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Month: July 2020

Funding your golden years

Tax aspects require careful planning after recent government changes

Pensions have the reputation of being confusing, but they needn’t be. Private pensions are usually used by people who don’t have access to a workplace pension scheme, but you can also have one if you are employed or not working. They work in much the same way as workplace pension schemes, but you, rather than an employer, are responsible for choosing the provider and setting up your plan.

When you pay into a pension, you receive tax relief on any contributions you make. People may turn to private pensions as a tax-effective way to bolster their retirement income. There are several different types of private pension to choose from, but in light of recent government changes, the tax aspects require careful planning.

As many schemes as you like
The term ‘private pension’ covers both workplace pensions and personal pensions. The UK Government currently places no restrictions on the number of different pension schemes you can be a member of.

So, even if you already have a workplace pension, you can have a personal pension too, or even multiple personal pensions. These can be a useful alternative to workplace pensions if you’re self-employed or not earning, or simply another way to save for retirement.

Any UK resident between the ages of 18 and 75 can pay into a personal pension – although the earlier you invest, the more likely you are to be able to build up a substantial pension pot.

Tax relief on pension contributions
Private pensions are designed to be a tax-efficient savings scheme. The Government encourages this kind of saving through tax relief on pension contributions. In the 2018/19 tax year, pension-related tax relief is limited to either 100% of your UK earnings, or £3,600 per annum.

The current pension tax relief rates are:
Basic-rate taxpayers will receive 20% tax relief on pension contributions
Higher-rate taxpayers also receive 20% tax relief, but they can claim back up to an additional 20% through their tax return
Additional-rate taxpayers again pay 20% tax relief, but they can claim back up to a further 25% through their tax return
Non-taxpayers receive basic-rate tax relief, but the maximum payment they can make is £2,880, to which the Government adds £720 in tax relief, making a total gross contribution of £3,600

If you are a Scottish taxpayer, the tax relief you will be entitled to will be at the Scottish Rate of Income Tax, which may differ from the rest of the UK.

Annual allowances can vary

The annual allowance is the maximum amount that you can contribute to your pension each year while still receiving tax relief. The current annual allowance is capped at £40,000, but may be lower depending on your personal circumstances

In April 2016, the Government introduced the tapered annual allowance for high earners, which states that for every £2 of income earned above £150,000 each year, £1 of annual allowance will be forfeited. The maximum reduction will, however, be £30,000 – taking the highest earners’ annual allowance down to £10,000

Any contributions over the annual allowance won’t be eligible for tax relief, and you will need to pay an annual allowance charge. This charge will form part of your overall tax liability for that year, although there is the option to ask your pension scheme to pay the charge from your benefits if it is more than £2,000.

It is worth noting that you may be able to carry forward any unused annual allowances from the previous three tax years.

If you have accessed any of your pensions, you can only pay a maximum of £4,000 into any un-accessed pension(s) you have. This is called the ‘Money Purchase Annual Allowance’ (or MPAA). The MPAA applies only if you have accessed one of your pensions

Lifetime allowances have shrunk
The lifetime allowance (LTA) is the maximum amount of pension benefit that can be drawn without incurring an additional tax charge. Since
6 April 2018, the lifetime allowance is £1,030,000.

Your pension provider will be able to help you determine how much of your LTA you have already used up. This is important because exceeding the LTA will result in a charge of 55% on any lump sum and 25% on any other pension income such as cash withdrawals. This charge will usually be deducted by your pension provider when you access your pension.

It’s possible to protect your pension
It’s easier than you think to exceed the LTA, especially if you have been diligent about building up your pension pot. If you are concerned about exceeding your LTA, or have already done so, you should talk to us.

It may be that we can apply for pension protection for you. This could enable you to retain a larger LTA and keep paying into your pension – depending on which form of protection you are eligible for:

Individual protection 2016 – this protects your lifetime allowance to the lower of the value of your pension(s) at 5 April 2016 and/or £1.25 million. You can keep building up your pension with this type of protection, but you must pay tax on money taken from your pension(s) that exceed your protected lifetime allowance

Fixed protection 2016 – this fixes your lifetime allowance at £1.25 million. You can only apply for this if you haven’t made any pension contributions after 5 April

Other ways to save
In addition to pension protection, if you have reached your LTA (or are close to doing so), it may also be worth considering other tax-effective vehicles for retirement savings, such as Individual Savings Accounts (ISAs). In the current tax year, individuals can invest up to £20,000 into an ISA.

