Maximising pension contributions is crucial for securing your financial future. By leveraging tax benefits and participating in retirement plans, you can increase savings and take advantage of employer matching programs. Catch-up contributions near retirement can significantly boost savings. Start early to accumulate wealth and pave the way for a stress-free retirement.
Understanding Pension Contributions
Pension contributions refer to the funds that an individual or their employer puts into a pension scheme, which are then invested with the aim of providing income during retirement. It is a form of savings account that grows over time, allowing you to reap financial benefits when you retire.
Investing in pension contributions offers numerous advantages. Firstly, it should provide a reliable source of income during retirement, ensuring financial security. Secondly, it offers tax benefits, as contributions are often tax-deductible, reducing your taxable income.
Finally, many employers offer matching programs, where they contribute an equal amount to your pension as you do, effectively doubling your investment. Thus, maximizing pension contributions can substantially increase your retirement savings.
Valuable Tax Benefits
Pension contributions can significantly reduce taxable income by leveraging the tax relief offered by the government. When you contribute to your pension, you receive tax relief at the same rate as you pay income tax.
For example, if you’re a basic-rate taxpayer paying 20% tax, for every £80 you pay into your pension, the government effectively tops it up to £100. This is because the £20 tax you would have paid on £100 of income is added to your pension contribution instead.
Higher-rate taxpayers benefit even more. If you pay tax at 40%, for every £60 you put into your pension, the government will add £40. This equates to £100 in your pension pot, but it only costs you £60. This system is designed to encourage pension saving by effectively giving you a rebate on the tax you’ve paid.
Retirement Plans
In the UK, several types of retirement plans can help you maximise your pension contributions:
Workplace Pension Plans: These are set up by employers to provide retirement incomes for their employees. Both the employee and the employer contribute, and sometimes the government does too. Key points include:
- Automatic enrolment for employees aged between 22 and State Pension age, earning more than £10,000 per year.
- Employers are required to contribute at least 3% of an employee’s pensionable earnings.
Personal Pensions or Individual Retirement Accounts (IRAs): These are pensions you arrange yourself and contribute to directly. Key points include:
- Can be started with small amounts.
- Offer a variety of investment options.
Contribution Limits: While contributing more to your pension can provide valuable tax benefits, there are limits to consider:
- The annual limit for most people is £60,000 or 100% of your earnings, whichever is lower.
- There’s a lifetime limit on the total amount of pension savings you can build up without facing a tax charge, currently set at £1,073,100.
Employer Matching Programs: Many employers will match your contribution up to a certain percentage. This can effectively double your investment. Key points include:
- Employer contributions are usually set as a percentage of your salary.
- Contributions from your employer are also subject to annual allowance limits.
Conclusion
In conclusion, maximising your pension contributions can significantly help secure your financial future. It’s a strategic method of saving, benefiting from tax deductions, employer matching programs, and catch-up contributions.
Everyone’s financial situation and retirement goals are unique. Therefore, it’s crucial to consider all options and make informed decisions.
To discuss your situation and explore the best options for you, don’t hesitate to contact us at Downton & Ali. Our team of experienced financial advisors is ready to guide you towards a worry-free retirement.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Approved by The Openwork Partnership on 5th January 2024.
Since the government introduced pension auto-enrolment in 2012, millions more workers have started saving for their retirement. Now, the government has confirmed plans to extend auto-enrolment to encourage a savings boost. The changes could have implications for both employees and business owners.
Following a review of auto-enrolment the government has revealed key reforms forecast to increase pension contributions by £2 billion a year.
Key auto-enrolment changes to be aware of
The minimum age of auto-enrolment will fall from 22 to 18
Young workers could start saving into a pension much sooner. The government intends to lower the minimum auto-enrolment age from 22 to 18.
For employees, this could be a positive step. Saving for retirement from the outset of their careers could help establish positive money habits among workers. In addition, compound growth means early contributions have the potential to grow significantly.
For business owners, it could mean their outgoings will increase as they’ll also need to make pension contributions on behalf of eligible workers.
The lower earnings limit will be removed
Currently workers must earn at least £6,240 to be eligible for auto-enrolment. The government plans to remove this lower earnings limit, so workers will receive contributions from the first pound they earn.
This will boost pension contributions among those that are already paying into a pension. It will also mean low-income workers that haven’t previously benefited from a pension, such as those who work part-time while caring for children or older relatives, will automatically start paying into a pension and receive employer contributions too.
From an employer’s perspective, this change could, increase the amount they are contributing to employees’ pensions.
There could be a maximum limit on pension pots
As most employees are entitled to a pension through their employer, frequent job hopping could lead to individuals holding numerous small pensions. This may make it difficult to manage pensions effectively and understand if you’re on track to reach your retirement goals.
The government has set out initial plans to help savers manage multiple pots. Among the proposals is a maximum limit on the number of pensions a person can have. The report also suggests a ‘central clearing house’ to make it simpler to consolidate pensions.
There is no timescale for the proposed changes
The official document does not set out a timescale to implement any of the changes. So, while young and low-income workers are set to benefit from auto-enrolment, it could be several years before they start contributing to pensions.
The minimum pension contribution will not be increased
The government has not made plans to change the current rules for contributions. Currently, the minimum contribution is 8% of qualifying earnings, made up of 5% from employees and 3% from employers.
Research suggests that minimum contribution levels are not enough to afford a comfortable lifestyle in retirement. There have been calls for the government to increase the minimum pension contribution level to help close the gap.
Auto-enrolment won’t be extended to cover self-employed workers
Some organisations have called on the government to extend auto-enrolment to encourage self-employed workers to save for their retirement. However, support for the self-employed has been overlooked in the latest report.
Research from the Institute for Fiscal Studies suggests the number of self-employed workers paying into a pension has fallen over the last decade.
It also found self-employed workers that pay into a pension rarely change the amount they contribute. The analysis suggested a form of auto-escalation, such as a direct debit that increases in line with inflation, could help self-employed workers save more for their retirement.
Take control of your pension and retirement
While the change to auto-enrolment could mean more people are on track for a financially secure retirement, there are still challenges. If you want to reach your retirement goals, engaging with your pension sooner, rather than later, could allow you to identify the steps you need to take.
Please contact us to discuss your retirement aspirations and how we could help you create a tailored financial plan.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
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Expiring 5 April 2024
A pension plan is an important part of saving for retirement. It can provide you with a regular income in retirement, which can be used to supplement other forms of retirement income such as private pensions and state pensions. In this blog post, we will discuss the different types of pension plans available and how to create a pension plan that is right for you.
What is a pension plan?
A pension plan is a retirement savings plan that provides a lump sum which can be used to provide a regular income in retirement.
If you are employed, contributions to your pension plan are made by you and your employer. If you’re self-employed, it’s even more important to think carefully about your pension planning, as you will have no contributions from employers.
However you save, the money in your pension pot is invested, and upon retirement you can take lump sums as and when you need them, pay yourself a regular income, or a mix of both.
Pension plans can provide a valuable source of income during retirement, but there are some things to watch out for. For example, if you change jobs, you may not be able to take your pension with you. Additionally, pension plans may not keep up with the rising cost of living, leaving you struggling to make ends meet.
How to know how much to save in a pension plan
How much you decide to save will depend on your retirement goals.
The Pensions and Lifetime Savings Association (PLSA) has identified three different retirement living standards: minimum, moderate, and comfortable:
- The minimum standard is for those who just want to cover essentials and have all their needs met.
- The moderate standard is for those who want financial security and some flexibility.
- The comfortable standard is for those who want financial freedom and some luxuries.
To figure out how much you need to save each month to achieve your desired retirement standard, you’ll need to consider things like how many holidays you see yourself taking a year and whether or not you’ll have a car. If you do have a car, how often would you want to replace it? And how much home maintenance do you think you’ll need to do?
Keep in mind that these are just estimates – no one knows exactly what their future holds. But by planning ahead and saving accordingly, you can give yourself the best chance at achieving your retirement goals.
How to boost your pension plan
Once you have an idea of how much your pension plan is going to give you and how much you will need as a minimum, you may find you need to add to it.
There are lots of ways to do this but some of the most popular include:
- Increasing your pension contributions as an employee and see if your employer will match this
- Look at a salary sacrifice system
- Consolidate pensions from various places into one single pension with potentially better returns
- Add money from windfalls such as bonuses at work or even a small lottery win
Managing your pension is an important step in your financial planning. If you need help deciding what the best path is for your pension, contact Downton & Ali Associates. We are pension specialists and can help you with individual recommendations based on your situation and needs.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
Approved by The Openwork Partnership on 2nd February 2023.
In his 2021 Budget, the Chancellor announced a five-year freeze on the lifetime pension allowance. What does this mean for you and your retirement fund?
What is the lifetime pension allowance?
The lifetime pension allowance sets a limit on how much you can save in your pension before you start paying tax on anything over the limit. For a few years before the 2021 announcement, the limit had been tied to inflation, meaning that it rose in line with the cost of living.
With the global pandemic and surge in inflation over the past couple of years, the decision was made to freeze the limit – at £1.073 million – until 2026. It’s hoped that the freeze will generate additional revenue as savers slow down or stop contributing to their pensions and don’t claim tax relief from the government.
How are my pensions affected by the lifetime allowance?
The lifetime allowance applies to all types of non-state pensions in your name – so that includes any defined benefit (final salary or career average) schemes you have along with any defined contribution pensions.
The limit of £1.073 million might seem like a huge amount. But if you’re a medium-to-high earner, have saved into pensions from an early age and are approaching retirement, you could one of the millions who are affected (and caught unawares) by reaching the threshold.
As pensions are so complicated, seeking advice is important and we can help clarify the status of your pensions, discuss your retirement plans and how to proceed.
What happens if you exceed the lifetime allowance?
Many of us have more than one pension, usually accumulated through different jobs over the years. Keeping track of them and how much they contain can be tricky and time consuming, as you’ll need to look at their expected value when the time comes. Your adviser is best placed to gather this information and help with your next steps.
If your total exceeds the lifetime allowance, the excess amount will be taxed as follows:
- 55% if you receive the amount as a lump sum from your provider
- 25% if your payments are gradual or are cash withdrawals
These are large penalties on your savings, so it’s worth acting now to find a way to protect your hard-earned pension.
Seek help to protect your pension
Protecting your pension and making sure you’re able to live comfortably in retirement and keep up with the cost of living is something we can help with. So, if it looks like your pensions could be affected by reaching and exceeding the lifetime allowance, there are some options you can discuss with your financial adviser:
Divert savings into an ISA
You can earn tax-free and make withdrawals in most cases. Our advisers can help you calculate how much you will need to live comfortably in retirement and help plan your investment strategy to achieve that goal.
Combine pensions with your spouse
Consolidating your pensions can be an effective way to grow your retirement savings in one place. It can also save time on the administration involved, cut down on fees and create a more streamlined investment strategy.
Claim pension credit
Many pensioners are eligible for pension credit but fail to make a claim. It’s available if you are over the state pension age and on a low income, are a carer, severely disabled or responsible for a child. It could boost your retirement income up to £182.60 a week if you’re single, or £278.70 for couples. It’s separate to the state pension, and we can help calculate whether you and your partner are eligible.
Pension allowance protection
Your adviser will be able to assess whether your pension could benefit from protections that help avoid the tax charge by offering a higher lifetime allowance. But there are several conditions and criteria you’ll need to meet. Our experts can advise whether it would be applicable to your situation.
Your adviser is ready to help you navigate the complex area of pension and ensure you move forward in the strongest position for you and your loved ones.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
Key takeaways
- The lifetime pension allowance sets a limit on how much you can accumulate in all of your pensions before you start paying tax on your funds.
- The government has frozen the limit at £1.073 million until 2026.
- The allowance applies to all types of non-state pensions in your name, and any amount exceeding it will be taxed.
If you have a partnership business or one with multiple business shareholders (e.g. a private Ltd Company), have you thought about what might happen if something happened to one of you?
This is where a Shareholder or Partnership Assurance Protection plan can help.
If a shareholder in your private Ltd company or partner in your partnership were to die or be diagnosed with a critical or terminal illness then their share would automatically go to their beneficiaries or next of kin.
This could have a hugely destabilising effect on your business, especially if the beneficiary or spouse wanted to sell their shares to someone else who did not align with your business values. Alternatively, if the other party wanted to play an active role when perhaps they did not understand the business’ needs and vision, the remaining shareholders would need to take this input onboard.
Why get Shareholder/Partnership Protection?
Shareholder or Partnership protection is a protective safety net that provides a lump sum that is automatically available to buy back shares from the deceased or terminally ill co-shareholder (where critical illness cover has also been incorporated into the policy). This helps the remaining shareholders to maintain control and minimise disruption at a challenging time as well as avoiding the unexpected need to find buy-out capital or dip into the company’s savings.
In addition to protecting the surviving shareholders, it provides clarity and transparency for the beneficiaries and a smoother transition of assets thereby helping both parties.
An example scenario…
Imagine a Ltd or partnership business which has 3 directors and is worth £300,000. The directors are not related and therefore it is not a family business. Each director owns one-third of the business equating to £100,000 each.
If one director were to die (or be diagnosed with a critical illness and could no longer work), then their shares would automatically go to their spouse or beneficiaries to manage or hold.
If the directors have set up Shareholder/Partnership life protection for each director then, when one is incapacitated or dies, the policy would payout for their share of the business. In this case, the business would receive £100,000 and would not need to find this large sum unexpectedly through savings or buy-out finance.
Instead, the business receives the money tax-free, and in a timely manner, and the money is directly used to buy out the deceased director. Such an arrangement with a cross option means the business can transition ownership much more smoothly and with much less stress as not only is the money automatically available, but the deceased director’s estate has to sell the shares to the remaining shareholders.
The business ownership would automatically transition to the remaining directors so each had 50% and they did not need to work around an additional business partner they didn’t choose and instead could maintain continuity.
Although an untimely exit from your business is not something any of us want to dwell on too long, you can see how ensuring you have Shareholder/Partnership life and critical illness protection can be beneficial to all and really help those who remain transition as smoothly as possible. Wouldn’t you want that for your business partners and family?
We consider each individual situation to determine the best benefits for you so contact us here at Downton & Ali to discuss how you can protect your business and your beneficiaries.
Financial markets were unsettled in May as the effects of the war in Ukraine along with concerns over inflation and growth dominated investor sentiment.
The International Monetary Fund (IMF) cautioned global finance leaders to expect multiple inflationary shocks in 2022 as markets continued to be unsettled in May amid fears of an economic downturn and potential recessions. There was a continuation of energy and food supply issues caused in part by the war in Ukraine and supply chain disruption in China, which is still mired in zero-Covid policies.
Recession fears also affected financial markets, with rising inflation and supply chain problems driving up the cost of living and putting pressure on company profits. There are concerns that economic growth could slow as central bankers look to raise interest rates to stem the surge in inflation.
Inflation and recession worry markets
In the US, the S&P 500 fell sharply early in the month, and at one point was down by as much as 4%, which marked its largest fall since June 2020. The NASDAQ also fell and the sense of nervousness on Wall Street affected markets in Europe and Asia too. Household names in the tech sector suffered losses during May, with drops not seen since 2008 for some of the largest companies.
Along with inflationary worries and disappointing earnings reports from retailers in the US, investors were also concerned about signs of a Chinese slowdown and Russian gas flows to Europe. However, the S&P and other leading stock market indices recovered some of their losses towards the end of the month.
Fed increases interest rate
The US Federal Reserve (Fed) raised its benchmark interest rate by 0.5% for the first time since 2000 and revealed plans to shrink its $9 trillion balance sheet in an effort to tackle high inflation. Policymakers also hinted that they may implement further multiple 0.5% rate rises this year.
The energy price rise pushed up the UK’s inflation rate to a 40-year high of 9%, fuelling concerns about a cost-of-living crisis. The Bank of England – which again raised interest rates in May by 0.25% to 1% – said it expects inflation to hit 10% before the end of the year.
The Bank also warned that the economy could slide into a recession as higher energy prices continue to squeeze household finances. There was some brighter news, however, as the UK’s unemployment rate fell to its lowest level in nearly half a century in the first three months of 2022.
Inflation in Germany is at a record high too, pushed up by food and energy prices and the effects of the war in Ukraine. The European Central Bank (ECB) suggested it would raise interest rates in July, and that it expects to abandon negative interest rates by the end of September. Any rise in rates would be the first from the ECB in more than a decade.
