Making the most of your pensions

Have you accumulated multiple plans that need reviewing?

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

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

Some alternative pension options may offer the potential for a better investment return than existing pensions – giving the opportunity to boost savings in retirement, without saving any more. In addition, some people might benefit from moving their money to a pension that offers funds with less risk – which may not have been available before. This could be particularly important as someone moves towards retirement, when they might not want to take as much risk with their money they’ve saved throughout their working life.

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

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

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

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

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.

Guide to New Tax Year Planning 2018/19

Time to take a tax wealth check?

Now that we’ve entered the 2018/19 tax year, a number of key changes have taken place to existing policies, along with some newly introduced initiatives. It’s important to consider these tax implications when making financial decisions.

The key changes to existing policies and newly introduced initiatives

To help you navigate your way through the main changes that could have an impact on your financial situation, we’ve provided a summary of the main 2018/19 tax year changes that have come into force. The good news is that the overall tax burden is little changed for basic-rate taxpayers, but there are a number of areas that have changed that should be taken note of.

Taking action at the start of the 2018/19 tax year may give you the opportunity to take advantage of appropriate reliefs, allowances and exemptions, and consider whether there are any relevant decisions that you need to make sooner rather than later.

Here’s what you need to know about the 2018/19 tax year changes and new initiatives.

Personal Allowance

The tax-free Personal Allowance is the amount of income you can earn before you have to start paying Income Tax. All individuals are entitled to the same Personal Allowance, regardless of their date of birth.

In the 2017/18 tax year, the Personal Allowance was £11,500, and it rises to £11,850 in the 2018/19 tax year. This means you can earn £350 more in the 2018/19 tax year than in the previous tax year before you start paying Income Tax.

However, bear in mind that the Personal Allowance is restricted by £1 for every £2 of an individual’s adjusted net income above £100,000.

A spouse or registered civil partner who isn’t liable to Income Tax above the basic rate may transfer £1,185 of their unused Personal Allowance in the 2018/19 tax year, compared to £1,150 in the 2017/18 tax year to their spouse or registered civil partner, as long as the recipient isn’t liable to Income Tax above the basic rate.

Income Tax

The starting point for paying 20% basic-rate tax is £11,850, while 40% tax will start on earnings above £46,350 (up from £45,000).

Scotland

In Scotland, the first £2,000 of earnings after the Personal Allowance is taxed at 19% rather than 20%. After that, it’s 20% tax until your earnings hit £24,000, when it rises to 21%, then above £43,430 the rate is 41%. Both have an upper rate above £150,000; in England it’s 45%, in Scotland 46%.

Higher-rate threshold

The threshold for people paying the higher rate of Income Tax (which is 40%) increased from £45,000 to £46,350 in the 2018/19 tax year. This new figure also includes the increased Personal Allowance. The Government has already committed to raising the higher-rate threshold to £50,000 by 2020.

Dividend Allowance

The Chancellor of the Exchequer, Philip Hammond, announced in the Spring Budget 2017 that the Dividend Allowance would reduce from £5,000 to £2,000 from 5 April 2018.

Any dividend income that investors earn above the £2,000 allowance will attract tax at 7.5% for basic-rate taxpayers, while higherrate taxpayers will be taxed at 32.5%, and additional-rate taxpayers at 38.1%.

This may impact on shareholders of private companies paying themselves in the form of dividends, for example, rather than salary. Investors with portfolios that produce an income in the form of dividends of more than £2,000 a year, which are held outside ISA or pensions, will also be affected by the reduction in the allowance.

National Insurance Contributions

Will be charged at 12% of income on earnings above £8,424, up from £8,164 until you are earning more than £46,350, after which the rate drops to 2%. It’s the same in Scotland.

Auto enrolment contributions

Auto enrolment contribution rates have increased for employees and employers. In the previous 2017/18 tax year, the minimum pension contribution rate was 1% from the employee and 1% from the employer, which provides a 2% contribution. However, from 6 April 2018, the contribution rate increased to 3% for employees and 2% from the employer, totalling 5%.

Pension Lifetime Allowance

The Lifetime Allowance increased from £1 million to £1.03 million in the 2018/19 tax year. This is the maximum total amount you can hold within all your pension savings without having to pay extra tax when you withdraw money from them.