The Lifetime ISA, launched in April 2017, is open to UK residents aged 18–40 and enables younger savers to invest up to £4,000 a year tax-free – and any savings you put into the ISA before your 50th birthday will receive an added 25% bonus from the Government. After your 60th birthday, you can take out all the savings tax-free, making this an interesting alternative for those saving for retirement.

Passing on your pension
Finally, it is worth noting that there will normally be no tax to pay on pension assets passed on to your beneficiaries if you die before the age of 75 and before you take anything from your pension pot – as long as the total assets are less than the LTA. If you die aged 75 or older, the beneficiary will typically be taxed at their marginal rate.

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.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY 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 VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

ACCESSING PENSION BENEFITS EARLY MAY IMPACT ON LEVELS OF RETIREMENT INCOME AND IS NOT SUITABLE FOR EVERYONE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

TAX TREATMENT DEPENDS ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN THE FUTURE.

Avoid the mad March rush

Get a head start on your tax planning resolutions

Although the current tax year does not end until 5 April 2019, tax planning shouldn’t be a mad March rush. Now is the perfect time get a head start on your tax planning resolutions to enhance your own, your family’s or your company’s tax-efficient plans for the future.

We have set out some tax tips and actions that may be appropriate to certain taxpayers. Reviewing your tax affairs now will ensure that available reliefs and exemptions have been fully utilised, together with future planning which could help to reduce your tax bill.

It is important to ensure that, if you have not done so already, you take the time to carry out a review of your tax and financial affairs to identify any tax planning opportunities and take action before it’s too late. Personal circumstances differ, so if you have any questions or if there is a particular area you are interested in, please contact us.

Here are our tips to help you get ahead on managing your tax affairs in 2018/19

Pension contributions – spouses and children – consider contributing up to £2,880 towards a pension for your non-earning spouse or children. The Government will add £720 on top – for free.

Individual Savings Accounts (ISAs) – fully utilise your tax-efficient ISA allowance. The allowance for 2018/19 is £20,000 per person, whilst the Junior ISA allowance is now £4,260 for children under 18.

Capital gains – use the capital gains annual exemption of £11,700 (2018/19) to realise gains tax-free. The allowance cannot be transferred between spouses or carried forward.

Pension contributions – maximise contributions amount and tax relief. Take full advantage of increasing pension contributions by utilising the annual allowance, which is £40,000 (tapered if you earn over £150,000) or the value of your whole earnings – whichever is lower. Unused annual allowances may also be carried forward from the previous three tax years.

Remuneration strategy – if you run your own company, it’s a good idea to determine your pay and benefits strategy sooner rather than later. For 2018/19, the dividend nil-rate band is reduced from £5,000 to only £2,000 – it’s really important to consider the tax implications of your chosen approach to salary, benefits, pensions and dividends.

Gifting – you can act at any time to help reduce a potential Inheritance Tax bill when you’re no longer around. Make use of the Inheritance Tax annual exemption that allows you to give away £3,000 worth of gifts outside of your estate. If unused, the exemption can be carried forward one year.

Transfer income-producing assets – consider transferring income-producing assets between your spouse or registered civil partner in order to use the Income Tax personal allowance and lower Income Tax bands of the transferee.

Overpayment and capital loss claims – submit claims for overpaid tax and capital loss claims for the 2014/15 year before 5 April 2019, after which such claims will be time-barred.

Landlords – for 2018/19, the restriction on deductibility of mortgage interest and other finance costs doubles from 25% to 50%. If you plan to take steps to mitigate the impact (such as incorporation, for example), you may save more tax by taking those steps earlier on in the year. In future years, the restriction will apply to 75%, and then from April 2020, 100% of finance costs incurred by individual landlords.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES, OF AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.

