The survey of UK adults aged 50 and older found that only 37% of individuals with defined contribution (DC) or personal pensions considered how a lump sum withdrawal might impact their tax rate or could potentially push them into a higher tax bracket. Additionally, only 39% of respondents consulted a financial adviser before withdrawing money from their pension.

Making rash decisions at 55

Worryingly, the research highlights a trend of individuals hastily accessing their pension funds as soon as they reach the minimum qualifying age of 55. Nearly 1 in 12 (8%) withdrew their tax-free lump sum within six months of their 55th birthday.

Since the introduction of pension freedoms in April 2015, retirees have been able to choose from a variety of options. These options include taking lump sums directly, withdrawing the entire pension pot, drawing a continuous income through income drawdown or purchasing an annuity for guaranteed lifetime income. Many even combine these choices to suit their circumstances. However, with so many possibilities, deciding on the best approach can be a daunting and complex task.

Allure of tax-free lump sums

The allure of tax-free cash remains compelling, as over half (55%) of eligible individuals choose to take the maximum 25% permitted. However, questions emerge regarding how this money is being utilised. The research found that 32% of those withdrawing tax-free sums used the funds to clear debts, including 15% who paid off a mortgage and 18% who tackled other borrowing, such as credit card balances or car finance.

Others took a more cautious approach, with 26% depositing their lump sum into a savings account or bank account. On the other hand, some chose to spend their money on home improvements (19%) or to support family members (8%).

Complexities of retirement planning

One of the most striking revelations is how few people seek financial guidance when making these significant decisions. Alarmingly, 18% of those eligible to withdraw from their pension did so without consulting anyone – not even family or friends. Meanwhile, only 20% of those aged 50 or over with a DC or personal pension utilised the government-backed Pension Wise service for advice.

The research also uncovered widespread concerns about the long-term impact of these decisions. Over two in five (42%) people aged 50 or above admitted they fear running out of money during retirement.

Source data:
[1] Survey data collected between 17–19 December 2024 by YouGov plc on behalf of Royal London.  All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,012 adults aged 50+, of which 311 have done something related to their workplace defined contribution pension or Personal pension/ SIPP. Fieldwork was undertaken between 17–19 December 2024. The survey was carried out online. The figures have been weighted and are representative of all UK adults (aged 18+).

THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. 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 CAN GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN YOU INVESTED.
 

Lifetime gifting is a straightforward solution

For families affected by the new rules, lifetime gifting offers one of the simplest and most tax-efficient ways to minimise IHT liabilities. Assets gifted during your lifetime fall outside your estate for IHT purposes if you survive for seven years after making the gift. For business owners, additional planning strategies like holdover relief could address potential Capital Gains Tax (CGT) consequences when transferring shares or other assets. With holdover relief, the recipient inherits the assets at the donor’s original base cost, thus avoiding CGT at the time of gifting.

However, gifting does present its challenges. Most importantly, these strategies are only practical if you can afford to give away assets without jeopardising your financial security. Detailed cash flow planning will help you understand how to ensure your income and future lifestyle needs remain intact. Encouragingly, the £1 million IHT relief for businesses and farms is now set to renew every seven years, similar to the nil rate band, allowing for multiple gifts over time while maintaining flexibility.

Selling assets and preparing for tax liabilities

If gifting isn’t a viable option, you might consider selling your business or land. However, this approach requires careful preparation, as the proceeds from a sale after April 2026 may attract the full 40% IHT rate on death instead of the reduced 20%. To mitigate this, families may think about placing assets in trust before a sale to shield the proceeds from the higher rate. Keep in mind, though, that the cost and administrative burden of trust arrangements are expected to increase after April 2026.

Additionally, selling assets triggers immediate CGT liabilities, so it’s vital to plan for how to meet these costs. With the current economic climate of higher interest rates, there’s growing popularity in utilising tax-efficient products like gilts or qualifying corporate bonds to generate post-sale income. These products can help preserve wealth and provide stability, especially in times of economic uncertainty. The effectiveness of this approach depends on individual circumstances and financial goals.

Life insurance as a safety net

For families concerned about funding an IHT bill, life insurance can provide an effective solution. When a significant liability is anticipated, a policy written in an appropriate trust can be specifically established to cover the IHT charge. Policies are often designed to complement other strategies, such as gifting. For example, term life insurance may be utilised to cover the seven-year period during which a gifted asset remains part of the estate.