If the total value of your pension savings goes over the Lifetime Allowance, any excess will be taxed at a rate of 25% in addition to your marginal rate of Income Tax if drawn as income, or 55% if you take it as a lump sum.

State Pension

There has been a 3% rise for the old basic State Pension and the new flat-rate State Pension. If you’re on the basic State Pension (previously £122.30 per week), this has increased to £125.95. The flat-rate State Pension has increased from £159.55 to £164.35 a week.

Inheritance Tax

The residence nil-rate band (RNRB) has risen from £100,000 to £125,000. The RNRB enables eligible people to pass on a property to direct descendants and potentially save on death duties.

Capital Gains Tax

Capital Gains Tax is charged on profits that are made when certain assets are either transferred or sold. There’s no tax to pay if all gains made in a tax year fall within the annual Capital Gains Tax allowance. For the 2018/19 tax year, this is £11,700 (it was £11,300 for the 2017/18 tax year).

Buy-to-let landlords

Changes mean that only 50% of mortgage interest will be able to be offset when calculating a tax bill, compared with 75% previously.

LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE, AND THEIR VALUE DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF THE INVESTOR.

Tax relief and pensions

Annual and lifetime limits

When it comes to managing money, one of the things some people find most difficult to understand is the tax relief they receive on payments into their pension. Tax relief means some of your money that would have gone to the Government as tax goes into your pension instead. You can put as much as you want into your pension, but there are annual and lifetime limits on how much tax relief you get on your pension contributions.

TAX RELIEF ON YOUR ANNUAL PENSION CONTRIBUTIONS

If you’re a UK taxpayer, in the tax year 2018/19 the standard rule is that you’ll receive tax relief on pension contributions of up to 100% of your earnings or a £40,000 annual allowance, whichever is lower. Any contributions you make over this limit will be subject to Income Tax at the highest rate you pay. However, you can carry forward unused allowances from the previous three years, as long as you were a member of a pension scheme during those years.

But there is an exception to this standard rule. If you have a defined contribution pension and you start to draw money from it, the annual allowance is reduced by £1 for every £2 income where adjusted income exceeds £150,000.

THE MONEY PURCHASE ANNUAL ALLOWANCE (MPAA)

In the tax year 2018/19, if you start to take money from your defined contribution pension, this can trigger a lower annual allowance of £4,000. This is known as the ‘Money Purchase Annual Allowance’ (MPAA). That means you’ll only receive tax relief on pension contributions of up to 100% of your earnings or £4,000, whichever is the lower.

Whether the lower £4,000 annual allowance applies depends on how you access your pension pot, and there are some complicated rules around this.

The main situations when you’ll trigger the MPAA are:

If you start to take ad-hoc lump sums from your pension pot
If you put your pension pot money into an income drawdown fund and start to take income

The MPAA will not be triggered if you take:

A tax-free cash lump sum and buy an annuity (an insurance product that gives you a guaranteed income for life)
A tax-free cash lump sum and put your pension pot into an income drawdown product but don’t take any income from it

You can’t carry over any unused MPAA to another tax year.

The lower annual allowance of £4,000 only applies to contributions to defined contribution pensions and not defined benefit pension schemes.

TAX RELIEF IF YOU’RE A NONTAXPAYER

If you’re not earning enough to pay Income Tax, you’ll still qualify to have tax relief added to your contributions up to a certain amount.

The maximum you can pay is £2,880 a year or 100% of your earnings – subject to your annual allowance.

Tax relief is added to your contribution, so if you pay £2,880, a total of £3,600 a year will be paid into your pension scheme, even if you earn less than this.

HOW MUCH CAN YOU BUILD UP IN YOUR PENSION?

A pension lifetime allowance puts a top limit on the value of pension benefits that you can receive without having to pay a tax charge.

The pension lifetime allowance is £1,030,000 for the tax year 2018/19. Any amount above this is subject to a tax charge of 25% if paid as pension, or 55% if paid as a lump sum.

WORKPLACE PENSIONS, AUTOMATIC ENROLMENT AND TAX RELIEF

Since October 2012, a system has being gradually phased in requiring employers to automatically enrol all eligible workers into a workplace pension.

It requires a minimum total contribution, made up of the employer’s contribution, the worker’s contribution and the tax relief.

