived in it. You cannot claim private residence relief and letting relief for the same period, which means if you were letting the property out when you sold it, the last 18 months of ownership qualify for private residence relief rather than letting relief.

The CGT rate for property sales is 18% for basic-rate taxpayers and 28% for higher- or additional-rate taxpayers. However, you can use your annual CGT exemption, which is £12,000 if you sold in the 2019/20 tax year (£12,300 in the 2020-21 tax year).

This can all be very complicated. If you are still in doubt, then speak to HM Revenue & Customs (HMRC).

Patrick Connolly is a certified financial planner at Chase de Vere.

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Number of savers doing risky pension transfers on the rise

Number of savers doing risky pension transfers on the rise

Savers are being warned that transferring out of a final salary pension could cost them thousands

Stephen Little
Wed, 05/06/2020 – 11:52

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The number of defined benefit (DB) pension transfer requests made since the coronavirus lockdown started are gradually rising, according to consultants Lane Clark & Peacock (LCP).

LCP says that last week it received 28 transfer requests for the 81 DB schemes it administers.

This is the highest it has received since the start of lockdown, but still less than the number it had in the first 11 weeks of 2020.

LCP says that since lockdown started on 23 March the number of requests to transfer out of DB pensions schemes has averaged 20 a week. 

The analysis is based on 81 DB pension schemes LCP administers. This covers around 65,000 members, of which 33,000 have not had their pension and are eligible to request a transfer.

Bart Huby, partner at LCP, says: “Whether this is a blip or the beginning of a trend is unclear at this stage, but it will be important for trustees to monitor carefully what’s happening on their own schemes so they can quickly spot any unusual or concerning spikes.

“While the large majority of schemes have seen a fall in transfer quotation requests, a few have seen increased activity – these generally being schemes where the sponsor covenant has been adversely impacted by the Covid-19 crisis, so some members may have increased concerns about the security of their pensions.”

What is a defined benefit pension?

DB pension schemes – sometimes called a final salary scheme – pay out a guaranteed income for life.

The amount they pay is linked to the number of years the recipient worked for a particular employer or the amount they earned.

If your employer does not have enough money in the scheme to pay you in retirement, you are covered by the Pension Protection Fund.

Pension freedoms introduced in 2015 now make it easier for people to transfer their money out into a pot that can be easily accessed.

Should you transfer out?

Pension savers are being warned against transferring their retirement funds from DB pensions into defined contribution (DC) schemes during the coronavirus pandemic as they could lose thousands of pounds.

DC pensions build up a pot with contributions from you and your employer which are then invested to give you a return when you retire.

The income you might get from a DC scheme depends on how much you pay in, the fund’s investment performance and the choices you make at retirement.

Savers who transfer their pot into a DC pension could be putting their money at risk because of market volatility and economic uncertainty caused by the coronavirus pandemic.

According to recent figures from Moneyfacts, a record number of people with a DC scheme saw the value of their pension pot fall, with only 11% of funds avoiding losses.

DB pensions are calculated on your final salary so are not affected by the current market turmoil.

Anyone looking to transfer from a DB to a DC pension during the COVID-19 crisis will get a letter from trustees telling them it is not in their best long-term interests.

Justin Corliss, senior pensions intermediary development and technical manager at Royal London, says: “Saving for retirement is a long-term strategy, and the proceeds often need to last for a long but unknown time-frame. If you have a DB pension and you’re considering transferring it, speak to your adviser and take heed of their advice.

“Fluctuations in investment returns or life expectancy will not impact DB members’ retirement income like they can if you are invested in a DC scheme.

“Transferring from DB to DC will be right for some people, but it’s one of the biggest financial decisions you can make, and once it’s done, it’s generally irreversible.”

Mr Huby says: “Transferring a DB pension, particularly if this represents someone’s main pension savings, is a major once-in-a-lifetime decision.

“There is a risk in the Covid-19 crisis that people in short-term financial difficulties make a decision to transfer their DB pension that they ultimately regret.”

Pension funds have suffered heavy losses as a result of the coronavirus pandemic. To find out more about how your retirement savings could be affected, check out our comprehensive guide on how to rebuild your pension.

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