"Don't panic Mr Mainwaring" -The Great Fall of China!

By David Triggs 11/112015

When is a flat rate not a flat rate? When it's the new state pension. 

The state pension is undergoing major changes for people retiring after next April. In theory it's a change to a simpler system, but there's plenty of confusion and complexity involved, so it's worth exploring your personal position carefully. 

The main change is to the way the pension is calculated. At the moment it comes in two parts: a basic amount which is the same for most people, and then an additional amount which varies depending on how much you've paid in National Insurance over the years (which itself depends on how much you've earned.)

The new system replaces this with a single "flat rate" payment. In theory this means everyone gets the same amount: £148.35 in the first year, with plans to increase this to keep up with the cost of living over time. In practice it’s not that simple.

Who might get more?

Current workers who've earned a lot in the past and thus paid a lot in National Insurance may get a little more than the flat rate. To put it in simple terms, for the work you've done before next April, the amount you paid in National Insurance will affect how much state pension you get; for the work you do after next April, all that counts is whether you paid National Insurance at all.

Who might get less? 

Despite the name "flat rate" you'll only get the full amount if you have 35 qualifying years. A qualifying year is one in which either you were working and earning enough to pay National Insurance, or you got a National Insurance "credit" to reflect situations such as being unemployed, sick or a carer. If you have fewer than 35 qualifying years, your state pension will be reduced proportionally, and if you have fewer than 10 qualifying years you may get nothing.

Another group who'll miss out is people who contracted out. That means they joined a private or workplace pension and chose to pay lower National Insurance contributions, with the money instead being put into the pension. These people will get a reduced state pension even if they have the full 35 qualifying years, but exactly how much the reduction will be has not yet been confirmed.

In both cases, even if these reductions should apply, the government says individuals will always get at least as much overall as they would under the old two-part system.

What to do next?

You can get a forecast on how much your state pension will be through a government service at: https://www.gov.uk/government/publications/application-for-a-state-pension-statement. Bear in mind though that this forecast is based on a lot of assumptions, so don't take it as gospel. Indeed, for some people the forecast assumes they won't pay anything else in National Insurance between now and retirement, which is clearly ludicrous.

You may have the option to make an extra payment to cover any missing qualifying years and then receive a bigger pension or even the full "flat rate". This is effectively a gamble as to whether you'll live long enough to make back the extra payment though a higher state pension, so consider taking advice before making any decisions.

By Rob Barron 14/1/2016

The buy-to-let market is braced for a major hit when several tax changes take effect from this April. While some landlords have vowed to fight the changes in court, the industry is divided on whether this marks a long-term attempt to deter buy-to-let.

The package, introduced in the recent Autumn statement, has two key changes that make buy-to-let less attractive. The first is to stamp duty where anyone buying a property as a buy-to-let or second home will now face a surcharge of three percentage points on top of the usual stamp duty rate.

The surcharge affects properties of all prices and while the raw cost of the surcharge will of course be higher with more expensive properties, landlords will take a proportionally bigger hit with cheaper homes. 

For example, while tax on that portion of a purchase price over £1.5 million rises from 12 percent to 15 percent, the portion between £125,000 and £250,000 has an arguably more significant rise from two percent to five percent. Meanwhile the biggest impact comes with the first £125,000 of any property purchase, which has no stamp duty for ordinary buyers but will now attract a charge of three percent for buy-to-let.

The second big change is to mortgage interest tax relief for buy-to-let landlords. At the moment they can simply class mortgage interest on the property as a deductible expense, reducing the income on which they pay tax. From April this mortgage interest won't be a deductible expense but will instead attract a 20 percent tax credit.

For a landlord who's a basic rate taxpayer, the net effect will remain the same. For those who pay higher rate taxes, they'll be worse off overall. The effect will be significant, and will worsen if and when interest rates rise.

Two landlords have already launched a campaign to challenge the changes in court. They say the tax changes could be inherently illegal for a couple of reasons: unfairly discriminating between owner-occupiers and landlords; and failing to treat mortgage interest as a legitimate business expense, thus effectively taxing turnover rather than profits.

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future 

The information within this blog is for information purposes only and is based upon our interpretation of current HM Revenue & Customs guidance which is subject to change. 

By James Tanswell 2/3/2016

As Britain's voters prepare to end the hokey-cokey and finally decide if they want to be in or out of the European Union, analysts are already divided on the potential effects on markets of both the vote and the result.

The currency markets have already spoken, with the pound falling and hitting its lowest point against the dollar since September. The problem is that although two obvious factors caused that decline, it's hard to tell yet what the balance between the two is.

As always, market movers hate nothing more than uncertainty and a combination of opinion polls and the division of leading political figures means the result of the referendum may be in more doubt over the next four months than originally thought.

At that same time, the fall may also reflect the fact that a British exit, while still less likely than not, has now become a genuine possibility. That's seen by many economists as a potential negative using the logic that any increased barriers to trade can harm British business by not only making exports harder but by making it harder to source labour and supplies. That philosophy could also mean stocks in both British companies and those European firms which operate heavily in the UK will remain volatile in the coming months.

The combination of uncertainty and inherent negative effects are amplifying market fears of a vote to leave. Economists and analysts have made a variety of arguments for a Brexit having an outcome that is positive, negative or broadly neutral for the UK's economy. The problem is that the negotiating process for life after the EU could take many years, meaning the long-term effects remain uncertain for an extended period.

There's one note of caution for investors planning to proceed on the basis that both the pound and the market for British-based investments will be shaky at least until the referendum. Analysts including Barclays have warned that markets don't yet appear to have reacted to the risks that will arise for other countries, particularly the possibility of the Euro taking a knock if questions arise about the stability of the EU as a whole, including the possibility of debt-hit countries quitting both the union and the currency.

The UK EU referendum is bound to split opinion throughout the populace however, much like UK Income manager Neil Woodford, we believe that it is hard to see any credible evidence to support either staying or leaving. Because of this there are only a few things we can be relatively sure of;

Pre Referendum

There will be an increase in volatility leading up to the 23rd June. This is not just UK Market volatility, but Currency fluctuations and wider EU market volatility as the effects of a possible Brexit are considered. These periods of overreaction and volatility offer up good investment opportunities and a weak sentiment does not necessarily mean fundamentals have changed.

There will be winners and losers. A weaker currency may be seen as negative to domestic importers but from an economic perspective a weakening currency makes our exports more competitive and therefore would be a positive for the UK Economy. There is as much to fear right now from the Brexit talks bringing down the Euro at the same time as Sterling; its cable and the Euro/Dollar that are arguably a better gauge of any potential fallout.

Post Referendum

No matter the result, the effects on the underlying companies and therefore, investments generally, are likely to be muted. After all, the status of the UK's EU position does not affect that many companies directly, and a good company does not become a bad company over night. It is also important to point out that the UK market is particularly international in nature.

A point worth making is that the referendum should probably not be seen as a simple win-lose barometer for either camp. An establishment-backed status quo campaign probably needs to win by a sizeable margin to declare victory and to consider the Brexit debate settled once and for all (well a few years anyway).

In summary, our stance is to continue to aim for outperformance on a relative
basis and remain invested in what could be a troubling but not apocalyptic UK investment environment.

This article is for information purposes only and does not constitute advice and should not be relied upon to make investment decisions. If you are unsure, you should seek professional independent financial advice. You should note that past performance is not necessarily a guide to future returns. The value of units and the income from them may fall as well as rise. Investors may not get back the amount originally invested.

By James Tanswell

The 6th of April is an important date to many for a number of reasons:

• It’s National Fisherman Day in Indonesia 
• It’s the day that ABBA won the Eurovision Song Contest in 1974
• It’s Raphael’s birthday (the 16th century Italian Renaissance painter, not the Teenage Mutant Ninja Turtle)

It’s also the first day of the brand-new tax year, which brings with it a long list of changes that you should know about. This article looks at the 10 most important changes to your personal finances, from your personal tax allowance all the way to your dentist bills.

1. Income Tax Allowance

The tax-free Personal Allowance is rising from £11,000 to £11,500.

This allowance is the amount you can earn before you are required to pay income tax. This has been raised as part of the Government’s plans to eventually increase the allowance to £12,500 by 2020. The increase is expected to save 20 million basic-rate taxpayers an estimated £100 per year.

For those in England, Wales and Northern Ireland, the higher-rate tax band is also rising, with a change from £43,000 to £45,000. The threshold for those living in Scotland will remain at £43,000 The higher-rate tax band is also expected to rise again by 2020, with Philip Hammond announcing an aim for a £50,000 threshold in the 2016 Autumn Statement.

2. National Insurance Contributions

New National Insurance Contribution (NIC) thresholds have been put in place for the 2017/18 tax year.

• Employees paying Class 1 NICs pay 12% on income between £157 and £866 per week
• Employees paying Class 1 NICs pay 2% on income over £866 per week
• Self-employed people paying Class 2 NICs pay £2.85 a week for profits over £6,025
• People paying voluntary Class 3 NICs pay £14.25 per week
• Self-employed people paying Class 4 NICs pay 9% on profits between £8,164 and £45,000
• Self-employed people paying Class 4 NICs pay 2% on profits over £45,000

Your NICs go towards state benefits and services, such as the NHS, unemployment benefits, sickness and disability allowances and the State Pension. Those making voluntary contributions to fill any gaps in their National Insurance record will see a 15 pence rise, as the Class 3 NICs rise from £14.10 to £14.25 per week.

3. ISA allowance limit

One of the bigger changes that you may have already heard about is the rise to the ISA (Individual Savings Account) allowance from £15,240 to £20,000.

There has been lots of ISA talk in the media recently, with products such as the Lifetime ISA being launched for the new tax year. July 2014 saw significant relaxing to both the ISA rules and the annual limits, and 2017/18 sees the largest allowance yet. £20,000 can now be placed in Cash, Stocks & Shares, Innovative Finance, Help to Buy or Lifetime accounts, or a combination of them all, with any interest or returns sheltered from taxation.

4. Lifetime ISA

The Lifetime ISA (LISA) was launched on the 6th of April 2017, and is targeted at members of the Millennial Generation who are saving money to buy a first home, or to use for their retirement. The key features of the LISA are:

• It is a savings and investment product for 18-50 year olds (only under 40s can open one)
• A maximum of £4,000 can be paid in per year (which will be taken out of your annual ISA allowance of £20,000)
• The Government will add a 25% bonus on any money saved
• It’s available in both a Cash and Stocks & Shares format
• It can only be used to buy a first home worth less than £450,000, or after the age of 60 without incurring penalties which is currently 25% of the amount withdrawn

There are other stipulations that must be navigated, but at its heart, the LISA is designed to be a versatile account that can help first-time buyers or encourage people to save for the future.

5. Marriage Allowance

The Marriage Allowance is rising to £1,150, from £1,100.

Whilst this is a relatively small change, the Marriage Allowance means that you can transfer up to £1,150 of your tax-free Personal Allowance to your husband, wife or civil partner if they earn more than you do.

The Marriage Allowance is available to couples who:

• Are married or in a civil partnership
• Have a higher earner who has an income between £11,501 and £45,000 (or £43,000 if they live in Scotland)
• Have a lower earner who has an income of less than £11,500

This could reduce the tax paid by up to £230 in the next tax year, making the £50 difference in allowance a fairly significant one for some.

6. Inheritance Tax (IHT)

A £100,000 allowance called the ‘Residence Nil Rate Band’ will be introduced for children inheriting a family home.

The current IHT Basic Nil Rate Band of £325,000 will stay the same, but the addition of a £100,000 allowance will mean that anybody leaving a primary family home to a child, or ‘direct descendant’ as HMRC label it, will effectively be able to pass on an estate worth £425,000.

The good news doesn’t stop there either. The allowance can be doubled up for couples, meaning that an estate of up to £850,000 can be passed on to children without incurring the 40% IHT tax.

The nil-rate band is set to increase by £25,000 each year, reaching £175,000 in the 2020/21 tax year. This would allow a married couple to inherit a family home worth up to £1 million.

7. Capital Gains Tax (CGT) Allowance

The CGT allowance will rise from £11,100 to £11,300.

CGT is applicable to any income that derives from the sale or disposal of most personal possessions worth £6,000 or more, property that isn’t a primary home, non-ISA based shares/investment or commercial assets, so a £200 increase in the allowance will be welcomed by many.

8. National Living Wage increase

The National Living Wage, which is an obligatory minimum wage for workers aged 25 and over, has risen by 4%.

This will see a worker earning £7.50 per hour instead of the current rate of £7.20. Applied to a 37.5 hour work week, this would see an increase of £45 per week. Those under the age of 25 aren’t as fortunate, however, as the National Minimum wage has risen by 1.4% which is below the current CPI inflation rate of 2.3%.

The new National Living Wage and National Minimum Wage rates are:

• £7.50 per hour for those over 25
• £7.05 per hour for those aged between 21 and 24
• £5.60 per hour for those aged between 18 and 20
• £4.05 per hour for those aged under 18
• £3.50 per hour for apprentices

9. Vehicle Excise Duty (VED)

A complete overhaul to the road tax system will see a standard annual rate rolled out in place of the current emissions-based bands.

Anybody buying a new car from April 1st 2017 will pay a special rate ranging from £0 – 2,000 for the first year depending on engine emissions, and then a fixed annual rate from then onwards:

• Zero emission: £0
• Standard: £140
• Premium (vehicles costing over £40,000): additional £310 for five years

The new VED charges will only affect new cars, so the rates for existing car owners will not change.

The overhaul has been met with both opposition and support. Some higher emission car owners will be hundreds of pounds better off, but there are a few losers. For example, the Mercedes-Benz C300 BlueTec Hybrid, which would incur £0 VED in 2015, will be £2,370 worse off over the next six years.

10. NHS Charges

The cost of an NHS prescription will rise, along with dentist charges.

These changes were made a little before the start of the new tax year, but they will have an impact for anybody who needs to access the NHS. A prescription has risen from £8.40 to £8.60, but pre-payment cards will not change.

Visiting the dentist will be slightly more expensive too, as:

• The cost of a check-up rises from £19.50 to £20.60
• The cost of a filling rises from £53.90 to £56.30
• The cost of complex work rises from £234.30 to £244.30

Lots of changes have been made for the 2017/18 tax year, some good and others not so much. Working out if you will be better or worse off will depend entirely on your circumstances, but with significant changes to the ISA allowance, the tax-free Personal Allowance and the National Living Wage, it definitely isn’t all doom and gloom for everybody. With the general election on the horizon, these changes may be entirely different after the 8th of June, so staying up to date will prevent any confusion.

The information within this article is based on our current understanding of HM Revenue & Customs guidelines at the date of publication. Any tax reliefs are dependent on your own particular circumstances and are subject to change. The Financial Conduct Authority does not regulate tax advice. The Financial Conduct Authority does not regulate Tax Advice

By Rob Barron

Confusion reigned this week as the Chancellor, Philip Hammond, revealed that two measures previously announced in his Budget will not go ahead.

For now, anyway.

Mr Hammond’s Budget, delivered in early March, will be remembered for the proposed National Insurance rise for self-employed workers. A few days later, following protests and a media backlash, he changed his mind.

It now seems that two other measures, which would have affected pensioners and shareholders, will now not go ahead.

Contribution cut

Prior to the Budget, the Money Purchase Annual Allowance (MPAA), the maximum people who have withdrawn money under the new ‘freedoms’ could continue to pay in to their pension, was set at £10,000. In his Budget, on 8th March, Mr Hammond announced that it would be cut to £4,000 from 6th April; giving pensioners less than a month to plan for the change.

Whilst paying in to your pension after you have taken money out, may seem illogical, there are many reasons why it might be the right thing to do. The change would have affected thousands of pensioners, including those who continue to work on a part-time basis, who have previously retired and subsequently returned to work or who have taken money from their pensions under the new ‘freedoms’ and continue to work.

In a bizarre twist though, as the Government rushed to pass the Finance Bill before Parliament breaks for the General Election, the proposal has been withdrawn, despite the fact it should have come into effect three weeks ago.

Time will tell whether the measure will be reintroduced if the Conservatives are re-elected. Those people who would have been affected are meanwhile left in limbo; unsure whether the maximum they can pay into their pension is £4,000 or £10,000.

Responding to the change, former Pensions Minister, Steve Webb, said: “There is a chance it has now been delayed a year. I think it would be very hard for a government to come in in July and say: 'you who put £10,000 in May when the limit was £10,000 and there was no government should not have done that and we are going to tax you.' I think that would be very odd.”

Dividend Allowance cut shelved

The amendment to the Finance Act also removed the cut in the Dividend Allowance, scheduled to take effect from April next year.

The Dividend Allowance currently allows shareholders, including business owners and investors, to take £5,000 in dividends each year, without having to pay tax. Dividends above this amount are then taxed at a rate of 7.5% for basic rate taxpayers and 32.5% for higher rate taxpayers.

The change would have cost shareholders hundreds of pounds each year.

However, as it was not due to take place until 2018, many experts believe the reprieve is only temporary and will be reintroduced on post-election legislation.

Keep checking back for more updates

As campaigning moves in to full swing prior to the vote on 8th June, keep checking back for the latest updates. While the General Election might be dominated by Brexit, all parties will be proposing policies which are bound to affect your personal finances.

You can reply on us to keep you up to date.

In the meantime, if you have any questions or queries after reading this article, please don’t hesitate to get in touch.

By David Triggs

National Savings & Investments (NS&I) has launched its new Investment Guaranteed Growth Bond, after announcing it in November 2016.

The fixed rate bond offers the highest interest rate currently available at 2.2% gross/AER, and has been called ‘market leading’ by the Treasury. Despite the competitive interest rate, it doesn’t beat the current rate of inflation, as measured by the Consumer Prices Index (CPI), which is currently at 2.3%.

What are the key features?

Although the account is called an Investment Guaranteed Growth Bond, it isn’t actually an investment product. Instead, it works as a savings bond, with no element of capital risk.

A fixed return of 2.2% is offered, which would see a £1,000 deposit turn into £1,067.46 over three years. Other key features include:

• £3,000 is the maximum that can be saved
• A three-year term
• The 2.2% interest rate is fixed and won’t change
• The account is only available online
• A minimum deposit of £100 is required to open the account
• Early access is possible, but will incur a penalty equal to 90 days of interest
• Returns are potentially taxable, dependant on personal circumstances

What are the advantages and disadvantages?

Unfortunately, the interest rate doesn’t beat the current rate of inflation. Nevertheless, the NS&I bond pays a very competitive rate of interest, if you are happy to put it aside for three years. Early access is possible, but a penalty equal to 90 days will be incurred, and £100 must be left in the account to keep it active.

The online-only nature of the account may benefit people who are more comfortable dealing with their finances via the internet. This comes with its disadvantages, of course, as it excludes anybody who has no internet access, or prefers to bank by visiting branch or by phone.

The returns are potentially subject to tax, which will come out of your Personal Savings Allowance. This currently stands at:

• £1,000 for basic-rate taxpayers
• £500 for higher-rate taxpayers

Any savings income above this threshold will be taxed. This should only affect people with additional methods of saving, as the returns on the maximum of £3,000 would be just under £200. Regardless, it is another thing to bear in mind when deciding whether the bond is right for you or not.

What alternatives are there?

There are a few similar products available, which offer certain advantages over the NS&I bond. For example, The Secure Trust offers a 2% three-year bond, and has a maximum limit of £1 million. The OakNorth Bank also has a three-year bond, but offers an interest rate of 1.91% and a maximum limit of £100,000.

With inflation expected to rise even higher than 2.3% this year, the NS&I bond won’t beat it, but could lighten the blow of a ‘real terms’ loss considerably, compared to other savings accounts available. A higher savings limit would be appreciated by some, but modest savers will benefit from a secure place to store their money.

The Financial Conduct Authority does not regulate National Savings & Investments ‘NS&I’ products.

By James Tanswell

The answer to that question depends on two things; the outcome of the election and how you react to the inevitable instability it will cause.

At this early stage, the most likely outcome seems to be a Conservative victory, with an increased majority. At least that’s what a certain Mrs May, of Number 10 Downing Street, has gambled on.

Logically, if this is the case, Mrs May, and the Chancellor Philip Hammond, will be emboldened to drive through changes to domestic policy, whilst negotiating Brexit. Of course, even if it looks unlikely right now, Jeremy Corbyn could pull off the biggest political shock of this, or probably any other generation.

So, what changes might we see once the result is known on 8th June? How will the second election in two years affect your personal finances?

Triple Lock to be abolished?

The triple lock protects the value of the State Pension, ensuring it rises by inflation (measured by the Consumer Prices Index), earnings or 2.5%, whichever is higher

It’s a popular policy with older voters and was guaranteed to remain in place until 2020. Although, Philip Hammond has previously suggested its days may be numbered and has ordered a review into its long-term viability.

But that was before the snap election was called. Political expediency, especially if the opinion polls narrow, may mean the Tories decide to keep the triple lock. Especially if the medium to long term predictions suggest inflation will rise above 2.5%, which means the cost of the triple lock is minimal.

For their part, Labour has already pledged to keep the triple lock until at least 2025.

Pension tax-relief

As Mr Hammond continues his search for cost savings, the £34 billion spent each year on pension tax-relief must be a tempting target.

Before each Budget, and until last year’s Autumn Statement, rumours abound that this is the year pension tax-relief will be cut. Any of the people perpetuating these stories overlook the fact that the amount of tax-relief available has already effectively been cut. The maximum pension contribution, thereby limiting the tax-relief available has already been cut to £40,000 and in some instances, it’s as low as £10,000.

Will this be the election when politicians finally grasp that nettle though and look to make further savings on the billions of pounds spent on tax relief?

As both main parties chase the older vote (who are more interested in pensions) we’d be surprised if either made an overt commitment to cutting pension tax-relief. But they may surprise us.

National Insurance rises back on the table?

Philip Hammond was forced to row back on his plans to put up National Insurance contributions paid by the self-employed after it was deemed to have broken a 2015 manifesto pledge.

Don’t expect any similar commitments in the 2017 version; in fact, if the Conservatives are returned with a larger majority, we wouldn’t be surprised to see the NI increase back on the table.

Higher State Pension Age?

This is an interesting one.

It’s clear that the State Pension Age is only heading in one direction and is already stated to rise to 67 by 2028, whilst two recent reports have recommended different rates of increase.

The Government must make an announcement before 5th May. The big question of course is how their decision will be affected by the forthcoming election. With votes on the line it’s possible that the Government will take a short-term view, with only a small increase, in the hope of winning votes,

A view from the ‘inside’

Who better to give his views on the direction of pension policy after the election than the former Pension Minister, Steve Webb, now Royal London's Director of Policy:

“A snap General Election throws pensions policy up in the air. If Theresa May secures a bigger majority, radical reform of things like pension tax relief becomes much more likely. A key question is whether the parties will have time to put detailed plans in their manifestos or whether we will get vague promises of reviews with all the detailed work done after the Election. What is clear is that a new Government and a possible new ministerial team are likely to mean yet more unwelcome uncertainty over the future of pension tax relief.

“On the state pension, the Government has a legal duty (under the 2014 Pensions Act) to respond to the recently completed review of the state pension age by May 7th 2017. The prospect of an imminent election probably means an aggressive timetable with twenty-somethings working into their seventies is off the table for now.

“The triple lock on the state pension must now be up for grabs. But the Conservatives face a tricky choice, now that Labour has pledged to retain the triple lock. With inflation approaching 2.5%, the cost to the Treasury of the triple lock becomes relatively small. If the Conservatives were to decide to scrap the triple lock in the weeks before a General Election it would be a sign of supreme confidence about the likely outcome of that Election.”

ISA changes?

ISAs (Individual Savings Accounts) have been a long-term favourite of former Chancellor, George Osborne.

Currently, there’s nothing to suggest any significant, long-term, changes to ISA policy from either the Conservatives or Labour.

This may change when the manifestos are released, but we don’t believe significant changes are likely.

Market volatility

The FTSE 100 fell 2.5% after Tuesday’s announcement and, whilst the pound rose sharply, there’s no doubt we will see more stock market volatility over the coming weeks.

The message in such times is always a simple one: avoid knee-jerk reactions and panic. Those investors who do so, and ride out any short-term volatility are those who are rewarded in the longer term.

We’ll know more soon

Over the coming days and weeks all the major political parties will reveal their policies and launch their manifestos.

Only at that point will we be able to make truly informed predictions. Then again, even those depend on the outcome of the election on 8th June.

You can rely on us to keep you constantly updated.

By Rob Barron

The Government has moved to resolve the confusion over the amount some people can pay into their pension. Although, not everyone will be happy with the news.

Announced in the Budget earlier this year, the change proposed a cut in the amount some people could pay in to their pension. Known as the Money Purchase Annual Allowance (MPAA), it caps the amount some people, who have already drawn money from their pension under the new Pension Freedom rules, can subsequently contribute. The Government proposed a cut from £10,000 to just £4,000.

However, in the run up to the subsequent General Election, the measure was removed from the Finance Bill to smooth its way through Parliament.

Its exclusion from the Finance Bill caused confusion among people potentially affected by the cut, as well as advisers. For a while both were left in the dark; with the Government stating they intended to implement the change, but not putting forward the legislation to do so.

MPAA confusion cleared

However, the Government has now moved to clear up the confusion. It has confirmed that the cut to the MPAA, from £10,000 to £4,000, will apply to the current, 2017/18 tax-year.

A Government statement read: “The Finance Bill introduced in March 2017 provided for a number of changes to tax legislation that were withdrawn from the Bill after the calling of the General Election.”
“The then Treasury financial secretary confirmed at the point they were withdrawn that there was no policy change and that these provisions would be legislated for at the first opportunity in the new Parliament.”
“The Government confirms that intention. It expects to introduce a Finance Bill as soon as possible after the summer recess containing the withdrawn provisions.”
“Where policies have been announced as applying from the start of the 2017/18 tax year or other point before the introduction of the forthcoming Finance Bill, there is no change of policy and these dates of application will be retained. Those affected by the provisions should continue to assume that they will apply as originally announced”.

The Government has been criticised by pension experts for causing unnecessary confusion and leaving pension savers in limbo.

The news will affect those people who have taken money from their pension under the new Pension Freedom rules; perhaps to partially retire, help out a relative, or simply because capital was needed, but who continue to work and therefore save for retirement.

If you believe you might be affected, or would like to discuss the change, we are here to help. Please call us on the usual number and we will be happy to answer your questions.

Please note

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.

By James Tanswell

In the run up to any budget or General Election, there are always rumours circulating regarding the abolition of pension tax relief. In fact, whenever the Government looks to save money, pension tax relief seems to be a likely target.

Therefore, many pension savers will be pleased to hear that the threat of cuts to the current system have been publicly neutralised by David Gauke, the Work and Pensions Secretary.

Mr Gauke released a statement on the 4th July, saying that he doesn’t expect to see any fundamental changes in the near future.

What is pension tax relief?

Essentially, it is a Government top up to money paid in to a pension:

• Basic rate taxpayers: Get 20% tax relief, meaning that a contribution of £80 is topped up to £100 
• Higher-rate taxpayers: Get 40% tax relief, 20% is added to their contribution and a further 20% can be claimed through the self-assessment system. In other words, an £80 contribution receives tax relief of £20, making the total contribution £100, but the net cost to the saver is just £60 

The future of the popular incentive, which costs the Government billions of pounds each year, has been uncertain since the Conservatives considered, but ultimately abandoned, the idea of scrapping it.

Mr Gauke commented: “Certainly the idea of trying to reform pensions tax relief in the previous parliament was somewhat daunting. I don't think recent events have in any way changed that. So I think there will continue to be a bit of a debate on this issue but at the moment I don't see that there is a particular consensus emerging in that, and in the event of that then I wouldn't expect to see any fundamental changes in the near future.”

What would losing pension tax relief mean?

In the Government’s early plans for scrapping tax relief, ideas for an alternative included:

• Launching a Pension ISA
• Introducing a flat rate system 

A Pension ISA would see people paying into the pension from taxed income, and not being taxed on any withdrawals. Currently the first 25% of a pension can be accessed tax-free from the age of 55, but the rest is taxed at the usual rate of taxation.

According to the Government’s early plans, a flat rate system would mean that basic-rate taxpayers get a boost to their pension pot, whereas higher-rate and additional rate taxpayers would not.

Jon Greer, Head of Retirement Policy at Old Mutual Wealth, said: “For a couple of years there has been a cloud of uncertainty hanging over the future of pension tax relief after the government consulted on reforms, which may have dramatically curbed the pension perks available for higher rate taxpayers. With recent figures showing the level of saving at a record low, now may not be the time for an overhaul of the pension tax relief system. Thankfully, Mr Gauke today said that he did not believe there was any appetite to push ahead with an overhaul of the pension tax relief system, giving millions of pension savers reassurance savings incentives will not take an unwelcome hit. While there has been some discussion about moving to an alternative system, there has been no consensus view of what that system would look like. Given this, it’s unlikely that we will see a change to this system in the short term.”

It is unclear how long pension tax relief will stay safe for, however in the 2015/16 tax year it cost the Government an estimated £38 billion. Only time will tell if it will stay safe for the long-term. For more information about pension tax relief, don’t hesitate to get in touch by calling the number at the top of the page.

Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

By James Tanswell

For some, there is no greater feeling than getting a good deal on something. Whatever it is, from car insurance to the car itself; getting the most for your money can be incredibly satisfying.

However, new research from Retirement Advantage suggests that retirees are missing out on a total of £765 million in Annuity income, simply by not shopping around.

This equates to the average person losing out on £8,460 over the course of their retirement; money that would no doubt be better off in your pocket than that of your pension provider.

How many pensioners are missing out?

Retirement Advantage reviewed data supplied by the Association of British Insures (ABI) for the first two years of the new Pension Freedoms; introduced in April 2015. They found that over the course of 24 months, 180,900 Annuities had been purchased. 50% of these people failed to shop around before agreeing on their Annuity, meaning that an estimated 90,450 pensioners will be £8,460 worse off over a 20-year retirement.

Andrew Tully, Pensions Technical Director at Retirement Advantage, commented: “Unfortunately the pension freedoms have given people a licence to lose money, as half of those buying an Annuity fail to shop around and get the best deal. This situation has actually got worse since April 2015. Taking some simple steps at the start of the process can ensure you not only get the right Annuity for your circumstances but can also make a big difference to the income you receive over the course of your retirement. We shouldn’t lose sight of the issue of poor value and the lack of shopping around also extends to the drawdown market. While drawdown is not a one off purchase like an Annuity, it is still important people look around for the right product, as you can easily find yourself caught out by high charges. Seeking the right professional financial advice will ensure you not only buy the right product but get the best value for your personal circumstances.”

So, how can I get the best deal on an Annuity?

The first step to getting the best deal on a pension product may be evident by now; shop around! Many would balk at the idea of accepting a car insurance renewal quote without comparing the market, and this is no different. You may not get a stuffed meerkat, or cinema tickets for doing so, but the saving of £8,460 should just about make up for it.

Shopping around means not taking the first Annuity you are offered. It sounds obvious, but not everybody knows that looking elsewhere is even possible. A study earlier this year conducted by LV= suggested a ‘mis-buying crisis’ among those set to retire, with awareness of pension products at an all-time low. Shopping around for an Annuity is absolutely possible, and should be done before making your decision. You should also check that an Annuity is the right option for you in the first place.

If you are in ill health, you may be eligible for an Enhanced Annuity. This means that your income will be higher to offset a potentially significantly lower life expectancy. Both lifestyle factors and medical conditions will be considered, such as:

• Smoking status 
• Diabetes 
• High blood pressure 
• Heart disease 
• Cancer 
• Kidney failure 

Whilst most financial products will penalise you for being ill or certain lifestyle choices, being honest when buying an Annuity could increase your income so that you get to use more of your pension pot.

Another way to get the best deal on an Annuity, or to work out if it’s the best option for you, is to work with a financial adviser. This could save you a significant amount of time and money, ensuring that you don’t become one of the 90,450 people to lose out.

For more information about your pension, or for a more in-depth discussion about planning for your retirement, don’t hesitate to get in touch by phone or email.

By Rob Barron

There are two schools of thought on retiring early.

For some people, the question isn’t at what age they wish to retire, it’s at what income. Working past retirement age has obvious financial benefits, and continuing to earn an income, even part-time can be the right decision for them.

For others, however, early retirement is the ultimate dream.

New research from Prudential shows that the majority of people planning to stop working this year will be retiring early; a stark contrast to the 20% of young workers who believe that they will never be able to stop working completely.

Will those retiring early be financially worse off?

On average, yes.

The predicted annual income for somebody retiring at the current State Pension age is £18,900. Those giving work up early see a predicted income of £17,650; a difference of £1,250.

Whilst this would mean losing out on £25,000 over a 20-year retirement, the research showed that the majority of those retiring early felt more positive about their future overall, with:

Retiring early

• 60% felt financially well prepared 
• 56% felt relaxed and confident 

Retiring at State Pension Age

• 46% felt financially well prepared 
• 38% felt relaxed and confident 

The confidence and optimism from those retiring early could be explained by the increased focus necessary to retire before the State Pension age. For example:

Retiring early

• 86% have money saved into a pension scheme 
• 10% have no retirement savings at all 

Retiring at State Pension Age

• 71% have money saved into a pension scheme 
• 21% have no retirement savings at all 

Vince Smith-Hughes, Retirement Expert at Prudential, commented: “It is encouraging that so many of this year’s retirees are able to give up working early, in order to enjoy an even longer retirement. The fact that many of these early retirees claim to be more financially well-prepared than their counterparts who have had to work on is hardly surprising. However, many of this year’s retirees will have also benefited from some generous final salary schemes – something which only a handful of those in future generations will benefit from. As a result, the retirees of the future who are hoping to retire early will need to start preparing well in advance, setting aside as much as they can afford as early as they can. Using the really useful free guidance on offer, notably from The Pensions Advisory Service and the Government’s Pension Wise service, can help people understand their options. Additionally, for many people, advice from a professional financial adviser can be extremely beneficial when it comes to helping plan their retirement at any stage of their working lives, and to find out what steps to take to achieve important financial goals.”

The regional breakdown of the percentage of people giving up work early this year shows that:

• Wales has the highest (71%) 
• London followed closely behind (70%) 
• The South East has the lowest (53%) 

How do I know if I can retire early?

Making the decision to stop working early depends entirely on your personal circumstances, taking into account:

• Your current financial position 
• Health status 
• The lifestyle you wish to lead in your retirement

Ultimately, the first step you should take is to get a State Pension forecast. This tells you what your State Pension Age is, how much you should expect to receive each year, plus any gaps you may have in your National Insurance Contributions (NICs).

You can get a forecast online by using the online tool here, or by requesting a BR19 form from The Pension Service. The next step is to then start thinking about the income and capital you need in retirement and then comparing that to what is available from your existing pension savings and investments. Only then will you know if early retirement is a possibility. As highly experienced and knowledgeable financial advisers, helping people plan for their retirement is something we do every day. If you would like to discuss early retirement, you can get in touch by phone or email.

By David Triggs

New research from Retirement Advantage suggests that many over 50s in the UK are underprepared, uniformed and daunted by their rapidly approaching retirement.

Andrew Tully, the Pensions Technical Director at Retirement Advantage, states: “In 2017 we find that there is a perilously low level of understanding and financial activity in preparing for retirement. We don’t want people to lurch, like zombies, towards their retirement.”

Zombies are generally known for their tendency to shuffle around in B movies, rather than retirement, so exactly how many people feel unprepared? And more importantly, what can they do about it?

How many over 50s feel underprepared?

Worryingly, most of them. According to the survey, which consisted of 1,013 people between 50 and 65:

• 65% feel unprepared for retirement 
• 61% have not requested a State Pension Forecast 
• 42% don’t have a will 
• 9% said that they were ‘simply daunted’ by the thought of retiring 

With a significant portion of over 50s not feeling adequately prepared for their retirement, what can they do about it? One of the first things that Mr Tully suggested was getting a State Pension Forecast: “In particular, we would stress getting an accurate understanding of the pension the Government will pay you. The difference can be over £100k through a 20year retirement.”

What is a State Pension Forecast, and how do I get one?

A State Pension Forecast is a piece of information from H M Revenue & Customs (HMRC) that tells you:

• When you will be eligible to receive the State Pension 
• How much you will receive it 
• How to increase it, if possible 

The State Pension forms the foundation of your income in retirement. It may not be enough to afford the lifestyle you desire, but you wouldn’t want to do without it. Without knowing how much you will get, it’s impossible to work out how much you need to bridge any shortfalls.

Getting a State Pension Forecast is a simple process, and can be requested over the phone, by post or by using the GOV.UK online tool which is available here.

Mr Tully comments: “Many of those we interviewed say they will need to supplement the income they receive from the state. This is unsurprising, but unless people have the numbers then they can’t properly plan how any income from workplace pensions fits, or work out if they might need to unlock some of the value in property to get the desired standard of living. There is a real need for people to take time to sit down and consider their retirement plans. For those that are daunted or want an expert to help them, then a contacting a regulated financial adviser is a great place to start.”

If you are one of the 65% who feel unprepared for retirement, the key thing to do is take action and seek professional advice. The temptation to bury your head in the sand may be great, but whether you are lurching reluctantly towards retirement like a zombie, or embracing it with open arms, you’ll want to be as prepared as possible.

If you have any questions or queries about your retirement planning, or your State Pension Forecast, please get in touch by calling the number at the top of the page.

By James Tanswell

Saving for a rainy day is something that many of us struggle to do. Last month, research from Legal and General suggested that nearly one in four people in the UK have no savings. In fact, the average UK employee only has enough money saved to maintain their lifestyle for one month, should their income suddenly stop.

It doesn’t come as much of a surprise then, that figures from the Office for National Statistics (ONS) show that the average proportion of disposable income that goes into savings is at a record low.

What is the savings ratio, and why is it dropping?

The savings ratio is measured by the ONS, and factors in the outgoings and incomings that affect the average household. Whilst certain factors fluctuate throughout the year, it’s rare for the level of disposable income to fall for more than two quarters in a row. In fact, the last time this happened was over four decades ago, in 1976.

In the first quarter of 2017, the ratio was 1.7%, down from 3.3% in the final quarter of 2016. According to the ONS, the timing of tax payments was a significant factor in the reduced level of saving. Concerns were also raised about the level of consumer borrowing, on things such as:

• Loans 
• Credit cards 
• Overdrafts Car 
• Finance 

Darrem Morgan, The head of GDP at the ONS, commented: "The saving ratio has fallen again this quarter to a new record low, partly as a result of higher tax payments reducing disposable income. Some of the fall could be as a result of the timing of those payments, but the underlying trend is for a continued fall in the saving ratio."

How can I make the most of my savings?

At the time of writing, nine out of 10 instant access savings accounts had an interest rate of less than 1% gross AER. One in three of these offered rates of 0.25% gross AER or less, meaning that savers need to make the most of what they put away.

Inflation is currently at 2.6%, which means any savings account that offers a lower interest rate than this will result in a real terms loss. You may have more in your account than you originally had, but the spending power of this money will be reduced. Shopping around before you put money away into a savings account could result in you finding a more favourable rate. Rates often change from month to month, so if you are a regular saver, it could be beneficial to check the best buy tables from time to time.

Another way to make the most of your money is to consider changing from a saver to an investor. Whilst this comes with an element of risk, you may be able to achieve higher returns by putting your money into, say, a Stocks & Shares ISA rather than a Cash ISA. Your own attitude to risk will dictate how suitable an option this is for you, along with the length of time you can put the money away for.

Is the savings ratio likely to rise?

Anything is possible, but many experts aren’t optimistic.

Frances O’Grady, The General Secretary of the Trade Union Congress, commented: "These figures make for grim reading. People raiding their piggy banks is bad news for working people and the economy. But with wages falling as living costs rise, many families are having to run down their savings or rely on credit cards and loans to get through the month. With household debt now at crisis levels, we urgently need to create better paid jobs."

For more information about making the most of your savings, get in touch by calling the number at the top of the page.

By David Triggs

Gaps are rarely good things. Sure, a gap year backpacking around South East Asia might sound splendid, but certain gaps aren’t so wonderful, such as:

• Gaps in the road 
• Gaps in your CV 
• The retirement income gender gap 

Looking specifically at retirement, new research from Prudential suggests that women retiring this year will now on average be £6,400 worse off than men.

A survey of 10,605 non-retired UK adults was conducted by Research Plus. It revealed that the gender gap of £5,300 in 2016 had increased by £1,100, meaning that:

• Men expected to receive an annual retirement income of £20,700 
• Women expected to receive an annual retirement income of £14,300 

So why are women still losing out? And more importantly, what can they do themselves to increase their income in retirement?

Surely the gender gap should be closing?

It was. Well, for the last 10 years, anyway.

For example, 2008 saw a gender gap of £9,500, with men expecting an annual retirement income of £20,800 and women £11,300. This narrowed steadily year on year, until in 2015 there was only a difference of £4,800. 2016 saw that number rise to £5,300, bucking the trend, before widening even further to the current figure.

A number of factors have been suggested as primary causes for the gender gap, such as:

• Women choosing to retire early, before they have made enough National Insurance Contributions (NICs) to qualify for the full State Pension 
• Taking career breaks to have children, or care for elderly relatives 
• Women being paid less on average compared to men in similar job roles 

The final point is particularly relevant, as the latest figures from the Office for National Statistics (ONS) show that there is still on average an 18% difference in the amount that men and women doing the same profession get paid. Lower earnings limit the amount that can be paid into a pension, with many women being unable to afford the same contributions as men.

Kirsty Anderson, The Retirement Income Expert at Prudential, commented: “It is encouraging that many women planning to retire this year feel financially well prepared for their years in retirement. In fact, women’s expected retirement incomes this year are the second highest on record. However, the gender gap in retirement incomes continues to grow, probably reflecting the fact that many women will enter retirement having taken career breaks and changed their working patterns to look after dependants. Unfortunately, as a result, many women will end up with smaller personal pension pots and some are also likely to receive a reduced State Pension.”

How can women increase their income in retirement?

Other than delaying your retirement to boost your income (which can have many advantages, both financially and socially), there are numerous ways to ensure that you are able to afford the lifestyle you desire when you stop working.

Join a workplace pension

The main benefit of joining a workplace pension, aside from the Government paying in, is the employer contribution. Three parties pay into the scheme:

• You 
• Your employer
• The Government 

Employees who at least 22 years old, and earn a salary of £10,000 or more must be offered a workplace pension by the 1st of February 2018. Paying into a pension early on in your working career will boost your retirement income significantly, so make sure that you don’t opt out before knowing exactly how it could help you.

Plug any gaps in your NICs

You currently need to have 35 qualifying years to receive the full new State Pension, either through your payroll as an employee, through your tax self-assessment, or voluntary contributions if your income is below a certain level.

If, for any reason, you haven’t paid NICs for 35 years in total, these gaps in your record could stop you receiving the full State Pension. To find out if there are any gaps in your record, you can check your National Insurance record online here. Voluntary contributions can fill any gaps, boosting your income when you retire.

Make yourself a priority

Putting money away can be a hard habit to form for many, but it does eventually become a lot easier. If you try and save any money left at the end of the month, and sweep it into your pension, you may find that some months leave you with little. Deciding on a target amount each month, and paying that into your pension on payday will guarantee that you maintain a solid level of contribution.

It is sometimes necessary to make sacrifices to boost your income in retirement, but it will be worthwhile in the long run.

Pay a realistic amount

The minimum contribution needed for a workplace pension probably won’t be enough to afford a comfortable lifestyle in retirement. Paying in a realistic amount will ensure that your pension pot is large enough when the time comes to stop working.

A professional adviser or planner will help you to work out how much you need to put away to make the most of your retirement, and ensure that you don’t have a shortfall.

Don’t stop paying in when you stop earning

It’s a common misconception that you can’t pay into a pension when you stop earning an income. This isn’t true at all.

There are, however, certain limits to how much can be paid into a pension whilst still claiming tax relief. This limit is currently £2,880 per year, which works out to £3,600 once tax relief is added.

It can be easy to neglect your pension when you stop working to have children, or look after elderly relatives, but continuing to pay in will boost your annual income significantly in retirement.