These policies are typically affordable and, when set up through a trust, can ensure that the insurance payout is exempt from IHT. However, premiums rely on factors such as age and health. We can guide you to assess whether this is a suitable option for your needs.

Combine strategies and begin early

Given the complexity of the proposed new rules, many families may benefit from adopting a blended approach. Combining lifetime gifting, trust arrangements and targeted use of life insurance provides more flexibility to meet the challenge. The earlier you start planning, the broader the range of options available to you. Acting now allows you to align your tax strategy with your personal goals and protect the business or land you’ve worked so hard to build.

THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. 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 CAN GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN YOU INVESTED.

After 10 years, 232 appearances and 103 tries, the Panthers’ Halifax born winger James Saltonstall has been rewarded with a testimonial year by the Rugby Football League. Known affectionately as ‘Salty’, James’ tireless determination and effort has made him a firm favourite with both fans and players alike.

We don’t just invest in tomorrow, we invest in our local community too. Which is why we are proud shirt sponsors of James’ testimonial match at the Shay – which was originally scheduled for January but had to be postponed due to a snow-covered stadium. 

We have been long supporters and partners of the Halifax Panthers and the work they do to support our local community, which is why we also sponsor the team’s Learning and Physical Disability Team.

A number of other events have also been organised where fans and former colleagues can come together, celebrate, reminisce, and raise funds in appreciation of James’ long tenure at the club.

Keep an eye on the Halifax Panther’s website and socials to learn when you can buy tickets for the rescheduled match.

On April 2, Trump announced a comprehensive set of tariffs, arguing they would enable the US to ‘economically flourish’. The S&P 500 index, however, disagreed, falling over 10% in response and entering what is known as a ‘market correction’. Investors were further unsettled when Trump acknowledged the possibility of a US recession, referring to this period as a ‘transformation’ for the economy.

Impact of escalating tariffs

The situation took a sharper turn when the White House unveiled higher than anticipated tariffs, affecting all imported goods into the US. Starting with a baseline 10% tariff, the administration swiftly expanded the scope to include a 20% levy on EU goods and ‘reciprocal’ tariffs targeting approximately 60 countries regarded as the ‘worst offenders’. These new regulations, introduced on 9 April, were framed as a response to what officials claimed were unfair practices hindering American exports.

The international trade landscape became more volatile as Trump escalated tariffs on China in a tit-for-tat battle with the second-largest global economy. Trump has imposed tariffs of up to 145% on Chinese goods, while China retaliated with 125% tariffs on US products.
Stock markets initially nosedived but partially rebounded after Trump announced a temporary 90-day suspension of certain tariffs, providing room for negotiations. Despite this recovery, markets are still lower than they were before the ‘Liberation Day’ tariffs took effect.

What does this mean for the economy?

The long-term consequences of these policies remain uncertain, but the immediate impact is clear. Global economic activity has decreased, and company earnings have been impacted, further contributing to market volatility. The uncertainty surrounding future tariffs keeps industries and individual businesses anxious. Meanwhile, the threat of rising global inflation has complicated central banks’ decisions regarding interest rate adjustments even further.

Beyond these immediate concerns, the rise of ‘economic nationalism’ is starting to reconfigure supply chains, increasing business costs and, inevitably, consumer prices. While this may seem troubling, history reminds us that market disruptions often create new opportunities for growth. Businesses with solid foundations can still provide long-term returns for investors, even in challenging times.

Staying the course in volatile markets

Investors encounter a significant challenge during times of heightened uncertainty. Nevertheless, adhering to proven investment principles can make a substantial difference. The essential strategy is diversification. By distributing investments across various asset classes, regions and sectors, you diminish reliance on any single area and minimise your exposure to severe downturns.

It is also essential to focus on the larger context. Market drops often occur more quickly than recoveries, which can be emotionally overwhelming. Resisting the urge to sell when prices are low is crucial. History shows that sharp declines are frequently followed by significant gains, and panicked selling often locks in losses while missing potential rebounds. Staying invested ensures that you continue receiving dividends and reinvestment opportunities, even during turbulent times. When in doubt, remember that effective investing requires a long-term focus.

THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. 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 CAN GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN YOU INVESTED. PAST PERFORMANCE IS NOT A GUIDE TO FUTURE PERFORMANCE.

Wealth transfer planning involves much more than merely arranging for Inheritance Tax. It focuses on ensuring that the fruits of your hard work are not squandered after you have gone. This process requires asking crucial questions concerning your legacy, your beneficiaries and your long-term financial aims.

Key questions every individual should ask

Before deciding how to transfer your wealth, start by reflecting on these pivotal questions:

  • How much money will I need for the rest of my life, including provisions for later-life care?
  • What assets am I likely to leave behind? This encompasses cash, savings, investments, properties, vehicles, business interests and belongings such as art or jewellery.
  • Who do I want to provide for, and are there individuals or entities I wish to exclude?
  • How much would I like each beneficiary to receive?
  • Should I place restrictions on how my legacy is used?
  • Do I want to gift some wealth during my lifetime?
  • How can I ensure that my assets are managed according to my wishes after I have passed away?

Failing to address these fundamental questions could lead to unintended outcomes. For example, without proper planning, the inheritance you leave may be insufficient to secure your loved ones’ financial futures, or worse, it could dissolve due to poor management and lack of preparation.

Encouraging family conversations about wealth

Transparency and open communication can be the backbone of successful wealth transfer planning. Unfortunately, many parents have never discussed financial matters with their heirs, leaving adult children unaware of their future inheritance. If you suspect that your parents possess considerable wealth but have not addressed planning, it may be worthwhile to initiate a conversation about it. Consider suggesting that they seek professional advice to gain clarity and structure.

Encouraging family discussions about wealth fosters a sense of responsibility in younger generations. By sharing your experiences, explaining how you amassed your wealth and outlining your investment motivations, you can cultivate an appreciation for prudent financial planning and management. This understanding may help ensure your heirs make informed choices regarding their inheritance.

Proactive planning and personalised solutions

If you’re ready to implement wealth transfer plans, it’s vital to work with skilled professionals. Collaborating with us and your solicitor is paramount to ensure that your Will is updated, legal arrangements are properly structured and your instructions are clear.

For instance, trust structures can be highly effective tools. They enable the settlor to maintain control over their assets by specifying who benefits, when, and by how much. Additionally, trusts serve as an effective means of Inheritance Tax planning, aiding in the preservation of wealth within the family.

Exploring flexible options for the unexpected

Sometimes, life circumstances require flexibility in wealth transfer strategies. For example, if a beneficiary decides to skip inheritance and pass assets along to the next generation, this can be achieved through a Deed of Variation.

Family dynamics, including potential fallouts or divorces, also require strategic planning. You may wish to exclude certain individuals, such as a son-in-law or daughter-in-law, to safeguard your legacy while ensuring that funds remain accessible to your children or grandchildren. Tackling these complexities in advance can prevent future disputes and protect your family’s financial security.

Source data:

[1]  M&G Wealth – Family Wealth Unlocked Report 2022. Available at: https://www.mandg.com/dam/pru/shared/documents/en/fwu-report-final-version-20-april-2022.pdf October 2024

THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL 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.

Financial planning is not a one-off activity. Instead, it is a continuous, dynamic process in which you actively consider the financial priorities for yourself and your family. By making informed decisions based on your circumstances, aspirations and goals, you can establish a framework that adds structure and purpose to your financial life.

Setting clear and achievable goals

Defining your financial goals is a crucial starting point. What are you aiming for? By writing down specific short, medium and long-term objectives alongside realistic timelines, you establish a solid foundation for achieving them. This approach transforms vague ideas into actionable targets and sharpens your focus.

Listing and prioritising your goals is equally vital. Once this is done, you can estimate how much your plans will cost and calculate how long it will take to meet them. This clarity empowers you to understand how your decisions impact outcomes, providing a roadmap for financial success.

Evaluating your current position

To create a meaningful financial plan, you need to assess your present situation thoroughly. Start by taking stock of your assets and liabilities – this will provide you with a snapshot of your financial situation.

Examining your income and expenditures helps paint a complete picture of your financial health. A well-prepared cash flow forecast gives you a baseline understanding of how much you can save or invest towards your goals. This process highlights potential adjustments, ensuring your plan is based on practical realities.