Pensions shake-up

Getting away from the stresses of everyday life

For many, the idea of retirement means getting away from the stresses of everyday life. But with living costs rising and interest rates low, people need to think about how to generate extra income from their savings in retirement.

Pensions offer a number of important advantages that will make your savings grow more rapidly than might otherwise be the case. However, changes announced in April 2015 have lead to a complete shake-up of the UK’s pensions system, giving people much more control over their pension savings than ever before.

Different pension schemes
The term ‘private pension’ covers both workplace pensions and personal pensions. The UK Government currently places no restrictions on the number of different pension schemes you can be a member of. Providing you don’t save more than your Lifetime Allowance into all of your pension funds combined – currently set at £1,030,000 (2018/19) – you won’t be penalised by the taxman for having lots of pensions.

So even if you already have a workplace pension, you can have a personal pension too, or even multiple personal pensions. These can be a useful alternative to workplace pensions if you’re self-employed or not earning, or simply another way to save for retirement.

Any UK resident between the ages of 18 and 75 can pay into a personal pension – although the earlier you invest, the more likely you are to be able to build up a substantial pension pot.

Tax relief on pension contributions
A private pension is designed to be a tax-efficient savings scheme. The Government encourages this kind of saving through tax relief on pension contributions.
In the 2018/19 tax year, pension-related tax relief is limited to either 100% of your UK earnings, or £3,600 per annum.

The current pension tax relief rates are:
Basic-rate taxpayers will receive 20% tax relief on pension contributions
Higher-rate taxpayers also receive 20% tax relief, but they can claim back up to an additional 20% through their tax return
Additional-rate taxpayers again pay 20% tax relief, but they can claim back up to a further 25% through their tax return
Non-taxpayers receive basic-rate tax relief, but the maximum payment they can make is £2,880, to which the Government adds £720 in tax relief, making a total gross contribution of £3,600

If you are a Scottish taxpayer, the tax relief you will be entitled to will be at the Scottish Rate of Income Tax, which may differ from the rest of the UK.
Limits on the amount that can be contributed

The Annual Allowance is a limit on the amount that can be contributed to your pension each year while still receiving tax relief. It’s based on your earnings for the year and is capped at £40,000 (2018/19).

If you exceed the Annual Allowance in a year, you won’t receive tax relief on any contributions you paid that exceed the limit, and you will be faced with an annual allowance charge. This charge will form part of your overall tax liability for that year, although there is the option to ask your pension scheme to pay the charge from your benefits if it is more than £2,000.

In April 2016, the Government introduced the tapered annual allowance for high earners, which states that for every £2 of income earned above £150,000 each year, £1 of annual allowance will be forfeited. However, the maximum reduction will be £30,000 – taking the highest earners’ annual allowance down to £10,000.

It is worth noting that you may be able to carry forward any unused annual allowances from the previous three tax years. If you have accessed any of your pensions, you can only pay a maximum of £4,000 into any un-accessed pension(s) you have. This is called the ‘Money Purchase Annual Allowance’, or ‘MPAA’. The MPAA applies only if you have accessed one of your pensions.

Exceeding the Lifetime Allowance
What counts towards your Lifetime Allowance depends on the type of pension you have.

Defined contribution – personal, stakeholder and most workplace schemes. The money in pension pots that goes towards paying you, however you decide to take the money.
Defined benefit (also known as ‘Final Salary’) – some workplace schemes. This can be 20 times the pension you get in the first year plus your lump sum – but you’ll need to check this with your pension provider.

Your pension provider will be able to help you determine how much of your Lifetime Allowance you have already used up. This is important because exceeding the Lifetime Allowance will result in a charge of 55% on any lump sum and 25% on any other pension income such as cash withdrawals.
This charge will usually be deducted by your pension provider when you access your pension.

Protecting your pension pot
It’s easier than you think to exceed the Lifetime Allowance, especially if you have been diligent about building up your pension pot. If you are concerned about exceeding your Lifetime Allowance or have already done so, it’s essential to obtain professional financial advice.