Whilst these tips don’t disguise or make up for the fact that there is still a gender pay gap, it could mean that the retirement income gender gap isn’t as problematic for women. In an ideal world, both men and women will see their retirement income afford the lifestyle that they have been working so hard for.

If you are worried about a shortfall in your pension, or would like to know more about planning for your future, please get in touch by calling or emailing.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

By Rob Barron

New research from the Scottish Widows suggests that whilst auto-enrolment has been a success, under 30s are not putting enough away to save for their future.

For the uninitiated, auto-enrolment was introduced as part of the Pension Act in 2008, and means that an employer must enrol staff into a workplace pension if they fit a range of criteria, including the following:

• Over the age of 22 
• Earn more than £10,000 

Once enrolled, employees have a month to decide whether to stay in, or opt out. If they choose to stay in the pension scheme, they effectively have three parties paying into the pot:

• Themselves 
• Their employer 
• The Government, in the form of tax relief 

Auto-enrolment has helped to get young people saving for the future. However, the low amounts that they are paying in could risk them having a shortfall when the time comes to retire. Simply put, the problem is that whilst the majority of people are in a pension, most aren’t paying enough.

Currently, 80% of 22-29 year olds are paying into a pension, but Scottish Widows estimates that 70% of them are not putting enough away.

How much should they be paying in?

According to the Scottish Widows 13th annual Retirement Report, the average contribution for under 30s is currently £184 per month. This puts them on track for an annual retirement income of £15,200 including the State Pension. Scottish Widows suggests that the minimum annual income required for a comfortable retirement is £23,000, giving an average shortfall of £7,800.

In order to achieve an annual retirement income of £23,000, a combined contribution, including employer and employer contribution of 12%, is recommended. However, the current minimum combined contributions are just 2%, and only rising to 8% by the start of the 2019/20 tax year.

Whilst the increase to the minimum contribution is intended to bridge this predicted shortfall, research suggests it may have an adverse effect, pushing up the opt out rate. When asked if the increase would make a difference to their saving habits, over half stated that they would no longer stay enrolled in their workplace pension.

Delays cause shortfall

Starting to save early for retirement has many benefits, the main one being that you aren’t playing catch-up with your monthly payments. For example, if somebody started saving into a pension at 25, they would need to put aside £293 per month to achieve an annual income of £23,000. However, if they delayed it, then they would need to put aside:

• £443 if starting at 35 
• £724 if starting at 45 
• £1,445 if starting at 55 

Catherine Stewart, Retirement Expert at Scottish Widows, commented: “There is no doubt auto-enrolment has been a success in kick-starting the savings habit for millions – but it is not a silver bullet. Auto-enrolment may well be lulling people into a false sense of security that they are putting away enough for a comfortable retirement. For many, that is simply not the case, particularly given retirement is looking more expensive than ever. With one in every 12 private rental sector tenants now a pensioner, ‘Generation Rent’ is headed for a more expensive retirement than previous generations. While retirement may feel like a long time away for those in their 20s, it’s really important they start to think about it as soon as possible. Using the right platforms, technology and content to engage young people in formats they appreciate is a critical first step. If we don’t get this right, then it is far more difficult for them to reach their desired savings levels in their 30s and 40s. What we know for sure is that younger people are far more likely to engage with technology and information that can be easily digested. So we have created a series of Pension Basics videos available on our YouTube channel and are currently developing a smart phone app enabling members of workplace pension schemes to keep track of how their savings are growing. Continued investment in digital innovation to help engage younger generations in their long-term savings will remain a key priority for Scottish Widows.”

Why aren’t young people saving enough?

Despite the risk of not earning enough of an income to maintain their lifestyle, over half of those surveyed claimed that they couldn’t afford to save properly for the long term because of other financial commitments, such as:

• Credit card debt 
• Mortgage payments or rent 
• Student loans 
• Car finance 
• Other loans 

With the average debt for this age group at over £20,000, coupled with the fact that 40% don’t think that they will ever be able to completely stop working, it is no wonder that saving for the future is such a struggle. High rents and large mortgage deposits also stand in the way of saving for retirement. According to Halifax, the average deposit for a first-time buyer is currently £33,000.

With Scottish Widows implementing a number of learning and awareness resources aimed at a younger audience, only time will tell whether the predicted pension shortfall for under 30s is an anomaly or the start of a deeper rooted problem.

A pension is a long-term investment. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

How much do you need for retirement?

It’s not an easy question to answer, for a number of reasons. For one thing, it depends entirely on how you want to spend your retirement.

If you don’t know how much you need, new research from Retirement Advantage suggests that you probably don’t have enough.

So, how much are people falling short by? And more importantly, what can they do about it?

Shortfall

On average, over-50s say that they need a gross income of £1,435 per month to live on in retirement. However, a pension pot with the UK average of £70,000 combined with the full State Pension, would provide just £991 per month; a shortfall of £444.

Andrew Tully, The Pensions Technical Director at Retirement Advantage, commented: “There is a huge gap between the income people say they’re going to need in retirement and the amount they will actually get. Some people may be lucky enough to have a mix of savings, a final salary benefit and other pensions. But others may well be significantly adrift of what they say they need and in the process, we head towards creating a generation of pension castaways. Bridging this gap would require the average worker to save an extra £100,000 throughout their working lives. It’s crucial that Pensions Awareness Day helps raise these issues.”

The shortfall equates to £5,328 per year; nearly a third of the income most people stated they needed. If you’ve been saving diligently for your retirement, this news may come as a bit of a shock; but there are several things you can do about it.

So, without having to tighten the purse (or wallet) strings and living frugally, how can you ensure you have enough for retirement?

Financial Planning

A financial planner will understand your retirement objectives, consider the progress you’ve made to date and put a plan in place to bridge the shortfall.

That plan will then be checked on a regular basis to ensure it hasn’t been blown off track. Figures from Unbiased suggest those that take financial advice, save on average £98 more per month, creating an additional income of £3,654 per year, each and every year, for retirement.

Join a workplace pension

For employees that haven’t joined a workplace pension yet, they offer an effective way to boost your retirement savings. Auto enrolment, as the name suggests, means that most employees will be automatically enrolled into a workplace pension by February 2018. Currently, the criteria for auto enrolment is employees who:

• Are over 22
• Earn over £10,000
• Have a contract to work in the UK

By joining a workplace pension, your employer and the Government (in the form of tax relief) will pay in, bridging your shortfall quicker.

Review existing pensions

For those that have personal pensions, reviewing their performance may highlight ways to save money and reduce charges. Reviewing a pension isn’t the most enjoyable way to spend a Sunday evening for anyone (and if it is, they’re probably not very fun at parties), which means that it’s an easy thing to put off.

A financial adviser or financial planner can review your pension and recommend whether an alternative will be appropriate.

Work beyond retirement age

Whilst this method may not be desirable (or possible) for some, there are benefits to working past retirement age beyond financial gain.

Working longer, or even part-time, can supplement your income in retirement, bridging the shortfall. Many over 50s are planning to work past retirement age for a number of reasons, such as:

• Having a feeling of purpose
• Avoiding boredom
• Social interaction

Get a State Pension Forecast

The State Pension (and knowing how much it will provide) is often the foundation of a good retirement plan. To receive the full State Pension, 35 complete years of National Insurance Contributions (NICs) must be paid. Whilst most people build this up over a lifetime of working, it is possible to have gaps in your record.

These gaps can be filled by making voluntary contributions, which can bring you over the 35-year mark, ensuring that you receive the full State Pension. 

Review outgoings

The minimum income you need in retirement is dictated by the bills that will continue even after you stop working. For most people, the single largest outgoing is their monthly mortgage payment. Therefore, taking steps to make sure it is repaid before retirement, is generally considered sensible.

Many lenders allow people to overpay their mortgage penalty-free, which will help them to settle the debt before they stop working. Whilst this won’t stop your utility bills from landing on the doormat every month, it may reduce the shortfall, and the need for such a large income.

Consider downsizing

Downsizing is often a divisive subject. On one hand, many people don’t need such a large home in retirement, and a smaller property could potentially mean reduced living costs. On the other hand, many can’t bear the thought of moving out of the family home.

Whatever your stance, downsizing is potentially a way of reducing your shortfall, and increasing your income in retirement.

Over 3.9 million over-55s plan to downsize to a cheaper property later in life, using the equity to provide an income. However, research from Prudential suggests that rising house prices and a shortage of smaller homes may make this a less effective method than most people assume.

Don’t go it alone

Achieving your retirement goals can be tough when you are dealing with a significant shortfall. However, a professional financial planner can ensure that you understand exactly how to either overcome it or live within your means to avoid running out of money.

For more information about avoiding a pension shortfall, get in touch using the phone number at the top of the page.

With hardly any queues, convenient opening hours and a great location, the Bank of Mum and Dad is the preferred financial institution of many.

Membership is limited (it helps if they’re actually your parents!), but new research reveals it is expanding (Source: Prudential). And often-lenient repayment conditions are part and parcel; nearly 60% of loans are partly or fully written off.

For many people, help from the Bank of Mum and Dad is the only way they can afford things such as education or a home. But, exactly how affordable is it to help your children out? And what consequences will it have on your financial future?

A lenient lender

A survey of 1,057 parents, conducted by Consumer Intelligence on behalf of Prudential, found that one in five parents have taken money from their pension to help their children financially. Furthermore, some parents have redirected money that would have been paid into their pension.

The survey found that 77% of parents stated that they initially expected the loan to be repaid in full. But, in reality:

• 59% of parents deciding to write off some or all of the debt
• 34% of parents writing the debt off completely

The survey also found that 75% of parents didn’t impose any formal terms or conditions on their loan. Those who formalise the loan are in the minority, with:

• 14% agreeing on fixed monthly payments
• 7% putting a written agreement in place

Kirsty Anderson, Retirement Income Expert at Prudential, commented: “I’m sure every parent would love to be in a position to help their families when they’re faced with significant financial challenges and our research shows that many are doing just that. Whether it’s helping with a deposit to buy or rent a house, or clearing student debt, the Bank of Mum and Dad plays a vital role in the finances of younger people. However, it is important that parents remember to consider their own futures when deciding on making loans to their families – for example, money taken now from savings and investments intended to provide for retirement could make a real dent in your income when the time comes to give up work, especially if you eventually have to write off all or some of the loan.”

Irresponsible lending?

The urge to help family members out in times of need can be strong. A parent or grandparent often won’t think twice before making an altruistic decision, but this can have far-reaching effects on their finances. Whilst many expect they will get the money back at some point, research shows otherwise.

Writing risky loans is a bad business model for a bank. The Bank of Mum and Dad is no different.

41% of parents who wrote off part or all of the loan, did so because their child simply couldn’t afford to repay it. Unfortunately, this leniency won’t be returned if they run out of money in their retirement, meaning the Bank of Mum and Dad should only loan money it can afford to lose.

How do I know if I can afford to help my children?

Planning.

More specifically; financial planning.

A loan can have many unexpected effects on your financial future, made more unpredictable by the fact that 47% of over-50s don’t know the value of their pension (Source: Which). Writing off a loan, or even being repaid late, can leave you financially exposed. Proper financial planning can prevent this, telling you exactly how much you have, and how much you afford to give away.

Projecting the consequences of a loan using a cash flow forecast can ensure you know exactly how much it will affect your financial future. Only then will you know whether you can afford to help your children.

It doesn’t stop there

Financial planning can tell you far more than whether you can afford a loan to a family member. As mentioned above, many people are unaware of what income they will have in retirement. Proper financial planning will not only show you how much you’ll have, but it will allow you to work out how much you’ll need to enjoy your retirement.

For more information on planning for your retirement, or keeping the bank of Mum and Dad afloat, get in touch using the phone number at the top of the page.

Inheritance Tax (IHT) is a controversial issue which leaves many people wondering how they can reduce the amount that will be lost to the government when they die.

The good news is that IHT only affects estates worth more than £325,000. The bad news is that it is easier to breach this threshold than you might think. Your home alone could be worth more than that amount.

It may be possible to reduce your estate’s worth and avoid paying high amounts of IHT by gifting amounts to family, friends and charity before you die. Plus, seeing the impact that the extra cash can have on loved ones is always rewarding. However, it is essential to understand the rules surrounding gifts and whether you can realistically afford to give them away.

How is Inheritance Tax (IHT) calculated?

Before deciding whether making gifts is the right option, you need to calculate whether your estate will be liable for Inheritance Tax and, if so, how much.

On a fundamental level, Inheritance tax applies to estate value over the nil rate band of £325,000 and is currently set at 40%. So, on an estate worth £500,000, the IHT will apply to £175,000, and the total IHT payable will be £70,000. This is 40% of the £175,000 by which the estate exceeds the nil rate band.

However, the calculations are a lot more complicated than this would suggest. For example, if you are leaving your primary residence to ‘direct dependants’ you can apply for the residence nil rate band relief which will increase the nil rate threshold by £100,000.

To reduce payable Inheritance Tax, you may consider reducing the excess estate value by gifting amounts to loved ones while you are still alive. However, you need to be aware of how much you can gift each year and how gifts can potentially be taxed after your death, even though they are not in your possession at the time of death.

How does gifting work?

Gifts are sums of money or assets of value which are directly transferred to another person or organisation with no financial value given in return.

There are several ways in which gifts can be given to both loved ones and organisations during your life, which will reduce the value of the estate you leave behind and consequently reduce the IHT payable.

Exemptions

There are a range of IHT exemptions, which can be used to provide loved ones and causes with gifts which do not incur tax liability, such as:

• Annual exemption: Each tax year you can give gifts up to the amount of £3,000 which are immediately outside of your estate value. Unused yearly exemption from last year can be used to increase the current year’s exemption up to £6,000. However, this amount cannot then be carried over for a third year.
• Gifts for weddings and civil ceremonies: The limits for this depends on your relationship with the recipient. You can give children up to £5,000, grandchildren and great-grandchildren up to £2,500 and other individuals up to £1,000 each.
• Assisting with living costs:  It is possible to make gifts to children under the age of 18 and elderly relatives, to support their quality of life.
• Small gift exemption: During the tax year, you can give gifts of amounts less than £250 as often as you wish – even to the same person. However, this does not apply if the recipient has already benefited from a gift covered by the other exemptions in this list.
• Gifts from income: Birthday and Christmas gifts are exempt from IHT liability – as long as your standard of living is not affected by giving such gifts.
• Gifts to charity: You can gift as much of your worth to charity as you wish, without incurring IHT liability on the amounts donated. A charitable donation of 10% or more of your estate’s value after death reduces your IHT liability to 36%. However, it can be better for both you and the recipient organisation, if these donations are made during your lifetime. This is due to the negligible difference in total tax paid, while Gift Aid and other charity benefits increase the total amount received by the charity.

Non-exempt gifts

While financial gifts do not incur IHT liability when given; they may be subject to the seven-year rule, which states that gifts provided in the seven years before the donor’s death are potentially subject to IHT, hence they are called ‘Potentially Exempt Transfers’.

The ‘taper relief’ scale dictates the percentage of IHT payable on gifts, depending on how many years before the donor’s death they were given. If death occurs within: 

• less than 3 years - 40%
• 3 - 4 years - 32%
• 4 - 5 years - 24%
• 5 - 6 years - 16%
• 6 - 7 years - 8%
• 7 + years - 0%

Gifts which you retain an interest in are not exempt from IHT liability. This is referred to as ‘reserving a benefit’ and includes property which is formally and legally transferred to children or grandchildren, but in which you continue to live on a permanent basis. This home is still legally a part of your estate.

Other ways to avoid or reduce IHT liability 

Giving financial gifts to loved ones is not the only way to reduce the IHT liability of your estate, you can also:

• Ensure that your estate is never worth more than £325,000
• Leave your estate, in its entirety, to an exempt party, such as a:
  • Spouse
  • Civil partner
  • Community sports club
  • Charity
  • Leave 10% of your estate to charity, which will reduce the IHT liability by 10%. This will mean that 36% of your estate will be lost, rather than the full 40%.
  • Claim the residence nil band rate by leaving your home to your children. This exemption applies to biological children, stepchildren and both adopted and foster children.

Is making a gift right for you and your family?

Being able to help family and friends and see the joy that a financial boost can bring to their lives is a fantastic feeling. However, none of us has a working crystal ball, and as such, we do not know what the future has in store for us.

When deciding whether you should make gifts to your loved ones to offset your estate’s IHT liability, ask yourself these two important questions:

• Can you afford it?
• Are you giving the right amount to the right person, at the right time?

For further advice about estate planning and Inheritance tax issues, contact us using the number at the top of the page.

 

Do Critical Illness Cover plans pay out when you make a claim?

The media loves a story involving refusal to pay out on insurance claims. Those cases are highlighted to cause a reaction and as a result, the public perception of Critical Illness Cover has been distorted. Fortunately, the media’s portrayal of insurance not paying out is more myth than fact.

In 2016, statistics provided by the Association of British insurers (ABI) showed that a record 15,646 Critical Illness Cover claims were successful last year.

What is Critical Illness Cover?

Critical Illness Cover is an insurance policy which:

• Pays out a tax-free amount. This is generally a lump sum which is paid out if you are diagnosed with a life-threatening illness, such as cancer, heart attack or stroke
• Policies last for a specific period, often equal to the length of your mortgage and usually pay out a lump sum which is slightly above the value of your mortgage
• Can be combined with life insurance in certain cases
• Covers a set list of severe illnesses, which differs with each policy

The cover’s specific terms and conditions will vary depending on the policy and provider.

What are the true figures?

Insurers paid out in an average of 92.2% of all cases in 2016. Individual examples include:

• Aviva 92.3%
• Aegon 95%
• Vitality life 93%
• Legal & General 92.6%
• AIG 92.3%
• Royal London 92.2%
• LV= 92%

People perceive insurance policies as not paying out fairly, with data from Aviva showing that as many as 86% of adults believe that insurers purposefully try to void claims. The same research suggests that UK adults believe that insurers only pay out in around 48% of cases.

In reality, less than 10% of claims do not result in a pay-out, for a range of reasons.

Why do some claims fail to pay out?

There are two main reasons for failed insurance claims:

• Non-disclosure. Where applicants fail to provide accurate information
• Not meeting criteria. Where claims do not meet the requirements laid out in the policy

Research from Aviva shows that many UK adults are not taking insurance policies seriously, which leads to a refusal to pay out when a claim is made. The research showed that:

• 53% of policy holders have not read the details of their insurance policy
• 54% only check the terms and conditions when they need to make a claim
• 45% do not think that supplying incorrect height and weight data affects their claim
• 25% do not think that lying about their smoking and alcohol consumption will affect their claim
• 26% of people have given false general health information, while 31% have not accurately stated their family’s medical history on applications
• 33% admit to being dishonest in insurance applications

Only 10% of claims fail, and with the figures showing that many of those are a result of applicant and claimant negligence, it is time that the importance and effectiveness of Critical Illness Cover is fully explored.

Improving the success rate

To ensure that your Critical Illness Cover will pay out when you need it to, there are three key steps to take:

Find the right policy: When comparing plans, it is important to look at the details. It can be tempting to choose a policy based on price alone. However, this can backfire if the policy doesn’t cover a wide range of possibilities or has a clause which will mean that you are exempt, should you need to make a claim.

Be honest when applying: Giving false details during your application will affect your right to claim in the future. Whether it is intentional or accidental, inaccurate data, including height and weight, will void the policy and result in your being turned down if you try to make a claim in the future.

If in doubt, mention it:  When taking out any type of insurance, especially Critical Illness Cover, it is important to mention any information and circumstances which may affect your ability to claim. If there are doctor’s appointments, tests and diagnoses which you are not sure about mentioning, we advise that you mention it. That way, you cannot be accused of withholding information. Remember, it is better to be turned down for an application now, rather than pay into a plan which will not benefit you.

To discuss your options and find out more about Critical Illness Cover, please call us on the number at the top of this page.

It may seem like the ultimate first world problem.

However, saving too much into a pension could cost you tens of thousands of pounds in unnecessary tax.

We all need to prepare for retirement. In fact, according to the Government, 45% of us aren’t putting enough away (Source: The Pensions Advisory Service). However, those that are taking their retirement planning seriously are in danger of falling foul of an often-overlooked allowance, that limits the amount that can be paid into a pension.

As with most things in the financial world, knowledge is power. Awareness of limits, allowances, hurdles and hoops can ensure that all the hard work you are putting into your retirement planning isn’t going to waste.

So, what is this limit? And exactly how much do you stand to lose if you go over it?

Lifetime Allowance

Currently, the amount that you can hold in a pension before paying tax is £1 million.

It’s a relatively high figure, and one that many people won’t come close to reaching. However, high earners and young workers who have started saving for retirement at an early age may find themselves approaching it rapidly.

If you breach the lifetime allowance you will pay tax at a rate of:

• Taking a lump sum gets taxed 55%
• Withdrawing it another way gets taxed 25%

The amount of tax paid for those over the lifetime allowance is increasing, with a 33% rise in the last 12 months to £120 million (Source: HMRC). This equates to an average tax bill of £46,332 for the 2,590 people affected.

Another limit on pension contributions comes in the form of the Annual Allowance. This, as the name suggests, is the amount you can contribute each year and receive tax relief on contributions, and is currently the lower of:

• 100% of your earnings
• £40,000

In past years, this limit has applied to everybody. However, since April 2016 it has been reduced on a sliding scale for anybody earning £110,000 or more per year. Depending on your own cirmcumstances, this could reduce your annual allowance to £10,000.

How can you stay under the limit?

The answer to this is the same as any other preventable problem; planning.

If you are young, having a pension worth £1 million might seem like a distant dream, but even relatively modest contribution levels can see you reaching it. Likewise, if you older and making significant contributions, you may well get close to the allowance.

Working with a financial planner will help avoid any nasty surprises, and it might be sensible to consider other methods of planning for retirement.

This can be done by showing you other tax-efficient forms of saving. For example, if you are close to reaching your Lifetime Allowance, but you haven’t made the most of your ISA allowance, you may be better off saving using an ISA. These tax-free pots can ensure you don’t fall foul of any limits, which could have a huge impact on your financial future if you encounter a large tax bill.

Hindsight is 20/20 (or so they say). However, for the 2,590 people who breached the Lifetime Allowance in the 2016/17 tax year, proper planning could have potentially prevented the tens of thousands of pounds paid in tax. 

To avoid becoming a member of this unfortunate group, and to ensure that your pension contributions stay under the Lifetime Allowance, get in touch using the phone number at the top of the page.

A pension is a long-term investment. 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. The Financial Conduct Authority does not regulate tax advice.

Should you invest in Buy to Let when you retire?

New research from Retirement Advantage shows that 13% of over-50s are considering investing in Buy to Let when they finish working. Resulting in a potential surge of 1.3 million new landlords across the UK.

Why the sudden interest in property?

22% of 50-somethings who are adding property investment into their retirement plans are doings so because they already have experience as a successful landlord. Meanwhile, almost one in five (18%) have an underlying interest in property and believe that they would enjoy the challenges and processes involved in being a landlord.

Many people who are planning to retire within the next 10 – 15 years are worried that their retirement fund and pension pots simply will not be big enough.

Research shows that the state pension provides £5,177 less, per year, than the average couple of retirement age require for a decent quality of life.

Why Buy to Let?

The main reasons for investing in Buy to Let in retirement are:

• Bringing in a regular income and potential for capital growth (50%)
• Boosting income in retirement (44%)
• Belief that investing money in property is safer than stocks and shares (36%)
• Property provides better returns than a pension fund or savings account (35%)

Things to consider before investing in BTL

Like all financial decisions, there are a range of factors to consider seriously before jumping headfirst into becoming a landlord with a Buy to Let mortgage in retirement. These include:

Buy to Let disadvantages

Though the companies trying to sell mortgages tend to downplay them, the Buy to Let scheme does have disadvantages and may not always work out the way it is intended to. These pitfalls include:

• Falling property prices: Property value is not guaranteed to increase. In fact, between 2007 and 2008, the average UK property price fell from £183,959 to £149,907, according to the Nationwide House Price Index

• Increased Stamp Duty on additional property purchases. In 2016, legislation was introduced which saw Stamp Duty Land Tax (SDLT) on non-main residency properties increase by 3%.

Lifestyle changes

Becoming a landlord is a big change for those with no prior experience in the industry. There are careful considerations to be made, including who will carry out the property management duties. You may choose to do this yourself, but it can be difficult to be available around the clock and hiring a professional or maintenance team may be more effective.

Income instability

Unfortunately, you cannot guarantee that your property will be continuously rented. Although you can hope for the best, you will need to have a plan in place in case the property is empty for a few months – this includes both maintaining the property and manging your personal budget without the income from rent.

Unoccupied properties are not the only concern however. Property value fluctuations and a sudden need to sell the property to free up capital can both bring about huge amounts of stress and uncertainty, so be sure to consider all aspects before making any rash decisions.

Primary funding

One of the earliest considerations is where the initial investment money is going to come from to fund the purchase. You can make use of the new Pension Freedoms to access your retirement savings and pension funds from the age of 55, but you need to have a plan in place to cover your future financial needs, should the property decrease in value and leave you with no income or savings to live on.

It is important to note that taking large amounts of money from your pension fund will incur large taxes.

Policy changes

Recently, Stamp Duty has been increased for those purchasing homes in a landlord capacity. Now, all additional properties are subject to an additional 3% liability. When combined with the existing costs of purchasing property, including mortgage fees, interest, insurance and repairs, the true cost of becoming a landlord can be much higher than first anticipated.

Investing your pension in Buy to Let may not be the best option for you. Many see it as a quick way to access a steady income, without contemplating the full effects of the decision.

In reality, investing in Buy to Let is more of a business opportunity than an investment.

To discuss the more viable ways to boost your income in retirement, contact us on the phone number above.

It’s taken more than 10 years, but it’s finally happened.

The Bank of England has decided to increase interest rates with the Monetary Policy Committee (MPC) voting by 7-2 to increase base rate from 0.25% to 0.5%, principally in response to inflation hitting 3%.

The rise was modest, not that you would have thought so from the acres of coverage it got, and only takes rates back to where they were in August last year. However, with inflation stubbornly above target, it is probably a sign of things to come.

As the hysteria dies down, it’s only natural to ask: how will this affect you? And, when can we expect further rate rises?

How will you be affected?

Homeowners with a variable rate mortgage: If you are one of the 3.7 million (Source: Bank of England) people with a mortgage arranged on a variable or tracker rate, you can expect to see your payments rise.

Over the coming weeks your bank or building society will be in touch to let you know how much more your mortgage will cost each month.

Homeowners with a fixed rate mortgage: Those people with a fixed rate mortgage won’t be immediately affected by the rate rise. However, when their current mortgage deal comes to an end, the products available will reflect this, and any subsequent increases.

People with unsecured debt: The increase of 0.25% is relatively insignificant compared to the interest rates charged on some unsecured debt, especially credit cards and payday loans. Furthermore, the average interest rate charged on a personal loan is just 3.7%, half that of 10 years ago (Source: BBC).

However, it should serve as a wake-up call for those people with large amounts of unsecured debt; with further rate rises expected, now is probably the time for consumers to consider reducing their indebtedness.

Savers: Mark Carney, the Governor of the Bank of England, made it clear he expects the rate rise to be passed on to savers in full. However, such a modest rise will do nothing to bring a real return, where the interest rate exceeds inflation, any closer for savers.  

Future pensioners: Although less popular than in years gone by, anyone planning to use an Annuity to turn their pension into an income can expect rates to rise slightly as a result of the increase to interest rates.

When can we expect further rate rises?

Mark Carney isn’t known for the accuracy of his crystal ball. However, he believes interest rates will have to rise twice more over the next three years.

The uncertainty over Brexit, inflation and the wider economy means this prediction must be treated with some scepticism. However, it’s clear that if inflation continues to remain above the Bank’s target of 2%, interest rates will have to rise further.

No need to panic

The increase of 0.25% is modest and won’t, immediately at least, affect anyone with a fixed rate mortgage.

However, there’s no doubt it’s symbolism or that it is potentially a sign of things to come. That means mortgage borrowers, many of whom will have never seen an interest rate rise, should start to prepare for future rate rises.

If you have any questions about the rise in interest rates, please don’t hesitate to get in touch. 

Please note

Your home may repossessed if you do not up repayments on your mortgage.

The days leading up to the Budget have been dominated by talk of housing, Universal Credit and, most surprisingly, rail cards.

Mr Hammond started in a bullish and optimistic mood, saying: “I report today on an economy that continues to grow, continues to create more jobs and continues to confound those who seek to talk it down.” He then turned to Brexit, saying that the UK will be prepared for every possible outcome of the current negotiations.

As convention dictates, the Chancellor then moved on to the latest economic data and forecasts for the years to come.

The economy

The Chancellor confirmed that:

• Gross Domestic Product (GDP) has been substantially revised down, and is now predicted to grow by 1.5% in 2017, 1.4% in 2018, 1.3% in 2019 and 2020, 1.5% in 2021, 1.6% in 2022
• Inflation, as measured by the Consumer Prices Index (CPI), will peak at 3% in this quarter, while the Bank of England’s inflation target will remain at 2%
• Borrowing will continue to fall in years to come, to “reach its lowest level in 20 years” in 2022 / 23 when it will be £25.6 billion. This year, borrowing is predicted to be £49.9 billion; £8.4 billion lower than forecast in the Spring Budget

He then moved on to a raft of announcements.

Research and Development (R&D)

Mr Hammond said: "We are allocating a further £2.3 billion for investment in R&D (research and development) and we’ll increase the main R&D Tax Credit to 12%."

Tech businesses

The Chancellor said that a new tech business is founded in the UK every hour; he said he wanted that to be “every half hour.”

To help achieve that aim, Mr Hammond unveiled a range of measures, including a new public fund and an improvement in EIS (Enterprise Investment Schemes) tax-relief for investments made into ‘knowledge intensive’ companies.

Cars

It was announced that people who drive an electric car, and charge it at work, will not face benefit-in-kind tax charges. Furthermore, a £400 million charging infrastructure fund was also unveiled.

Older diesel cars will face higher road-tax. Although Mr Hammond was keen to point out that “no white van man or white van woman” will have to pay the increase.

Environment

Referencing the BBC’s Blue Planet programme, Mr Hammond announced that the Government will explore new taxes on plastic waste.

Education

Mr Hammond announced measures to promote maths teaching in schools, including a £600 payment to schools and colleges for each child who studies A-Level or core maths.

Universal Credit

Mr Hammond said that Universal Credit was a necessary and long-over due reform, where “work always pays and people are supported to earn.”

However, he went on to announce several key changes:

• The seven-day waiting period will end
• The system will change so that households can get an advance for a full months’ payment within five days
• People claiming an advance will now have 12 months to repay it

Mr Hammond said this was a £1.5 billion package to help people with the change to Universal Credit.

National Living Wage

The National Living Wage, for people aged 25 or over, will increase from £7.50 to £7.83 from April 2018; a £600 per year rise for full-time workers.

Income Tax

Mr Hammond announced that from 6th April 2018 the Personal Allowance, the amount which can be earned before income tax is paid, will rise to £11,850 from £11,500 in the current tax year .

The higher-rate tax threshold will also rise to £46,350 from the same date.

No changes were announced to the rates of Income Tax.

Alcohol & tobacco

Duty will be frozen on wines, spirits, cider (except white cider) and beer.

The cost of tobacco will rise by inflation, plus 2%.

Travel

A new railcard for people aged 26 – 30 will give a third off rail fares.

The Chancellor also announced that the scheduled rise in fuel duty, due to take effect in April 2017, will be cancelled.

Also, short-haul Air Passenger Duty will be frozen. However, there will be an increase on premium class tickets and private jets.

NHS

Mr Hammond spoke of the Government’s commitment to the NHS.

He then announced an additional £10 billion of capital investment, as well as £2.8 billion, day-to-day funding over next three years.

Corporation Tax

The Chancellor announced no changes to the rates of Corporation Tax.

Business owners

Mr Hammond said: "There is a case now for removing the anomaly of indexation allowance for capital gains – bringing the corporate system into line with personal capital gains tax. I will therefore freeze this allowance."

This measure will increase the tax bills paid by people selling their business.

Pensions

Despite the usual speculation, and for the first time in many years, the Chancellor announced no significant changes to pension legislation, tax-relief or allowances.

There’s no doubt that will come as a relief to those people using pensions to plan for their retirement.
VAT (Value Added Tax)

Despite pre-Budget speculation, the Chancellor announced that the VAT threshold will remain frozen at £85,000 for the next two years.

However, a consultation on the structure of VAT was also announced.

Small businesses

The way in which business rates are increased each year will change.
From 2018, they will now rise in line with CPI (Consumer Prices Index) and not RPI (Retail Prices Index) saving £2.3 billion.

Housing

In perhaps the largest section of his speech Mr Hammond said: “Getting on the housing ladder is not a dream of your parents' past but a reality for your future.”

He then outlined some of the Government’s accomplishments, but was clear that there is “more to do” to increase house building and help younger people onto the housing ladder.

Mr Hammond announced a £44 billion package of funding, loans and guarantees to help the housing market.

He also announced local authorities will now have the power to charge a 100% Council Tax premium on empty properties.

Finally, new measures to combat homelessness and rough sleeping were also announced.
First time buyers

The Chancellor announced that, from today, Stamp Duty will be abolished for all first-time buyer purchases up to £300,000.

To help first-time buyers in “high price areas” no Stamp Duty will be payable on the first £300,000 on property purchases up to £500,000. This is a stamp duty cut for 95% of all first-time buyers who pay stamp duty.
 
Here to help

If you have any questions about today’s Budget please call us on the usual number; we are here to help.

Every Budget has winners and losers; with some people faring better than others.

So, how did you fare? Read on as we reveal whether you are a winner or a loser after Philip Hammond’s second Budget of 2017.

Winners

First-time buyers

Those buying a home for the first time will now benefit from the abolishment of Stamp Duty on homes up to the value of £300,000. To ensure that this can help first-time buyers in high value areas, such as London, the first £300,000 will be exempt from Stamp Duty on homes above this value to a maximum of £500,000.

The Chancellor said that this would mean: “A Stamp Duty cut for 95% of all first-time buyers who pay Stamp Duty.”

Under 30s who travel by train

The 16-25 railcard will now be available to people aged up to 30. The so-called ‘Millennial Railcard’ will be available next year, and will offer savings of up to a third off non-peak fares.

Whilst the railcard won’t provide savings for regular commuters travelling in peak times, it will benefit people travelling at less busy periods.

People claiming Universal Credit

Measures will be put in place to support those claiming Universal Credit, such as the removal of the seven-day waiting period for benefit claims. This means that benefits will be paid on the day of the claim, giving families access to money for rent payments. Advances will also be able to be applied for online, and the repayment period for advances will increase from six to 12 months.

Any new claimant in the receipt of housing benefits will continue to receive them for two weeks, meaning that benefits aren’t lost in the crossover period.

People earning the National Living Wage

The National Living Wage will be increased by 4.4%, rising from £7.50 per hour to £7.83 per hour. This will take effect from April 2018.

Taxpayers

From April 2018, the tax-free Personal Allowance will be increased from £11,500 to £11,850. The higher rate threshold will be increased from £45,000 to £46,350.

People saving into pensions

For once we had a Budget where no changes were announced to pension tax-relief or allowances.

Drinkers

The duty on ciders (except white cider), wines, spirits and beer will be frozen, meaning those buying alcoholic drinks will see no price increase next year.

Air passengers

From April 2019, short-haul Air Passenger Duty rates and long-haul Air Passenger Duty rates will be frozen. This will be paid for by an increase on Premium class tickets and private jets.

Drivers

The scheduled fuel duty rise for both petrol and diesel vehicles in April 2018 has been cancelled. This is expected to save a typical driver £160 per year.

Small businesses

The VAT threshold for small businesses has been maintained for the next two years at £85,000.

A planned business rate switch from RPI to CPI has been brought forward by two years, to April 2018. This is expected to reduce the burden of business rates by an extra £2.3 billion.

Pubs

A £1,000 business rate discount will be made available to pubs with a rateable value of less than £100,000 for one more year, to March 2019.

Homeless people in the West Midlands, Liverpool and Manchester

A £28 million pilot scheme will aim to tackle the problem of people sleeping rough in the West Midlands, Manchester and Liverpool.

House builders

Over the next five years, £44 billion in capital funding, loans and guarantees will be allocated to deliver 300,000 new homes per year. This includes £1.5 billion to help smaller firms build more houses.

GCSE computer science students

The number of trained computer science teachers will be tripled to 12,000, with the aim to place a fully qualified GCSE computer science teacher in every secondary school.

Anybody charging their electric car at work

A new £540 million charging infrastructure fund will support the growth of electric cars. This will provide more charging points, especially at places of business.

New tech businesses

£20 billion of new investment has been unlocked for UK-based businesses in the technology sector. This consists of a new fund of £2.5 billion that has been allocated for emerging UK businesses, designed to replace European investment funds post Brexit.

Losers

Economy

The Chancellor started his speech by revealing a series of forecasts showing growth in the economy is expected to be significantly lower than predicted earlier in the year.

Diesel car drivers/ businesses

Drivers of diesel cars, which do not meet the latest pollution standards, will see their Vehicle Excise Duty (VED) rise by one band in April 2018.

The existing diesel supplement in company car tax will rise by 1%, the proceeds from which will be used to create a new £220 million Clean Air Fund.

Premium and private air travellers

Increase in prices for premium and private air travel to compensate for a freeze on duties for short-haul air passengers and long-haul economy air passengers.

Employers

The National Living Wage for those aged 25 and over will rise by 4.4% to £7.83 per hour from April 2018.

Smokers

The duty on tobacco, hand-rolled tobacco and the minimum excise duty on cigarettes, which is due to be introduced in March, is set to rise by 2% above the Retail Price Index (RPI) inflation.

People selling their business

Freeze for indexation allowance on Capital Gains Tax. Companies will receive relief until January 2018.

Empty property owners / investors

Local authorities will be given the power to charge a 100% council tax premium on empty properties.

Here to help

If you have any questions about today’s Budget please call us on the usual number; we are here to help.

November 2017 saw inflation hit 3.1%; the highest it has been since 2012, as reported through the Consumer Price Index (CPI).

As 2018 gets underway, thousands of households will be feeling the squeeze and looking for ways to combat the shrinking value of their income or capital.

What is inflation?

According to the Office of National Statistics (ONS), inflation is “The rate at which the cost of goods and services rises year on year.”

Over time, goods and services increase in price, if income and capital fails to grow at the same rate, household budgets can feel tighter as a result.

Inflation cannot be avoided, it is a necessary factor in any successful economy. The resulting increase in demand for products and services drives production and manufacturing, which ensures that there are enough jobs and that people can afford to live.

As individuals, we can’t impact the rate of inflation. However, it is necessary to monitor the rate at which it is increasing, as this is what will affect our living standards.

The Consumer Price Index (CPI) measures and reports the rate of inflation. It does so through fluctuations in the price of everyday products. It does not show the effects on individual markets, but it does offer a great overview of the cost of living for an average person or household.

Consider everything you buy throughout the year; from food staples, to clothing, holidays and hobbies. The CPI works by comparing the total cost of the products and services year-on-year.

The effects of inflation

As inflation rises:

• The cost of living increases
• Interest rates could potentially rise
• Capital is de-valued; and so is your income
• It becomes more difficult to make big purchases
• The value of your savings is eroded

When inflation rates are high, almost everyone is affected in some way. However, different groups see different outcomes, for example:

Savers: If the interest rate is lower than the rate of inflation, the real value of savings will decrease. Therefore, savers, who are more risk averse by definition, could very well experience the one thing they are trying to avoid; a loss of capital value.

Annuity holders: An Annuity provides a guaranteed income for the rest of your life, and potentially, your spouse or partner’s. When bought, the consumer is able to choose between a level or Index-linked product. Level Annuities are the most commonly purchased. As the cost of living rises, a pensioner receiving a flat pension income may find it harder to meet their financial needs over time.

Employees: If your pay rises are not in line with inflation, the buying power of your income is diminished. This, combined with the rise in interest rates, designed to offset the effects of inflation, can put a squeeze on household budgets.

Offfsetting the effects

Combatting the effects of inflation is an ongoing battle. However, with careful planning and by staying informed, you can remain financially stable. Nine things you can do to help yourself are:

Shopping around for the best savings account:  putting in the effort now could save you a lot in the long term, as well as helping you to maintain the value of your capital.

Hold savings tax efficiently: utilising products which allow you to collect the returns tax free, will mean that you see more of your returns than if you had to pass some of the interest on to the taxman. Cash ISAs are the best example of these. Use your Personal Savings Allowance (Up to £1,000 of interest tax free for basic-rate taxpayers and £500 for higher rate).

Consider investing rather than saving:  Over a longer term, investing has the potential to produce higher returns than saving. Of course, this comes with a risk to your capital and the value can fluctuate over time. However, currently saving accounts are almost guaranteed a real-term loss of value for your money. So, now might be the time to consider becoming an investor.

Retiring: Fewer people are buying an Annuity when they retire, due to Pension Freedoms. However, if you do decide to purchase an Annuity, think long and hard about the effects of inflation.

Budgeting: While inflation may not be having an immediate effect on your budget, if the gap between price rises continues for a long period, you will notice it. Therefore, preparing now will pay off in the long term. The price of living may be going up, but the best way to stay financially secure is to plan your finances in advance.

Increase your income: Put yourself in as good a position as possible for pay rises, bonuses and other financial incentives which may be available from work.

Build a safety net: Most experts advise having an emergency fund which could cover three months to one year’s living expenses. Having this in place gives you an added layer of financial security which will be extremely useful in the event of an emergency, illness or unexpected rise in the cost of living.

Mortgage:  Mortgage rates should be monitored constantly to ensure that you have the most competitive rate available. Interest rate rises are common when inflation is high, and that means a rise in monthly payments for tracker and variable rate products. Make sure that you can afford repayments if interest rates rise and your budget is squeezed further.

Seeking advice: An Independent Financial Adviser will help you to make the most of your income. By getting to know you and your circumstances, they can point you toward the best products, methods, and budgets for you and your family.

For more information about inflation, or to discuss ways to protect your finances, contact us.

The Bank of England (BoE) interest rate rise made a splash in the headlines last year. However, the subsequent announcement that inflation continues to increase, and has since hit a six-year high, is one of the biggest causes for concern for savers.

As a result of the rate rise, many banks and building societies have increased their interest rates on both mortgages and savings accounts. Though most have chosen to increase the rates on interest paid to them, by a larger amount than on savings accounts where interest is paid out.

However, with low interest rates and high inflation, it’s never been more important to try to find a savings account which gets as close as possible to maintaining the real value of your capital. Even if it can’t provide a real return, a rate which is close to inflation means that less of your capital is lost to the increasing cost of living.

Here are our seven top tips to help you to identify the best savings account.

 1.       Define your goals first

Remember when teachers taught you all about S.M.A.R.T targets? Well, you’re finally going to use them ‘in the real world’.

Your savings goals should be:

Specific: How much do you want to save? How much capital do you already have that you need to find a return for?

Measurable: What interest rate do you need to beat inflation?

Achievable: Naming your goal, with reference to what it will provide for you, is a great way to keep yourself motivated.

Realistic: Keep your expectations within the available limits. Don’t plan for high returns while the BoE interest rate is low. If you have already built up capital, do everything realistically possible to maintain the real value.

Time-bound: Work out how long it will take you to reach your goal within realistic boundaries. You can even set yourself milestones along the way using the same calculation.

 2.       Work hard

The right savings account won’t fall into your lap through luck alone. As American writer and musician, James McBride, famously said:

“You make your own luck by working hard.”

If you want to access the best interest rates and find a product that is suited to your circumstances, you will need to take the time to shop around and get to know the different savings account types available.

This is an ongoing process. For example, if you choose an account with a fixed term, at the end of that term, you will need to find a new home for your savings. Likewise, if you choose an account with a variable rate, you need to monitor the rate as they are likely to be cut.  At the end of the fixed-rate period, you can shop around and ensure that your money is kept in the best place at the time.

 3.       Look for tax-free returns

Focus on savings accounts which offer the opportunity to collect returns on a tax-free basis. Tax-free products, such as Cash ISAs, mean that you lose less to the taxman, leaving you to keep more of your returns.

