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News and Insights

Inheritance Tax

Minimising the impact of on your estate

The latest Inheritance Tax (IHT) statistics show an additional 4% was added to HM Revenue & Customs receipts compared to the previous year. IHT is a tax payable when you die. Whether your beneficiaries have to pay it, and how much they’ll pay, is based on the value of your estate.

Your estate’s value is the value of the whole entirety of your assets. An asset is anything of value that is owned, for example: money, property, investments, businesses, possessions, payouts from life assurance not written under an appropriate trust, as well as any gifts made within seven years of your death. IHT is currently applied to estates worth more than £325,000, and will remain at this level until April 2026.

Surviving spouse

When the value of your estate exceeds this limit, known as the ‘nil-rate band’, everything over the threshold is taxed at 40% (unless you’re leaving it to your surviving spouse, in which case no IHT needs to be paid). For the 2021/22 tax year, there is also a ‘residence nil-rate band’ currently worth £175,000. If applicable to your particular situation, this is added to your nil-rate band of £325,000 – so your estate could be worth up to £500,000 before any IHT is payable.

Emotional times

This increased tax take suggests that the Chancellor’s freeze on the nil-rate band and residence nil-rate band at the last Budget is beginning to have the desired effect. It is achieving the ‘fiscal drag’ it set out to do, particularly given that asset prices have soared following the depths of the pandemic and could continue to do so given inflation is on the up.

As a result, many more people could end up having to pay IHT without realising they would fall into the tax charge. It is vitally important people start to have conversations with loved ones to fully understand an estate and the value of it. While it isn’t always the most pleasant conversation, it is better to have it now than during more emotional times such as following a death.

Complicated tax

With the government looking for ways to plug the holes in the public finances created by the pandemic, IHT will always be in focus. IHT is a complicated tax and one that requires a necessary level of knowledge to ensure you’re planning in the most tax-efficient way. So IHT planning should be considered but it’s important not to plan in isolation – it should be part of an overall strategy that encompasses your lifetime financial goals and assets, even though constituent parts may be executed separately and at different times.

Passing on your wealth to the next generation

You have worked hard to build your wealth – we will help you pass it on to the next generation securely and efficiently. If you’d like to find out more or to discuss your situation, please get in touch with us today – we look forward to hearing from you.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change. The value of investments and income from them may go down. You may not get back the original amount invested.

Past performance is not a reliable indicator of future performance. The financial conduct authority does not regulate taxation & trust advice.

Top pension tips if you’re about to retire

Understanding your options and putting a plan in place

We spend our working lives building towards retirement. Choices we make today will have a big impact on the quality of our lives later on. If you only have a handful of years to go until you reach your retirement, it has never been more important to understand your options and put a plan in place – now could be a good time to re-evaluate your plans with us.

The changes made to UK pensions in 2015 mean that we all have more choices available on how to fund our lifestyle in retirement. But decisions surrounding when, why, and how you decide to retire will be very personal and will largely depend on your individual circumstances. These decisions will also be impacted by external factors such as the rising State Pension age, and the impact of the recent pandemic on the job market. When planning for your future, it’s important to know when you can access the money in your pension pot.

If your pension is not on track to give you the income you want in retirement, you need to look at how to boost it. It’s also worth remembering that taking your pension doesn’t mean you need to retire.

Taking stock of your retirement plans

Retirement is a time to reap the rewards of years of hard work and do more of the things that you love, whether that’s travelling the world or spending time with your grandchildren. But to make this a reality, you need to prepare as well as you can financially. This isn’t always easy, as pensions and retirement planning can be complex.

To help you ensure you’re on the right track, ask yourself the following questions. What type of pension/s do I have? Do I have more than one pension pot? If so, where are they? When and how can I access the funds in my pension pots? What is the value of my pension pots? What benefits will they provide me with? What about any other options or guarantees?

Will you potentially exceed the pension lifetime allowance?

If you’re close to retirement, you may find you are approaching the Pension Lifetime Allowance (LTA) limit. The LTA is the most you can accrue overall within your pension plans without incurring an additional tax charge on the excess funds. The LTA test can take place at various times and all funds are tested at some point (for example, when your pension plan is accessed if you die without having accessed it and/or on reaching age 75).