Reach your financial goals

Helping you realise your retirement vision

We’ve now entered a new age of retirement planning with the introduction of pension freedoms. Your retirement is likely to be the most important time in your life you’ll even plan for – you could be retired for 20 years or more.

Thinking about pensions sooner rather than later can mean the difference between a comfortable retirement and struggling to make ends meet. Unfortunately, some people put off retirement planning when they are young because they think they’ve got time on their side. However, the earlier you start saving for your future, the bigger the pension pot you’ll end up with when you’re older.

7 pension tips for nurturing your nest egg in 2018

Research shows we’re more likely to achieve our financial goals if we write them down and start with a clear plan of action. Work out what financial goals you want to achieve, then break them down into realistic steps that will lead you there. We’ve provided seven pension tips for you to consider to keep your retirement plans on track at the start of the New Year.

1. Consider consolidating your pension pots – while it might be hard to keep track of pensions with job changes, the Government offers a free Pension Tracing Service. Bringing your pension pots together may help you manage them, but take care to understand the benefits associated with the existing contract, along with any potential risks/disadvantages of transferring the funds – and always seek professional financial advice to see if it’s suitable for you.

2. Make use of your tax reliefs on pension contributions – when you are able to do this, particularly at higher rates, this can be beneficial. The Government may well revisit pension tax relief post-Brexit to help ‘balance the books’.

3. Maximise your workplace pension contributions – if your employer pays a contribution that is linked to your contribution, see if it’s affordable for you to pay the maximum in order to receive your employer’s maximum.

4. Invest for the long term – there have been various moments of uncertainty in the markets – think back to the ‘crash’ of 1987 which now looks like a ‘blip’. Keep an open mind, and don’t panic or have knee-jerk reactions. You must remember that when investing in the stock markets, it is inevitable that there will be times of volatility and you can weather the storm.

5. Review your State Pension entitlement – given so many changes, it is worth keeping your finger on the pulse and looking at what you may need to do to top up to the maximum entitlement available.

6. Review your expected expenditure in retirement – it’s key that you clearly establish ‘essential’ and ‘discretionary’ spending, so in poor market conditions you can always look to reduce income from pension funds if necessary to cut back on discretionary expenditure that can wait for another day.

7. Ensure your income in retirement is set up as tax-efficiently as possible – making full use of all available tax allowances/exemptions is crucial. Don’t forget to look at how different tax wrappers can work for you.

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.

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.

Will you Make Provision for all Those you Hold Dear?

make provision for all those you hold dear

Getting your affairs in order and planning what you want to pass on to loved ones

Writing a will may seem daunting, and with everything else we should be thinking about it becomes just another chore on the to-do list. It’s especially important for cohabitating couples to have a will, as the surviving partner does not automatically inherit any estate or possessions left behind.

Getting your affairs in order and planning what you want to pass on to loved ones, whether it’s while you’re alive or after you’ve passed away, is really important. Not only does it mean that your wishes can be carried out but it can also help reduce the emotional and financial burden on loved ones at an already difficult time. We all lead such busy lives that it can be easy to put off estate planning, but it’s best to take care of this sooner rather than later.

No Will in place

But three in five adults (60%) don’t have a Will in place, with a third (33%) not having thought about writing a Will, according to research from Royal London[1]. Surprisingly, the research also found that a quarter (26%) of those aged 55 and over have not written a Will. Of these, one in six (16%) over-55s with no Will have never even thought about writing one.

Cohabiting couples are less likely to have a Will, with three-quarters (77%) not having written one compared to those who are married or in a registered civil partnership (46%). Single adults (45%) and cohabiting couples (32%) are the least likely to have thought about writing a Will compared to those who are married or in a civil partnership (22%) and those who have separated/divorced (21%).

Feeling more pressure

Adults with children feel more pressure to write a Will, with half (48%) saying they have not written a Will but want to write one in the near future. Three in five parents with children under 18 (58%) also haven’t chosen guardians for their children in the event of their death.

Making or updating a Will provides the perfect time to talk to your family about inheritance matters. For instance, you can talk about the items you might like to pass on to them, as well as what they might spend an inheritance on. When people have these conversations, they often discover that they can help their loved ones financially now, rather waiting until they’ve passed away. As well as being able to see loved ones benefit from some money, this can also help from an Inheritance Tax perspective.