Keep your Personal Savings Allowance in mind. For basic-rate taxpayers, this means that you can receive up to £1,000 in interest each year, without incurring tax. For higher rate taxpayers, the limit is £500.

Currently, a Cash ISA is probably a safer bet, as it has been around for decades and is hugely popular. Whereas, the Personal Savings Allowance has only been recently introduced and could be reversed in a future Budget.

Tax-free accounts mean that you can keep more of the interest and earnings from your capital. This will enable you to reach your savings goal faster.

 4.       Stay safe

The Financial Services Compensation Scheme (FSCS) is in place to protect the money you deposit into a savings account. The FSCS is positioned to compensate deposits lost due to the bank or building society becoming insolvent.

The scheme covers deposits and investment in a wide range of products, including bank and building society accounts. However, they are only able to replace:

• Deposits of up to £85,000 per institution per individual
• Temporary high values of up to £1 million

Therefore, it is important to keep your money safe by maintaining a balance which falls under the FSCS’ protection limits. That may mean splitting your savings between banks and building societies, but it does mean that you are more likely to receive compensation, should they default.

All institutions which are regulated by the Financial Conduct Authority (FCA) will be eligible for FSCS protection. You can check if a defaulted bank or building society is protected by the FSCS here .

 5.       Stay up to date

As new products become available and older savings accounts are closed, it is important to stay ahead of the game. By keeping an eye on developments, you will be able to tell when a new product, offering you better terms, enters the market.

For example, NS&I (National Savings and Investments) have recently relaunched their Guaranteed Growth and Income Bonds, which could be beneficial for those looking for guaranteed returns. Additionally, savings accounts rates are changing all the time. So, keeping your finger on the pulse is massively important if you are to find the best rates.

 6.       Think outside the box

Without doing any research, you could be forgiven for thinking that only the providers with the biggest marketing budget are offering something that will benefit you. However, not all firms are splashed across our televisions and billboards – but they still offer some great opportunities and benefits.

For example, think about the Islamic Banks. While not traditional savings accounts; because they pay profit, not interest, the predicted rates are attractive, and they are generally FSCS covered.

 7.       Be vigilant

Don’t be tempted by high return, low-risk investments. When interest rates are so low it’s a perfect time for scammers to try and tempt you with promises of double-digit, guaranteed returns.

No such thing exists.

Double and triple-check any offers and be especially wary if you receive unauthorised contact from providers looking to sign you up then and there. There are two rules to remember:

• If it sounds too good to be true, then it is!
• If they have no reason to be contacting you, you have no obligation to talk to them

For more information on savings, please get in touch.

Introducing legislation to ban cold calls from pension scammers has been on the Government’s radar for some time. But now, following a lengthy delay, MPs are calling for action to be taken sooner, rather than later, pushing for the Financial Guidance and Claims Bill to be approved.

What has happened so far?

The Government’s plan to ban cold calling was confirmed by Philip Hammond, during his 2016 Autumn Budget. However, progress in implementing new legislation was slowed down by the 2017 General Election, before seeming to halt altogether.

In August 2017, the Government released an outline of their plans to implement a pensions cold calling ban. However, MPs feel that the progress toward a ban is too slow. In the meantime, millions of calls are being made and thousands are being lost to scammers.

Why is it so important?

Statistics from Action Fraud show that:

• Victims of pension fraud lost almost £5 million between January and May 2017
• An estimated £45 million has been taken by pension scammers over just three years
• During that time, each victim lost an average of £15,000

How the ban will work

The ban on cold calling would prohibit phone calls from businesses, to people they have had no prior dealings with. It is hoped that a ban, and the ensuing publicity, will send a clear message to the people being targeted, that they can simply hang up the phone if they do not recognise the person calling.

The Financial Guidance and Claims Bill refers to:

 “(a) suspected inappropriate, misleading or harassing approaches with regard to debt advice, debt management, pension access and claims management services, and (b) suspected dishonest, unfair or unprofessional conduct by those supplying financial services relating to the areas of activity of the single financial guidance body.”

The Bill also broaches the subject of cold calling. It includes a clause instructing the single financial regulatory body to carry out annual assessments of the effects of cold calling on consumer protection. It goes on to instruct the regulatory body to advise the Secretary of State to implement a ban, if that assessment shows a negative impact on consumers.

Currently, this Bill is making its way through the approval process, but it may not reach the final stage – royal ascent – until 2019. Which gives fraudsters more than 12 months to continue to target vulnerable people.

Protecting your pension against fraud

Knowledge is everything if you are being targeted by a pension scam. Knowing who to trust can be difficult, but there are a few things you can do to prepare yourself and outsmart the bad guys:

Know their methods:  Cold calling isn’t just unwanted phone calls, fraudsters may try to contact you via post, email or text message. Just because a letter or email looks official does not mean that it is.

Verify their identity: Companies legitimately offering you financial advice, are unlikely to contact you out of the blue, but you can keep yourself safe by asking for company details. All financial advisers are regulated by the Financial Conduct Authority (FCA). Never take financial advice from anyone who isn’t authorised and regulated. You can find out if the company contacting you is authorised here.

Be smart: Many pension scams start by telling you that they can help you to access your pension fund before the age of 55. They can’t. Whilst it might be tempting, remind yourself of the golden rule; if it sounds too good to be true, it usually is.

Talk to people: Community is a great defence against crime. By starting to talk about how pension fraud is carried out, you can help each other and share information which may save you, or your loved ones, large amounts of money.

Report fraud attempts:  Report any suspected scams to Action Fraud via phone or using their online fraud reporting system. By reporting criminals, you lessen their chances of tricking someone else.

Always seek unbiased, trusted and independent advice, never accept an unsolicited offer. To discuss your concerns, contact us today.

“Real knowledge is to know the extent of one’s ignorance.”

Attributed to Chinese philosopher Confucius, this timeless phrase has never been more apt than when applied to the topic of Pension Freedoms.

A new report, from Old Mutual Wealth has revealed that many 50-60-year olds are uninformed about Pension Freedoms, with:

• 45% not knowing about Pension Freedoms at all, or not knowing how the new rules affect them
• 37% not knowing how or when they should access Pension Freedoms

Why is knowledge important?

Pension Freedoms are perhaps the biggest revolution to take place in the retirement arena in the past 20 years. Used well, the reform means that you can retire early, in a way which is more flexible and suits your lifestyle.

That freedom has given many people more control over their finances. It means that you can take lump sums from your pension pot for big purchases, or to help loved ones financially, as well as planning ahead to leave larger legacies to your loved ones.

However, the new-found freedoms come with potential dangers and pitfalls. For example, withdrawing too much, too soon could leave you facing financial difficulties later in life.

Current concerns

Research from AJ Bell has shown that some pensioners may run out of money within 12 years, due to three factors:

• Withdrawing too much each year
• Underestimating how long they will live
• Spending money frivolously

44% of over-50s choose to withdraw over 10%, a figure usually considered to be unsustainable, of their pension savings annually. Worryingly, the biggest group of people doing so (57%) are aged 55 to 59. As well as over-withdrawing, more people are taking money without planning for the future, as:

• 47% take ad-hoc lump sums
• 35% rely on an income of regular withdrawals

In addition, the same age group (55-59) severely underestimate how long their pension will need to last, with:

• 51% estimating that their pension will need to last for 20 years or less
• 24% believing that they will need to make their pension last for less than 10 years

The combination of large withdrawals and a lack of planning for the future means that many people are at risk of running out of money part way through their retirement. According to the Office for National Statistics (ONS), the life expectancy for someone who is currently 55 is:

• 81 for men
• 85 for women

That means that pensions may need to last for more than 25 years for both sexes.

Another concern is the reasons behind the withdrawals. Whilst Pension Freedoms means that you can access the whole pension fund for any reason; it doesn’t necessarily mean that you should.

AJ Bell’s research shows that 40% of 55-59-year olds make withdrawals for day-to-day living costs (a pension’s intended purpose). Meanwhile, a quarter (25%) have used Pension Freedoms to make luxury purchases, including holidays and cars.

Using your pension wisely

Pension Freedoms are in place to give you more control over the way you use your pension savings. However, it has never been more important to plan ahead and make sure that you are using them in a way which benefits you both now and in the future.

It might be tempting to withdraw large amounts and go on a spending spree; but that could potentially leave you exposed to financial danger for the rest of your life.

So, how can you use the Pension Freedoms reform to meet your needs?

There are four key points to remember:

Have an open mind: Old Mutual’s research revealed concerns that consumers may be choosing the "path of least resistance" by accepting the drawdown option offered by their pension provider without shopping around. It can be all too easy to stick to what you know and reject any new options out of comfort. But a little research could go a long way toward making the most of your pension savings.

Avoid the threats:  Unfortunately, the new rules have inspired a range of new scams and fraud attempts. Stay vigilant and never accept an unsolicited offer. Always verify companies through the Financial Conduct Authority (FCA). Secondly, remember that your pension pot may have to last for 20, 30 or 40 years. Spending too much, too soon could cause you financial difficulty in the future.

Take advantage of the opportunities: taking advantage of pension freedoms could help you retire early, or more flexibly, in a way which suits your preferred lifestyle. It can also help you leave a legacy to younger generations.

Seek advice: Research from Unbiased has shown that people who take financial advice save an average of £98 more each month, which leads to an additional £3,654 in annual retirement income.

For more information on Pension Freedoms and how your retirement could be affected, feel free to contact us.

Millennials are the generation born between the mid-80s and early-2000s, perhaps your children or grandchildren. With 13.8 million people falling within the age bracket, they make up a significant 12% of the UK population (source: Statista ).

In financial terms, millennials have been dubbed ‘generation debt’, ‘generation rent’ and even ‘generation screwed’, due to the difficulties they face in comparison to the generations who came before.

Despite the negative coverage, new research suggests that 20-34-year olds are actually saving more each year than their parent’s generation. But, almost half are confused about the marketplace and need more guidance.

Millennial attitudes toward savings

44% confess to being confused about savings and feel that they would benefit from advice (Source: Close Brothers and the Pensions and Lifetime Savings Association (PLSA)). This is emphasised by the attitude of millennials to the new Lifetime ISA (LISA):

• Just 4% of millennials have a Lifetime ISA (LISA)
• 32% say they are likely to open one in the future
• 41% of millennials don’t know if they will open one
• 64% of those who are unsure cite a lack of information as the cause of their uncertainty

Of those who are likely to open a LISA in the future:

• 69% will have it as a complimentary account to their workplace pension
• 18% will choose to opt out of their workplace pension and rely solely on the LISA

Overall, the study showed that millennials are saving almost £400 more each year than ‘Gen X’-ers (35-54-year-olds) at £3,445 to £3,073, despite the cry for more advice and guidance. However, the higher amounts are not necessarily being used in the most sensible of ways. Millennials will put their savings toward:

• Holidays (34%)
• House purchases (33%)
• Paying debts (25%)
• Big ticket items (13%)

With short-term plans taking priority over long-term savings, the millennial generation could be headed for financial uncertainty in later life. Just one-fifth (20%) are currently saving to support their lifestyle in retirement, compared to Generation X at 34% and 50% of over-55s.

Why engage with saving?

Engaging with saving allows you to take control of your financial future. With the struggles facing the millennial generation, it is now more important than ever to know what’s what regarding savings. Understanding savings will improve your outlook toward:

Buying a house: With rising house prices come bigger deposits. Knowing how much you can save and when you will have enough means you can plan your future more efficiently.

Saving for retirement: From early 2018, all employees earning £10,000 per year or more will be automatically enrolled into their workplace pension. Understanding how much both you and your employer will contribute, and the income this will produce in retirement, puts you in a better position to plan your financial future.

Pensions: It is no longer possible to rely on the State Pension alone to support your lifestyle in retirement. Therefore, developing good savings habits now, will allow you to build a fund to live on when you choose to stop working. This is especially important if you want to retire prior to the ever-increasing State Pension Age.

Where to get guidance and advice

If you feel that information will help you to understand your saving options better, there are a range of sources available. Of course, some will be more beneficial than others. Some great sources of information are:

 1.  Financial advisers and planners (advice)

Naturally, Independent Financial Advisers are best placed to offer personalised advice which is tailored to suit your current and future objectives. While advisers do charge fees for their service, it has been shown that people who seek independent financial advice are significantly better off and more confident than those who do not.

2.    Government information (Guidance)

The Government website has lots of information about products, services and legislation which affects your finances. It is a good source of unbiased information, though it is not tailored to your needs. Pension Wise is another government-run service which focuses on pensions. The website has lots of articles and information about saving and preparing for your future.

3.     Online information

Although it is classed as guidance rather than advice, there are many websites and groups offering general information on all aspects of finances, including savings, including:

• Money Advice Service
• Citizen’s Advice

Of course, we are always ready to help with any concerns you have surrounding savings and finance, so feel free to contact us.

2018 marks 10 years since auto-enrolment was first debated in 2008. As the new financial year approaches, we look at what April 2018 has in store for workplace pensions.

What is auto-enrolment?

Introduced into law in 2011, auto-enrolment will be in its final roll-out phase this year. This means that, from April, eligible employees from all sizes of business should be included in a workplace pension (unless they have chosen to opt out).

Eligible workers are those who:

• Are aged between 22 and the current State Pension Age (which you can check here)
• Meet or exceed the earnings limit. This is currently £10,000 or more each year/£833 per month/£192 per week, but this is reviewed yearly and may to change
• Have a contract of employment (i.e. subcontractors and non-contracted partners will not count)

Employees who do not fit these criteria can ask to join the workplace pension on an individual basis.

The end of the five-year phase-in period

Since auto-enrolment came into effect, nine million people have been enrolled; one million of whom joined during 2017. (Source: Department for Work and Pensions (DWP)) During the first few months of 2018, small businesses will be joining the ranks as part of the final stage of auto-enrolment’s introduction.

February 1^st is the final phase-in deadline. After which, all employers will be under immediate duty to enrol new staff members who are eligible.

Contribution changes

Perhaps the biggest change we’ll see, is the change to the minimum contribution levels. Currently they are:

• 1% employer contribution
• 2% total contribution (meaning at least 1% employee contributions if the employer pays 1%)

From April, the minimum contribution levels will rise to:

• 2% employer contribution
• 5% total contribution (meaning at least 3% staff contribution if the employer pays 2%)

12 months later, in April 2019, these minimum contributions will increase once again to:

• 3% employer contribution
• 8% total contribution (meaning at least 5% employee contribution if the employer pays 3%)

Many companies and experts have expressed concern that raising the minimum contribution amounts will encourage employees to opt out of their workplace pension.

Currently 10% of people opt out, but experts have warned that the number could rise to 21.7% in 2018 and 27.5% in 2019 (source: Your Money).

However, it appears that those worries may be unfounded, as just 4% of people have made up their mind to leave their workplace pension when the increase comes into effect. Fortunately, half of employees are committed to their scheme:

• 50% will definitely stay in their workplace pension
• 34% are unsure what path they will take
• 12% will consider leaving their scheme
• 4% will definitely opt out

(Source: Aviva)

What’s almost certain, though, is that those who opt out will face a financially difficult retirement.

Other potential changes

In late 2017, the Government indicated that they would extend auto-enrolment to those aged 18 and over. However, this won’t happen until the mid-2020s. Currently, employees who are under the age of 22 must request to join their employer’s workplace pension. While those under the age of 18 will not usually be eligible for employer contributions to their scheme.

It is estimated that lowering the minimum age threshold will mean that 900,000 more people will be automatically enrolled into a workplace pension.

If you are a business owner, employer or employee, to discuss how the pension changes might affect you, feel free to get in touch.

Only 38% of UK adults know what inflation is, according to research from The Organisation for Economic Cooperation and Development (OECD). The data also shows that adults in at least 14 nations have a better understanding of inflation than Brits.

To help put this situation right, we’ve created a short explainer covering the main points. However, we always encourage you to read further, learn more and seek professional help when you need it.

What is inflation?

Put simply, inflation is the rising cost of goods and services. Over time, the products that we buy will go up in price. Inflation is unavoidable, in fact, steady and manageable inflation is beneficial to the economy, but it is the rate at which it increases which affects us most. That’s why the Bank of England (BoE) has a target of keeping inflation at 2%. With inflation currently at 3.1%, it has taken action by increasing interest rates, to try to pull the rate of inflation back to target.

Inflation is measured and reported most widely through the Consumer Price Index (CPI), which shows changes in the average price of goods and services across the UK. Whilst it does not reflect individual markets, it shows the pace at which household expenditure rises.

The Office for National Statistics (ONS) recommends thinking of the CPI in terms of a shopping basket. The basket represents the typical goods and services which households may spend money on. It includes all expenses, from basic food to annual holidays and leisure activities.

As a whole, this basket will have a monetary value, calculated using the average prices for those products. However, the cost of the items will change over time and the basket value will rise accordingly.

The effects of inflation

As inflation rises:

• The cost of buying essentials rises
• Interest rates may increase
• The buying power of both your capital and income are decreased
• Making big purchases becomes more difficult
• Your savings are de-valued

When inflation rates are high, almost everyone is affected in some way. However, different groups see different outcomes, for example:

Savers: If inflation is consistently higher than interest rates, savings will decrease in real term value. This means that, even though savings accounts are designed to minimise risk, savers will see a loss of capital value anyway.

Annuity holders: Annuities are designed to pay a guaranteed income for life. There are two types; level and Index-linked. Level Annuities do not rise year on year, therefore, those people with this product could find themselves struggling to keep up with the cost of living as the years pass.

Employees: Without pay rises which match inflation, employees will see their buying power decrease over time.

Consumers:  As inflation pushes up the price of goods and services, your buying power reduces. To illustrate:

If you deposit £1,000 at a time when a new television costs £200, you could buy five.

A year later, the interest rate is 1%, but inflation is at 2%.

Your savings are now worth £1,010, but a television costs £240. You can only afford four televisions, even though your savings have increased in value, the purchasing power has been affected severely.

Similarly, household income is worth less over time. Although inflation has a constant effect, with the price of living steadily rising at all times, pay rises are not as frequent. ONS data shows that the average weekly earnings across the UK are rising over time. But in real terms, salaried and hourly-wage incomes are not changing.

The same is true for pensioners who have purchased an Annuity; as they provide a set income each month, which cannot be altered and is not protected against inflation.

For both workers and pensioners, their set monthly income loses value, due to the increased cost of living. That means that any expendable income which may have been put toward savings will gradually decrease.

Offsetting the effects

It is not easy to combat the effects of inflation and it is an ongoing battle. However, there are a few options available to help you to protect your income and savings from erosion:

Savings accounts:  Interest rates vary throughout the savings account market. There are products available which offer returns that are close to the rate of inflation. Although it is unlikely that you will find rates which are equal to, or above the CPI.

Budgeting effectively: Whilst the cost of living is increasing overall, it is always possible to shop more effectively. Looking for offers, trying different brands and comparing products by price-for-weight, rather than shelf price are all great ways to save money on essentials.

Save money where possible: If your income is squeezed, putting money aside might be your last priority. But even choosing to take a packed lunch to work, rather than buying a meal deal every day can give you an extra pound or two to put away for a special occasion.

Take financial advice: Independent Financial Advisers are experienced in helping people from all walks of life and backgrounds to make the most of their income. They can help you to find the right savings account, manage your budget more effectively and plan for your future.

To discuss how you can better position yourself financially, contact us.

As we head into 2018, with a new financial year a few months away, the government is preparing to introduce several changes. These will come into effect in April, and it is likely that you will be affected by at least one of them. Being prepared is the key to making the most of the changes and deadlines that are approaching.

To ensure that you are informed about the upcoming changes to allowances, savings and pensions, here are the seven biggest things you need to know about.

 1.    Higher Lifetime Allowance

As inflation hit 3% in the second half of 2017, Philip Hammond announced in the Autumn Budget that the Lifetime Allowance would rise accordingly, from £1 million to £1.03 million.

The Lifetime Allowance dictates how much you can hold in your pension before tax charges are potentially applied. For example;

• 25% lifetime allowance charge applies to funds in excess of the Lifetime Allowance if they are placed in drawdown or used for annuity purchase
• 55% Lifetime Allowance charge applies to excess funds if they are withdrawn as lump sums

 2.    Increased Personal Allowance

The Personal Allowance is the income you can receive each year before starting to pay Income Tax. It’s currently £11,500 but will be increasing to £11,850 in April. That means that, during the financial year 2018/19, you can benefit from an extra £350 tax-free income.

The government has previously announced that they are aiming to raise personal allowance to £12,500 by 2020.

 3.    Dividend Allowance decrease

Although the change was announced in early 2017, the dividend tax-free allowance will fall from £5,000 to £2,000 at the beginning of the next tax year. This means that business owners and contractors who work for a limited company structure will pay tax on annual dividends of more than £2,000.

 4.    Auto-enrolment contributions increase

Automatic enrolment for all eligible employees into workplace pensions reaches its final stages for existing employers this year. In addition, the minimum contributions made by both employees and employers will rise.

Currently, both parties are required to contribute 1% of qualified earnings. However, from April, this will increase to a minimum of  2% from the employer and 3% from the employee.  And will rise once again in April 2019 to 3% for employers and 8% in total.

 5.    Help to Buy ISA / Lifetime ISA transfer deadline

Any deposits made into a Help to Buy ISA before April 2017 can be transferred into a Lifetime ISA (LISA), without impacting the annual Lifetime ISA allowance until 5^th April 2018. This could give you a double bonus. You can put twice as much into your LISA this year, and still receive the 25% bonus when you buy a house or retire.

 6.    Basic State Pension increase

Each year, the Basic State Pension increases in line with whichever is higher out of:

• The rate of Inflation
• Average Earnings growth
• 2.5%

This is known as the triple lock system.

In October 2017, inflation reached 3% and set the bar for the State Pension’s 2018 rise.

If you already receive a State Pension, this is good news. Those people entitled to a full basic State Pension will now receive an extra £4.80 per week.

 7.    Higher Income Tax rates in Scotland.

In the 2017/18 tax year, Scottish Income Tax rates for earned income are:

• Up to £11,500: Tax-free Personal Allowance
• £11,501 to £43,000: 20%
• £43,001 to £150,000: 40%
• over £150,000: 45%

However, from April 2018, proposals have been made to change them to:

• Up to £11,850: Tax-free Personal Allowance
• £11,850-£13,850: 19%
• £13,850-£24,000: 20%
• £24,000-£44,273: 21%
• £44,273-£150,000: 41%
• Above £150,000: 46%

This is quite a difference which will affect Scottish taxpayers at all income levels.

Making the most of the 2018/19 financial year

A lot of changes are happening at the beginning of the new financial year. So, make sure that you are informed and able to maintain your financial security when they come into effect. The three main ways to stay on top of your finances are:

1. Staying informed
2. Knowing how the changes affect you
3. Seeking advice

For more information about how the new financial year could affect you, contact us.

Research from Scottish Widows has shown that the top priorities for those planning for retirement, are generating an income (41%), and having flexibility over that money (40%).

Other goals came in much lower, with the ability to pass on benefits, such as an income or lump sum, to a spouse or dependent at 10% and control over investments at just 9%.

However, it is unlikely that the priorities you have for your retirement will be the same as everyone else. So, how can you identify your retirement aims, and further still, achieve them?

Understanding your retirement priorities

We can’t tell you here how to define your aims for retirement, but we can tell you that they should be:

• Personal

Your priorities should reflect the things that are most important to you, not necessarily your family. If you have a desired lifestyle in mind, generating enough income to support that will be high on your list, much like freeing up time to spend with loved ones will be important to some. Don’t be afraid to delve deep and work toward a retirement that truly reflects your aspirations.

• Adaptable

Your retirement priorities are likely to be flexible and can change as you go through life. For example, whilst you may currently be intent on leaving money behind for your children, that vision may expand to include grandchildren and great-grandchildren eventually. It doesn’t matter how many times you re-evaluate your plan, as long as you adjust it accordingly, and remain on track for a successful and financially stable retirement.

• Realistic

If you don’t have a high salary and have not been putting large amounts into your pension fund during your working years, it is unlikely that you will be able to retire on an income which is equal to what you have during working life. But, you probably shouldn’t aim for that as you probably don’t need it.

With financial planning, you can set yourself attainable goals that will make you feel just as accomplished and ensure that you have an enjoyable and affordable retirement.

Planning for a retirement that suits you

Retirement planning can be a lengthy process but, with the help of a financial adviser or planner, you should find that it is rewarding and worth it for that added peace of mind, so you will not have to worry about being able to afford to live during retirement. Retirement planning involves:

• Analysing where you are now and where you aim to be

Your current position includes all forms of savings, investments and pensions which will be used to provide you with an income in retirement.

How much you will need, will depend on the annual income you need to support your desired lifestyle, as well as your estimated life expectancy.

You can find all of this out by using a retirement calculator, like this one.

• Plugging any gaps

If your current savings habits are unlikely to provide you with the income you need in retirement, you have three options:

1. Accept that you will need to live a more reserved lifestyle, on a budget
2. Continue working, even if it is part-time, or as a consultant, to continue earning and delay full retirement
3. Start putting more money into your pension funds to boost the amount you will be able to access later.

• Accessing your pension

Since the introduction of Pension Freedoms in 2015, the options surrounding your retirement income have grown, meaning that you have more control from the age of 55.

Your retirement income is likely to be formed of two or more of:

• State Pension
• Workplace pension(s)
• Personal pension
• Savings
• Income from property and investments

It is up to you to decide how to organise those to meet your retirement needs.

Fixed and variable income

The difference might seem straight-forward and self-explanatory; however, it is worth reiterating that;

• A fixed income, such as those provided by Defined Benefit schemes, and Annuity or the State Pension gives you a guaranteed, often inflation-proofed annual income which will be provided for the rest of your life.
  
  
• A variable income, available via Flexi-access Drawdown, is not fixed, nor is it guaranteed, but it does mean that you can withdraw money as and when it is needed. Though using this as your only income will increase the likelihood of spending too much and running out of money in later life.

Typically, your funds remain invested and the value can go down as well as up. Any withdrawals are subject to your individual tax circumstances.

Both options have advantages and disadvantages, and the level of popularity between the two has changed dramatically since the pension reforms. FCA research shows that a third (30%) of pensions accessed since 2015 have been transferred into drawdown, while just 12% have been taken as an Annuity.

However, both play a key role in meeting your retirement goals.

It is important to remember that combining the two options is possible and that you do not have to make an either/or decision when you retire. Rather, it is better to do so. A fixed income acts as the foundation; paying your running costs, such as bills, mortgage and living costs. Meanwhile, a variable income can be used to cover other costs, whether planned or unexpected, which keeps your finances secure and means that you will be able to support yourself throughout retirement.

The role of financial planning

A financial planner will be able to help you to define your goals in a way which turns them into achievable targets. They will then work with you to find methods and routes to get you from your current position, to living your ideal retirement lifestyle, using what you have currently and building on it.

To discuss how financial planning could help you to achieve your retirement dreams, get in touch.

Almost two thirds (60%) of people believe that financial compatibility is one of the most important factors in a successful relationship, according to Scottish Widows.

But what is financial compatibility?

Like any part of a relationship, financial compatibility is multi-faceted and will look different for every couple. However, the research states that incompatibility “includes a lack of shared financial aspirations and different attitudes to spending and saving.”

Signs of financial incompatibility

You may be in a financially mismatched relationship if:

• You wish your partner was better at saving

20% of people feel this way and it could be a sign of differing priorities where money is involved. It may also signify that you see the future differently to one another, if one of you values spending over saving, you’re likely to feel the friction.

• You feel like your savings have been impacted by your partner’s spending

Being unable to reach your financial targets can be frustrating, especially if the reason is your significant other. This feeling is shared by more than a quarter (27%) of people and rises to 41% for couples who are working toward living together.

• You have a lack of shared financial goals

The feeling of taking different approaches to finances can easily put a wedge between partners. 17% of people have felt that they and their partner have different financial goals and that their relationship has been strained as a result.

Communication could be the key

A lack of communication and shared planning could be the main reason why so many people feel that their partner’s attitude towards finances is so different from their own.

The research shows that people who form relationships in later life are more likely to discuss finances from the beginning, with 34% of over-55s doing so, compared to just 8% of 18-to-34-year-olds. Furthermore:

• 11% of people do not tell their partner how much they earn
• 57% of people don’t know how much their partner has in the bank
• 25% of married people admit to keeping money separate from their spouse’s

So, more communication is necessary.

Should financial incompatibility be a deal breaker?

Not necessarily.

However, it may simply be down to a need to talk more openly and communicate with one another. It is nonsensical to expect your financial aspirations to be perfectly aligned if you have never sat down and discussed how you think money should be treated.

Catherine Stewart, retirement expert at Scottish Widows, said:

“It’s important that couples – at any age – have open and honest conversations about their finances to make sure they have an understanding of their individual longer term financial goals.

“Some people may be more inclined to focus financial conversations on big life events like buying a house, having a family, or taking time out from work to travel together. Life after retirement should also be on this list; having a good understanding – early on – of each other’s retirement goals will help to ensure couples can work towards a realistic joint financial plan.”

A meeting of minds

Creating a joint financial plan is an important step in any relationship. It could be signal of commitment, or that big changes are planned. Either way, the simple act of talking about your finances, both as individuals and as a couple, will strengthen your bond and give you the opportunity to address any differences of opinion.

Speaking to a financial planner or adviser as a couple will give you the opportunity to combine your goals with professional insight into the strategies and methods available to help you to achieve them.

For more information, or to speak to a financial planner or adviser, get in touch.

The way pensions are accessed at the beginning of retirement has changed since the introduction of Pension Freedoms in 2015. The reforms mean that those aged 55 and over are less restricted in their ability to access their retirement fund.

These options mean that those nearing pension age have been faced with a range of options and decisions, which have affected the pensions landscape both positively and negatively.

The four main changes to take place at the point of retirement are:

1. Cash is accessed differently

Since the reforms were introduced, more than half (55%) of pots accessed have been withdrawn in full, but less than a fifth (17%) of those who have accessed their pension say they have taken the full amount. Either way, more people are choosing to take all their retirement income in one transaction, simply because they can.

Withdrawing the full amount becomes more likely for people who have smaller pension funds, as 88% of those which are fully withdrawn held less than £30,000. (Source: Financial Conduct Authority (FCA))

2. Drawdown has increased in popularity

Studies have shown that 30% of pension funds accessed since 2015 have used Flexi-access Drawdown while just 12% have been used to purchase an Annuity. Sales of Annuities fell by 16% in 2017 (source: FCA). Flexi-access Drawdown is not necessarily the wrong way to access retirement income, but it does come with opportunities and threats which mean that your capital will need to be managed more carefully than an Annuity.

The ability to take large lump sums from your pension, may seem tempting, but it is important to keep the golden rule in mind: just because you can, doesn’t necessarily mean that you should. Entering Flexi-Access Drawdown offers more flexible access to your retirement income than an Annuity, but it also brings an increased risk of spending too much, too soon and running out of money in later life.

3. Pensioner uncertainty has increased

In 2017, Prudential reported that two thirds (67%) of over 55s were confused or uncertain about what Pension Freedoms means for them; even though two years had passed since the reforms. The same report showed a severe lack of understanding of the new pension rules with many in the dark about:

• No longer having to buy an Annuity (42%)
• Potential taxation of income taken from pensions (52%)
• Being able to access the whole fund from 55 (53%)
• Transferring Workplace Pensions into a Personal Pension fund (70%)
• Potentially needing to complete a self-assessment tax form in retirement (73%)
• Leaving pension funds as inheritance (75%)

Recent research shows that 25% of people do not recall how they accessed their pension pot, showing that, even now, three years on from the Pension Reforms, there is still an element of uncertainty and lack of engagement among those who are most affected by them.

4. Pension scams have increased

According to research from Aviva, pension cold calls have increased by 2.7 million since the introduction of Pension Freedoms. Between 2014 and 2017, it is estimated that pensioners have lost a total of £43 million to scammers, with each victim losing an average of £15,000 each. (Source: Gov.uk)

Recently, legislation has been introduced which will mean that cold calls relating to pensions are illegal and those carrying them out could be subject to a £500,000 fine. However, this will not stop criminals from targeting pensioners by other means so, post, email and even home visits should be treated with caution.

Remember the golden rule of cold callers: If it sounds too good to be true, it usually is.

Pension Freedoms has opened the door to many possibilities for those reaching pension age. But it has also brought confusion and an opportunity for vulnerable people to be taken advantage of.

For many, the reforms have brought good news and have enabled them to take control of their pensions, whilst choosing how they use their money more flexibly. However, it is always sensible to seek financial advice before making any permanent decisions.

To discuss your retirement planning and the best use of your pension, get in touch.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected 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.

According to research from the Financial Conduct Authority (FCA), most adults are not paying enough attention to their pension, leading to difficulties in retirement.

Pause for thought

The report shows that many people are not setting aside the time to think about their retirement income, with:

• 75% admitting they have either not considered their retirement finances at all, or do not give it much thought
• 45% only stopping to consider their pension provisions in the two years before they plan to retire
• Many people only reviewing their pension when it is worth more than £20,000
• Over half (53%) not reviewing their pension fund within the past year

The consequences of ignorance

31% of all adults do not have any pension in addition to the State Pension. Meanwhile, more than a quarter (26%) of over-55s, do not know how much they have in their pension.

Among those with Defined Contribution pensions (for example, a stakeholder pension, personal pension, SIPP and many workplace pensions):

• 81% have not taken the time to calculate how much they need to pay in now, to ensure a reasonable living standard in retirement
• 71% do not know what charges they are paying
• 32% do not know how much their pension is worth
• 34% report “little or no” trust in their provider

This lack of understanding and trust is likely to be partially due to the absence of engagement with pension providers and the services they offer.

Do you need to know?

In short, yes.

Financial planning for retirement has three key parts:

1. Defining your goals, and how much retirement income you will need to meet them
2. Knowing what your pensions, as well as other savings and investments will provide
3. Finding ways to bridge any gaps between the two

Without careful retirement planning, you put yourself in danger of:

• Running out of money
• Not having enough to provide a liveable income
• Missing mortgage payments, if you have a mortgage outstanding, and potentially losing your home
• Being unable to leave the financial legacy you want for your loved ones
• Not enjoying the retirement lifestyle you want

How should you review your retirement planning?

1.Make sure you include all your pensions

Before reviewing your retirement plans, make sure that you have identified all pensions you have paid into. If you think you may have a pension elsewhere that you can’t find, you can trace the contact details of the provider through the government’s pension tracking service here. Alternatively, why not let us do the hard work for you?

2. Check your State Pension

To qualify for a Full State Pension, you will have to have paid your National Insurance or have received credits for 35 ‘qualifying years’. You can check your National Insurance Record here.

To find out what you can expect from your State pension, use the forecasting tool here.

3. Review your workplace pension(s)

How you do this will depend on the type of pension you have.

If you have a Defined Contribution Pension, you will have to contact your provider or your employer’s HR department. However, if you are in a Defined Benefit, or Final Salary scheme, you will need to contact the trustees directly. Alternatively, your financial adviser or planner will be able to find out this information on your behalf.

Gather as much information as you can, but the key questions are:

• How much is currently in it?
• How much do you and your employer contribute?
• How much are you likely to have available when you retire, if you continue without increasing your contributions?

4. Include any additional savings and investments you plan to use for retirement

If you have savings and investments which have not yet found a use, you may want to include them in your retirement capital, to boost the income available to you. It is important to take stock of all your resources, so that you know what you have available and whether you are on the right track to meet your retirement goals.

Next steps

From this point, you can begin to take steps to bridge any gaps between your current situation and the lifestyle you want to achieve by the time you finish working. To do so, you have three options:

Lower your expectations: Your first, and least favourable option is to concede that you will have less money in retirement than you planned, and simply accept that you will have to make some sacrifices in your lifestyle to meet your budget.

Put more in: You could increase the amount you put into your pension each month to boost your retirement fund and give yourself a bigger income when you stop working.

Extend your income: If you are still working, you may want to consider continuing to do so until you have a sufficient pension fund to retire and enjoy the lifestyle you desire. Remember, if you do continue to work, you can delay your State Pension and increase the income you will receive when you access it later.

Finally, you should seek independent financial advice to make sure that you are on the right track to meet your retirement objectives. So, when you’re ready, feel free to get in touch.

A pension is a long-term investment. The value of your investment can go down as well as up and you may not get back the full amount you invested.

UK adults who own their home are less vulnerable to financial shocks than those in other countries, according to HSBC.

Financial resilience

The UK has the second lowest number of people who would struggle to cope if mortgage interest rates increased by 2%; worldwide, 22% of people would face instability should interest rates rise, in Britain, it is just 16%.

Even a 5% rate rise would only negatively affect 35% of the UK’s homeowners, compared to almost half (47%) of the global population.

Big spenders, bad savers

The study also shows that, on average, UK mortgage holders spend 34% of their monthly income on repayments, 4% below the global average. However, despite the tendency to spend large amounts on housing, many people looking to buy a house will struggle to save a large enough deposit. Globally, 80% of prospective homebuyers find saving a deposit to be difficult, compared to 84% of people getting ready to buy in the UK.

Despite this, current UK homeowners take an average of just four years to accumulate their deposit. While the worldwide average is a year longer, and French buyers spend around seven years saving.

One of the reasons behind the length of time people spend saving is growing deposit aspirations; 69% are planning to put a 20% deposit down. The main source of this money is regular savings at 78%.

So, whilst buying a house in the UK might be tough, it is comparably easier than in many other countries.

How interest rate rises affect homeowners

Tracie Pearce, HSBC UK’s Head of Retail Products says:

“Interest rates have been at historic lows for many years, and many people who got onto the property ladder in the last decade have never experienced anything else. In fact, the recent increase in the UK’s Bank of England Base Rate would be the first time they have seen one.

“Many home owners are heading into uncharted territory having entered the housing market with record low mortgage rates. They may have taken out a fixed rate that is due to come to an end or are on a Tracker rate and will possibly see their rate creep up over time.

“While it is positive to see UK homeowners’ resilience and confidence in their finances, it’s important they are conscious of potential interest rate rises and how they might affect household budgets.”

Your home maybe repossessed if you do not keep up repayment on your mortgage.

Preparing for a financial shock

The research shows that 41% of people are willing to stretch themselves financially to buy a better home. Consequently, leaving a larger safety net in place is sensible, because without it, the smallest financial shock could leave you in danger of:

• Being unable to make mortgage payments and potentially losing your home
• Falling behind on essential costs, such as household bills
• Falling into debt and negatively impacting your credit score
• Needing to borrow from friends and family to make ends meet

There are two forms of financial protection which can make riding out an income shock, or interest rate rise much more manageable:

1. An emergency fund

Emergency funds can be used for all kinds of financial trouble, from a broken-down car, to home repairs, or even to cover the costs of medical equipment after an accident.

Put simply, an emergency fund is money which can be used if your income cannot cover an essential expense. It is recommended that this fund is equal to three-to-six months of living costs just in case your household unexpectedly loses an income.

This will also provide a buffer if your interest rates rise more sharply than expected.

2. Insurance

The purpose of insurance is to pay out when something goes wrong. It is something that you never want to need, but you always need to have. There are three types of insurance to consider, which will protect you and yours from the financial implications of ill health or death:

• Life Insurance: Pays out a lump sum if you die of an illness which is covered within the terms of the policy
• Critical Illness Cover: Pays a lump sum or income upon diagnosis of a serious illness
• Income Protection: Replaces a portion of your income if you are unable to work due to illness or injury

Life Assurance plans typically have no cash in value at any time and cover will cease at the end of term. If premiums stop, then cover will lapse.

Definitions of critical illnesses or income protection vary between providers.

The importance of financial planning

Taking financial advice and having a clear plan of action surrounding your finances can keep you financially confident and stable, no matter what trouble you may face. A good financial plan will include safeguards to protect you and your family, should the unexpected become reality.

To talk about the best ways to reinforce your family’s financial stability, get in touch.

The number of under-30s saving enough for retirement has increased from 30% to 39% in the past year, likely due to automatic enrolment in Workplace Pensions, according to Scottish Widows.

That’s good news, but still leaves 61% of young adults saving too little, or nothing at all, for later life.

To find solutions to this issue, it is important that we understand why young people are not saving enough, so that we can offer ways to improve their financial outlook.

Naturally, while many of us are young at heart, the years of 18-30s holidays are likely to be behind you. Nevertheless, this information could be useful to pass on to your children, or even grandchildren.

The reasons behind the savings drought

1. Exclusion from Workplace Pensions

Automatic Enrolment means that anyone who is:

• A UK resident
• Between 21-years old and State Pension Age
• Earning over £10,000 per year from a single employer

will be included in a workplace pension, which is subject to minimum, monthly employer and employee contributions, of 2% for employers and 3% for employees, which will increase in April 2019 to 5% employee and 3% employer contributions.

However, those who do not meet this criterion often have no pension provisions. This can include people with multiple jobs, those on zero-hour contracts, contractors and the self-employed.

Retirement expert at Scottish Widows, Robert Cochran, said: “It’s encouraging that more young people are saving enough for a decent retirement and auto-enrolment has played a really important part. However, auto-enrolment was designed as a safety net for a country facing a pensions crisis.

“Some of the hardest working and most financially vulnerable members of society are slipping through the auto-enrolment net because of minimum earnings thresholds. This unfairly impacts multi-jobbers, who could be working the equivalent of full-time hours, yet without the financial benefit of having a single employer.”

The solution: anyone who is aged 16 and over, earning a minimum of £5,772, can request to be enrolled in their employers’ Workplace Pension scheme. Their pensions will attract the same benefits as those who are automatically enrolled, including employer contributions and tax relief. Remember that’s effectively ‘free money’.

For contractors and the self-employed, other types of pension are available. Of course, they will not benefit from employer contributions, but pensions are tax-efficient, and the tax relief makes them a sensible way of saving for later life.

2. Relying on minimum contributions

For young adults who are enrolled in a Workplace Pension, complacency is a big danger.

For the 2018/19 tax year, the minimum contributions stand at 3% for employees and 2% for employers. In April 2019, this will increase to 5% employee and 3% employer. If young adults assume that those contributions will be sufficient, they are likely to face the shock realisation that they don’t have enough money to support their retirement. Unfortunately, by the time this becomes apparent, it may be too late to change the outcome significantly.

As an example, the average salary for full-time employees is £26,416 (Source: Office for National Statistics(ONS)). The minimum contributions, based on qualifying earnings between £6,032 and £46,350, will mean that:

• In the 2018/19 tax year, employers will contribute £33.97, and employees £50.96, including tax relief, per month
• From April 2019, employers will contribute £50.96, and employees £84.93, including tax relief, per month.

Someone putting away those minimum amounts might believe that they are on track, and over 40 years, you could build a retirement fund of £171,000, assuming a return of 2.5% per year.

That sounds like a lot of money.

Unfortunately, it’s not enough.

If that fund were turned into a sustainable income, for example by buying an Annuity, it would potentially be able to secure approximately £4,470 per year. Even in conjunction with the State Pension, it is unlikely that will be enough to support the desired retirement lifestyle of a current under-30.

Worse still, that’s without any provision to pass that fund onto a spouse or beneficiary on death and does not leave any flexibility to take a lump sum from the fund, if needed.

The solution: Calculate how much is needed for a comfortable retirement and begin working toward that goal from a young age. It is possible to voluntarily increase employee contributions, although employers are unlikely to match it.

It may also be worth considering making lump sum contributions when possible. This includes receiving inheritance or financial gifts.

3. Underestimating the importance of retirement savings

Some young adults may simply not regard retirement saving as a priority. There are four root causes of this:

• They feel they are too young to start preparing now
• They can’t afford it
• They don’t trust pensions
• They would rather put their spare money toward more short-term goals, such as buying a house or starting a family

For the first group of people, retirement might seem like it is so far into the future that they will have plenty of time to think about savings in later life. However, when they reach a stage in life where planning for life after work becomes a priority, they will wish that they had started saving earlier to give themselves a head start.

Those who are saving for lifetime events in the order which they happen may find that some goals need more time than others. While it is sensible to prioritise buying a home, it may be worth ensuring that some money is being put aside for retirement at the same time, even if it is only small amounts. Remember, every month you’re not in a Workplace Pension is a missed opportunity to gain ‘free money’ in employer contributions and tax relief.