In an effort to inject stimulus into its property market, China cut its benchmark mortgage lending rate in May. The country’s property sector has seen a decline in the last year, amplified by its lockdown measures to curb coronavirus outbreaks.
To keep your investments from losing value or slowing the growth of your assets, avoid these common investing mistakes.
There are more risks and opportunities than ever for investors to navigate in today’s rapidly evolving markets. Here are four approaches we believe every investor should follow.
Don’t pile into cash – stay invested
The biggest advantage of cash is that it offers relative safety. Cash can help diversify a portfolio during times of volatility and is easy to access in an emergency. With cash you’ll be paid interest on the money, which will be tax free where it’s in an ISA.
You won’t lose any money by putting your money in cash, but it tends to offer lower returns than other asset classes. It’s also important to know about the impact of inflation on your savings and investments as it can make a huge difference to how much profit you make. Cash is seen as a short-term safe haven and should not be held over a substantial period of time to avoid the impact of inflation.
While it’s good to have some cash savings for a rainy day, the spending value of your money can fall over time if inflation is higher than the interest rate you receive. With interest rates on cash investments at historically low levels, and well below the inflation rate, millions have seen the value of their savings eroded in recent years. To make money on your investment you’ll need to find an account or investment that gives you a greater return than the current rate of inflation.
Don’t go chasing fads – think about the long term
Short-term gains can seem appealing for investors, but if you don’t want to lose your savings, it’s best to not believe the hype about the latest investment craze. Choosing the wrong investment can be a costly mistake. Many investors are turning to social media platforms such as Facebook, Twitter, YouTube, TikTok and other unregulated sources for information about investing.
While it may seem tempting to get investment recommendations this way, it puts you at significant risk from volatile stocks or even fraud. It’s easy to jump on the bandwagon, but momentum is typically falling by the time most people join.
Don’t put all your eggs in one basket – diversify
One of the biggest mistakes when investing is putting all your eggs in one basket as it can leave you exposed to fluctuations in the market. If you’ve invested in one stock and something unexpected happens and it plummets, you could find your nest egg suddenly disappearing.
One way to lower risk is by spreading your wealth over a wider range of investments so it’s not concentrated in one place (known as diversification). By diversifying your portfolio, you can reduce the risk that all of your investments will experience the same negative impact at the same time.
Ideally, you should be looking to build a diverse portfolio with a mix of different investments in line with your attitude to risk. A balanced portfolio will contain a mixture of asset classes, such as stocks, bonds, and alternatives.
Sit tight when it’s right
When markets wobble it can be tempting for investors to sell their shares to avoid any further losses. It’s easy to react to short-term losses but the best thing you can do is most often precisely nothing.
Timing the market involves buying and selling investments when you think they will rise or fall at exactly the right moment. It’s a difficult strategy that rarely works and there are too many unpredictable factors.
If you sell into a falling market you will lock in your losses and it could take you years to get back to where you were. While markets can fall sharply, given time they can rebound, so instead make sure you take the long view. Stock markets have a history of recovering from downturns. If you see your investment drop, don’t worry. Just keep your cool and sit tight.
It pays to seek advice
A financial adviser can help you work out how to achieve your long-term financial goals, while taking inflation into account so it doesn’t eat up your returns.
Your adviser will speak to you about your attitude towards risk and the level you are comfortable with, helping you make the right investment choices..
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
Make the most of your tax allowances by using the different types of ISAs that are available.
Individual Savings Accounts (ISAs) were first introduced in 1999 and are a tax-free way to save into a cash savings or investment account. There lots of different types of ISA available, but the right one for you will depend on your financial goals. We explain how they work so you can choose the one that is best for you.
Cash ISA
A cash ISA works in the same way as traditional savings account but you won’t have to pay tax on any of the interest you earn.
For the 2021-22 tax year each person has an ISA allowance of £20,000. To take out a cash ISA you have to be a UK resident and over the age of 16. If you don’t use the allowance before the end of the tax year you will lose it and you’ll have to start anew on 6 April.
Some cash ISAs are instant access while others have a fixed rate. You can only open one cash ISA per year but you are allowed to transfer to another cash ISA or a stocks and shares ISA with another provider if you want to.
Stocks and shares ISAs
With a stocks and shares ISA you can hold a variety of investments such as shares, bonds and funds. Just like the cash ISA you can save up to £20,000 a year tax free, but you get to choose what investments you put inside it, so it’s worth getting financial advice. You also have to be 18 or over to be eligible.
Stocks and shares ISAs provide an option for people looking to avoid the erosive impact of inflation on returns. Over time there is the potential for better returns with an investment ISA over cash, although the risks are also greater.
If you want to invest in a stocks and shares ISA you need to be comfortable with the possibility of making losses and prepared to invest for the longer term.
Lifetime ISA
The lifetime ISA (LISA) can be used by first-time buyers to fund a deposit for a property or taken tax-free at the age of 60. As well as paying interest, LISAs benefit from a 25% bonus from the government to encourage saving towards a home or retirement.
The maximum you can put in each year is £4,000, which comes out of your £20,000 ISA allowance. The LISA can only be opened by anyone aged 18–39, but you can keep saving in one until you are 50.
With the LISA, you can get a bonus of up to £1,000 a year up until you are 50. If you open one at the age of 18, this means you could end up with a maximum bonus of £32,000.
However, there are some restrictions with a LISA. You have to keep your money in a LISA for a minimum of one year before you can withdraw it and if you take your money out before you are 60 and you don’t use it to buy a home, you will have to pay a 25% penalty.
Junior ISAs
If you’re looking to put some cash aside for your kids, Junior ISAs (JISAs) are a great way of doing so. These accounts are available to anyone under 18 and tend to offer much higher rates than adult accounts, but there are some restrictions.
Like the adult accounts, you won’t pay any tax on your interest. In the 2019–20 tax year you can save or invest up to £9,000 in a JISA. You can save for your child either in a cash JISA, a stocks and shares JISA, or a combination of the two. JISAs can be opened by parents with children aged under 16 and then by children themselves when they are aged 16 and 17.
Innovative Finance ISA
If you invest with an innovative finance ISA (IFISA) the company offering the ISA will use the money to lend to borrowers or businesses – known as peer-to-peer lending. You’ll be offered a rate of interest from the borrower when paying back the money you’ve invested.
You can invest up to £20,000 a year in an IFISA and any interest earned will not be taxed. While you can earn higher rates of interests than with a traditional savings account, they are a much riskier option than a cash ISA as the borrower could potentially default on their loan.
Our financial advisers can help you and your family find the right product to suit your needs and financial situation.
An ISA is a medium to long term investment, which aims to increase the value of the money you invest for growth or income or both.
The value of your investments and any income from them can fall as well as rise. You may not get back the amount you invested.
Chancellor Rishi Sunak used the Autumn Budget 2021 to invest taxpayer money in long-term plans he says will secure the economic future of the country.
Everything from the NHS, schools, local transport and the culture and leisure sector appear set to benefit from the better-than-expected economic outlook from the Office for Budget Responsibility. But immediate changes to improve the finances of households and businesses increasingly worried about rising costs over the next 12 months were thin on the ground.
• Stealth tax and the Health and Social Care Levy (HSCL) – The previously announced freezing of tax allowances and thresholds for income tax and the introduction of the new HSCL are due to raise very large amounts of revenue over the next five years. These, together with the increase in dividend tax, provide a crucial backdrop to the spending increases and tax changes announced in the Autumn Budget.
• Capital gains tax change – From 27 October 2021, the deadline for residents to report and pay capital gains tax after selling UK residential property will increase from 30 to 60 days after the completion date. For non-UK residents disposing of property in the UK, this deadline will also increase from 30 to 60 days.
• Business rates cut – Up to 400,000 retail, hospitality and leisure properties will be eligible for a temporary new £1.7 billion of business rates relief from April 2022. The business rates multiplier will be frozen in 2022/23, which will mean business rates bills will be 3% lower than without the freeze.
From 2023, under a new business rates relief no business will face higher business rates bills for 12 months after making qualifying improvements to a property they occupy.
• National Living Wage increase confirmed – A 6.6% increase to the National Living Wage to £9.50 an hour, starting on 1 April 2022, was confirmed. Young people and apprentices will also see increases in National Minimum Wage rates.
• Annual Investment Allowance extended – The Annual Investment Allowance will remain at £1 million until 31 March 2023.
• Alcohol duties reforms – Drinks will be taxed according to their alcohol content, with higher strength products incurring proportionately more duty with a standardised set of bands.
• Air passenger duty – A new domestic band for air passenger duty for 2023 will be set at £6.50 for flights between airports in England, Scotland, Wales and Northern Ireland (excluding private jets).
• Universal Credit – While not the U-turn some had hoped for, the taper on Universal Credit, which has meant 63p of every £1 of benefit could end up being lost to claimants, will be cut to 55p by 1 December.
Many fixed mortgage deals will be approaching the end of their term this October, so it’s a good idea to review your buy-to-let mortgage.
With interest rates still at low levels and demand for rental properties increasing around the country, investing in a buy-to-let (BTL) is a popular choice for many.
Buy to let basics
A BTL mortgage is a specific type of product for those who want to buy a property with the intention of renting it. Because of this, there are different terms and rules around a BTL mortgage (compared to a regular mortgage for a property the buyer intends to live in.)
• With a BTL mortgage, the anticipated rental income is taken into account when the lender calculates how much you can borrow.
• A BTL mortgage could suit investors with enough equity to put down a deposit of at least 20% of the value of the property (but some lenders could require up to 40%.)
• Your credit record is closely scrutinised with a BTL mortgage, as with a regular mortgage application.
• Interest rates for BTL mortgages are usually higher than a regular mortgage.
Things to remember
If you have a BTL mortgage already and its fixed interest rate term is coming to an end, you may be thinking about switching products or providers to gain a better deal.
Here are some other things to look out for:
• Examine all of your options into the type of product to suit your investment going forward. A financial adviser is best placed to help you with this.
• Don’t forget to research any fees and charges around changing your product too, as these could be higher than you expect.
• When changing products, you may be asked about your property’s rental income history in order to assure any new lenders that you are able to keep up with mortgage payments.
• Show that you have sufficient savings to cover any gaps in rental periods when your property could be unoccupied.
• For your own peace of mind, having a cushion of savings available to cover any essential repairs is important.
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If you are looking to remortgage your BTL property or are thinking about transferring your mortgage to a different provider, our advisers can help you find a product that best suits you.
Some buy to let mortgages are not regulated by the Financial Conduct Authority.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE
Working out how long your pension pot will need to last – as life expectancy rises – is worth thinking about sooner than later.
The lockdown caused many people to reassess their lifestyles, which for some meant choosing early retirement. But what retirees have found is that pension pots are not matching the period of time needed to enjoy a comfortable life.
Life expectancy is going up. The Office for National Statistics offers an online calculator which gives an estimate of life expectancy – and with it an idea of how many years people will need their pensions to sustain them.
What’s your number?
The ‘Class of 2021’ report from Standard Life Aberdeen lays out how much value an average pension pot needs – around £366,000 if you multiply the average annual amount retirees surveyed said they would spend (£20,000) by 20 years of post- retirement time. A third said they had less than £100,000 saved.
Retirees need more than they think
The survey reported that two thirds of retirees were at risk of running out of money post retirement. Along with people living longer (on average, people aged 55 today will live to their mid-to-late 80s) there is the issue of rising inflation which raises the cost of living as years go by. Volatility in the investment markets also adds to the concern for people approaching retirement when it comes to pensions.
How to plan for the years ahead
Those surveyed did have plans to tackle this issue, however. Half of the those surveyed aimed to reduce the amount of money they spent on a day-today basis in order to save for retirement. Other considerations include downsizing their home and seeking part-time work after retirement in order to generate an income.
There is concern among almost half of those surveyed about being financially ready to finish working in the coming year. Yet many are aware of the need to be prepared when it came to their finances post-retirement, making any necessary adjustments – ideally with help from a financial adviser.
Keeping track of workplace pension plans and thinking about consolidating them into one pot might be a good place to start planning towards the goal of making your retirement as financially worry-free as possible.
Our financial advisers can help you review your pensions and advise on how to make the most of your pension.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
You might be thinking about whether to invest in crypto currencies. We explain why it may not be the right choice, and how to better approach your portfolio.
This year has been eventful for bitcoin, with the cryptocurrency reaching a record high and then almost halving in value all in the space of six weeks. The walk-back in May from Tesla’s Elon Musk in his support of bitcoin underlined concerns around the idea of cryptocurrencies as a stable investment. Musk – previously an outspoken supporter – announced his company would not be accepting bitcoin as payment for its vehicles.
What followed was a series of plunges in its value – not helped by the additional news of Chinese regulators signalling a crackdown on the use of digital currencies.
Bitcoin in brief
Bitcoin is a type of digital, decentralised currency, allowing the transfer of goods and services without the need for a trusted third party. The network is based on people around the world called ‘miners’ using computers to solve complex mathematical problems in order to verify a transaction and add it to the ‘blockchain’ – a massive and transparent ledger of each and every bitcoin transaction maintained by the miners.
The first to verify is rewarded with bitcoin. There is a finite amount of bitcoin that can be produced and, as more are created, the mathematical computations required to create more become increasingly difficult.
Cryptocurrencies can be volatile
Bitcoin’s high volatility (risk) makes it a poor substitute for money in a broad sense. The unsteady air around cryptocurrencies in May showed the speculative nature of this asset class. Bitcoin and cryptocurrencies in general have more in common with commodities and currencies – they are much harder to value than cashflow-producing equities and bonds.
Reasons to be crypto cautious
• Cryptocurrencies are a volatile choice and susceptible to stock market bubbles, which can affect investments negatively during a downturn.
• They’re not a tangible form of investment, and are not regulated, which can be a red flag when it comes to your investments.
• Volatility means investors are likely to act on doubts and sell if they fear a fall in return.
Where to invest?
A sensible approach is to invest in high-quality companies that are well-established businesses. These are usually businesses with strong management teams, serviceable levels of debt and predictable cash flows. To avoid being hit by market volatility make sure your portfolio is invested in a wide range of assets, and less vulnerable to market shocks.
Staying invested when there is a downturn can help you get through any turbulent times and put you in a good position to benefit from any ensuing recovery.
Our financial advisers can help advise you on your investment choices.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
When you see your child dressed up for school for the first time, it’s a stark reminder how quickly time flies. It might feel like only yesterday you were bringing them home from hospital or struggling through their first tooth, but when they walk through the school gates with their backpack and shiny shoes, you can’t deny that they’re growing up fast.
The sooner you start thinking about their financial future, the better. The earlier you start, even with a small regular investment, the more rewards they’ll reap in the future. And getting into the habit of talking about money from an early age and showing them how savings and investments work is the best way to grow financially smart adults.
So, while your little one is learning their letters and numbers, you can start learning too! Find out the most efficient ways to safeguard your child’s financial future.
Savings accounts for children
Many parents set up savings accounts for children. These are a simple way for you to make sure money they get for birthdays and celebrations is safe, and you can add regular contributions to grow their savings if you like.
Children’s savings accounts can be easy access, regular or fixed rate. Generally, the easier the access, the lower the interest rate. If you intend to grow your child’s money in a savings account, a regular or fixed rate account is usually a better option.
Savings accounts are a great way to teach children about savings, but if the parent pays money in, and the interest exceeds £100, the interest earned will be added to their tax bill.
It’s also important to remember that regular savings accounts often have withdrawal and maximum deposit limits.
Junior ISA
A Junior ISA works in a similar way to an adult ISA. All funds are tax free, so you don’t have to worry about the £100 rule that applies to savings accounts.
Interest rates are generally higher than an adult ISA and you can choose between cash ISAs or stocks and shares.
Children can’t take cash out of an ISA so it isn’t as good for teaching them about money, but at least you know the money is safe until they reach adulthood! The maximum annual deposit was £9000 in 2021-2.
Investing on behalf of your child
There are two options for making investments on your child’s behalf, a “bare trust” or a “designated account.”
A designated account is in your name and treated as your investment for tax purposes. A bare trust is in your child’s name.
