Plan for tomorrow, live for today

Helping you achieve your financial goals.

The key steps toward financial security are to translate them into your own terms. What, exactly, are your personal financial goals? If you have trouble sorting them out, try classifying them as either wants or needs.

Go a step further and add short-term, medium-term and long-term to the descriptions. Now you have some useful labels you can apply to your priorities. If you’re not sure where to start or what your goals should be, we’ll help you provide a framework to consider them.

Importance of setting financial goals

Goals are a core element of any financial planning since you can’t create a strategy without knowing what you are working towards. Your goals are the things that will motivate you to manage your finances better and you should use them to frame every financial decision that you make in everyday life.

To build an effective strategy based on your goals, they need to be specific, achievable, and personal to you. They’re also there to measure your progress and celebrate success.

Process of setting personal financial goals

Before determining how you want your finances to look in the future, you need to understand how your finances look today. Take note of any assets you currently have: your savings, your pension, your investments, your home, and any other assets of value, such as your car or your business.

Review your debts, for example, your mortgage, your student loan, and any overdrafts, bank loans, and credit card debts. Compare your income and your outgoings.

A few questions to ask yourself:

Q: Do I feel as if I’m currently working towards achieving my goals?

Q: What changes do I need to make today for my goals to become a reality in future?

Q: How do I visualise my life; five, ten or twenty years from now?

Q: What would I do if my job and income suddenly disappeared?

Q: What are my most pressing financial concerns I need to address?

Q: What financial matters keep me awake at night?

Attach a meaning to your goals

To improve your chances of success, be realistic, use actual figures, and set time limits. Then ask yourself why that goal is important to you. Attaching a meaning to your goals makes them more powerful.

Setting effective financial goals

It’s sensible to create at least one goal in each of the following categories:

Debts

If you have outstanding debts and are paying high rates of interest, your top priority should be paying them off, as this will usually make a bigger difference to your financial situation than saving the equivalent amount of cash and receiving a lower rate of interest. Prioritise high-interest debts, such as credit cards.

Savings

“Pay yourself first” by automating your savings. Assign an amount you’d like to add to your savings within the next year and write down a record of what you’re saving for, whether thats a deposit to buy a house or any other goal personal to you.

Investments

From the old adage of saving for a rainy day to planning a comfortable retirement, most of us have investment goals in our life. Whatever your personal investment goals may be, it is important to consider the time horizon at the outset, as this will impact the type of investments you should consider. The more time you have, or the more flexible the timing, the more investment risk you can afford to take with your money.

Pension

Your retirement may still seem a long way off, but even so, now is the time to get serious about your financial plan and the best way to start is to focus your retirement goals. Taking the time to think about your most important priorities means you’ll be better able to target spending and saving in accordance with what you want to achieve, both now and in the future. The end goal is to make you financially secure and independent in retirement, which should provide a major incentive to be proactive.

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.

Mind the divorce gap

Women see incomes fall by 33% following divorce, compared to just 18% for men.

Divorce is an emotionally charged event – and can be an expensive one. The financial impact of divorce can also last for decades and carry on into older age. Women are also often impacted harder financially by divorce, new research highlights.

Many women are likely to see their household incomes fall by a third (33%) in the year following their divorce, almost twice as much as men (18%) and are significantly more likely to waive rights to a partner’s pension as part of a divorce (28% women versus 19% men)[1].

Financial struggle post-divorce

Women are more likely to face a financial struggle post-divorce (31% women versus 21% men) and worry about the impact on their retirement (16% women versus 10% men).

Office for National Statistics data shows, on average, women already have a significantly smaller pension pot than men. There are many reasons driving this disparity, one being that women are typically paid less, whilst men who divorce are far more likely to have been the primary breadwinner in the relationship (74% men versus 18% men).

Greater degree of financial burden

This is why women will likely feel a greater degree of financial burden if transitioning to a single-income household and are likely to face financial struggles following a divorce from their partner (31% women versus 21% men).

This is particularly true for older women who divorce. One in four divorces occur after the age of 50 and women are significantly more likely to worry about the impact of their divorce on their retirement (16% women versus 10% men).

Rights to a key financial asset

While there is only a slight difference in the number of men and women who feel that the division of their finances at the point of divorce was fair and equitable (54% men and 49% women), the research found that many women may be signing over their rights to a key financial asset.

Women are significantly more likely to waive their rights to a partner’s pension as part of their divorce (28% women versus 19% men). This could have a significant long-term impact, particularly as women tend to have less personal pension wealth, according to the most recent findings from the Office for National Statistics (ONS) [2].

