Category: Financial Adviser Blog

As you approach retirement, you probably want to know when you can afford to stop working. Having worked hard throughout your career you deserve to enjoy your retirement without having to worry about your finances. It may be worth reviewing your pension contributions to make sure you are taking advantage of the incentives offered by the government and your employer.

Make the most of tax relief…
The government tops up your pension contributions in the form of tax relief at your highest rate of income tax to encourage you to save. Basic rate taxpayers receive tax relief of 20%, while higher rate and additional rate taxpayers can claim back 20% and 25% respectively through their tax returns.

…and understand employer contributions
Since 2012, employers have been legally obliged to automatically enrol employees in a pension scheme, although you can opt out. As an incentive, employers top up employee contributions. The government increased the minimum contribution to 8% from April 2019 – at least 3% from employers with employees making up the balance. It is worth remembering that the employee’s contribution includes tax relief.

Are you saving enough?
There are no fixed rules about how much you should contribute to your pension because of course everyone’s circumstances are different. However, one rule of thumb is to take the age you started saving and divide it by two to give you the percentage of your salary which you might wish to put away each year. So, if you set up your pension at the age of 30, you could aim to pay in 15% of your salary.

Stick within the limits
There are rules covering how much you can contribute, and you could face a hefty tax bill if you break them. The annual allowance for the 2019/20 tax year is £40,000 or your full salary (whichever is lower).

There is also the lifetime allowance – the maximum amount you can withdraw from a pension scheme. It is currently £1,055,000 and likely to increase with inflation. It’s probably wise to keep a close eye on the value of your pension if it starts approaching this limit.

Deciding whether or not you can afford to retire is a significant consideration, and so it makes good sense to regularly review how much you are saving and ensure you are taking full advantage of any incentives.

Planning the best way to draw your pension savings is not straightforward, after all, there’s no ‘one size fits all’ when it comes to retirement.

Life expectancy, the impact of inflation and the choices available at retirement (thanks to the 2015 Pension Freedoms) are all influencing factors in your decision making. You’ll also need to take into account not just your pension savings but any other investments or assets you might have.

Your pension choices
If you’re aged 55 or over and in a defined contribution pension plan from 6 April 2015, you may be able to access your pension savings in a number of different ways:

• Buy an annuity
• Flexi Access Drawdown
• Uncrystallised Funds Pension Lump Sum (UFPLS)

If you decide not to purchase (or defer the purchase of) an annuity and instead take income using Flexi-access drawdown or UFPLS, adopting the right investment approach and keeping it regularly under review will be all important.

A question of balance
Balancing the potentially conflicting needs of income production and capital preservation is vital. Equally important is an understanding that personal circumstances will change throughout your retirement.

The three ‘stages’ of retirement
The early years
You’re more active and therefore might want flexibility over how you draw your income.

The middle years
You’re getting slightly less active and your lifestyle has settled into a more stable routine, so you’ll need a more stable income level.

The later years
You may need to increase your income to cover, for example, the cost of care.

In all cases, investing and withdrawing in a way that aims to maximise the available tax benefits and minimise tax ‘leakage ‘could help make your objectives easier to achieve. If you have some decisions to make about accessing your savings and, whether and how to continue to invest, it might help to consider:

• The extent to which you would like to leave an inheritance for your family and dependants
• Gifts – either now or in the future.
• Your current essential income needs such as your day-to- day living expenses and other “known/planned” expenditure.
• Your lifestyle and other “non- essential” expenditure such as holidays, new cars, sports and hobbies, entertainment etc.
• Unexpected items such as car repairs, home maintenance and health problems.
• Your current health status
• Future possible anticipated living expenses incorporating, possibly, a budget for care.

If you’d like advice on how you can make more of your investments and pension savings in retirement, or you’d like to find out more about pension death benefits, please get in touch.

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 and subject to individual circumstances and changes which cannot be foreseen.

In the early years this might translate into a surplus of toys or days out, but this stage eventually passes, and thoughts turn towards the future transition from child to adulthood and beyond.

This longer-term perspective raises the question of how best to provide financial support through, what could be an expensive transition and inevitably this leads to a variety of issues:

• Are there particular needs which should be targeted or is it more important to have money available as and when your child needs it?
• Which investments would be appropriate?
• Is it possible to put some parental or other controls in place for when children can access the investment?
• Which are the most tax-efficient investments?

Investing for life’s key events
For today’s children, the path through the early years of adulthood might cost rather more than that of their parents – and grandparents:

Higher education may be seen to be more important for gaining a reasonable job, but it also comes at a much higher cost. Taking into account tuition fees, accommodation and living expenses, a three-year degree is likely to cost the poorest students more than £50,000 according to a 2017 Institute of Fiscal Studies report. Before 1998, there were only grants and loans for tuition fees did not begin until 2006. Your generation may have left university with a bank overdraft, but the sum owing probably pales into insignificance compared to the five figure debts faced by today’s graduates.

Marriage is an increasingly costly staging post for those who choose it. According to the annual wedding survey by Bridebook.co.uk the average cost of a wedding in 2018 was just over £30,000! Despite the cost, two thirds of couples questioned in the survey admitted to either going over budget or having no budget at all.

Getting on the first rung of the property ladder is another growing cost for the next generation. According to research by Halifax, first time buyers are having to find record deposits, with the national average exceeding £33,000. It’s no surprise people are having to leave it until later to buy their first home.

Once they have the degree, the job and the home (and the mountain of debt), there’s another long-term financing requirement which today’s children will encounter: retirement provision.