Building flexibility into your plan

Flexibility is essential, as life seldom follows neat schedules. It is impossible to foresee every change or challenge, so having a safety net within your savings can offer reassurance. Being prepared for the unexpected is a crucial aspect of financial resilience.

A holistic financial plan should be customised to your distinctive situation. It acts as a guide – adaptable when necessary – enabling you to assess your choices while keeping your goals in clear view. Although situations may not always unfold as planned, retaining flexibility ensures you stay focused on your long-term objectives.

Planning for life’s milestones

Certain stages of life necessitate specific financial preparations. From buying a home to saving for your children’s future and ultimately planning for retirement, every milestone entails distinct financial considerations.

Professional guidance can help ensure you are ready for these significant events. Whether you are saving for education, considering investment options or planning for life-stage-specific goals, your financial plan should address these key transitions.

Asking essential questions

It’s essential to ask yourself some probing questions to identify potential gaps in your financial strategy. Consider your current financial obligations – is costly debt hindering your progress? Are your investments living up to your expectations? Are your tax allowances fully utilised?

Additionally, consider provisions for family. Have you put contingency plans in place to protect your loved ones’ lifestyle in the face of unforeseen circumstances? Questions about Wills, Inheritance Tax mitigation and estate planning can help you create a thorough financial roadmap.

Preparing for the later stages of life

Estate planning ought to be a fundamental aspect of your financial strategy. While it may appear distant for some, devising an estate plan early enables greater control over the management of your assets following your death.

Drafting a Will is essential. A Will outlines how you wish your assets to be distributed, whether through charitable donations, structured family inheritances or age-related provisions for children. Addressing aspects such as care preferences through a living Will or advance directive is also vital to creating a comprehensive plan.

Implementing and refining your plan

Formulating a financial plan is one thing; executing it is quite another. Unforeseen circumstances often emerge, making it challenging to follow your strategy. Seeking our professional support during these times can be invaluable, providing guidance on intricate matters such as investment choices and tax management.

Regular reviews are essential to ensure your finances align with your goals. At the very least, set aside time each year to reflect on your progress, update your objectives and adapt to life’s inevitable changes. This process enables you to monitor your progress, ensuring that your financial plan evolves with your lifestyle and aspirations.

THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL 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.

The Russia-Ukraine war exemplifies how localised conflicts can send shockwaves across the globe. The conflict has disrupted critical supply chains for energy and agricultural commodities, particularly since both nations are key exporters of natural gas, wheat and sunflower oil. This disruption has raised costs and strained economies that were already reeling from the aftermath of the pandemic.

Concurrently, China’s assertiveness in the South China Sea has heightened geopolitical anxieties, impacting trade routes and adding uncertainty to international shipping and production networks. Meanwhile, unrest in Gaza and Houthi rebel attacks on vessels in the economically significant Red Sea have further escalated energy and shipping costs.

The interplay of these conflicts has significantly contributed to the resurgence of global inflation. Escalating prices for agricultural products, energy and freight have undermined recovery efforts in numerous nations, leaving households contending with higher living costs. Inflation, which had remained subdued for years, has surged as the cumulative impact of supply chain disruptions, elevated commodity prices and increased transportation costs exerts upward pressure on prices worldwide.

Interest rates and the unexpected speed of change

Among all the economic repercussions these events have triggered, one of the most significant for investors is the dramatic shift in interest rates. For over a decade, economies worldwide enjoyed a period of historically low interest rates. In the wake of the 2008 financial crisis, central banks reduced rates to almost zero to stimulate growth, making borrowing inexpensive and nurturing the longest bull market in history. This resulted in an investment climate where risk assets thrived and debt-financed growth became the standard.

However, the resurgence of inflation compelled central banks to act decisively to restore stability. While it was widely recognised that the era of ultra-low interest rates was unsustainable, few anticipated the speed at which rates would rise. Central banks, particularly the Federal Reserve, embarked on an aggressive series of rate hikes to combat inflation. This swift action took even seasoned investors by surprise. Markets, which had grown accustomed to gradual policy changes, were now faced with a new reality where central banks prioritised controlling inflation over economic growth.

