Book a free discovery meeting

call: 01422 349 131

email: info@iftwm.com

Month: March 2024

In 2022, the ONS estimated 15,120 centenarians (people aged 100 years and over) lived in England and Wales, an increase of 3.7% from 2021. The number of centenarians has more than doubled since 2002 (including a doubling of the numbers aged 105 years and over from 300 in 2002, to 640 in 2022).

Similarly, those planning a moderate retirement may need an extra £121,000 in pension wealth if they live beyond the average life expectancy. These calculations stem from the 2022 Pensions and Lifetime Savings Association (PLSA) Retirement Living Standards[2].

Retirement living standards and pension pot calculations

The standards suggest that single retirees need a private pension income of £15,383 for a moderate retirement and £32,882 for a comfortable one, assuming they have a full State Pension. Interactive investor computations consider someone retiring at 66 and using income drawdown to extract this income from their pension pot.

Life expectancy significantly influences the size of the pension pot you will need, as those living longer may require a substantially larger pension pot to last throughout their retirement. Despite a slight decrease in life expectancies during the Covid pandemic, the number of individuals over 90 actually increased by 2% in the year leading up to 2022, according to recent ONS estimates.

Modern medicine and pension planning

The advancements in modern medicine are enabling more people to maintain good health for longer periods, impacting our pension planning. With an increasing number of us reaching advanced ages, predicting how long our pension needs to last can be challenging.

Typically, retirees need their pension pot to sustain them for about 17 to 20 years, with women outliving men by an average of three years. However, these are just averages, and many people live beyond 90 years old, requiring their pensions to last significantly longer.

Implications of living until 100

If you live until 100, you might need £260,000 more than if you lived until 83 years old. Running out of money could result in dependence on the State Pension alone, providing only a basic, frugal retirement.

It’s also crucial to account for potential care home costs as part of your retirement planning. The average nursing home now charges approximately £61,000 per year, meaning two years in a care home could cost around £122,000, though home care costs are generally lower[3].

Role of workplace pensions in retirement savings

Fortunately for those still in employment, nearly all workers automatically contribute to a workplace pension, which can accumulate significantly by retirement. Keeping track of your savings and ensuring you’re on course to meet your retirement objectives is essential.

Source data

[1] https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/ageing/ bulletins/estimatesoftheveryoldincludingcentenarians/2002to2022#population-growth-of-those-aged-90-years-and-over-in-england-and-wales
[2] https://www.retirementlivingstandards.org.uk/
[3] https://www.ons.gov.uk/economy/ inflationandpriceindices/articles/ exploring howtheaverageprice ofindividuali temshaschanged inthelastyear/2023-05-03

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

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

Succession planning, a family affair

A delicate process that requires clear communication and effective planning.

Transferring wealth within a family is a delicate process that requires clear communication and effective planning. Otherwise, it could lead to a potentially large tax bill and bad feelings in the family.

This narrative was depicted in the hit American HBO series ‘Succession,’ which centred on the Roy family, the owners of global media and entertainment conglomerate Waystar RoyCo, and their fight for control of the company amidst uncertainty about the health of the family’s patriarch.

Simplifying the process and maximising tax efficiency

By engaging in succession planning, you can ensure your assets are distributed according to your wishes, simplifying the process and maximising tax efficiency. Before diving into these conversations, consider these questions: When do you want to transfer your wealth? How much wealth do you want to pass on? Who do you want to pass your wealth on to? How do you want to transfer your wealth?

The question of when to transfer your wealth isn’t limited to bequests in your Will. Some strategies for transferring assets during your lifetime may offer various benefits. However, a well-maintained and up-to-date Will is the cornerstone of effective succession planning. It should reflect your current circumstances, objectives, and legal considerations in the jurisdictions where you hold assets.

Don’t compromise your own standard of living

Professional advice and regular reviews of your Will are recommended—every two to three years or following significant life changes such as marriage, divorce, or childbirth. In certain regions, like England and Wales, marriage voids any existing Will unless made in contemplation of the marriage.

To maintain your legacies ‘real’ value, consider linking them to inflation. Transferring wealth through your Will ensures you don’t compromise your own standard of living. Alternatively, gifting during your lifetime allows you to witness the joy your beneficiaries derive from your generosity. For those subject to UK taxes, this can also be a more tax-efficient method of wealth transfer.