Passing on your belongings

It’s not just about wealth. Some people may not think they need a Will because they don’t have very much money in the bank or because they don’t feel old, but this isn’t necessarily the case. You need to think about whom you want to pass your belongings on to, your home, car, jewellery and even your pets. It’s important to put this information down in writing so your family and friends can honour your wishes once you’ve passed away.

Don’t assume who will benefit. If someone dies in the UK without a valid Will, their property is shared out according to rules of intestacy, which means your estate can only be inherited by close family (spouse/registered civil partner, siblings, children, parents and aunts/uncles). So, unless you have a Will, intestacy rules could force an outcome that is completely contrary to your wishes.

Writing a Will or redraft

Beware of the revoking rule. Wills are revoked when you marry, so even if you have written a Will to include your spouse or civil partner-to-be before your marriage, you’ll need to renew it afterwards. This is also important if you have children from a previous marriage: although your new spouse would benefit from your estate through the intestacy rules, your children might not.

You may also want to write a Will or redraft your existing one if you are in the process of separating from or divorcing your partner, because if you die before your divorce is complete, your spouse or registered civil partner can still inherit your estate.

Source data:
[1]YouGov on behalf of Royal London surveyed 2,089 adults between 10 and
11 October 2017. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).

Sleepwalking into retirement

Lack of pension knowledge among UK adults

The UK’s middle-aged workers could be sleepwalking into retirement poverty. Four in ten people aged between 40 and 65 cannot accurately estimate their total pension savings for retirement.

Just over a third of 60 to 65-year-olds who took part in a questionnaire by the JLT Employee Benefits research do not know the size of their retirement fund. Additionally, two thirds of 40 to 65-year-olds with pension savings of under £250,000 still believe their pension pot will end up paying out more than the UK State Pension.

Benefit of employment

However, current estimations suggest that £250,000 of savings would actually provide less than £159.55 per week – the current full State Pension. Only 29% of participants in the survey said they received enough support at their workplace to manage pensions. Two thirds of recipients said they would welcome retirement planning as a benefit of employment.

So far, nearly nine million people have been automatically enrolled since the system was launched five years ago in 2012, with the figure expected to reach 11 million by 2018.

Thought-provoking findings

Four out of five Britons are unhappy with the amount they are putting into their pension fund every month, while one in four people regret not starting to save for retirement earlier in life, according to research from Pension Geeks.

It is evident that there is a lack of pension knowledge among UK adults, with less than one in ten confident they have an in-depth understanding, according to the study. The research uncovered some thought-provoking findings on the state of pensions and pension awareness in the UK.

Complicated to understand

Almost nine in ten think there is not enough information about pensions readily available to them, and 25% believe the information that is available is too complicated to understand.

The latest Scottish Widows Retirement Report has revealed that the number of people saving sufficiently for retirement has stalled at 56% for the third consecutive year, with almost a fifth of the UK adult population not saving at all – that is more than nine million people.

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.

‘Sandwich’ generation

Not having enough money for retirement is the biggest concern

Average life expectancy has generally been increasing, and for the ‘sandwich’ generation, saving for their retirement is clearly a big concern – and with plans to contribute financially to support their children and parents, it’s perhaps no wonder.

A survey by the Association of Investment Companies[1] of the sandwich generation aged 35–55 who have elderly parents and children and a minimum household income of £50k found that half (49%) said not having enough money for retirement was their biggest financial concern. This was followed by their children’s school/university fees (36%) and not being able to help family members financially (23%).

Saving for retirement

Three quarters (75%) of people interviewed said they had either a final salary, defined benefit pension or a defined contribution pension from their employer, and 47% said they had a personal defined contribution pension and/or a Self-Invested Personal Pension (SIPP) arranged individually. While having this pension provision, nearly half (48%) of people said they still expect any money they currently have saved outside their pension to be used for retirement.

Research revealed that, on average, the sandwich generation are planning to save £419,248 for retirement with one fifth (21%) of those surveyed saying they were planning on saving between £250,001 and £500,000 for their retirement. On average, men are planning to save over £100,000 more than women for their retirement – £463,922 in comparison to £361,329. Interestingly, a quarter (25%) said they didn’t know how much they were planning to save.