Significant implications for global investment markets

The rapid increase in rates has significant implications for global investment markets. Bond yields, which were historically low, have risen substantially, leading to steep declines in bond prices. Equities, particularly in the high-growth tech sector, have come under pressure as the cost of borrowing increases and higher discount rates influence valuations. Furthermore, real estate markets have begun to feel the strain as mortgage rates surge, dampening demand.

But why does this matter to you as an investor? Interest rate changes ripple through financial markets, affecting sectors and instruments differently. Investment trusts, a popular choice for many private investors, have been particularly impacted by these high rates and hold potential opportunities.

What are investment trusts?

Investment trusts are a type of collective investment fund that differ from mutual funds in their structure. Commonly known as ‘closed-end’ investments, they issue a fixed number of shares that are traded on stock exchanges, enabling their prices to fluctuate according to market demand, rather than simply reflecting the value of the underlying assets.

This distinctive structure gives investment trusts a dual nature. On the one hand, they offer diversification, professional management and access to a wide range of asset classes. On the other hand, their prices may diverge from the actual Net Asset Value (NAV) of the portfolio, potentially presenting opportunities or challenges for investors, depending on market conditions.

How high interest rates have changed investor behaviour

When interest rates approached zero, many investors regarded investment trusts as an attractive alternative to fixed-income investments that offered minimal returns. Trusts concentrating on infrastructure, property and other alternative assets gained popularity as substitutes for fixed-income securities.

However, as interest rates began to rise, fixed-income investments became more attractive, leading to a significant sell-off of these previously favoured trusts. This shift had a profound impact; trusts, which once traded at a premium, transitioned to a discount. At the same time, sectors such as property and growth shares experienced considerable NAV pressure.

The ‘double whammy’ effect

The selling pressure on investment trusts resulted in what can be described as a ‘double whammy’. Firstly, as investors sold off shares, trust prices dropped below their NAV, creating substantial discounts. For example, some trusts that were once trading at premiums of 10-15% began trading at discounts of 15% or more.

Secondly, liquidity concerns compounded the situation. Many of the affected trusts were less liquid, meaning a relatively small volume of selling activity caused disproportionate price declines. Combined, these factors negatively shifted investor perceptions, casting doubts over the stability and value of certain investment trusts.

When will interest rates decline?

A central question dominating discussions among investors today is when interest rates might begin to decline. The timing of such a shift hinges on several interconnected factors, including inflation trends, economic growth and central bank policies. For central banks to consider lowering rates, inflation must consistently show signs of stabilisation near target levels, typically around 2%.

Furthermore, evidence of weakening economic activity, such as slower job growth or reduced consumer spending, could also prompt a more accommodative monetary stance. External factors, like the resolution of geopolitical tensions or improvements in global supply chains, might help ease commodity prices and support the argument for rate cuts. However, central banks remain cautious, as acting prematurely could risk reigniting inflationary pressures. This delicate balancing act leaves investors closely monitoring economic indicators and central bank statements for any indications of a change in monetary policy.

Lower rates would reduce borrowing costs

If interest rates begin to decline, the implications for investment trusts could be significant. Lower rates would not only reduce borrowing costs for these trusts but also make their dividend yields more appealing compared to fixed-income alternatives such as bonds. Investment trusts that specialise in income-generating assets, including real estate, infrastructure or dividend-paying equities, may attract increased investor interest as demand shifts back from fixed-income securities.

Moreover, falling rates typically support equity markets by enhancing corporate profitability and reducing the discount rates used in valuation models, thereby boosting the performance of trusts with equity-heavy portfolios. For trusts employing leverage, lower rates would minimise financing costs, enhancing overall returns. Ultimately, a sustained period of decreasing rates could restore investor confidence, making investment trusts a more appealing option in a recalibrated financial landscape.

Seizing potential opportunities

Despite the current pause in momentum, the long-term outlook for investment trusts remains optimistic. For discerning investors, the substantial discounts at which many trusts are trading present a tempting opportunity. These discounts create potential upside for those willing to adopt a patient, long-term investment strategy. Historically, periods of uncertainty and unattractive valuations have often provided fertile ground for future gains. Savvy timing, particularly regarding potential interest rate cuts, could allow investors to capitalise on significant returns as market sentiment improves and valuations normalise.

