Five Things you Wanted to Know About Pensions

Five Things you Wanted to Know About Pensions

by | Mar 22, 2022 | Planning, Retirement

FIVE THINGS YOU WANTED TO KNOW ABOUT PENSIONS:

BUT HAVEN’T GOT ROUND TO ASKING

29

MARCH, 2022

Pensions
Lifetime Allowance

The world of pensions is complex and ever-changing. You may have a bunch of questions that you’re saving up to ask your adviser next time you have a catch up.

1. SHOULD I BE CONCERNED ABOUT BREACHING THE PENSIONS LIFETIME ALLOWANCE?

Tax rules state that savings in a pension exceeding the Lifetime Allowance of £1,073,1001 will attract a tax charge of up to 55%.

Having a pension worth over £1million might sound like a pipe dream, but the reality is more and more people are breaching the limit.

In the tax year 2010/11, HM Revenue & Customs (HMRC) collected £32million from people breaching the Lifetime Allowance2. This soared to £342 million in 2019/20.

With the threshold frozen until 2026, this upward trend could continue to climb.

You may be able to use certain protection rules to lift your limit. However, if these are unavailable to you, certain benefits might make footing the tax bill worthwhile. You can talk to your adviser about the right options for you.

2. I’M LUCKY TO HAVE A FINAL SALARY PENSION – SHOULD I BE WORRIED ABOUT THE SECURITY OF MY SCHEME?

When faced with company insolvency, large employers can struggle to fund their final salary pension scheme.

However, there’s a safety net for final salary pension holders as schemes are protected by the Pension Protection Fund (PPF). Its protections meant that if your employer or former employer fails and your scheme can’t afford to pay you what you have been promised, the PPF will compensate you3.

“When it’s time to start drawing on retirement savings it’s vital to ensure your savings last as long as you need them to.”

3. SHOULD I TRANSFER OUT OF MY FINAL SALARY SCHEME?

Transferring your retirement benefits out of a final salary pension scheme means giving up an income for life in return for a cash value. The Financial Conduct Authority and The Pensions Regulator believe that it will be in most people’s best interests to keep their defined benefit pension4.

However, if you do decide that you want to transfer, and your pension is worth more than £30,000, it’s a legal requirement5 for you to seek advice from a financial adviser.

Remember, there are many scams operating in pensions. There could be fraudsters trying to encourage you to transfer your money overseas, for example, into fake investment schemes. Be on your guard.

4. WILL MY PENSION SAVINGS LAST?

When it’s time to start drawing on retirement savings it’s vital to ensure your savings last as long as you need them to.

An adviser can help predict how long your savings are likely to last, though it’s not an exact science because the amount in your pot depends on a number of factors, including how the stock markets perform. An adviser could help set sensible withdrawal levels, with an idea of how long the savings would last.

Professionals have access to sophisticated cash-flow modelling which can help forecast of whether your investments – including your pension – are going to be sufficient to cover future lifetime costs.

5. WHAT HAPPENS TO PENSIONS IN A DIVORCE?

When it comes to splitting pension pots, there are typically three options.

Pension sharing is the most common as it provides a clean break between parties. The Court will issue a pension sharing order (PSO) stating how much of the pension, the ex-spouse or partner is entitled to receive, and each party can decide what to do with their share independently.

There’s also the option to “offset”, where you balance the value of the pension against another asset. For example, your ex might keep all of their pension fund, and as a trade-off you get more of a share, or all of the family home.

The third option is to seek a pension attachment order. Under this order a percentage of your pension that you get, each week or month, is paid to your ex, or a percentage of theirs is paid to you.

Advice is crucial to ensure the right decisions are made for all the family.

PROVIDING NEWS AND VIEWS TO SUIT ALL NEEDS

This Blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person.

Cost of Living Crisis and the Impact on Savings

Cost of Living Crisis and the Impact on Savings

by | Mar 14, 2022 | General Investing, Planning

COST OF LIVING CRISIS AND THE IMPACT ON SAVINGS

16

MARCH, 2022

Costs
Savings

The rising cost of living is impacting households far and wide, putting pressure on budgets. Prices are rising, most notably, for energy bills, groceries and filling up the car with fuel. One knock-on effect when bills get more expensive is the difficulty for individuals to maintain their current level of monthly savings.

A new study revealed that three in five (62%) already admit they are struggling to maintain savings commitments, with a third (33%) highlighting the increased cost of living was the main obstacle. Other barriers included a lack of income (28%), high outgoings (18%) and prioritising debts (15%).

The report showed that those aged between 35 and 55 were most likely to cite the cost of living as the main hindrance to saving, with 37% of respondents in this category reporting problems compared to just 31% of those aged between 18 and 34 and 55+1.

Continuing to save and invest is important to ensure you strive towards your financial goals.