The LTA has been cut over the years and is now £1,073,100 for the 2021/22 tax year. The LTA has also been frozen at £1,073,100 until 2026, potentially exposing you to the charge for breaching the threshold. If you breach the threshold you face a 55% LTA charge on amounts taken above this ceiling if they are withdrawn as a lump sum (with no further income tax due beyond the 55%), or a 25% LTA charge when taken as income which includes placing the funds in a drawdown plan. In addition, any income withdrawn is then taxed at usual income tax rates.

If you think you are nearing the LTA, it’s important to monitor the value of your pensions, and especially the value of changes to any defined benefit (DB) pensions as these can be surprisingly large. DB pensions are valued for LTA purposes as 20 times the annual pension figure, plus the tax-free cash amount, whereas defined contribution (DC) pensions are tested against the LTA based on the fund value. There were, and are, protections that can help you avoid a tax charge by giving you a higher LTA. We can discuss whether this applies to your situation.

What does your current and forecasted wealth look like?

As you get closer to retirement, it is important to assess your current and forecasted wealth, along with your income and expenditure, to create a picture of your finances for both now and in the future.

Lifetime cash flow modelling will help ensure you don’t run out of money – or die with too much – by showing whether your current investment approach is either excessively risky or unduly cautious. Retirement cash flow modelling can help to alleviate your concerns.

Building your individual retirement cash flow plan involves assessing your current and forecasted wealth, along with your income and expenditure, using assumed rates of investment growth, inflation and interest rates, to build a picture of your finances both now and in the future. If you have accumulated wealth, retirement cash flow modelling will help you manage your position and make sensible decisions over the years. However, cash flow planning is arguably even more beneficial if you have longer-term personal or business objectives, as you can see how much you need to save and the returns you need to meet those defined objectives.

Time to look at your options available when accessing your pension?

Once you reach age 55, you can access your defined contribution (DC) pension pot. You can take some or all of it, to use as you need, or leave it so that it has the potential to continue to grow. It’s up to you how you take the benefits from your DC pension pot. You can take your benefits in a number of different ways. You can choose to buy a guaranteed income for life (an annuity). You can take some, or all, of your pension pot as a cash lump sum, or you can leave it invested. However you decide to take your benefits, you’ll normally be able to take 25% of your pension pot tax-free. The rest will be subject to Income Tax.

It’s good to have choices when it comes to pensions and your retirement, but it’s also important to understand all your options and any impact your decision may have on your future security. How long your pension pot lasts will depend on the choices you make. We can help by discussing the options available to access your pension.


If you buy an annuity this will provide a guaranteed income for the rest of your life. With this option, the provider agrees to pay you an agreed regular sum until you die. With an annuity, you may receive more or less money than you put in depending on how long you live after your annuity has started.

Flexi-access drawdown

By opting for flexi-access drawdown, you can leave your pension pot invested so that it has the potential to grow, or take lump sums or a regular income from it. Your pension pot will last until you’ve taken all your money out. The level of income you take and any investment growth will be key factors as to how long your pension pot will last.

Take some or all of it in cash

If you take some or all of your pension pot as a cash lump sum, it’s up to you how long it lasts. Once you receive your money after tax, you’re completely responsible for it and can use it as you require – although remember that although 25% of the amount you take is tax-free, you’ll pay Income Tax on the rest.

Leave it all for now – defer your pension

You could decide not to take your pension at your selected retirement date and leave it invested until you’re ready to take your benefits. This means your pension pot would have the potential to grow, although this is not guaranteed. It’s important to ensure you don’t lose any guarantees which only apply at your retirement date if you decide to leave your pension pot.

Would you like us to carry out a retirement plan review with you?

Even if retirement isn’t far away, there are ways to increase your retirement income. This applies both to your State Pension entitlement as well as to any personal or workplace pension pots you have. To find out what you can do, please contact us for more information.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future. You should seek advice to understand your options at retirement.


Making inheritance gifts from surplus income

Are you making use of this useful and much under-utilised exemption?

If you want to make inheritance gifts from surplus or excess income, there is a useful and much under-utilised exemption that allows gifts over and above the value of £3,000 per annum to be made without these gifts forming part of your estate if you die within seven years of making them.

The exemption comes under the heading of ‘Normal expenditure out of surplus income’. It is a particularly valuable way of gifting part of your estate to future generations on a regular basis.
If you want to make inheritance gifts from surplus or excess income, you need to show that you intend to make regular gifts that will not affect your normal standard of living, and that will come from income rather than capital.

This form of giving is most effective for those with higher incomes relative to their cost of living, who are either looking to clear their estate or just make gifts to loved ones – especially in order to distinguish these gifts from lifetime gifts of capital that have already been made or are being contemplated.