Median active pension wealth

The ONS data shows that men currently below the State Pension age have higher (£25,300) median active pension wealth than women (£20,000). Meanwhile, for those aged 65 years and over, median pension wealth for pensions in payment for men is double that for women (£223,933 for men versus £112,967 women).

Divorce is such an emotional time and people have so much to think about that they often just can’t focus on the pensions. But it’s vital for people to find out how much they are worth and to think about how to divide them fairly – for some people they could be worth more than the family home.

Source data:
[1] Opinium Research for Legal & General ran a series of online interviews among a nationally representative panel of 2,008 UK adults aged 50+ who are divorced from the 19th to 23rd September 2020.
[2] https://www.ons.gov.uk peoplepopulation andcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/pensionwealth ingreatbritain/april2016tomarch2018

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028). THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.

THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION WHICH ARE SUBJECT TO CHANGE IN THE FUTURE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

Reappraisal of urban living

3 million people in the UK aged over 50 considering relocating.

The coronavirus (COVID-19) pandemic has lead to a reappraisal of urban living, with increasing numbers fleeing city confines in search of green space.

3 million people aged over 50 (12%) now plan to relocate in retirement, as a direct result of the pandemic. A year of lockdowns has led these over 50s to want to move closer to family and friends, pursue a better quality of life or even move abroad.

Leaving major urban areas

New research has found that 3 million people in the UK aged over 50 are considering relocating, as a direct result of Covid-19[1].

In 2020, the Office for National Statistics[2] revealed that people of retirement age in England were already leaving major urban areas and instead moving to rural areas, locations by the coast or to areas of ‘outstanding natural beauty.’

Retirement migration hotspots

The data demonstrated that Dorset, Shropshire and Wiltshire were ‘retirement migration hotspots’, while England’s largest cities saw net outflows of retirement age residents, with London, Birmingham and Bristol seeing the largest number of exits.

Nearly a year on, the research has found that the pandemic has influenced some over 50s to plan a move after a year of lockdowns. Over 50s want to relocate to somewhere that offers a better quality of life (7%), to move close to friends and family (4%) or to live abroad (3%).

Freeing up property wealth

When planning a move, many over 50s consider how the value of their current home plays a role in their long-term plans. 1.3 million pre-retirees over 50 (9%) see themselves as more likely to turn to their property wealth to fund their lifestyle than before the pandemic. In instances where people are relocating, they may downsize to free up property wealth.

When considering relocating to a new area make sure your new home is as future proof as possible – it’s important to think carefully about the type of property you choose and whether it will suit you for the long term. Is it accessible or could it be easily renovated to meet your needs in the future?

Challenges of the pandemic

Understand how a new area might impact on your living costs – it’s important to consider any difference in living costs between areas and whether, over-all, you are likely to spend more money, or save money, in your new location.

Relocating in retirement was already a well-observed trend, with older people reprioritising their needs as they enter the next stage of their life. As with many aspects of our lives, the challenges of the pandemic seem to have led many people to take stock of their current living situation.

Better quality of life

There can be many benefits to relocation, whether it is a better quality of life, more space or even the opportunity to be closer to loved ones.

One thing that is clear is that many people will also see their decision informed by how their property wealth factors into their long-term financial planning.

Source data:
[1] Opinium Research for Legal & General ran a series of online interviews among a nationally representative panel of 2,009 over 50s from the 19th to the 23rd February 2021. 242 over 50s plans to relocate out of 2009 UK over 50s – 242 / 2009 25,197,069 over 50s = 3,035,187 or 3 million.
[2] https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/ageing/articles/livinglongertrendsinsubnationalageingacrosstheuk/2020-07-20#migration-of-older-people-is-driven-by-movement-away-from-major-cities-to-rural-and-coastal-areas

‘It’s not what you earn, it’s what you keep’

The potential impact to your expected retirement income over time.

When you’re planning your retirement income, there are multiple factors to consider: how much you can expect from the State Pension, the value of the pensions you have accumulated in your working life, your projected outgoings, and your potential later life expenses.

One more factor not to overlook is how much of your retirement income could you lose in taxes. The amount you pay to HM Revenue & Customs (HMRC) may be more than you expect, leaving you with less to cover your regular expenditure.

New data highlights retired households lose nearly 14% of their income a year to direct taxes. Income tax and council tax take 13.9% off the average retired household’s pre-tax income of £31,674. Retirees are also impacted by around £4,078 a year in direct taxes[1].

Taxes payable in retirement

Once you retire, you’ll no longer need to pay certain taxes, such as National Insurance. But other taxes are still applicable, including Income Tax. You’ll pay Income Tax on any taxable income you receive above your personal allowance (currently £12,570 tax year 2021/22).