If you make investments on behalf of your children, the pros and cons are similar to investing as an adult. You can potentially make more money from stocks and shares as interest rates on savings accounts are most unlikely to offer the same return. However, any gains or losses are subject to the market so it’s important to remember, if the market goes down you might not get back the money you invested.
A professional advisor can help you find investment funds that are in line with the amount of risk you are comfortable with. Higher risk investments may offer higher potential returns, but you might choose to invest in lower risk funds that feel like a safer place to grow your child’s money.
Setting up a pension for your child
If your little one has just started school it might sound crazy to think about setting up a pension just yet, but there are advantages to getting started early.
Children get an extra 20% tax relief on contributions, for example, and when they draw the pension after they reach 55 there’s a 25% tax-free lump sum.
You can only contribute up to £2880 per year, however, and they will have to pay income tax when they draw on the pension, apart from the tax-free lump sum.
A reason for setting up a pension that often appeals to parents is their child can take over the contributions when they are 18, which is likely to encourage them to start paying into a pension earlier than they would if they’re left to their own devices. But you must accept the fact that your children won’t be able to access the money for a very long time.
Trust funds
Trust funds aren’t just for people you might consider to be extremely wealthy. They are often set up in order to protect assets on behalf of children because money or property held in trust are legally protected and as they no longer belong to you, they usually aren’t subject to inheritance tax.
A big advantage of a trust over other sorts of investment is you can choose how and when the assets in the trust will be given to your children. This means you can avoid handing over large sums of money or property until they reach the age you feel they will be able to make sound decisions about them. The trustees will take care of the trust until they reach that age.
There are a number of different types of trust, so you can choose the type that meets your needs. A bare trust is relatively simple, for instance, your children would get all the assets when they reach the age of 18. There are other kinds of trust where your children can receive an income, but not touch the assets that generate the income, or trusts for vulnerable people or for non-residents.
Seeking independent, expert and professional advice from a financial adviser as your family grows can ensure you maximise every penny both now and, in the future, giving you peace of mind that your loved ones will always be financially protected. If you have any questions, please get in touch. We’d love to help.
The number of people using equity release schemes fell last year as older homeowners grew more cautious.
Older homeowners seemed to be more reluctant to release cash from their homes in 2020, according to the Equity Release Council. Data from the trade body shows drawdowns from lifetime mortgages fell by 21% last year and 10% fewer plans were agreed than in 2019.
This drop suggests the coronavirus pandemic affected the equity release market in 2020, with activity slipping to a four-year low between April and June. Yet the end of the year was a different story – a backlog of cases meant it was unusually busy, with 11,566 new equity release plans agreed between October and December.
What is equity release?
Equity release enables homeowners who are aged 55 and over to access some of the money tied up in their homes. You can take the money as a lump sum or in several smaller amounts. Many people choose this option to supplement their retirement income, make home improvements or help children or grandchildren get onto the property ladder.
The most common way to release equity from your home is through a lifetime mortgage, which allows you to take out a loan secured on your property, provided it’s your main residence. You can ring-fence some of the property value as inheritance for your family and you can choose to make repayments or let the interest roll up. The mortgage amount, including any interest, is paid back when you die or move into long-term care.
Alternatively, you can take out a home reversion plan, which enables you to sell all or part of your home for a lump sum or regular payments. You can continue living there rent-free until you die, but you’ll have to pay to maintain and insure it. You can ring-fence some of the property for later use. At the end of the plan, the property is sold, and the proceeds are shared according to the remaining proportions of ownership.
Is equity release falling out of favour?
In 2020, £3.89 billion of equity was released from property, compared with £3.92 billion in 2019 and £3.94 billion in 2018, according to the Equity Release Council. These figures suggest people are biding their time before unlocking wealth from their homes, according to David Burrowes, the trade body’s chairman.
Yet interest rates for lifetime mortgages are now falling, which could encourage people to take the next step. The average equity release interest rate fell to around 4% during the last three months of 2020, with the lowest rates now at around 2.3% This rate is less than many of those available on 10-year fixed-rate mortgages, but higher than a lot of products with shorter fixed periods.
Is equity release right for you?
Deciding to release funds from your home isn’t a decision to take lightly. While equity release means you have money to spend now instead of leaving it tied up in your property, it can be a complicated process. Remember that equity release often doesn’t pay you the full market value for your home and it will also reduce the amount of inheritance your loved ones could receive. It’s important to talk to a financial adviser who can help you decide whether the process is appropriate for you.
A Lifetime mortgage is a loan secured against your home. A Lifetime mortgage may affect your entitlement to state benefits, and it will reduce the value of your estate.
You will need to take legal advice before releasing equity from your home as Lifetime Mortgages and Home Reversion plans are not right for everyone. This is a referral service.
Most economists expect inflation to pick up over the next few months as lockdown restrictions ease and shops and restaurants reopen. But is this a cause for concern?
As lockdown measures begin to lift, financial markets are making their adjustments in anticipation of a rise in inflation, with bond yields picking up (meaning prices have fallen) and stock markets rotating from defensive sectors into cyclicals.
What is inflation?
Put simply, inflation measures the change in the prices of goods and services. If it rises then it takes more of our cash to buy things. We all experience inflation in our daily lives, from filling up our cars with fuel, buying groceries or using public transport.
In the UK, the official measure of inflation is the Consumer Prices Index. It’s published by the Office for National Statistics (ONS), which monitors what people are spending their money on, using a basket of everyday goods and services.
The ONS adjusts the basket from time to time to reflect our changing spending habits. During lockdown, there was a shift with products like hand sanitiser and hand wipes being added, and items like white chocolate and ground coffee dropping off the list.
Inflation is all an illusion… or is it?
It’s easy to ignore the impact of inflation on your finances. Most people’s spending habits this month compared with the same time a year ago would probably stick to the same patterns – regardless of inflation at the time – because the differences seem small and therefore wouldn’t affect the way they spend.
If you’re trying to save money though, it’s worth remembering that with interest rates currently lower than the rate of inflation, the real value of any cash savings is falling. In other words, the cost of living is increasing at a faster rate than your savings are growing, which means the spending power of your money is actually falling.
How will inflation affect investments?
Many people in the UK are preparing to spend the cash they’ve saved over the past year when the lockdown ends and shops, restaurants and entertainment venues reopen. Activity is likely to return to pre-pandemic levels and the expectation is that inflation is likely to pick up. Some economists are worried about inflationary pressures. In addition to this is the effect of government stimulus packages on the economy, which would provide another tailwind.
However, experts believe it’s likely to be a short-lived phase and should not pose a longer-term challenge to fixed income or equity markets. The Bank of England does foresee inflation rising towards the 2% mark but believes it will be a temporary phenomenon. Continuing deflationary forces like ageing demographics, technological innovation and global supply chains cast doubt over predictions of a new era of inflation.
Ultimately if you want to beat inflation in terms of finding some good returns on your savings, investing is the best option at the moment – due to cash savings rates being at such low levels.
One of the best ways to ensure your investments are given the strongest opportunity to navigate the effects of inflation on financial markets is through a global, multi- asset portfolio that’s actively managed by a professional team of investors. Speak to a financial adviser to find out more
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
We explore what makes an emerging market and why they can offer attractive investment opportunities.
For example, South Korea is one of the world’s largest and wealthiest nations. Its GDP per capita – which measures economic output divided by total population – was $31,846 in 2019, outranking countries like Spain, which had a GDP per capita of $29,600. Yet South Korea is still classed as an emerging market in many stock market indices, such as the MSCI Emerging Markets Index. So why does the country fall into this category?
Markets have to meet specific criteria to be included in an index based on factors like their size and how easy it is to buy and sell securities. In investing terms, South Korea is not currently considered to be as accessible as its developed market counterparts. While its economy may be stronger than those of some developed markets, its financial markets are less efficient.
In short, financial markets in developing countries are less mature than those in developed countries. This means it’s often difficult to obtain information about companies listed on their stock markets and it may not be as easy to buy and sell shares.
Why invest in emerging markets?
In general, emerging markets appeal to many investors because they offer the potential for relatively high returns – but this comes with greater risk. One benefit is that economies that fall into this category usually experience faster growth than that seen in developed markets.
For example, the economic growth of most developed countries, such as the US, Germany and Japan was less than 3% in 2019. On the other hand, the economies of emerging markets like Egypt, Poland, India and Malaysia expanded by 4%. China, which is also in this category, experienced growth of around 6%.
Many of these countries follow an export-driven strategy due to a lack of domestic demand. This means they produce low-cost consumer goods and raw materials to export to developed markets, driving economic growth and boosting investor returns.
What are the risks?
While emerging markets do offer attractive investment opportunities, investors have to be willing to do the appropriate research to find them. Many of these countries experience high volatility due to natural disasters, external price shocks and government instability. In addition, they’re vulnerable to currency fluctuations, especially in relation to the US dollar.
Recent dollar weakness has been beneficial for emerging markets because the value of foreign-currency denominated assets rises for US investors as the dollar falls. In other words, imagine you’re an American tourist going overseas. When you convert your dollars into foreign currency, it won’t go as far when its value is lower. Another benefit for emerging markets is that a weaker dollar helps them pay off their US-denominated debt.
What are frontier markets?
Frontier markets are smaller, less accessible and riskier than emerging markets, but offer potential for high returns over the long term because they could grow to be much more stable over the next few decades. Examples of frontier markets include Kazakhstan, Nigeria and Sri Lanka.
Emerging markets offer a range of attractive investment opportunities, but you should also be aware of the risks involved. If you’d like to find out more about investing in emerging markets or investing in general, speak to your financial adviser.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
Past performance is not a reliable indicator of future performance and should not be relied upon.
Lenders are now offering a government-backed 95% mortgage scheme to help more first-time buyers onto the property ladder.
The government is hoping to turn ‘generation rent’ into ‘generation buy’ with the help of a 5% mortgage deposit scheme launched on 19 April.
Following the outbreak of the coronavirus pandemic, many lenders withdrew low-deposit mortgages. In just under a year, the number of 95% mortgages available to first-time buyers fell from 391 to just three. It’s hoped the scheme will give lenders the confidence to offer low-deposit mortgages again by taking on some of the risks involved.
What is the 5% deposit scheme?
First announced in this year’s Budget, the programme offers first-time buyers or current homeowners the chance to secure a 95% loan-to-value mortgage on homes worth up to £600,000. It’s available on both new-build and existing properties.
The government hopes the scheme will provide an affordable route to home ownership by helping people who may be renting but are unable to save for a deposit.
Buyers will still only be able to borrow in proportion to their income, typically a multiple of 4.5. As a result, the scheme will particularly benefit buyers in lower-value housing markets such as northern England and Scotland.
There are also a number of lenders offering 95% loan to value mortgages without using the government guarantee. With an ever increasing range of options to consider, speak to your financial adviser about the current range of 95% loan to value mortgages.
What’s the catch?
There are a few conditions that you’ll have to meet under the scheme. You’ll need to:
• Buy a property to live in – second homes and buy-to-let properties aren’t eligible.
• Apply for a repayment (not interest-only) mortgage
• Pass standard affordability checks, including a loan-to-income test and credit score assessment.
It’s worth considering the fact that the higher proportion of the property price you borrow, the higher the amount of interest you’ll repay on your mortgage. So it might be good to take a step back and figure out if you can save for a little longer and borrow less.
Speak to your financial adviser about how the 5% mortgage deposit scheme could help you get on the property ladder.
What does loan to value mean?
Loan to value is the percentage of the property value you’re loaned as a mortgage – in other words, the proportion you’re borrowing. For example, if you have a 95% mortgage on a house worth £200,000, you would put down £10,000 (5%) of your own money as a deposit and borrow the rest (£190,000).
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
Following the news that thousands more people are expected to pay the standard 40% inheritance tax this year because of the effects of the pandemic, we explore some of the ways to navigate the complexities of inheritance tax.
The complex laws around inheritance tax (IHT) caught many people off guard during the Covid-19 pandemic. Along with the often-sudden loss of a loved one came the issues arising from IHT on gifts passed down to children and grandchildren.
This tax year marks the latest in a series where the number of people being charged IHT on gifts has increased. Since 2009, beneficiaries have paid 40% IHT on estates worth more than £325,000.
Gift your way to less inheritance tax
• There are ways to avoid passing on a large IHT bill to your family, whether it’s through gifting or charitable donations:
• You can give away assets or cash worth up to £3,000 a year (known as the annual exemption) with no IHT to pay regardless of the total value of your estate when you die.
• You can give as many gifts of up to £250 to as many people as you want each year – although not to anyone who has already received a gift of your whole £3,000 annual exemption. To make use of this exemption, it’s important to keep accurate records.
• If you are married or in a civil partnership, you can pass on your entire estate to your surviving spouse, tax free, when you pass away. Things could become more complicated, however, if your spouse was born in a different country.
• If you give a gift – of any amount – and live for a further seven years after the gift has been given, the beneficiaries will not have to pay any IHT if you pass away after that seven-year period.
• Leaving money to a charity means it’s free of IHT and could cut the tax rate on the remaining amount in your estate.
Transferring to a trust or pension
Setting up a trust to transfer some of your estate into for the benefit of your grandchildren is another way to reduce the IHT liability on your assets. However, the trustees could still encounter some income or capital gains tax.
While it may not be the most obvious choice, setting up a pension for your children or grandchildren could be a tax-efficient option. The fund will transfer to them when they turn 18 but they won’t be able to access the money until they’re much older.
As with anything tax-related, the rules are especially complex when it comes to where your inheritance goes and how much your beneficiaries will end up receiving.
That’s why it’s so important to speak with your financial adviser to review all your options and find the most efficient ways to pass on your wealth.
Inheritance tax facts
Following the Budget in March, it was announced that thresholds will remain the same for IHT until 2026:
• For single people, the threshold is £325,000.
• For those who are married or in a civil partnership, the threshold is £650,000.
• Couples can also pass on their assets (like an owned home) worth up to £1 million in total if they leave it to children or grandchildren.
To learn more about how to make the most of your money this tax year and for more information about inheritance tax and your tax-free allowances, speak to your financial adviser.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen
Employer pensions can accumulate as we change jobs, and it’s easy to lose track of how much each one contains. We explore what you need to know if you’re thinking about consolidating your pensions.
When you leave a job, it’s easy to forget about the workplace pension you might have had there. With the average person having several jobs during their lives, along with the 2012 introduction of auto-enrolment for employer-based pensions, it’s not surprising that many of us have more than one pension to our name.
Tracking down your old pensions
All pension providers are obliged to send members of their schemes annual statements to keep them updated on how much their pension contains.
The Association of British Insurers (ABI) estimates 1.6 million pension pots worth billions of pounds are forgotten about due to people just moving home. So it’s vital to write to your old pension providers to let them know if your address changes.
The government is in the process of launching a dashboard where all pension providers will be able to input member details, giving customers the ability to see their pensions in one place. But the process will take some years for all providers to supply their data.
Consolidating your pensions
As to whether you should consolidate your pensions into one pot, the first step should be to check the small print. If you have an older pension (around 20 years or older), you could lose some of its benefits if you transfer and be left with steep exit fees taken out of your pension amount.
Unlike older pension schemes, the newer ‘defined contribution’ pensions are more common and less likely to be affected by exit penalties if you want to transfer them into one place. The funds are invested, which makes consolidation an attractive option.
It’s worth noting that if you’re still paying into a defined contribution scheme and want to withdraw from it, the amount you can pay in and claim tax relief on could reduce.
On average, management fees for workplace pensions are around 1%. Newer pensions could benefit from tax benefits that older ones don’t come with, so it’s always worth checking each policy individually and get some advice from a financial adviser.
Leaving older pensions where they are
Along with exit fees and tax privileges, pre-2006 pensions (that were not affected by tax changes established in 2006) could have benefits like guaranteed annuity rates (promising a guaranteed income after retirement), which could be lost if transferred to another pension pot.
Final salary scheme pensions are probably best where they are, too, due to the nature of their payouts when you retire (based on what you earn at retirement.)
Some people opt to create a self-invested personal pension (SIPP), which lets them choose where their pension money is invested. This is beneficial to those who want to put their money into sustainable funds and make ethical investment choices.
Whatever the situation with your workplace pensions, the first thing to do if you’re thinking about consolidation is to speak to a financial adviser. We can help you figure out the best solution for your individual needs.
