Month: November 2021

How To Plan For A Confident Retirement To Live The Lifestyle You Want

Retirement might seem a long way off but the later you leave planning for it, the less chance you have of achieving the retirement you want. We all dream of how we’ll spend our retirement but that dream looks different for everyone.

Some people want to spend more time with their family, while others want to enjoy long holidays and see the world, or simply wish to be financially independent. No matter what your dreams are, they rely on having sufficient pension savings to achieve them and live comfortably.

Specific Retirement Goals

People who associate confidence with retirement are most likely to have specific retirement goals and know what steps they need to take to reach them. But sadly, some people don’t feel confident that they will have enough savings to live comfortably after they retire.

Many people have a fear of outliving their money, but most don’t have a clear idea of how much money they need during retirement. It’s important to remember that retirement doesn’t happen at a certain age, it happens when you have enough money to live on. And having this clear direction and understanding will give you peace of mind that you’re on the right track.

Do You Feel Confident About Your Retirement?

Pensions can seem complex and overwhelming, and there are many reasons you might lack confidence in your retirement plans.

• You might be worried that you’re not saving enough, but don’t feel you can afford to save more
• You might feel ready to retire now, but you’re not sure if you can rely on your current pension savings to provide enough money for the rest of your life
• You might have experienced a change to your financial situation, including life events such as divorce, and have new concerns about whether you can save enough
• You might have previously felt confident about your retirement plan, but the COVID-19 pandemic has derailed your savings

Don’t Suffer A ‘Horrible Shock’

Research shows that there is a significant difference in how confident people feel about retirement based on whether or not they have spoken to a financial adviser. 65% of UK adults who have obtained financial advice say they do feel confident that they will have saved enough for retirement, compared to only 41% of those who have not.

A positive retirement experience begins with a plan designed to help you live life on your terms. Your adviser will ask questions about your finances, personal circumstances and retirement goals, and create a plan that’s unique to you and will help you
reach the retirement you’re aiming for.

Providing Answers To Your Planning Questions

People who know where they’re going and how to get there feel more confident in their retirement plan. Your adviser will be able to answer these key points.

What Do I Need To Know?

• How much you need to save for retirement
• How to save tax-efficiently for retirement
• How pensions work
• The type of pension you should choose
• The right amount to contribute to your pension
• How to boost your pension pot
• How your pension should be invested
• How to withdraw money from your pension

Need To Know All Your Pension Options?

When it comes to financial planning, we listen so that we can fully understand your unique needs. If you don’t feel confident about how your retirement looks, don’t delay. Speak to us to review your options.

How Much Annual Income Will You Receive From Your Pension And Savings?

Retirement will probably be one of the biggest events you ever go through in your life, so it’s not something you’ll leave to chance. But knowing how much you’ll need, and how to get there, isn’t always easy.

Just four in ten (43%) working 50-65-year olds who expect to retire know how much annual income they’ll receive from their pension and savings, according to new research. During times of economic uncertainty, the importance of seeking expert support about major financial decisions only increases.

Post-Work Income

The YouGov survey, which questioned 1,935 people aged between 50-65 who expect to retire, also found that women are less likely to know about their post-work income than men (39% vs 46%). The findings come despite the Financial Conduct Authority (FCA) introducing measures to help people make the most of their pension savings earlier this year. The move followed the regulator’s conclusion that those approaching retirement, acting without guidance or advice, were struggling to make informed decisions.

Geographic Disparity

Geographically, the results show significant disparity, with only a third of Londoners (34%) knowing how much they’ll receive post-retirement compared to more than half of those in the East of England (52%). Additionally, there is a notable drop in awareness amongst those who are divorced or separated (37%), or never married (34%), compared to those who are married or in a civil partnership (46%).

Knowledgeable’ About Retirement Options

Backing up the FCA’s estimate that 100,000 people enter drawdown every year without taking financial advice, the study also found that the majority (53%) consider themselves ‘knowledgeable’ about their retirement options.