Taxable income includes your State Pension (currently up to £9,339), income withdrawn from your workplace or personal pensions, and income from other sources, such as part-time work or rental income from buy-to-let properties. There are also other taxes you might not have factored into your budget, such as council tax.

Different sources of income

If you have different sources of income, you’ll end up with several tax codes, which tell your employer or pension provider how much tax to deduct. Don’t assume these are correct – HMRC does make mistakes. You should receive coding notices with details of your tax codes before the start of the tax year. It’s a good idea to check these are right and if you think there’s a mistake, or if you’re not sure, contact HMRC.

The first time you take a lump sum (apart from the tax-free lump sum) from a defined contribution pension scheme, it’s likely you’ll be charged too much tax. This is because most initial lump sum payments are taxed using an emergency tax code. This means you’re taxed as if you made the same lump sum withdrawal every month of the tax year. You can claim back overpaid tax.

Tax on your savings

The way your savings are taxed doesn’t change when you retire or reach State Pension age. Banks and building societies now pay savings interest without any tax taken off but, depending on your situation, you may still have to pay tax on some of your savings income.

An effective tax plan is a crucial part of planning for retirement and can help you make the most of your financial resources. It’s always important to consider the amount of after-tax income you’ll earn. Its important to remember, ‘it’s not what you earn, it’s what you keep.’

Increasing your retirement income

Before you retire, there are various ways to boost your retirement income in the future. You may be able to increase the State Pension you’re entitled to claim by filling any gaps in your National Insurance contributions record.

If you haven’t taken advantage of them, you may have tax-efficient savings options, such as Individual Savings Accounts (ISAs). Within an ISA (such as our Stocks & Shares ISA) you pay no UK tax on income or capital gains. Paying less tax could mean higher returns for you (and less work if you need to complete a tax return).

And you can also plan the most tax-efficient way to access your pension from age 55. Taking money from your pension plan is a big decision and when and how you do it can have significant impact on how long your savings will last. So, when the time comes, it’s important you feel confident you understand your options and how your decisions might affect the tax you pay and how long your money will last.

Source data:
[1] Key Equity Release 06 April 2021

Pension boost

Are you claiming all of the generous tax relief you’re entitled to?

The unique combination of tax breaks and flexible access available to pensions make them a compelling choice when saving for retirement. One of the key benefits of saving into a pension rather than another type of savings or investment vehicle is the generous tax relief you’re entitled to receive.

Making the most of pension saving involves maximising tax relief and allowances which could substantially boost your retirement savings.

What is the pension annual allowance?

All UK taxpayers are entitled to claim tax relief on contributions they make to their pension. But there is a cap on how much you can contribute while claiming tax relief, which is called your annual allowance.

The current pension annual allowance in the tax year 2021/22 is £40,000, but in some cases, yours could be lower. If your taxable income is less than £40,000, your annual allowance is 100% of your taxable income. If your taxable income exceeds £240,000, your annual allowance may be tapered.

What is the tapered annual allowance?

The tapering rules are complex but, put simply, for every £2 of taxable income you receive above £240,000, your annual allowance reduces by £1. The minimum annual allowance is £4,000, for those with an income above £312,000.
What happens if you don’t use all of your pension annual allowance?
If you don’t use all of your pension annual allowance, you could be missing out on tax relief that you are able to claim.
Of course, you may not be able to afford to contribute the maximum in every tax year. So, it’s helpful to know that you can carry forward unused annual allowance to use in the future.

What is pension carry forward?

Pension carry forward allows you to use unused annual allowance from up to three previous years.

So, for example, if you’re a UK taxpayer with a salary of £100,000, and you have only used £20,000 of your pension annual allowance in each of the last three tax years, you have £20,000 of unused annual allowance from each year, totalling £60,000.

This year, the maximum you could potentially contribute towards your pension is £100,000 – £40,000 from this year’s annual allowance, plus the £60,000 from your previously unused annual allowance.

When is carry forward useful?

Usually, when you’re self-employed and your income changes drastically from year to year; you’ve received a windfall in this tax year that you’d like to pay into your pension; or, you’ve become a high earner with a tapered annual allowance.

How do you claim pension carry forward?

When planning to make large pension contributions, spreading them across tax years can mean higher rate relief is available on the full contribution. You can utilise pension carry forward by making additional contributions to your pension and you don’t need to notify HM Revenue & Customs to do this.

However, if you accidentally exceed the amount you’re entitled to claim tax relief on, you could be penalised. So, it’s important to check your past pension statements to see how much unused pension annual allowance you have and keep records to prove that you’re eligible to carry forward.
This is a complex calculation, so to be sure you’re following the rules exactly, it’s sensible to obtain professional financial advice.