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Month: April 2022

Improving your financial health

Staying on track to achieving specific financial goals.

All of your financial decisions and activities have an effect on your financial health. To help improve your financial health during this period of rising inflation and interest rates, we look at three areas that could help keep you on track to achieving your specific financial goals.

Beat the National Insurance rise

The National Insurance rise from April this year is going ahead for workers and employers despite pressure to reverse the decision to increase this by 1.25%, which is aimed at raising £39 billion for the Treasury. From April 2023, it is set to revert back to its current rate, and a 1.25% health and social care levy will be applied to raise funds for further improvements to care services.

One way to beat the National Insurance increase is by taking advantage of salary sacrifice, which means you and your employer pay less National Insurance contributions. Some employers may decide to maximise the amount of pension contributions by adding the savings they make in lower employer National Insurance contributions (NICs) to the total pension contribution amount they pay.

This is also a way to make your pension savings more tax-efficient. If you choose to take up a salary sacrifice scheme option, you and your employer will agree to reduce your salary, and your employer will then pay the difference into your pension, along with their contributions to the scheme.

As you’re effectively earning a lower salary, both you and your employer pay lower NICs, which could mean your take-home pay will be higher. Better still, your employer might pay part or all of their NICs saving into your pension too (although they don’t have to do this).

Review your savings accounts and rates

Money held in savings accounts hasn’t grown much in recent years due to historically low interest rates. But with inflation running higher, your savings are now at risk of losing value in ‘real’ terms as you’ll be able to buy less with your money.

In some respects, inflation can be seen as a positive. It’s a sign of strong economic recovery post-COVID, increasing salaries and higher consumer spending. But it’s bad news for your cash savings. Relying solely or overly on cash might prevent you from achieving your long-term financial goals, which may only be possible if you accept some level of investment risk.

In an environment where the cost of living is rising faster than the interest rates received on cash, there is a danger that your savings will slowly become worth less and less, leaving you in a worse position later on.

If you have money in savings, it is important to keep an eye on interest rates and where your money is saved. Rates are low and you will lose money in real terms if inflation is higher than the interest rate offered on your savings account or Cash ISA.

Shift longer-term savings into equities

During times of high inflation, it’s important to keep your goals in mind. For example, if your investment goals are short term, you may not need to worry much about how inflation is impacting your money. But if you’re investing for the long term, inflation can have a larger impact on your portfolio if it’s sustained – although high inflation that only lasts for a short period may end up just being a blip on your investment journey.

If you have large amounts of money sitting in cash accounts one way to beat inflation is to invest some of your money in a long-term asset that will appreciate with time, thus increasing your buying power over time. There are many ways to invest your money, but most strategies revolve around one of two categories: growth investments and income investments.

Historically, equities have offered an effective way to outperform inflation. Cyclical stocks – like financials, energy and resources companies – are especially well-suited to benefit from rising prices. These sectors typically perform better when the economy is doing well, or recovering from a crisis.

Depositing funds into your investment portfolio on a regular basis (such as monthly from salary) can help you invest at different prices, averaging out the overall price at which you get into the market. Known as pound-cost averaging, this can help you smooth out any fluctuations caused by market volatility over the long term. While volatility will always exist, it can be managed and reduced by taking this approach.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE). 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.

Cost-of-living crunch

Savers still recognise the importance of long-term planning.

Britain’s cost-of-living crunch has hit the country hard, with inflation at its highest level in three decades, petrol prices spiralling, retail price increases rising to their highest levels in ten years and, most recently, Ofgem announcing a 54% price hike in energy bills affecting 22 million households.

Chancellor Rishi Sunak has been forced to announce an emergency £350 of support per household to help with the cost of heating. As a result, almost half (47%) of those not retired say that they cannot afford to save right now due to the rising costs of everyday living, a new survey has revealed[1].

Immediate future

The news comes following widespread reports of many UK households struggling to make ends meet following higher inflationary pressures – sending everyday bills soaring – as the country tries to recover from the effects of the COVID-19 pandemic.

Yet despite the concern about saving for the immediate future, savers are still recognising the importance of long-term planning and having a suitable pension in place for when it comes to retirement.

Relatively comfortable

The survey – which took place at the start of this year – also found that around a third of people with a pension said that they spent some of their time over Christmas reviewing their finances, including their pension (31%). This was especially true for those aged 18-34 years old (41%) compared with those aged 55+ (24%).

Overall, just 5% of Britons describe themselves as being ‘very comfortable’ financially. Two in five (39%) are relatively comfortable, while a third (34%) say they can normally cover essential costs but don’t often have money for luxuries. One in seven (14%) say they can only just afford their costs and struggle to make ends meet, and 3% say they cannot afford their costs at all and often have to go without essentials, like food and heating.

Fundamental misunderstandings

Around a third (32%) of those surveyed said they could afford to contribute more to their pensions now in order to boost their retirement income. But while savers are seeing the value of pensions, the survey discovered that there remains a number of key fundamental misunderstandings by savers about their pensions, with many unsure how their contributions were being invested on their behalf.

The survey also revealed that only a third of people know the minimum contribution rate that people make via Automatic Enrolment. Additionally, around two-fifths (39%) are not sure if the government gives tax relief on their pension contributions and around a third (31%) are unsure if their pension savings are invested in stocks, bonds or other investments.

Source data:
[1] Pensions and Lifetime Savings Association (PLSA) research conducted by Yonder Data Solutions from 10/01/22 to 11/01/22 with a nationally representative sample of 2,093 adults
[2] https://yougov.co.uk/topics/politics/articles-reports/2022/02/04/cost-living-crisis-four-ten-britons-expect-their-h

Getting ready to retire?