It may be that you can apply for pension protection. This could enable you to retain a larger Lifetime Allowance and keep paying into your pension – depending on which kind of protection you are eligible for:

Individual protection 2016 – this protects your Lifetime Allowance to the lower of the value of your pension(s) at 5 April 2016 and/or £1.25 million. You can keep building up your pension with this type of protection, but you must pay tax on money taken from your pension(s) that exceeds your protected lifetime allowance.

Fixed protection 2016 – this fixes your Lifetime Allowance at £1.25million. You can only apply for this if you haven’t made any pension contributions after 5 April.

Passing on your pension to beneficiaries
Finally, it is worth noting that there will normally be no tax to pay on pension assets passed on to your beneficiaries if you die before the age of 75 and before you take anything from your pension pot – as long as the total assets are less than the Lifetime Allowance. If you die aged 75 or older, the beneficiary will typically be taxed at their marginal rate.
However, not all types of pension can be passed on in such a tax-efficient way. Some older-style pensions may not be able to offer all the new death benefit options available. If this flexibility is important to you, in this instance and if appropriate, you may want to consider transferring to a pension scheme that does.

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.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY 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 VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

Lasting Power of Attorney

A Lasting Power of Attorney (LPA) is a legal document that allows you to appoint one or more people to make decisions on your behalf during your lifetime. The people you appoint to manage your affairs are called the ‘attorneys’. An LPA is a completely separate legal document to your Will, although many people put them in place at the same time as getting their will written, as part of wanting to plan for the future.

During your lifetime

Once you have an LPA in place, you can have peace of mind that there is someone you trust to look after your affairs if you became unable to do so yourself during your lifetime. This may occur, for example, because of an illness, old age or an accident.

Having an LPA in place can allow your attorney to have authority to deal with your finances and property, as well as make decisions about your health and welfare. Your LPA can include binding instructions together with general preferences for your attorney to consider. Your LPA should reflect your particular wishes so you know that the things that matter most would be taken care of.

Required legal capacity

You can only put an LPA in place whilst you are capable of understanding the nature and effect of the document (for example, you have the required legal capacity). After this point, you cannot enter into an LPA, and no one can do so on your behalf.

Many people don’t know that their next of kin has no automatic legal right to manage their spouse’s affairs without an LPA in place, so having to make decisions on their behalf can become prolonged and significantly more expensive.

A Lasting Power of Attorney for health and welfare can generally make decisions about matters including:

  • Where you should live
  • Your medical care
  • What you should eat
  • Who you should have contact with
  • What kind of social activities you should take part in

You can also give special permission for your attorney to make decisions about life-saving treatment.

A Lasting Power of Attorney for property and financial affairs decisions can cover:

  • Buying and selling property
  • Paying the mortgage
  • Investing money
  • Paying bills
  • Arranging repairs to property

Manage your affairs

Without an LPA in place, there is no one with the legal authority to manage your affairs, for example, to access bank accounts or investments in your name or sell your property on your behalf. Unfortunately, many people assume that their spouse, partner or children will just be able to take care of things, but the reality is that simply isn’t the case.

In these circumstances, in order for someone to obtain legal authority over your affairs, that person would need to apply to the Court of Protection, and the Court will decide on the person to be appointed to manage your affairs. The person chosen is appointed your ‘deputy’. This is a very different type of appointment, which is significantly more involved and costly than being appointed attorney under an LPA.

If you wish to have peace of mind that a particular person will have the legal authority to look after your affairs, and you want to make matters easier for them and less expensive, then you should obtain professional advice about putting in place an LPA.

Pension paralysis

Saving not found to be a financial priority for UK workers

Worryingly, pension inertia is rife across the UK with many Britons failing to make saving for their old age a priority as they fall into a short-term saving trap. Saving for retirement is not looked upon as a priority until workers reach their 40s and 50s, according to new research involving a survey of 2,824 employees at medium and large private sector companies in the UK conducted by LifeSight, Willis Towers Watson’s UK DC master trust.

Instead, leisure and general household costs come up on top, with retirement saving ranked to be the seventh most important financial concern for employees in the UK. Additionally, the number of workers with financial concerns has jumped to 52% from the lower percentage of 46% in 2015, while retirement confidence 15 years after finishing work has fallen from 61% to 55% during that time.