We all know we need to save for retirement, don’t we? But we also know it’s not always that easy to find the spare cash required to do so, especially amid a global pandemic.
Research studies, though, typically show that many retirees wish they’d saved on a more consistent basis and managed to accumulate a larger nest egg. Mike is one of those people who entered retirement harbouring financial regrets.
Plan? What plan…?
Last January, after working for over 45 years, Mike decided it was finally time to retire. But he soon hit a snag; Mike simply hadn’t thought enough about the detail of how he would finance his retirement. Although he knew the State Pension wasn’t huge, he hadn’t realised just how difficult it would be to make ends meet and found it quite a shock when reality hit home.
And Mike isn’t alone. Research suggests more than a third of over 50s either leave their retirement financial plans until the two years before retirement or don’t plan at all. As a result, many retirees are ill-prepared for what’s to come.
Funding retirement
Many people save for their retirement through a pension. Encouragingly, the introduction of auto enrolment has resulted in a rising proportion of the workforce having access to a pension with research highlighting almost three in four workers are now offered a retirement plan by their employer. Worryingly, though, the self-employed largely seem to be neglecting their retirement needs, with just 16% currently saving in a private pension.
An alternative strategy is to use other investments, such as ISAs. These also offer a tax-efficient savings route and can provide greater flexibility than a pension. There is also a specific type of ISA – Lifetime ISA – that 18 to 39-year-olds can use to accumulate retirement funds. Bricks and mortar can also be a valuable source of retirement income, either by investing in buy-to-let property or unlocking wealth tied up in a family home by downsizing or through equity release.
Advice is key
Like many people, Mike regrets not saving more across his working life and has two pieces of advice for younger generations: start planning your retirement in plenty of time and seek expert guidance on how to best organise your retirement finances.
Retirement should be something we all look forward to and enjoy but, to do so, it’s vital to plan ahead. We can help with all aspects of retirement planning, whether you’re just starting out and want help choosing a pension, or you’re ready to utilise your retirement pot and want to know the most efficient way of accessing the funds. Just get in touch if you need our expertise.
An ISA is a medium to long term investment, which aims to increase the value of the money you invest for growth or income or both.
The value of your investments and any income from them can fall as well as rise. You may not get back the amount you invested
Past performance is not a reliable indicator of future performance and should not be relied upon
Did you know that the State Pension age (SPA) increased to 66 for both men and women in October 2020 and it’s set to rise further? Knowing your SPA, together with how much you can expect to receive, is an important part of your retirement plan that is often overlooked.
Why do I have to wait longer?
In 1908, when the first State Pension was introduced in the UK, you would have to wait until the grand old age of 70 before being able to claim. This was at a time when life expectancy at birth was around 40 years for men and 43 for women, and when only 24% of people reached State Pension age!
As recently as ten years ago, women could claim their state pension at 60, while men had to wait until they were 65, but qualifying ages have now been brought into line. The changes were introduced due to increased life expectancy, as people are now likely to spend a larger proportion of their adult lives in retirement than ever before.
66, 67 or older?
To find out your SPA, visit the government website www.gov.uk/state-pension-age – this will provide you with an exact date. However, you are no longer forced to take your pension at this age, so you could consider working longer if that suits your circumstances.
If you were born after April 1960, your pension age will be 67 and people born after April 1977 will have to wait until age 68 under current proposals, although the government is considering plans for this to be brought forward.
How much will I get? The State Pension is paid to anyone who has made at least ten years’ worth of National Insurance contributions during their working lifetime. The maximum payment is currently £175.20 a week (£9,110.40 a year), but how much you get depends on how many years you contributed for. To check your State Pension forecast, go to www.gov.uk/check-state-pension.
You may also be able to apply for National Insurance credits or pay voluntary National Insurance to boost your State Pension, although the best options will depend on your individual circumstances.
A timely reminder to plan ahead
Why not let the recent increase to the SPA act as a reminder to review all your pension pots, including your State Pension, to consider whether your savings are going to allow you to have the retirement you’ve dreamed of. We can help you get on track, so why not get in touch?
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested
Has the pandemic caused you to worry more than usual about your finances? Well, you’re not alone…
With 47% of respondents to a global survey stating they are less well-off now compared to before the pandemic and 24% worried about job security, it’s clear that the virus is continuing to wreak havoc on our financial – and mental health.
The kids are… not alright
And it’s not just adults who are feeling the pressure – our kids are picking up on it too. According to a monthly study of children’s mental health symptoms during the pandemic, children from poorer households were more likely to be unhappy or worried, or show behaviour such as clinginess or restlessness, between March and October 2020 when compared with other children.
How can I support my child?
Tempting as it is to try and protect children from your money worries, a keyway of allaying their fears is to actually get them involved with the household finances – after all, we tend to fear what we don’t understand. Research shows that children who are exposed to conversations about money and financial responsibility are more confident and tend to do better with money as adults. So, here are some top tips to get your kids on the path to financial success.
Our top tips:
• Regular pocket money – whether it’s £1 or £10 per week, giving children their own money to manage can help foster positive conversations about budgeting, saving and spending
• Reward hard work – offering cash in exchange for household chores is an excellent way to teach children the value of money, i.e., it is something to be earned through work
• Involve them in household spending decisions – whether you’re doing the weekly grocery shop or looking for a new broadband deal, challenge the kids to find better deals! As an incentive, you could even offer them a percentage of whatever savings they make
• Play a board game! – there are plenty of board games that can help kids learn about key financial concepts in a fun way. From Payday, which introduces the concepts of budgeting and living expenses, to Monopoly, which helps kids learn about financial negotiation and dealing with taxes, there are plenty of educational games out there
• Think out loud – talking through any money-related decisions with your children will help them learn by example. Did you just choose a supermarket-own washing up liquid instead of a well-known brand on the weekly shop? Tell them why!
And how can we support you?
Our advisers understand how thinly parents are stretched now. That’s where we come in. Let us shoulder some of the burden so you can concentrate on looking after your family. We can help you explore the available options to get your finances back on track so you – and the kids – can feel positive.
Father’s Day is a chance for fathers, dads, daddies, stepdads, and all the honorary dads out there to feel the love, especially after the year we have had.
Father figures are often relied upon to protect the family and keep everyone safe from harm, and it isn’t always easy. Even dads are only human, after all.
So, what would you say if you had the opportunity to arm yourself with superhero powers, not only on Father’s Day but every day, and make sure your loved ones were always protected?
Who doesn’t like the idea of being a superhero? Whether you yearn for superhuman strength, or the ability to fly or be invisible, the urge to protect and help others can be strong. But before you don your cape and tights, let’s explain how we could give you the power to protect those you love through our life insurance plans.
5 superhero powers within your grasp
Few people get excited about or enjoy paying for insurance, but it does offer valuable peace of mind that everything and everyone will be taken care of, if the worst happens.
Here are 5 superhero powers within your grasp that can make a real difference in a time of need:
1) If you have an accident and need hospital treatment, accident protection will give you a tax-free lump sum in the event of a specified accidental injury, to soften the financial impact while you recuperate.
2) If you fall ill and need to take time off work, income protection will give you a monthly income that takes care of the bills until you get back on your feet; providing reassurance that whilst you are unable to work, you will receive a monthly payment to maintain your financial commitments and personal lifestyle.
3) If you’re unable to return to work after a severe illness, critical illness cover can provide you with a lump sum to repay a mortgage or other debts, pay for life-changing adjustments or replace the income you’ve lost.
4) Life Cover gives you the peace of mind to know if you die unexpectedly the mortgage will be paid off for your family, or there will be a lump sum available to help them with living expenses.
5) Protection can be extended not just to the inhabitants of your home, but also to the bricks and mortar that surround them and its contents with Residential Buildings and Contents Insurance which guards against accidental damage, fire, loss or theft or other unforeseen circumstances.
Granted these may not be the superpowers you see in the films or on the TV, but they can be just as incredible and life changing. Is potentially leaving your loved ones unprotected and vulnerable, a risk worth taking? The good news is – you can rent these superhero powers for an affordable amount each month.
How a Financial Adviser can help you unlock these Superhero powers
Everyone has unique circumstances and so when looking at insurance protection, it’s important you speak with a qualified and experienced Financial Adviser who can help unlock the right superhero power for you and your situation.
A Financial Adviser should firstly gain a clear understanding of your background, gathering the information necessary to put your needs in the context of your current financial situation. There’s no need for superhuman strength or X-ray vision – just a thorough analysis, after which they can create a custom-designed solution for you; ensuring that you and/or your dependents can stay on track and accomplish the things you aim to achieve, regardless of obstacles put in your path.
To unlock your own superhero powers this Father’s Day please get in touch – we’d love to help you.
Nudge theory was popularized in 2008 by behavioural economist Richard Thaler and legal scholar Cass Sunstein. In simple terms it is about making it easier for people to make a certain decision that is ultimately in their own self-interest.
Day-to-day
In the short term there are some financial nudges you can do to apply nudge theory to your own finances.
Put your decisions into context – During lockdown, local or national (or whatever COVID-19 throws at us next) do you really need to buy another plant, candle or pair of joggers.
Set simple and clear goals – A single goal like save £6,000 for a car is much easier to achieve than multiple goals like save for a home, car, and holiday.
Make it easier to do the things you should do (and hard to do the things you shouldn’t) – Putting small barriers in the way of everyday things, like not allowing your browser to remember your PayPal password, makes it harder to spend money and you may ultimately decide not to.
Don’t ignore information and the facts – check your budget, bank statements and accounts regularly.
Long-term
Do you like going on holiday, eating out and enjoying your hobbies? If so, it’s likely your ‘future self’ will too. Far from sitting in an armchair in your carpet slippers and a tartan blanket, it’s much more likely that your future self (who is, after all, still you) will want to enjoy their retirement in style.
So, what’s the dream? Well, according to research from Aviva, almost half of people want to travel when they retire, while taking up a new hobby and helping their children and grandchildren out financially come second and third on the list – all suggesting that people want to live their lives to the fullest in their later years. Unfortunately, translating the dream into reality is where it falls apart for some – 23% of people think their retirement is likely to be a financial struggle.
Living the dream
A study has hit on a novel solution to the problem – ‘nudges’. In other words, by making small behavioural adjustments to your spending habits, you could enjoy an additional £7,000 every year in retirement income.
The key lies in encouraging young people to imagine themselves in the future, rather than viewing their ‘future self’ as a different person.
Understandably, a lot of young people are focusing on their current financial priorities – after all, we’re in the midst of a global pandemic. But that doesn’t mean your future financial needs have gone away. So, rather than thinking of your ‘future self’ as a stranger, treat your pension like a gift you’re giving yourself – you just can’t open it yet!
Get nudging
COVID-19 hasn’t given us many silver linings but reduced living expenses due to remote working and the closure of bars, restaurants and other leisure and hospitality businesses could provide a welcome boost to our savings.
Similarly, you could save around £40 a month by keeping going with the home workouts, like the 72% of people who say they have no plans on going back to the gym. In addition, many kids’ clubs have yet to start back up following lockdown, so parents could be making big savings here, too.
Save on subscriptions
Foregoing the latest iPhone could also save you a hefty sum. Keeping your existing handset instead, and switching to a SIM-only deal, could help you move some welcome funds into the pension pot.
Or, you could divert an average £39 per month in wasted subscriptions into your pension. Unused gym memberships, phone contracts and subscriptions to online video streaming services are all common culprits, according to research.
Expert ‘nudgers’ at your service
If you need a ‘nudge’ from us to help boost your retirement income, we’re just a phone call away.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
As we slowly emerge blinking into the sunlight from winter, and, cautiously from lockdown (data permitting), there is a feeling of new beginnings all around. There’s lots of reasons to be hopeful, with light at the end of, for what has been for many, an exceptionally long tunnel. So, with spring burgeoning, harness that positive energy and kick off the new tax year with a plan to refresh your personal financial planning. Now is both a sensible and practical time to speak with a financial adviser to best consider your post-COVID-19 financial future…
The impact of COVID-19 on personal finances
The last 12 months might have impacted your personal finances in unexpected ways. If your income has been affected, you might have concerns about how to manage your existing financial commitments or whether your future retirement pension pot will now be sufficient. Alternatively, you might have been able to increase your savings during this period and now wish to invest, or you are frustrated with low interest rates and seeking alternative options to make your money work harder for you.
Many families have devastatingly lost loved ones during the last year and this sad news might influence your desire to put in place, or review, your personal insurances and estate planning to protect yourself, your family or your estate. If you have suffered a close bereavement, you might have inherited capital or property which you are unsure what to do with.
We understand every client is different. We always begin by making sure we have a clear understanding of your background and circumstances, to put your needs in the context of your current financial and personal situation. It is only then that we can properly advise on the right solution for you.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
New horizons
Covid-19 has been a catalyst for employers and employees alike to re-examine their position on working from home. This might mean that after 12 months of working off a cramped kitchen table you are thinking that now might be the time to look for a new property; one with the prospect of dedicated home office space. Or, if you no longer need to be tied to a commutable location, your relocation to another part of the country could be looking less like a pipe dream and more like a reality. Or, you might need to review your current mortgage deal to balance out a change in your financial commitments. Whatever your mortgage dilemma or dreams, a financial adviser can scour the entire market on your behalf, to match you with the most suitable and competitive lender and product for your individual circumstances.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
Why now is a good time to talk with a personal financial adviser
Why is the start of a tax year a good time to speak with your financial adviser? Firstly, everyone is allocated tax-free allowances each tax year; everything from income, to savings, to pensions, to gifts so you want to make sure you are maximising these. The Chancellor’s newly unveiled budget might also impact your planning for the next few years. A financial expert can help you to understand all of this in the context of your own financial planning, and assist you to navigate your way through this tax year and save you money.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen
Our team is experienced in help our customers to plan their finances and protect the financial security of their families long into the future. We are committed to giving personal, face-to-face and obligation-free financial advice, built around you and your circumstances. If you don’t have a financial adviser please get in touch and chat to us – we’d love to help.
Throughout our lives, it is highly likely we will need to take financial decisions that can have a major impact on our wealth, such as taking out the right pension plan, or investing wisely for the future. Over the years, research has produced some interesting findings that highlight the benefit of advice when taking major financial decisions. Those who take advice are likely to accumulate more financial and pension wealth, supported by increased saving and investing in equity assets, while those in retirement are likely to benefit from more income.
Advice is key to achieving your financial resolutions
A new study has found the likelihood of success in this area is heavily linked to receiving professional advice and the establishment of clear financial objectives. The research provides a measure of the value attributed to advice when it comes to helping investors achieve their goals.
The research, based on data relating to more than 100,000 advised investors, found that 8 out of 10 people with a defined retirement goal, had at least an 80% greater probability of achieving their financial objectives.
Create a financial plan to secure your financial wellbeing
The study clearly demonstrates how taking expert advice and constructing a tailored plan can significantly boost an investor’s financial wellbeing. Not a surprise, as the benefits associated with financial planning are renowned and abundant.
The value of financial advice comes in different guises and can include better return on investment, peace of mind, accomplishing goals and understanding opportunities. This combines to create future security, ultimately making sure you have enough money.
Discussing your financial objectives with us enables you to consider exactly what you want to achieve and establish clear goals that are both realistic and achievable. Regular financial reviews provide opportunities to monitor progress and adapt plans where necessary. Good financial planning can mean investments are tax-efficient by minimising both current and future tax liabilities.
It’s good to talk, we can help
This study once again reiterates the significant value that can be gained from seeking professional financial advice.
We can help manage the inherent volatility of markets, so your savings have the best chance of growing for the future – without giving you sleepless nights in the process and help make sure you aren’t taking too much, or too little, risk with your money.
The value of your investments and any income from them can fall as well as rise and you may not get back the original amount invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Are we working from home? Or living at work? With so many of us struggling to find the right balance, we took a look at how you can manage your working life, and set up your home to maximise productivity and relaxation.
A few weeks ago, we attended the Mortgage and Protection Roadshow. Typically held in a swanky conference centre somewhere in the city, it’s an opportunity to meet face-to-face with peers, to learn about the new trends in the industry, and to have a day out of the office.
Of course, it was very different this year. Keynote speeches were delivered over Zoom, coffee breaks were a solitary affair, and the closing drinks reception was replaced by hurriedly checking up on email.
Far from an event that punctuates our usual working routine, allowing for personal and professional development, it just felt like another day in front of the laptop.