Financial contributions

Unfortunately, it’s not just their own retirement that the sandwich generation are concerned about when it comes to their finances. Nearly a third (31%) of people said they were currently contributing financially to support their child/children after they finished school, and a further 46% were planning to contribute. The average amount the sandwich generation expect to contribute is £40,088. Interestingly though, almost half (46%) think their children will be better off financially when they reach their age.

While half (52%) of those surveyed aren’t planning or currently contributing financially to help their parents or parents-in-law, those who are (34%) said the average amount they expect to contribute is £18,378, which would go towards bills or expenses, medical expenses and/or a retirement home.

Saving habits

When it came to their saving habits, an overwhelming number (66%) said they use a cash savings account and/or a Cash ISA (59%) to save money, with a Stocks & Shares ISA the third most popular choice (35%).

While most (50%) expect any savings (excluding pension savings) they have to be used for ‘a rainy day’, retirement (48%) was the second most popular option followed by a holiday (42%) and property (32%). Of those who have money saved, most started saving in their 20s and 30s, but a quarter (25%) have been saving since childhood.

Financial market

When asked what they would invest in if they had money to put aside for ten years and could only invest in one thing, property came out on top (44%), followed by stocks and shares (27%). 49% of people said they felt confident about investing in the financial market, but men are considerably more confident about this than women (60% versus 36%).

Source data:
[1] The ‘sandwich’ generation research was conducted by Opinium from 22 August to 5 September 2017 among 2,011 UK parents aged 35–55, who have a minimum household income of £50k, at least one parent/parent-in-law living and who have or would consider having a Stocks & Shares ISA.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

ISA returns of the year

Taking control over where your money is invested tax-efficiently

A new tax year is nearly upon us – and that means, for all diligent savers and investors, you should make sure that you take full advantage of your current Individual Savings Account (ISA) tax-efficient allowance.

An ISA is a tax-efficient investment wrapper in which you can hold a range of investments, including bonds, equities, property, multi-asset funds and even cash, giving you control over where your money is invested. It is important to remember that an ISA is just a way of sheltering your money from tax. It’s not an investment in its own right.

You don’t even have to declare any investments held in ISAs on your tax return. This may not seem like much, but if you have to file an annual tax return, you’ll know that any way of simplifying your financial administration can be very helpful.

ISA limits

This tax year, you can invest up to £20,000 in ISAs. The 2017/18 tax year runs from 6 April 2017 to 5 April 2018. The ISA allowance can be split as desired between a Stocks & Shares ISA, a Cash ISA, a Lifetime ISA (maximum £4,000) and an Innovative Finance ISA, providing you stay within the overall £20,000 limit.

The annual ISA allowance is per individual and is the maximum amount every person can save into any type of ISA over the course of the tax year. This means you and your spouse or registered civil partner can put up to £40,000 between you into ISAs this tax year.

Protected from the taxman

When you invest through an ISA, your money is protected from the taxman, so you don’t have to pay personal income tax on any interest or dividends you receive from your investments. While the UK Government has introduced the Personal Savings Allowance and Dividend Allowance, holding your investment through an ISA will save you from monitoring and managing a potential tax burden.

The tax-efficient nature of an ISA is particularly useful in retirement, as it means you can hold your money in bond funds and generate a tax-efficient income on top of the payments you receive from your pension. It is also very beneficial if you want to generate long-term capital growth from your funds but prefer to take a cautious approach to investing.

Annual exemption threshold

When your investments are held in ISAs, you don’t have to pay any Capital Gains Tax (CGT) on their growth. Of course, this may seem like a minimal benefit if your profits are well within the annual exemption threshold for CGT, but it’s worth remembering that stocks and shares investments are for the long term. If your funds perform particularly well for several years, holding them in ISAs will mean you have full access to your money at all times, without having to worry about managing a potential tax burden.

Consolidate your investments

If you feel that your existing ISA provider is no longer appropriate for your needs or you are looking to consolidate your investments under one roof, with an ISA you are free to transfer your investment between providers to suit your individual needs.

However, your current provider may apply a charge when you transfer your investment. While your investment is being transferred, it may be out of the market for a short period of time and will not lose or gain in value.