Importance of retirement savings
As the younger generations are set to be in work longer than their predecessors, starting to save from an early age is extremely beneficial. For millennials especially, short-term goals are much more important than long-term savings, and so employers have the added difficulty of communicating the importance of retirement savings to them.
However, even with the ranking falling low on list of priorities, it was found that 67% of British workers consider retirement security important, a percentage found to be greater than that of the last two or three years.

Increased pressure on employers
It was also found that 69% save for retirement primarily through workplace pensions. The UK Government expects one million people to opt-out of workplace pension auto-enrolment in 2019. This means 27.5% of members opting out of auto enrolment by 2019, which would be a rise from 21.7% in 2018 and an estimated 10% today – totalling to 13 million people expected to be outside pension saving by then.

The research clearly indicates that employees are looking for their employers to take the lead with their retirement savings, using their workplace pension as their main means of saving. Even though this adds increased pressure on employers, making sure they are communicating effectively with their employees about the options available to them and the importance of long-term savings is a must.

PENSIONS ARE A LONG-TERM INVESTMENT.

THE RETIREMENT BENEFITS YOU RECEIVE FROM YOUR PENSION PLAN WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE VALUE OF YOUR PLAN WHEN YOU DECIDE TO TAKE YOUR BENEFITS, WHICH ISN’T GUARANTEED, AND CAN GO DOWN AS WELL AS UP.

THE VALUE OF YOUR PLAN COULD FALL BELOW THE AMOUNT(S) PAID IN.

Investing for Tomorrow’s Social Responsibility

If you aren’t already aware, it may not surprise you to know that Investing for Tomorrow are heavily involved with our local community. We sponsor more than one charity and even the local rugby team. Here’s a rundown of recent and upcoming events.

Overgate Hospice

We were very proud to be among the sponsors at the hospice’s annual summer garden party and even more so for their very first firewalk coming up on October 13.

Be sure to like our facebook page to stay updated on new events.

Halifax Rugby League Football Club

We’ve worked closely with the club for some time now and are really happy with the new warm up shirts for the Super8’s games.

Laurence Turner said:

“The club is incredibly important to the local community and we’re a company that is determined to be a positive local contributor wherever we can.”

WhiteKnights Yorkshire Blood Bikes

  

Our very own founder and managing partner, Laurence Turner volunteers with this local charity to provide free ‘out of hours’ transportation of blood and other vital supplies to the NHS and hospices throughout the region.

Laurence commented:

“I am thoroughly enjoying my volunteering with the Whiteknights and I’m looking forward to many more shifts to come. Juggling work with volunteering hasn’t been easy and in the heat it can be tricky to ride but it’s something I’m very committed to. Helping the charity is extremely important to me; It’s a very rewarding way to give back.”

 

 

 

 

 

Later retirement

Workers extend their careers for a multitude of reasons

When do you plan to retire? Saving for your retirement is a lifelong undertaking – and if you want to enjoy a comfortable retirement, you can’t start planning soon enough. The more you contribute to a pension now, the better chance you’ll have of that money growing and funding your retirement in later life.

But the proportion of UK employees who say they will work beyond the age of 65 has remained at three quarters (72%) for the second year running, significantly higher than in 2016 (67%) and 2015 (61%), according to latest research[1].

Nearly half (47%) of those who say they expect to work beyond 65 will be older than 70 before they retire, up from 37% in 2017, while almost a fifth (17%) expect to be older than 75. Workers aged 35–44 are most likely to say they expect to retire after their 75th birthday (27%).
 
Employees working for longer
A series of economic factors are driving employees to work for longer. The rising cost of living is forcing over 20 million into later retirement[2]. In fact, nine in ten (90%) UK employees say that the rising cost of living is the main reason why they expect to work beyond 65, with 87% saying the same of poor returns on savings due to low interest rates.

Diverse set of workforce skills
Opinions remain divided about the UK’s ageing workforce as it brings a new set of challenges for workers to contend with. Over a third (36%) believe that an ageing workforce might mean that older workers will have to re-train or learn new skills to stay in work, while three in ten (30%) think it could make it harder for young people to move up the career ladder. But more than two fifths (41%) are positive that a mix of older and younger employees creates a workforce with a wider range of skills, which is beneficial for employees and employers alike.