One of the speakers asked us a question that perfectly distilled the average experience of today’s office worker.
‘Are you working from home? Or living at work?’
For many of us, the novelty of home working was new at first. A study of UK workers conducted by YouGov in September 2020, found that 68% of UK workers had never worked from home prior to the Covid-19 pandemic. That same survey found that just under half (48%) of respondents are now working homeworkers in some shape or form.
For the uninitiated, we assumed that working from home would be a doddle. No commute, long walks with the dog over lunch, replying to emails in bed.
The reality hasn’t proven to be quite so idyllic. Our personal and professional lives have become inexorably intertwined. Homeschooling and chores have dented our productivity, while an ‘always-on’ culture has left many people reaching for their computers well outside of office hours.
Research conducted by LinkedIn and The Mental Health Foundation found that the average UK employee worked 28 hours of overtime in April 2020. This in turn, has led to line managers reporting higher cases of burnout, both within themselves and their reports.
Despite these worrying statistics, the majority of UK workers (57%) want to adopt a ‘hybrid’ working model at the conclusion of the pandemic, splitting time between their home and the office. How can these workers maintain a healthy work/life balance in this new paradigm?
Maintaining work/life balance
While there have been inevitable teething problems, the fact remains that working from home offers a great opportunity for a healthy work/life balance. Here are some key tips for finding equilibrium in your day-to-day:
- Exercise: Filling your lungs with some fresh air, or stretching your body with some lunchtime yoga is a great way to break up the day, and relieve stress. Moving for 30-60 minutes at least three times a week, has significant benefits for your health, motivation and resilience.
- Creating space for work: While some of us will be blessed with a home office, many workers will be scrabbling around to find space to work. Rather than slouching over a device on the sofa, try and create some space that is just for productivity. Even if it’s just a desk and a suitable chair for work, delineating this space will help you save other areas for relaxation.
- Switch off: As much as we like to badmouth the dreaded ‘commute’, our journeys in and out of work provided us with a clearly defined start and stop to the working day. Try and recreate that feeling by turning off your work devices, and not checking email.
- Stick to a routine: Furthemore, sticking to a routine will help you carve out time for work and for relaxation. While it may be tempting to stay in bed for that extra half hour, it could have a knock-on-effect that means you’re working long into the evening.
Are you claiming tax-relief?
Further to the question of work/life balance, many homeowners will be noticing their bills rising. The bitter cold and dark days, coupled with restrictions, has understandably seen bills rocket. The third lockdown saw arrears with gas and energy providers increase by 40%. What can homeowners do to soften the blow of increased utilities costs?
The self-employed will be well-versed in this. Sole traders or owners of limited companies that work primarily from home can claim their utilities bills back as expenses, either at a flat rate per month, or as a percentage based on the usage of their property.
For example, if you live in a flat with five rooms, and use one of those rooms for work, you can claim up to a fifth of your energy and heating costs as a business expense. Speak to your accountant to find out how you can save more on these expenditures.
For employees on PAYE, claiming tax-relief might be a completely new experience. The government announced in June 2020, that PAYE employees can claim back up to £6 per week in tax relief, to cover the costs of working from home. This covers costs including heating, metered water bills, home contents insurance, business calls or a new broadband connection.
This relief will be calculated on the current rate of tax you’re paying. For example, say you currently pay 20% income tax, you will be granted relief on 20% of that £6, equalling £1.20 per week.
Options for homeowners and first time buyers
Government interventions have also led to a spate of activity in the property market, despite the economic downturn.
The Stamp Duty holiday, meaning the tax was only paid on properties costing more than £500,000, rather than £300,000, has saved first-time buyers as much as £10,000. This freeze is due to end in March 2021, but could be extended, as recent research suggests it could save buyers a further £1bn across the country. Either way, time is short for people looking to get their foot on the ladder, and enjoy their own space to both live and work.
For those that are looking to upsize, an extension to the holiday could also be of benefit. Not only does the Stamp Duty holiday allow for potential savings, but an influx of buyers into the market offers a great opportunity to sell before an uncertain future for the market and the economy in general.
If moving isn’t on the cards, but you need that little bit of extra space, releasing equity on your home could be the answer. Improvement projects such as a garden office, or an extension, offer a solution to your home working needs, and add value to your home.
Nowadays, more than ever, it is important to show our loved ones just how much we appreciate them. On Mother’s Day this year, as we reflect on the last 12 months, you may wish to show your appreciation and demonstrate your love and affection for your Mum, Grandma, Spouse, Sibling, or someone else dear to you. Now what if we told you, you could get your hands-on Superhero powers to make sure these loved ones were always protected?
We all like the idea of being a Superhero and having the ability to do amazing things to help those around us. Well, you could make it a reality, and without being bitten by a radioactive spider, hit by a strange space mist, or hailing from a different planet.
We could give you the power to protect those you love through our life insurance plans. Regardless of your wealth, insurance is a necessity to protect yourself, your family or your estate.
How do these powers sound to you?
- If you die unexpectedly the mortgage will be paid-off for your family, or there will be a lump sum available to help them maintain their lifestyle.
- If you survive following a severe illness which leaves you unable to return to work, a lump sum can be used to repay a mortgage, pay for life changing adjustments or replace the income you have lost through your illness.
- If you fall ill and need to take time off work, you’ll have a monthly income that takes care of the bills.
- If you have an accident and need hospital treatment, money will be paid into your bank account to help soften the financial impact.
Okay, so you won’t have superhuman strength or be able to outrun a speeding train, but they’re useful powers for your family.
How a Financial Adviser can find the best superpower for YOU
Every one of us has entirely different circumstances and so when looking at insurance protection, it is definitely not a case that one size fits all. A Financial Adviser will firstly gain a clear understanding of your background, gathering the factual information necessary to put your needs in the context of your current financial situation.
After a thorough analysis, a custom-design solution for you is created; ensuring that you and and/or your dependants can stay on track and accomplish the things you aim to achieve, despite the obstacles put in their path.
You might be surprised how little it could cost to become a superhero. There’s no need to be a heroic billionaire looking to save the city with an arsenal of high-tech gadgets; you can buy your superpowers for an affordable monthly amount.
All you need is a qualified and experienced Financial Adviser to understand your personal financial circumstances and work with you to select the best insurance protection plans for you and your loved ones. To get your hands on your own superpowers this Mother’s Day please get in touch – we’d love to help you.
You’ve retired from work, you’ve waved a cheerful goodbye to your colleagues and you’re ready for the rest and relaxation you so rightly deserve. It’s exciting! For a couple of weeks. Then the doubt sets in.
What will you do with your life, you might find yourself asking? How will you fill the long daytime hours? How will you manage without the comfort of your routine? Where will you find your purpose, if not from work?
Planning – it’s not just financial
Whenever we talk about retirement, it’s all about the pension. If you have enough in your pension pot when you retire, you’re all set, right?
Many retirees simply aren’t prepared for how significantly their life will change, and many, while not missing work per se, will certainly miss the sense of purpose it offered. And, with life expectancy on the rise, it’s daunting to contemplate the next 20 to 30 years without any of the structure around which you’re used to organising your life.
‘Reinvent’ yourself
A European study funded by the Erasmus program argues that we should start preparing for retirement as early as 50. Suddenly stopping work after spending a lifetime focused on your career, it argues, can be the catalyst for depression and other mental health issues. That’s why we need to ‘reinvent’ ourselves in our 50s by discovering new passions and interests, improving our mental and physical health, and generally forging a life for ourselves outside of work in the run-up to retirement.
So, what steps can you take to prepare for a happy retirement?
Happy, healthy, whole
Retired or not, you’ll still want and need similar things in life: a sense of purpose, social interaction and activities that interest and stimulate you. With this in mind, here are our tips for preparing for a fulfilling retirement:
Wind down in stages – rather than going from full-time to retired overnight, why not try reducing your hours first, giving you the fulfilment of work combined with the free time to pursue other interests?
Exercise your body – and your mind – experts have long extolled the virtues of exercise for our physical and mental health. Getting into the habit now could really help your emotional state when you retire.
Be a social butterfly – in addition to solitary hobbies and interests, joining groups and clubs can help you develop social networks outside of the workplace.
Get a furry friend – as well as keeping you company indoors, a pet (such as a dog) will give you an incentive to get outside in the fresh air.
Don’t neglect your pension – while preparing emotionally is a big part of retirement, the money still has to be there to allow you to live life to the fullest.
Would equity release be right for you? A way of supplementing your retirement income using the value tied up in your home, although not right for everyone, we can help you explore your options.
We do the finances, you do the rest
That’s why we’re here! We can help you sort out the financial stuff to provide you with the resources to spend your retirement free from money worries, so you can concentrate on enjoying your later years. Why not give us a call?
You will need to take legal advice before releasing equity from your home as Lifetime Mortgages and Home Reversion plans are not right for everyone. This is a referral service.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
With Covid-19 rules changing almost daily, extensions to furloughs and local and national lockdowns many are facing money worries this winter. If you’re trying to get a mortgage and want to push your property transaction through before the Stamp Duty holiday ends, how do you prove your income – especially if it has temporarily been reduced due to furlough or short-time work?
For those who remain on furlough or have otherwise seen their income temporarily reduce, providing proof of income to mortgage lenders now presents a serious challenge. Many mortgage providers have tightened their lending criteria, especially for furloughed workers, amid concerns of future job losses.
CASE STUDIES
An employed restaurant manager
Sally works as a restaurant manager and is looking to buy a house with her partner, Nathan. Since July, Sally’s employer has brought her back to work on part-time hours and furloughed her for the remainder. Nathan is employed at a marketing agency and is working remotely on full pay. As a result, their prospective lender has asked for the following as proof of income:
— Three months’ payslips and two years’ P60s (these are standard requirements, although some lenders may accept less)
— Three months’ bank account statements
— For Sally, the lender has also asked for a reference from her employer to confirm the date she will be returning to full-time work.
Sally does have three months’ worth of payslips to give to her lender, although these show her reduced furloughed salary, rather than her full salary. As a result, it is likely the lender will use this figure to calculate affordability for her.
A self-employed graphic designer
Dan works for himself as a graphic designer. He has seen his income dip significantly since the onset of the pandemic, with clients delaying or cancelling many projects. After confirming to HMRC that his business had been adversely affected by the crisis, he applied for and received a grant under the Self-Employed Income Support Scheme (SEISS).
Just before the pandemic began, Dan had been looking to buy a flat, but getting a mortgage has since become a lot more difficult. His prospective lender is now asking for:
— Three years’ full business accounts, signed off by a Chartered accountant
— Three years’ SA302 year-end tax calculations and corresponding tax year overview from HMRC
— Most recent three months’ bank statements.
In order to make it more likely that his mortgage application will be accepted, Dan is also hoping to approach some of his clients to ask them for references, stating the work they are likely to have for him over the next 12 months.
Assessing your options
Without a doubt, it is more challenging for some people to get a mortgage at present, given the increasingly stringent affordability requirements that many lenders are introducing – so it’s likely you’ll be wanting a little extra help! Whether you are buying your first home, taking a step up the property ladder or looking to downsize, don’t worry, we’re here for you.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
14 reminders this Valentine’s Day to make sure your loved ones remain protected when your circumstances change
Love is all around this Valentine’s Day and we’re here to remind you that it’s important to make sure your loved ones are always protected, year round.
You’ll typically encounter opportunities and milestones throughout your life which will shift your priorities and circumstances, both professional and personal.
It’s vital to ensure your personal financial planning remains in sync with these changes to protect the loved ones in your life.
So, as we celebrate Valentine’s Day on the 14th February, here are 14 personal finance reminders to keep in mind as your personal circumstances evolve.
Just the two of us
Entering a marriage or civil partnership may be the ultimate gesture of love but making sure your new partner is adequately protected should be at the top of your to do list:
(1) Update your estate planning by reviewing your will and named beneficiaries or executors to reflect your new priorities.
(2) Now there are two of you to think about, insurance protection is a necessity to make sure your other half is looked after whatever life throws at you. Life Cover, Income Protection, Critical Illness and Accident Protection will provide peace of mind.
(3) As you merge households with your new spouse, you might consider purchasing a new home together, or retaining a previous property as a rental source of income. So, whether it’s a re-mortgage or buy-to-let, identify the best mortgage product on the market to fit your new combined personal and financial circumstances.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Some let to buy mortgages are not regulated by the Financial Conduct Authority
(4) Plan for the future and not just for the now. A pension pot is a tax efficient and effective way to save for retirement. This will now include another person, so review the level of income you will need to live off and how much you can afford to set aside to achieve this.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
And then there were 3…or 4 or even more…!
Starting a family means planning for the future becomes omnipresent. As images of your newborn heading off to university or getting married flit through your mind, it is never too early to put plans in place to protect them:
(5) Make informed investment decisions on tax efficient savings that grow with your children or regular savings for future school or university fees.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen
(6) Safeguard against the unthinkable by revisiting your estate planning and name guardians for any dependent minors when revising your will. Find out whether a trust can best protect your new minor beneficiaries.
(7) Your household income will inevitably change as your family does – you or your partner may change your working hours to raise children or your disposable income may reduce due to new childcare costs. Revisit your existing investment and insurance commitments and adjust these to accommodate your change in circumstances.
(8) Children invariably require more space, so whether yours is a brand-new family or two blended families, it’s likely that you’ll need to upsize the family home sooner rather than later. Seek the right mortgage product and deal based on your new circumstances.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
(9) Now you have more family members who depend upon your income, it’s important to have the confidence that you’ll always be able to provide for them. As you climb the housing and corporate ladders, your financial footprint may grow. Make sure your insurance protection grows with it. This will ensure your loved ones are not only financially stable but also protected from unnecessary inheritance tax.
The path to the golden years and beyond
With retirement on the horizon and your family expanding with a younger generation, make sure your personal finances continue to enable, provide and protect your loved ones:
(10) Explore the most effective and tax efficient way to start withdrawing from your pension pot. Make sure it’s ready and accessible when you need it and properly maintained to provide the income you need.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
(11) As you approach retirement and consider downsizing to a smaller property or releasing equity for the next stage in your life, identify the right mortgage product to realise this.
You will need to take legal advice before releasing equity from your home as Lifetime Mortgages and Home Reversion plans are not right for everyone. This is a referral service.
(12) Plan your estate with expert advice to ensure your assets reach your chosen beneficiaries whilst also minimising or eliminating inheritance tax liability.
(13) When Grandchildren or even Great Grandchildren arrive, revisit your investment opportunities for a tax efficient way to provide financial support or a lifetime gift.
(14) Review your will to update it with the arrival of these exciting new additions to your family. Make sure they’ll receive the assets you choose for them; sentimental, valuable or both.
So, this Valentine’s Day whether you’re planning for a new partnership, addition to your family or step on your journey – remember these 14 reminders to keep both your personal finances and your loved ones protected.
Seeking expert and professional advice from a financial adviser as you navigate life when your personal circumstances change can ensure you maximise every penny both now and, in the future, giving you peace of mind that your loved ones will always be financially protected. Please get in touch, we’d love to help.
As a nation, we aren’t great with our financial acronyms and terminology. Life is busy and our heads are often full of important things to get done to make it through the week, without having to worry whether we know our LTV from our ERC!
You’re certainly not alone if you’re feeling financially flustered. Recent research has found that more than a fifth of British adults are confused by everyday financial terms.
Worth taking the time to review your mortgage
When you do find some time to settle down on the sofa with a cuppa or a glass of wine in hand, if you are a mortgage holder, it could be a good time to become familiar with one important acronym worth knowing – SVR or Standard Variable Rate.
You may find that you are automatically switched to an SVR when your existing mortgage deal, whether that be a tracker, fixed rate or discounted mortgage, comes to an end. Unfortunately, this could mean you’re paying over the odds, perhaps without even realising.
SVR rarely offer the most competitive rates and the SVR interest rate is usually linked to a percentage above the bank’s base rate, meaning the rate can rise and fall, which makes you more vulnerable to potential interest rate rises in the future.
Take advantage of record low mortgage rates
After two Bank of England base rate cuts earlier this year, mortgage rates have remained at record low levels, so it makes sense to see if you can save money by switching to a better rate.
Good advice that cuts through the jargon
In a complex environment, getting good, clear advice can really pay – so get in touch and we’ll guide you through the process, without using jargon.