There are a number of ways to maintain a savings habit when household finances get tighter.

Here are five key pointers:

GET BUDGETING

The key to being able to save is to spend less than you earn. This is harder when monthly outgoings are heading north. But by perhaps limiting spending in other areas, you can continue on your investment journey. Take some time to look through your bills and make sure you’re on the best deals for everything from your mobile phone and broadband to your mortgage and TV subscriptions. Keep going until you have made some savings.

“You can keep hold of a bigger portion of your earnings by claiming all the tax reliefs you’re entitled to.”

REMIND YOURSELF OF YOUR GOALS

Maintaining your savings habit will be made easier if you remind yourself of your long-term goals. It’s easier to resist cutting monthly savings when you know it will delay reaching those goals.

AUTOMATE YOUR SAVINGS

Hang on to or set up a monthly amount on payday that goes to your savings and investments. As a reminder, investing on a regular basis can help you become a more disciplined investor. You’re forced to invest regardless of whether the price is high or low. This takes some of the emotion out of investing and avoids any delays in putting your money to work.

Plus, by drip feeding your money into an investment over time, you invest across a range of prices. So, you effectively pay the average price over a fixed period, which can help smooth out market volatility.

REDUCE YOUR TAX BILL

You can keep hold of a bigger portion of your earnings by claiming all the tax reliefs you’re entitled to. There are lots of ways to reduce your tax bill, whether you’re an employee or self-employed, a landlord, investor or pensioner. A financial adviser can help you take advantage of the many tax relief opportunities available when it comes to your savings and investments. At home you can check you’re on the right tax code and make sure you are utilising tax-efficient perks at work such as a season ticket loan (if you’re back in the office) and for the self-employed to make sure you’re using all the deductibles you’re entitled to.

REVIEW YOUR FINANCES

A review with your adviser might be in order if your finances dramatically change as a result of rising inflation and bills.

However, if money is seriously tight and you are starting to get to the point where you’re borrowing to pay bills, it’s time to talk to a debt adviser. You don’t need to be in serious debt to ask for help – debt charities will guide those with any level of debt that cannot be paid back.

Consider charities such as National Debtline (https://www.nationaldebtline.org 0808 808 4000), StepChange Debt Charity (https://www.stepchange.org 0800 138 1111), or the Debt Advice Foundation (http://www.debtadvicefoundation.org 0800 043 40 50).

PROVIDING NEWS AND VIEWS TO SUIT ALL NEEDS

This Blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person.

National Insurance – The Lowdown

National Insurance – The Lowdown

by | Feb 25, 2022 | Economy, Market Updates, Planning, Uncategorized

NATIONAL INSURANCE –

THE LOWDOWN

15

MARCH, 2022

National Insurance
Tax

There’s plenty of column inches in the news dedicated to the cost of living crisis at the moment. As well as having to deal with soaring inflation and sky-high energy bills, it’s important to prepare for the fact that we’re all going to pay more National Insurance from April.

How it will affect your own finances depends on earnings. Essentially, the more you earn, the bigger the impact on take home pay.

National Insurance is a tax on earnings paid by both employees and employers; the self-employed pay it on their profits. It’s used to pay for the NHS, benefits and the state pension. Here we’ve got the low down on the changes.

HOW MUCH IS NATIONAL INSURANCE RISING?

Employees, employers and the self-employed will all pay 1.25p more in the pound for National Insurance from April 2022.

Lower National Insurance thresholds1 included in the Autumn Budget in October would normally mean workers pay less tax. (Thresholds tend to increase each April to account for inflation.)

Yet the increase in National Insurance by 1.25% means that most taxpayers will be subject to higher bills.

WHERE IS THE EXTRA CASH GOING?

The government says the changes are expected to raise over £12 billion a year2. Initially, this will go towards easing pressure on the NHS.

A proportion will then be moved into the social care system. The aim is to make sure people in England pay no more than £86,000 in care costs from October 2023.

Proposals3 state that pensioners will still have to pay up to £86,000 – but then the Government will step in cover the rest of the bill.

Government estimates state that private payers would reach the £86,000 cap after three years in residential care and six years receiving care at home.

There will be other crucial changes. At the moment you have to pay for residential old-age care if you have more than £23,250 in assets if you live in England. The threshold is £50,000 in Wales4 and £28,750 in Scotland5.

The £23,250 limit will rise to £100,000 under the Government’s new plans taking effect in October 2023.

People with assets of between £20,000 and £100,000 would contribute towards the costs of their care on a sliding scale.

Anyone with savings under £20,000 will not pay anything.

“From April there will also be an increase on tax charged on income from dividend payments.”