The solution:

It is important to use the right product for your needs.

Prior to making any decisions, you must understand your goals and whether they are short-term or long-term aims. Following this, you will need to analyse your budget and allocate it in sensible proportion to those needs.

For example, when retirement planning is a priority, you are likely to be putting money into a pension. That means making the most of your Workplace Pension and maximising your contributions.

When working toward buying a property, you may turn to a Lifetime ISA (Individual Saving Account). This is a tax-efficient account into which you can deposit up to £4,000 per year. A government bonus equal to 25% of the year’s deposits is also added each year, boosting the amount saved.

Lifetime ISAs can be opened by anyone aged 18-39 and contributions can be made until the account holder turns 50. These accounts are available in both Cash and Stocks & Shares.

Withdrawals can be made from a Lifetime ISA to pay for the deposit on a first home, and to be used as a retirement income once the account holder reaches the age of 60, without incurring penalties. All other withdrawals will be subject to a 25% penalty.

If you are primarily planning to buy a house, your Lifetime ISA may receive most of your savings. However, by enrolling in a Workplace Pension you can ensure that you are putting some money aside for later life at the same time.

We all want the best for those we love, and with the State Pension feeling increasingly out of reach, starting to save for later life is becoming more and more of a priority. If someone you know is likely to be struggling with savings, now is the time to talk to them, or potentially have them engage with a financial planner or adviser for more guidance. For more information and advice, get in touch with us.

Please note

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

Workplace pensions are regulated by The Pensions Regulator

According to research from retirement accommodation specialists Anchor, the way living in old age is perceived by society could be completely out of line with what retirees actually want.

For older people, being able to make their own decisions regarding care is one of the most important aspects of independence. The research shows that 94% don’t want their children to be responsible for care, and 77% are worried that they may be a burden on their loved ones. Unsurprisingly, most people are hoping to look after themselves for as long as possible.

The issue of social care

When (and if) the need for care does arise, 66% of retirees would prefer that their care is provided by a specialist and two-fifths (40%) are worried that they will not be able to access the care they need.

Trust in government-provided care is at a low, with more than half (56%) believing that it is failing to provide the necessary services. Recent plans to increase NHS funding by £20 billion per year have been unveiled. However, experts believe that this is likely to be absorbed by merely keeping up with inflation, rather than providing significant improvements to social care.

Successive governments are of the opinion that families should be providing the necessary care for older relatives, and that the onus should be on children and grandchildren to ensure that loved ones are looked after as they get older.

How do families feel?

While the wellbeing of loved ones is a priority for most people, providing the care necessary to support a good quality of life for older relatives is difficult. There are four main areas which children and grandchildren of retirees struggle with:

• Time: 56% of people worry about not having enough time to care for relatives.
• Money: 51% fear not having enough money to support both themselves and a dependent relative, especially as full-time care will likely mean that they need to stop working or reduce their hours.
• Distance: 45% think they live too far away to provide the care their relatives need.
• Ability: More than a third (36%) of people state they don't have the specialist skills needed to provide the quality care they want for their relatives.

So, older people don’t want their families to have to care for them and most family members fear that they do not have the ability or skills necessary to do so. All things considered, that makes the solution quite simple:

Create a plan to ensure that you get the retirement lifestyle you want, that will leave sufficient money to pay for care in old age, should it be needed, and which allows your family to spend quality time with you.

A plan that fits

The first step toward creating a plan is to decide what it is that you want from it.  This may include talking to your family and spouse, looking at the care facilities available in your area or even talking to a retirement expert.

Once you know how you want your later years to play out, you can begin to devise a plan to make it work. There are three aspects to focus on:

1. Money

The potential cost of care in later life can be an easy thing to overlook. It means that income taken in early years must be at a sensible level, so that if care is needed and Local Authority support isn’t forthcoming, the ability to self-fund still exists and hasn’t been impaired by early spending sprees in retirement.

With the cost of care reaching more than £1,000 per week in the past year (Source: UK Care Guide), it is vital that you know how you will afford the level of care you want or need when the time comes. Naturally, you will also need to continue paying for care while you still have assets above the minimum threshold for assistance. The temptation to rely on Local Authority support may be tempting, but consider the level of control and care offered, and the standards you are looking for.

The introduction of Pension Freedoms means that you can access your pensions with much more flexibility than before. This allows you to create an income stream to suit your needs and support the lifestyle you want.

2. Decision Making

As much as we don’t like to think about it, there may come a time when you are no longer able to make sound decisions for yourself. It is therefore important to have arrangements in place so that someone you trust can be your voice.

A Lasting Power of Attorney (LPA) gives another person the authority to make decisions on your behalf, in respect of financial and health matters when you are unable to do so. By discussing your wishes with the person appointed LPA (and potentially putting them into writing for future reference) you will benefit from increased confidence that you will get the care you want under any circumstances.

3. Back-up plans

Unfortunately, life is unpredictable, and no amount of planning can ensure that your life will go exactly as you would like it to. Factors such as life expectancy, illnesses and even accidents can affect the level of care necessary, and how long you need it for. As the average life expectancy climbs higher, retirement could last for 30, or even 40 years.

That means retirement planning needs to account for the potential of long-term care. So, more money will be needed to support your standard of living for as long as you need it.

But what happens to that money if you are only retired for 10 or 20 years?

That’s where a will is necessary.

If you know that you are going to be taking a large amount into retirement with you, there must be a plan in place to ensure that it is used wisely if you die before you spend it. That might include giving it to charity or distributing it among family members. Whatever you want to happen to your money, make sure it is recorded, as estates left without a will in place are subject to the laws of intestacy, which could see your assets divided in a way you don’t agree with.

Bringing it all together

Financial advice and planning will help you to align all these factors and establish a solid financial plan which supports your needs and dreams going into retirement, while making provisions for the unexpected parts of life.

For more information, or to get started, get in touch.

Microsoft founder, Bill Gates, once said; “The internet is becoming the town square for the global village of tomorrow.”

It’s clear that prediction is becoming reality. Think about all the things you can do in your local town square. Most of them can be done online instead, including food shopping, banking and catching up with friends.

Unfortunately, some processes have been taken out of the town square altogether, with a handful of government branches opting to go ‘digital by default’. That means some services can only be accessed online, including claiming some benefits.

The effect of going ‘digital by default’

According to research from Age UK, there are 5.3 million people in the UK who do not use the internet. 91% of those people are aged 55 and over, which means that there are 4.8 million people who are in, or approaching retirement, who will not be able to access some of the help they are entitled to.

This includes Housing Benefit and Pension Credit, both of which could give over-55s a much-needed financial boost, and while you may not claim them, you might know someone who does.

In 2015/16, DWP (Department of Work and Pensions) figures show that unclaimed Pension Credits totalled £3.3 billion, while almost a fifth (19%) of entitled pensioners are not claiming their share of Housing Benefit.

Housing Benefit is among the government help which can only be accessed online. The research shows that there is little help available for those who are unable or unwilling to use the internet to make a claim, which means that they are more likely to be excluded and miss out on financial help which could be the difference between surviving and truly enjoying retirement.

Jemma Mouland, Senior Programme Manager, Centre for Ageing Better commented: “Digital by default makes sense for much of society, but in the drive for efficiency we must not lose sight of the reality that some people won’t ever go online or will have limited ability to use the internet. Companies, government, and services who are moving operations online need to ensure that these people don’t get locked out of access to information and essential services such as banking, health information, booking appointments or paying bills.”

Is someone you know affected by this?

We know that assuming all pensioners are reluctant to go online is a massive generalisation, and to do so would be a huge mistake. But, we also know that there are plenty of people who are web-savvy who will have friends and relatives who could benefit from a helping hand when it comes to using online services.

It may be that your parents or friends are missing out on valuable help, and you can help them to improve their financial position. For example, do you know someone who might be eligible to claim benefits, but who does not have access to a computer to do so? They may simply need you to show them where they can access that technology for free, such as the local library.

There are three ways you can help those who cannot access online services themselves:

1. Do it for them

74% of those who do not use the internet say that nothing could encourage them to learn how to get online. As the only way to claim some of the benefits is via a digital service, it may be necessary for a relative or friend to navigate the application on their behalf. This is usually acceptable, if the correct declarations are made at the time.

Some online services will need to be accessed annually, or regularly throughout the claimant’s life. With the increase in life expectancy, that could mean that you are committing to carry out this service frequently for as long as 30 or even 40 years, therefore, you need to make sure that you are happy to do so.

2. Show them how to do it themselves

7% of over-75s report that they have used the internet previously but have not done anything online within the past three months. For those, and any retirees who may not have had access previously, but who are willing to learn, it may be worthwhile teaching them how to so these things independently.

For the more receptive, but less technically-experienced pensioners, is may just take a bit of coaching and patience to get them online and completing their own claims. They are still likely to need guidance, which is rarely available through governments or local councils. So, once again, this will be down to friends, family or professionals.

3. Put them in touch with expert help

There are numerous support systems and services available to help those who are missing out on benefits due to inability to get online, including: 

• Citizen’s Advice
• Age UK
• Turn 2 Us

How often do you wake up with the intention of getting financial advice as your number one priority?

For almost everyone, the answer is never. Rather, the urge to seek financial advice is usually triggered by an event, or idea.

According to research from the Financial Conduct Authority (FCA), Less than one in 10 UK adults (6%) have sought regulated financial advice relating to investments, pensions or retirement planning, while a quarter are likely to need it.

This is a shame, as we see on a regular basis the benefits our clients get from seeking advice. However, we recognise there are many reasons why people don’t get in touch.

For example, across the country, an average of 34% of people do not know where to start looking to find a financial adviser, should they need one. If you are one of them, you’ll find our contact details at the top of the page!

But what might push you to make the call?

It could be anything, but here are 10 of the most frequent ‘triggers’ we hear:

1. “I’ve received a letter.”

Whether it’s a pension statement, valuation of investments or any communication regarding your finances, something landing on your doorstep could be the pivotal factor in deciding to seek financial advice. Whatever you’ve received, bring it to us and we’ll explain what it means for you and your future.

2. “I don’t want to go to work today, can I retire instead?”

In the years before the State Retirement Age, it can be tempting to pack it all in early. Especially if you’ve overdone it at the golf club over the weekend and are facing an early Monday morning start. We can help you to understand if your finances are in the right place to bring retirement to you, sooner rather than later.

3. “My friend has been talking about their financial planning, can I do what they’re doing?”

Just because your friend, colleague or even spouse is doing something, doesn’t mean it is the right decision for you as well. However, by seeking advice, you can find out whether it truly is the best option available, or if there are other methods and products which may be better suited to your needs and circumstances.

4. “I want to buy a car/house/helicopter… can I afford it?”

Making a large purchase is a great feeling, especially if you’ve been planning it for a while. But it is wise to stop and think before diving into a big shopping spree, let a professional walk you through the consequences of spending that money and project your financial position afterward to see if it is a sensible purchase to make.

5. “A new baby has been born into the family, I want to put money aside for them.”

Saving for the future is important, and the earlier money is put away for someone, the longer it will have to potentially perform well. Starting to save or invest for a new-born is particularly prudent and there are many options available, some of which may be better suited to your family than others, so why not let us talk you through them?

6. “I’ve been diagnosed with an illness and I want to make arrangements just in case.”

It’s not a fun topic, but getting your estate organised is something everyone needs to do, regardless of age or health status. Talking to a financial planner or adviser can help you to make sure that your money and assets are not only given to the right people but that your estate is distributed in a tax-efficient way.

7. “I want to start my own business.”

If you have an entrepreneurial idea that you want to make reality, you will first need to find funding. It may be possible to source that yourself, using savings and investments, or you may need to access credit to get your venture off the ground. Either way, we can analyse your current situation and help you to find the right strategy to meet your goals.

8. “I want to leave a business I own.”

On the other hand, maybe you have already grown a business to success and now it is time to put your feet up and let the next generation take the reins. Navigating your way out of a business can feel like more hard work than building it up in the first place. Talking to a professional can give you the peace of mind of a second pair of eyes on the paperwork, as well as the confidence that you are in the hands of a professional who is on your side throughout the process.

9. “I’ve received some inheritance, what should I do with it?”

If you have received a large amount of money, you may be wondering how you can use it most effectively. Alternatively, you may simply want to know if you can afford to spend it all straight away and enjoy the freedom for a while. It is likely that the most sensible solution will be to put most of it away in savings or investments, while allowing yourself to spend a portion of it. The amount you can afford to spend right away will depend on your circumstances and plans for the future, so contact us for a more personalised answer to this.

10. “I read an article that scared me!”

The media is full of stories which can make you feel like the world is against you, or a financial scam is always just around the corner. A financial adviser or planner will be able to separate fact from sensationalism and give you advice on ways to protect yourself against any real dangers to your financial wellbeing.

Whatever it is that has you considering taking financial advice, please get in touch and let us know how we can help.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

61% of UK adults do not have a will in place, according to Which?.  A fifth of those say they have not written a will as they have nothing worth passing on.

However, a will does so much more than just pass on material and financial assets. It is also used to help let those left behind know your wishes and could be the best way to ensure that they are followed, after you die, these can include:

1. Who oversees your estate

You need to choose who will be the executor(s) of your estate. They will take charge of it and make decisions on your behalf. You can appoint up to four executors but, as they need to make decisions on a joint basis, fewer may be more practical. Executors must be over the age of 18 and it is possible for them to also be beneficiaries of the will.

The executor(s) of your estate will be responsible for following the requests made in your will to the best of their ability.

2. Who cares for your dependents

If you have children or are responsible for looking after vulnerable adults, you can include instructions for their care in your will. This may include who will look after them and where they will live. It is obviously important to involve any potential carers in this decision, as they will need to be prepared for the responsibility and agree to it.

As an aside, nominating someone to look after dependents is only half the job. Making sure that those people have the financial resources to provide the level of care. Therefore, making a will is a good time to make sure your Life Insurance and financial protections are sufficient, and trusts are set up to ensure that the capital paid on death is put in the right hands at the right time.

Aside from human dependents, you can also include instructions for the care of pets in your will. But again, make sure the person or people you nominate are willing to take on the responsibility.

3. What happens to sentimental items

Even if you think you don’t have anything of financial value to pass on, you shouldn’t underestimate the importance of sentimentality. If you have belongings which you want to be passed on to specific people, you can include this in your will. You may even want to add instructions for how you want your belongings to be passed on in the future. Though there is no guarantee that they will be followed.

4. Where your money goes

Your estate may not be worth anything right now, but life is quite unpredictable and there is no way of knowing how much will be left when you die. It’s unlikely to happen, but many of us have heard the story about a man who hits the jackpot, only to pass away 24 hours later. Once your estate has been settled, i.e. any costs have been taken out of the money you leave behind, there may be some left, and you will need to leave instructions as to where it goes.

5. Whether you make a charitable donation

You may decide that any money left in your estate once it has been settled is to go to charity. Including it in your will is the best way to continue supporting a cause you are passionate about.

Charitable donations are immediately outside of your estate for Inheritance Tax (IHT) purposes. So, if you had suddenly come into enough money to put you over the threshold, a donation could protect your loved ones from a large tax bill.

6. What happens to you

It’s not a cheerful thought, but some may find comfort in deciding what will happen to their body when they die. You can also include specific instructions for your funeral arrangements, such as music you would like to be played, the clothes you wear and who will be your pallbearers.

What happens if you die without a will in place?

If you don’t have a will, or your current will is not valid when you die, your belongings and estate will be left intestate. That means that the laws of intestacy will determine how your assets are distributed, who cares for your dependents and what happens to any belongings you have.

Of course, there’s a good chance that those decisions will not be in line with your wishes. It will also mean that your loved ones will be subjected to a much longer, more stressful process than if they have a will detailing your wishes available.

What should you do now?

Six things:

1. See if you could be missing out on other ways to pass money onto loved ones, this may include, Death in Service benefits at work or your pension provisions.
2. Write a will. If you’re not sure where to start, get in touch with us for help or contact your solicitor. Alternatively, see if Will Aid is for you.
3. Talk to your loved ones about your wishes and any responsibilities you wish to pass onto them.
4. When it’s written, make sure your will is kept in an accessible place and tell people where it is. If possible, try to make sure any important documents that the executor of your estate will need, are with it, that includes details of your accounts, insurance documents and your identification, such as passport and birth certificate.
5. Pass the message on to your family and friends and encourage your loved ones to be equally as prepared.
6. If you already have a will in place, you’re not done yet. You need to make sure that it is up to date and valid.

It is recommended that you review your will regularly and at major milestones, such as:

• If you get married
• If you get divorced
• If a new baby joins the family
• If you receive a financial gift or inheritance
• If your circumstances change
• If you want to change your beneficiaries

It is often overlooked that milestones such as getting married can invalidate a will, and other changes may mean that the decisions you made previously no longer reflect your priorities, so maintaining your will can be just as important as writing it in the first place.

For more information and help with writing or updating your will, get in touch.

Please note

The Financial Conduct Authority does not regulate Will Writing

‘Pretirement’ might sound like an early retirement, but it’s anything but.

In fact, ‘pretirement’ is a term coined to describe the act of easing into retirement; or working beyond State Retirement Age. This could be full-time, part-time, or on a consultancy basis.

Of those reaching the age of 65 in 2018, 50% will enter ‘pretirement’, instead of leaving work completely, according to Prudential.

Reasons for staying in work

You may be wondering why people would choose to work when the best part of reaching retirement age is the ability to go on unlimited holidays, focus your attention on the gardening and spending time with the grandchildren. The top four reasons given by those who are looking to continue working when they reach retirement age this year, are:

• Staying active and healthy, both in mind and body (54%).
• They enjoy their job and are not yet ready to leave (43%)
• Maintaining a routine and having a reason to leave the house (26%)

Unfortunately, for 12% of those who will be continuing to work after reaching 65, it is out of necessity, rather than choice, as they cannot afford to retire yet.

Stan Russell, a retirement income expert at Prudential, expands on this: “The shift to ‘pretirement’ in recent years shows that many people reaching State Pension age aren’t ready to stop working. Reducing hours, earning money from a hobby or changing jobs are all ways to wind down from working life gradually and for many to avoid boredom and maintain an active mind and body.

“However, not everyone has the luxury of choosing their retirement date due to their financial situation not allowing them to give up work and others may be forced to stop working for health reasons. Saving as much as possible as early as possible in their career is the best way for people to ensure they are financially well-prepared for a retirement that starts when they wish, or need, it to.”

Finding the ideal work-life balance

Those who will be reaching retirement age in 2018 are hoping to:

• Reduce their hours and go part-time with their current employer (26%): This will provide the free time to enjoy retirement, while continuing to work in a familiar space and maintain some of their former routine.
• Continue full-time in their current role (14%): If nothing changes, it may be sensible to delay your State Pension and increase the amount it pays in later years as a result.
• Try to earn a living from a hobby or start their own business (19%): For some, staying in their current job may not be a priority, but that doesn’t mean that work will end when they reach 65. Whether the aim is to generate some extra spending money, or to start a business which will provide a substantial income by itself, starting a business can be hard work at any age.

These could all be viable options for those who will continue working after the age of 65, whether it is by choice or not. But the true goal should be to put yourself in a position where you can work if you want to, but ultimately, your retirement is yours to enjoy as you wish.

In short, make sure that working in retirement is an option, not a necessity.

Taking control of your retirement planning

No matter what your dream retirement looks like, try to give yourself as much time as possible to put your financial plan into action.  This will involve:

1. Defining your retirement needs: Determine what your dream retirement looks like and define what you want to do, and what your ideal lifestyle will involve.

2. Calculating how much you will need to meet them: The cost of living in retirement will depend on the activities you want to take apart in and the lifestyle you are hoping to lead. The more lavish and exotic your dreams, the more money you will need to support that lifestyle.

3. Understanding your current position: Analyse how much you are currently putting away, look at your current pension fund value and forecast how much you will have available when you retire if you continue to prepare in the same way. Alternatively, talk to us and we can do all of that for you.

4. Finding ways to bridge the gap: If you will not have enough money to retire on your own terms, you will need to act sooner rather than later. The first option is to start making bigger contributions to your pension, which will help you to increase your fund in time to retire. Alternatively, you could choose to compromise on the lifestyle aspirations you have set for yourself.

While you may be planning to continue working in retirement to remain active and continue doing the things you love, it is important that the income gained from that is in fact, a bonus, rather than your main form of retirement income.

Having the flexibility to change your mind or adjust your plans if your circumstances change is invaluable. Therefore, you need to make sure that you have the retirement income available to support the lifestyle you want whether you continue earning or not.

The value of financial advice and planning

Seeking the opinion and help of a professional will enable you to see the bigger picture when it comes to retirement planning. By showing you the retirement lifestyle, you are on track for, and explaining the options facing you to reach the type of retirement you want, you can better understand your financial situation. You could also benefit from increased confidence in your financial decisions and feel secure in the knowledge that there are years of experience and qualifications supporting the decision you make.

To get started, feel free to get in touch with us.

Please note

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected 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.

NS&I (National Savings and Investments) has revealed that there are currently 1.4 million unclaimed prizes from Premium Bonds, totalling more than £58 million.

That’s potentially a life-changing amount of money which is left waiting for the lucky winners to discover. If you have Premium Bonds, why not take this opportunity as a reminder to check on your account and find out if you are one of them?

If you don’t have Premium Bonds, you may be wondering what we’re talking about. Here’s everything you need to know:

1. What are Premium Bonds?

Premium Bonds are a product offered by NS&I, a savings organisation which is part of the government and has been operating for more than 150 years.

Every pound put into Premium Bonds is assigned a unique number. These numbers are entered in a monthly prize draw and could win between £25 and £1 million. You are free to withdraw the money you put into Premium Bonds at any point at any point, however, for every pound you withdraw, you will lose an entry into the prize draws.

Money held in Premium Bonds does not benefit from interest. Instead, prizes are awarded each month. However, the indicative rate of return is low, at 1.4%.

2. Who can buy Premium Bonds?

Anyone over the age of 16 can buy Premium Bonds for themselves. Parents and grandparents can buy Premium Bonds on behalf of a child under the age of 16, which will be held in their name, but managed by the adult until their 16^th birthday, when the account will become theirs to control.

3. What are the limits on Premium Bonds?

Premium Bonds must be opened with a minimum investment of £100. Further purchases by phone, online and post are also subject to a minimum of £100, whereas bank transfer and Standing Orders must be at least £50.

You can hold a maximum of £50,000 in Premium Bonds.

4. How are winners chosen?

Time to introduce ERNIE. He’s been choosing the winners every month for over 60 years and he shows no signs of retiring any time soon. In fact, he’s responsible for more than 404 million wins!

You may have doubts about an old man hand-picking the winning numbers every month, but ERNIE is actually a very clever computer system. His name stands for ‘Electronic Random Number Indicator Equipment’, which is a bit of a mouthful but describes his job quite well.

5. What are the benefits of buying Premium Bonds?

1. Prizes are tax free

2. NS&I is a government department, which means that your investments are secure and guaranteed. They cannot be lost in the event of organisational failures or mistakes.

3. The money you put in is not at risk. Premium Bonds are not an investment by the usual definition. When you buy Premium Bonds, you can withdraw the amount you have put in at any time. While all money deposited into NS&I accounts is invested in public services, so may lose value, you will not be affected by that performance.

4. Every pound deposited gives you another chance to win between £25 and £1 million every month.

6. What are the negatives of buying Premium Bonds?

1. There are no guarantees that you will win anything.
2. If you don't win anything, or if your returns are less than the rate of inflation, your money will lose value in real terms.
3. If growth is your main priority, you will have better chances of achieving that in a traditional savings account or an ISA.

Returns could be better in traditional savings account or ISAs.

7. Can you find lost Premium Bonds?

If you think you may have had Premium Bonds in the past, you have two options:

• If you know your holder number: if you have a letter or statement containing your customer or holder number, you can use that to trace any Premium Bonds you may have. Simply enter that number into NS&I’s Prize Checker.
• If you don’t know your holder number: if you think you may have had Premium Bonds but cannot find any documentation, you can contact NS&I’s Tracing Service and ask them to find out on your behalf. This can take four to six weeks, so patience will be key here.

8. Are Premium Bonds right for me?

There are many saving and investment options available and finding the right one(s) for you will depend on your individual circumstances and aims. Because of this, it is recommended that you talk to us before making a decision, as we can help you to find the products and services which are best suited to you.

To discuss this further, get in touch.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. National, Savings and Investments (NS&I) are not regulated by the Financial Conduct Authority

The Bank of England (BoE) has increased interest rates above 0.5% for the first time since 2009.

Today, the Monetary Policy Committee (MPC) voted unanimously to push up the base rate by 0.25% to 0.75%.

That’s not a massive increase; savers aren’t going to suddenly start seeing real returns on most of their bank or building society accounts and it won’t cause significant pain to most mortgage holders.

However, coupled with the 0.25% increase in November last year, it is another warning shot that interest rates aren’t going to stay at record lows forever and that those with debt should prepare for further increases.

So, how will today’s rise affect you?

If you are a saver…

You will hopefully see the increase passed on in the form of higher interest rates.

Nevertheless, it’s probably too soon to get over excited. With inflation (as measured by the Consumer Prices Index) currently at 2.3%, you would currently have to tie up your savings for at least five years to get a ‘real’, above-inflation return. However, tying up capital for that amount of time isn’t without risk and is something to think carefully about doing, before making a commitment.

However, we expect savers will welcome any increase in interest rates with a small cheer, even if they aren’t breaking out the bunting just yet!

If you are a borrower…

How you’re affected by a base rate rise will depend on how you are borrowing money.

If you have a tracker mortgage, where the interest rate is pegged to the BoE base rate you can expect your monthly mortgage payment to rise almost immediately. The same is almost certainly true if your mortgage is arranged on your lender’s Standard Variable Rate (SVR). If you have a fixed-rate mortgage, you won’t see any immediate change to your monthly payments, because as the name implies, your interest rate is fixed and won’t change for the duration of the product you selected when you took the mortgage out. However, the pain may only be delayed until your fixed rate ends, at which point your payments may rise due to the increase in interest rates which occurred during the period of your fixed rate. 

Whether you are immediately affected or won’t be until the end of your fixed rate, all mortgage borrowers should start to prepare for further interest rate rises.

There are three key things to do here:

Check your mortgage deal: Use comparison tools or ask your financial adviser or planner to help you to work out whether you are currently receiving the most competitive rates available on the market. This may mean considering a fixed rate, which will protect you from further interest rate rises for a period.

Review your household expenditure: This will help you to understand whether there are any items you can cut back on to create surplus income which could be allocated to higher mortgage payments should rates rise again. Then, you can begin to benefit from making those cutbacks straight away, potentially using the extra income for your emergency fund.

Build and maintain your emergency fund: If you don’t already have one in place, now is the time to take steps to build up an emergency fund. This could help you to recover as and when further interest rate rises take effect, or, as the name suggests, bail you out in a financial emergency.

Should we expect further rate rises?

The BoE Governor, Mark Carney, signalled that three further rate rises will be needed to avoid the rate of inflation remaining above 2% over the next three years.

The report released following the announcement clarifies this: "The Committee also judges that, were the economy to continue to develop broadly in line with its Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to the 2 per cent target at a conventional horizon.

"Any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent."

More pensioners are choosing to forgo a guaranteed income that comes from an annuity, instead favouring making withdrawals directly from their pension using flexi-access drawdown. While providing more flexibility, the latest data suggests those using drawdown may face financial hardship later in life.

Ensuring that your savings will support you throughout your later years is a critical part of financial planning. Part of this is making sustainable withdrawals from your pension.

Two years ago, the average pension withdrawal rate was 4.7%. The figure now stands at 5.9%, according to figures from the Financial Conduct Authority (FCA). Retirees are increasingly using their Pension Freedoms to achieve the retirement they want. However, steps need to be taken to ensure it can provide a comfortable income throughout later years.

Taking regular payments or lump sums out of a pension means it needs to generate greater returns to maintain value. Once you factor in additional charges of between 1.5-2%, you’re looking at a significant challenge. To ensure the pension maintains value in real terms, you’re likely to need to generate returns of 7-8%.

How much of your pension should you take?

Of course, you expect to use your pension during your retirement years. The challenge is striking the right balance to ensure your savings support you through your entire life. With life expectancy rising and more people needing care, it can be complex.

The first thing to note is there’s no one-size-fits-all figure.

You may have heard of the ‘4% rule’, suggesting that you shouldn’t take more than 4% from your pension annually. However, a realistic, sustainable figure could be lower. A typical 65-year-old would need to take their pension at a flat rate of 3.5% to be sustainable, according to research from the Institute and Faculty of Actuaries.

The figure suggests some pensioners would be better off searching for a competitive annuity product over using drawdown.

Six tips when accessing your pension through drawdown  

If you’re considering using drawdown to access your pension, taking a sustainable income should be a core priority. These six tips can help assess the level of income you can afford to take.

1. Factor in life expectancy

When assessing retirement income, your life expectancy is key. Underestimate and you could be left struggling financially. But, on the other hand, you don’t want to be living frugally when it’s not necessary. The average person over 50 underestimates how long they’ll live by up to six years, research from Retirement Advantage revealed. The current life expectancy for a 50-year-old is between 86 and 89.

2. Consider taking a guaranteed income

You don’t have to choose between taking a guaranteed income and drawing cash out when you need it. If you’re concerned about your pension lasting a lifetime, a hybrid approach can work, while still offering you flexibility. Using a portion of your pension to purchase an annuity product that will cover basic costs can give you peace of mind.

3. Pause withdrawals 

If you plan to take money from your pension at regular intervals, remember to assess your finances each time. If the money isn’t needed, you’ll typically find it’s better left invested. With low interest rates, it’s likely that any cash you hold will decrease in value in real terms.

Whether you still have money remaining from the last withdrawal or are benefitting from other sources of income, a pause means your pension can continue to grow.

4. Match withdrawals to investment performance

With the above point in mind, it’s possible for invested money to decrease in value too. If your pension has experienced a downturn, leaving it invested for a period to recover can be beneficial. Over the long term, your pension investments should increase. However, it’s likely to see temporary decreases at points too, particularly if you’ve opted for a higher risk strategy.

Matching your withdrawals to investment performance, so you don’t withdraw at the low points, can help maximise the value of both your pension and the amount you’re taking out.

5. Regularly monitor your pension

Those people approaching retirement will often keep a close eye on their pension. Don’t let that good habit go once you’re retired.

Regularly taking the time to review your pension, how it’s performing and assessing how much longer it will last is essential. Should you be taking a level of income that’s unsustainable, it means you’ll be aware sooner, allowing you to take the necessary steps to address it.

6. Seek financial advice

Financial advice and cash flow forecasting are your friends. With the information to understand what your income needs are and how this will affect your pension, you’re in a better position to take a consistent, sustainable level of income throughout your retirement years.

If you want to understand how your pension can support you throughout all your retirement, contact us today. We’ll help you assess how much you can afford to take out of your pension in the context of your retirement goals and other assets.

Please note: A pension is a long term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation’ or ‘The value of investments can fall as well as rise. You may not get back what you invest.

The value of investments can fall as well as rise. You may not get back what you invest.

Going to university can be expensive. But not just for the student; parents are expecting to pay out thousands of pounds every year to help their child secure a degree.

Parents anticipate spending £5,721 each year their child is at university, according to research from Lloyds Bank. Over the course of an average three-year degree, it amounts to £17,165. With around half of young people choosing to pursue higher education, it’s an expense many households in the UK could be facing.

Just 10 years ago, the figure would have been enough to cover tuition fees and leave some leftover, that’s now not the case. Current tuition fees are capped at £9,250. With accessible student loans covering tuition fees, many parents are focussed on the other costs associated with university.

The research found:

• Two-thirds of parents who anticipate sending their child to university expect to support them financially on some level
• Only 14% of parents do not anticipate helping their child financially while they study
• 65% of parents believe they will have to provide support with accommodation costs
• 64% will offer financial help with items essential for study
• 58% expect to pay some or all tuition fees
• 52% will help with travel to and from classes
• 23% are prepared to pay for luxuries

Robin Bullochs of Lloyds Bank said: “The costs associated with going to university can mount up quickly, and often it’s unexpected costs that rack up the bill making it essential to take some time to consider the many expenses that may arise and budget for how these will be afforded.”

The findings suggest parents will face additional outgoings they may not have factored into their budget once teens head to university. Having a fund you’ve been saving into before they go to university can help spread the cost. For families that have more than one child aspiring to achieve a university education, it could be essential.

With this mind, how can you save for the cost of supporting your child through university?

Junior Individual Savings Account (ISA)

Like their adult counterparts, Junior ISAs offer a tax-efficient way to save.

Each tax year you can add up to £4,260 into a Junior ISA. The interest or return made from a Junior ISA is tax-free. Any money you add to an ISA will be locked away until your child turns 18; at this point, it will be converted into an adult ISA and fully accessible to them.

If you’re considering opening a Junior ISA, you have two options: A Cash ISA or Stocks and Shares ISA. Which one is best for you will depend on your attitude to risk and how long you’ll invest for.

Junior Cash ISA: If you choose a Cash ISA, the money you put in is safe and you will get a defined amount of interest. That being said, there is a risk that the money won’t grow as quickly as inflation, meaning it loses value in real terms.

Junior Stocks and Shares ISA: A Stocks and Shares ISA offers you an opportunity to access potentially higher returns by investing. The return you receive will be dependent on the performance of the underlying investments. It is, of course, possible that the value may temporarily decrease at times.  

Children’s savings account

There is a range of children’s savings accounts to choose from. Often, these types of accounts will offer you more flexibility, such as being able to make withdrawals. However, depending on the terms, this may come with a penalty, for example, losing the specified interest rate.

Children’s savings accounts can offer competitive interest rates that will allow the money you deposit to keep pace with inflation in real terms.

Some accounts will specify you put in a certain amount each month or limit contributions. As a result, weighing up the pros and cons of each account is important before you make a decision.

Child Trust Fund

If your child was born between 2002 and 2010, they will have a Child Trust Fund.

The now defunct government scheme aimed to help parents build up a savings account for children. Each account benefitted from an initial £250. Some children may have received more as an initial payment and benefitted from a further boost when they turned seven.

If you didn’t open a Child Trust Fund, the government will have automatically opened one in your child’s name. It’s estimated that 1.5 million Child Trust Funds are ‘lost’ or forgotten about. So, it’s worth looking into this and you can track down ‘lost’ accounts here. Once they turn 18, your child will be able to withdraw any money in the account and spend it as they wish.

Even if you haven’t added to the account since it was opened, it can provide a starting point to build future savings on. As the Child Trust Funds initiative has since been shelved, you can transfer the money into a Junior ISA account if you choose.

As well as the options above, you may also want to consider saving or investing money in your own name. This is a good option if you don’t want your child to have full control and access to the money when they turn 18. It allows you to retain some control over how it’s spent and how quickly.

If you want tailored advice on saving for your child or grandchild, we’re here to support you. Taking your personal circumstances into consideration, we can help you choose the savings vehicle that’s best for you.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

The number of people saving into a Workplace Pension has reached a record high. But far from providing a comfortable retirement income, those making minimum contributions could face an unexpected shortfall when the time comes to giving up work.

Pensioners could have less than minimum wage to live on, despite making monthly pension contributions, according to Aviva.

Alistair McQueen, Head of Savings and Retirement at Aviva, said: “Millions of people are sleepwalking towards less than minimum wage at retirement.

“To their credit, millions of employees have embraced auto-enrolment since 2012, in the belief that it will deliver them a comfortable retirement. But based on the current system and today’s data, they’re in for a shock, with many currently on the road to living on less than minimum wage.”

More than 7.7 million people are now paying into their Workplace Pension; compared to just one million in 2012. The statistic indicates that auto-enrolment is a success. However, the minimum contribution levels could mean that many retirees won’t receive the level of income they’re expecting.

The minimum contribution to a Workplace Pension is currently set at 3% for employees and 2% for employers; rising to 5% and 3% respectively in April 2019.

A typical 22-year-old paying into a Workplace Pension would be on track to receive a retirement income equivalent to £6.55 per hour, according to Aviva. It’s an amount that’s significantly below the National Minimum Wage of £7.38.

Working 37.5 hours a week, an employee on minimum wage would earn £14,391 a year. But many workers are on course to receive just £12,772 annually in retirement when their Workplace Pension and full State Pension are combined.

How much you need in retirement will depend on your lifestyle and aspirations. However, according to Which? the average retired household spends around £26,000 a year. This covers all the essential outgoings and some luxuries, such as European holidays and eating out occasionally.

For those that aren’t supplementing their Workplace Pension, it could mean hardship in retirement.

If you’re worried about your level of income in retirement, there are some steps you can take to grow your projected income.

1. Increase your Workplace Pension contributions

Making higher monthly contributions to your Workplace Pension is one option.

Figures suggest that contribution levels were at a high in 2012; with 9.7% of salary being diverted into a pension. However, the figure is now just 3.4%. Aviva advocates the minimum contribution level being increased even further; reaching at least 12.5% by 2028.

If this is a step you want to take, talk to your employer first. They may be able to help with setting up additional payments on your behalf. You can also contact your pension provider directly to set up further contributions.

You will continue to receive tax relief on pension contributions up to either 100% of your earnings or £40,000 a year, whichever is lower.

Some employers may match or increase their own contributions in line with yours to a certain point; making it an even more attractive option

2. Use salary sacrifice benefits

If your workplace offers salary sacrifice schemes, they’re worth investigating. You’ll give up some of your monthly earnings, with your employer, instead, putting it towards something else, such as your pension. This is a change of employment contract and could affect your ability to borrow and state benefits given your reduced salary.

The key benefit to this option is that the money will be deducted pre-tax. So, you’ll pay less Income Tax and National Insurance.

3. Use an Individual Savings Account (ISA)

An ISA is a tax-efficient way to save with the long term in mind. Each year you can put up to £20,000 into an ISA. You won’t pay any Income Tax on the interest or dividends you receive from an ISA. Any profits you make from investments are also free of Capital Gains Tax.

You have two options when opening an ISA; a Cash ISA or a Stocks and Shares ISA.

A Cash ISA will provide you with interest on your savings. The money held in a Cash ISA is safe, assuming you stay within the limits of the Financial Services Compensation Scheme. However, with low interest rates, it is possible that the value of your money will decrease in real terms. A Stocks and Shares ISA will invest your money. This means you may receive returns that outpace inflation, but you are also at risk of losing your money.

If you’re aged between 18 and 40, the Lifetime ISA is also worth considering. You can still choose between cash and stocks and shares account, but you’ll also benefit from a 25% government bonus. LISA accounts have an annual allowance of £4,000, so paying in the maximum means you’ll receive a £1,000 boost. The drawback here is that you will face a financial penalty if you withdraw the money for purposes other than buying your first home or retirement. 

To discuss your current pension forecast and the steps you can take to improve it in the context of your personal situation, please get in touch with us today.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

Workplace Pensions are regulated by The Pensions Regulator

Investing can seem like a daunting process. But getting to grips with investing can lead to greater financial security and growth.

Whether you’re investing for the first time or expanding your portfolio, it’s important to understand how your objectives and situation should influence your decisions. Asking these seven questions beforehand can support you when it comes to making investment choices.

1. What are your goals?

Before you even start investing your money, you should have a realistic idea of what you’d like to achieve. Your goals will have a direct influence on which option will be best for you.

• Do you want to build a nest egg for retirement?
• Save for your child to go to university?
• Build a house deposit?

Answering this question should set the foundation to move forward with investment decisions.

One of the key things to think about here is whether you want to invest for income or growth.

Investing for income means you’ll likely want to sacrifice the potential of higher returns in favour of stability and consistency. Conversely, investing for growth means you’ll probably have to take greater levels of risk.

2. How frequently will you invest?

The answer to this question will come back to your current situation. You have two options; investing a lump sum or ‘drip feeding’.

If you have a lump sum of cash that’s not delivering the returns you want, investing it can make sense. Likewise, if you’ve recently acquired a lump sum, such as through the sale of property or inheritance. The other option is to ‘drip feed’ money in at a consistent rate, for example, as you get paid each month.

As markets fluctuate, timing investments to maximise return and minimise risk is incredibly difficult and generally not advisable. As a result, ‘drip feeding’ money is a conventional way to reduce the impact of this. It’s an approach that means dips have less of an effect.  

Of course, you can create a hybrid strategy too; investing a lump sum to get started and continue to add to it at regular intervals.

3. How much risk are you willing to take?

Chancing higher returns means potentially higher levels of risk. By taking greater levels of risk, your initial investment can climb significantly. But on the flip side, you do risk seeing greater fluctuations in value.  

The answer to this question will be personal. It will all come down to how risk averse you are. Taking the time to think about how much uncertainty you’re willing to tolerate for the chance of returns is crucial. There are investment opportunities for all risk appetites.                                                                                                                        

4. What is your capacity for loss?

All investments can decrease in value and, in rare circumstances, be lost altogether. The chance of this happening varies depending on the investment choices you make. But you need to consider what you can afford to lose.

Investing all your wealth is rarely, if ever, a good idea. Ideally, you will have a separate account that you can use to fall back on should you experience a financial shock. No one wants to lose money when investing but it shouldn’t leave you in a financially vulnerable position should it happen.

If your finances would be devastated if you lost the money you’re planning to invest, it’s worthwhile looking at alternatives. Other options, such as a Cash ISA, may be more suitable for your circumstances.

5. How long will your money be invested?

Your investment timeframe will be influenced by your overall financial goals and directly affect how much risk you can afford to take.

Investment markets are constantly rising and falling. The longer you invest for, the more likely you are to be able to ride out short-term volatility risk.

Broadly speaking, you should look to invest for a minimum of five years. And the general rule of thumb is; the longer your money will be invested for the greater level of risk you can afford to take.

6. How frequently will your review it?

Do you want to take an active role in managing your investments? Or do you want someone to do it for you?

Again, the answer to this question is personal; there’s no right or wrong approach. However, it’s advisable that you review your investments on an annual basis at least. This allows you to plan more effectively for the time when you want to withdraw the money and reflect changes in your circumstances. It’s also an opportunity to make sure your money is working as hard as possible.

7. What other assets do you have?

If you’re already investing, it’s important to look at any new investments in the context of these. You want to hold a diverse range of assets. This means should a portion of the market experience volatility, you’re somewhat cushioned by your other investments.

Even with these questions answered, investing can still seem like a minefield if it’s a new venture.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Contact us today and we can help you review your existing investment portfolio or discuss how you could begin investing. By taking a bespoke approach, we can align your investments with your personal aspirations.

Investors are increasingly investing their money with sustainability concerns in mind, figures show. As October marks Good Money Week, we take a closer look at what ethical investing is and how the demand is growing.

It’s predicted that the UK’s demand for ethical investment will grow by 173% by 2027, according to research from Triodos Bank. With the projected total amounting to £48 billion, ethical investing is slowly moving into the mainstream. But what is it and how does it influence your investment choices?

What is ethical investment?

In simple terms, ethical investing is where you invest your money with other considerations beyond the financial return in mind. You base your investment decisions on the impact your money could have; creating a double bottom line if you will.

When you look at changes in society in general, it’s not surprising that ethical investment is growing:

• Have you already cut down on the amount of plastic you use?
• Do you purchase Fair Trade items from the supermarket?
• Or are there some brands you avoid because they test on animals?

These are ethical decisions you make as part of your daily routine; ethical investment is an extension of this.

Ethical investment comes in many different forms and there are a lot of terms used to broadly cover the same motives. You may have heard phrases like:

• Sustainable investment
• Responsible investment
• SRI (socially responsible investment)
• Impact investing

ESG (environmental, social and governance) is another commonly used term that breaks down ethical investing into three core areas of consideration:

Environmental: These are investment concerns that cover a range of environmental impacts. Companies developing renewable energy sources, providing alternatives to deforestation or taking steps to improve the local ecosystem can fall into this category in a positive way.

Social: Again, the social segment covers a broad range of issues. Providing safe working environments, paying a living wage and ensuring no children are employed throughout a supply chain, are social issues to consider. It can also cover a company’s impact on the communities where it operates.