Promoting older workplace employees
This comes as just 6% think the Government is helping to promote older workers, down from one in ten (11%) following last year’s announcement of an increase in the State Pension age[3]. So far, only 13% think that employers are encouraging older employees to stay in the workplace, and little more than a sixth (15%) believe that older people are appreciated and respected in the working environment.

Support for older workers in the workplace can come in many different forms, but often the simplest are the most effective. Nearly half of employees (45%) think flexible working or part-time opportunities are most important when it comes to supporting an ageing workforce. Out of those planning to work beyond State Pension age, 60% say that they would be more likely to work for an employer that offered health and well-being benefits.
 
Stigma surrounding older workers
The combination of an increase in the cost of living, poor returns on savings and inflation continues to impact the UK’s retirement plans. This is the second year in a row that the findings indicate that more than 70% of the country’s workforce expect to work beyond the age of 65, and there is no sign that this trend will slow down any time soon.
But even as an older workforce becomes more common, the stigma surrounding older workers is proving hard to shake. Employers now have the opportunity to capitalise on the skills of two or even three generations, but only if they address potential generational divides and the changing needs of their employees.

Source data:
[1] Research conducted by Canada Life using ONS Employment Figures, May 2018.
[2] Research conducted by Canada Life using ONS Employment Figures, May 2018.
[3] Proposed new timetable for State Pension age increases, 19 July 2017.

Seize the day – today

Make your vision a reality

Exactly how much you’ll need for a comfortable retirement will depend largely on your cost of living and lifestyle choices. For many people, retirement is about sun-soaked holidays, leisurely rounds of golf and that boat they’ve always coveted.

But retirement is not what it used to be, with more of us working longer to build up our decided retirement income. So it’s essential to reassess how much you’re saving into your pension if you want to make your own vision a reality. For many people, retirement may seem a long way off, and saving into a pension isn’t always a top priority.

But the simple truth is the earlier you start, the easier it will be. If you have less time to invest, then the amount of money that you have to save is likely to be higher to make sure your retirement planning is on track. We’ve provided some ideas to help improve and boost your savings for a more comfortable retirement.

Starting point for your retirement plan
Working out what pensions you already have should be a starting point for your retirement plan. Locate the latest statements you have for all your pensions, including from previous employers and personal pensions. You can also get a forecast of your state pension via www.gov.uk/check-state-pension.

You should be sent an annual statement for each of your pension schemes, including any employer-based arrangements and personal pension plans, even if you are no longer contributing to them. If you don’t have up-to-date statements, you can ask for these to be sent to you. You may also be able to access pension values online via your pension company/scheme website.

Valuing your pension
As well as telling you what your pension is worth now, annual statements will also detail what your pension might be worth at retirement. These forecasts (don’t think of them as anything more than rough estimates) will be based on a range of assumptions including investment growth and inflation between now and retirement.

It is important to consider the effect of inflation because, over time, this can significantly reduce the spending power of your pension.

Cost of your lifestyle
Whether your pension will be enough to pay for the retirement you want will depend on the savings pot you amass, as well as the cost of your lifestyle when you retire.
Working out what income you will need in retirement may not be straightforward, however. Your life in retirement will be different from your working life; some costs may go up, while others will reduce.

You may spend more on holidays and leisure (especially in the earlier years of retirement), but your housing costs may be lower. While you may no longer have the costs of bringing up children, you may still want to help them financially, and there could be grandchildren to think of. In your later retirement years, you could have care costs. The traditional rule of thumb has been a target pension income of two thirds of your salary.

Know your magic number
Having accounted for the State Pension and any defined benefit scheme pension, you need to calculate how much money you will need to save to produce the remainder of your target income. This can depend on factors such as the age you want to retire, income yields available on investments, how much prices rise during your retirement and how long you live for – and how much you have put aside already.

If you contribute through a workplace pension, your employer will also contribute on your behalf, and you could qualify for National Insurance savings using a so-called ‘salary sacrifice’ arrangement. Employer top-ups in particular can significantly increase the value of your pension contributions, so it is worth checking that you are making the most of any workplace generosity offered.