Sharing wealth and maintaining your lifestyle

Striking the right balance between sharing your wealth and maintaining your lifestyle is critical. The uncertainties of recent years have underscored the importance of preparing for the unexpected. This preparation involves running various scenarios and ‘stress testing’ the financial outcomes through cash flow planning. This can include testing against different investment return outcomes, inflation projections, and potential long-term care costs.

Cash flow ‘stress testing’ provides invaluable insights when considering more significant gifts. It shows how much you can afford to give away during your lifetime, accounting for worst and best-case scenarios. This approach acknowledges that predicting the future with accuracy is impossible. After all, who would have predicted double-digit inflation in major economies a year ago?

A trust structure can be an ideal solution

Determining who will inherit your wealth is often one of the most straightforward questions to answer, yet it’s deeply personal. This decision is usually intertwined with considerations about timing. For instance, if you’re prioritising the long-term well-being of your young grandchildren, a trust structure can be an ideal solution. This arrangement could assist with significant future expenses such as private education, university fees, or property acquisitions.

Trustees have the discretion to distribute the funds to the beneficiaries according to the stipulations of the trust deed. Additionally, by becoming a trustee yourself, you retain some control over the process. This option can be particularly valuable if a beneficiary has special requirements, as the trust can be tailored to protect their long-term interests. There’s also the option of allocating part of your wealth to charities with a special place in your heart.

The most effective way to meet your goals

The method of transferring your wealth often becomes clear once you’ve addressed the ‘who’, ‘what’, and ‘when’. Timing is a significant factor in this decision, alongside the practicality of making financial gifts during your lifetime. You must decide whether to make outright transfers or establish a trust structure if feasible. Despite adding a layer of complexity, a trust might be the most effective way to meet your goals.

Importantly, initiating conversations about future financial arrangements with your loved ones is crucial. Achieving the right balance between enjoying your current income and capital while efficiently passing wealth to your family requires careful thought.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.

THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

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

ESTATE PLANNING IS NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

A tax-efficient, flexible method for future planning

Time is running out to use your 2023/24 ISA allowance.

Investing in an Individual Savings Account (ISA) is a tax-efficient, flexible method for future planning. One of the most attractive features of an ISA is its tax benefits – it’s immune to both Income Tax and Capital Gains Tax on any growth within the fund or on income you withdraw. This makes contributing to an ISA an intelligent decision for those looking to grow their wealth while minimising tax liabilities.

However, remember that if you don’t utilise your annual ISA allowance before the end of this tax year on 5 April 2024, it will be lost, resetting on 6 April. Maximising your ISA allowance is crucial to reap the full benefits of this savings tool.

Spreading your ISA allowance

You can distribute your ISA allowance between multiple ISAs, such as a Cash ISA and a Stocks & Shares ISA. They can be with different providers, but your total payments into them can’t be more than your £20,000 annual ISA allowance. This allows you to diversify your investments and potentially spread the risk.

Alternatively, you can currently choose to invest the entire £20,000 ISA allowance into one type of ISA, depending on your financial goals and risk tolerance. For married couples, there’s an additional advantage. You can combine your ISA allowances, enabling you to put up to £40,000 in ISAs between you. This effectively doubles the amount you can save tax-efficiently annually, significantly boosting your joint financial planning.

Autumn Statement 2023 ISA rule changes

Significant changes are coming to ISA rules. From 6 April 2024, savers and investors will have more freedom to pay into more than one of each type of ISA annually. Announced during the Autumn Statement 2023, this is considered one of the most considerable shake-ups of ISA rules for many years.

The new rules are designed to provide further flexibility, enabling savers and investors to move between different providers. By allowing multiple subscriptions to ISAs of the same type every year, the government aims to stimulate competition among providers. This will increase flexibility and choice and support the development of long-term investment products.

New ISA rules for tax year 20024/25

Allowing multiple ISA subscriptions – The government will allow multiple subscriptions to ISAs of the same type every year starting 6 April 2024.
Allowing partial transfers between providers – Partial transfers of ISA funds are allowed between providers starting 6 April 2024.
Removing the requirement to reapply for an existing ISA annually – Removal of the requirement to reapply for an existing dormant ISA from 6 April 2024.