So, what are the requirements?

  1. The gift must form part of your normal expenditure – this can mean either a pattern of regular gifts or the intention to make regular gifts. You therefore need to record when you are making a gift out of income, by writing a letter for instance.
  2. The gift is made out of income.
  3. You are left with enough income to maintain your normal standard of living.

In order to assess whether you have sufficient income to utilise this exemption and to satisfy conditions 2 and 3, you will need to:

  • Consider how much net income you receive (for example, from employment, pensions, dividends, interest, rent) after tax.
  • Review what your normal expenditure amounts to – there is no actual legal definition of what ‘normal expenditure’ amounts to but it is based on an individual’s particular circumstances. This may, of course, fluctuate from year to year.

Conditions that must be met

It is important to consider the conditions that must be met for gifts to qualify. The conditions of ‘surplus’ and ‘normality’ are qualitative and, without methodical planning, can leave room for doubt about the tax effects. It’s therefore important to seek professional financial advice in advance to identify any ambiguity. Inadvertently making a gift of capital could be very costly and later give rise to a 40% Inheritance Tax charge on those funds should you die within seven years.

Carrying forward your income

If appropriate, you could complete this process each tax year to review how much surplus income you have for that year. You can then increase or decrease the amount you gift accordingly. There are no hard and fast rules as to when income no longer retains its status as income. However, HM Revenue & Customs tends to take the approach of being able to carry forward income for a period of two years. It’s important to keep financial records that allow you to calculate and offset expenditure against income. This will determine the amount available for gifting. Tracking the opening and closing balances on monthly bank statements is the usual starting point.

Continuing to make regular payments

It’s also helpful to record a Memorandum of Intent, declaring your future intention to make regular gifts of your excess income, which can be used to anticipate a challenge to their nature. The Inheritance Tax Form 403 provides a useful recordkeeping tool. Your executors will need to claim the exemption on your death, and therefore it is important to maintain thorough record keeping.

In certain situations, it may be possible that a single gift could qualify so long as it can be proved upon death that there was an intention to continue with the payments. Such intention could be proved by the donor providing a signed letter to the recipient confirming their intention to continue to make regular payments.

wishing to retain control of your capital

This is a particularly effective means of tax planning if an individual is not dependent upon such income to maintain their current standard of living but wishes to retain control of their capital. For example, a parent could pay the premiums on a life policy for their child, make payments into trust for the benefit of their children, or pay their children’s school or university fees. The gift can be made out of general income or it could be made out of a nominated source such as property rental or specific investment income.

Is your wealth protected for you and your family?

Estate planning is essential to make sure your wealth is protected for you and your family. By structuring your assets in a taxefficient way, you can make sure everyone is provided for in the future. To discuss your options or any estate planning concerns you may have, please contact us.

This information is based on our current understanding of legislation. Legislation and tax treatment can change in the future. The financial conduct authority does not regulate inheritance tax planning and trusts.


Beat the scammers

Don’t become a victim of illegal pension activities

Your pension is one of your most valuable assets, and for many it offers financial security throughout retirement and the rest of their lives. But, like anything valuable, your pension can become the target for illegal activities, scams or inappropriate and high-risk investments.

Fraudsters promise high returns and low risk, but in reality, pension savers who are scammed can be left with nothing. When savers realise they’ve been scammed, it can be devastating – many lose their life savings. Once the money is gone, it’s almost impossible to get it back.

How pension scams work

Anyone can be the victim of a pension scam, no matter how savvy they think they are. It’s important that everyone can spot the warning signs. Scammers try to persuade pension savers to transfer their entire pension savings, or to release funds from it, by making attractive-sounding promises they have no intention of keeping.

The pension money is often invested in unusual, high-risk investments like:

  • Overseas property and hotels
  • Renewable energy bonds
  • Forestry
  • Parking
  • Storage units
    Or it can be simply stolen outright.

Warning signs of a pension scam

Scammers often cold call people via phone, email or text – this is illegal, and a likely sign of a scam. They often advertise online and can have websites that look official or government-backed.