More men consider themselves knowledgeable (57%) than women (48%). Across the UK, those in the East of England (60%) are the most confident in their knowledge of retirement options, those in Yorkshire and Humber the least (49%).

Financial Advice

These findings highlight that not enough people are taking professional financial advice in those crucial few years before retirement. The decisions made at retirement are big ones and have long-term consequences.

Many people spend years accumulating a large amount of money in pensions and other savings, but really don’t know what that might mean, how much income they can reasonably expect to receive and how best to take that income.

Giving You Peace Of Mind

Understanding the savings you have, and the options you have with those savings is key. Taking advice can help to give you peace of mind that the choices you make when accessing your savings are right for you. To find out more, please contact us.

Where can you turn if you want to invest tax-efficiently?

Tax-efficiency is a key consideration when investing because it can make such an enormous difference to your wealth and quality of life. If you have an income of over 50,000 it doesn’t just push you into a higher income tax bracket, it also means that you’ll pay higher tax on capital gains and dividend income from your investments. So, it’s important to choose a tax-efficient investment vehicle that is appropriate for your particular investments goals and tax position.

Individual Savings Accounts (Isas)

ISAs come in various forms, including the Stocks & Shares ISA, for tax-efficient investing. You can invest up to 20,000 a year (tax year 2020/21) in a Stocks & Shares ISA, and all capital gains, interest growth and dividend income from these investments are protected from tax. If you’ve used your ISA allowance, you may wish to consider paying into accounts for your partner (who also has a 20,000 annual ISA allowance in this tax year) and your children (who have a 9,000 annual ISA allowance in this tax year). Bear in mind that the money will be in their names and will legally be theirs.

Pensions

Pensions are designed primarily for retirement saving and can usually be accessed from the age of 55. Not only do pensions offer protection from tax on capital gains, interest growth and dividend income (like ISAs), but you’ll also receive tax relief on your contributions. Higher rate taxpayers receive tax relief at 40%, while additional rate taxpayers receive 45%.

There is a limit on the pension contributions you can receive tax relief on, which in the current tax year is capped at 40,000 a year (or 100% of your salary if your salary is lower). But if you have contributed less than your limit in recent tax years, you may be able to pay in more this year.

If you have an annual income of over 200,000, you may have a lower limit on contributions and should obtain professional financial advice to assess your options. If you are approaching your Lifetime Allowance on pension savings, currently 1,073,100 (tax year 2020/21), another investment vehicle may be more tax-efficient.

Alternative Tax-Efficient Schemes

Options include:
• The Enterprise Investment Scheme (EIS), for investment in early-stage companies not listed on the stock exchange.
• The Seed Enterprise Investment Scheme (SEIS), for investment in start-ups raising their first  150,000.
• Venture Capital Trusts (VCTs), for investment in small, expanding companies. These are listed on the London Stock Exchange.

HM Revenue & Customs offers tax incentives through these schemes, including income tax relief, to encourage investment in small businesses. The incentives vary and are only suitable for sophisticated investors. You should always obtain professional financial advice.

Tax-efficient investment schemes are some of the most effective ways for investors to save their funds, or re-invest them to generate greater returns or diversify their investment portfolios.

Invest Today. Change Tomorrow

Responsible, sustainable and environmentally friendly investing is here to stay. But, while demand is growing among all age groups, genders and income bands, some savers and investors are missing their biggest opportunity for responsible investing, which is through their pension.

We all want to make responsible choices as more of us are becoming aware of global challenges, such as environmental issues, human rights and climate change. We’re also starting to care more about how our behaviours affect the planet and society.

Future Success

Taking ESG (Environmental, Social and Governance) factors into consideration when investing is becoming more mainstream. It is acknowledged that companies that act responsibly to their employees, the environment and the public have a better chance of future success than those that don’t. Investing in these companies is a logical approach financially as well as ethically.

Many pension holders understand this approach and see the value of it. In a recent survey, more than one-third of respondents said that the option to invest their pension only in sustainable companies is important to them. Nearly two-thirds said having clearly branded funds for investing in environmentally and socially responsible companies is important.