Governance: Governance issues focus on how the company is run. Funds that cover governance issues may, for example, look at female representation on boards, whether the company avoids paying taxes or remuneration levels of the highest paid executives.

What’s the size of the ethical investment market?

When you look at the size of the whole investment market, the number of funds taking ESG factors into consideration is still niche. However, it is growing, and the pace of growth is set to increase.

In 2023, the market will reach a ‘tipping point’, according to Triodos Bank. This is partly being driven by the next generation of socially conscious investors seeing an increase in their income. As a result, the UK market alone is expected to reach £48 billion by 2027.

The Triodos Bank research found:

• 55% would like their money to support companies which contribute to making a more positive society and sustainable environment
• 61% of investors believe that for the economy to succeed in the long term, investors need to support progressive businesses tackling ESG issues
• A fifth of investors are planning to invest in an SRI fund by 2027
• Ethical investment appeals more to younger generations; 47% of those aged between 18-34 intend to invest in an SRI fund within the next nine years
• Within this group, 56% are motivated to invest in ethical funds because of climate-related disasters in the news; compared to 30% for older counterparts

While there is a growing interest in ethical investment, there is still a limited market, which can make it challenging. 73% of UK investors have never been offered ethical investment opportunities. Furthermore, 61% would not know where to go for more information in SRI.

Despite this there is a demand for more information; 69% of investors would like to have more knowledge and transparency about where their money goes.

The challenge of defining ‘ethical’

You may have already spotted one of the biggest challenges with ESG investing; we all have different values and ethics. It’s a highly subjective area.

You may consider a company to be ethical because it’s taking proactive steps to improve the lives of its employees in the poorest parts of the world. Someone else, on the other hand, may say the company is unethical because the firm operates in the oil and gas sector, resulting in environmental degradation. As a result, it’s important to define what your personal priorities are, as well as where you’re willing to compromise, before you start looking at ethical investment opportunities.

According to Triodos Bank, these are the five biggest issues that would put off investors:

1. Manufacturing or selling of arms and weapons (38%)
2. Worker/supply chain exploitation (37%)
3. Environmental negligence (36%)
4. Tobacco (30%)
5. Gambling (29%)

So, how do you invest with your values in mind? There are three key ways to do so:

1. Negative screening: This is where you actively remove companies from your portfolio or avoid investing in them because you don’t consider them to be ethical.

2. Positive screening: Positive screening is where you actively invest in companies that align with your principles, allocating a portion of your investable assets to support these firms.

3. Engagement: An engagement strategy is where you use your power as a shareholder to promote long-term, ethical changes. As it relies on shareholder power, it’s a strategy that’s more effective for institutional investors, such as pension funds, than the average retail investor.

The above are ways of investing ethically and striving to encourage change but do this in very different ways. In the case of energy and reducing the amount of carbon emissions, for example:

• A negative screening approach would divest from oil and gas companies
• An investor using positive screening would put their money into renewable firms
• While those using the engagement approach would hold shares in oil and gas but vote at Annual General Meetings to invest in sustainable technologies

As with all investments, you do need to balance the risk of your investments potentially decreasing in value. The value of your investments (and the income from them) can fall as well as rise and you are not guaranteed to make a profit. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

 If you’d like to discuss how your ethics and values can be reflected in your investment portfolio and what impact this could have on financial return, please get in touch. 

Many Brits are lacking a financial safety net to protect them from income shocks. It means they could be putting their home, possessions and lifestyle on the line, research suggests.

Family finances are stretched, and many are choosing not to put money away for a rainy day. However, with worries about what would happen if income were to unexpectedly stop, taking steps to boost financial resilience is important.

Research from Aegon found:

• 45% would rely on their savings if the main earner was unable to work for six months or more
• But only 21% think they’d have enough savings to get by
• One in 10 people don’t know how they’d cope if they were out of work for six months or more
• 70% have no form of financial protection

With 36 million people having no safety net to support them, and many having limited savings, a financial shock could devastate families.

This research was supported by a survey undertaken by Zurich. Shockingly, it revealed that one in eight people would have to sell their family home if they lost their income.

More than half of adults have been out of work at some point, either through redundancy, injury or illness. But many are failing to take steps to protect their finances should it happen again.

There are two key steps individuals can take to create a safety net; build up an emergency fund and take out a protection product.

Emergency fund

It’s advised that you have around three months’ salary squared away for when emergencies arise. It means should something happen you don’t have to immediately worry about how you’ll pay the mortgage, household bills or other essentials.

But despite this, 9.79 million households (36%) in the UK have no savings, according to The Money Charity. A further 3.54 million (13%) have less than £1,500 in savings. It’s likely that savings are earmarked for other purposes too, from upgrading the family car to a holiday. As a result, relying on savings that aren’t set aside for emergencies may derail other plans as well. 

Building up an emergency fund can seem like a daunting prospect when you look at the goal figure. With so many other priorities, it’s a task that can end up on the backburner. But setting aside small amounts each time you get paid can make it more manageable.

Knowing that should your income stop or you face an unexpected bill you do have something to fall back on can give you peace of mind.

Protection product

An emergency fund can tide you over in the short term. But if you’re off work for months or unable to go back, what do you do? This is where a protection product can help.

There are different types of protection products that will pay out in certain circumstances, for example, Income Protection, Life Insurance and Critical Illness cover.

For those that want to protect themselves against the loss of income, Income Protection may be suitable. Depending on your policy, it can cover loss of income due to illness and injury. It will pay out defined monthly payments, usually a percentage of your typical income, until you’re able to go back to work or, in some cases, retire.

It’s a common misconception that policies don’t pay. However, in 2017 over 97% of claims were upheld. Insurers collectively paid out £13.9 million per day in Income Protection, Critical Illness cover and Life Assurance.

If you’re a policyholder of Income Protection and want to make a claim, it’s usually straightforward. You will need to prove your standard income and that you’ve lost it, for example, with payslips. You may also need to prove why the income has been lost, such as a medical report if it’s due to illness.

According to Aegon, one of the biggest reasons people don’t take out Income Protection is cost. A fifth (19%) believe that it will be too expensive. However, the research indicates that many are overestimating how much protection would be. And when you factor in the consequences of not being able to pay essential bills, Income Protection can seem more appealing.

A further fifth (19%) cited not having any dependents as the reason they don’t have any form of protection. But if you’d struggle to pay essential outgoings without your typical income, it’s something that’s worth looking into.

Simon Jacobs, Head of Underwriting and Claims at Aegon, said: “Protection is there to replace an individual’s income when unexpected events occur. In the worst case scenario, this covers death, but it can also provide support when people are struck by serious illness. It’s an important safety net that can help people meet their monthly expenses, ranging from mortgage repayments to their supermarket shopping.

“However, the reality is that far too many people in the UK are putting themselves and their families at unnecessary risk by not taking steps to financially protect themselves. Across the UK, people insure their home, pets and their mobile but overlook the vital component that funds all their day-to-day spending – themselves.”

If you’re worried about how your finances would cope should you lose income, we can help. From advising on protection products that suit you to suggesting ways your money can work harder to provide a buffer, please contact us today for more information.

Just after 3.30 pm today the Chancellor, Philip Hammond, stood up to deliver the first Budget on a Monday since 1962 and the last before Brexit.

He started by saying this would be a Budget for "hard-working families … who live their lives far from this place ... and care little for the twists and turns of Westminster politics".

Nevertheless, he soon turned to Brexit although, as usual, he started with a review of the state of the UK economy.

The economy and public finances

The Chancellor said growth would be “resilient” and improve next year from an Office for Budget Responsibility (OBR) forecast of 1.3% to 1.6% in 2019, then 1.4% in 2020 and 2021, 1.5% in 2022 and 1.6% in 2023.

He also reported that the OBR predicts real wage growth in each of the next five years.

Turning to borrowing Mr Hammond reported that it will be £11.6 billion lower than forecast earlier this year. He then said it would fall from £31.8 billion in 2019/20 to £26.7 billion in 2020/21, £23.8 billion in 2021/22, £20.8 billion in 2022/23 and £19.8 billion in 2023/24, which would be its lowest level for more than two decades.

Brexit

The Chancellor said we are at a “pivotal moment” in the Brexit talks with a deal leading to a potential “double Brexit dividend”.

However, he also went on to say that amount spent on ‘no deal’ planning will be increased to £2 billion. He also made it clear that the Spring statement might be updated to a full Budget, depending on the Brexit outcome.

Alcohol, tobacco and fuel

It was announced in October that fuel duty will be frozen for the ninth consecutive year.

Tobacco duty will rise by an amount equal to inflation plus 2%. However, beer, cider (except white cider) and spirits duty will be frozen for a year. Duty on wine will rise in line with inflation.

Living Wage

Mr Hammond announced that the National Living Wage will be increased, rising from 4.9% from £7.83 to £8.21 from April 2019. He said this would benefit around 2.4 million workers.

Tax

The Chancellor bought forward a manifesto commitment announcing that from April 2019 the Personal Allowance (the amount you can earn before you start to pay tax) will be raised to £12,500 and the higher-rate threshold to £50,000.

He said this was equivalent to £130 “in the pocket of a basic rate taxpayer”.

He also reconfirmed his commitment to an individual’s main residence remaining exempt from Capital Gains Tax (CGT). However, he announced a reduction from 18 to nine months in the period a home continues to qualify for CGT relief once the owner has moved out.

VAT

In a relief for many small business owners, the Chancellor announced that VAT threshold will remain unchanged for the next two years.

Universal Credit

The Chancellor announced a further £1 billion over five years to help with the transition as existing welfare claimants move to Universal Credit.

Housing

Mr Hammond announced that the number of first-time buyers was at an 11-year high.

He went on to confirm that the Stamp Duty exemption announced in the 2017 Budget would be extended to first time buyers who buy shared ownership properties. This change will be backdated to first-time buyers who purchased a share ownership property after the last Budget.

No other changes to Stamp Duty were announced.

He also announced a further £500 million for the Housing Infrastructure Fund to support the building of 650,000 new homes.

Pensions & ISAs (Individual Savings Accounts)

Despite the usual pre-Budget speculation, the Chancellor made no mention of pensions in the Budget.

There had also been some people who suggested the Chancellor would make changes to Lifetime ISAs (Individual Savings Accounts). However, nothing was mentioned in his speech about Lifetime ISAs, or indeed any other type of ISA.

However, it has subsequently been confirmed that the maximum annual ISA subscription will remain unchanged at £20,000.

Premium Bonds

While not in the speech, it has been revealed that the minimum investment for Premium Bonds will be reduced £25 from £100.

Furthermore, other people not just parents and grandparents will be able to purchase Premium Bonds for children under 16.

Business

The Chancellor said a package of measures would show that Britain is “open for business.”

The most headline-grabbing of these was perhaps a new Digital Services Tax targeting established tech giants. Mr Hammond was keen to point out this would not be an online sales tax stating it would only be paid by profitable companies with a worldwide turnover of at £500 million.

Starting in 2020 he said it would be expected to raise over £400 million per year.

Turning to smaller businesses, the Chancellor announced that business rates for businesses occupying commercial properties with a rateable value of £51,000 or less will be cut by a third over two years.

He also announced a new £695 million initiative to help small firms hire apprentices with the amount they pay being cut by 50%.

Finally, he announced a £650 million package to help ailing high streets.

Health and education (England only)

The Chancellor confirmed the injection of capital into the NHS announced by the Prime Minister earlier this year describing it as a £20.5 billion real terms increase for the NHS.

He also announced at least £2 billion per year, by 2023/24, of extra funding for a new mental health crisis service.

At the same time, he announced a one-off £400 million for schools to help them pay for “the little extras they need”. Mr Hammond said that would be the equivalent of £10,000 for every primary school and £50,000 per secondary school.

Plastic tax

Finally, a new tax on packaging which contains less than 30% recyclable plastic was announced. Although the Chancellor resisted the temptation to impose a direct tax on single-use plastic cups.

Questions?

If you have any questions about the Budget and how it might affect you please do not hesitate to get in touch.

Will you be better or worse off because of today’s Budget? Our summary answers that question, please read on to find out.

Winners

Earners

The Chancellor brought forward an election pledge to increase both the Personal Allowance and Higher Rate tax band, affecting 32 million people. From April 2019, the Personal Allowance will increase to £12,500, while the higher rate tax threshold will be £50,000, rising from £11,850 and £46,351 respectively.

The National Living Wage will also increase to £8.21 from April 2019 from the current £7.83, representing a 4.9%, and significantly above inflation, increase.

Homeowners

Main residences will remain exempt from Capital Gains Tax (CGT), ensuring families that sell their home don’t face a tax from the sale of their property.

Furthermore, all shared equity purchases of up to £500,000 will be exempt from Stamp Duty.

Small businesses and self-employed

The threshold for VAT registration will remain unchanged for the next two years despite speculation that it would drop. The fact the current £85,000 turnover threshold remains in place will be a relief to many people who are self-employed or run small businesses.

Businesses occupying property with a rateable value of less than £51,000 will have their business rate cut by a third over the next two years. The amount businesses pay in rates has been a longstanding issue for many, particularly those in retail as the high street attempts to compete with online businesses. The changes will mean savings for 90% of shops, restaurants and cafes.

Finally, a £695 million initiative that will help small businesses to hire apprentices was also announced. Those firms taking on apprentices will have the amount they need to pay halved.

People paying into pensions

Despite concerns ahead of the Budget that there would be some changes to tax relief on pensions, no changes were announced in the speech. For those paying into a pension, it provides some level of certainty, at least for a further year.

Losers

Technology giants

There will be a new tax targeting digital businesses. The UK Digital Services Tax will target specific platform models and technology giants. It will only be paid by firms that generate £500 million in revenue globally and will come into effect in April 2020. Digital tech giants will be taxed 2% on the money they make from UK users.

Tax avoiding businesses

Once again, the Chancellor accounted that there would be a clampdown on large companies that avoid paying the correct level of tax. The Chancellor aims to raise £2 billion over the next five years by targeting tax avoidance and evasion.

Questions?

If you want to discuss how you are affected by today’s Budget or have any questions, please contact us to speak to one of our finance professionals.

The long-awaited ban on pension cold calling came into effect on the 9^th January 2019. In a bid to protect pensioners being targeted by fraudsters, the ban has now been approved into law. It’s a move that should help the Financial Conduct Authority (FCA) and other organisations reduce pension fraud.

Previous figures released by the FCA and The Pensions Regulator (TPR) have shown how devastating pension scams can be. On average, victims lost £91,000 in 2017. It’s a significant sum that could have a long-lasting effect on retirement plans, as well as causing stress.

Pensioners and those approaching retirement are often targeted by scammers through unsolicited contact. In fact, Citizens Advice previously suggested 97% of scam cases about pension unlocking services stemmed from cold calls.

Attempting to entice pension savers, scammers will often offer ‘a free pension review’, the ability to unlock a pension early or suggest investments that are ‘high return, low risk’. These suggestions should be a red flag. However, a poll found almost a third of those aged 45 to 65 wouldn’t know how to check if they’re speaking to a legitimate pension adviser or provider. 12% would also trust an offer of a ‘free pension review’.

Highlighting the scale of the problem, TPR recently revealed it’s investigating six people for pension fraud. It’s believed around 370 people have been persuaded to transfer around £18 million.

An attractive target for criminals

It’s easy to see why criminals are targeting pensions. Some savers may find pensions complex, meaning they’re far more likely to be duped into giving away their pension or personal details. On top of this, a pension is often one of the largest sums of money people have saved over their working life, and many don’t regularly check it. As a result, it’s thought many pension scams go unreported.

This, combined with the way criminals target pensions, has led to increasing calls for pension cold calling to be banned. After delays, it’s a step that’s now been taken. So, what does this mean for you?

Firstly, it does offer you more protection. You know that if you’re receiving a cold call from someone wanting to talk about your pension, you should hang up. Reputable providers and advisers that you want to work with will take note of the ban and cut out this form of contact if they’ve been using it previously.

But that doesn’t mean you should let your guard down. A ban on cold calling doesn’t mean fraudsters will stop using this tactic if it continues to work. Awareness of the ban and giving pension holders the confidence to step back from unsolicited contact is crucial. There are also loopholes that criminals will try to exploit to pose as genuine advisers and providers.

1. Calling from abroad: The cold calling ban only applies to UK phone numbers. As a result, it’s thought that fraudsters will call from abroad, allowing them to navigate around the ban.

2. Contact via email and text: The new legislation only covers calls, not unsolicited contact via email or text. While this is an area that's covered to some degree by EU regulations, it's still something to be cautious of.

Six steps to prevent pension scams

The risk of being targeted by scammers wanting to get their hands on your pension is still very real. These six steps can help you reduce the risk.

1. Understand your pension: The more you understand about your pension, the better the position you’re in to safeguard it. For instance, scammers may suggest they can help you access your pension before the age of 55. However, this is only possible in very rare circumstances and should be done by contacting your pension provider directly.

2. Don’t make any quick decisions: Pension decisions can affect your income and financial security for the rest of your life. As a result, you should take your time. Reputable professionals will understand this, while criminals will try to pressure you into making a snap decision.

3. Be cautious of all unsolicited contact: While the cold calling ban does offer some protection, you may still be targeted by unsolicited contact. Be cautious when responding to any type of communication you’re not expecting.

4. Check the authenticity of who you’re speaking to: The FCA Register offers a simple, effective way to check if you’re speaking to a regulated person or company. Be aware that criminals may use the genuine details of an adviser or firm. So, if you’d like to talk to a professional, call them directly using the details listed on the register.

5. Ask questions: Scammers rely on you taking them at their word. Asking questions can help you uncover the lies they’re telling. From investment risk to legislation, genuine providers will be happy to answer your questions, understanding that any pension decision is a big one.

6. Be realistic: The golden rule ‘if it sounds too good to be true, it probably is’, certainly applies to pensions. There’s no simple way to significantly boost your pension savings or access it early. If there were, more people would be doing it.

If you'd like to discuss your pension, whether you think you've been targeted by scammers or not, please get in touch. We're here to help you understand what your pension options are.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, 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. 

Retiring is a milestone many of us look forward to as it draws near. The prospect of leaving the world of work behind and having more free time to dedicate to the things you enjoy is certainly appealing. But research suggests that many of those approaching retirement don’t know when they can expect to receive their State Pension, putting their financial security and plans at risk.

The State Pension age has gradually been increasing for women over the last few years and it’s now increasing for all. Yet research commissioned by Age UK, suggests that many of those approaching retirement aren’t aware of the changes. The poll found:

• One in four people aged between 50 and 64 don’t know when they can claim their State Pension
• Almost a fifth found their State Pension age was higher than expected
• Three in ten people have never checked their State Pension age

Caroline Abrahams, Charity Director at Age UK, said: “Clearly, there is still much confusion about the age at which people can expect to receive their State Pension and our worry is that many who have few resources to fall back on are in for a nasty shock.”

While you can choose to retire before collecting your State Pension, it’s important to understand the level of income you can expect to receive and how it will change over time. As a result, knowing your State Pension age and how much you’re entitled to should be considered a priority.

The State Pension has changed a lot in recent years.

In 2010, the State Pension age was 65 for men and 60 for women. However, women’s State Pension age has gradually been increasing and in November 2018 equalised with men. Gradual increases mean that by October 2020, both men and women will need to be 66 before they’re entitled to the State Pension. Further plans mean it’s expected to reach 67 in the next decade. As life expectancy rises, it’s likely that further increases to the State Pension age are on the horizon.

There have also been changes to the State Pension itself. The new State Pension system affects those reaching State Pension age on or after 6 April 2016. The amount you receive under the new system is dependent on the number of National Insurance (NI) credits you have.

Checking your State Pension

Luckily, it’s relatively simple to check your State Pension.

The government’s calculator lets you check when you’ll reach State Pension age and your Pension Credit to calculate your income. You can find the tool here.

There have been several news stories recently that have highlighted the importance of understanding your State Pension.

Women born in the 1950s have been affected by the equalising of the State Pension, leaving some struggling financially as they were unprepared or uninformed of the changes. It’s led to a campaign group representing women affected urging the government to give women born in the 1950s the State Pension they would have received if the changes had not occurred. It’s a situation that’s currently under judicial review following a High Court ruling.

You may also have heard of parents having less NI credits than expected due to not applying for Child Benefit when they were taking time off work or working reduced hours to raise children. To maintain a NI record when bringing up children, parents must apply for Child Benefit, even if they know they’re not eligible to receive it.  It means some parents could receive less State Pension than anticipated.

As a result, keeping track of your State Pension age and projected income is crucial for effectively planning your retirement.

Why your State Pension age is important

Even when you’ve made other retirement provisions, your State Pension age is crucial.

For many, the State Pension offers a foundation to build your retirement income on. It can provide a base level of income and security as you enter retirement. Your State Pension is likely to be an important part of your financial plan as you give up work, whether you want to wait until your State Pension age, retire early, or even continue to work. It’s a factor that should inform the decision you make about other income streams and your overall retirement aspirations. 

If you’d like to discuss how your State Pension age affects your retirement plans, please contact us. We’ll help you put your projected State Pension income into the context of your wider retirement goals and other provisions you’ve made. 

Are you planning to grow your investment portfolio this year? Are you interested in incorporating your ethics into the decision? More investors are choosing to invest sustainably, but it can seem complex. If it’s something you’re thinking about, we look at three key things to understand before you start moving your money.

Sustainable investment has gradually been moving into the mainstream. It’s about investing your money with the objective of backing companies that operate in a sustainable way, as well as thinking about profit.

You may have heard the practice referred to by different names; responsible investing, impact investing and ethical investing, to name a few. Whilst they often have slightly different meanings when you dig deeper, they’re all broadly about investing in a way that seeks to have a positive influence.

As more investors become aware of the trend, ethical bank Triodos predicts the market will benefit from a significant boost. Past research found that more than half of investors would like their money to support companies making a positive contribution to society. In fact, the UK market is expected to grow by 173%, reaching £48 billion, by 2027.

All investment decisions take careful research and planning to ensure they’re right for you. When investing with an additional factor in mind, it can take even more work. Here are three areas to think about first.

1. Sustainable investment can cover many different Environmental, Social and Governance (ESG) concerns

Sustainable, ethical, responsible; they’re all very broad terms that can mean different things to different investors.

ESG criteria can cover numerous different concerns, ranging from the impact fossil fuels have on the environment to executive compensation. Sustainable funds will have their own criteria when setting out where they’ll invest your money. 

The varying objectives result in sustainable investing being quite subjective. What you may deem as a sustainable stock, another investor may decide is unethical. Take pharmaceuticals, for example; one person may decide it's unethical due to animal testing, while another will argue that it contributes to the development of society. 

This can throw up some difficulties when you're deciding where to invest. First, you need to think about what your top priorities are. The Triodos research highlighted the areas that investors are most likely to avoid:

• Manufacturing or selling of arms and weapons (38%)
• Worker/supply chain exploitation (37%)
• Environmental negligence (36%)
• Tobacco (30%)
• Gambling (29%) 

With ESG covering many different concerns and sustainability being subjective, it can be challenging to find investment options that match your goals. The good news is, that as more firms put sustainability into practice and more investors choose to invest in this way, there is an increasing number of options. 

2. There are different strategies

With your sustainable priorities set out, it’s not as simple as then just investing your money. As with all investments, there are different strategies you can use to make sustainability part of your portfolio.

• Do you want to actively avoid companies that operate in sectors deemed unethical?
• Or would you prefer to invest in firms that are at the forefront of making sustainable changes?

Much like any investment portfolio, a sustainable investment needs to reflect your objectives. This should combine your aspirations and your financial situation, such as your investment risk tolerance and portfolio size. 

When factoring in your personal sustainability goals, there are three main ways to do so:

• The first is known as negative screening. This is where you avoid investing in certain industries or companies because their practices don’t align with your ethical stance.
• In contrast, positive screening would see you investing in companies that are working to improve the concerns you have.
• Finally, engagement is where you use your shareholder power to exact change within companies.

As the latter strategy requires you to hold a significant amount of power, it’s an option that’s more commonly used by institutional investors, rather than individuals.

3. Sustainable investing doesn’t mean lower returns

Even when sustainability is a consideration, the returns you make from your investments are still important. It’s a common belief that investing with other factors in mind leads to lower returns. However, there is research that suggests this isn’t always the case.

Research published by the University of Oxford and Arabesque Asset Management in 2015, for example, concluded that 88% of reviewed companies with robust sustainability practices demonstrate better operational performance. This ultimately translated into improved cashflow, which in turn, benefits investors.

Advocates of sustainable investments suggest, over the long term, sustainable investment may outperform alternatives as they consider more risk factors. While investment performance can’t be guaranteed, the research indicates that sustainability and profitability aren’t incompatible.

Research suggests that ethical investing can be just as profitable but there are some key things to keep in mind. First, all investments come with a level of risk and there is a chance that the value of your investments will decrease. Second, comparing past performances of funds and stocks doesn’t give you a reliable indicator of how they’ll perform in the future. Finally, sustainable investment is still a developing market.

If you'd like to discuss investing, including what sustainable investment means to you and how to incorporate it into your financial plan, please contact us.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Pensioners are increasingly taking advantage of the Pension Freedoms introduced in 2015. While the move offered far more flexibility in how you take an income in retirement, it also means there’s more responsibility on your shoulders too. For retirees that have chosen to leave some or all of their pension invested, protecting its value and the income it provides is important.

Flexi-Access Drawdown allows pensioners to leave some or all their pension invested, rather than purchasing an Annuity that provides a guaranteed income. It’s an attractive option for two key reasons:

• Firstly, it allows pensioners to withdraw flexible amounts of money when it suits them. As retirement lifestyles and aspirations change, this can be beneficial.
• Secondly, as the money remains invested, it has an opportunity to continue growing. With retirement lasting longer, a useful way to potentially boost pension income.

But how can remaining invested during retirement affect your income, and why might you need to protect it?

As with all investments, there’s a chance it can decrease in value. Should you decide to make a withdrawal at a low point, you would need to sell a larger percentage of your pension fund to receive the same level of income. This means that your savings are used quicker, which has a knock-on effect that reduces future growth too. This is known as pound-cost-ravaging. 

As a result, it’s recommended that retirees take a lower level of income when their investments are underperforming. However, it’s a step that many are failing to take. According to research from Zurich:

• 36% of people keeping their pension invested through retirement do not have a cash safety net to fall back on, meaning they could be hit harder if markets fall
• Among the 64% that are holding cash in reserve, fewer than one in ten would think to use it if there was a significant drop in the stock market
• 49% of people taking an income in drawdown said they would continue to withdraw the same amount in the event of a market correction; just 12% would scale back withdrawals

Alistair Wilson, Zurich’s Head of Retail Platform Strategy, said: “A staggering number of retirees appear to be in the dark over how to protect their pensions if stock markets tumble. Withdrawing the same level of income in a downturn could take a bigger bite out of your pension fund – yet it’s a trap that’s easily avoided.”

What steps can you take to protect your pension?

1. Hold a cash reserve

Holding some of your savings in a cash reserve gives you an opportunity to ride out bumps in the market. If investment values fall, using your cash assets, rather than withdrawing from your pension, can help protect value.

How much you should hold as a reserve will depend on your personal circumstances, including living expenses and other liquid assets you have access to. This is a step many retirees are taking but the research suggests a high portion will be reluctant to use cash. However, it’s a step that could improve value and wealth in the long term.

2. Understand what withdrawal rate is sustainable

Understanding how much you can sustainably afford to withdraw from your pension is a critical step before you proceed with Flexi-Access Drawdown. When you choose this route, you’re responsible for ensuring that your pension will continue to support you throughout your life. As a result, investing some time in understanding what’s sustainable is important.

Again, a sustainable level will depend on your personal circumstances. But an annual withdrawal rate of around 3% can be a benchmark for some. As a result, if the value of investments falls, so too will the withdrawal amount. If you want help in understanding how you can take a flexible income from your pension, please contact us.

3. Regularly review investment performance

If your pension does remain invested in retirement, you need to take a more active role in monitoring its performance. As this will have a direct impact on your income, regular reviews should be considered essential.

While monitoring performance should be a step you take, it’s important to remember that short-term volatility is normal. Don’t panic if you see that your pension has decreased in value but have a plan in place for when it happens.

4. Take action when needed

Reviews alone aren’t enough, you need to take action when necessary. Should investment values fall, scaling back the amount you’re withdrawing or even stopping can help preserve the value of your pension in the long term. Often dips are only temporary, and you’ll be able to begin sustainably withdrawing the same level of income again in future.

Of course, you need assets you can fall back on. This is where a cash reserve can help provide you with security should a downturn occur.

If your investments are too volatile, you may benefit from diversifying or reducing the level of investment risk you’re taking.

5. Seek professional advice

Working with a financial planner can help create a retirement plan that works for you, bringing together your aspirations with your pension savings. By working with a professional, you can be more confident in the decisions you're making and understand how potential investment downturns will affect your income.

If you’re using a Flexi-Access Drawdown product or are considering doing so, please contact us. We’ll help you understand how market volatility could affect your income in the short, medium and long term, and the steps to take to safeguard your retirement aspirations.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Your pension income could also be affected by the interest rates at the time you take your benefits. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

One of the key decisions you need to make when investing is how much investment risk you want to take.

Weighing up the level of risk you’re willing to be exposed to can be challenging. It’s often one that’s ruled by emotions and your personal attitude to risk. While these factors should play a role, they aren’t the only areas you should be considering. Whether you’re reviewing your pension or building a personal investment portfolio, balancing risk is a crucial part of the process.

If it’s a step you’re taking, keeping these six points in mind can help.

1. Investment goals

Your investment goals should be at the centre of any decision you make. If your goal is to ensure your savings keep pace with inflation, for example, you may be able to achieve this with a relatively low-risk profile. If, on the other hand, you want to grow your money as much as possible, taking a greater amount of risk could help you achieve your aims.

As a general rule of thumb, the greater the level of risk an investment poses the higher the potential return. However, you do, of course, have a greater risk that your investment will decrease in value. 

Your motivation for investing will undoubtedly have an impact too. If you’re investing to help pay for your child or grandchild’s education, you might want to take a more cautious approach. In contrast, if investment returns will be used to fund luxuries in retirement, taking on more risk may be appealing.

2. Investment timeframe

How long will your money be invested for? This is a factor that is likely to be linked directly to your investment goals, and it should also influence the level of risk you’re willing to take.

Stock markets do fluctuate. However, when you look at the long-term trend, investments have risen at a pace above inflation. Ultimately, the more risk you take on, the more volatility you should typically expect. So, if you're investing for a short period of time, a more cautious approach might be advisable. However, if you're looking to invest for a longer period, you're in a better position to overcome the dips.

Generally, you should look to invest for a minimum of five years.

3. Capacity for loss

When you think about the money you want to invest, what would happen if it decreased in value or you lost it? Your capacity for loss should play a crucial role in deciding how much investment risk you want to take.

Clearly, if you're in a position where you have enough disposable income to invest and don't have to worry about the immediate impact volatility might have on your lifestyle, you're likely to be in a better position to take more risk. 

4. Diversify

The saying ‘don’t put all your eggs in one basket’ certainly applies to investing. Diversifying your portfolio can be important. As a result, taking a look at the existing investments you hold should inform your decision.

Diversifying gives you an opportunity to create a balance that suits you. If you hold potentially high-risk global equities, for example, you may choose to partially invest in bonds that are usually deemed lower risk. This might offer more stable growth, that could help to offset stock market uncertainty.

If you’d like help reviewing your current investment portfolio to understand how to diversify, please contact us.

5. Other assets

On top of your existing investments, take some time to look at your other assets. From savings accounts to your home, understanding your wider financial position can help you see whether investing is the right option for you and, if it is, the level of risk that’s appropriate.

If your finances and lifestyle are relatively secure, you may find that you’re in a better position to take greater investment risk. However, if your comfort would be affected should investment values fall, or you want to withdraw your money in the short term, taking a more cautious approach or an alternative route entirely may serve you better.

Remember that investing isn’t your only option. Depending on your circumstances and goals, you may find that alternatives, such as using a Cash ISA (Individual Savings Account), is more appropriate for your needs. 

6. General attitude

While thinking about how much you can afford to invest and what your other assets are, consider your general attitude to risk. Some of us are more inclined to take a large risk for the chance of a larger reward at the end. Others will prefer a more cautious approach to life and their finances.

You need to feel comfortable and confident in your investment decisions, including the level of risk you’re exposed to. Your risk profile should reflect both your situation and your goals.

If you’d like help to understand risk profiles and the options open to you, please get in touch. We're here to help you weigh up the pros and cons of taking investment risk and what it could mean for your finances.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Every day we make financial decisions, but you’ve probably spent little time thinking about the thought process that goes on behind each one you make. After all, we’ve evolved to make our decision-making processes quicker and easier.

While you may quickly decide whether a purchase is good value for money or to deposit savings into an account, there’s a lot that goes into it. The decisions we make, including those related to finance, are based on experiences, information we’ve stored, our general perception of the world and more. It means we can make decisions incredibly fast, but it can also lead to cognitive bias. This leads to subjective views shaping actions rather than objective ones.

Even two people experiencing the same event can interpret and react differently, based on their own bias. In terms of finance, that means we could be making decisions that aren’t right for us, based on a news story we’ve read, a past experience or a perception of what we should do.

The study of psychology has found numerous ways bias affects decisions, many of which influence how we use our finances. Below are just three examples of this: 

1. Confirmation bias

This is where we seek evidence to support the views we’ve already established and discredit those that contradict them. In the information age, it’s not hard to find something that will support an action or view. It means that you could be filtering out potentially useful information because you subconsciously ignore facts that refute the opinions you already hold.

From a financial perspective, it can have a significant impact. Take investing for example: If you have heard that a particular investment will outperform others and when searching for further information you only read the news stories that support this, you could miss vital data that suggests the opposite. In turn, this could mean you make a riskier investment decision than you normally would.

2. Familiarity bias

We’re often creatures of habit that prefer to be familiar with the decisions we make. As a result, we can tend to actively seek out those options that are familiar, even when trying something different could yield more positive results.

Again, from an investment perspective, this can lead to an investor placing their money into a fund or market that they’re already exposed to. While familiar investments can feel like they add security, it isn’t always the logical option and diversification could help minimise volatility in your portfolio.

3. Negativity bias

We often tend to place greater importance on negative experiences, and these are the ones that are more likely to stick in our mind. A look at newspaper headlines highlights this; you’ll often find numerous stories that focus on the bad in the world, even when the negative events are far rarer than the positive. Psychology suggests that this sensitivity is part of our survival instinct.

It’s a bias that can lead to us taking a more cautious approach when it comes to our finances and, in some cases, not taking steps we should be. For example, if you’ve read several articles on how pension schemes are collapsing, returns aren’t as expected, or that they’re failing to deliver the income needed, you may be less inclined to put more of your disposable income into a pension scheme, even if you could benefit in the long term.

These three examples demonstrate how bias could be affecting your financial security and the decisions you make. So, with this in mind, what can you do about it?

The first step is realising that bias naturally happens. This allows you to take action to reduce how much bias affect your decisions. From spending time researching both sides of an argument to objectively looking at your own experiences, understanding bias can improve outcomes. This is also an area that financial planning can help with.

How can financial planning help remove bias?

Financial planning gives you an objective professional that can help you see which financial decisions make sense for you and your circumstances. In some cases, the recommendations can be vastly different from the steps you would have taken alone. It gives you an opportunity to discuss why these steps are being advised, broadening your knowledge and helping you to see the decision from a different perspective.

Perhaps a past investment underperformed and you lost money, putting you off building your portfolio now. A financial planner will be able to show you how markets have performed, projected returns, and explain the risks. Armed with the right information and a balanced approach, you’ll be in a better position to make decisions that limit the influence of personal bias.

If you’d like the support of a financial adviser, please contact us. We’re here to help you make decisions based on facts to create a strategy that is logical for you and your aspirations. 

When it comes to falling ill or being injured for an extended period of time, we often think it won’t happen to us. But when questioned about it, research shows it’s something that worries more than half of us. When you consider the potential financial implications, it’s not surprising.

According to research from Royal London, 52% of workers worry about their income if they were to become too ill to work for longer than a month. With official figures showing this is the case for more than a million workers every year, it’s more likely to become a reality than we’d like to think. Differing sick pay policies means it can be difficult to calculate how you’d cope financially should something happen, but it’s an important step to take.

Jennifer Gilchrist, Protection Specialist at Royal London, said: "Falling ill unexpectedly could happen to anyone. With a million workers off sick for more than a month, it's important to think about how you would manage financially and make a plan, so you do not have the added financial worry if you were to fall ill.”

Statutory Sick Pay (SSP)

For workers, SSP is designed to act as a financial safety net should something happen. However, for many, it’s not enough to cover even the essential household outgoings.

To qualify for SSP, you have to be off work sick for four or more days in a row. It’s paid by your employer for up to 28 weeks and is currently £92.05 per week. While SSP can provide you with some certainty while you recover from an illness, 42% don’t think it would be enough to live on if they were off sick for a long period of time. For many families, the loss of income would leave a shortfall and may affect financial security.

Employer sick pay

In addition to SSP, some employers may also offer sick pay. Sick pay policies can vary significantly. However, a quarter of those surveyed by Royal London mistakenly believed sick pay was the same across all companies.

Worryingly, one in six workers doesn't know what their company's sick pay policy is, potentially placing more stress on them should they become ill. Even among those that do have the support of employer sick pay, 60% found the policy difficult to understand. Getting to grips with your sick pay policy is important for planning other measures that may support you.

Protecting your income

The average UK worker stands to lose almost £450 in pay when they’re off sick for a week without employer sick pay. If it’s a loss that could cause you financial hardship over the short, medium or long term, it’s wise to think about how you can take steps to improve the outlook.

One place to start is building up an emergency fund that can support you should your income unexpectedly stop. The Money Advice Service (MAS) recommends having between three and six months’ salary in an accessible savings account to tide you over. This can give you peace of mind that the immediate is taken care of, allowing you to focus on your recovery.

However, for long-term illness and injury, an emergency fund may not be enough. This is where protection products can provide you with some security.

There is a range of protection products on the market, including those that will provide you with a source of income should you become too ill to work. Policies may pay out a lump sum or monthly amounts, often a portion of your typical income, depending on the option and premium you choose.

Even if your employer offers sick pay, protection can still be worthwhile. Sick pay policies will usually run for a defined period of time, what happens when you get to the end of this? As protection products will have a deferred period, you can pick out an option that will dovetail with your employer's policy and emergency fund. Typically, the longer the deferred period, the lower your premiums are.

It’s important not to look solely at income too. While your family may not rely on your income, illness can still have a significant impact. If, for example, you are the main provider of childcare, could your family cope if you were to need extra support? It could mean further expenditure for childcare providers that could place pressure on finances at a time when you’re likely already feeling stressed.

If you’d like to discuss protection products and which are right for your situation, please contact us. We’ll help you understand how they can support your financial security and other steps that you’re taking.

Are you thinking about purchasing an Annuity to fund your retirement lifestyle? It’s crucial to understand the product and shop around for the best deal as research suggests that many retirees could secure a better income.

An Annuity is a way of creating a guaranteed income throughout retirement if you have a Defined Contribution (DC) pension. Should you decide it’s the right option, the money accumulated in your pension is used to purchase an Annuity. Typically, the money paid out from an Annuity will be linked to inflation, maintaining your spending power throughout retirement, though this isn't always the case.

In the past, an Annuity was the most common way to access pension savings. However, since the introduction of Pension Freedoms in 2015, taking a flexible level of income has grown in popularity. While more pensions now enter Flexi-Access Drawdown, there are still advantages to choosing an Annuity. For many, the security of a guaranteed income provides peace of mind.

Of course, there are drawbacks to weigh up too.

Among the downsides of purchasing an Annuity is the inflexibility. Alternatives to creating a retirement income may allow you to adjust your income, reflecting differing income needs as you go through retirement. However, an Annuity will provide you with a fixed income that won’t change. For some, this inflexibility will mean an Annuity isn’t the right option for them.

It’s important to remember that if you have a Defined Contribution (Personal) pension, you don’t have to select a single way to build a retirement income. If some level of flexibility is a priority, you could use a portion of your savings to buy an Annuity, accessing the remainder flexibly. This hybrid approach can provide you with a reliable, base income to offer peace of mind and allow you to adjust income when needed.

Finding the right Annuity for you

There are many different providers to choose from when purchasing an Annuity. It can make searching for the right product for you difficult. However, it's an important task and one that's worth investing some time in; after all, it will affect your income for the rest of your life.

According to research from Just Group, up to two-thirds of Britons going into retirement could receive a higher income, affording a more comfortable lifestyle.

One of the key factors influencing this figure is that providers aren’t consistently asking retirees about their health and lifestyle. Certain health issues could qualify retirees for an Enhanced Annuity, which would pay out more. For example, you could receive a greater income if you have high blood pressure or cholesterol. The full impact would depend on your personal circumstances and the provider chosen. However, figures from Hargreaves Lansdown can give you an idea of the difference disclosing health issues can make. A £100,000 pension is estimated to provide an annual income of:(Based on what criteria. Please include for example, male, aged 65, escalating annuity, single life)

• £5,456 for someone with no health issues
• £5,477 for someone with high blood pressure and cholesterol
• £5,930 for someone who smoked 10 cigarettes a day
• £6,276 for someone who is diabetic
• £6,618 for someone that had previously had a stroke

Of course, even if you don't have health issues, it's important to shop around. The rates offered when purchasing an Annuity can vary significantly between providers.

Five steps to take if you’re considering an Annuity

1. Speak with a financial adviser: A financial adviser can help guide you throughout the process of purchasing an Annuity, from the initial point of seeing if it’s right for you. By seeing how your income needs will change throughout retirement and getting to grips with whether an Annuity is right for your circumstances, you can have greater confidence in your decision.

2. Understand the different Annuity products: There are many different types of Annuity products available, so it’s important to understand which one would suit you. For many retirees, a Lifetime Annuity is preferred, this would pay a defined income until you die. However, there are fixed Annuities too, which will be an income for a defined period of time.

3. Don’t make quick decisions: When you're searching for an Annuity, it can be tempting to make a snap decision when you're offered a rate that seems attractive. However, take a step back and give yourself some time to think. Once you've purchased an Annuity there is no going back, so it's important to make sure you've secured the best deal possible.

4. Secure multiple quotes from providers: With two-thirds of retirees potentially receiving a lower income due to choosing the wrong deal, securing multiple quotes to compare should be considered a critical step. There are comparison tables available online that can help you with the initial research. Deciding on the type of Annuity product you want first can help you gather comparable results.

5. Explore other options: An Annuity used to be the most common way to create a retirement income. However, retirees today have far more choice and different products available. Be sure to look at the alternatives before you make a decision to proceed. You may find that a more flexible income is needed when you've considered your aspirations. 

To talk about building a retirement income that suits your lifestyle goals and savings, please contact us.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, 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.

Millions of more workers are now saving into a pension thanks to auto-enrolment. The retirement saving initiative saw minimum contributions rise at the start of the 2018/19 tax year. While it may be tempting to opt out in light of this, it could mean you’re hundreds of thousands of pounds worse off once you reach retirement.

Whilst you may not be affected by auto-enrolment, it’s likely that someone in your life is, perhaps children or grandchildren. The majority of workers are now automatically enrolled in their employer’s pension scheme in a bid to improve financial security once they give up work. If you know someone that’s thinking about opting out of their Workplace Pension, speaking to them about the potential long-term impact could help.

Why is opting out a concern now?

When auto-enrolment was first announced there were concerns that a high level of employees would decide to opt out. However, these concerns proved unfounded and millions of workers have embraced saving for their future. Even following subsequent minimum contribution rises, opt-out rates have remained relatively stable.

As the new tax year started on 6 April 2019, the last of the currently planned increases came in. Employees now pay 5% of their pensionable earnings into their pension, an increase of 2% when compared to the last year. For the average worker, this means losing around £30 from each pay cheque.

Whilst that sum may seem small, it’s come at a time when many workers are facing low wage growth and a rising cost of living. As a result, it’s understandable that some may be considering leaving their Workplace Pension when the increased contributions are realised. However, it’s a decision that could significantly impact retirement income.

