master-admin, Author at Investing For Tomorrow

Assessing your goals

The right decision for you will largely depend on what you want to do with your money and your needs and goals, which we can help you assess. In the meantime, here are some of the main options to consider.

Cash savings account

A cash savings account is a good choice if you want to use your lump sum to fund short-term goals – a holiday or new car, perhaps – or if you’re not quite sure what to do with it yet. By holding your lump sum in a cash savings account instead of investing it in the stock market, you won’t risk your money falling in value just before you need to access it.

If you don’t need your money for several months, you may wish to consider a notice or fixed-term savings account, as these may offer higher rates than easy-access savings accounts. It’s always worth shopping around to find the best rate on your savings, as a difference of only 0.5% could significantly impact large sums of money.

UK Government Bonds

UK government bonds (‘gilts’) could be an attractive choice if you want to use your windfall to fund a medium-term goal. Gilts are secure savings vehicles guaranteed by the government and listed on the London Stock Exchange.

If gilts are held inside an Individual Savings Account (ISA) or other tax-free wrapper, there is no Capital Gains or Income Tax to pay. If held outside of an ISA or similar, gilts are free from Capital Gains Tax when you profit from a trade, but any income you get is subject to Income Tax.

Stock market investments

For longer-term goals, such as retirement or leaving a legacy for the next generation, you may wish to invest a portion of your lump sum in the stock market. Although the stock market is volatile, history shows that it tends to outperform cash and bonds over extended periods. You should be comfortable committing your money for at least five years, ideally longer. This will hopefully give your investments time to recover from any stock market downturns.

One way to reduce risk is to spread your money across different asset classes, such as equities, bonds and cash, as well as across sectors and regions. This is because different assets, sectors and regions tend to perform differently under various market conditions. We can assist you in building a diversified portfolio that suits your needs and attitude towards risk.

Investment ISA benefits

If you haven’t utilised your ISA allowance this year (2024/25), investing your lump sum in an Investment ISA will potentially allow it to grow over the long term while also shielding it from Capital Gains Tax (CGT) and Income Tax. If you sell investments outside of an ISA, you could be taxed on your profits above your annual CGT exemption.

Additionally, if your investments pay dividends or interest, this could be included when calculating your overall Income Tax bill, potentially pushing you into a higher Income Tax bracket. The ISA allowance currently stands at £20,000. It is a ‘use it or lose it’ allowance, meaning you cannot carry it forward from one tax year to the next.

Maximising pension contributions

Another option is to maximise your annual pension allowance. You can invest up to £60,000 or 100% of your UK relevant earnings, or £3,600 if you have no relevant earnings (whichever is lower) into pensions yearly and benefit from Income Tax relief up until age 75. Income Tax relief provides an immediate boost to your personal pension contributions, helping to increase how much money you have at retirement.

In some circumstances, you might be able to ‘carry forward’ unused annual allowances from the previous three tax years. Remember that your pension annual allowance might be lower than £60,000 if you earn a high income or have already flexibly accessed your defined contribution pensions. We can help you determine how much your annual allowance is and whether making a pension contribution is the right choice for you.

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.

Revisiting financial plans

Current retirees were asked if they would do anything differently in how they approached their retirements, and the research identified two in five (40%) said they would have done[1]. Almost one in five retirees (17%) said they would have increased pension savings while working, and one in ten (12%) would have made lifestyle adjustments while working to save more for their later years. Nearly one in ten (8%) said they wouldn’t have left work when they did and should have chosen to retire later.

As the third chapter of life, retirement should be a positive experience, and for many, that is thankfully the case. However, with the benefit of hindsight, there are some valuable lessons for us all to learn from the current generation of retirees. Most regrets centre around money, wishing more was saved earlier, and often making choices around lifestyle to allow that extra cash to go into the pension.

Impact of delayed retirement

Many also wished they’d stayed on and worked later, which can significantly positively affect both financial well-being and mental health. This research highlights the need to have a plan and seek advice at the earliest opportunity. We can advise you if you are on track and keep your plan on track as you navigate through the myriad of investments, generating replacement income, the tax system, estate planning, and inheritance.
The insights gained from current retirees underscore the importance of strategic financial planning. Individuals can secure a more stable financial future by increasing pension contributions and making conscious lifestyle choices that promote savings. Additionally, extending one’s career bolsters financial reserves and contributes to a sense of purpose and mental well-being.