Other common signs of pension scams:

  • Being approached out of the blue: by text, phone call, email or at your front door
  • Phrases used like ‘free pension review’, ‘pension liberation‘, ‘loan’, ‘legal loopholes’, ‘savings advance‘, ‘one-off investment’, ‘cashback‘, ‘government initiatives’
  • Recommendations of transferring your money into a single overseas investment, with returns of 8% or higher
  • Guarantees they can get better returns on pension savings
  • Help to release cash from a pension before the age of 55, with no mention of the HM Revenue & Customs (HMRC) tax bill that can arise
  • High-pressure sales tactics-time limited offers to get the best deal; using couriers to send documents, who wait until they’re signed
  • Unusual high-risk investments, which tend to be overseas, unregulated, with no consumer protections
  • Complicated investment structures
  • Long-term pension investments – which often mean people who transfer in do not realise something is wrong for a number of years
  • Claims that they are from a legitimate organisation like ours, the Pension Service, Pension Wise
  • Visits from a courier or personal representative to pressure you to sign paperwork and speed up your transfer
  • There may be an authentic-looking website, but these can be cloned from legitimate organisations
  • There will be little or nothing in the way of contact names, addresses or phone numbers

Scams can take many forms

Many scammers persuade savers to transfer their money into single member occupational schemes, or other occupational pension schemes. It’s good to remember that pension scams can take many forms and usually appear to most to be a legitimate investment opportunity.
What to do if you think you’ve been or are being scammed, If you think you might have already been targeted and you’ve agreed to transfer your pension, you should:

  1. Contact your pension provider immediately – they may be able to stop the transfer if it has not already gone through.
  2. Contact Action Fraud on 0300 123 2040 and report the scam.

Pension Makeover

Don’t forget, your pensions should always work for you

By the time we have been working for a decade or two, it is not uncommon to have accumulated multiple pension plans. There’s no wrong time to start thinking about pension consolidation, but you might find yourself thinking about it if you’re starting a new job or nearing retirement.

Consolidating your pensions means bringing them together into a new plan, so you can manage your retirement saving in one place. It can be a complex decision to work out whether you would be better or worse off combining your pensions, but by making the most of your pensions now, this could have a significant impact on your retirement.

Retirement savings in one place

Whenever you decide to do it, when you retire it could be easier having a single view of all of your retirement savings in one place. However, not all pension types can or should be transferred. It’s important that you obtain professional advice to compare the features and benefits of the plan(s) you are thinking of transferring.

Some alternative pension options may offer the potential for a better investment return than existing pensions – giving the opportunity to boost savings in retirement without saving any more. In addition, some people might benefit from moving their money to a pension that offers funds with less risk – which may not have been available before.

This could be particularly important as someone moves towards retirement when they might not want to take as much risk with the money they’ve saved throughout their working life.

Keeping track of the charges

If someone has several different pensions, it can be difficult to keep track of the charges they’re paying to existing pension providers. By combining pensions into a new plan, lower charges could be available – providing the opportunity to boost retirement savings further. However, it’s important fully to understand the charges on existing plans before considering consolidating pensions.

Combining pensions into one pot also reduces paperwork and makes it easier to estimate the income someone can expect to receive in retirement. However, before the decision is made to consolidate pensions, it’s essential to make sure there is no loss of benefits attributable to an existing pension.

Review your pension situation regularly

It’s important that you review your pension situation regularly. If appropriate to your particular situation, and only after receiving professional financial advice, pension consolidation could enable existing policies to be brought together in one place, ensuring they are managed correctly in line with your wider objectives.

Gone are the days of a job for life. So many of us may have several pensions accumulated over the years – some of which we may have left with former employers and forgotten about! Don’t forget, your pension can and should work for you to provide a better quality of life when you retire. Looked after correctly, it can enable you to do more in retirement – or even start your retirement early.

Resolving Money Matters In Divorce

Agreeing financial arrangements can seem daunting

If you’re going through a divorce, it’s important to understand that pensions are an asset in the same way as your house or other savings. In many cases, the personal or workplace pensions of you and your partner will be taken into account when a divorce financial settlement is worked out.

Dividing up any pensions you have will usually be one of the biggest financial decisions you need to make. Agreeing financial arrangements in your divorce can seem daunting; there are so many misconceptions and myths as to what each party is entitled to that it gets confusing.

Pension fund or funds be treated as an asset

The rules surrounding dissolution of a registered civil partnership are the same as those for divorce. We’ve used the term ‘divorce’ to mean the end of a registered civil partnership as well as the end of a marriage.

Pension funds are an asset, just like your home or the savings you might have in the bank. That’s why it’s usual for your pension fund or funds to be treated as an asset that should be divided between you and your spouse or registered civil partner in the event of divorce or dissolution of a registered civil partnership.