The cost of opting out of a Workplace Pension

Employer contributions: First, when you pay into a Workplace Pension, so does your employer. Should you decide to leave your pension scheme, it’s highly likely your employer will also halt contributions. In the new tax year, minimum contribution levels for employers also increased to 3%. It’s an effective way to boost your pension savings with ‘free money’.

Tax relief: Again, tax relief offers you a boost on your pension savings that could make your retirement far more comfortable. It means that some of the tax you would have paid on your earnings is added to your pension in a bid to encourage you to save more. Assuming you don’t exceed the Annual Allowance, tax relief is given at the highest rate income tax you pay. So, if you’re a basic rate taxpayer and add £80 to your pension, this will be topped up to £100. Higher and additional rate taxpayers can benefit from 40% and 45% tax relief respectively.

Investment returns: Typically, your pension is invested. This gives it an opportunity to not only keep pace with inflation, but hopefully outpace it too. As you usually save into a pension over a timeframe that spans decades, you should be able to overcome short-term market volatility and ultimately profit. As all returns delivered on investments in a pension are tax-free, it’s an effective way to invest with the long term in mind. When you start a Workplace Pension, you’ll often have several different investment portfolios to choose from, allowing you to pick the one that most closely aligns with our attitude to risk.

Compound interest: The effect of compound interest links to the above point. As you can’t make withdrawals from your pension until you reach at least 55, investment returns are reinvested, going on to generate greater returns. This effect helps your pension to grow quicker, building a larger pension pot for you to enjoy when you decide to retire.

It can be difficult to balance short, medium and long-term financial needs. Often the different areas you need to save for can seem conflicting. This is where creating a financial plan that reflects personal aims, both now and in the future, can help. If this is an area you’d like support in, please contact us.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

Workplace Pensions are regulated by The Pensions Regulator.

Premium Bonds have been around since 1956 but they’ve recently been in the headlines again after the technology behind the popular saving option has been revamped. But before you put your hand in your pocket, it’s crucial to understand what Premium Bonds are and how they can potentially offer you a return.

Firstly, despite the name, Premium Bonds differ significantly from standard bonds. A bond represents a loan, with the investor receiving specified repayments over a defined period of time, interest may be variable or fixed. They are used by companies, governments and other organisations to raise capital. Premium bonds, on the other hand, are an investment product that doesn’t deliver interest or dividend income. Instead, you’re entered into a prize draw to receive tax-free cash each month.

Introduced over six decades ago by the then Chancellor, and later Prime Minister, Harold Macmillan, Premium Bonds have paid out prizes totalling more than £19 billion. The product was conceived to encourage more people to set savings aside, with the incentive of potentially securing a life-changing, tax-free prize in the process. It’s a strategy that worked, thousands of people use the NS&I product to save.

The evolution of ERNIE

The distribution of the prizes falls to ERNIE; the Electronic Random Number Indicator Equipment.

Every month, ERNIE is fired up and picks which lucky Premium Bonds will win a prize, ranging from £25 to £1 million. The investment product’s recent attention is down to the latest reincarnation of ERNIE being unveiled. Back in the 50s, the original ERNIE was almost the size of a room and took three days to select the random winners. Today, ERNIE 5 is the size of a pea and uses quantum computing to draw three million winners in just 12 minutes.

Since the launch of Premium Bonds, various other products offering cash prizes have launched, such as the National Lottery. But where Premium Bonds differ is that you can withdraw your initial investment, backed by a Government guarantee.

What else do you need to know?

First, for every £1 you invest in Premium Bonds, you’re given a unique number. This is the number you’ll hope ERNIE picks out. As a result, the more money you place in Premium Bonds the greater your chances of winning. NS&I lists the annual prize fund interest rate at 1.4%, but this will vary hugely between different people and even each year on the same Bonds. The odds of winning with a single £1 bond number is 24,500 to 1.

• You can invest as little as £25 through Premium Bonds
• The maximum that can be invested is £50,000
• All prizes are tax-free
• Premium Bonds can be purchased as gifts, including for children aged under 16

Should your purchase Premium Bonds?

As with all financial decisions, this will come down to your priorities.

Premium Bonds do have a certain pull; the thrill of being in a prize draw for £1 million every month is certainly appealing. However, if you’re looking for a regular income or guaranteed returns, they may not be right for you.

You also need to consider the impact of inflation on your savings. As you won’t be generating any interest on your savings, the value will fall in real terms. Inflation refers to the cost of living rising, which means your spending power will decrease if savings remain static. It's important to note that in today's climate of low-interest rates, inflation eating into your spending power should be considered when holding money in cash accounts.

Two of the key initial advantages of using Premium Bonds can also now be found with other savings and investment products.

Security: If ensuring your money is secure, Premium Bonds can be attractive. You know that you’ll be guaranteed the investment you put in when you decide to cash out. However, cash accounts may also suit your needs if this is a priority. Under the Financial Services Compensation Scheme (FSCS), up to £85,000 per person per authorised bank or building society is protected.

Tax-free returns: Choosing to invest in Premium Bonds means any prizes you did win would be received completely tax-free, which can be attractive. But changes to how savings are taxed means it may not be the incentive it once was. The Personal Savings Allowance (PSA) means if you’re a basic rate taxpayer you can earn up to £1,000 in savings income tax-free, or £500 if you’re a higher rate taxpayer. You can also use your annual ISA (Individual Savings Account) allowance, currently £20,000, to save and invest tax-efficiently.

With both these factors in mind, you need to decide whether a guaranteed return is more important to you or a potential ‘big win’ you have a chance of being picked for with Premium Bonds. If you’d like to discuss Premium Bonds in the context of your wider financial plan and goals, please get in touch.  

Please note: The Financial Conduct Authority does not regulate NS&I products or cash deposits.

Ethics are increasingly playing an important role in our day-to-day lives. You may choose to purchase fair trade groceries, use a green energy supplier or be more aware of your own carbon footprint or water use. It's a trend that's inevitably spilling over into finances too.

As the world becomes more connected in the digital age, it's becoming far easier to see the impact our money can have, whether it's negative or positive. For some, it's becoming a defining factor in how and why they make certain financial decisions. Research from Triodos Bank, for example, found that 65% of parents want their savings to help protect the planet for their children. And 60% of women indicated they’d switch ISA (Individual Savings Account) provider if their money were having a negative impact on people and the planet.

Defining your values

First, if you’re new to ethical finance it can seem like a rather ambiguous term: what actually counts as ethical finance?

And that's because it does have many different definitions depending on whom you're speaking to. It's a subjective topic. One person may focus on the environmental impact of their investments, whilst another will place greater importance on social consequence.

As a result, before plunging into ethical finance, it’s important to consider what our personal values are. You have likely already make similar judgements day-to-day, for example, when you’re shopping for new clothes, even if you’ve never considered it from a finance perspective before. You’re not alone in this either. The Triodos research found that while 67% of savers prioritise reducing plastic use and increasing recycling, only 9% considers ethical finance crucial.

Ethical finance is often broadly split into three categories: environmental, social and governance. Among these three areas, there are many different values that are encompassed, reflecting different views.

What is ethical finance?

With an idea of what’s important to you in terms of ethics, how can this be reflected in your financial decisions?

Banking:  When choosing who to bank with, it's often a decision that's made based on areas such as the customer service provided and interest rates. However, you may want to think about the ethical practices of the bank or building society too. This can include a whole myriad of areas, depending on your personal practices. Do they operate in a way you consider ethical? Do they heavily invest in industries you'd rather avoid?

There are specialist banks and building societies that were set up to cater for those who want to make ethics a priority in their finances. However, many well-known and established providers are taking steps to improve their practices with a range of different areas in mind too.

Investing: Investing is where ethical finance has often focussed. As an investor, you have the option to support those businesses you believe are having a positive impact. This could be a retailer that removes suppliers with poor human rights reputations from their supply chain, firms investing in sustainable energy, or one that supports local communities. 

According to statistics from the UK Sustainable Investment and Finance Association (UKSIF), the UK is the fastest growing market for sustainable investment in Europe. Integrating a range of ethical considerations into investment decisions has grown by 76% in the UK, with €2.2 trillion of UK assets excluding industries deemed harmful, such as arms and tobacco. Whilst there are many different strategies for ethical investing, the research found that the most popular option in the UK is voting and engagement, using shareholder power to enact positive changes.

While ethics may be a part of your decision-making process when investing, it shouldn't be the only one. Factors such as the level of risk and how it aligns with your personal goals are still important.

Pensions: Your pension may be overlooked when you consider investments. However, for many, it's likely to be one of the largest savings you have, particularly when you consider how long you’ll be adding to it for. Most pensions are invested, with the aim of delivering returns that outpace inflation and help set you up for a more comfortable retirement. With this in mind, is your pension invested in line with your values?

When you first become a member of a pension scheme, you’ll usually have the option to choose between several different investment portfolios. For example, the pension provider may offer you various options according to the level of risk you want to take. However, an increasing number now offer ethical funds reflecting the growing trend. Of course, as with above, this isn’t the only factor to consider when selecting where to invest.

If you’re keen to learn how you can incorporate your ethical values in your financial decisions, from savings to pensions, please contact us.

Please Note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

It’s natural to want your hard-earned savings to grow as much as possible. However, as the saying goes ‘if something seems too good to be true, it probably is’. When we hear about people losing their life savings, it’s often related to scams and fraudsters. However, recent headlines show that getting sucked into inappropriate products can be just as dangerous.

The case of London Capital & Finance

Over the last few weeks, you may have heard of London Capital & Finance; the scandal has been covered in the media all over the country.

The firm was authorised by the Financial Conduct Authority (FCA) and HM Revenue and Customs (HMRC) had granted the bonds it was selling tax-free ISA (Individual Savings Account) status. For most investors looking for somewhere to put their money, this would have signalled that their cash was in safe hands. Yet, this wasn’t the case.

More than 11,000 investors put £239 million into the bonds. It's easy to see why people were tempted; London Capital & Finance were offering advertising interest rates of up to 8%. With interest rates still low following the financial crisis, this far surpasses what you can find at banks and building societies. Even when investing in the stock market and being exposed to risk, 8% returns would be considered highly optimistic and unlikely.

So, what went wrong? While the company pulled customers in with talk of bonds, only a very small portion of the money actually went into these investments. A large portion of the remainder went into high-risk investments, such as property developments in the Dominican Republic and oil exploration off the Faroe Islands.

The company collapsed at the beginning of the year, sparking an investigation at the FCA, as well as arrests by the Serious Fraud Office.

What happens now is still to be decided; it's thought that as little as 20% of the money placed with London Capital & Finance will ever be recovered. Investors that have been affected currently can’t place a claim with the Financial Services Compensation Scheme (FSCS), though the scheme is working with administrators to identify where claims for compensation may be made.

Some investors stand to lose their life savings after investing through London Capital & Finance in a product that wasn't appropriate for them. It's a costly mistake in terms of losing money, but also the stress it would have caused and the aspirations that now can't be achieved.

Choosing the right investments for you

The case of London Capital & Finance highlights why it’s important to carefully check investment offerings before you proceed, even when they appear to be secure. If you’re tempted by a lucrative offer but aren’t sure it’s right for you, these tips can help:

• Ask ‘is it too good to be true?’: If you’re left wondering how a product can offer such high returns and why everybody else isn’t snapping it up, it’s a sign that you should delve a bit deeper. If it sounds too good to be true, there’s probably a catch somewhere. Go through the document and available resources to understand all the ins and outs before you even think about parting with your money.

• Take the time to understand the products: While diversifying is important in investments, so too is understanding where your money is. Financial products can be confusing and complex, however, if you're having a difficult time getting your head around how you'll make money, take a step back.

• Don’t rush into any decisions: No important financial decision should be rushed, particularly ones that could affect your future financial security. Take your time to weigh up the pros and cons of an investment before you go ahead. If you feel like you’re being pressured into making a decision or there are time-sensitive offers, this should be a red flag.

• Do your research: With so much information available online, there’s no excuse for not doing a bit of research before deciding whether to invest. It can help you identify the pros and cons, as well as those signs it’s an investment to stay well away from. Of course, one of the challenges with this step is verifying the information you can trust, so be careful here.

• Remember not all products are right for everyone: Whilst someone might be singing the praises of a particular investment, it doesn’t mean it’s right for you. Your investment decisions should reflect a whole range of factors, such as attitude to risk, capacity for loss, and goals.

• Speak to your financial adviser: Go to your financial adviser with any questions or concerns you may have. They’re in a position to offer you advice, based on your wider financial plan, and have the experience to understand when you should pass up an offer.

If you’re planning to invest your money, but aren’t sure which options are right for you, please contact us.

Please note: The value of investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be regarded as long-term and should fit in with your overall attitude to risk and financial circumstances.

What's your approach to planning for retirement? It's often an exciting milestone, but it may also be mixed with conflicting emotions. After all, it's likely to signify a great change in your life and you may not have a clue what you want to do with your increased leisure time. Embracing some of the aspects of a Japanese tradition known as kanreki could help.

In many cultures of East Asia, reaching your 60^th birthday is significant. This is because of the traditional 60-year calendar cycle, meaning you’ve completed one ‘cycle’ through the zodiac; reaching 60 is a chance to be born again and start afresh.

It’s a milestone that’s celebrated throughout the region. In Japan, it’s called kanreki, hwangap in Korea and Jiazi in China.

As you approach 60 in the UK, your thoughts might be turning to the next chapter of your life; giving up work and enjoying your retirement. But while you might celebrate your birthday with family and friends, it’s not really considered a time to reflect and start planning for everyone; perhaps embracing some of the kanreki traditions could help more of us look forward to starting a new journey.

It’s natural to worry about retirement, whether it’s your financial situation that is causing concern or the fear of the unknown. Taking the time to plan what you want out of the future can make your path clearer. This is where kanreki could provide some inspiration.

That doesn’t mean you have to don the traditional kanreki outfit of bright red sleeveless jacket and hat associated with the celebration, though if you want to, we’d fully support it! ‘Why the colour red?’ you might ask; it symbolises both youth, reflecting being born again, and celebration in Japanese culture, perfect for those planning their retirement.

However, with or without the time-honoured clothing, there are ways that the kanreki can support your path to retirement.

Taking time to reflect

With often modern, hectic schedules, taking time to reflect is something that we could probably all benefit from doing occasionally.

A kanreki is viewed as a point where you’re reborn, giving celebrants an opportunity to look over their last six decades and think about what they want in the future as they start anew. Retirement might not be tied to a specific date anymore, but it’s still often associated with embarking on a new journey.

Rather than plunging into retirement without reflecting on what you want to achieve or just focusing on the financial side, a kanreki approach affords you some time to really consider what you want from it.

• What’s most important to you?
• What does your ideal retirement look like?
• What experience are you looking forward to?

Answering these types of questions can help create a financial plan that truly reflects your aspirations and helps you get the most out of your retirement.

Looking back at your achievements

As you start on the next adventure, looking back is just as important. Kanreki is often used to look back at the achievements you’ve already ticked off and celebrate the life you’ve lived. It’s a good opportunity to think back over fond memories, successes and the people that mean the most to you.

While you should also weigh up the missteps you may have taken along the way, it’s important to focus on the lessons learnt from them and how they’ll serve you in the future.

Planning your new beginning

Having looked back at the past and considered what you want from life, it’s time to embrace another kanreki transition; planning for the future. It’s a step that should be considered essential if you’re to get the most out of retirement.

With your aspirations in mind, you can start looking at how your retirement provisions can be used to help you achieve them. While retirement goals often focus on the short term, perhaps travelling, splurging on a new car, or doing up the house, planning your new beginning should look further ahead. You’ll need to consider how your day-to-day retirement life will look and the income needed to maintain it for the rest of your life, indulging in a few luxuries and experiences along the way of course.

Preparing your estate

In the past, when life expectancy wasn’t so long, kanreki also symbolised handing the baton on to the next generation. Whether you plan to hand over the reins of the family business or not, it’s still relevant to modern retirees. Setting out your estate plan should be considered a priority.

It might not be in keeping with the celebratory feel of kanreki, but it is important. As you prepare for retirement taking steps such as updating your will and Power of Attorney are key, as is considering whether your estate will be liable for Inheritance Tax.

If you’re planning your retirement, whether it’s your kanreki or not, please contact us. We’re here to help you get the most out of the next stage of your life and give you the tools to fully enjoy retirement.

The Financial Conduct Authority does not regulate Inheritance Tax Planning, Will Writing.

Do you have enough money in your pension to see you through retirement? Research indicates there’s a very real risk that UK retirees will be short of more than a decade’s worth of money.

As we start making withdrawals from a pension and even when saving into one, it’s crucial to think about the kind of lifestyle it’ll afford and how long for. Without this vital bit of information, there’s a chance you’ll be left with a shortfall that could mean a retirement that promised much leads to disappointment or struggles in later years.

Measuring the gap between savings and lifestyle

A recently published report from the World Economic Forum set out to calculate how financially secure retirement will be. It notes, pension systems around the world are facing the common problem of trying to deliver existing promises whilst life expectancy has increased. It’s a challenge that is expected to become even more significant over the coming decades. 

The findings indicate that the average UK woman will run out of money 12.6 years before she dies. For men, it’s 10.3 years. With a vital source of income drying up a full decade before passing away, some retirees could face struggling to get by on the State Pension alone. It could mean lifestyles need to be adjusted if dreams are to be realised.

Between 2015 and 2050, the report predicts the gap will grow even further, suggesting struggles are ahead for generation X and millennials. In 2015, it was estimated there was an $8 trillion (£6.2 trillion) shortfall in UK pensions, rising by 4% annually to $33 trillion (£25.8 trillion) by mid-century.

The risk of running out of money later in retirement is particularly troubling when you consider the potential need for care. Longer lives mean more people are requiring some form of support, from home visits to moving into a residential home. Most retirees will be required to pay at least a portion of care costs themselves until total assets are depleted to £23,250.

On top of this, the risk of running out of money is further compounded by the hope of retiring early. Research suggests that two in five savers hope to retire before they reach the age of 65. Given that the State Pension age is already steadily increasing, it’s a dream that could place further pressure on finances. If you do want to retire before the traditional age, it’s crucial to think about how those extra years will affect the savings earmarked for retirement.

How much is enough to retire?

This is a question that often comes up when people start thinking about retiring. However, there’s no straightforward answer, it’s very subjective.

Research indicates that covering the basics in retirement, such as food and utility bills, along with a few extras like eating out and entertainment, will set retirees back by almost £230 each week. Over the course of the year, the figure mounts up to more than £11,830, 35% more than the State Pension provides. The findings suggest that retirees need their personal provisions to pay out a minimum of £3,062 a year. That may not sound like a lot, but when you think retirement can last 30 or 40 years, it may be easier than you think to run out of money. When you factor in the luxuries you might be looking forward to in retirement, such as holidays, the risk rises even more.

As you think about how your own pensions will pay for retirement, it’s important to consider the type of lifestyle you hope to achieve. It’ll have a direct impact on how much you should be saving whilst working and whether you’re at risk of falling short.

• When paying into a pension: Taking the time to consider how much you’ll need to fund retirement whilst you’re still paying into a pension puts you in a better position to secure the lifestyle you want. The further ahead you start to think about this, the better. Uncovering a shortfall with a decade still to go gives you an opportunity to increase contributions where necessary. Here it is crucial to consider how long you’ll spend in retirement to calculate your target sum as accurately as possible.

• When taking an income from savings: Changes to how we access pensions in 2015 means more retirees are now opting to withdraw from their pensions in a flexible way. The ability to increase and decrease withdrawals can be valuable. However, you need to carefully balance the amount you’re taking out with how long it needs to support you for. Taking sums that are unsustainable now may leave you struggling in the future.

If you’re worried about how your retirement savings will match up to aspirations, please contact us. We’re here to help you understand how long provisions will last with your lifestyle in mind.

Please note: A pension is a long-term investment not normally accessible before age 55. The fund value may fluctuate and can go down, 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.

When a relationship breaks down, splitting up assets is common. From deciding who gets which pieces of furniture right through to property. However, one asset that’s commonly overlooked initially is pensions.

Alongside property, pensions may be the largest asset you have. When you consider how long you’ve been paying into it and the potential employer contributions, tax relief and investment returns, your pension could be worth more than you think if you haven’t been actively monitoring its value. As a result, it, and the pensions of your ex-partner, should form part of divorce negotiations.

The impact a divorce could have on long-term financial plans shouldn’t be underestimated. Research indicates:

• 45% of women aren’t confident or didn’t know if their personal financial plans would be adequate if their relationship failed
• Over a third (35%) of men were also in the same position

With this in mind, pensions need to play an important role in divorce proceedings. However, as it’s not tangible and may not be something you’ll have access to for several decades, it can be forgotten about. As longevity increases and individuals increasingly take responsibility for their retirement income, pensions are crucial for long-term financial security.

Establishing how much a pension is worth

As pensions are long-term investments, an initial challenge may be establishing how much they’re worth. It’s a calculation that should include all pensions, from Workplace Pension to additional State Pension that has been earned.

For a Defined Contribution pension, including Workplace Pensions and Personal Pensions, the latest annual statement should provide a transfer value that can be used. If you have a Defined Benefit Pension, also known as a Final Salary pension, the calculations can be more complicated as accrual rates and contributions will need to be considered. We can help you determine the value of your Defined Benefit pension.

As pensions are usually inaccessible until the age of 55, the process of splitting up a pension during a divorce can be more difficult than other assets. However, there are essentially three core options. The same options apply for a dissolution of a civil partnership.

1. Pension sharing

A pension sharing order is a legal way of dividing up a pension between a couple. It was introduced in 2000. Prior to this, a spouse or civil partner that didn’t have a pension or held a smaller pension would have no pension entitlement.

Pension sharing means that pensions are now included in the total value of marital assets and, therefore, should be divided fairly during a divorce. A portion of an existing pension may be awarded to the other person if they have a pension that is lower in value. The money awarded is known as a pension credit. The pension credit can then be transferred into either an existing pension scheme or used to open a new pension. As a pension sharing order allows you to create a separate pension, a couple can make a clean financial break.

Couples need to apply to a court for a pension sharing order as part of their divorce. If you’re awarded pension credit, it’s important to think carefully about where you want to transfer the money to.

2. Pension attachment

A pension attachment/earmarking order still allows one person to access a portion of the pension but works in a different way. Rather than transferring a defined amount into a pension, a pension attachment will be paid when the scheme member starts to draw retirement benefits. The amount or portion is predefined. The court will instruct the scheme administrator or pension provider to make these payments.

In England, Wales and Northern Ireland, the figure can be paid either as a lump sum when the pension is first accessed, known as the pension commencement lump sum, or on an ongoing basis from the pension member’s pension income. In Scotland, it can only be paid from a pension commencement lump sum.

As it means your retirement finances are tied to an ex-partner, a pension attachment order isn’t as commonly used as a pension sharing order.

3. Pension offsetting

Finally, this option means both partners retain their full pension rights. However, where one person has a pension that is higher in value, this is offset through other assets. For example, the partner with a lower pension value may receive a greater portion of cash, investment or property assets that are of a similar value to offset the lost pension benefits.

Planning for the future                                       

A divorce can mean significant upheaval in your life and it’s likely that your priorities and aspirations have changed as a result. Reviewing your financial plan in light of this, is a step that should be taken when you feel ready. It’s a process that can help you understand how your finances may have changed immediately following divorce and the steps that should be taken to ensure you’re on track to achieve goals.

If you’ve experienced divorce and would like help reassessing your financial situation as you plan for the next chapter of your life, please contact us.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, 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.

 The Bank of Mum and Dad has become essential for many first-time buyers struggling to scrape together a deposit to secure a mortgage. However, research indicates that children and grandchildren are increasingly relying on financial support for a variety of reasons.

Whilst you may be keen to provide as much help as possible to loved ones, you may also be worried about the impact it will have on your own financial security. Understanding whether you’re in the financial position to offer some form of monetary help can give you the confidence and peace of mind to do so.

So, how are parents and grandparents providing support for adult offspring? Offering a helping hand when purchasing a house makes up a sizeable chunk of the money handed over, however, it’s not the only area where financial support is sought.

• Research from Legal and General suggests that in 2019, up to £6.3 billion will be taken from the Bank of Mum and Dad to fund thousands of property purchases. By offering up sums to act as a deposit, parents are financing around one in five transactions in the UK property market. The average amount received for this purpose is £24,100.
• Relatives are also putting their money into the entrepreneurial ventures of children too. A survey conducted by Worldpay indicates that around one in ten small businesses owners asked their parents to invest in their idea. With under-35s twice as likely to seek family support than older generations, it could be a growing trend.
• Finally, figures from SunLife found that more than half of people aged over 55 are financially supporting their children. Around a fifth are providing more support than they had planned to. This is despite some feeling as though their own finances are being squeezed as a result.

What’s causing the trend?

There are many reasons why children or grandchildren could benefit from financial support, some of which may be personal. However, generally speaking, wage growth has remained low whilst expenditure, including property, has continued to rise. As a result, younger generations are often finding it a struggle to balance the books and still reach life milestones, from buying a first home to starting a family, without risking financial instability.

It’s natural that as a parent or grandparent, you want to provide support to help loved ones live comfortably. Whilst your heart may be saying ‘yes’ when they ask for help, your head may have some reservations. That’s normal too. After all, if you place your own financial security at risk you won’t be in a position to provide support at all.

Making it part of your financial plan

Whether you want to offer ongoing support, to cover school fees for grandchildren, for example, or a one-off gift, you should make it part of your financial plan.

This gives you the insight needed to understand how your finances will be affected in the short, medium or long term. Would taking a £25,000 lump sum out of your savings to act as a house deposit mean you could run out of money in later retirement, for instance? By building gifts and monetary support into your financial plan you can make an informed decision based on your circumstances.

Often, potential benefactors find they’re in a better position to help than they first thought. Using financial planning to fully understand the long-term consequences of gifting means they decide in full confidence and with complete peace of mind.

It’s not just confidence that financial planning can help with either, but deciding which assets to use:

• Would your long-term wealth be impacted more by withdrawing from investments or cash savings?
• What is the most tax-efficient way to access large lump sums?
• Will the support potentially be liable for Inheritance Tax?
• Could you replace the money at a later date if you choose to?

Financial planning can help you answer the above questions and more to create a solution that’s right for you.

If you decide you’re not in a position to offer financial gifts, there are likely to be alternative options too. You could, for example, act as a guarantor on a mortgage to allow for a lower deposit or provide a lump sum on a loan basis. You would ultimately be responsible for the debt should they be unable to continue with the loan payments. Understanding the implications is important and financial planning can help you better understand what other routes there are to explore.

To discuss your financial situation and aspirations for helping loved ones find their feet, please get in touch.

In recent years, the peer to peer (P2P) lending market has grown rapidly. As you’ve looked for ways to maximise your savings, you might have come across opportunities and may even have been tempted. But, whilst it’s a sector that’s growing fast, it’s crucial to understand what it means and the associated risks.  

With interest rates still low following the 2008 financial crisis, savers are looking for a home for their money that offers returns. With potential interest rates significantly higher than what you can find at high street banks, P2P lending can certainly seem attractive. However, as with all financial decisions, it’s essential that you understand what P2P lending involves and the risks.

What is peer to peer lending?

P2P lending is a relatively new asset class that started gaining traction in the last decade or so. It offers a way for people to lend money to individuals or businesses via a loan that interest is paid on. As a P2P investor, you’re effectively acting as a lender.

Most commonly, P2P lending is conducted through marketplace style platforms that connect lenders with borrowers. There are numerous platform options to choose from and they don’t all operate in the same way. However, there are two main ways to get involved with P2P lending through a platform:

• A managed option will pool your money with other lenders’ assets, which will then be used to provide loans to a range of businesses and individuals. This can help diversify your investment to spread risk and you can take a more hands-off approach if you prefer. Some platforms will only offer a default managed option, whilst others may provide you with a choice with varying risk levels.

• Alternatively, you can manually select which potential borrowers you’d like to offer money to. This route allows you more flexibility in building a portfolio that suits you. However, you’ll need to take responsibility for assessing the level of risk and be more involved during the whole process.

Returns from P2P lending are derived from the interest paid on the loans. As a result, they vary significantly, typically ranging from 4% to 20%. Compared to interest rates on savings accounts, these potential returns may be attractive. However, the risk is greater and, typically, the higher the potential return the more risk you’ll be taking on.

What are the risks?

Compared to the established lending establishments, the P2P market is in its infancy. Receiving a return on P2P loans is entirely dependent on the borrower's ability to continue to meet repayments. Should they be unable to pay and default on the loan, you may not get back the amount you put in. There’s also a risk that repayments will be late. As a result, P2P lending is considered riskier than alternative options, such as investing through stock markets.

As with investing, there are P2P opportunities with various levels of risk. Those offering lower interest rates will generally be considered lower risk when compared to those offering higher rates. Where the borrower is offering high-interest rates in comparison to loans or credit cards available on the high street, it’s beneficial to consider why this is. It could suggest they have a poor credit history, for instance.

Again, as with investing, it’s important to consider how risk is spread with P2P lending and avoid putting all your eggs in one basket.

It’s also worth noting that P2P lending is not covered by the Financial Services Compensation Scheme (FSCS). If a borrower defaults on a loan or the platform used ceases trading, the FSCS will not help you recoup losses.

What’s the secondary market like?

A key consideration before plunging into P2P lending is the possibility to sell the loans you hold. There is a secondary market for P2P lending, however, it’s relatively small and limited. It can be incredibly difficult to sell loans and you may find there’s little market for it. As a result, you should consider P2P lending an illiquid asset.

How important the secondary market for P2P lending is will depend on your personal circumstances. Let’s say you loan a sum for a 36-month period, is there a chance you’ll need access to that money before three years are up? If the answer is ‘yes’ you should carefully explore what your options would be if you needed to sell the loan and look at alternatives.

What are the tax implications?

The returns generated through P2P lending are considered income. Therefore, profits may be liable for tax if you exceed your Personal Savings Allowance (up to £1,000).

If you’re interested in P2P lending and are likely to pay Income Tax on the returns, one option to consider is an Innovative Finance ISA (Individual Savings Account). ISAs offer a tax-efficient way to save and invest, with the Innovative Finance ISA designed specifically for P2P lending. Returns generated through an Innovative Finance ISA are tax-free. Each tax year you have an ISA allowance of £20,000, this can be spread across several different types of ISA or deposited in just one.

Is it an option for you?

For most people, P2P lending isn’t the most appropriate option for growing their money. P2P lending should be considered a high-risk asset, which will not be suitable for the majority of investors. The potential returns on offer can be tempting but it’s important to weigh this up with the likelihood of a borrower defaulting on their loan.

If you’d like to discuss P2P lending in the context of your personal circumstances, please get in touch. We’ll identify whether it’s an option that suits your financial circumstances and aspirations, as well as exploring other options.

Check that the platform is regulated by the Financial Conduct Authority and if it’s a member of the P2P Financial Associates. Their members must follow certain criteria.

Please note: As an investor, your capital may be at risk and you may not receive back all the money you invested should a business not be able to fully repay its loan. Your money is not protected by the Financial Services Compensation Scheme. Past performance is not a reliable indicator for future results.

 When you write a will, you expect your wishes to be upheld, but that’s not always the case. It is possible for those left behind to contest a will if they believe it is invalid or doesn’t make reasonable financial provisions for certain relatives or dependents. As the number of contested wills rise, it’s important to understand why this is and what can be done to minimise the risk of it happening.

In simple terms, a will contest is a formal objection raised against a will. There are several reasons why someone may choose to contest a will, which can broadly be broken down into two categories:

• The validity of the will: Most will contests focus on the validity of the will and there are reasons why this may be called into question. Among the arguments of contesting a will are lack of valid execution, undue influence, lack of knowledge and approval, and testamentary capacity.

• Reasonable financial provisions: Certain people can also make a challenge to your will by claiming that it doesn’t make reasonable financial provisions for them. Among the people that can do so are a spouse or civil partner, a child, a former spouse or civil partner, or a person that was maintained by you immediately prior to death. Many factors will be taken into consideration when assessing reasonable financial provisions, including the financial needs of the applicant and the size of your estate.

Figures from HM Courts and Tribunals show that the number of disputes of wills has increased. Analysis conducted by Direct Line indicates that disputes regarding application for probate increased by 6% in 2018. It’s a trend that looks set to continue too. A quarter of Brits, the equivalent of 12 million people, would be prepared to contest a loved one’s will if they were unhappy with it.

Why is the number of will contests rising?

There are many reasons why someone may choose to contest a will. However, the overall trend has been linked to two key factors.

First, property prices have risen enormously over the last couple of decades. As property is often one of the largest assets a person owns, this has led to the value of estates rising significantly. As a result, there’s a greater reason for those left behind to dispute a will they don’t agree with and pay the associated legal fees.

Secondly, a complex family situation can make splitting up an estate far more challenging. Marrying more than once, having children from different relationships and other influences can have an impact on disputes.

Minimising the chances of your will being disputed

With disputes against wills rising, it may be wise to take action to minimise the chances of a dispute occurring in the first place and reduce the likelihood that a dispute would be upheld. Among the steps to consider taking are:

1. Speak to loved ones: Whilst you may not want to discuss the details of your will, it can prevent loved ones from being shocked by your decision. If you think they will be surprised by how your estate is set to be distributed, explaining your decision and reasons behind it can help ensure you’re all on the same page.

2. Make sure your will is properly executed: You have two options when writing a will: DIY or use the services of a solicitor. A solicitor will cost you, but they can offer guidance on ensuring your will is executed properly and reduce the chances of questions around the validity of it being raised. If you choose to go down the DIY route, make sure you fully understand the process and the boxes that need to be ticked.

3. Prove medical competency: A common reason for disputing a will is that the person making it didn’t have the mental capacity to fully understand what they were doing. For instance, if they had been diagnosed with dementia. This can be countered by speaking with your solicitor or doctor about your ability to make decisions and having this in writing.

4. Be aware of undue influence: Another common ground for dispute is that the person faced undue influence when writing the will. This would have to be proved by someone making an application against your will. However, ensuring the solicitor’s notes state you fully understand the decisions you were making and had reasons for doing so can help.

5. Be as precise as possible with the wording: Ensure your will is written as clearly as possible. Ambiguous wording can make it easier for those that want to dispute your will to do so. Have a clear plan in mind about who you want to benefit from your estate and how before proceeding to help with the process.

6. Provide details of exclusions: If you plan to specifically exclude someone from your will who would normally inherit, such as a spouse, civil partner or child, you can provide details as to why. Should they then make a claim against your will, this can give a clearer picture of your decision and why it’s one you reached.

7. Add a letter of wishes: A letter of wishes isn’t legally binding. However, it can be used to state in your own words who you want to benefit from your estate and why. Should a dispute be raised, this can then be used against it. Whilst it may be tempting to write an emotional letter of wishes, it’s best to stick to the facts. 

8. Regularly review your will: Over time, your wishes are likely to change as your circumstances do. As a result, so should your will. It’s advisable that you review your will every five years and following big life events, such as getting married, divorce, or as your family grows to ensure it reflects your current situation.

Please note: Will Writing and Estate planning is not regulated by the Financial Conduct Authority.

Naming a Power of Attorney is often one of those tasks we know we should get around to but inevitably put off. The number of people registering a Power of Attorney has been rising, yet figures suggest millions could still be left in a vulnerable position should something happen to them.

If you’ve yet to name a Power of Attorney, we take a look at the reasons to consider doing so and how to go about it.

Let’s start with the basics: What is a Power of Attorney?

A Power of Attorney is a legal document that names an individual or group of people giving them the power to act on your behalf should you no longer be able to do so, for example, due to illness or injury. They can be used for both short and long-term situations.

• If you’re injured in an accident, for instance, a Power of Attorney may be able to make decisions on your behalf on a temporary basis. This may cover day-to-day tasks, such as ensuring bills are paid on time.
• There may be cases where a Power of Attorney makes long-term plans on your behalf. In the case of a dementia sufferer, for example, decisions relating to their living situation may be made.

No one wants to think about becoming incapacitated and being unable to make their own decisions, but it does happen. Taking steps to prepare for such an eventuality just in case can place you in a better position should the unexpected occur.

In October 2007, Lasting Power of Attorney was introduced under the Mental Capacity Act 2005. There are two different types, ideally, you should have both. It’s up to you whether you choose the same or different people for each type.

• Health and Welfare Power of Attorney: This type will give someone the power to make decisions relating to your welfare, including daily routine, medical care, life-sustaining treatments and moving into a care home.
• Property and Financial Affairs Power of Attorney: Someone named on this type of Power of Attorney will be able to make decisions such as managing bank accounts, paying bills, collecting your pension or selling property.

If you named a Power of Attorney before 1^st October 2007, this will be known as an Enduring Power of Attorney. So long as it was signed before this date it is still valid. It covers decisions relating to property and financial affairs only.

Eight in ten don’t have a Power of Attorney

Research found that across all age groups more than 80% of people had no Power of Attorney in place at all. Worryingly, three quarters don’t see any need for one, suggesting an ‘it won’t happen to me’ mindset is preventing some from taking the important step. Unsurprisingly, there was even less take-up among younger generations. Fewer than 6% of adults under 55 said they’d named a Power of Attorney. Yet, accidents and illness can occur at any age.

Whilst it’s not surprising that Powers of Attorney are used less frequently among those under 55, it’s a mistake that could have serious consequences. Younger generations are far more likely to have additional responsibilities, such as paying a mortgage or raising a family, which could be seriously affected if someone wasn’t able to make decisions on their behalf.

Even if you’re married or in a civil partnership, naming a Power of Attorney is wise. Your partner doesn’t have the automatic right to deal with your bank account, for example, and may even find joint accounts are frozen if you’re unable to make decisions.

How to name a Power of Attorney

Naming a Power of Attorney is relatively simple:

1. You can access the forms required to name a Power of Attorney by contacting the Office of Public Guardian. You can either print out the necessary documents or fill them out online.
2. You have two options when filling out the forms; DIY or work with a solicitor. A solicitor will cost money but can help ensure mistakes aren’t made and streamline the process. Which one is best for you will depend on how confident you are about the process and the complexity of your estate.
3. The forms are then signed by a certificate provider, stating you have the mental capacity to make the decision and haven’t been placed under pressure to do so. A certificate provider can either be someone you know well and for at least two years or a professional such as a doctor, social worker or solicitor.
4. The completed forms must be registered with the Office of Public Guardian to be valid. It should be registered whilst you still have the mental capacity to do so and the process takes around nine weeks. There is a fee of £82 to register each type of Power of Attorney.

In general, you can’t make changes to a Power of Attorney after it’s been registered, so think carefully about who you name before proceeding. If changes are required, you should contact the Office of Public Guardian for advice.

What happens without a Power of Attorney?

Without a Power of Attorney in place, an individual can still apply to make decisions on your behalf. However, this can be a lengthy and time-consuming process. In addition, it may not be the person you’d prefer. It can make an already difficult time incredibly challenging and potentially leave you in a vulnerable position whilst the process is ongoing.

If someone becomes mentally incapable, but doesn’t have a Power of Attorney, a legal representative, relative or a friend can ask the Court of Protection to make an order appointing them as a deputy. This would essentially give them the same powers as a Power of Attorney, potentially covering both financial and welfare issues.

A Power of Attorney should form part of your wider estate plan that aims to provide you with security and peace of mind about the future. To discuss how it fits with your other decisions, please contact us.

Please note: The Financial Conduct Authority does not regulate estate planning.

Auto-enrolment has seen millions more saving into a pension. However, research suggests that those aged over 60 are far more likely to opt-out of their Workplace Pension scheme. Whilst it’s understandable that you may decide not to pay into a pension as you approach retirement, what could it cost you?

Auto-enrolment means that the majority of employees now automatically pay into a Workplace Pension fund. However, individuals can choose to opt-out if they wish. Despite increases to the minimum contribution levels at the start of the 2019/20 tax year, opt-out levels have remained below 10% among those aged below 60. However, figures from Royal London suggest almost one in four (23%) of those over 60 are choosing not to pay into their Workplace Pension.

Individuals may have opted out for a variety of reasons, but it’s likely that a significant portion did so because they believe it’ll have little impact on their pension. But it’s a decision that could affect your financial freedom in retirement.

What does opting out cost?

The Royal London analysis estimated how much someone aged 60 would lose by choosing not to contribute to their pension.

A 60-year-old on the average wage and paying the minimum 8% contributions, made up of both employer and employee contributions, would have amassed just under £14,000 by the time they reach 65. To reach this figure, employees would have only contributed just over £6,600 themselves. As a result, opting out would mean missing out on £7,000 of ‘free money’ through employer contributions and tax relief.

Whilst £14,000 isn’t a life-changing sum, it can afford you more financial freedom in retirement. It may be just what’s needed to pay for retirement celebrations, whether that’s a once in a lifetime holiday or home renovations. It may help improve your financial security throughout retirement or give you the flexibility to help loved ones financially if you choose.   

Whilst the research indicated opting out could mean losing out on £14,000 in your pension, there are many reasons why this figure may be higher still.

You’re earning above the national average salary

The analysis figures assume you’re earning the national average salary, just over £29,009. Of course, if you’re earning more than this, the sum both you and your employer are contributing to your pension will be more. Tax relief on pensions is also linked to Income Tax. So, basic-rate taxpayers receive 20%. However, if you’re a higher-rate or additional-rate taxpayer, this is increased to 40% and 45% respectively. As a result, if you earn more than £37,500 annually, you could be missing out on far more tax relief by opting out.

You don’t plan to retire at 65

The research only looks at a five-year period. However, you may decide you want to work beyond 65, whether in a full-time or part-time role. More retirees are choosing to fully retire later in life for a variety of reasons or opting for a phased approach to the milestone. If this is something you’re considering, it will mean you have an even longer period to amass more in your pension. When you plan to retire and whether or not it is gradual, is important to your financial planning, including pensions.

Your pension benefits from higher contributions

At the moment, minimum auto-enrolment contributions are 5% and 3% of pensionable earnings for employees and employers respectively. However, these can be increased. If you’ve been putting larger portions of your pension away during your working years and maintain this, clearly the amount you’re missing out on could be higher, particularly when you consider tax relief. Some employers also contribute higher percentages than the minimum, so you could be missing out even more.

Your pension is invested

Finally, pensions are typically invested to hopefully generate returns. This can help provide a further boost to your pension and retirement income. One important thing to note here is that Workplace Pensions will often gradually reduce investment risk as you approach retirement to reduce the chance of your pension value falling. However, if you haven’t updated the retirement date to reflect your plans, this may be wrong.

Should you keep contributing to a pension?

Helen Morrissey, Pension Specialist at Royal London, said: “It is understandable that someone at the age of 60 might think it is too late to save enough to make a difference to their retirement income, but they are wrong. Our figures show older workers are throwing away thousands of pounds on retirement income by opting out of their scheme. We would urge anyone thinking about opting out of their auto-enrolment scheme to think twice before doing so.”

Whilst there’s a strong argument for contributing to a pension after your 60^th birthday, that doesn’t mean it’s the right option for everyone. You may have saved enough for retirement and want to benefit from a greater income now. However, it’s important to look at the impact that opting out would have on your finances in the short, medium and long-term before making a decision.

If you’re approaching retirement, we’re here to help you better understand your finances and what steps you could still take to improve income where necessary. Our goal is to give each client confidence in their financial situation.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, 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.

Workplace pensions are regulated by The Pensions Regulator

Research suggests thousands could be missing out on investment returns in their pension because they haven’t updated their retirement age. Remaining engaged with your pension can help you create a retirement income that meets expectations. So, what should you review when looking at your pension?

1. What fund are you invested in?

Typically, a Defined Contribution pension will offer several different fund options for you to choose from. When you first join the scheme, you’ll automatically be enrolled into one and this will remain so unless you change it.

There are a few reasons why you may want to change which fund your pension is invested in. Often, they will have varying levels of risk, allowing you to choose one that suits your attitude and goals. In addition, many pension providers also offer an ‘ethical’ fund if you want your pension to be invested in a way that reflects your values.

It’s usually easy to change which fund your pension is invested in, either by updating it through an online portal or contacting the pension provider.