THE FUTURE OF NATIONAL INSURANCE

Technically, from April 2023, National Insurance will return to its current rate. Yet the extra tax will still be collected, badged as a new Health and Social Care Levy. This levy – unlike National Insurance – will also be paid by state pensioners who are still working.

MORE PAIN FOR TAXPAYERS

The National Insurance increase is not the only thing in the pipeline that will impact our income.

Back in the March budget, income tax thresholds were frozen until 20266, meaning that people on more modest salaries will also be pulled into higher tax brackets and pay higher tax bills.

Frozen thresholds include the personal allowance, which is sticking at £12,570.

From April there will also be an increase7 on tax charged on income from dividend payments. On an amount that exceeds the £2,000 limit per person, basic, higher and additional-rate taxpayers currently pay 7.5%, 32.5% and 38.1% respectively. In the new tax year – from 6 April 2022 – the rates are rising. For basic rate taxpayers it will climb to 8.75% and for higher-rate and additional-rate taxpayers it will rise to 33.75% and 39.35% respectively.

If there’s ever been a time to ensure your money is working as tax efficiently as possible, it’s now.

PROVIDING NEWS AND VIEWS TO SUIT ALL NEEDS

This Blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person.

PENSIONS AND RETIREMENT – STILL TABOO?

PENSIONS AND RETIREMENT – STILL TABOO?

by | Jan 19, 2022 | General Investing, Planning, Retirement, Uncategorized

PENSIONS AND RETIREMENT – STILL TABOO?

15

FEBRUARY, 2022

How to fund retirement is not an ideal topic for a quiet evening in. But it’s an important one which is being overlooked by millions of married couples.

According to a recent study1, almost half (47%) of working married people have not spoken to their spouse about their retirement plans.

Wealthy households aren’t doing much better. The study revealed that those with assets of between £100,000 and £500,000 excluding property – are more likely than average to be aware of the value of their spouse’s pension, but the majority (60%) aren’t going to plan their retirement finances with their spouse.

Those couples who don’t tend to talk about finances might be more likely to do so if they realised that those who jointly plan their retirement can be much better off when they stop working.

Indeed, 85% of non-retired married people are not aware of the tax-efficiencies of planning retirement together.

There are many ways in which couples can maximise the tax breaks jointly available to them and find the most tax-efficient way of generating income in retirement, together.

For example, on retirement, taking the full tax-free cash entitlement from a pension is not always the smart choice- unless a large lump sum is needed.

It can make sense for couples to instead retain most of the tax-free cash entitlement until a later date, looking to utilise the personal allowance (and potentially the basic rate tax band) to draw down tax-efficient income instead.

“Talking about money and financial security is a must in any relationship since it’s such a big part of planning a future. “

An adviser can unveil the many other ways in which a couple can use the rules to their advantage and minimise tax bills. This is particularly useful where retirement happens before the State pension kicks in.

Making use of each other’s allowances is also worth investigating. A higher earning partner approaching the Lifetime Allowance or Annual Allowance could pay additional contributions into their partner’s pension. The contributions will attract tax relief and the couple will be able to draw a tax-free combined income of more than £30,0002.

That’s got to be worth talking about.

However, it’s not only married couples that are guilty of failing to communicate on retirement money matters later in life.

Previous research3 suggests the failure to talk finances starts much earlier on in the relationship cycle. People admitted they would say ‘I love you’ five months into a relationship, but wouldn’t talk about money until nine months – and a quarter are simply uncomfortable talking about money with their other half.

The research also found 18% are more likely to move in together before they talk about money.

Talking about money and financial security is a must in any relationship since it’s such a big part of planning a future. Sharing decisions about spending and saving – and discussing money openly – will help avoid arguments and tension.

Having an adviser on hand to help put in place ways to reach retirement goals – and others – can prove invaluable.

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

Source:

[1] LV= surveyed 4,000+ nationally representative UK adults via an online omnibus conducted by Opinium in June 2021

[2] LV= surveyed 4,000+ nationally representative UK adults via an online omnibus conducted by Opinium in June 2021

[3] https://bank.marksandspencer.com/explore/media-centre/overview/press-release/2020/02/financial-language-of-love/PR100410/

 

 

PROVIDING NEWS AND VIEWS TO SUIT ALL NEEDS

This Blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person.

Equity release on the rise

Equity release on the rise

by | Jan 18, 2022 | Planning, Retirement

EQUITY RELEASE ON

THE RISE

24
JANUARY, 2022
EQUITY RELEASE

The impact of the pandemic means over-50s are now more likely to stay in their current home for life, having formed a greater attachment to living in the same space as fond memories.

New research1 predicts that as a result we could be set to see an increase in people opting to take out equity release products to fund home improvements, with 17% saying they would rather spend money to make their house more accessible than relocate.