One of the standout advantages of investment trusts is their access to a broad and diverse range of asset classes. Unlike conventional equity funds, investment trusts can open doors to alternative areas such as renewable energy infrastructure, private equity and emerging markets. These sectors often operate independently of traditional market cycles, providing investors with resilience and the opportunity to capture growth in niche but vital parts of the global economy.

Renewable energy infrastructure trusts well-positioned

For instance, renewable energy infrastructure trusts are well-positioned to benefit from the ongoing transition to clean energy, supported by government backing and the rising demand for sustainable solutions. Similarly, private equity trusts enable individual investors to participate in high-growth opportunities typically reserved for institutional players, while emerging market trusts leverage the rapid expansion of economies that may outpace developed markets in the future.

For investors with specific goals or unique risk profiles, these varied exposures present tailored opportunities to maximise returns. They provide resilience in volatile markets and position portfolios to benefit from changes in macroeconomic trends.

THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL 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.

The findings, gathered from individuals over 50 to better understand retirement decisions and planning, provide deeper insight into this behaviour. Of those surveyed, 32% cashed their pensions to cover essential expenses. However, a larger portion – 46% – admitted they withdrew their lump sums simply because the option was available. Although these choices might appear harmless initially, the lack of proper planning often results in significant risks later on.

Hidden risks of withdrawals without advice

The research highlights the risks linked to withdrawing pension funds without seeking professional guidance or advice. Alarmingly, over a quarter (27%) of adults aged 50 or older made significant decisions regarding their pensions without consulting a financial adviser or using guidance tools. This lack of preparation often exposes them to unexpected tax liabilities or even reduced eligibility for means-tested benefits.

A notable 24% of participants admitted they were unaware that withdrawing large lump sums from their pension savings could negatively impact their eligibility for benefits. Furthermore, an additional 11% reported that accessing their savings had already directly affected their means-tested benefits. These findings highlight the critical importance of understanding the potential consequences before proceeding with pension cash-outs.

Tax-free allowances offer some relief

Despite the risks, some retirees aim to stay within the limits of tax-free allowances. Two-thirds (67%) of respondents who accessed their funds withdrew 25% or less of their pension to avoid incurring taxes on the withdrawal. However, 10% opted to withdraw their entire pot, which could expose them to high tax rates or limit their financial security in later years.

If given the chance to reassess their choices, many individuals would manage matters differently. Approximately 18% admitted that, in hindsight, they would have taken out less or avoided withdrawing lump sums from their pensions. These statistics emphasise that a hasty decision during retirement planning can lead to regrets later on.

Recognising the true costs of early access

Why do individuals opt to cash in their pension pots at such an early stage? For some, it’s a matter of necessity – covering essential expenses like household bills or debts. However, the frequency of individuals accessing funds simply because ‘they can’ highlights the potential risks of not fully grasping the seriousness of these choices.

Untimely cash withdrawals can lead to numerous problems. In addition to tax penalties, they may deplete savings earlier than expected, jeopardising financial stability in future decades. Even more troubling is the possibility of losing access to critical benefits, leaving retirees without the safety nets they might rely on later.

How to make well-informed decisions

Individuals approaching retirement must carefully evaluate their needs and options to avoid these common pitfalls. Obtaining professional financial advice will help retirees better understand the implications of their decisions, whether they relate to taxes, benefits or ensuring long-term financial security.

Equally, adhering to this advice will provide a clear understanding of how lump sum withdrawals could affect one’s financial situation in the years to come. The insights gained will enable retirees to make informed decisions tailored to their specific circumstances.

Plan today, avoid regret tomorrow

While the ability to access a pension pot at 55 offers significant flexibility, it also involves complexities that should not be overlooked. On one hand, this early access enables individuals to meet urgent financial needs, such as settling debts, financing home improvements or even assisting loved ones.

It can also provide a sense of liberation, enabling individuals to enjoy their savings while they remain in good health and active. However, this freedom should be approached with caution. Without careful consideration, early withdrawals can significantly reduce the funds available for later years, potentially leaving retirees facing financial hardship or an uncertain future.

Source data:

[1] Research conducted, on behalf of Legal & General, by Opinium between 3–9 December 2024, among 3,000 UK over 50s.

THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL 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.

A trust can provide reassurance regarding concerns about how wealth may impact beneficiaries. For example, if you wish to leave your estate to your grandchildren, who are all young adults, suddenly inheriting a substantial sum could lead to poor financial decisions or mismanagement of the funds. On the other hand, if you do not have children, the decision between nieces and nephews – or whether any of them should inherit – can create uncertainty in estate planning. If you are unsure about how to structure your legacy, trusts can offer flexibility and control.

Why trusts are valuable for future planning

Trusts have been utilised for centuries to address various needs, from funding education to managing wealth for beneficiaries who may not yet, or may never, have the capacity to do so themselves. A trust can be particularly beneficial in phasing out inheritance to avoid overwhelming young beneficiaries or in ensuring that funds are available for specific milestones, such as purchasing a home or paying for university.

Beyond personal benefits, trusts can serve as an essential tool for addressing family dynamics. Complex relationships, such as when a family member struggles with managing money, substance abuse issues or challenging partnerships, may require a protective financial arrangement. Trusts can also help preserve assets for charitable causes, ensuring that organisations dear to you can benefit in the long term.

What exactly is a trust?

Although there isn’t a single definition, a trust is most simply understood as a legal relationship among three parties. The settlor, or creator of the trust, transfers assets into it. Trustees are then appointed to manage the trust, ensuring that the specified beneficiaries receive benefits at appropriate times. Trusts can flexibly align with your intentions, whether providing immediate financial support, delaying the distribution until certain conditions are met or ensuring that funds are managed responsibly.

The role of the trustee is vital. Trustees are not just administrators; they have a duty to act in the best interests of the beneficiaries. This responsibility underscores the importance of selecting the appropriate individual or professional entity for the role.

Overcoming common concerns about trusts

One of the main challenges in trust planning is ensuring that your wishes are honoured long after you have transferred your assets. Trusts allow you to retain a certain level of control by setting guidelines or phased distributions to meet long-term objectives. For example, you might specify that funds can only be used for education, house deposits or other purposeful living expenses.

Additionally, trusts alleviate beneficiaries’ concerns regarding financial mismanagement. Some individuals may not be prepared to manage an inheritance directly due to youth, inexperience or particular vulnerabilities. With trusts, one can structure the transfer of wealth to maximise its benefits while safeguarding it from exploitative or careless behaviours.

Rising use of trusts for charitable giving

Establishing a charitable trust can be a significant means of extending your legacy. Whether you choose to support ongoing causes or make periodic contributions, a trust can ensure that your philanthropic objectives are consistently met over time. Unlike one-off donations, charitable trusts offer reliable, long-term support to organisations or projects that reflect your values.

This feature of trusts enables you to create a lasting impact while retaining control over how and when the funds support chosen charities. For individuals with considerable wealth, philanthropic trusts can also coincide with tax planning considerations in some jurisdictions, enhancing their appeal.

Trusts as a tailored solution for estate planning

If you’re grappling with uncertainties about how to pass on your wealth or how best to ensure it serves your intended purpose, a trust could be the answer you seek. From managing family complexities to supporting charitable causes and preparing younger generations for financial independence, trusts can fulfil a diverse range of objectives.

Although their complexity may seem daunting, seeking expert assistance makes the process significantly more manageable. Working alongside our highly professional experts will provide customised strategies specifically tailored to your needs.

THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL, OR FINANCIAL 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.

Investing For Tomorrow continue to support important initiatives in our community

The Learning and Physical Disability Team is a newly-formed team from Halifax Panthers and Investing For Tomorrow are proud to be sponsors of the new initiative.

The team aims to provide all those in the Panthers community who have learning or physical disabilities the chance to be part of a professional rugby league side. The team provides the players with new opportunities and friendships whilst playing the sport they love, which strongly aligns with all our values at Investing For Tomorrow.

During each session, players can develop their fundamental rugby league skills whilst enjoying physical exercise. It is also a fantastic opportunity for the participants and their carers to socialise and make new friends.

Head coach Craig Serbert-Smith has a long history with mixed ability rugby league and is positive the teams will be a force to be reckoned with in disability rugby league.

Learn how to get involved with the team (either as a coach or player) on the Halifax Panthers Foundation website here.