Take expert advice
Two principles that apply to many aspects of financial planning are particularly relevant when thinking about children:

1. The sooner you start the better, and the more scope there is for investments to grow (although there’s still no guarantee that they will).
2. Take expert advice before making any decisions. The right investment set up in the wrong way can be worse than the wrong investment set up in the right way. DIY planning is not to be recommended, given the potential pitfalls.

If you want to help your child progress through this financial landscape, 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.

Some people might be put off buying a critical illness policy because they believe it’s unlikely to pay out, despite the proportion of claims paid by insurers standing at just over 92%.

So why is there such a gap between perception and reality among consumers?

There have been well-publicised stories in the past where a policyholder has had a claim refused because their circumstances didn’t meet the insurer’s terms and conditions. But in reality, the number of critical illness claims declined are actually a tiny minority compared to the total paid out. Take a look at these numbers of critical illness claims paid from 2017 from some of the UK’s leading insurers:

• Aviva 93%
• Zurich 95%
• Vitality 92%
• Legal and General 92%
• LV= 89%

Reasons why an insurer may not pay a claim:

• The policyholder didn’t inform the provider about important medical or health information when they took out the policy
• The condition claimed for didn’t meet the definition within the plan
• The policyholder tried to claim for conditions that were excluded from their plan

Separating fact from fiction
A critical illness policy pays out a tax free lump sum on diagnosis for any of the specified serious illnesses – around 100, including cancer, heart attack or stroke. There are additional benefits available with these policies which can be life- changing when called upon.

The cover might seem costly; a policy from Aviva for a 35-year-old non-smoker needing £200,000 cover over 25 years would cost £64 a month and it gets more as you get older but the value of this type of protection makes it absolutely worth considering. In fact, the Association of British Insurers reported that a total of 96% of critical illness claims made for cancer were paid out across the industry, demonstrating the positive impact these products can have during the worst of times.

The insurance market can be complex and confusing. Price comparison sites can make it easier to search and compare critical illness policies, but there’s such a large choice and variety of products and you might end up paying for something that doesn’t quite fit your circumstances.

Don’t leave it to chance, seek professional, face-to-face advice from someone who will get to know your circumstances, your family history and your likely protection requirements and recommend critical illness cover that’s right for you.

If you’d like to know more about how we can help you arrange serious or critical illness cover, or you’d like a better understanding of the options available, please get in touch.

Getting a clear, concise view of your investment portfolio can be difficult and time-consuming. That’s why we use a secure, online system known as a platform.

A platform gives you secure, online access to your investment funds with a transparent, easy -to-understand charging structure. So rather than holding your ISAs, pensions and other investments in different places, you can view everything at a single glance.

Think of it as an online bank account for your investments which we can administer on your behalf.

A clear picture
As well as cutting down on paperwork, using a platform can speed up transactions and give you the flexibility to take advantage of annual tax allowances. And because your assets are held on one online source, you (and we) can access consolidated reports at the touch of a button.

Whether you need a stocks and shares ISA for tax efficient savings, a simple way of investing your money, or a pension to help fund your retirement, we can offer it all in one place with a single solution, giving you secure online access to keep an eye on your investments 24/7.

With us by your side, we’ll help make your money work harder for you, giving you peace of mind, a sense of direction and control over your future.

The benefits of a platform

Choice
A platform provides easy access to a wide range of investment funds, allowing us to tailor your portfolio to better reflect your current circumstances, financial position and attitude to risk.

Flexibility
As well as allowing you to view your investments in one place, the flexibility of the platform means you can record other assets such as the value of your property or any antiques you may have.

Ease of use
The platform is uncomplicated and user friendly. It takes the effort out of managing your finances (and completing your tax return) because you can access consolidated reports at the touch of a button.

Transparent charging
The platform helps you clearly see the costs involved with any investment decision you make.

Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise and you may not get back the amount you originally invested.

Control
The platform gives greater control when it comes to making key investment decisions.

Please get in touch to find out more.

Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise and you may not get back the amount you originally invested.

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 into. 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 and subject to individual circumstances and changes which cannot be foreseen.

1 April

National Living Wage (for age 25+) rises to £8.21.

National Minimum Wage rises to £7.70 (21 – 24-year olds), £6.15 (18 –  20-year olds), £4.35 (16 – 17-year olds), and £3.90 (apprentices under 19 or in the first year of their apprenticeship).

Council tax bills rise up to 4.99%

Universal Credit for households with children and those with disabilities will to go up £1,000.

 5 April

End of the 2018/19 tax year. Have you used all your allowances?

 6 April

Start of the 2019/20 tax year

ISA allowance remains at £20,000

Junior ISA allowance goes up to £4,368

Minimum auto-enrolment contributions go up to 8% (at least 3% from the employer and 5% from the employee).

State Pension rises by 2.6%. Recipients of the old State Pension will get an extra £3.25 a week, those with the new State Pension will get an extra £4.25.

Lifetime allowance for tax free pension saving rises to £1,055,000

Personal allowance rises to £12,500

Higher rate tax threshold goes up to £50,000

Mortgage interest relief for landlords goes down to 25% Call us if this impacts you!

 1 May

National Savings and Investments index-linked savings to CPI

 21 June

Go Home on Time Day: part of a national campaign to highlight the importance of having a good work-life balance. Leave on time and do something you love!

 1 July

New rules mean mobile phone providers must make switching easier

31 July

Tax credit renewal deadline for anyone who claims Working Tax Credit or Child Tax Credit

29 August

Payment Protection Insurance (PPI) Deadline day – you have until 11.59pm to claim for mis-sold PPI

31 October

Paper self-assessment deadline for your return to be with HMRC.

 30 November

Help to Buy ISA closes to new savers.

 Your financial plan could be impacted by these key dates. Talk to us for advice.

 HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.