An equity release loan is designed for the over 55s, and works differently to standard mortgages. On some Equity Release products you do not have to make monthly payments. Instead, the interest rolls up and is repaid (together with the original loan) on the sale of the house, either when you move into care or upon death.

With families wanting home comforts more than ever and soaring property prices, homeowners have been taking advantage of having even greater equity at their disposal.

The latest house price figures2 show that the UK house prices grew at the fastest pace in 15 years over the past three months, with the average home valued at £20,000 more than this time last year.

Prices rose by 3.4% in the quarter to the end of November, which is the highest quarterly rate since late 2006 and brought the average price of a home to a record of £272,992.

During the first half of 2021 homeowners unlocked £2.3 billion of property wealth to support their finances3 using equity release loans.

Yet releasing cash from a property was a growing trend even before the pandemic with more and more people taking advantage of the money locked up in their homes.

“For newcomers, it’s worth exploring equity release with an adviser.”

It’s not just home improvements that trigger the need to raise cash. Homeowners take out equity release to boost their income in retirement where pensions haven’t quite met the living standards they wanted.It’s also commonly used to clear debt or to help out family4.

GETTING THE RIGHT DEAL

Equity release loans are becoming more competitive and more flexible.

For example, more than two thirds (68%) of equity release loans allow customers to make voluntary capital repayments with no early repayment charge5. This reduces the final interest payment due when the property is sold, leaving more money for long-term care or to leave as inheritance.

Increasingly savvy customers are focused on competitive interest rates, fixed early repayment charges and penalty-free repayments.

The growth in the market is not just about new equity release loans, however. It’s expected that equity release business will be driven by growing numbers of people interested in switching existing deals to take advantage of the increased flexibility there has been in products over the last few years. This includes the ability to make monthly repayments to cut overall interest charges.

Almost half (47%) of advisers reported6 an uptick in customers proactively contacting them regarding switching loans, suggesting that consumers are more conscious than ever of the wider product innovations in the market.

Interested in learning more?

For newcomers, it’s worth exploring equity release with an adviser. The need for clear information is apparent as 36% say they are confused about what mortgages are available to people in later life7.

It’s also worth discussing alternatives, which include downsizing or asking your lender to extend your mortgage term if you’re still repaying it.

An adviser can help you explore alternatives and help decide the most appropriate route to raising cash, since equity release is not right for everyone.

The Equity Release Council recently highlighted8 that ‘one of the great benefits of the equity release advice process is that it frequently unearths other solutions, from savings or investments to unclaimed pensions or benefit entitlements’.

With people living longer now, their needs change over time and the questions prompted by considering equity release can help identify the best way to use different sources of wealth at different stages of life.

It’s also smart to discuss an existing equity release loan with an adviser to see if there’s a better deal available that could save you money on interest payments. There could be penalties to pay for leaving your current lender’s deal early, but it’s worth exploring. Even if you’re on an expensive loan rate, you might still be better off moving to a cheaper loan, factoring in the charges. You may even want to switch to a more flexible loan.

Think carefully before securing other debts against your home. Your mortgage is secured on your home. Check that this mortgage will meet your needs if you want to move or sell your home or you want your family to inherit it. If you are in any doubt, seek independent advice.

Source:

[1] https://www.onefamily.com/our-story/media-centre/2021/forever-home/ 

[2] https://www.halifax.co.uk/assets/pdf/november-2021-halifax-house-price-index.pdf 

[3] https://www.equityreleasecouncil.com/news/autumn-market-report-2021/ 

[4] https://www.keyadvice.co.uk/about/press-release/equity-release-heads-for-record-after 

[5] https://www.equityreleasecouncil.com/news/autumn-market-report-2021/ 

[6] https://www.propertyreporter.co.uk/finance/equity-release-market-predicted-for-further-growth-in-2022.html

[7] The Equity Release Council, December 2021 (press release not online)

[8] Equity Release Council, November 2021 (press release not online)

 

PROVIDING NEWS AND VIEWS TO SUIT ALL NEEDS

This Blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person.

Abacus Associates Financial Services is a trading style of Tavistock Partners (UK) Limited which is authorised and regulated by the Financial Conduct Authority, FCA number 230342. Tavistock Partners (UK) Limited is a wholly owned subsidiary of Tavistock Investments Plc. Tavistock Partners (UK) Ltd trading as Abacus Associates Financial Services are only authorised to give advice to UK residents. Registered in England. Registered O­ffice: 2nd Floor, 1 Queen’s Square, Ascot Business Park, Lyndhurst Road, Ascot, Berkshire, SL5 9FE, Company Number 05066489, Company Number 04961992. Will writing and some aspects of tax planning are not regulated by the Financial Conduct Authority. Your home may be repossessed if you do not keep up repayments on a mortgage. The firm is not responsible for the content of external links.

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