Expanding the Innovative Finance ISA

to include Long-Term Asset Funds – Long-Term Asset Funds to be permitted investments in the Innovative Finance ISA from 6 April 2024.

Expanding the Innovative Finance ISA to include open-ended property funds with extended notice periods – Open-ended
property funds with extended notice periods are to be permitted investments in the Innovative Finance ISA from 6 April 2024.

Allowing certain fractional shares contracts as a permitted investment – Certain fractional shares contracts are to be allowed as eligible ISA investments (the government will engage with stakeholders on implementation).

Digitalise the ISA reporting system – Digitalisation of the ISA reporting system to enable the development of digital tools to support investors announced.

Harmonise ISAs to those over 18 years of age – The government will harmonise the account opening age for any adult ISAs to 18 from 6 April 2024.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

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.

Balancing profit and planet

Striving to use impact to boost investment returns.

ESG (Environmental, Social, and Governance) investing, a socially responsible investing approach, seeks to harmonise financial returns with a company’s environmental impact, stakeholder relationships, and global footprint. Our planet faces numerous challenges, from climate change to a rapidly growing and ageing population.

Understanding and incorporating ESG risks and opportunities into your investment strategy improves decision-making and enables you to seek more beneficial investment outcomes. By examining and synthesising ESG data, we can help you to make more informed and sustainable investment choices.

Preparing for future climate change

Responsible investing is aligning investments with personal values, investing in what is deemed right, and steering clear industries or practices that contradict those values. Such issues were highlighted at COP28 last year during the 28th annual United Nations (UN) climate meeting, where governments discussed limiting and preparing for future climate change.

The summit was held in the United Arab Emirates (UAE) from 30 November until 12 December 2023 and reviewed the Paris Agreement progress – the landmark climate treaty concluded in 2015 – charting a course of action to reduce emissions and protect lives dramatically.

Approach to three critical factors

ESG investing is a method of investing that prioritises companies that stand out in their approach to three critical factors. The environmental aspect considers a company’s energy use, sustainability policies, carbon emissions, and efforts towards resource conservation.

The social component of ESG investing highlights a company’s relationships with its employees and the communities it serves. It examines factors like employee welfare, workplace safety, and the company’s contribution to the community. Governance, the third pillar of ESG, scrutinises a company’s leadership, executive pay, audits, internal controls, independence, shareholder rights, and transparency.

Responsible investment pathway

Interestingly, ESG provides a responsible investment pathway without compromising on returns. Companies with high ESG scores, which excel in all these areas, are more likely to be successful, sustainable businesses over the long term. Evidence suggests that companies with high ESG standards often outperform those without, often by a significant margin.

Conversely, companies with low ESG standards have often seen their share prices tumble. Examples include businesses that have caused significant environmental damage, dealt with chemical weapons, or cheated on emissions tests.

Commendable recycling policy

However, ESG categorisations can be open to interpretation, complicating matters for investors with specific ethical requirements. For instance, you could unknowingly invest in a sugary drinks manufacturer with a commendable recycling policy, earning it high ‘E’ scores. But are sugary drinks beneficial for society? Responsible investing can be subjective, with different issues holding varying levels of importance for different individuals.

The growing popularity of ESG investing has also attracted opportunists who falsely represent themselves as ESG businesses or funds. This practice, known as ‘greenwashing,’ is a pitfall that responsible investors need to sidestep.

Guard against greenwashing

How can ESG investors guard against greenwashing? The key lies in selecting companies with products or services that genuinely address global challenges. This is where ‘impact investing’ comes into the picture. Impact investing involves choosing companies that aim to impact the planet and its inhabitants positively. It encourages positive inclusion, naturally excluding exposure to undesirable sectors.

It’s about investing where there is potential for a positive contribution. By seeking out companies actively working to make a difference, you can be more confident that your investments contribute positively, rather than supporting companies that merely slap on an ESG label without genuinely striving to improve the world.

THIS ARTICLE DOES NOT CONSTITUTE ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.

THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN YOU INVESTED.

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