Control over retirement income

ISAs can give you control over your retirement income, as you can take as much money out as you like, whenever you want. Savings in an ISA and withdrawals from an ISA are free from personal taxation.

In contrast, if you are a pension saver, you can generally also take out as much money as you like, whenever you want from age 55. However, while 25% of the pension pot can be withdrawn tax-free, further withdrawals are at the applicable marginal rate of Income Tax.

Inheriting an ISA allowance

The spouse or registered civil partner of ISA holders who have died have the ability to inherit their ISA allowance. The Inheritance ISA or ‘Additional Permitted Subscription’ (APS) rules allow you to use your partner’s ISA allowance for up to three years from the date of their death or 180 days after the completion of the administration of the estate, if longer. The spouse or registered civil partner can then inherit their ISA allowance which will be equal to the amount held by the spouse or registered civil partner in their ISAs.

ISA options:

Cash ISAs: where you either have easy access with no charge for withdrawals but the interest rate is variable, so it could go up and down, or, fixed with no withdrawals allowed but which can be closed early or transferred to another ISA subject to loss of interest. First-time buyers can choose to save up to £200 a month in a Help to Buy: ISA instead.

Stocks & Shares ISAs: these are a tax-efficient way of investing if you’re looking to put your money away for the medium to long-term (at least five to ten years). Unlike Cash ISAs, the value of your investment can go down as well as up and you may get back less than you originally invested.

Junior ISAs: a tax-efficient way to save for your child and which can be accessed by the child when they reach 18 years of age. The annual Junior ISA allowance for the 2017/18 tax year is £4,128 and can be invested in a Junior Cash ISA, a Junior Stocks & Shares ISA, or a combination of both, providing you don’t exceed the annual limit.

Innovative Finance ISAs: a tax-efficient way of participating in peer-to-peer lending, using your savings without paying any personal tax on the income received. The value of your investment can go down as well as up, and you may get back less than you originally invested. These are generally considered higher-risk investments and may not be considered suitable for all types of investors.

Lifetime ISAs: you can use a Lifetime ISA to buy your first home or save for later life. You must be 18 or over but under 40 to open a Lifetime ISA. Up to £4,000 can be put in each year until you’re 50. The Government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.

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

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

Do you have a financial back-up plan this year?

Do you have a Financial Back-up Plan this Year?

Be prepared if life throws something unexpected your way

Unforeseen life events and circumstances can potentially impact your finances in a number of ways. Hundreds of thousands of people are diagnosed with cancer each year in the UK and it is becoming more common among those of working age.

Cancer treatment can cause many to have to work reduced hours or stop working altogether. Sufferers should be able to make getting better their main priority without worrying about job security and financial stability. At a time when welfare reform is resulting in significant changes to benefits such as child and working tax credits, income-based job seeker’s allowance, and income support and housing benefits for those renting and with a mortgage – all of which are being replaced by Universal Credit – families need to do all they can to protect themselves in the event of the unexpected happening.

Heads in the sand

But fewer than one in ten (8%) people in the UK have critical illness insurance, and just a third (34%) have life cover, with many people appearing to bury their heads in the sand when it comes to having a financial back-up plan should serious illness strike, according to research from Scottish Widows[1].

One in five (21%) people in the UK admit their household would not be financially secure for any length of time if it lost its main income as a result of serious illness. And almost half (47%) admit that their savings would last just six months or less if they became unable to work, raising concerns over the nation’s financial resilience should the unexpected happen.

Incidence rate increase

Lung cancer is the third most common cancer in the UK, accounting for 13% of all new cases, and 130 new cases being diagnosed every day. It’s the second most common cancer in both males and females, with 1 in 13 men and 1 in 17 women being diagnosed with the illness during their lifetime. Pancreatic cancer is the eleventh most common cancer in the UK, with 26 cases diagnosed every day, with incidence rates having increased by a tenth over the last decade[2].

The research also reveals that a lack of planning is leaving many UK households in a vulnerable position. When asked how they’d cope should they or their partner not be able to work for six months, a quarter (24%) of people said they’d rely only on state benefits, and two fifths said they’d rely on savings.

Critical illness impact

If you were to become seriously ill, would your loved ones struggle to keep up with household bills and the mortgage? It’s essential to make sure that you and your family are financially protected. If your family relies on you financially, you should consider this protection to help cover against the impact a critical illness would have.