Valuable asset split fairly between you

This may not necessarily happen, particularly if you both have similar amounts invested in pension funds. However, if one partner has built up a significant fund while the other has stayed at home to look after children, for example, experienced divorce lawyers will be needed to help you understand the best method of making sure that this valuable asset is split fairly between you.

Pensions can be complex and confusing at the best of times. Frequently, one person has a substantial pension and the other might have none or a very limited pension provision because, for example, they have given up their job to look after the children. A decision will need to be made as to whether that pension or pensions should be shared or if you should receive more of another asset, such as the home, instead.

Universal valuation method for pensions

It is important that pensions are considered in the financial settlement to arrive at an accurate valuation. The universal valuation method for pensions is the Cash Equivalent (CE). A divorcing couple will inevitably be required to obtain CEs for each pension scheme of which they are or have been a member. The advantage of CEs is that they are easily obtainable and provide an approximate ‘snapshot’ value of a pension fund.

The difficulty is that, in some circumstances, the CE can provide a wildly inaccurate valuation. The CE, which will be calculated by the trustees of each scheme in accordance with their own rules, is a calculation of the cash sum that the scheme will pay to discharge their obligation to pay income in retirement.

The value of the pension benefits to the individual member may be very different, and it may cost far more to purchase equivalent benefits on the open market. This can be important in a divorce context, where using only CEs can produce unfair outcomes. There are a number of different approaches to tackle pension assets depending on the circumstances of the couple concerned.

Pension sharing

Pension sharing is the preferred route of most divorce courts. Thanks to the Welfare Reform and Pensions Act 1999 (WRPA), this allows one party the opportunity to secure a percentage of their spouse’s pension rights and to put that percentage into their own name.

This is preferable in many cases because a person can feel more in control of their own future rather than being dependent on an ex-spouse. They can decide when they retire, and if the recipient dies before retirement, the pension investment can be paid to children or a new spouse.

It is important to note that when a pension is divided or shared, this does not mean that the recipient will receive a cash lump sum. A pension or part of a pension that is ordered from one party to another still remains a pension and has to be invested in a pension plan. If the pension is in payment already to the older spouse, a deferred order means that the pension is shared with the younger spouse when they reach retirement age.

What exactly can be divided depends on where in the UK you’re divorcing

In England and Wales: the total value of the pensions you’ve each built up is taken into account. This doesn’t only mean the pensions that you or your ex-partner built up while you were married or in a registered civil partnership, but all of your pensions (except the basic State Pension).

In Scotland: only the value of the pensions you’ve both built up during your marriage or registered civil partnership is taken into account. This means that anything built up after your ‘date of separation’ or before you married or became registered civil partners doesn’t count.


With this option, the pension holder keeps their pension fund intact, which is offset by giving the other spouse a greater share of other assets such as cash savings or equity in a shared home. Offsetting involves balancing the pension fund against other matrimonial assets, such as the house. For instance, the wife might cede the pension fund to her husband in return for a larger share of the profits from any property.

Anyone considering this route should think about it very carefully because of the different nature of capital assets and pensions. Pensions are not liquid assets and, as such, can only be turned into cash on retirement. Their value on retirement could be much higher than at the time of assessment.


With earmarking, the court awards to the former spouse a percentage (it can be 100%) of the income the other party gets from the pension. This seems fairly straightforward and fair. However, it has numerous disadvantages – for instance, the income stops on the death of the pension holder or if the wife remarries.

Deferred lump sum order

This leaves the pension fund intact for the time being, on the understanding that both parties will receive an agreed lump sum at the time of the pension holder’s retirement.

Pension attachment order

A portion of the lump sum and/or pension income will be paid to the other spouse when the pension holder retires, based on the fund’s value at that time. While there are advantages and disadvantages for both parties in this option, it should be noted that this doesn’t achieve the clean break many people desire, and also removes quite a lot of certainty, particularly for the party who must wait for their former spouse to decide to take their pension.

State pensions and divorce

Your basic State Pension can’t be shared if you divorce. However, under the current rules, if one of you has paid enough National Insurance contributions, this could increase the State Pension the other gets, providing they don’t remarry or enter a registered civil partnership before they reach their State Pension age.

If you have an additional State Pension, you may have to share this with your ex-partner. But if they later remarry or enter a registered civil partnership, they could lose this right. From 6 April 2016 onwards, neither the old basic State Pension nor the new State Pension can be shared.