Don’t worry if you’re currently locked into a mortgage deal that has exit charges, you don’t have to wait until it has come to an end as your adviser can help you find a deal three or six months before your lock-in period finishes.
Incase you were wondering….
LTV – Loan-to-value
ERC – Early repayment charge
SVR – Standard variable rate
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Wherever you go, you’d be hard pressed to find a house without at least a little bit of clutter.
From the kids’ old teddies (well, they might want Ed the Ted for their own children, you see) to receipts from the 1980s (they might take it back after 40 years), attics and basements across the UK are full of what optimists might call ‘keepsakes’ and what others would probably call ‘junk’.
But is it always? If Flog It or Cash in the Attic are anything to go by, our houses are literal gold mines of undiscovered treasures, just waiting to be found amongst the everyday bric-a-brac.
What could your attic hold?
Over the years, some truly priceless artefacts have been uncovered in the homes of unwitting residents. Here’s a list of some of the oddest – and most valuable.
An ‘old box’ that was more than it seemed
A battered looking wooden box, used as a TV stand by an elderly gentleman, was discovered upon his death when his house was being cleared out. This unassuming item turned out to be an ancient Japanese Mazarin Chest, and is valued at a staggering £6.3m.
Rare rugby memorabilia
A treasure trove of extremely rare rugby kit and memorabilia from the turn of the 20th century (including an England shirt from the first ever game in Twickenham in 1910) was found languishing in a dusty box by the great grandson of rugby player and WWI hero Charlie Pritchard. The priceless items are currently on loan to the World Rugby Museum in Twickenham.
Priceless Indian artefacts
The ancestors of a British army officer were amazed to discover a cache of Indian arms taken from a Sultan’s palace at the turn of the 19th century. Wrapped in newspaper and discovered in a dusty Berkshire attic, the weapons, including an ornate, gold-encrusted sword and a gun believed to be the one fired by the ‘Tiger of Mysore’ himself in his final stand against the British in 1799, are expected to fetch millions at auction.
Time for a clear out?
If you’re feeling galvanised into a spring (or winter) clean, then be careful what you chuck out! You too could be sitting on a valuable treasure.
Don’t be underinsured
Have you reviewed your home contents insurance policy and make sure you’re covered for everything you own – including the contents of your attic and basement.
Get in touch with us and we can help find a contents insurance policy that suits your needs. In the meantime – we’re off to watch Antiques Roadshow!
If you are nearing retirement, you may have been particularly worried about the impact of recent market volatility on your pension assets and perhaps you are reassessing your retirement plans. There are several things to consider if you are planning to retire, which will depend very much on your own circumstances.
Since pensions freedoms were introduced in 2015, there are many more options available to retirees. Sudden retirements used to be the norm. People would stop work completely one day and be fully retired the next, perhaps receiving a regular income from an annuity. It is now possible to take a more gradual journey into retirement – making use of this flexibility in how you draw funds could be sensible in times of uncertainty.
Consider your timescales
If your planned retirement is 5 to 10 years away, there is a reasonable time for your savings to recover from the recent market volatility, but you should still take action:
- Review your retirement age.
- Consider increasing your pension contributions.
- Talk to us about your attitude to risk and appropriate fund switches.
If you have less than five years to retirement, your pension pot may not have been exposed to market volatility as much as you think. You may have benefited from a lifestyle option on your pension which is designed to ‘lock in’ investment growth as you approach retirement, by switching funds to less risky assets. This option is not suitable for everyone, particularly if you intend to keep your pension pot invested and use income drawdown to give you an income in retirement.
If you are retiring this year and your pension pot has taken a hit, you could consider delaying retirement until markets recover, but this may not be an option for everyone.
Advice is key
One of the biggest risks in uncertain times is to act in haste and make rash decisions.
Getting financial advice is crucial in making the right decision. We can help you consider all your options, including reviewing whether any other assets could be used to provide an income, so that your pension stays untouched.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
The coronavirus outbreak is having a widespread impact across all aspects of our financial life, with many people finding their income reduced. At times like this it can be challenging to stay focused. No matter what age you are, now is not the time to neglect your pension. Try your very best to keep your pension planning and contributions on track – don’t allow the pandemic to cast a cloud over your long-term plans.
It’s never too early to start saving into a pension…
You should start saving for retirement as soon as possible, as the sooner you begin, the longer your savings have to grow. Other financial challenges can make this difficult but investing regular amounts in a pension throughout your working life gives you the best chance of enjoying a prosperous retirement.
…but better late than never
Don’t think it’s too late to start saving for your retirement. The favourable tax treatment pensions enjoy and their potential for investment growth, means any contributions you make later in life can still make a huge difference to your standard of living in retirement.
Take control of your retirement
When you reach 55, it’s important to carefully consider what you can do with your pension pot. For instance, you could keep your savings invested, take a cash lump sum, draw a flexible income (drawdown), buy a fixed income (an annuity), or a combination of these. While this flexibility may enable you to retire earlier or semi-retire, it’s vital you take full control of your retirement options at this stage. This should include seeking advice to discuss the pros and cons of the different avenues available to you.
Know your numbers
You can contribute as much as you like into your pension, but there is a limit on the amount of tax relief you will receive each year. The Annual Allowance is currently £40,000, or 100% of your earnings, whichever is lower. You can, however, carry forward unused allowances from the past three years, provided you were a pension scheme member during those years.
For the 2020-21 tax year the Tapered Annual Allowance limits altered. The Threshold Adjusted Income limit is £200,000 and the Adjusted Income Limit is £240,000. If your income plus pension contributions exceeds the Adjusted Income Limit, your Annual Allowance is reduced by £1 of every £2 you are over the Adjusted Income Limit. A Lifetime Allowance also places a limit on the amount you can hold across all your pension funds without having to pay extra tax when you withdraw money. This limit is currently £1,073,100.
Get good advice
Retirement planning is never a case of ‘one size fits all’. It is vital you obtain sound financial advice tailored to your individual needs. We offer advice and help with all aspects of pensions and retirement planning, whether you’re just starting out and want help choosing the most appropriate pension products, or you’re approaching the stage of life when you need to utilise your pension pot and want to know the most efficient way to access your funds. We are here to help.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
There are 4.8 million self-employed people in the UK and only a third have any kind of pension arrangement. A shocking statistic when you consider that State support is shrinking and we’re all living longer. Saving for a pension when you’re self-employed is not as straightforward as it is for an employed person, who might automatically benefit from a workplace scheme and employer contributions. We’ve outlined some key points for you to consider.
Don’t rely on the State Pension
Whether you’re employed or self-employed you’re entitled to the full basic State Pension (currently £175.20 a week) if you’ve paid in 30 years of National Insurance Contributions. If you’re self-employed you can only claim the additional State Pension if you’ve had periods of employment. On its own State support is unlikely to enable you to continue your current standard of living into retirement. That’s why it’s imperative for the self-employed to find other ways to provide the additional income needed in retirement.
Start saving early
It’s stating the obvious, but the sooner you start saving into a pension the bigger your potential retirement fund. You’ll also have more time to benefit from the tax relief that’s available.
To highlight the importance of saving early, a 25-year-old male looking to retire at 68 would need to contribute £236.25 per month in order to achieve a retirement income of £17,500 a year. If the same man had waited until he was 45 before he started saving, he would need to contribute £495.83 to achieve the same level of income, an additional £259.58 per month.
Minimise the amount of tax you pay
One of the main benefits of paying into a pension is the tax relief the savings attract. For example, if you’re a basic rate taxpayer and pay £80 into your pension you effectively end up with £100 to invest. The maximum amount you can save each year that attracts tax relief (otherwise known as the annual allowance) is £40,000, or 100% of your annual earnings, whichever is lower. Importantly, if your income is low and you’re not able to save the full £40,000 in one tax year, you can carry forward any unused allowance, and use it towards contributions in the next tax year.
Please note:
• You must have been a member of a registered pension scheme during the years you want to carry forward
• Your tax relief is limited by your annual earnings in the year you want to carry forward
• You can only carry forward unused allowance from the three previous tax years
What type of pension is right?
The self-employed can choose from a range of different pension products, including stakeholder pensions, personal pensions and Self Invested Personal Pensions (SIPPs). Each has its advantages and disadvantages – we can advise on which is best for you.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes, which cannot be foreseen.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
Complex tax-efficient investments such as Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT) are a consideration for those who may be able to tolerate a high level of investment risk.
EIS and VCT are investment vehicles which encourage investment in small, unquoted trading companies in their early stages, who are typically trying to raise capital. These initiatives benefit the economy by promoting innovation amongst the small higher-risk business community, which in turn drives productivity, creates jobs and boosts economic growth.
Since their launch in the 1990s, they have become popular features on the investment landscape. Both schemes still provide an attractive proposition for experienced investors today, looking for the chance to invest in new businesses with the added benefit of portfolio diversification.
High volume of inflows to the small business sector
The schemes have proved successful in terms of generating cash for the small business sector. Data shows since their launch in 1994, over £20bn of funds have been raised through the EIS scheme, with 29,770 individual companies benefiting from investment. VCT have had a similarly positive impact, raising £8.4bn of funds since their creation in 1995.
How do they work and how much can I invest? In the case of the EIS, investors typically purchase shares directly in firms. VCT are listed companies that allow investors to spread the investment risk over a number of companies by subscribing for shares in the VCT itself, a similar approach to investment trusts.
Currently both offer 30% tax relief and tax-free capital growth, provided an EIS investment is held for at least three years and a VCT for five years. The maximum amount anyone can invest in an EIS is £1m per tax year, or £2m, as long as at least £1m of this is invested in ‘knowledge intensive’ companies. Individuals can invest up to £200,000 each fiscal year in new shares issued by a VCT.
Potential risks
While there are plenty of benefits associated with these schemes, they are only suitable for investors who are comfortable holding high-risk investments. This enhanced risk element stems from the fact that EIS and VCT invest in small, fledgling enterprises.
Although some of these companies will flourish and deliver strong returns, some will fail. As a result, these schemes have a high-risk profile, which is something any prospective investor needs to carefully consider. EIS and VCT investments are only suitable for a relatively small proportion of an investor’s overall portfolio. As these schemes invest in small companies with shares that are illiquid, they can be hard to sell.
As long as the risks are fully understood, these schemes are worth considering for investors seeking a long-term investment that maximises tax-efficiency and provides portfolio diversification.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes, which cannot be foreseen.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
Why you should consider modernising your pension
As well as giving you greater freedom over how you access your savings, there are several other benefits when modernising your pension:
— Take full control of your pension savings
— Choose when and how to draw an
income to suit your retirement planning
— Keep your options open for
drawing an income in the future
— Optimise your tax efficiency –
both on any money you might leave invested, and Inheritance Tax.
If your pension plan does not offer all four of these options, then you should think about switching it.
What else do you need to think about?
There are other factors to take into
account when switching to a modern pension.
Firstly, the chances are the costs will increase. You may end up paying as much as an extra 1% of the value of your savings annually. So, if you have saved £200,000, your provider could charge up to £2,000 more per year. And if you seek financial advice, your adviser may also levy a fee, either upfront or as an ongoing service charge. These additional fees eat into your pot, but you could equally benefit from the flexible access as well as greater visibility and control.
Another consideration is tax. Regardless of whether you stick with your current pension or switch to a modern one, your income – other than the first 25% of a partial or whole lump sum- is subject to your highest rate of tax. Seeking professional advice can help you access your savings in a tax-efficient manner.
There is certainly, plenty to consider and it is wise to regularly explore your current and potential retirement routes.
Thanks to pension freedoms introduced in 2015, savers over 55 have a wide range of options when it comes to drawing from your savings, and this brings opportunities although it’s also easier to make a mistake.
There are now essentially four main ways for you to access your pension savings:
1. Buy an annuity which guarantees an income, typically for the
rest of your life but in some cases for a fixed period
2. Flexi-Access Drawdown allows
you to withdraw from your savings when you need to, while the balance remains
invested
3. Take it all out as cash with
the first 25% tax free and you pay income tax at your marginal rate on the
rest, although you may face a hefty tax bill the following year
4. Take part of it out as cash
with the first 25% tax free with the rest taxed at your marginal income tax
rate. You can do this as many times as you like until you no longer have any
pension savings.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Information contained in this article concerning taxation and related matters are based on Openwork’s understanding of the present law and current legislation.
The sooner you start saving, the healthier your pension pot is likely to be when you need to draw on it.
But what happens to your pension planning if your working hours reduce, or stop?
First things first
If you join a company you may be enrolled into their workplace pension scheme which, in most cases, your employer will also pay in. The self-employed, on the other hand, should set up a personal pension, which come in the form of a basic personal pension, stakeholder pension, or Self Invested Personal Pension (SIPP).
Workplace pension schemes will have minimum contribution levels, but you should save more if you can. In fact, some commentators suggest that if you take the age you start your pension and halve it, that’s the percentage of salary you should save each year.
What’s more, as your earnings increase it makes sense to save more into your pension if you can afford to. There’s no limit on how much you save, but there are limits on the amount of tax relief you’ll receive.
What if your working patterns change?
If you reduce your hours your contributions may also reduce, so you’ll need to consider how that impacts your retirement planning.
Working part time won’t affect your state pension entitlement providing you earn at least £166 per week. Entitlement depends on your National Insurance contribution history and if your part-time earnings are lower than the threshold you might be able to pay voluntary class 3 NI contributions to plug the gap.
If you need to take time off work, you and your employer will carry on making pension contributions if you’re taking paid leave. The same applies for maternity and other paid parental leave.
If you’re taking maternity leave and not getting paid, your employer still has to make pension contributions in the first 26 weeks of your leave (Ordinary Maternity Leave).
Whether they continue making contributions after that will depend on their maternity policy, so it pays to check.
To find out how much your retirement might cost, it’s helpful to ask yourself:
- When do you want to retire?
- What do you want from your retirement?
- How will your spending habits change?
- Would you move, or stay in your current home?
- Will you continue doing some form of paid work after retirement?
- Will you be entitled to the full State Pension?
Whether you’re employed, self-employed, part time or full time, please get in touch with us to explore your pension planning options.
THE VALUE OF INVESTMENTS AND ANY INCOME FROM THEM CAN FALL AS WELL AS RISE. YOU MAY NOT GET BACK THE AMOUNT ORIGINALLY INVESTED.
HM REVENUE AND CUSTOMS PRACTICE AND THE LAW RELATING TO TAXATION ARE COMPLEX BUT SUBJECT TO INDIVIDUAL CIRCUMSTANCES AND CHANGES WHICH CANNOT BE FORESEEN.
How much money do you think you’ll need to receive each year of your retirement?
According to the investment manager Schroders, working people in the UK aged 55 and over believe this figure would equate to 66% of their current income, but the reality according to UK retirees is actually 53%.
Despite the 13% shortfall, the majority of retired people (92%) felt their retirement income was sufficient. This may not come as a surprise if we consider they are likely to be part of the baby boomer generation and therefore enjoy significant wealth compared to future generations of retirees who quite possibly won’t have the benefit of a final salary pension plan.
It might also be the reason that these pensioners can afford to invest one fifth of their retirement income, with the aim of further improving living standards later in life – putting money away for potential care costs, or perhaps boosting their estate for the benefit of their descendants.
Saving more
The fact remains, however, that expectations can often differ from reality; creating a potential shock in store when you reach retirement. In its report, for instance, Schroders found that while people of working-age might expect to spend 38% on living costs in retirement, the figure is closer to 53%.
It’s clear that the more you save, the more comfortable your retirement (subject to the usual investment ups and downs of course). And when it comes to making investment decisions for retirement, advice is key.
Whether you’re early on in your career and just starting to think about putting money aside for retirement, or your last day at work is looming and you’re preparing for a new phase in life, the investment and savings decisions you make now can make all the difference to how comfortable you are in your retirement.
The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.
It can seem like we work our entire lives, but retirement comes faster than you think.
The average person works around forty five years of their life and then relies on a pension for another twenty five years. That means the money you save towards your pension needs to go a long way.
Whether you have multiple company pensions, a final salary scheme or a personal pension, if you take advantage of all the benefits available to you, your retirement fund could be larger than you think.
Below, we discuss the available options and the potential benefits to you and your family.