It’s also important to be aware that there is a limit on the size of overall pension savings you can accumulate – currently £1.03 million (for 2018/19, and rising annually in line with inflation) – without facing a hefty tax charge of up to 55% on the excess.

This Lifetime Allowance (LTA) for pensions could also be a challenge for people whose retirement savings are currently less than £1 million, as well as individuals with sizeable final salary pension entitlements. Investment growth and ongoing contributions could lead to your breaching the LTA in future.

Alternative wealth opportunities
Pensions are not the only way to save for retirement. Tax-efficient Individual Savings Accounts (ISAs) are a popular savings option, while many people see property – particularly in the form of buy-to-let – as their retirement nest egg.

Timing is everything
Pension freedoms have now given retirees considerable flexibility over how they draw an income or withdraw lump sums from their accumulated retirement savings. Pension savings can be accessed from age 55. You no longer have to purchase an annuity – an income stream for life – and you can choose how much income you take and when to take it.

You could take your whole pension fund as cash in one go – with 25% being tax-free and the rest taxable. Other options include taking a lump sum now, with further withdrawals when you want, or an ongoing regular income (via so-called drawdown or an annuity). However, the danger of these pension freedoms is that people withdraw too much money too quickly and risk running out of money before they die.

It is also possible to pass on your pension savings completely free of tax. So, as well as being a tax-efficient way to invest, pensions can be a very useful way to reduce Inheritance Tax bills.

Seize the day – today
Too many people fail to seriously consider how they are going to manage financially in retirement until they are about to retire. It is only then that they discover that their pension is not on target to meet their retirement aspirations.

When you are living a busy life, it can be difficult to find time to consider your long-term plans. Your mortgage or your children’s education might be more immediate financial priorities; your career or running your business can make more pressing demands on your time. However, getting your pension on track as soon as possible could save you and your family a financial headache later on.

Another reason to take advantage of existing pension tax breaks is that there is no guarantee they will be there in the future. The Government has already cut the annual allowance to £40,000 – and as little as £10,000 for very high earners – while reducing the lifetime allowance from its £1.8 million peak in 2011/12. Higher-rate Income Tax relief on contributions could be next, so it makes sense to make the most of what’s on offer now.

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.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY 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 VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

ACCESSING PENSION BENEFITS EARLY MAY IMPACT ON LEVELS OF RETIREMENT INCOME AND IS NOT SUITABLE FOR EVERYONE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

Investing in your child’s future

Without planning ahead, the cost can be a huge money sink

While many parents value the standard of education offered by independent schools or universities, the costs can be daunting. However, with careful planning, it may be possible to avoid a huge outstanding student loan or tax burden.

A good education will give your children or grandchildren the best start in life. With more parents choosing to opt out of state schools and educate their children privately, plus some children continuing their education into their early twenties, the costs can carry on for many years.

Financial sacrifice
The overall cost for just one child can end up being about the same as buying an average home in the UK. That’s a massive financial sacrifice for many parents, leading them to wonder if it’s better to pay for their child’s education or save the money to help them onto the property ladder later in life. In any case, without planning ahead, the cost can be a huge money sink or lead to further borrowing. Since 2004, private school fees have increased by 70% – at a much faster rate than inflation and UK salary growth.

Private school fees continue to rise much faster than inflation or average earnings, making it more important than ever for parents considering taking this route to plan ahead.

What to consider

Expect fees to rise – on average around 3.5% a year – Inflation, growth in salaries and increased amount of interest from wealthy families in Asia and Russia wanting to send their children to English boarding schools, mean that private education fees may continue to grow.

Don’t assume the cost will end at fees – School uniforms and regular school trips all add up. There will be extra-curricular activities like art, drama, music, and sport to absorb as well.

Boarding can be more than double the cost of day school – By deciding not to board, annual savings of around £15,000 annually per child can be made. So, consider the location of the school, and consider whether it is feasible to commute every day or weigh up the advantages of relocating close to the chosen school.