2. What does it assume your age of retirement is?

Pensions are usually invested. Traditionally, the level of risk these investments take decreases as you approach retirement age automatically. However, if the assumed retirement age doesn’t align with your plans, you could miss out on returns.

According to analysis from Aviva, an average earner in an automatic enrolment scheme could miss out on more than £4,000 in their person by sticking with a default retirement age of 65, when they intend to retire at 68. If the default retirement age is set at 60, this rises to almost £10,000. With retirements becoming more flexible, this could be a growing issue.

It’s also worth noting that, depending on your assets and retirement plans, de-risking investments as retirement approaches may not be the best option.

3. Are you receiving the correct level of tax relief?

Tax relief is one of the aspects that makes saving into a pension valuable. It’s a helpful way to boost your contributions. The amount of tax relief you receive on pension contributions is linked to the highest rate of Income Tax you pay.

The basic-rate of 20% tax relief is automatically applied. However, if you’re a higher or additional-rate taxpayer, you will need to claim the additional tax relief through tax returns. It can seem like a chore, but it’s one that’s well worth doing. To increase your pension by £100, you’d need to add £80 if you’re a basic-rate taxpayer. However, this falls to just £60 and £55 for higher and additional-rate taxpayers respectively.

4. How much are you contributing?

If you’re not sure, it’s a good idea to look at how much you’re paying into your pension each month. Under auto-enrolment, this will be a minimum of 5% of pensionable earnings. However, you can increase this. Even a small increase can have a big impact over the long term, particularly when you factor in tax relief and investment returns.

5. What is your employer contributing?

Your employer will also be making contributions to your pension. As a minimum, this will be 3% of pensionable earnings. However, some employers do pay in more or will increase their contributions if you do. It’s worth checking what your company policy is on this as employer contributions are essentially ‘free money’ that could boost your future income.

6. What returns are investments delivering?

As stated above, pensions are usually invested. The returns these investments deliver can help your contributions grow over your working life. As a result, taking a look at how investments are performing as part of a regular review can help you see whether the investments are right for your goals.

It’s important to look at the bigger picture here. Investments are often volatile when looking at just a snapshot of figures. Instead, you should look at how your investments have performed over the long term to gain a more accurate understanding.

In addition to returns, take some time to look at the fees you’re paying, as these will eat into the returns.

7. What is the projected value at retirement?

Finally, how much will your pension be worth when you want to access it? Your pension provider should give you an estimate of this figure, although it’s important to keep in mind that this can’t be guaranteed.

Understanding what your pension is projected to be worth gives you an opportunity to see if expectations align with reality. If there’s a shortfall, the earlier you spot it, the better the position you’re in to make necessary changes. Alternatively, you may find you’re in a position to retire earlier than expected if you want to.

If you have any questions about your pension or other assets that will be used to fund retirement, please get in touch. Our goal is to help you get the most out of your finances and have confidence in your financial future.

Please note: A pension is a long-term investment not normally accessible until age 55. The fund value may fluctuate and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Your pension income could also be affected by the interest rates at the time you take your benefits. Levels, bases of and reliefs from taxation may be subject to change in the future.

Workplace pensions are regulated by The Pensions Regulator.

Bonds are a common feature in many investment portfolios, alongside stocks, shares and cash assets. But how do they fit into your investment portfolio and what percentage should be allocated to bonds?

What is a bond?

Before diving into purchasing bonds, it’s important to understand exactly what they are and, therefore, how they can be beneficial to you.

A bond is essentially a loan made by an investor to a borrower, which may be a government or business, as a way to raise money. As a result, bonds are sometimes thought of like an IOU. There are two ways that a bond can pay out:

• Final payment is made when the bond matures
• Or smaller payments are made during the term

By the end of the maturity date on a bond, the original loan amount must be paid back or risk defaulting. When you purchase a bond think of it as buying the right to future payments, whether this is a lump sum or smaller amounts. The yield on bonds depends on these amounts in comparison to how much you paid. Typically, bonds that have a longer maturity date will pay a higher interest rate.

Bonds are linked to interest rates too. When interest rates are low, bond prices tend to be higher. As a result, the current economic climate of low-interest rates means you can expect to pay more for bonds.

Many corporate and government bonds are traded publicly and give you a chance to sell bonds within your investment portfolio before they reach maturity. However, this isn’t always the case and the secondary market will vary depending on the borrower.

How do bonds fit into your investment portfolio?

Investment portfolios should be diversified to spread risk. This includes the types of assets you hold.

Bonds can provide your investment portfolio with a balance in terms of risk. Generally speaking, bonds are considered to pose a lower risk to investors than stocks and shares, though higher than cash assets.

Of course, bonds aren’t entirely risk-free. There is a chance that the borrower will default on the payments and you won’t receive your initial investment back. Whilst bonds are generally considered lower in risk to stocks and shares, it’s important to check the reliability of the borrower when conducting research.

Creating an investment portfolio that suits you

Whilst bonds are often an important building block when creating a suitable investment portfolio, the allocation level should consider your financial situation. For some people, a higher portion of investments in bonds can help create stability and reduce volatility. For others, a high portion of bonds won’t offer the potential to create the returns they’re looking for. The allocation of your investment portfolio should always be tailored to suit you.

When creating or reviewing your investments in terms of allocations, some of the areas to consider are:

• What are your investment goals?
• How long do you intend to remain invested for?
• What is your capacity for loss and overall attitude to risk?
• How comfortable are you with investment volatility?
• What other assets do you hold and what risk level are they?

These types of questions can help you gain an understanding of your current financial circumstances and the level of risk that’s right for you. This can be challenging to calculate with so many different factors playing a role. However, it’s a critical step towards assessing how bonds will play a role in your portfolio.

If you’d like to discuss your investment portfolio, please contact us. Our goal is to help you build an investment proposition that matches your aspirations and financial situation. 

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the long term and fit in with your overall attitude to risk and financial circumstances.

Einstein once reportedly referred to compound interest as the ‘eighth wonder of the world’, stating: “He who understands it, earns it, he who doesn’t, pays it”. So, just what is compound interest and when do you benefit from it?

Whilst financial jargon can often seem complex, compound interest is actually simple and easy to take advantage of. The term refers to the principle that when you save money you can earn interest on not only your initial contributions but on the interest itself. So, if you leave your money in a savings account for an extended period of time, the amount of interest earned can grow significantly. As a result, the rate that your savings grow gets faster.

Let’s say you deposit £1,000 into a savings account that pays 10% interest a year. In that first year, you’d earn £100 in interest. However, if you leave both your initial saving and interest, the following year, you’d receive £110 in interest. The more frequently interest payments are made, the greater the effects of compounding.

The same principle can be beneficial when you’re investing too. Investing returns delivered means they can go on to potentially deliver returns themselves.

Why is compounding so important?

Compounding means that even if you don’t add to savings and investments, they can continue to grow. Over a long period of time, this can lead to a substantial financial boost as interest or returns accumulate. This can be highlighted by looking at how pension contributions accumulate over different time periods.

Let’s say you deposit £2,500 into a pension annually, with investment growth of 5% and charges of 1% each year.

• If you contributed to your pension between the ages of 21 and 30 only, you’d reach 70 with £213,250.  Whilst you would have contributed just £25,000 over a ten-year period, investment returns and compound growth mean it would have grown significantly. 
• If you put off contributing to a pension until you were 30 but did so until you retired at 70, you’d end up with a pension of £228,293. Whilst this is just over £15,000 more than the first example, contributions are far higher at £100,000.
• Paying into a child’s pension also highlights the effects of compound interest. If you contributed during the first two years of a child’s life, a total of £5,000, they’d have £61,947 at 70 assuming the returns and charges above.

The above examples give you an idea of how powerful compound interest is. However, it’s important to keep in mind that they are not an accurate representation, the performance of your pension will depend on market conditions and, as a long-term investment, pension values can fall as well as rise.

When does compound interest matter to you?

As compound interest has the greatest effect over the long term, the impacts will be most felt on the financial areas where you’re looking to the future. This may include:

• Long-term saving accounts
• Pensions
• Investment portfolios
• Savings for children or grandchildren

It can be difficult to calculate the full impact of compound interest, particularly when investing, but there are calculators available online. Simply knowing that leaving interest and returns untouched can boost your savings can help you take advantage of compounding.

Understanding compound interest can help you get the most out of savings. For a comprehensive financial review, please get in touch with us.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

A pension is a long-term investment. The fund value may fluctuate and can go down, 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.

When you first think of seeking financial advice, it might be the calculations that you focus on. The figures are an important part of understanding your financial situation and what you can achieve. However, it’s just a small part of what financial planning is about and where it adds value.

Financial Planning Week was celebrated earlier this month, aiming to encourage more people to consider the benefits of working with a financial planner. It’s the ideal time to step back and consider what you get from working with a financial planner, it should be far more than simply working out what your pension will be worth in ten years’ time.

Financial advice vs financial planning

You may think financial advice and financial planning are essentially the same thing or that the two terms can be used interchangeably. However, they’re actually two different ways of working. They both have benefits, and which is the right option for you will depend on your needs and circumstances.

Financial advice can be useful if you have a certain question you want answering. For example:

• How can I mitigate Inheritance Tax?
• How much will my pension be worth at the point of retirement?
• How should I invest savings?

Financial advice can help you answer these and give you a clear picture of your financial situation now and in the future.

In contrast, financial planning takes a more holistic approach. The aim is to create a comprehensive financial plan that puts you at the centre. This means considering your long-term aspirations and any concerns you may have. This can help you align financial decisions with your lifestyle and goals.

For instance, whilst financial advice can offer you guidance on pension values and the most efficient way to withdraw money at retirement, financial planning will look at the bigger picture. During the process, for example, it may ask questions like:

• Can you afford to retire early, would you want to if it were an option?
• What is the right level of retirement income to achieve your goals?
• How can retirement income be used to address other concerns, such as wanting to help family financially?

As you can see, it’s about more than calculations. Instead, financial planning focuses on helping you use your assets to meet goals. There will be different points in your life where you can benefit from both financial advice and financial planning. When deciding between the two, it’s important to look at the value each can offer in terms of your needs.

The value of financial planning

Where financial planning adds value to you, will depend on your circumstance but here are some points to keep in mind:

Understanding finances in the context of personal goals: Whilst we often have goals that require money to achieve, it can be difficult to understand if you’re on the right track. You may, for instance, hope to retire five years early, but is this possible with your current pension contributions or other assets? Financial planning can help you see your financial decisions in the context of what you want to achieve. It’s a benefit that can help you proceed towards goals and set realistic expectations.

Highlight where mistakes are being made: Finances can be complicated, and we’ve all made a few mistakes along the way. Having another pair of eyes look over your finances can highlight where mistakes have been made. Perhaps your savings account isn’t offering the best returns available or your investments haven’t been reviewed to reflect life changes. Regular meetings with a financial planner can help reduce the chance of mistakes happening.

Planning for the long term: We often know we should plan financially for the long term, but it can be difficult to understand how decisions now will have an impact. If you’re employed, you’re probably paying into a pension, what kind of lifestyle will this afford you in retirement? You might see the contributions leaving your payslip each month, but understanding the full impact of these sometimes passes us by. Using tools such as cash flow modelling, financial planning can help you visualise how steps taken now will influence your financial future.

Consider the unexpected: Much like the above, we know we should plan for the unexpected. You might already have an emergency fund set to one side but it’s important to consider a range of scenarios to improve your financial resilience. A financial planner will ask questions, such as what would happen if you or your partner passed away or would your retirement income be affected if investment values fall, and help you put safeguards in place where appropriate.

Confidence: Money can often seem complex and be a worry in day-to-day life. Financial planning aims to give you the confidence to enjoy life, without worrying about finances. One milestone where this is often evident is at retirement. Retirees may be concerned that they’re spending too much, too soon or will have little to leave behind for loved ones. Financial planning can help them understand their income and what it means in the long term.

Ongoing advice: Whilst sometimes a one-off meeting with a financial adviser is enough, ongoing advice has benefits too. Your situation, priorities and financial circumstances can change dramatically over time. Ongoing advice gives you a regular opportunity to discuss concerns and how your financial plan can change to suit your lifestyle.

If you’d like to chat with one of our financial planners about your goals, please get in touch.

Children born today have a one in four chance of celebrating their 100^th birthday. It’s progress that should certainly be celebrated but one that also leads to financial questions. How do you prepare for a life that could span ten decades?

Many parents choose to put some money aside for children to give them a helping hand when they reach adulthood. Whether you’ll be making regular payments or adding money on Christmas and birthdays, you’ll want to ensure you get the most out of your deposits. But choosing how to build up a nest egg for a child can feel more complex than making decisions about your own financial future.

One question to answer first is: Should you place the money in a cash account or invest?

Why consider investing your child’s savings?

It’s natural to want to protect the money you’re putting aside for your child’s future by choosing a cash account with little debate. However, there are reasons why investing may prove to be more efficient.

Even on a competitive child current account, interest rates are low. This means once you factor in inflation, savings lose value in real terms over the long term. If you begin saving whilst your child is very young, this can have a significant impact on the spending power of the money.

Investing provides an alternative, with returns potentially higher than interest rates. However, it’s not as simple as that. Investing does come with some risks, as there’s no guarantee how investments rise and fall. But investing is something you should consider when you’re planning for your child’s future.

If you’re unsure whether a cash account or investing is right for your goals and circumstances, please get in touch.

Should you decide to invest money earmarked for your child’s future, there are some questions that can help you pick out the right vehicle and investment opportunities.

1. How long will it be invested for?

When you start saving, it’s important to have a deadline in mind. If this deadline is below five years, it’s usually advisable that you choose a cash account. This is because investments typically experience volatility in the short term and, as a result, values can fall. This may be an issue if you’re investing for a short period of time.

However, should you have a time frame that is longer than five years, investments may provide you with a way to potentially achieve returns that outpace inflation. This is one of the factors that link to investment risk. As a general rule of thumb, the longer you’re investing for, the higher the level of risk you can take. Of course, other factors influence appropriate risk levels too.

2. What is the money intended for?

You probably have an idea of what the money will be used for. Perhaps you hope it will be used to purchase their first car or support them through further education. You may be looking even further ahead to your child purchasing their first home. What the money is intended for will have an impact on the time frame. But it will also influence how comfortable you are with taking investment risk.

It’s important to remember that if you’re saving the money in the name of the child, they may be able to take control of the account when they reach 16. Whilst you might have an idea of what you’re saving for, they could have very different goals. As a result, speaking with them about the savings and how it might be used can help align your views.

3. How comfortable are you with investment risk?

It’s also important to think about how comfortable you are with investment risks when it comes to your child’s savings. This may be very different to your views on taking investment risks for your own nest egg.

Whilst you need to feel comfortable with risk and the level of volatility you can expect investments to experience, you also need to ensure it’s a measured decision. Our bias can mean we take too much or too little risk when financial circumstances are factored in. Speaking to a financial planner can help you understand what your risk tolerance is. Getting to grips with what level of risk is appropriate can boost your confidence.

4. Do you have other savings for your child?

Do you have multiple saving accounts for your child? Or are other loved ones also building up a nest egg for their future?

Assessing what other nest eggs they will receive when they reach adulthood may mean you’re more comfortable taking investment risk. If, for example, you know grandparents are adding to a cash savings account, this may balance out the risk associated with investments. Answering this question can work in the same way as assessing your other assets when you consider your own investment portfolio.

5. How hands-on do you want to be?

Finally, do you want to select which companies the money will be invested in? Or would you prefer to take a hands-off approach? There’s no right or wrong answer here, but thinking about it can help ensure you pick the right investment vehicle for you.

If you want to take steps to improve the financial future of your child, please get in touch. Whether investing is the right option or not, we’ll work with you to create a plan that you can have confidence in.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Pensions are a crucial part of planning for retirement. But how do pensions in the UK compare to the rest of the world and how can you make the most of your savings?

Australian research has compared the pension systems of 37 different countries. It assessed a range of different indicators, from savings though to operating costs. It looked at both social security systems and private sectors. The report aims to inform pension decisions. It notes that ageing populations are placing pressure on governments around the world.

So, how did the UK do?

After all the indicators are considered, the UK ranks 14^th, earning a C+ grade. Whilst that’s not bad, it certainly suggested that there’s room for improvement. In fact, the research suggested that there are major risks and shortcomings that should be addressed to improve efficacy and long-term sustainability.

At the top of the table were the Netherlands and Denmark, both earning an A grade, followed by Australia with a B.

How can the UK pension system improve?

The good news is that the UK is already taking steps to improve its pension score. The UK’s overall score increased from 62.5 to 64.4 in the last year. This boost was partly due to auto-enrolment and increased minimum contribution levels. But, whilst a step in the right direction, the report identifies areas that could be improved. These include:

• Increasing the coverage of auto-enrolment: The majority of employees are now covered by auto-enrolment, it misses out some key groups. This includes the self-employed and some part-time workers.
• Raising minimum contribution levels: The current minimum contribution level is 8% of pensionable earnings. This is made up of employee and employer contributions. Whilst better than not saving into a pension, this falls below recommended saving levels to maintain lifestyles.
• Require retirees to take some of their pension as an income stream: Since 2015 retirees have had more freedom in how they access their pension. Should they choose to, they can withdraw it as a single lump sum, for example. However, the report recommends restoring the requirement to take part of retirement savings as an income stream.
• Raising household saving: The report also highlighted saving levels compared to household debt. Having debt in retirement can have a significant impact on lifestyle and income.

How do pensions in the Netherlands and Denmark differ?

Looking at the overall results of the research, the UK falls within the middle. But how does it compare to those that claim the A ranking?

• The Netherlands: Most employees in the Netherlands belong to occupational schemes that are Defined Benefit plans. Defined Benefit (DB) pension schemes offer a guaranteed income in retirement. This is often linked to years of service and working salary. This gives retirees certainty and means they take less responsibility for their pension income. There are DB schemes available in the UK but the number of these is falling. This is due to the cost of administering them rising as life expectancy rises. As a result, Defined Contribution (DC) schemes are more common in the UK. The income delivered from a DC pension depends on contribution levels and investment performance. Therefore, they offer less security in retirement.

• Denmark: Like the UK, most pensions in Denmark are DC schemes. However, there are some key differences. Everyone that works more than nine hours in Demark between the ages of 16 and 67 must contribute to the supplementary pension fund. This means coverage is larger than auto-enrolment in the UK. Employees can also not opt-out of ATP. Another crucial difference is that after saving through ATP, a pension is then paid in instalments once you reach retirement age. This provides a stable income throughout retirement. In contrast, UK pensioners can choose how and when they make pension withdrawals once they reach the age of 55.

Taking control of your pension

The UK might not come out top of the research. But that doesn’t mean that you can’t take steps to ensure you have the retirement you want. Setting out your goals and careful planning can help you secure the retirement you want. If you're worried you’ll face a pension shortfall, among the steps to take are:

• Assess how far your current saving habits will go: Hopefully, you’re already paying into a pension or making other provisions for retirement. Assessing how this will add up between now and retirement is crucial. You should also look at the level of income it will deliver annually.
• Increasing contributions: If you’ve been auto-enrolled into a Workplace Pension, it’s likely you’re paying the minimum contribution levels. However, this often isn’t enough to achieve retirement dreams and you can increase contributions. In some cases, your employer will increase their contributions in line with yours.
• Understand your investments: If you have a DC pension scheme, your contributions will usually be invested. This helps your savings to grow. But how much risk should you take and what performance can you expect over the long term? Getting to grips with how your pension is invested can help you make decisions that are right for you.

Please get in touch if you’d like to discuss your current pension and retirement plans. We’d be happy to help you understand whether you’re on track and the lifestyle you can look forward to in retirement.

Please note: A pension is a long-term investment not normally accessible until age 55. The fund value may fluctuate and can go down, 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. Workplace pensions are regulated by The Pensions Regulator.

Managing pension contributions and tax liability can be tricky. If you’re affected by the tapered allowance, it can be even more challenging. The Secretary of State for Health and Social care has announced there will be a review into the impact of the tapered allowance and its impact on NHS staff. But it’s not just NHS staff that should ensure they understand how it works.

What is the tapered annual allowance?

When you’re saving into a pension there are two allowances you need to keep in mind: the annual allowance and the lifetime allowance. These two allowances limit how much you can save tax-efficiently in a pension. As the name suggests, the annual allowance dictates how much tax relief you can receive in a tax year. The lifetime allowance refers to the total amount over your working life, this is currently £1.055 million.

For the 2019/20 tax year, the annual allowance is a maximum of £40,000. However, it’s not as simple as having an allowance that applies to every worker. In some cases, your allowance may be significantly lower. One of the reasons for this is the tapered annual allowance.

If your threshold income if over £110,000 or your adjusted income is over £150,000, you could be affected by the tapered annual allowance.

First, what are the definitions of threshold and adjusted income?

• Threshold income is your annual income before tax, less any personal pension contributions and ignoring any employer contributions
• Adjusted income broadly covers all income that you are taxed on, this may include dividends, savings interest and rental income before tax, plus the value of your own and any employer pension contributions

Next, how much is your annual allowance reduced by? For every £2 your income exceeds the threshold, your annual allowance will reduce by £1. The maximum reduction is £30,000. This means some workers can be left with an annual allowance of just £10,000.

Exceed your annual allowance and your pension contributions will not be legible for tax relief. This could mean an unexpected tax bill if you aren’t aware of your pension position. It’s worth noting that unused annual allowance from the previous three tax years can be carried forward.

NHS: Bringing the tapered annual allowance to the forefront

The tapered annual allowance has been featuring in the news due to the issues it’s causing in the NHS. High earners within the NHS have found they can face an unexpected tax bill if they work overtime or receive a pay increase. This has led to some senior members of staff turning down additional work over fear they will need to pay out more.

As a result, Matt Hancock, Secretary of State for Health and Social Care, has stated there will be an ‘urgent review’ into the tapered annual allowance for pension relief. Solutions put forward so far include allowing NHS staff to flexibly change their accrual rate and adjust it where necessary to reflect earnings.

Whilst the review is good news for NHS staff, there haven’t been any suggestions that it could be extended to other industries. However, some are calling for the tapered annual allowance to be scrapped altogether.

Steve Webb, Director of Policy at Royal London, said: “The tapering of the annual allowance has caused major problems in the NHS. All year we have been hearing of doctors who are restricting their hours to avoid the risk of large lump sum tax bills.

“The tapered annual allowance is complex and makes it very hard for taxpayers to know where they stand. The solution is to abolish the taper outright, even if this means a lower across-the-board annual allowance for all.”

Managing your annual allowance

If you’re affected by the tapered annual allowance, it’s important you manage your pension contributions. This can help make the most of your savings and reduce your tax liability.  There are several key things to do if you’re worried about the annual allowance.

1. Understand your annual allowance: The first step is to make sure you understand exactly what your annual allowance is. This can be difficult if you’re affected by the tapered annual allowance. But it means you can control your pension contributions, so you don’t face an unexpected bill and maximise your retirement savings.
2. Make use of carried forward allowance: If you’ve recently been affected by the tapered annual allowance, carried forward allowance could help you save more tax efficiently. If you don’t use unused allowance from previous tax years, they will disappear after three years.
3. Manage contributions: Actively keeping an eye on your pension contributions is important if you may exceed your annual allowance. You can adjust or even pause your contributions to ensure you don’t pay avoidable tax.
4. Work with a financial planner: A financial planner can help you make the most out of your savings. If you’d like to maximise pension savings whilst mitigating avoidable tax on contributions, please get in touch. We’ll work with you to create a bespoke financial plan that considers your personal circumstances, including the tapered allowance where necessary.

Please note: A pension is a long-term investment. Levels of and reliefs from taxation depend on the individual circumstances of the investor. Tax legislation and regulation are subject to change in the future. The Financial Conduct Authority does not regulate tax advice. Workplace pensions are regulated by The Pensions Regulator.

Venture Capital Trusts (VCTs) have been around for 25 years! Over those years, they’ve become an important part of investment portfolios for many people. But are they the right option for you and how could they fit into your wider plans?

Back in November 1994, then Chancellor Kenneth Clarke unveiled VCTs as part of his budget and established them the following year. The reason for doing so was to generate investment opportunities in “dynamic, innovative growing businesses”. They were designed to give individual investors a way to access venture capital investments, expanding options.

Of course, they’re not an appropriate investment choice for most investors. It’s important to understand how VCTs operate, the level of risk presented and whether it suits your overall goals before proceeding.

Getting to grips with VCTs

A VCT is an investment company that’s set up to invest in small UK businesses. These companies are often in the early-phase that are either unquoted or listed on the AIM, a sub-market of the London Stock Exchange. They need investment in order to develop quickly. They have the potential to deliver high returns but there’s a risk that comes with this.

You’re backing smaller companies that are typically unproven. As a result, there is a risk that the value of investments will go down, or that the company fails altogether.

As an incentive to investing through VCTs, the government offers tax relief. When you invest in new VCT shares, you’re entitled to claim tax incentives up to £200,000. These include:

• Up to 30% Income Tax relief on the amount invested
• Tax-free capital gains
• Tax-free dividends

Other benefits to using a VCT is that it can help you diversify your portfolio by accessing different companies to back.

But these incentives and benefits shouldn’t be the only thing you look at when deciding to invest in a VCT. Keep in mind that a VCT is a long-term investment. Values can fall and it’s likely that more volatility will be experienced than if you invested on the London Stock Exchange, for example. Carefully assess your investment risk profile before looking at VCTs.

It’s also important to note that tax treatment will depend on your individual circumstances and VCTs must maintain its qualifying status to deliver investors tax relief. You must hold your investment for a minimum period of five years, if you sell before then, you may be liable to repay any tax relief obtained.

The success of VCTs

Although not suitable for every investor, VCTs have proven popular and helped some well-known companies find their feet.

According to Money Observer, individual investors have ploughed more than £8.48 billion into VCTs over the last 25 years. In the first tax year after legislation was introduced, 12 VCTs raised £160 million. By 2018/19 this had increased to 34 VCTs that raised £731 million.

Over the years, many businesses have benefited from VCT backing, including Zoopla, Secret Escapes, Five Guys and Everyman Cinemas. Some lucky investors have reaped the rewards of backing these successful companies early on. In 2018/19, VCTs paid out £294 million in tax-free dividends.

Three of those very first VCTS are still operating today. According to Money Observer calculations, if you had made a £10,000 investment at launch, and reinvested all dividends, your total returns would be:

• Northern Venture Trust: £47,837
• Albion VCT: £39,848
• British Smaller Companies VCT: £31,461

Once you factor in tax relief, the returns rise even further. Assuming income tax relief was claimed on the initial investment and subsequent dividend reinvestments the figures would be: 

• Northern Venture Trust: £63,797
• Albion VCT: £52,177
• British Smaller Companies VCT: £42,680

When are VCTs suitable?

A glance at the returns certainly makes VCTs look like an attractive option for investors. But they’re not suitable for the majority of investors.

VCTs tend to be considered for investors that already have large portfolios holding mainstream investments. They can be a way to diversify a portfolio but how the risk of VCTs will adjust the overall portfolio position needs to be considered. If you have a low tolerance for investment risk, a VCT may not be right even if you have a significant amount invested elsewhere.

The tax incentive can also make VCTs valuable for investors that have used their ISA and pension allowance in full. Furthermore, it can be a way to reduce your tax bill for high net worth individuals. If this is your goal, it’s important you look at what other solutions may be open to you too.

Finally, as with all investments, putting money into a VCT should be done so with a long-term horizon. In addition to smoothing out short-term volatility, VCTs must be held for five years to permanently keep the up-front tax relief.

Please note: VCT’s are classed as high risk investments only suitable for s small number of high net worth investors. VCTs are long term investments and should be held a minimum of five years. There may be difficult to sell. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. You could lose your investment. Past performance is not a reliable indicator of future performance.

Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

Thousands of investors have been sucked into putting their money into unsuitable mini-bond products following extensive advertising, particularly on social media. The Financial Conduct Authority (FCA) has now clamped down on the marketing of such products following a scandal. But many are likely to lose their money.

What is a mini-bond?

A mini-bond is effectively an IOU where you lend money directly to businesses, receiving regular interest payments over the term of the bond. However, the money you make back is based entirely on the firms issuing them and not going bust. As a result, they aren’t suitable for most investors. If the business collapses, you’re not guaranteed to receive your money back. Mini-bonds are not normally protected under the Financial Service Compensation Scheme (FSCS) either.

The London Capital & Finance scandal highlighted this.

Around 11,500 bondholders poured £237 million into London Capital & Finance after being promised returns of 6.5% to 8%. The investment opportunity was advertised extensively, including on social media platforms. This meant it reached a wide range of investors, including those it may not be suitable for. The firm collapsed in January 2019 and investors could lose all their money tied up in the mini-bonds. For some investors, it could mean losing their life savings or having to adjust plans significantly.

Coming into force on 1 January 2020 and lasting for 12 months, the FCA has banned mass marketing of speculative mini-bonds to retail customers. Over the course of the year, the regulator will consult on making the ban permanent.

Andrew Bailey, Chief Executive of the FCA, said: “We remain concerned at the scope for promotion of mini-bonds to retail investors who do not have the experience to assess and manage the risk involved. The risk is heightened by the arrival of the ISA season at the end of the tax year, since it’s quite common for mini-bonds to have ISA status, or to claim such even though they do not have the status.”

As a result, speculative mini-bonds can only be promoted to investors that firms know are sophisticated or high net worth.

Learning from the mini-bond scandal

The FCA ban aims to protect investors, but some lessons can be learnt from the mini-bond scandal too.

1. Make sure you understand your investments

Investments can be confusing, but you should ensure you understand where your money is going before parting with your cash. Taking some time to do your research can give you more confidence in your decision and reduce the risk of choosing products that aren’t right for you. If you’d like to discuss an investment opportunity and how it fits into your plans, you can contact us.

2. Ensure investments are authorised and regulated

Investments that are regulated and authorised by the FCA can provide you with protection. The regulation around mini-bonds is much less stringent than for listed bonds. What’s more, a business does not have to be regulated by the FCA to issue mini-bonds. As a result, they aren’t suitable for most retail investors. Even when a business claims to have regulations, it’s worth checking this is true and understanding what protection this offers you, if any.

3. Make sure investments fit your risk profile

Mini-bonds are considered a high-risk investment. That means there’s a greater chance your returns could be less than your initial investment or that you lose all your money. Your risk profile should consider a range of different areas, such as your capacity for loss, investment goals and other assets. In many cases, the risk associated with mini-bonds would be too high for typical investors.

4. Be mindful of scams

Financial scams are rife, and the mini-bond scandal highlighted why it’s important to carry out due diligence. Some mini-bonds falsely claimed to have ISA status, making them more tax efficient. This could mean some investors face unexpected tax charges. However, this claim could also lead investors into making a decision that’s wrong for them. ISAs are commonly used products and investment within them can offer varying degrees of risk.

5. Don’t rush into making decisions

When you see an ad with an enticing offer, it’s easy to react straight away. However, carefully considered decisions are far more appropriate than impulse ones when it comes to investing. Don’t rush into making investment decisions. Instead, take some time to think about what your options are, and which is most appropriate for you.

6. Be realistic about investment performance

With some money bonds claiming to be low risk whilst offering returns of 8%, it’s easy to see why retail investors were tempted. But investments with higher potential returns will carry higher levels of risk too. When assessing investment opportunities, be realistic. Here, the old saying rings true: if it sounds too good to be true, it probably is.

Please contact us if you have any questions or concerns about your investment portfolio. Our goal is to ensure each of our clients is comfortable with their investments, and wider financial plan, including the level of risk involved.

Please note:  Investments carry risk. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

2019 was a year marked by uncertainty and volatility in the investment markets. So, when it comes to reviewing your portfolio’s performance, it’s important to keep some things in mind.

There were numerous factors influencing markets last year, many of which would have been impossible to predict. In the UK, Brexit continued to be uncertain, with a new Prime Minister and a General Election taking place over the course of the year. Trade tensions between the US and China have a far-reaching impact, highlighting how events taking place across the Atlantic can still affect European businesses and prospects.

But those that stuck to their investment plans, could still have come out on top, despite the highs and lows.

Take the FTSE 100, for example.

On Wednesday 2^nd January 2019, the FTSE 100 price was 6,734.23. A year later, on Thursday 2^nd January it had reached 7,604.3. Whilst volatile periods where values fell may have made some investors nervous, those that stuck to investment plans would have benefited overall. The figures demonstrate why it’s important to look at overall trends rather than the day-to-day ups and downs investors experience.

So, whether you’re pleased with your portfolio’s performance in 2020 or disappointed, there are some things to keep in mind as you review it.

1. Your long-term goals should remain centre stage

Investment volatility can make it easy to focus on the short term and those temporary peaks and troughs. But you shouldn’t invest with a short-term goal.  As a result, your long-term plans (those that are at least five years away) should be the focus of your investment portfolio. Whether your goal is to create a nest egg for early retirement or to leave something behind for grandchildren, reviewing what they are and whether you’re on track is important.

2. Volatility is to be expected

Volatility is a part of investing. Over the course of a year the value of your portfolio will rise and fall, sometimes dramatically. It can be daunting to see the value of your investments plummet, but it’s not something that can be avoided. You may be tempted to sell investments when values fall, as you don’t want them to fall any further. However, it’s important to remember that values falling is a paper loss only until you decide to sell, when the reduced value is locked in.

3. Look at the bigger picture

Rather than looking at short-term volatility, it pays to look at the bigger picture. Over the long term, investments will usually deliver returns that allow you to grow your wealth. Looking at a twelve-month snapshot of your investment portfolio may show investments have underperformed but look back over the last five or ten years, and you’ll hopefully be on track.

4. Review your risk profile

All investments come with some level of risk, but you can choose how much risk you take. This should be tied to your overall financial position and attitude. When reviewing your portfolio’s performance, you should review your investment portfolio too. Differing circumstances and goals may mean that what was once appropriate, no longer is. It’s important that you feel comfortable with the level of risk you’re taking with investments. As a general rule, the greater the risk, the higher the potential returns. But you’re also more likely to see a fall in investment values too.

5. Ensure your portfolio is appropriately diversified

When it comes to investing, diversifying is important. It’s a strategy that allows you to spread your money and, therefore, the risk. By investing in a range of assets and businesses, you stand a better chance of smoothing out the highs and lows. This is because whilst one particular sector may be affected by tariffs, another could be thriving. How your portfolio is diversified should reflect your goals and risk profile.

Looking ahead to 2020

Many of the geopolitical tensions that had an impact in 2019 continue into the new year too. But there are things for investors to be enthusiastic about too.

According to fund managers Schroders: “After a strong 2019, we expect market returns to be more muted in 2020. Under the surface, however, there are opportunities.

“2019 saw a strong performance from the most expensive assets, be it defensive ‘quality’ stocks or European bonds. This means that an anaemic economic environment is reflected in market valuations.

“As data stabilises and the risk of recession is reduced by central bank action, a general theme across our investment teams is that we are seeking to exploit some of the extremes in valuations that this flight to perceived ‘safety’ has created. This means focussing on areas of relative value, be it favouring US bonds over negative-yielding European bonds, international stocks over US equities or cyclical stocks over defensive stocks.”

Remember, your investment plan should be tailored to you and your goals. As a result, investments should be looked at in the context of your wider financial plan, rather than something separate. If you’d like to discuss your investments in 2020 and beyond, please get in touch with us.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Whilst it can be tempting to save and manage money by taking a DIY approach to finances, it could end up costing you money. Research suggests that eight in ten people overestimate their own financial capability and could be making decisions that aren’t right for them as a result.

Failing to seek financial advice when it could prove valuable may not be an issue for you. But it could be a mistake that your children and grandchildren are making. Knowing when financial advice could be beneficial can be difficult to understand, especially if you haven’t received advice in the past. Understanding how financial advice works and when it’s useful is important.

According to Aegon, taking a DIY approach to money matters costs savers in the long run. The research found that the most common reason for people not asking for expert help is self-belief in their own ability. However, whilst many were confident when dealing with savings and general insurance products, just one in ten were sure of their ability to make more complex decisions about pensions and investments. When you consider that both these areas are long term and can have a significant impact on future lifestyle, it’s crucial that savers feel confident in the decisions they’re making.

For example, just 29% of those that haven’t sought financial advice are confident in making a decision about when they will retire. This compares to 54% of advised individuals.

Steve Cameron, Pensions Director at Aegon, commented: “Managing your own finances can be rewarding, but there’s a lot to consider and it’s worth remembering that the financial decisions you make can have lasting implications for the rest of your life. That’s why working with a financial adviser often makes huge sense.

“Financial planning isn’t a one-size-fits-all approach. It’s designed around the individual to meet their personal needs and circumstances and can be invaluable in providing peace of mind, helping individuals make the right choices for their future wealth. There’s a real danger that poor decisions can mean plans unravel, putting people’s financial future in jeopardy. Having a professional by your side helps make sense of your options, many of which you might not know you even had.”

The financial benefit of advice

Whilst the above focuses on how confident people are about their financial decisions, past research has highlighted the monetary impact of not seeking advice too.

The International Longevity Centre has tracked how asset values have changed for individuals receiving advice and those opting for a DIY approach. The findings highlight how financial advice can help wealth grow:

• Whilst not having enough wealth is often a common reason for not seeking financial advice, the research indicates it can have an even greater impact. The individuals defined as ‘just getting by’ saw a 24% boost to their pension wealth compared to the 11% experienced by ‘affluent’ individuals
• Building an ongoing relationship with a financial adviser was also found to be beneficial; those that received advice at both points in the analysis had nearly 50% higher average pension wealth than those only advised at the start

When can financial advice help you?

So, when should you seek financial advice? The International Longevity Centre report indicates that there is a benefit for working with a financial adviser on an ongoing basis. However, there are points in your life when one-off financial advice can be invaluable. This will, of course, depend on your personal circumstance, but could include:

• At retirement, you may have many financial decisions to make that will affect the rest of your life. Working with a financial adviser can help you understand what your options are and the income you can expect throughout retirement.
• Estate planning can be complex. Part of this will include understanding your current wealth, how it will change, and how this can be distributed among loved ones. It may also include taking steps to reduce Inheritance Tax if this is a concern. 
• Following children, you may want to take steps to ensure you can provide financial support in the future. This may include supporting them through university or a deposit to get on the property ladder. Laying out plans and choosing the right products soon rather than later can help.
• After a divorce, your priorities and goals may have shifted significantly. Taking financial advice at this point gives you a chance to reassess your current situation and whether you’re on track to achieve the future you want. 

If you’d like to understand how financial advice could help you or your loved ones, whether on an ongoing basis or as a one-off, please contact us. We’d be happy to discuss your circumstances and where we can add value to your life.

Please note: A pension is a long-term investment not normally accessible until aged 55.

The value of your investment (and income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. The Financial Conduct Authority does not regulate Estate Planning.

While the coronavirus pandemic has affected the health of hundreds of thousands of people worldwide, it has also had a devastating effect on small and medium-sized businesses in the UK and beyond.

Following a £12 billion package of measures announced in the Budget, the Chancellor has since unveiled a substantial support package designed to help businesses survive during this uncertain period.

If you’re a small business owner, there is help available from the government and beyond. Here’s a summary of the support on offer.

Coronavirus Job Retention Scheme

In a measure unprecedented in modern times, the Chancellor announced a ‘job retention’ scheme in which the government will pay up to 80% of the salary of ‘furloughed’ workers.

If you have essentially laid-off workers temporarily, and you notify employees of this change, HMRC will refund 80% of these workers’ wage costs, up to a cap of £2,500 per month, for three months.

It means that if you intend to re-employ your staff when your business reopens, the government will pay up to 80% of their wages in the interim.

Note that changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.

Statutory Sick Pay

Businesses with fewer than 250 employees (at 28 February 2020) can reclaim the cost of any Statutory Sick Pay (SSP) caused by the coronavirus (up to a limit of 14 days per individual). This will be refunded to the company, in full, by the government.

In order to be eligible for the changes to Statutory Sick Pay, you must keep records of the employee’s absence and SSP payments, but the employee will not need to provide a doctor’s note. 

VAT deferral

All businesses in the UK can defer their Valued Added Tax (VAT) payments for three months.

This deferral will apply from 20 March 2020 until 30 June 2020 and is an automatic offer (you don’t need to apply). You will be given until the end of the 2020/21 tax year to pay any liabilities that have accumulated during the deferral period.

Business Interruption Loans

A new Coronavirus Business Interruption Loan Scheme will see banks offer loans of up to £5m to support SMEs, for up to six years. The business loan scheme will be delivered by the British Business Bank and businesses will access the loans via their high street bank or one of 40 accredited finance providers by requesting a government-backed business interruption loan.

The government will pay to cover the first 12 months of interest payments and any lender-levied fees, so businesses will not face any upfront costs and will benefit from lower initial repayments.

To be eligible for a business interruption loan you must:

• Be based in the UK with an annual turnover of no more than £45 million
• Meet the other British Business Bank eligibility criteria

Business Rates Support

All retail, leisure and hospitality companies in England will be exempt from business rates for the 2020/2021 tax year. Nursery businesses will also be exempt from business rates in 2020/21.

If you have a business in the retail, hospitality or leisure sector with a rateable value of less than £15,000 then a cash grant from the government of £10,000 will be made available. If the rateable value of your business in these sectors is £15,000 to £51,000 then a £25,000 grant is available. Speak to your local authority to check your eligibility.

The £3,000 grant announced in the Budget for businesses that qualify for Small Business Rate Relief or Rural Rate Relief has been increased to £10,000. This will be administered by the local authority from early April and, if you’re eligible, you will be contacted directly and do not need to apply.

Other Budget announcements

In addition to emergency measures to tackle the coronavirus outbreak, there was other good news for small businesses.

The government also announced that it is delivering on its commitment to increase the Employment Allowance to £4,000. This means that businesses will be able to employ four full-time employees on the National Living Wage without paying any employer National Insurance contributions (NICs).

The Chancellor also confirmed that the Corporation Tax rate would remain at 19%.

Other support

Facebook for Business grants

During the coronavirus pandemic, and to help up to 30,000 eligible small businesses in over 30 countries where they operate, Facebook are offering $100m in cash grants and ad credits.

The social media giant will begin taking applications in the coming weeks. In the meantime, you can sign up to receive more information when it becomes available.

After delays and resignation, the Budget was finally delivered on March 11^th. The announcements made could have an impact on your personal finances and businesses, as well as affecting where public spending goes. The Budget 2020 document is over 100 pages long, so we’ve put together a summary of the key points from this year’s Budget.

Coronavirus response

At the time of making the Budget speech, the UK was being affected by the coronavirus pandemic, but the country wasn’t yet on lockdown. Chancellor Rishi Sunak unveiled a £30 billion package to help support the economy and public service during the time of uncertainty, adding that extra measures would be announced in the coming weeks and months as the situation developed.

Included in this initial support package announced in the Budget were:

• £5 million emergency response fund to support the NHS
• Statutory Sick Pay (SSP) for all those advised to self-isolate, even if individuals are not presenting symptoms
• Firms with fewer than 250 employees will be refunded SSP for two weeks
• Self-employed workers not able to claim SSP able to claim contributory Employment Support Allowance
• £500 million hardship fund for councils in England to help the most vulnerable in their areas
• Firms eligible for small business rate relief will receive a £3,000 cash grant
• Small firms will be able to access business interruption loans of up to £1.2 million
• Business rates in England will be abolished in the retail, leisure and hospitality sectors with a rateable value below £51,000

Since the Budget was delivered, several other announcements about coronavirus emergency measures have been announced, including support for workers that have been furloughed and the self-employed.

Personal finance

There were several measures announced that could affect personal finances.

To start with, the tax threshold for National Insurance Contributions will rise to £9,500 in 2020/21, up from £8,632. It’s estimated that 500,000 employees will be moved out of the tax threshold as a result.

The Tapered Annual Allowance affecting pensions has also been updated. The thresholds for the Tapered Annual Allowance, which may reduce how much you can tax-efficiently save into a pension, has increased. You can now earn up to £200,000 without being affected. However, the minimum reduction through the Tapered Annual Allowance has gone from £10,000 to £4,000, which may mean your Annual Allowance has fallen significantly.

Many other taxes will remain the same for the year ahead, this includes VAT and Income Tax bands.