However, if you get divorced and the court issues a ‘pension sharing order’, you or your ex-partner may have to share any extra State Pension entitlement you’ve built up, such as an additional State Pension or any protected payment.

The process of considering pensions in a financial settlement should be as follows:

  • Find out what pension provision there is, (private, company and state) and secure a valuation and forecast
  • Decide with your lawyer and professional financial adviser if the amount of the pension and the facts of your case make further investigation justifiable (i.e. cost versus benefit). Further investigation can mean a drastic increase or reduction in the pension asset, frequently seen with Final Salary Pensions and with Government and Civil Service pensions, such as those that teachers and members of the Armed Forces have
  • Decide how to adjust the settlement in the light of this knowledge

Time to consider your options

The most common question people ask is: ‘Do I need to share my pension?’ There is no simple answer to this question as it will depend on other factors. What other assets are available to be shared? What is the value of your pension? Does your spouse have savings, investments and pensions in their own name? Are you willing to ‘offset’ the value of other matrimonial assets to enable you to keep your pension? There are also many different types of pension, and their terms and value can differ. You and your spouse may have a State Pension, a company pension and perhaps a personal pension too.

Your first step, therefore, is to quantify your pensions alongside your savings, shares, investments and any property or business interest you may have. Having quantified the pension assets, you can then consider fully your options in relation to your pension.

Rethinking Plans

Pessimism about achieving retirement goals due to impact of the pandemic

The coronavirus (COVID-19) pandemic crisis has thrown the retirement plans of some of the nation’s retirees up in the air. As a result, a number of people over 50 and in work are set to delay their retirement (15%) by an average of three years, or keep working indefinitely (26%), as a direct result of COVID-19, according to research.

The pandemic is forcing a widespread rethink of retirement plans. Currently 1.5 million workers aged over 50 are planning to delay their retirement as a direct result of the pandemic. The most recent data from the Office for National Statistics highlights that the number of workers aged above 65 years is at a record high of 1.42 million. However, if people change their retirement plans in response to the pandemic, this could increase considerably.

Five years or more retirement delay

One in six people aged over 50 and in work (15%) believe that they will delay, while 26% anticipate having to keep working on a full or part-time basis indefinitely, due to the impact of the virus. On average, those who plan to delay their retirement expect to spend an additional three years in work.

However, 10% admit they could delay their plans by five years or more.’ These figures are significantly higher for the 26% of over-50s workers who have been furloughed or seen a pay decrease as a result of the pandemic. One in five (19%) of these workers will delay and 38% expect to work indefinitely.

Forced to rethink retirement plans

The financial impact of the COVID-19 pandemic seems to be particularly pronounced for people aged over 50 who are still in work. While some people will choose to work for longer, or indefinitely, the key consideration when it comes to this research is that it seems this decision has been driven by the financial impact of the pandemic, rather than personal choice.

“Should I postpone my retirement due to the coronavirus? Is postponing retirement the right strategy? Or does staying with my original retirement strategy make more sense?”

According to the report, one in five (18%) plan a change to their target retirement age, and 20% of over-55s who hadn’t accessed their pension prior to the crisis have since taken out money from their pension (12%) or are considering doing so (8%) because of the pandemic. The self-employed have been particularly affected, with two in five (40%) forced to rethink retirement plans and 22% now expecting to delay their retirement.

5 reasons to delay taking your pension:

  1. Your pension has longer to grow
  2. You can maximise your investment potential before moving to safer assets
  3. Your employer will keep topping up your pension
  4. You’ll continue to receive tax relief on pension contributions until age 75
  5. Delaying your State Pension can boost your payments

Impact on people’s ability to retire

This is a key stage in people’s retirement planning, so seeing a material impact on household income will naturally lead to pessimism about achieving retirement goals. While it would be naive to say that these financial issues will not have an impact on people’s ability to retire, it’s important for people to have a strong understanding of the options available to them before concluding that their retirement needs to be delayed or forgotten indefinitely.

That employment uncertainty, in combination with volatility in the financial markets, is understandably concerning to some people approaching retirement age. In particular, those who have been furloughed or seen a pay decrease could benefit from a financial review to assess their options before changing their plans.