Mixing private education with state education – Many parents are now delaying private education until secondary school to reduce the cost to below £100,000.
Planning for and researching the right school is often the exciting element, particularly when Open Days allow tours of delightful schools in bucolic surroundings. The hard work starts when analysing how the long-term annual costs are going to be paid for.

Suggestions on how to manage the costs:

Start planning early – put simply, the financial planning can’t start early enough, even to the extent of allocating money before any children are born. Simply paying school fee costs from current income or capital removes the ability to benefit from the 8th wonder of the world (according to Einstein), which is the magic of compounding returns.

Advance schemes – if you can afford to pay for several years in advance, you may be able to get yourself a good deal from the school. Some schools offer to put that lump sum in low-risk investments – and because of their charitable status, they’ll avoid paying capital gains tax on any returns they make. In exchange for pre-payment, a fee discount will be offered by the school. There are terms and conditions and strings attached, but this is worth investigating.

Bank of grandparents – grandparents may want to consider helping to pay for grandchildren’s school fees or additional extras such as schoolbooks, trips and uniforms. If grandparents do have the capacity to help financially, this could mean that a useful by-product could be a reduction in their own Inheritance Tax liability, along with the joy of the gift.

Discounts and scholarships – although discounts aren’t always publicised and can sometimes be discretionary, it costs nothing to ask. A lot of private schools are willing to provide discounts for enrolling multiple children or even paying fees by monthly direct debit. Always ask about any scholarships or bursaries your child might be eligible for. According to the Independent Schools’ Council, a third of children educated at a private school now receive some sort of help with fees.

Good alternative option
Private education is not a feasible option for every family, and with an excellent selection of state schools on offer, it doesn’t have to be the only good option. There are many other ways to invest in your child’s future. For example, if you invested the money you would have spent on day school fees for a full 14 years on your child’s behalf, you could provide a sum that could be used to potentially fund university, buy them a house, learn a new skill or set up their own business.

Generation still taxed

Numbers nearly double in the last two decades

With so much choice on offer, and with frequent rule changes and distinct tax benefits to consider, finding the right vehicle for your retirement planning is essential.

Add to this the number of taxpaying pensioners nearly doubling over the last two decades, and with talk of also requiring pensioners to pay National Insurance on any earnings or even on pensions, the older population may start thinking of themselves as ‘Generation still taxed’.

Detailed figures
The analysis[1] shows that between the mid-1990s and the mid-2010s, the number of taxpayers over the age of 65 nearly doubled from 3.32 million in 1995/96 to 6.49 million in 2015/16, the last year for which detailed figures are available. It is estimated that the number has broadly stabilised since then and stands at around 6.37 million in 2018/19.
The data covered every local authority in the UK and provided separate information for men and women. The data relates to the 6.87 million taxpayers over State Pension age in 2015/16 and includes around 400,000 women over State Pension age but under the age of 65.

Employment income
Amongst the 6.87 million taxpaying pensioners, the average annual tax bill is £3,522. For the 3.87 million men, the average bill is £4,341; for the 3 million women, the average is £2,467. More than a quarter of taxpaying pensioners are still in paid work – 1.5 million have employment income, and 0.5 million have income from self-employment.

The total amount of Income Tax paid by pensioners in 2015/16 was around £24 billion. Of this, around £21 billion came from England, £1.7 billion from Scotland, £0.8 billion from Wales and £0.4 billion from Northern Ireland.

Local authorities
The five local authorities with the highest total tax bill by pensioners were Surrey (£961 million), Hampshire (£763 million), Essex (£756 million), Greater Manchester (£646 million) and Kent (£645 million). This means that pensioners in Surrey are paying more in Income Tax than pensioners across the whole of Wales.
When planning for retirement, it is vital to remember that the tax office will still want a slice of your income, which reinforces the need to put aside enough to secure a decent standard of living, even after the taxman has had his slice.

Source data:
[1] Royal London Freedom of Information Act request – data for 2015/16 for taxpayers over pension age, broken down for each local authority in the UK and for men and women separately. Data gives the number of pensioner taxpayers in each area and how much tax they pay. It also shows how many have income from self-employment, employment, pensions, property and other sources.