You would receive a cash sum if you are diagnosed with one of the many specified critical illnesses covered during the length of a policy. The pay out could help to cover things such as child care costs and household bills. Or you may want to use the pay out to help make adjustments to your home or lifestyle if needed, or to pay for specialist medical treatment – or even to take that trip of a lifetime to help you recover.

Source data:
[1] Scottish Widows’ protection research is based on a survey carried out online by Opinium, who interviewed a total of 5,077 adults in the UK between 16 and 27 March 2017.
[2] Cancer Research UK

THIS IS NOT A SAVINGS OR INVESTMENT PRODUCT AND HAS NO CASH VALUE UNLESS A VALID CLAIM IS MADE. ADVANCES IN MEDICINE AND TECHNOLOGY MEAN THAT TRADITIONAL VIEWS OF CRITICAL ILLNESSES ARE CONSTANTLY CHANGING.

THE POLICY MAY NOT COVER ALL THE DEFINITIONS OF A CRITICAL ILLNESS. FOR DEFINITIONS, PLEASE REFER TO THE KEY FEATURES AND POLICY DOCUMENT.

Investing for the future

Higher inflation and near-zero interest rates mean the responsible thing to do could be to invest rather than to save

Many of us have been brought up to believe that saving is the responsible thing to do. But in today’s environment of low interest rates and rising inflation, savers may need to consider becoming investors to prevent the erosion of their assets.

Since the global financial crisis of 2007/08, the world’s central banks, including the Bank of England (BoE), have responded by cutting interest rates to record lows. This reduces the cost of borrowing, encouraging spending by consumers and businesses, but it also discourages saving.

Economic recovery

The BoE has acknowledged this is a problem, and in its efforts to keep Britain’s economic recovery on track, the central bank has prioritised growth over the needs of savers. Savers currently hoard over £60 billion[1] in cash for long-term savings and investments, which stands to be eroded by £1.5 billion this year as a result of higher inflation.

That pressure has intensified following the UK’s recent vote to leave the European Union. The pound has fallen considerably against most other major currencies, which means imports have become more expensive. So savers are not only facing lower interest rates, but they are also facing higher prices.

Interest rates

Higher inflation and near-zero interest rates mean the responsible thing to do could be to invest rather than to save. You might even question whether it is better to splash out on some extravagant purchase instead – a new car or a long foreign holiday perhaps. But when you have your entire lifestyle, family and retirement needs to consider, splashing out on luxuries is unlikely to be the best solution, and the joys of doing so may prove short-lived.

So what are the alternatives? Government bonds are often considered to be one of the safer investments after cash, but the prices of government bonds have risen so much in recent years that the income they provide (their yield) is now close to zero – prices and yields move in the opposite direction.

Investment assets

Different types of investment assets offer differing degrees of protection against the effects of inflation, although it is important to understand that the behaviour of asset classes can and does change over time.

There are plenty of other options to consider, although the search for higher yields will often entail higher risk. That risk, however, needs to be set against the likelihood of inflation eroding your savings in the longer term.

Reliable profits

Equities are traditionally regarded as riskier than government bonds. However, many of the shares paying the best dividends are often found in areas generating reliable profits. For example, utilities companies usually have reliable income streams, as people still need to switch the lights on and heat their homes. And while the value of shares can fall as well as rise, successful companies can still increase their dividends – in contrast to the fixed income offered by bonds.

Then there are corporate bonds, which fall into two categories. Investment grade corporate bonds are reckoned to represent a lower risk of failing to pay investors, or ‘defaulting’.

Reward investors

Meanwhile, high-yield corporate bonds are more risky, but reward investors for taking on this risk by offering a higher income (or yield). A carefully selected portfolio of investment grade and high-yield bonds could provide an attractive income stream for appropriate investors, while keeping the amount of risk within the limits that many will find acceptable.

Given these varied opportunities, investors could be well advised to look at the merits of higher-yielding investments that offer the prospect of both higher income and the possibility of long-term growth.

Source data:
[1] BlackRock’s Investor Pulse survey, polling 4,000 people in the UK. Savers typically have £8,700 in cash, of which a quarter (£2,270) is set aside for long-term savings and investments.

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

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.