As a working adult in the UK, there are three types of pension you can pay into. There’s your state pension, which is a weekly lifetime benefit paid out to retired citizens. The amount paid out is based on how many years you’ve paid National Insurance contributions throughout your working life.
There are the various company pensions you and/or your employer may have contributed to during your working life. Plus, there are personal pension plans you may have been utilising to save towards your retirement.
One of the first things to do when starting to plan seriously for your future is to take account of all your pension pots.
Income drawdown carries significant investment risk as your future retirement income remains totally dependent on your pension fund performance. Pension drawdown may only suit a limited number of people.
There are also the relatively new pension freedoms to consider, plus the many tax efficiencies you should be taking advantage of.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
In what follows, I outline a summary of all the options that have been available to you since 2015.
Pension Freedoms
In April of 2015, several different options to access your pension funds became available. You can choose to leave your pension untouched, purchase an annuity, use flexi access drawdown to design an adjustable income, access your money in large withdrawals, or cash out altogether.
Using your pension money will leave less money invested in your pension, and will have an impact on the money you’ll have through retirement.
Under the previous regulations, only one dependant of the pension plan holder could inherit a drawdown pension on the plan holder’s death. Commonly known as a “widow’s pension”, widowers, civil partners and a single named child could also inherit, putting the plan holder in a difficult position if they had more than one child.
Many still believe that this is the only way their pension savings can be passed on in the event of their death.
However, alongside the more familiar changes to the retirement regime, the reforms heralded significant changes in how pension death benefits are taxed, bringing with them new inheritance planning opportunities.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Passing on Your Wealth
It is now possible for the plan holder to pass their pension on to any nominee – or a number of nominees – through something called Nominee Flexi-Access Drawdown.
Further, when the nominee dies, a successor – or successors – can also inherit a drawdown pension through a Successor Flexi-Access Drawdown. In turn, each nominee or successor can pass the assets on to other nominees or successors, retaining the tax efficiency of the plan through multiple generations.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Taking Advantage of Tax Efficiencies
The key benefit lies in retaining the assets within a pension wrapper: in this way, they fall outside of the plan holder’s assets for Inheritance Tax (IHT) purposes. And as long as they remain within the wrapper they retain their full tax advantages until they are needed by the nominee or successor.
If the plan holder – or a nominee or a successor – dies before the age of 75, not only are the assets passed on free of IHT, but the drawdowns are paid out free of income tax. If they die after the age of 75, the assets are still excluded from the estate for IHT purposes, but any lump sums or income drawdowns are treated as income and subject to the beneficiaries’ personal tax position (i.e. taking into account other sources of income).
Not every pension plan is required to offer you these choices. If your various pots do not offer you these choices, you could be missing out on significant benefits. It is important to note that most of the existing pension plans were set up before the new regulations came into force and may not have the flexibility to establish Nominee or Successor Flexi-Access Drawdown accounts.
Instead, the pension provider will pay out the full value of the fund in cash on the death of the plan holder. In that situation, the assets count towards the total estate for IHT purposes and the tax benefits are lost.
So, it’s more important than ever to make sure you understand exactly what you can and cannot do with your current pension pots.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Here’s a brief summary of the possible tax efficiencies you could benefit from:
Tax-free lump sum
You can take a tax-free lump sum of 25% of your total pension pot. With the rest, you can either buy an annuity or reinvest it and draw an income. Alternatively, you can withdraw the full pot as cash and pay tax on the other 75%, or delay taking it so it remains invested.
Another option is to take smaller amounts on a more regular basis and leave the rest untouched. Each time the first 25% is tax-free, but you pay tax on the balance. In this case, your pot isn’t reinvested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Personal allowance
For anyone earning up to £100,000, you don’t pay tax on any form of income up to the personal allowance of £12,500 (in the 2019-20 tax year). This allowance is reduced by £1 for every £2 earned above the threshold.
So, when you stop working and start drawing pension income, you won’t pay tax on it until the payments exceed your personal allowance. However, as long as you’re still employed, even in a part- time job, your earnings eat into your allowance. The tax-free lump sums discussed earlier don’t count towards your personal allowance.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Individual Savings Accounts (ISA)
If you decide to withdraw a lump sum, one option is to put it in a cash or stocks and shares ISA. ISAs are tax-efficient accounts which protect returns (interest earned in a cash ISA, and gains and income generated by a stocks and shares ISA) from income tax and capital gains tax. The annual ISA allowance of £20,000 in the 2019-20 tax year may come in handy if your pot is big enough.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
The value of your investments and any income from them may fall as well as rise and is not guaranteed. You may get back less than you invest. Stocks and shares ISAs are considered medium to long-term investments and you should be prepared to invest for at least five years.
Dividend allowance
You can earn dividends tax-free on investments you hold outside your ISA thanks to the annual dividend allowance. This is £5,000 for the 2019-20 tax year.
Personal Savings Allowance (PSA)
You can also take advantage of the PSA for any savings you have outside a cash ISA. Basic rate taxpayers can earn £1,000 in interest tax-free and higher rate taxpayers can earn £500. Additional rate taxpayers don’t get a PSA.
Regardless of your current circumstances, whether you’re twenty or ten years away from retirement, meeting with a financial advisor can put you on the right track to a secure future.
Take the first step, and get a free pension audit from one of our expert advisors. We will go over your existing retirement provisions, making sure you understand your current choices, identifying any possible benefits available and make recommendations immediately.
Take control of your future, and let us help you create a roadmap to a happy retirement.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
The introduction of automatic enrolment in 2012 has led to a record high in pension participation, with more than 9.5 million people enrolled through the scheme, but contributions are at minimum levels, ONS data has shown.
The number of employees who contribute to a workplace pension has increased
over the last five years: 73% of UK employees had an active workplace pension
scheme in 2017 compared to 47% in 2012. Much of this rise has been attributed to the Government’s automatic enrolment scheme, which has seen more than 9.5
million people automatically enrolled in a workplace pension since October 2012.
The fact that more workers are benefiting from the scheme is clearly positive news, but the phased increases to the minimum contribution levels is raising concerns that more will choose to opt out on affordability grounds; impacting significantly on the size of their pension pot.
A balancing act
When the scheme began, employers and eligible employees each had to pay in a one per cent minimum contribution. In April 2018, this increased to a five per cent total contribution, with the employee paying three per cent. In April 2019, it will increase again to eight per cent, with the worker paying five per cent.
The table below illustrates the impact of these phased increases and the reason for concerns about affordability:
Annual salary £ £27,000 £45,000
April 2018 3% annual £ £629.04 £1169.04
contribution pension
April 2019 5% annual £698.40 £1,048.40 £1,948.40
contribution pension
In or out?
Workers who will struggle to afford the increases can opt-out of the scheme
completely but will lose out on future private pension benefits, including
contributions from your employer as well as associated tax relief from your own
contributions.
If you opt out of the scheme within one month of being automatically enrolled, you will be treated as if you had never joined the scheme, and any money that you have paid into the scheme will be refunded in full.
If you opt out later than the one-month period for a refund, any contributions that
you and your employer have paid into your pension pot would normally remain
invested until you can draw retirement benefits.
Why advice matters
Opting out of your workplace scheme could significantly impact your standard of
living in retirement so we would always recommend you take our advice before
taking action.
The value of your investments and any income from them can fall as well as rise and you may not get back the original amount invested.
Contains public sector information licensed under the Open Government License v3.0.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
If you’re concerned about how to manage your pension savings, please get in touch.
Financial wellbeing is an important factor when it comes to being able to enjoy life.
While we’re earning, it’s possible to secure the living standards we want for ourselves and our families, but it’s also important to put some of that income aside to build up your pension fund.
Generally speaking, and subject to investment performance and charges, the more you save and the earlier you start saving, the better shape your financial assets are likely to be in when you need to draw on them.
When work reduces, or ends, your pension fund will be an important (but not necessarily your only) financial asset. You could have money on deposit and investments in some, or all, of the following:
• ISAs
• collective investments
• stocks and shares
• insurance-based products
• Buy to Let property
… to name a few!
The decision on where to draw funds from when you achieve retirement will be an important and potentially complex decision and there are many factors that can influence it:
- whether, and if so, how and when to access pension savings held either in a personal or workplace pension
- how to make your pension last through retirement (given most of us are living longer)
- how to protect your retirement income against the effects of inflation
The State Pension
For many the income the State provides will form a key part of their retirement income. The amount of State Pension you’re entitled to usually depends on the National Insurance (NI) contributions you’ve paid.
If you reach your State Pension age after 6 April 2016, you may be entitled to the new state pension, the full amount of which is £164.35 a week (2018/19). The full state pension is payable with 35 years NI contributions or credits.
State Pension Age for women is gradually increasing and will reach 65 by November 2018. State Pension Age for both men and women will then increase to 66 by October 2020 and then to 67 and eventually 68 by 2046.
Ensuring good decision-making
Clearly, the greater the value of your investments, the greater the chance you’ll have of a financially rewarding retirement. But the more investments you have, the more important it will be to think very carefully about where you take money from when the time comes to take it.
The various investments mentioned above will have different tax rules applying to them so having a good understanding of these rules, or seeking advice from a tax specialist, will be helpful to good decision making.
You’ll also need to think about the relative importance of certainty of income, access to capital and preservation of capital for your family, as well as the degree of risk you’re prepared to take to achieve your required level of return on the investments that remain in your pension fund.
If you’d like expert advice on your retirement choices, please get in touch.
The value of your investments and any income from them can fall as well as rise and you may not get back the original amount invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Frank Field, Labour MP and chair of an influential parliamentary committee, has called for legislative action to help keep pension savings safe.
This comes after Police data shows that more than £43m of people’s retirement savings have been lost to fraud since the pension freedom reforms were announced. Figures from The Pensions Regulator estimate that around £500 million is stolen from our pensions every year.
There are different types of scam, but they often begin with someone contacting you unexpectedly by phone, email or letter. They may invite you to learn more about:
- an investment or other business opportunity that you’ve not previously spoken to them about
- taking your pension money before you’re 55
- ways that you can invest your pension fund
Protect yourself from fraud
Fraudsters and their scams are becoming increasingly sophisticated. They can be financially articulate and very convincing; with websites and marketing material that make them look legitimate. So how would you know if you’re about to be the next victim?
Spot the warning signs – If you’re contacted out of the blue, if the investment risks are downplayed, or they are using pressurised selling tactics which offer a bonus or discount, it should set off alarm bells. And if the offer is ‘one time only’ or you’re asked not to share the details of the ‘opportunity’, you should be suspicious.
Check the Financial Services Register – https://register.fca.org.uk or call 0800 111 6768. If an individual or company is not on the register, it’s probably a scam.
A good rule of thumb with all scams is if it’s too good to be true, it probably isn’t.
If you think you are being targeted by a scam hang up the call, delete the email, rip up the letter. If you think you have been the victim of a scam already contact Action Fraud, the UK’s national fraud and cybercrime reporting centre, immediately on 0300 123 2040.
To find out more about how to protect yourself from financial scams visit:
- FCA ScamSmart
fca.org.uk/scamsmart - Take Five
https://takefive-stopfraud.org.uk/ - Pension Wise
https://www.pensionwise.gov.uk/en - The Pension Advisory Service
https://www.pensionsadvisoryservice.org.uk/
As your trusted Financial Adviser, you should always talk to us before taking any critical financial decisions, especially when it comes to something as important as your pension.
It’s reasonable to suggest that auto enrolment has been a major success story. In fact, more than 1 million employers and 9 million employees have made pension saving a part of everyday life since its introduction in 2012.
6 April 2018 saw the second phase in the development of auto-enrolment; when employer and employee minimum contributions rates for defined contribution qualifying schemes will increase (and do so again on 6 April 2019).
Are you ready?
If you’re an employer, you should have received a letter from The Pensions Regulator advising you of your duty to increase contributions. However, this isn’t necessarily a simple exercise as the minimum level of contribution depends on the rules of the scheme and the definition of pay used to calculate the contributions.
The table below illustrates the different definitions of pensionable pay and the respective minimum levels of contributions:
| Date effective | To 5 April 2018 | 6 April 2018 to 5 April 2019 |
From 6 April 2019 | |
| Qualifying Band Earnings or Own definition (at least to basic pay and 85% total pay, please see below) | Employer | 1% | 2% | 3% |
| Employee | 1% | 3% | 5% | |
| Total minimum |
2% | 5% | 8% | |
| Basic pay (Does not include bonuses, overtime shift pay or relocation allowances) | Employer | 2% | 3% | 4% |
| Employee | 1% | 3% | 5% | |
| Total minimum |
3% | 6% | 9% | |
| Total pay (Includes all elements of pay and earnings) | Employer | 1% | 2% | 3% |
| Employee | 1% | 3% | 4% | |
| Total minimum |
2% | 5% | 7% |
If you’d like help understanding your auto enrolment duties or you’d like to consider outsourcing your responsibilities to a specialist, please get in touch. (more…)
New research has suggested that UK’s Small and Medium Enterprises (SMEs) are optimistic about the global economy and their role in it. If this applies to you and you have built up a healthy balance sheet, you may be considering how you can release money from your business in a tax-efficient way.
Most business owners are aware how they can do this through dividend payments or by paying a higher salary or bonus. However, making a pension contribution may be something that you have not considered. We believe this may be an effective tax efficient option for you and would be keen to discuss the benefits with you.
£40,000 is the limit for individuals on what can be paid into a pension each tax year, but this is reduced for anyone with an annual income which exceeds £150,000.
However, any pension contributions made by the company (rather than the individual) will normally reduce the business’s overall profit, meaning the amount of Corporation Tax is also reduced. Unlike personal contributions, there is no limit on how much a company can pay into a pension scheme.
Please note, depending on the employee’s previous contribution history, there may be an annual allowance charge which we can calculate for you.
Both a short-term way of extracting profit and a long-term way of planning for retirement, paying into a pension is a great way to make the most of your business’s income.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen
For specific tax advice please refer to an accountant or tax specialist
Since April 2015, pensioners have had greater freedom over how they manage their retirement savings. No longer forced to buy an annuity, they can now leave their money invested and draw an income from it (known as flexi-access drawdown).
Whether you’ve already stopped working, or you’re planning to retire soon, you should be familiar with the various allowances and tax-efficient accounts which may reduce your tax liability. Here’s a brief summary:
Tax-free lump sum
You can take a tax-free lump sum of 25% of your total pension pot. With the rest, you can either buy an annuity or reinvest it and draw an income. Alternatively, you can withdraw the full pot as cash and pay tax on the other 75%, or delay taking it so it remains invested.
Another option is to take smaller amounts on a more regular basis and leave the rest untouched. Each time the first 25% is tax-free, but you pay tax on the balance. In this case, your pot isn’t reinvested.
Personal allowance
For anyone earning up to £100,000, you don’t pay tax on any form of income up to the personal allowance of £11,500 (in the 2017-18 tax year). This allowance is reduced by £1 for every £2 earned above the threshold. So when you stop working and start drawing pension income, you won’t pay tax on it until the payments exceed your personal allowance. However, as long as you’re still employed, even in a part- time job, your earnings eat into your allowance. The tax-free lump sums discussed earlier don’t count towards your personal allowance.
Individual Savings Accounts (ISA)
If you decide to withdraw a lump sum, one option is to put it in a cash or stocks and shares ISA. ISAs are tax-efficient accounts which protect returns (interest earned in a cash ISA, and gains and income generated by a stocks and shares ISA) from income tax and capital gains tax. The annual ISA allowance of £20,000 in the 2017-18 tax year may come in handy if your pot is big enough.
Dividend allowance
You can earn dividends tax-free on investments you hold outside your ISA thanks to the annual dividend allowance. This is £5,000 for the 2017-18 tax year, although it falls to £2,000 from April 2018.
Personal Savings Allowance (PSA)
You can also take advantage of the PSA for any savings you have outside a cash ISA. Basic rate taxpayers can earn £1,000 in interest tax-free and higher rate taxpayers can earn £500. Additional rate taxpayers don’t get a PSA.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
The value of your investments and any income from them may fall as well as rise and is not guaranteed. You may get back less than you invest. Stocks and shares ISAs are considered medium to long-term investments and you should be prepared to invest for at least five years.
If you’d like advice on your retirement options or pension income, please get in touch.
If you are planning on retiring soon there are a few things you may like to consider before you make any important decisions.