Alcohol, tobacco and fuel

It’s good news for drivers, fuel duty has been frozen for the 10^th consecutive year. Duties on spirits, beer, cider and wine will also be frozen for the coming year. Pubs will also benefit, as business rate discounts for pubs will rise to £5,000 from £1,000.

Tobacco will rise by 2% above the rate of retail price inflation, as has been previously set out.

Business and research

Many of the emergency measures for businesses in response to coronavirus, are listed above under ‘coronavirus response’. However, some announcements fall outside of this area.

First, VAT on digital publications, including newspapers, e-books and academic journals will be scrapped from December.

Another significant announcement was the change to Entrepreneurs’ Relief. Despite calls for it to be scrapped, the relief will remain in place but will be reduced. The relief reduces the amount of Capital Gains Tax business owners pay when selling or giving away their business. The relief will now apply to just the first £1 million gains, compared to the previous threshold of £10 million.

Sunak also stated that following calls, the system of High Street business rates will be reviewed later this year. However, there are no immediate changes for 2020/21.

In terms of research, the Chancellor unveiled some significant investments, this includes £5 billion to be spent on improving broadband to remote areas, a £1.4 billion funding boost to the Science Institute in Weybridge, Surrey, and an extra £900 million for research into nuclear fusion, space and electric vehicles.

Transport and infrastructure

Roads are one of the infrastructure areas that will be seeing investment over the next few years. Sunak revealed £27 billion has been allocated to motorways and other arterial roads, this included the new tunnel for the A303 near Stonehenge, as well as £2.5 billion to fix potholes and resurface roads over the next five years.

Focusing on housing, a £650 million package was unveiled to tackle homelessness. This will provide an extra 6,000 places for rough sleepers. Following the Grenfell disaster, a new £1 billion fund has been created to remove all unsafe combustible cladding for public and private housing higher than 18 metres.

For UK residents, Stamp Duty Land Tax remains the same. However, foreign buyers of properties in England and Northern Ireland will have an additional 2% charge from April 2021.

In total, more than £600 billion is set to be spent on roads, rail, broadband and housing by the middle of 2025.

NHS and education

In addition to the measure covered within the coronavirus response, Sunak also revealed an additional £6 billion in NHS funding over the next five years. This is intended to pay for staff recruitment and pay for the beginning of planned hospital upgrades.

Moving on to education, further education colleges will receive £1.5 billion to update their buildings.

We’ve now entered a new tax year. Whilst some changes were made during the 2020 Budget, other allowances and exemptions have stayed the same. Planning can help you make the most out of your finances over the next 12 months. So, which allowance should you keep in mind?

1. Personal allowance and National Insurance

The personal allowance for the new tax year remains the same at £12,500. This is the amount you can earn before Income Tax is due. Existing tax rates and thresholds are also unchanged. However, the National Insurance threshold has been increased, from £8,632 to £9,500, meaning 500,000 people will no longer pay the tax.

2. Savings allowance

Depending on how much you earn, your annual savings allowance could be up to £6,000, allowing you to save and receive interest tax-free.

This is made up of two parts. The first is the personal savings allowance. If you’re a basic rate taxpayer you can earn up to £1,000 in interest per year with no tax. For higher-rate taxpayers, the allowance falls to £500, whilst additional rate taxpayers don’t have an allowance. As a result, around 95% of savers shouldn’t pay tax on their savings.

For low-income individuals, the starter savings rate can be as high as £5,000. However, for every £1 you earn over the personal allowance (£12,500) the allowance will reduce by £1. As a result, it’s only suitable for those with an income of less than £17,500.

3. ISA allowance

In addition to the above savings allowances, your ISA allowance should play an important role in financial plans for most people. For the current tax year, you can save £20,000 into ISAs as there were no changes made in the Budget. Any interest or returns made in an ISA are free from tax. You can choose to deposit the full amount into a single ISA or spread the allowance over several. As you can save cash or invest through an ISA, these accounts provide you with the flexibility to choose an option that suits your goals.

The Chancellor did make a change to Junior ISAs though. In the previous tax year, you could place up to £4,368 into a JISA per child. This has now been increased to £9,000, perfect if you’re building a nest egg for children or grandchildren. Like adult counterparts, any interest or returns earned are tax-free.

4. Pension Annual Allowance

There was no change to the maximum pension Annual Allowance, which remains at £40,000. However, there was a significant change in the Tapered Annual Allowance that may limit how much you can tax-efficiently save into a pension each tax year.

Both the threshold income and adjusted income thresholds for the Tapered Annual Allowance were increased by £90,000, taking them to £200,000 and £240,000 respectively. For many pension savers affected by the Tapered Annual Allowance last year, this change will allow them to save more tax-efficiently for their retirement in 2020/21. But the minimum reduced Annual Allowance has fallen from £10,000 to £4,000. As a result, some high earners will find their allowance has been cut. Please contact us to discuss your circumstances.

5. Capital Gains Tax allowance

Capital Gains Tax (CGT) is the tax you pay when you sell certain assets and make a profit. This could include investments that are not held in an ISA or a second property. The rate of CGT depends on the type of asset you sell and Income Tax rate, but it can be as high as 28%. As a result, making use of your annual allowance is important.

The CGT allowance for 2020/21 has increased slightly from the last tax year to £12,300. If you plan to dispose of assets over the next 12 months, it’s worth keeping this figure in mind. If you plan to sell property, you should also note that you now have to pay CGT on property sales within 30 days.

6. Dividend allowance

If you own shares in a company that makes dividend payments, your dividend allowance remains the same for 2020/21. You can receive up to £2,000 in dividends before any tax is due on them. This includes paying yourself £2,000 in dividends if you’re a company director too. Dividends above the allowance will be taxed according to your marginal tax rate.

7. Entrepreneurs’ relief

For the current tax year, there have been significant changes made to entrepreneurs’ relief. If you have plans to sell or give away your company these are important.

Entrepreneurs’ relief means you can pay less CGT when selling your business under certain circumstances. Previously, you would have been charged 10% on the first £10 million of gains, with gains above this limit being taxed at the usual 20%. However, entrepreneurs’ relief for 2020/21 has been cut to a far less generous £1 million. As a result, some business owners planning to sell will now face far higher CGT.

The entrepreneurs’ relief applies to an individual level, so that a £1 million allowance is the maximum you can claim per person, rather than for each business you sell.

8. Gifting annual exemption

If you’re worried about the impact of Inheritance Tax on your legacy, gifting during your lifetime can help you reduce the bill.

Each year individuals can make use of the annual exception that allows you to gift up to £3,000 a year tax-free. This gift is considered immediately outside of your estate for Inheritance Tax purposes. Other gifts are also immediately exempt from Inheritance Tax, including those up to £250 per person and those made from your income.

Gifts given outside of these allowances are known as Potentially Exempt Transfers. If you live for seven years after giving the gift, these are considered outside of your estate. However, if you die within seven years, they may be considered part of your estate for Inheritance Tax purposes.

Setting out your plans for the year ahead

Whilst the end of the tax year is often characterised by people making the most of their allowances, there are benefits to planning how you’ll use them at the beginning of the year. If you plan to use your ISA allowance by investing in a Stocks and Shares ISA, for example, it allows you to drip feed regular amounts in over the next 12 months. Reviewing your financial plan for the year ahead now can help you feel more confident in the steps you’re taking. Get in touch with us to discuss your financial plan for 2020/21.

Please note: This information in this article is based on our current understanding of HMRC legislation. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor. The Financial Conduct Authority does not regulate Tax advice.

As the coronavirus pandemic continues to dominate world headlines, here’s what it might mean for your pension and retirement plans.

The pandemic has created uncertainty in economies around the globe. As a result, stock markets have experienced shocks and over the last few weeks have seen significant falls. Fears of a recession following the pandemic have sparked even more concern. It’s natural to be worried about what the impact on financial markets means for your future. Understanding what the change means, and where adjustments may need to be made, can help you plan for retirement with confidence.

What impact has coronavirus had on pensions?

For most people, pensions will be invested. This gives your pension an opportunity to grow over the several decades you’re likely to be paying into a pension. However, it does mean your retirement savings are exposed to market volatility. In the last few weeks, this will mean pension values are likely to have fallen.

The full impact will depend on where your pension is invested. It’s important to keep in mind that a pension doesn’t just hold stocks and shares, other assets are used to create balanced portfolios. So, whilst news updates may say the stock market has fallen 20%, it’s unlikely your pension will have suffered a fall on the same scale if you have a well-balanced portfolio.

If you’re worried about your pension, it’s worth checking the value. However, keep in mind that short-term volatility is to be expected at the best of times. Keep the bigger picture in mind and look at the value of your pension with your retirement plans in mind.

The impact coronavirus will have on retirement plans will depend on what stage you’re at.

1. Your retirement is still several years away

If retirement is still some way off, the current market activity shouldn’t affect your retirement plans.

You should always invest with a long-term goal in mind, this provides an opportunity for peaks and troughs to smooth out to deliver gradual investment gains when you look at the bigger picture. Whilst past performance isn’t a reliable indicator of the future, previous market corrections and crashes have always been followed by a period of recovery.

So, whilst it’s natural to worry if your pension value has fallen, stick with your long-term plan.

2. You hope to retire soon

If retirement is nearing, it’s natural to worry about your pension in any circumstances. It’s a life milestone that means we often have to change the way we view income and finances. As a result, a stock market crash just before the date can be worrisome.

The first thing to do here is to put the stock market falls into perspective. You’ve likely been saving into a pension for many decades. No one likes investment values to fall, but when you look at it in comparison to the gains made, you’ve probably done well financially.

You also need to look at your pension value in the context of your retirement plans: Will the current value of your pension provide you with the income needed throughout retirement? If not, what is the shortfall?

This can be difficult to weigh up, as there are numerous factors to take into consideration. Working with a financial planner can help you understand how the pension figure translates to a retirement lifestyle. If there is a shortfall, there are often steps you can take to bridge the gap, from delaying retirement to using other assets.

It’s also worth noting that, depending on your goals and desired retirement lifestyle, your adviser may have ‘lifestyled’ your pension already. This is where your savings are switched to a lower risk profile that aims to preserve the savings you already have as you near retirement. If this is the case, it’s likely the impact on your pension is lower as you’ll be less exposed.  

3. You’re already retired

If you’re already retired and choose to access your pension flexibly using Flexi-Access Drawdown, the current activity may have an impact. This is because your pension savings remain invested with the goal of delivering returns whilst you’re retired. However, the flip side of this is that you’re exposed to market volatility.

The important thing to recognise here is how your withdrawals will have an impact in the long term. Making withdrawals whilst the market is low means you must sell more units to secure the same income. This can deplete your retirement savings quicker than expected. As a result, it’s worth reviewing how much you’re withdrawing.

If you’re able to reduce withdrawals or temporarily pause them, this can help to minimise the impact on your pension savings in the long term. You may have other assets, such as cash savings, that can be used to tide you over until the markets begin to recover. If you find yourself in this situation, please contact us. There are often solutions that will enable you to maintain your lifestyle and future.

Having confidence in your retirement aspirations

Whether you’re already retired or you’re still working towards that goal, it’s important to have confidence in your plans. This includes understanding the lifestyle your pension will provide and how market shocks would have an impact over the short and long term. This is where financial planning can help. If the recent volatility means you have concerns about pension investments, we’re here to help you. In some cases, it may simply be understanding how pensions will grow over the next ten years, in others, adjustments may be necessary, such as reassessing your risk profile or increasing contributions. Please contact us to discuss your pension and retirement goals.

Please note: A pension is a long-term investment not normally accessible until 55. The value of your investment (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

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.

Over the last few months, speculation that the Bank of England would increase its base interest rate has been mounting. However, the impact of Covid-19 has changed that, leading to the central bank making two cuts to the interest rate in quick succession.

Coinciding with the 2020 Budget, the base rate was cut from 0.75%, where it’s been since August 2018, to 0.25% on Wednesday 11^th March. Just a week later, the rate was cut again on Thursday 19^th March to just 0.1%. The latest cut represents a historic low, and it could have an impact on your finances.

The Bank of England base rate is the official borrowing rate of the central bank, affecting what it charges other banks and lenders when they borrow money. This then has a knock-on effect on personal finances.

Why has the Bank of England cut interest rates?

The rate cuts have been in direct response to the coronavirus pandemic.

As the virus has spread globally, it’s had a significant impact on economies. In the UK, non-key workers have been urged to work from home, pubs and other leisure facilities have been temporarily ordered to close, and many other businesses have taken the decisions to either reduce operations or suspend them. These are steps that are hoped to stem the spread and relieve pressure on the healthcare system but come at an economic cost.

The latest interest rate cut has increased its quantitative easing stimulus package and pumped more money into the UK economy. The aim of this is to calm the financial markets, which have experienced volatility over the last few weeks, and stabilise the economy.

In a statement, the Bank of England said: “Over recent days, and in common with a number of other advanced economy bond markets, conditions in the UK gilt markets have deteriorated as investors sought shorter-dated instruments that are closer substitutes for highly liquid central bank reserves. As a consequence, the UK and global financial conditions have tightened.”

The Monetary Policy Committee, which is responsible for setting the base rate, voted unanimously to increase the Bank of England’s holding of UK government bonds and sterling non-financial-grade corporate bonds by £200 billion, bringing the total to £645 billion.

But what does this mean for your finances? The impact will depend on whether you’re looking at borrowing or saving.

Borrowers

For some borrowers, the lower interest rate is good news. This is due to the cut lowering the cost of borrowing.

The area where you’re likely to see the most immediate impact is your mortgage if you have a tracker or variable rate one. A tracker mortgage, for example, tracks the Bank of England base rate, so your mortgage repayments should drop before your next payment. A variable mortgage tracks your lender’s interest rate, this will follow the trend of the Bank of England, and most borrowers will benefit from the full 0.65% drop, but it does vary. It’s worth checking with your lender about how your mortgage repayments will change if they haven’t already contacted you.

Unfortunately, those with a fixed-rate mortgage won’t benefit from the rate cut.

Savers

The years since the financial crisis have been difficult for savers. Low-interest rates over the last decade have meant savings aren’t working as hard as they may have done before 2008.

Interest rates on savings accounts are now likely to fall even further. When you factor in the pace of inflation, this means that many savings are likely to be losing value in real terms. This has a particular effect if you’re saving for medium and long-term goals. Inflation rising by a couple of percentage points each year can have a large impact when you assess the impact over ten or 20 years, for instance.

If you have a fixed-rate account, your interest rate and savings will be protected for the time being. However, if you have savings in other types of accounts, it’s likely the amount they earn will fall eventually. Banks must give existing customers at least two months’ notice of a cut, for current accounts and instant-access savings accounts.

For long-term saving goals, investing can help savings match the pace of inflation, maintaining your spending power. However, it’s important to note that investment values can fall and experience volatility, with the pandemic having an impact on markets too. As a result, it’s important to assess your financial goals and risk profile before making any investment decisions.

If you’re unsure what the base rate change means for you, please contact us. We’re here to help you adjust financial plans and goals as circumstances change, whether they’re within your control or not.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

The Individual Savings Account (ISA) was introduced over 20 years ago and since then it’s become an essential part of many financial plans. Since the first ISA, this savings vehicle has evolved and there are four different types of ISA accounts available to open. Which one is right for you will depend on your goals.

What is an ISA?

An ISA is essentially a tax wrapper that allows you to save and invest tax-efficiently. Each tax year, you can place up to £20,000 into ISAs. This annual allowance may be used on a single ISA or spread across several. You won’t be taxed on the interest or returns that are earned within an ISA.

The tax-efficient benefits mean over ten million individuals used ISAs in 2017/18, according to official statistics. Throughout 2017/18, around £69 billion was deposited in ISA accounts. With an initial aim of getting more Brits to save for their future, the ISA has succeeded. However, as the product has become more popular, it’s become more complicated too. There are now four different types of ISA products to choose from.

1. Cash ISA

The Cash ISA is the original ISA product. Cash ISA subscriptions accounted for around seven in ten of all ISA subscriptions in 2017/18. Anyone over the age of 18 can open a Cash ISA.

A Cash ISA is essentially the same as a traditional savings account, except you don’t pay any tax on the interest you earn. The money held in a Cash ISA is protected under the Financial Services Compensation Scheme. This entitles you to compensation up to £85,000 per bank, building society or credit union should it fail.

Whilst your money is secure, interest rates have been low since the financial crisis. As a result, once inflation is considered, savings are likely losing value in real terms. Regular savings cash ISAs, where you deposit a certain amount each month, or fixed-rate ISAs, where your money is locked away for a fixed amount of time, can help you secure more competitive interest rates.

Who may a Cash ISA be right for? Savers with short-term goals in mind and those building an emergency fund.

2. Stocks and Shares ISA

A Stocks and Shares ISA is an investment account, where all capital gains and income are protected from tax. Anyone over the age of 18 can open a Stocks and Shares ISA.

Whilst a Stocks and Shares ISA can provide an opportunity to outpace inflation, delivering growth, it does come with risk. As a result, they are usually better suited to individuals that are saving with a long-term goal in mind. This provides an opportunity for short-term market volatility to smooth out. But you do need to consider the risks before you begin investing.

You can invest in a range of qualifying investments, including stock markets company listed shares on one of the recognised stock markets, public debt securities, such as government bonds, and investment trusts that satisfy certain conditions. Whilst all investments involve risk, there are plenty of options for tailoring risk to your investment profile whether you choose a fund or select your own investments.

Who may a Stocks and Shares ISA be right for? Savers with a long-term goal (minimum five years) and an understanding of investment risk.

3. Lifetime ISA

The Lifetime ISA (LISA) launched in 2017 intending to help more people save for their first home and retirement. You must be aged between 18 and 40, although you can add to an account until you’re 50, to open a LISA.

Additionally, you can add a maximum of £4,000 per tax year to a LISA account. This is because as well as interest and returns, the government will provide an additional 25% bonus on deposits. So, each tax year, you can gain £1,000 in ‘free money’ by maximising contributions. The catch here is that if you make withdrawals before you turn 60, for a purpose other than buying your first home, you will face a penalty. The penalty will mean losing the bonus and some of your own contributions.

For first time buyers, a LISA can offer an attractive way to save a deposit. If you’re saving for retirement, a LISA can top up existing provisions but for most workers, a pension is the best product for retirement goals.

A LISA can either be a Cash ISA or a Stocks and Shares ISA, so it’s important to think about what your goals are. 

Who may a LISA be right for? Aspiring homeowners saving a deposit for a first home and those looking to supplement pension savings.  

4. Innovative Finance ISA

Innovative Finance ISAs have been available since 2016. They are similar to Stocks and Shares ISAs but are designed to be used for peer-to-peer lending investments. Anyone over the age of 18 can open an Innovative Finance ISA.

Peer-to-peer lending is used by borrowers who did not want to or could not obtain a traditional bank loan. These may be individuals, businesses or property developers. The borrower will offer a rate of interest when paying back the money you’ve invested. Generally, the higher the rate of interest, the higher the investment risk involved.

All investments carry risk, but peer-to-peer lending is typically riskier than traditional investments. The risk involved will depend on the profile of the borrower. Innovative ISA are not covered by the Financial Services Compansation Scheme ‘FSCS’.

Who may an Innovative Finance ISA be right for? Investors with a higher risk profile that are looking to diversify existing investments.

Saving for children and grandchildren

As you review your own ISA choices, now may be a good time to look at how you’re saving for children and grandchildren. Junior ISAs benefit from the same tax-efficient advantages as their adult counterparts. This can make them an excellent way to save for a child’s future.

From the 2020/21 tax year, up to £9,000 can be added to a JISA each year. This money can either earn interest in a Cash JISA or be invested through a Stocks and Shares JISA. As with an adult ISA, your goals and time frame are important when deciding which type of account to use. Money added to a JISA is locked away until the child turns 18.

Please get in touch if you’d like to discuss your current ISAs or how a different ISA product could help you achieve aspirations.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.  

When you retire, there are a lot of financial decisions that need to be made as you start accessing the savings and investments you’ve built up. It’s natural to have lots of questions about your financial security at this point, such as:

• How much income will I receive from my pension?
• How long will my savings last for?
• How should I access my pension?

But one important question is often overlooked: How much tax will I pay? 

How and when you access your pension, savings and investments can have an impact on your tax liability. Planning your retirement income with tax in mind can help reduce the amount of tax you pay, helping your savings go further. It should be one of the areas you consider as you approach retirement and that financial planning can help you understand with your circumstances in mind.

In some cases, it’s possible to create a tax-free retirement income or reduce liability greatly. So, what should you consider when assessing retirement income?

1. The Personal Allowance

The Personal Allowance is the amount of income you’re entitled to receive tax-free each year. For the 2020/21 tax year, the Personal Allowance is £12,500 for the majority of people. As a result, it’s important for planning your retirement income.

The Personal Allowance covers all forms of income, including your State Pension and income from investments, for example. Once you factor in all income sources in retirement, the total will likely exceed the Personal Allowance, but it provides a base for building a tax-efficient income. As the allowance resets with each tax year, spreading out or delaying taking an income at times can help you fully make use of the tax benefit.

It’s worth noting that if you’re married or in a civil partnership, the marriage allowance allows one person to transfer up to £1,250 of their Personal Allowance to their partner too.                                                                                                                                           

2. Pension withdrawal tax-free allowance

If you’ve been paying into a Defined Contribution pension during your working life, it will usually become accessible when you turn 55. This includes 25% available to withdraw tax-free. You can choose to take a 25% lump sum, tax-free, when you first access your pension, or you can spread the tax-free benefit over multiple withdrawals.

How and when you access your pension can have an impact on your income and lifestyle for the rest of your life. So, it’s important to understand the long-term impact of taking the tax-free lump sum.

3. Withdrawing from ISAs

ISAs (Individual Savings Accounts) offer a tax-efficient way to save and invest. Each tax year, adults can add up to £20,000 to ISAs, either contributing to a single account or spreading it over several. Through an ISA you can either save in cash, earning interest, or invest to hopefully deliver returns. The key benefit of ISAs is that interest or returns earned aren’t taxed.

As a result, you can make ISA withdrawals to supplement your pension income and other sources in retirement without increasing your tax liability.

4. Capital Gains Tax allowance

Selling certain assets for profit can result in Capital Gains Tax, this includes personal possessions worth more than £6,000 (excluding your car), a second home, and shares that aren’t held in an ISA or PEP (Personal Equity Plan).

However, there is an annual Capital Gains tax-free allowance, for individuals it is £12,300 (tax year 2020/2021). In retirement, this can be a useful way to increase your tax-free income. It’s important to understand your assets, their value and how they can create an income.

5. Dividend Allowance

If you’re invested in companies that pay a dividend, the Dividend Allowance can boost your income without affecting the amount of tax you need to pay. This is on top of any dividend income that falls within your Personal Allowance.

For the 2020/21 tax year, the dividend allowance is £2,000. Carefully planning your investments and expected dividend allowance can help you boost your retirement income by £2,000 without facing additional tax charges.

If your dividend income exceeds the allowance, you will need to pay tax. The tax rate is linked to your tax band and may be as high as 38.1% if you’re an additional rate taxpayer.

Depending on your circumstances and goals, there may be other allowances and reliefs you can take advantage of too. Using a combination of saving products, such as personal pensions, stocks and shares ISAs and general saving accounts, it may be possible to achieve the retirement income you want while reducing tax liability. Whether you’re nearing retirement or are already retired, it’s worth considering how much tax you’ll pay and whether there are allowances that apply to your situation.

Planning for taxation changes

While the above information is accurate for the moment, allowances, levels of taxation and reliefs do change. As a result, it’s important that your retirement plan and income are reviewed at regular points. This allows you to take advantage of any changes and adjust how and when you take your income if necessary. If you’d like to discuss your tax liability during retirement, please get in touch.

Please note: The Financial Conduct Authority does not regulate tax planning.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Levels, bases of and reliefs from taxation may be subject to change and their value depends on individual circumstances.

With interest rates at an all-time low and the economy facing uncertainty, you may have read headlines about whether negative interest rates are the next step. But what would that mean in practice and is it an option that would really be considered in the UK?

Ever since the 2008 financial crisis, interest rates have been low. Earlier this year, there were suggestions that the Bank of England would gradually start to increase its Base rate as the economy continued to recover. However, the Covid-19 pandemic has changed that. In March, the central bank decided to cut the interest rate twice in a month.

Lowering interest rates is one of the tools central banks around the world use to stimulate economic growth as it lowers the cost of borrowing. With coronavirus disrupting normal business practices, the Bank of England first cut its base rate from 0.75% to 0.25% on 11^th March 2020 and then slashed it again to 0.1% on the 19^th March 2020, the lowest it’s ever been.

With the interest rate hovering just above zero, the possibility of negative interest rates is rising.

How would negative interest rates affect you?

You can split the impact of negative interest rates into two areas depending on whether you’re saving or borrowing.

Let’s start with saving.

Usually, when saving, you’d earn interest on the deposits. For example, with £1,000 in a savings account earning 3%, you’d receive £30 after a full year. If the interest rate is negative at -3%, you’d instead owe the bank £30, in effect paying to save your money.

Once you factor in the impact of inflation on your spending power, savings can quickly become eroded if interest rates are below zero. While using a saving account is still important in some cases, such as holding your emergency fund, it may mean that alternatives should be considered to get the most out of your money, such as investing.

Moving on to borrowing, in theory, negative interest rates are good news.

The cost of borrowing should reduce as interest rates fall. Using a mortgage as an example, you’d still need to make repayments, however, with a negative interest rate, the outstanding amount is reduced each month by more than what you’ve paid. It can reduce debt quicker. However, it’s worth noting that some mortgages have a ‘floor’ interest rate that it won’t go below.

Negative interest rates: From Europe to Japan

While negative interest rates have never been implemented by the Bank of England they have been used elsewhere.

Sweden’s central bank cut interest rates to -0.25% in July 2009, in the wake of the financial crisis. Since then it’s been used by other European banks too, including the European Central Bank which covers the 19 countries that have adopted the euro, as well as Japan.

There are a variety of reasons why negative interest rates are used. However, during times of recession or economic hardship, people and businesses tend to hold on to their cash, waiting for the economy to improve. A lack of spending by businesses and individuals can weaken the economy further. As a result, negative interest rates can be used to encourage people to spend and drive the economy forward, though there are risks associated with the practice too.

While negative interest rates have been used before, they are by no means the norm and are still considered unconventional.

So, are negative interest rates coming to the UK?

It’s impossible to say for certain and much of the decision will depend on how the economy and businesses respond over the coming months. When asked about the potential for negative interest rates to be introduced in May during a Treasury Select Committee, the Bank of England’s governor Andrew Bailey said negative interest rates were under ‘active review’.

Bailey added: “We do not rule things out as a matter of principle. That would be a foolish thing to do. But can I then follow that up by saying that doesn’t mean we rule things in.”

As always, it’s important to keep an eye on your financial plan with current conditions in mind. However, responding to speculation should be avoided. Instead, if you’re concerned about the introduction of negative interest rates, keep in mind that your financial plan has been built with your goals at the centre. There may be a time when negative interest rates are announced and we’re here to help you assess your financial plan if this should happen. Please get in touch if you have any questions.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

When you think about your lifestyle goals and financial plan, how far ahead do you look? It wasn’t so long ago that planning to reach 80 meant you could be sure of financial security throughout your life. But now, it’s becoming increasingly common to celebrate your 100^th birthday, bringing new challenges to planning.

Just a century ago, 1% of babies born were expected to live to 100. As healthcare and a range of other factors improved, life expectancy has increased too. If you’re a female aged 60, there’s a 12.3% chance of turning 100, for 60-year-old men it's 8.1%. If you’re 40, there’s an even greater chance you’ll reach 100. Women have a 18.7% chance of celebrating the milestone and men a 13.3% chance. It means planning for a longer life is more important than ever.

While improving health conditions are certainly positive, living longer lives means we need to change lifestyle too.

Changing lifestyles

When you think about preparing to live longer, it may be money that springs to mind first. After all, a longer life means you’ll need to establish financial security that will last longer, probably with a longer time spent in retirement. But as with all financial plans, your goals and lifestyle should remain at the centre.

Previously, life was broadly split into three stages of education, working and retirement. We’re already seeing these stages change. It’s now far more common to find people transitioning into retirement, spending time on education in later years, or going back to work in some form after retiring. 

You might be able to retire at 65, but would you want to spend 35 years in retirement? For some, this sounds ideal, but for others, it’s a long time not to work in some way, whether that’s through traditional employment or starting their own business.

Planning for a 100-year life should start with thinking about how you’d like your life to look.

• What are your goals at 60, 70 and beyond?
• When would you like to retire, and would you prefer to transition into retirement?
• What makes you fulfilled?
• What are your priorities now, do you expect them to change?

Of course, these lifestyle goals aren’t set in stone. In fact, regularly reviewing them and seeing if they still align with your aspirations and circumstances is important. But having an idea of what you’d like to achieve can provide direction and confidence.

Longer lives mean rethinking traditional lifestyle models, it’s a chance to think about what you want.

Managing your finances for 100 years

While goals and lifestyle aspirations are essential, we can’t ignore the fact that finance plays an important role in achieving this. Planning for a 100-year life presents new challenges.

It can be difficult to understand how personal wealth will change over a 10-year period as you need to factor in a range of areas, from investment performance to inflation. When looking at a 100-year life, you may be considering these factors over several decades, making it even harder to gauge how wealth can change and what’s sustainable.

This is where financial planning can help. Using a range of tools, we can help you bring together lifestyle aspirations with your current financial situation. It’s a step that can help you understand how your wealth will change depending on the decisions you make, whether that’s contributing more to your pension for a longer retirement or using a lump sum to tick something off your bucket list.

As we live longer, finances naturally need to stretch further and can become more complicated, and financial planning becomes even more important.

Planning for the next generation

As you consider life expectancy and financial planning, you may be considering what you’ll leave behind for loved ones.

Considering how our finances would hold up during a 100-year life is important for us all as it becomes more common. But it’s even more crucial when helping the next generation plan. One in three children born today will live to see their 100^th birthday. It won’t become a rare milestone, but the norm. As a result, planning for a 100-year life needs to become the norm too.

You may be in a position to help children and grandchildren, whether it’s passing on knowledge or making regular pension contributions on behalf of a child. Small steps taken in the early years can help create a solid foundation that can be built-on, including learning positive money habits.

As you set out your own financial plan, this should include the inheritance you intend to leave behind. It can help you understand how loved ones will benefit and ensure the necessary steps are taken, such as writing a will or reducing Inheritance Tax liability. It’s a step that ensures your wishes are carried out and can help loved ones prepare for longer lives too.

If you’d like to discuss how your wealth will change over time, please get in touch.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by 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.

Building a nest egg for a child can help set them on the path to a financially secure future and highlight why saving is important. One of the most popular ways to save for a child or grandchild is using a Junior Individual Savings Account (JISA). During 2017/18, money was added to over 900,000 JISAs.

Money held in a JISA isn’t accessible until the child turns 18, making it an excellent way to save for the milestones they’ll reach in early adulthood. You may choose to save with the hope that it will be used to fund further education, learn to drive or get on the property ladder. Having a lump sum to use can make it easier for children to achieve goals and create a secure foundation as they become independent.

JISAs: The basics

JISAs operate in much the same way as adult ISAs do.

You can use a JISAs to save in cash, earning interest on deposits, or to invest and hopefully deliver returns over the long term. JISAs are also a tax-efficient way to save, interest or returns earned are tax-free.

One area where the JISA does differ is the subscription limit, the amount you can deposit each tax year. In this year’s budget, Chancellor Rishi Sunak significantly increased the JISA subscription limit from £4,368 in 2019/20 to £9,000 in 2020/21. The new limit means parents and grandparents can build a substantial nest egg for children.

The JISA annual allowance can’t be carried forward and if it’s not used during the tax year, it’s lost.

A parent or legal guardian must open a JISA on the child’s behalf, however, other family and friends can then contribute as long as the annual limit isn’t exceeded.

The money placed within a JISA belongs to the child and can’t be withdrawn until they’re 18, apart from in exceptional circumstances. However, when the child reaches 16, they will be able to manage the account, for example, transferring to a different provider to achieve a better interest rate. 

If you’re considering open a JISA on behalf of a child, one of the first things to do is decide between a cash account and a stocks and shares account.

Cash JISA vs Stocks and Shares JISA

As with adult ISAs, you have two key options when saving through a JISA: cash or invest.

Both options have pros and cons, which one is right for you will depend on goals and time frame.

Cash JISA: The money deposited within a Cash JISA is secure and operates in a similar way to a traditional savings account. Assuming you stay within the limits of the Financial Services Compensation Scheme (FSCS), the money would be protected even if the bank or building society failed. The deposits within a JISA will then benefit from interest, helping savings grow. While JISA interest rates are typically more competitive than the adult counterparts, you still need to consider inflation. When interest rates don’t keep pace with inflation, savings lose value in real terms, reducing spending power. Over several years the impact can be significant.

Stocks and Shares JISA: Rather than earning interest, the money deposited within a Stocks and Shares JISA is invested with the aim of delivering returns. The key benefit is that it offers an opportunity to create higher returns than interest would offer. However, all investments involve some level of risk and in the short-term, it’s likely volatility will be experienced at some points. This means the value of savings can fall based on the performance of investments. However, historically, investments have delivered returns over a long-term time frame.

So, which option should you pick?

How you feel about investment risk should play a role in choosing between a Cash JISA and a Stocks and Shares JISA. However, the time frame is also important. Typically, you shouldn’t invest with a short time frame (less than five years) as this places you at a higher risk of being affected by short-term volatility. In contrast, longer time frames give you a chance to smooth out the peaks and troughs of investment markets.

If you’re unsure whether building a nest egg through cash or investing is right for you, please get in touch.

You don’t have to choose between a Cash JISA and a Stocks and Shares JISA either. If your goals mean you want a mix of cash savings and investments when building a nest egg, it is possible to open both types of JISA in your child’s name. The total contributions to JISAs must not exceed the annual subscription limit.

If you’d like to start saving for your child or grandchild, please contact us. Whether you want to invest through a JISA or discuss alternative options, we’re here to help you create a plan that meets your goals.

Please note: Investments carry risk. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

When investing, we all know that capital is at risk. We’ve often talked about understanding your risk profile and the level of risk you should take when investing. But what affects how risky an investment is?

Understanding the risk of an investment can help you gauge if it’s the right investment for you and how it’ll change the balance of your portfolio. Numerous factors affect how risky an investment is, fund managers will use multiple ways to analyse each investment. However, one of the simplest places to start is by looking at the asset class.

The four main asset classes of investing

When reviewing investment portfolios, there are usually four main asset classes:

1. Cash: This is the least risky asset, but also delivers low returns. As returns are often lower than inflation, the value of money can decrease over time in real terms.

2. Bonds: Both government bonds and investment-grade corporate bonds are considered relatively low risk. With a bond, you’re effectively lending money in exchange for a fixed rate of interest. While a lower risk than stocks, if a company defaulted on payments you could still get back less than you invested. Bonds with a higher yield are riskier as they have a higher risk of default.

3. Property: Investing in property is often seen as a sure way to deliver returns, but it still comes with risks. An investment portfolio may hold commercial property and rise in value either from rental income or rising property prices. Property can still fall in value and can be harder to sell should you need access to capital.

4. Shares: Finally, shares are the riskiest asset class of the four, as markets are unpredictable. However, the risk of different shares varies hugely. As with bonds, those with higher potential yields are typically the riskiest. The unpredictability of stock markets means a long-term time frame is essential when investing.

A well-balanced portfolio will typically include a mix of these assets. This helps to spread the risk and limit short-term volatility. For example, if stock markets are experiencing volatility, holding some of your capital in bonds can reduce the impact. This is why when you read headlines claiming stock markets have fallen by a certain percentage, an individual portfolio is unlikely to have experienced a fall to the same scale.

Even ‘high risk’ portfolios will invest some of their capital in bonds and property to create balance, likewise, a ‘low risk’ portfolio is likely to have some exposure to stocks.

Specific risk vs market risk

When looking at individual assets, there are numerous risks to consider, these can be broadly split into two areas: specific risk and market risk.

Specific risk refers to the risks within a company and the volatility their shares experience. All companies will experience some volatility, but, once again, this can vary significantly. Established and mature businesses, for instance, are less likely to have severe bouts of volatility than firms that are still in the growth phase. Specific risk can be analysed by looking at the profits, areas of investment, sector it operates in and more.

On the other hand, market risk affects the whole market and can be far more difficult to track. For example, in March this year, whole markets fell as a result of the Covid-19 pandemic, even when the prospects of some companies within those markets remained unchanged. This is why we not only spread investments across companies but different sectors and geographical locations too, helping to reduce exposure to volatility.

Building a diversified portfolio that matches your risk profile

When you review your investments, you should start by looking at your own risk profile. This allows you to build a portfolio that suits your goals, investment time frame and overall attitude to risk. Diversifying investments, across asset class, sector and geographical locations helps to create a balanced portfolio that’s linked to your risk profile. When we work with you when investing, this is why we start with your aspirations.

Please contact us to discuss your investment options, including how risk can be managed within your own portfolio.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Just a few months after delivering his first Budget as Chancellor, Rishi Sunak delivered a Summer Statement, dubbed a ‘mini-Budget’ on Wednesday 8^th July 2020.

Back in March, some of the measures announced in the Budget focused on supporting people and businesses as the Covid-19 pandemic was taking hold. Five months later, the focus has now shifted to recovery as lockdown and social distancing restrictions ease.

Rishi began by saying the government had taken decisive action to protect the economy earlier this year but acknowledged people were now worried about unemployment rates rising and economic uncertainty. This is against a backdrop of a global economic downturn, with the International Monetary Fund (IMF) predicting the deepest recession since records began. With this in mind, the Summer Statement set out the measures the government will be implementing.

It was also confirmed there will still be a full Budget and spending review delivered in the autumn.

Job Retention Bonus

With the furlough scheme set to end in October, which has supported nine million jobs, the Job Retention Bonus aims to encourage firms to re-employ staff. Any employer that brings back an employee that earns at least £520 each month from furlough, and keeps them in a job until January, will receive a £1,000 bonus.

If everyone on furlough were to benefit, the scheme would cost £9 billion.

Kickstart scheme

Noting that young people are around 2.5 times more likely to have been affected by Covid-19, Rishi announced the Kickstart scheme.

The Kickstart scheme will pay young peoples’ (aged 16 to 24) wages for up to six months, as well as some overheads. The employee must work a minimum of 25 hours a week and be paid the national minimum wage. It will amount to a grant worth around £6,500 per young person. Employers can apply to benefit from the Kickstart scheme next month and there will be no cap on the number of places funded.

In addition to this, there will be more funding for careers advice, more traineeships, and a new £2,000 payment for firms to take on young apprentices and £1,500 for apprentices aged over 25.

Stamp Duty

Property prices and transactions have fallen during the pandemic. In light of this, Rishi announced he was abolishing Stamp Duty on homes worth up to £500,000. This will take effect immediately and continue until 31^st March 2021.

VAT rate

Over 80% of businesses in the hospitality and tourism sectors were forced to close during lockdown. VAT on tourism and hospitality will be cut from the current 20% to 5% until 12 January 2021. This will include eating out, accommodation and attractions, such as the cinema, theme parks and zoos.

Discount for eating out

The ‘eat out to help out’ scheme also aims to support the hospitality sector. Throughout August, customers will be able to take advantage of a discount up to 50%, worth up to £10 per head, including children, when they eat out from Monday to Wednesday at businesses that have applied to be part of the scheme.

Green homes grant

A new £2 billion green homes grant was announced. This will allow homeowners and landlords to apply for vouchers to make their homes more efficient and support local green jobs. The vouchers are expected to cover at least two-thirds of the costs up to £5,000 per household. For low-income households, the full cost will be covered, up to £10,000. It’s estimated energy efficiency could save families £300 a year.

A further £1 billion of funding has also been designated for improving energy efficiency in public buildings.

Questions?

If you have any questions about how the Summer Statement will affect your finances and plans, please get in touch. 

Back in July, Chancellor Rishi Sunak announced a second range of measures designed to protect the economy through the Covid-19 pandemic.

His next update was scheduled to be the Autumn Statement in the coming weeks. However, given the newly imposed Covid-19 restrictions and economic uncertainty, the Budget has been cancelled.

In a statement sent to the BBC, a spokesperson for the Treasury said: “As we heard this week, now is not the right time to outline long-term plans – people want to see us focused on the here and now.

“So, we are confirming today that there will be no Budget this autumn.”

Instead, on Thursday 24^th September, the Chancellor unveiled his winter economy plan, setting out the next phase of the economic response to the Covid-19 pandemic.

Introducing his new measures, the Chancellor acknowledged that the virus will be a fact of life ‘for at least the next six months’ and so the economy will need ‘a more permanent’ adjustment.

Here are the main points announced in Rishi Sunak’s latest speech.

A new Job Support Scheme

The Chancellor announced the Coronavirus Job Retention Scheme, dubbed the ‘furlough scheme’, in March just as the scale of the pandemic was becoming clear. The aim was to prevent a rise in unemployment when businesses were forced to shut down to slow the spread of Covid-19.

The furlough scheme initially paid 80% of the wages of workers that were unable to work, up to a maximum of £2,500 per month. As the economy reopened, employers had to pay 10% of the wages of those on furlough and workers could return part-time, with the government making up the hours not worked.

With the furlough scheme ending at the end of October, the Chancellor was keen to continue to support at-risk jobs.

A new Job Support Scheme means that the government and employers will jointly cover the cost of those having to work fewer hours. Under the scheme, businesses will have the option of keeping employees in a job on shorter hours, rather than making them redundant.

To be eligible for the scheme, an employee will have to work a minimum of 33% of their hours, in order that the scheme only protects ‘viable’ jobs.

For the remaining hours not worked, the government and employer will each pay one-third of the employee’s wages. It means that employees working 33% of their hours will receive at least 77% of their overall pay.

The scheme will begin on 1 November 2020 and last for six months.

It’s important to note that, while all small and medium-sized firms are eligible, large firms are only eligible if their turnover has fallen in the pandemic.

The Job Support Scheme can also be used in conjunction with the Job Retention Bonus that the Chancellor announced in his Summer Statement.

CBI director-general Carolyn Fairbairn says: “These bold steps from the Treasury will save hundreds of thousands of viable jobs this winter. It is right to target help on jobs with a future but can only be part-time while demand remains flat.”

An extension to the Self-Employed Income Support Scheme

The Chancellor has been keen to provide the same support to self-employed workers as to employed staff.

In his statement, he revealed that he would extend the Self-Employed Income Support Scheme to 30 April 2021, although at a much-reduced rate.

The extension will support viable traders who are facing reduced demand over the winter months, covering 20% of average monthly trading profits through a government grant.

More flexibility with government loan schemes

Sunak announced that, under his Pay as you Grow Scheme, he will offer more than one million businesses, which have borrowed under the Bounce Back Loan Scheme, the choice of more time and greater flexibility to make their repayments.

For example, businesses can now extend their loans from six to ten years, and businesses can choose to make interest-only repayments – or suspend repayments for up to six months – without affecting their credit rating.

Lenders who have been enabled to offer the Coronavirus Business Interruption Loan Scheme will also offer borrowers more time to make their repayments where needed.

The Chancellor also extended the application deadline for all coronavirus loan schemes – including the future fund - to the end of 2020.

Tax deferrals

Sunak announced that businesses who deferred their VAT this year will no longer have to pay a lump sum at the end of March 2021.

Instead, they will have the option of splitting it into smaller, interest-free payments over the course of 11 months. This will benefit up to half a million businesses.

The Chancellor also announced that any of the millions of self-assessed income taxpayers who need extra help can also now extend their outstanding tax bill over 12 months from January 2021.

VAT reduction extended for hospitality sector

In his Summer Statement, the Chancellor reduced the VAT rate applicable to hospitality businesses from 20% to 5%.

In his address, Sunak announced that he will extend this VAT cut to the end of March 2021. Sunak says that this will continue to support more than 150,000 businesses and protect 2.4 million jobs.

Get in touch

If you have any questions about how these measures might affect you or your business, please get in touch.