1.  Opinium Research ran a series of online interviews for Legal & General Retail Retirement among a nationally representative panel of 2,004 over-50s from 15–18 May 2020.
2. Office for National Statistics, Labour market overview, UK: May 2020
4. ukcpw/customer/news/covid-19_has_widereachingimpactonretirementplans.html

Busting the myths about pensions

Reinvent your future to work for you

If you are approaching retirement age, it’s important to know your pension is going to finance your future plans and provide the lifestyle you want once you stop working. Pension legislation is extremely complex and it’s not realistic to expect everyone to understand it completely. But, since we all hope to retire one day, it is important to get to grips with some of the basics.

Many of us have made pension provision, but some of us don’t know very much about the details. To help you get a handle on some of the myths around pensions, we’ve got answers to some of the things you may have been wondering about. It’s particularly helpful to become aware of the things you may have thought were facts that are actually myths. Here are some examples.

Myth: The government pays your pension

Fact: The government pays most UK adults over the pension age a State Pension, which is currently:

Retired post-April 2016 – max (full rate) State Pension of £179.60 a week • Retired pre-April 2016 – max (full rate) basic State Pension of £137.60 a week (a top-up is available for some, called the Additional State Pension) Not everyone is eligible for the full amount, which requires you to have at least 35 qualifying years on your National Insurance record. If you have less than ten qualifying years on your record, you’ll receive nothing. Even if you receive the full amount, you’ll usually need to supplement it with your own pension savings.

Myth: Your employer pays your pension

Fact: Most people are automatically enrolled into a workplace pension. Your employer is usually required to pay a minimum of 3% of your salary into it and you must also pay a minimum of 5% of your salary.

If you keep your contributions at the minimum level, it might be difficult to save enough for retirement. As life expectancies grow longer, your retirement can be almost as long as your working life. It’s therefore important to put aside a portion of your earnings to create a pension pot that will enable you to receive the income and live the lifestyle you want during retirement.

Myth: You can’t save more than your lifetime allowance

Fact: There is a lifetime allowance on the benefits you can access from your pension, which is currently £1,073,100 (tax year 2021/22). That doesn’t mean that you can’t withdraw any more after that, but it does mean that you’ll pay a tax charge of up to 55%. However, there are ways of withdrawing the money with a tax charge of 25%.

Myth: Your pension provider’s default fund is suitable for everyone

Fact: Most pension default funds will start out with a high-risk strategy and steadily move your capital into lower risk investments, such as bonds and cash, as you get closer to retirement. This is to reduce volatility in the value of your investments so that you can have a higher degree of confidence in how much you’ll eventually end up with.

If you don’t plan to purchase an annuity, you don’t necessarily need to reduce volatility before retirement. You may be leaving some of your money invested for several more decades, in which case a higher risk strategy may be more appropriate.

Myth: Annuities are outdated

Fact: There was a time when almost everyone bought an annuity when they retired, and that time has passed because there are now alternative ways to access your pension savings.

But annuities still have a useful role for generating a retirement income and can be an appropriate product for some people. Unlike other pension withdrawal methods, such as drawdown, an annuity offers a fixed income for life, so there’s no risk of your money running out. fiat’s a crucial benefit for many pensioners.

Myth: You can’t pass on a pension

Fact: If you’ve used your pension savings to purchase an annuity, the income from this will usually cease when you die. But if you have pension savings that you haven’t used to buy an annuity (for example, if you’ve been taking an income through drawdown), what’s left can be passed on to a loved one.

If you die before the age of 75 there will usually be no tax to pay by the beneficiary. Otherwise, they will need to pay Income Tax according to their tax band.

Reboot, Rewire Or Retire?

More people are planning to stagger work or work flexibly

Giving up the 9-to-5 doesn’t necessarily mean stopping work. But retirement planning has taken on an entirely new dimension as a result of the COVID-19 pandemic outbreak with many big questions being asked. When you picture yourself in your golden years, are you sitting on a beach, hitting the golf course or still working behind a desk? For many people of retirement age, continuing to work is an option they are considering.

Increasingly, people are planning to stagger work or work flexibly. This can really appeal to some individuals who have caring responsibilities or health issues, or who are thinking about retiring in the next few years.

Sudden transition from working five days a week

Several decades ago, working and retirement were binary terms, with little overlap. People were either working (and under the age of 65) or had hit the age of 65 and were retired. That’s no longer true, however, as staggered retirement is becoming more popular and more common.

Few people benefit from the sudden transition from working five days a week to not working at all. Retirement can often be an unsettling period and it’s not surprising given that the most common path into retirement is to go ‘cold turkey’ and simply stop working.