Gather all the information
You need to gather information on all your assets, including pensions as well as savings and investments. Don’t forget to include your State Pension.
There are ways to boost your State Pension; such as buying top ups – which apply for women born before April 6, 1953 and men before April 6, 1951. These can increase your state pension by up to £25 a week – so is well worth investigating. You can also get a higher monthly pension by delaying when you take the first payments.
Once you have the paperwork together you will need to consider what you expect to live off. Work out your current living expenses and what you expect to spend more or less on as you leave work as well as your long-term plans for the future.
The Bank of England Base Rate has been below 1% for over eight years causing interest rates to be low which in turn makes retirement saving more difficult. If you find the numbers don’t add up, you could consider increasing the amount you pay in to your pension and/or staying in full-time or part-time work longer than you originally planned until you close the gap.
Consider tax
Usually 25% of your pension can be taken tax free and the other 75% is taxed as earned income.
Getting the right tax advice could help you withdraw your cash in the most tax efficient way. For example, you may be able to take a smaller amount of money from your pension and more from your ISA (which can be tax free).
Get advice
With many different types of options available for your retirement it can be an overwhelming decision to make the right choice for your needs. We can help you understand all the options open to you and help you avoid risks such as the impact of poor investment market performance both in the run-up and early in retirement or potentially running out of money in retirement.
When was the last time you did a personal financial review? If it was more than a year ago, you should get in touch with a financial adviser today. Here are seven questions you should ask a financial adviser every year to ensure you achieve your financial goals.
- How will recent changes in my personal life affect my financial situation?
Lots of things can affect your financial situation, including falling sick, someone in your family falling sick, the impending birth of a child, retirement, loss of income, an increase in income, the receipt of an inheritance, and more. A financial adviser can assess how these changes will affect your overall financial position and will give you advice on what you should do next.
- Am I still on track with my retirement savings?
To ensure you enjoy the right standard of living when you retire, you need to proactively manage your retirement savings. This involves asking your financial adviser to check your position every 12 months. This includes reviewing where you stand now, the performance of your savings over the past 12 months, and if there is anything you need to do differently to ensure you have the level of income you need.
- Am I protecting my income?
This normally involves ensuring you have the right insurance cover in place. There is no simple answer to this as it involves considering your priorities as well as your personal situation. This is why it’s important to speak to a financial adviser.
- Am I preserving my assets?
Has anything happened in the past year that might affect your estate planning? Examples include getting married or divorced, having children, or a death in the family. Do you have an estate plan in the first place, and do your loved ones know it exists? These are all things you should review annually.
- Am I saving tax efficiently?
Properly managing tax on your income and investments is crucial. You must pay your fair share, but it’s also important you manage your tax affairs efficiently to ensure you don’t pay too much and that you optimise your tax position. By asking this question of your financial adviser, you can check whether there are tax efficiencies that you are not yet utilising.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
- How does my current plan affect my family?
This has already been touched on in some of the above points. For example, are the right beneficiaries named in your life insurance policy or in your will? Is the cover enough? Are your plans on track to achieve the financial goals you have set for your family?
The Will writing services mentioned here are not part of the Openwork offering and are offered in our own right. The Openwork Partnership accept no responsibility for this aspect of our business. Will Writing Services are not regulated by the Financial Conduct Authority.
- Should any changes be made to my portfolio for the upcoming year?
Finally, get your financial adviser to look at possible improvements to your investment portfolio that you’re comfortable with in terms of the level of risk. New opportunities are always available, while existing investments may not be performing as they should. It is always best to check.
Book a free consultation for financial advice from one of our advisers at Downton and Ali in Dartford, Kent.
Changes to the State Pension which took effect on 6 April 2016 were designed to simplify the system. With the earnings-related part applying to employed people removed, what you could qualify for depends on your National Insurance (NI) record
For the current tax year 2017/2018, the new State Pension is £159.55 per week. To be eligible to receive the state pension you’ll need to have made NI contributions for a minimum of 10 years and 35 years to be eligible for the full amount. However, you might get more than this if you’ve built up entitlement to additional state pension under the old system, or less if you were contracted out.
Contracting out
Under the old State Pension rules and up to 5 April 2016, you could ‘contract out’ of the additional State Pension, which meant you and your employer could pay lower NI contributions into the state system.
You could not contract out of the basic State Pension, but you could pay lower NI contributions if you were part of a private pension, such as a workplace or personal pension scheme, that could build up to replace the element of Additional State Pension you were opting out of.
If you were contracted out, your starting amount for the new State Pension might be lower than it is for people with similar circumstances who remained contracted in. You might get the equivalent amount from your workplace or personal pension scheme unless:
- your scheme got into financial trouble and wound up underfunded
- your rights were transferred to a scheme that was not linked to your earnings and investments in that scheme did not perform well
You should know if this applies to you, but if you’re in any doubt and think you may be affected you can contact your scheme.
‘Topping up’
In some cases you may be able to have your State Pension worked out using different rules that could give you a higher rate if you chose to pay married women and widow’s reduced-rate NI contributions.
The rules on how you can increase your State Pension and what you can inherit will be different depending on when you and your spouse or civil partner reach State Pension age. You can find out more at gov.uk/state-pension-through-partner
If you’ve not yet reached State Pension Age and worry you might not have enough NI contributions to get the maximum amount to qualify at all, you can make Class 3 National Insurance contributions. You will need to contact HM Revenue and Customs who will let you know if you can make the voluntary contributions and, if so, how much to pay.
If you would like to discuss your pension requirements please get in touch.
Since April 2015, pensioners have had greater freedom over how they manage their retirement savings. No longer forced to buy an annuity, they can now leave their money invested and draw an income from it (known as flexi-access drawdown).
Whether you’ve already stopped working, or you’re planning to retire soon, you should be familiar with the various allowances and tax-efficient accounts which may reduce your tax liability. Here’s a brief summary:
Tax-free lump sum
You can take a tax-free lump sum of 25% of your total pension pot. With the rest, you can either buy an annuity or reinvest it and draw an income. Alternatively, you can withdraw the full pot as cash and pay tax on the other 75%, or delay taking it so it remains invested.
Another option is to take smaller amounts on a more regular basis and leave the rest untouched. Each time the first 25% is tax-free, but you pay tax on the balance. In this case, your pot isn’t reinvested.
Personal allowance
For anyone earning up to £100,000, you don’t pay tax on any form of income up to the personal allowance of £11,500 (in the 2017-18 tax year). This allowance is reduced by £1 for every £2 earned above the threshold. So when you stop working and start drawing pension income, you won’t pay tax on it until the payments exceed your personal allowance. However, as long as you’re still employed, even in a part- time job, your earnings eat into your allowance. The tax-free lump sums discussed earlier don’t count towards your personal allowance.
Individual Savings Accounts (ISA)
If you decide to withdraw a lump sum, one option is to put it in a cash or stocks and shares ISA. ISAs are tax-efficient accounts which protect returns (interest earned in a cash ISA, and gains and income generated by a stocks and shares ISA) from income tax and capital gains tax. The annual ISA allowance of £20,000 in the 2017-18 tax year may come in handy if your pot is big enough.
Dividend allowance
You can earn dividends tax-free on investments you hold outside your ISA thanks to the annual dividend allowance. This is £5,000 for the 2017-18 tax year, although it falls to £2,000 from April 2018.
Personal Savings Allowance (PSA)
You can also take advantage of the PSA for any savings you have outside a cash ISA. Basic rate taxpayers can earn £1,000 in interest tax-free and higher rate taxpayers can earn £500. Additional rate taxpayers don’t get a PSA.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
The value of your investments and any income from them may fall as well as rise and is not guaranteed. You may get back less than you invest. Stocks and shares ISAs are considered medium to long-term investments and you should be prepared to invest for at least five years.
If you’d like advice on your retirement options or pension income, please get in touch.
Have you ever stopped to think about the monthly income you’d need to provide for a comfortable retirement?
If you’re thinking it would be the equivalent of your current salary you’ve probably overestimated.
Remember, by the time you retire, you will hopefully have paid off your mortgage, your kids (if you had them) will have flown the nest and you won’t have to cover the cost of commuting to work. In fact, research by Which? suggests you’ll probably need between half and two thirds of your final salary, after tax, to achieve a comfortable lifestyle in retirement.
According to Which? retirees will need £18,000 a year to cover household essentials such as food £3,967, utilities £2,040, transport £2,407 and housing costs £1,444.
| Average annual spending for retired couples | Comfortable lifestyle | Luxurious lifestyle |
| Long-haul holidays | £ – | £ 7,415.00 |
| European travel/holidays | £ 4,414.00 | £ 4,414.00 |
| New car cost | £ – | £ 4,376.00 |
| Groceries | £ 3,967.00 | £ 3,967.00 |
| Housing payments | £ 2,969.00 | £ 2,969.00 |
| Insurance | £ 2,457.00 | £ 2,457.00 |
| Transport | £ 2,407.00 | £ 2,407.00 |
| Utilities | £ 2,040.00 | £ 2,040.00 |
| Recreation and leisure | £ 1,591.00 | £ 1,591.00 |
| Household goods | £ 1,444.00 | £ 1,444.00 |
| Leisure membership | £ – | £ 1,338.00 |
| Health | £ 1,287.00 | £ 1,287.00 |
| Buying news clothes | £ 1,092.00 | £ 1,092.00 |
| Tobacco/Alcohol | £ 933.00 | £ 933.00 |
Saving sufficiently
Now you know the sort of income you’d like in retirement; how much will you have to save each month to achieve it?
Which? suggests, alongside the State pension, to generate an annual combined income of £26,000 couples will need a defined contribution pension pot of £210,000.
For a luxurious retirement, this more than doubles to £550,000 invested in income drawdown with 3% investment growth. The table below shows the money you’ll need to be saving each month to achieve this – obviously, the amount increases as you get older:
| Age | Comfortable | Luxurious |
| 20 | £131 | £342 |
| 30 | £198 | £424 |
| 40 | £338 | £731 |
| 50 | £633 | £1657 |
The numbers may look scary but when it comes to saving for the lifestyle you want in your retirement the earlier you start and the more you can contribute the better.
Whether you’re in your 20s or 60s, on track with your savings or worried you’re behind where you should be, please get in touch and we’ll help you explore your retirement income options.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
Automatic enrolment and you
Auto-enrolment is a Government initiative where all workers will be automatically enrolled into a workplace pension.
New figures show that by 2020 over 10 million people are expected to be newly saving or saving more as a result of automatic enrolment. This means that an additional £17 billion a year is projected to be saved into workplace pensions by 2019/20.
By 2018, all employers will have been required to enrol their eligible workers into a workplace pension scheme if they are not already in one. So far, over 6.7 million people have been automatically enrolled into a workplace pension by more than 250,000 employers.
Employers’ duties
Three quarters of the total working population are now estimated to meet the age and earnings criteria for automatic enrolment ie. that:
- you’re not already in one
- you’re aged between 22 and State Pension age
- you earn more than £10,000 a year (£833 a month, £192 a week)
- you work in the UK
Employers must enrol and make a contribution for all staff who meet the criteria. You can choose to opt out of the scheme, but your employer is obliged to enrol you back in automatically every three years. You can opt out again if you still don’t think it’s for you, but you should think carefully before you do – especially if you don’t have any other pension savings.
Paying in
How much you’ll save will depend on your salary and the specific scheme you’ve been signed up to. By 2018 the minimum contributions will rise to the equivalent of 8% of a worker’s earnings – this will be made up of a 4% employee contribution, 3% from the employer and 1% from tax relief. You can however choose to increase your own contribution for a bigger final pot when you are ready to retire.
Contains public sector information licensed under the Open Government Licence v3.0.
If you’d like expert advice on your retirement choices, please get in touch.
With the introduction of pension freedoms in 2015, we now have a range of options when deciding how to fund our retirement. But few of us stop to consider what might happen on our death: retirement itself seems far enough away!
Under the previous regulations, only one dependant of the pension plan holder could inherit a drawdown pension on the plan holder’s death. Commonly known as a “widow’s pension”, widowers, civil partners and a single named child could also inherit, putting the plan holder in a difficult position if they had more than one child.
Many still believe that this is the only way their pension savings can be passed on in the event of their death. However, alongside the more familiar changes to the retirement regime, the reforms heralded significant changes in how pension death benefits are taxed, bringing with them new inheritance planning opportunities.
Passing on your wealth
Since April 2015 it has been possible for the plan holder to pass their pension on to any
nominee – or a number of nominees – through something called Nominee Flexi-Access Drawdown. Further, when the nominee dies, a successor – or successors – can also inherit a drawdown pension through a Successor Flexi-Access Drawdown. In turn, each nominee or successor can pass the assets on to other nominees or successors, retaining the tax efficiency of the plan through multiple generations.
The key benefit lies in retaining the assets within a pension wrapper: in this way they fall outside of the plan holder’s assets for Inheritance Tax (IHT) purposes. And as long as they remain within the wrapper they retain their full tax advantages until they are needed by the nominee or successor.
If the plan holder – or a nominee or a successor – dies before the age of 75, not only are the assets passed on free of IHT, but the drawdowns are paid out free of income tax. If they die after the age of 75, the assets are still excluded from the estate for IHT purposes, but any lump sums or income drawdowns are treated as income and subject to the beneficiaries’ personal tax position (ie. taking into account other sources of income).
How might your dependants benefit?
The example given below is a simplified illustration and only a guide to what might be achieved with careful financial planning.
However, it is important to note that most of the existing pension plans were set up before the new regulations came into force and may not have the flexibility to establish Nominee or Successor Flexi-Access Drawdown accounts. Instead, the pension provider will pay out the full value of the fund in cash on the death of the plan holder. In that situation, the assets count towards the total estate for IHT purposes and the tax benefits are lost.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
The pension family tree
A family comprises a husband and wife, their two children who in turn have two children each (four grandchildren in total). The husband dies aged 76 with £500,000 remaining in his pension fund.
The wife inherits a Nominee Flexi-Access Drawdown plan. As her husband died after reaching the age of 75, any withdrawals are taxable as income. The wife dies aged 74 with £450,000 remaining in the plan.
The two children each inherit half of this (£225,000) through Successor Flexi-Access Drawdown. Withdrawals are tax free as the mother died before age 75. However, both children die in their 60s without accessing their plans. As they also died before reaching 75, each residual pension fund passes tax free to the grandchildren.
Each grandchild inherits a Successor Flexi-Access Drawdown pot of £112,500 and enjoys tax-free withdrawals.
Please contact me if you would like to discuss the pension death benefit rules and explore whether and how you and your loved ones could benefit from them. We can review your current arrangements to see if they offer the flexibility required and explore alternative arrangements if necessary.
Between December 2015 and May 2016 around 400,000 people accessed their State Pension statements, a 40% increase on 2015 when there were 400,000 requests in total for the entire year.
This significant increase is down to the launch of a new online system which calculates your likely State Pension entitlement based on your National Insurance records.
Previously, only people aged 50 and over could get a forecast by applying over the phone or by post to the Department for Work and Pensions (DWP).
Calculate your entitlement
To access the new online system, go to www.gov.uk/check-state-pension and follow the prompts. You’ll need to confirm your identity using the Government Gateway.
The service gives you a personalised statement showing an estimate of what you might receive once you reach State Pension age, based on your National Insurance Contributions (NICs). It’s a quick and easy way of highlighting what you’re eligible for and it can help show you how much you need to save elsewhere, as part of your retirement planning.
It is particularly helpful given the launch of the new State Pension in April 2016, which introduced a new flat rate of £155.65 (2016/17 tax year), sparking confusion amongst workers over whether they would be better or worse off under the new regime.
The new State Pension
If you’re male, born after 6 April 1951, or a woman born after 6 April 1953, you are eligible for the new State Pension, however, you must have a minimum 10 years’ of NICs.
You need 35 years’ NI record to qualify for the full £155.65 (an increase of five years on the old entitlement) and if you’ve built up entitlement to additional State Pension under the old system, you may get more or less if you were ‘contracted out’.
The value of advice
Whatever your entitlement to the State Pension, your retirement planning is too important to ignore. We can help you assess what you might be eligible for and what you need to do to achieve a level of income in retirement that you’d be happy with.
Contains public sector information licensed under the Open Government Licence v3.0
To discuss your pension planning in more detail please get in touch.