Pension Investments

The same survey suggests that pension holders feel that sustainable investing isn’t just important, but interesting. More than half of respondents said that a fund focused on clean energy and lowering carbon would make them more interested in their pension. A similar number felt that way about a zero-plastic fund.

But while pension holders feel these issues are important and interesting, that isn’t yet affecting the way they invest. Most people don’t manage their pension investments themselves, instead leaving their pension invested in the default options set by a provider chosen by their workplace. So, more than two-thirds of pension holders do not know how sustainable their pension is.

Environmentally Friendly

Many pension holders don’t know that they can choose their own funds, and therefore that they can choose sustainable or responsible funds. Around half are unaware of ways to ensure their pension is environmentally friendly.

Clearly, there is a large audience of individuals who would like to invest their pension more sustainably and responsibly but don’t know where to start. There are plenty of options, but without specialist experience, it can be difficult to select those that are truly responsible and environmentally friendly and will also deliver the financial return you’re seeking.

Investing With Purpose

Responsible investors essentially take responsibility for the impact that the companies they invest in have on the world. Speak to us about what responsible investing options are available in your pension scheme and for advice on how to help your money have the greatest impact. We look forward to hearing from you.

Reduce your Inheritance Tax Bill

Even those who believe they have moderate wealth levels may still need to take action to minimise Inheritance Tax, particularly if they own property and have savings and investments.

Inheritance Tax is payable in the UK on death, and sometimes when you give away certain assets during your lifetime. It can be a great concern for individuals with wealth exceeding the current £325,000 nil-rate band (2020/21 tax year).

Naturally, you’ll want to pass on as much as possible to your loved ones, rather than paying 40% to HM Revenue & Customs (HMRC).

Are you worried your family could be left with an Inheritance Tax bill after you’re gone?

Here are 10 tips to pay less or avoid Inheritance Tax:

Potentially Exempt Transfers

One of the better-known ways to pass on wealth free from Inheritance Tax is to gift it more than seven years before your death. Of course, there is a degree of unpredictability in the outcome. If you were to die within seven years of making the gift, Inheritance Tax may be charged, though the rate will be reduced if more than three years have passed.

Personal Gifts

Gifts up to a certain value can be made free from Inheritance Tax, even in the last years of your life. Your allowance includes: large gifts totalling no more than £3,000; unlimited small gifts of up to £250; and wedding gifts of up to £5,000 for your children, £2,500 for your grandchildren, or £1,000 for others.

Gifts made within your regular pattern of income and normal expenditure (for example, quarterly payments towards a grandchild’s school fees from your annual income) can usually be made free from Inheritance Tax, although you may need to document this pattern for
three or more years.

Charitable Gifts

Gifts to registered charities can be made entirely free from Inheritance Tax, which can help you to reduce the size of your estate to within the Inheritance Tax threshold.

Additionally, if at least 10% of your total estate is gifted to charity, it will reduce the rate of Inheritance Tax payable on your remaining estate (above the nil-rate band) from 40% to 36%.

Insurance

It is possible to take out a life insurance policy written in an appropriate trust that can provide a lump sum on your death to be used to pay the resulting Inheritance Tax bill. If this policy is within a trust, the lump sum paid out will not count towards your estate.

Insurance can also be taken out when making large financial gifts to cover the Inheritance Tax bill if you were to die within the following seven years (for example, before they are excluded from your estate). This is called a ‘term assurance’ policy.

Pensions

Typically, though with some exceptions, pensions are excluded from the calculation of your estate and can be passed on free from Inheritance Tax. It is important to name a beneficiary to whom you wish to pass on your pension benefits.

It is also possible to make payments in your lifetime into another person’s pension, which will protect this money from Inheritance Tax. For example, you can set up a Junior Self-Invested Personal Pension for a grandchild under the age of 18 and pay in up to £2,880 a year. But they will not usually have access to this money until they reach age 55.

Discretionary Trusts

A discretionary trust can help you to reduce your Inheritance Tax liability by holding money in the name of your beneficiaries while you retain control. You can use your nil-rate band to pay in up to £325,000, which will be excluded from your estate after seven years. Funds above the nil rate band may attract a lifetime tax charge.