More flexible retirement and working part-time

Research has highlighted the fact that fewer people are deciding against completely stopping working and are opting for a staggered and more flexible retirement and working part-time. Nearly one in three (32%) pensioners in their 60s and 16% of over-70s have left their pensions untouched.

And of those who haven’t accessed their pension pot, nearly half (48%) of those in their 60s, and 24% of over-70s, say it is because they are still working. With people living longer, and the added prospect of health care costs in later life, retirees increasingly understand the benefits of having a larger pension pot in later life.

Pensions are required to last as long as possible

Of those who haven’t accessed their pension pot, half (51%) say it is because they are still working while more than a quarter (25%) of people in their 60s say it is because they want their pensions to last as long as possible.

Of course, retirees who haven’t accessed their pension pot must have alternative sources of income. When asked about their income, nearly half said they take an income from cash savings (47%), others rely on their spouse or partner’s income (35%) or the State Pension (22%), while 12% rely on income from property investments.

Offering people different financial and health benefits

This trend for staggered retirements offers many financial and health benefits. It is often taken for granted but continued good health is one of the best financial assets people can have. The benefits of working – such as remaining physically active and continued social interaction – can make a big difference to people’s mental wellbeing and overall health in retirement. People are increasingly making alternative choices about retirement to ensure that they do not run out of money, but it’s also really important to make pension savings work past retirement age so as not to miss out on the ability to generate growth above inflation for when there is the requirement to start drawing a pension.

1.Research from LV survey of more than 1,000 adults aged over 50 with defined contributions

Think about the lifestyle you want

Financial security in retirement can never be taken for granted

Life changes when you retire – and so does how you spend your money. Whatever your plans, it’s important to keep on top of things and think about the lifestyle you want. It’s also worth noting the average life expectancy at age 65 years is 18.6 years for men and 21.0 years for women.

So, it’s vital if you are planning to retire soon that you make sure you have enough money to last throughout your retirement. Whether you’re aiming to retire early or have worked way longer than you imagined, retirement should be what you want it to be.

Exciting chapter in your life

This is a new and exciting chapter in your life. And for a lot of us, retirement will be the first time that we can do what we want, when we want. With no job to tie us down, retirement is meant to be a relaxing time. However, your newfound freedom and leisure time could quickly become stress-inducing if you spend too much time fretting about your finances.

When planning for retirement, the most important question for many is, ‘How much money will I need to save to ensure I retire successfully?’ To answer this question you need to know how you want to spend your time in order to know how much retirement will cost you.

Type of lifestyle you want to enjoy

The amount of money you’ll need to enjoy a comfortable retirement is subjective and very much related to the type of lifestyle you want to enjoy during your retirement, the age at which you want to retire and whether you’ll receive the full State Pension amount. An active retirement involving a lot of travel and hobbies will cost more than a quiet retirement spent largely at home. You also have to think about any big-ticket purchases or other plans you’ll need to make.

Estimated retirement expenses

Make a list of all your estimated retirement expenses and then try to approximate how much each will cost you. Remember, some of your expenses may decrease between now and retirement while others could increase. Your housing costs may go down if you pay off your mortgage, but your travel costs could go up if you take a lot of trips and holidays. So you can use your current spending as a baseline, but you’ll have to adjust each figure up or down accordingly.

5 key considerations

Everybody’s circumstances are different, but the key considerations for most people when they think about retiring will come down to factors such as:

  1. How much money do I think I will need in retirement? [ahr_space value=”20″]
  2. Am I planning to phase my retirement by working part-time? [ahr_space value=”20″]
  3. Do I have any debt to pay off? [ahr_space value=”20″]
  4. What is the outlook for my health and potential life expectancy? [ahr_space value=”20″]
  5. How much money have I saved in pensions and other investments?

Annual figure for inflation

Knowing how much you need to cover your retirement isn’t always the easiest number to calculate, but you can adjust your strategy depending on the size of your pot. Once you know approximately how much you’ll spend annually in retirement, you can estimate the total cost of your retirement by multiplying this figure by the number of years you expect your retirement to last, and adding an annual figure for inflation.

Unexpected expenses come up

At the point you’re in retirement, it’s important to keep to the budget you laid out as best as you can. If you have unexpected expenses come up, try to trim back some of your other expenditures to make up for them so you don’t run short. In recent years, the government has made great strides in getting people to save for retirement. With retirement often lasting two decades or more, it is vital to be prepared and build up a retirement income that provides the standard of living you require in the long term.

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