Bolstering your retirement lifestyle as you approach retirement.

Have you ever wondered what you need to consider as you approach retirement? Whatever your concept of what is a good pension pot, one certainty is that relying on the State Pension alone will not give you a good enough pension to live on comfortably through your retirement.

‘Will I be able to retire when I want to?’ ‘Will I run out of money?’ ‘How can I guarantee the kind of retirement I want?’ These are hard questions to answer unless you obtain professional financial advice and why you need to start by reviewing your finances sooner rather than later to ensure your future income will allow you to enjoy the lifestyle you want.

After decades of working and saving, you can finally see retirement on the horizon. If you plan to retire within the next five years or so, consider taking these steps today to help ensure that you have what you need to enjoy a comfortable retirement lifestyle.

Taking these actions now could help bolster your retirement lifestyle as you approach your planned retirement date.

8 things to consider as your retirement approaches:

1. Track down your pensions

It’s important to track down all the different pension schemes you’ve previously paid into, so you can be sure you’re claiming everything you’re entitled to in retirement.

If you’re unsure where to start, the UK government offers a pension tracking service to help you find lost pensions.

2. When can you access your pensions?

Since April 2015, pension freedoms have given savers in defined contribution (DC) schemes greater access to their cash, allowing flexible withdrawals from the age of 55.

3. What’s your pension’s value?

The easiest way to find out how much your pension is worth is to check your pension statements. Whatever type of pensions you have, you’ll receive an annual pension statement from your provider.

In it they’ll tell you how much your pension is currently worth and what it’s expected to pay out at your retirement date.

4. Get a State Pension forecast

You can call the Future Pension Centre and ask for a State Pension statement. Your statement will tell you how much State Pension you have built up so far based on the National Insurance contributions and credits that are on your National Insurance record at the time your statement is produced.

Contact the Future Pension Centre for questions about the State Pension or to ask for a statement. Telephone: 0800 731 0175, or from outside the UK: +44 (0)191 218 3600. Or obtain a forecast online at https://www.gov.uk/check-state-pension

5. Getting investment advice

If you are close to, or at retirement, you may want to reevaluate your plans. If you have access to other savings and investments, you might want to consider using these before accessing your pension.

If you have other investments or savings, such as Individual Savings Accounts, stocks and shares, bonds, funds, property, etc, it’s worth checking their value as you approach retirement age as they can support you in addition to your pension.

6. How will you access your pension?

When it comes to deciding how to use your pension pot, there’s no one ‘right answer’. There are more pension options than ever thanks to the pension freedoms that allow savers access to every penny of their retirement savings.

Your options may include taking a regular income or lump sums and keep investing the remainder in the stock market, or cashing in the entire amount. You can also choose to swap the money for a guaranteed income via an annuity.

7. How is your pension invested?

Pensions may be for the long term, but it’s important regularly to review where your money is being invested. You need to keep a close eye on which funds your retirement savings are in so that you can check you’re comfortable with the risks involved.

You should also keep a close eye on how much you’re being charged, as fees can have a big impact on the amount you end up with at retirement.

8. The benefits of advice

Pension advice is important because pension products can be complicated, and life can be unpredictable. Professional financial advice will help you make the right decisions about your money and your future.

Retirement planning is important because it can help you avoid running out of money in retirement. You need to know how much you’ve got, how to access it and when you can afford to retire comfortably.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE). 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.

Pension freedoms

You work, you save and then you retire.

A full and happy retirement is a priority for many. But no two people are alike. A ’one-size-fits-all’ system cannot accurately account for everyone’s individual lifestyle choices, so it makes sense that the way you prepare for your future is likely to be different from others.

On the surface, retirement planning hasn’t changed all that much over the years. You work, you save and then you retire. But while the mechanics may be the same, today’s savers are facing some challenges that previous generations didn’t have to worry about.

Golden years

First of all, life expectancy is longer, which means you’ll need your money to last longer. This is compounded by the fact that more companies are moving away from defined benefit pensions –which guaranteed you a certain amount of money in your golden years – to defined contribution plans, which are more subject to market ups and downs.

So, how can you have the retirement you’ve always wanted? Retirement is inevitable, but that doesn’t mean you have to stop living. Your retirement should be a time for enjoying your life and the things you most enjoy doing.

Working lives

However, some people are unprepared for retirement due to high debt levels at the end of their working lives or because they were not saving enough during their careers. Sometimes, people are forced into retirement through circumstances outside of their control.

Some people might choose to live off their savings entirely, while others may choose to supplement their income with rental properties. Still others might prefer to have a mix of sources for retirement incomes.

Pension money

Whatever the case, being aware of the options available today can help you prepare for your future in an effective way. With the introduction of pension freedoms, there is no onus on us to cash in our pensions at set ages, and instead we can take our pension money any way we choose. But, with this freedom also comes responsibility, and for some, uncertainty.

Some people find they don’t have a clear plan for what they want from their retirement, and many underestimate how much money they will actually need when they do eventually retire. The reality is our goals are all very individual, but whatever it is you want from your retirement, it pays to plan ahead.

If you have a defined contribution pension, here are six simple tips to consider:

1. Use pay rises as an excuse to save more
2. Pay in more when a regular spend ends
3. Maximise any employer contributions
4. Invest lump sums you receive
5. Put off breaking into your pension pot
6. Be choosy about your investment choices

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE). 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.