Loan Trusts

If you would like to protect your money in a trust but need to know you can withdraw it if you need it, it’s possible to loan money to a trust. You will always have the option to withdraw the original capital you loaned, but any growth on that capital will be protected within the trust from Inheritance Tax.

Discounted Gift Trusts

If you would like to earmark some wealth to be passed to a beneficiary or beneficiaries on your death, but you want any income generated to be paid to you in your lifetime, you can do this through a discounted gift trust. This will exclude the contents of the trust from your estate for Inheritance Tax purposes but still provide you with regular payments from it.

Business Relief

Business assets can usually be passed on either in your lifetime or after your death with Inheritance Tax relief of up to 100%. A business, interest in business or shares in an unlisted company will usually qualify for 100% Business Relief. Land, buildings and machinery related to the business will usually qualify for 50% Business Relief, as will shares controlling more than 50% of the voting rights of a listed company.

Agricultural Relief

If you own agricultural property (land or pasture used to grow crops or rear animals as part of a working farm), this can usually be passed on in your lifetime or after your death free from Inheritance Tax.

Time to Plan your Estate?

Inheritance Tax planning can be a complicated process, especially as rules and legislation seem to change every year. But with the right forward planning, it is possible to significantly reduce or even eliminate a potential Inheritance Tax liability. To identify the best ways to protect your assets for future generations, don’t delay. Contact us to discuss your options.

How to stay within the limit to avoid a tax charge

If you’ve been diligently saving into a pension throughout your working life, you should be entitled to feel confident about your retirement. But, unfortunately, the best savers sometimes find themselves inadvertently breaching their pension lifetime allowance (LTA) and being charged an additional tax that erodes their savings.

If you are a high-income earner or wealthy individual, you could be putting too much into your lifetime pension and risk exceeding the pension lifetime allowance. The following questions and answers are intended to help you avoid this tax charge.

What is the lifetime allowance?

A: The LTA is a limit on the amount you can withdraw in pension benefits in your lifetime before you trigger an additional tax charge. By pension benefits, we mean money you receive from your pension in any form, whether that’s a lump sum, a flexible income, an annuity income or through any other method. This allowance applies to your total pension savings, which may be in different pensions.

How much is the lifetime allowance?

A: In the 2021/22 tax year, the LTA is £1,073,100. This allowance has now been frozen until April 2026.

What happens if you exceed the lifetime allowance?

A: Once you have received your full LTA in pension benefits, you will be required to pay an additional tax charge on any further benefits you receive. If you take your remaining benefits as a lump sum, you’ll pay a tax charge of 55%. If you take your remaining benefits as multiple withdrawals, you’ll pay a tax charge of 25% on each one.

How is the usage of your lifetime allowance measured?

A: Each time you access your pension benefits (for example, by purchasing an annuity, receiving a lump sum or establishing a flexible income), this is recorded as a ‘benefit crystallisation event’. There is an additional benefit crystallisation event when you turn 75, and finally, upon your death.

Is lifetime allowance protection available?

A: You can only protect your pension from the LTA if your savings were worth more than £1 million on 5 April 2016. You may be able to protect your pension savings up to £1.25 million, or up to the value of your pension on that date, depending on the type of protection you have.

Is it possible to avoid the lifetime allowance?

A: If you do not have LTA protection and you are approaching the limit, there are various actions you can consider. These include stopping your contributions (and, instead, investing your money into an alternative tax-efficient environment), changing your investment strategy or starting retirement earlier.

When should you seek professional advice?

A: The rules around the LTA are very complex and making the right decisions can feel difficult. Receiving professional financial advice will help to identify if you have a problem and offer different solutions to consider, based on a full review of your unique circumstances.

Let us help you make the most of your money – and your future

Everyone deserves a great retirement. Your goals and ambitions are unique to you and we want to help you get there. To discuss your retirement plans, please contact us. We look forward to hearing from you.