Ever-changing financial landscapes

Engaging with a professional financial adviser early in your career can provide invaluable guidance. We can help you stay on course amidst ever-changing financial landscapes, ensuring your investment strategies align with your long-term goals. Expert advice is crucial for a fulfilling retirement, from navigating the complexities of tax regulations to optimising inheritance plans.

Taking proactive steps today can lead to a more comfortable and rewarding retirement tomorrow. Start by assessing your current savings and consider increasing your pension contributions.

Evaluate your lifestyle choices to identify areas where you can cut costs and redirect those funds towards your future. Moreover, contemplate the benefits of a phased retirement, allowing you to continue working part-time while enjoying the leisure of retirement. τ

Source data:

[1] Research conducted by Opinium among 663 over 55s who said they were retired, with fieldwork was conducted between 19th – 22nd March 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 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.

Significant overpayments to HMRC

Three-quarters (75%) of those who found they were on the wrong tax code have overpaid HMRC by an average of £689, amounting to a staggering £5.8 billion as a nation[2]. The findings also highlight that nearly one in five UK adults (18%) have never checked their tax code. Those who check their tax code typically do so once every 16 months.

Common reasons for checking tax codes

Britons most commonly check their tax code for no specific reason (19%) or out of habit (17%). Others check due to a job change (12%) or because they have previously been on the wrong tax code (8%). Among all UK adults, less than half (42%) are confident that their current tax code is correct.

Widespread confusion about tax codes

Moreover, almost four in ten (39%) do not understand their tax code, which puts them at a disadvantage from the start. Over two-thirds (69%) admit they do not know the rules around claiming back overpaid tax. Less than one-fifth have employed professional services to manage their personal taxes (18%), down from three in ten in 2023’s study (29%).

Understanding your tax code

Your tax code is composed of a series of numbers and letters, which HMRC uses to determine how much income tax you owe. For example, 1257L is commonly used when you have a single source of income through a job or pension and allows you to earn £12,570 a year (your personal allowance 2024/25) before paying income tax.

Different tax code for each income stream

You should have a different tax code for each income stream you receive, whether that is through work or via a pension. Your tax code can vary from the standard if you receive benefits from your job, such as a company car or healthcare. HMRC can also apply a different tax code if it wants to claim back the tax you’ve underpaid.

Paying the right amount of income tax

Understanding your tax code is vital to ensure you’re paying the right amount of income tax. Those who are not on the correct code may find themselves out of pocket. If it’s wrong, you may contribute more or less than you’re supposed to. So, if you haven’t checked your tax code(s) recently, now is a good time.

Checking and correcting your tax code

If you think your tax code is wrong, you need to contact HMRC directly. Your employer (if relevant) won’t be able to do this for you. You can check if HMRC has your correct, up-to-date information online. If you’re on the wrong code, you might need to update your employment details, or whether you’ve had a recent change in income.

How to pay HMRC or reclaim overpaid tax

If you have found you have been on the wrong tax code, you may be owed a rebate, or you may owe money to HMRC. HMRC may already know this, so you should be sent a tax calculation letter (a P800 form) or a Simple Assessment letter by the end of the tax year (April 5th). These letters will tell you how to pay HMRC or reclaim overpaid tax.

Time limits and proactive measures

You will only be sent one of these forms if you are employed or receive a pension. Remember, there are time limits to reclaim overpaid income tax, which is four years from the end of the tax year in which you are trying to claim. If you are in doubt, the earlier you contact HMRC, the better.

Staying informed and taking action

Understanding and managing your tax code is essential. Ensure that all your details are current, and promptly inform HMRC of any changes in your circumstances. This will avoid discrepancies and potential financial strain.

Source data:

[1] Research conducted by Opinium among 2,000 UK adults, with fieldwork conducted between 19th and 22nd March 2024. On a nat rep survey of 2000 UK adults, 317 know how much money they overpaid when on the wrong tax code. 317 / 2000 – 52890000 (UK adult population) = 8383065 (shorthand 8.4 million). £689 – 8383065 = 5775931785 (shorthand £5.8 billion).

Counting towards your estate’s value

You can pass a home to your spouse or registered civil partner when you die, and there’s no IHT to pay. Leaving the home to another person in your Will counts towards the estate’s value. However, the Residence Nil Rate Band (RNRB) can increase your tax-free threshold if you leave your home to your children or grandchildren. This includes stepchildren, adopted children and foster children, but not nieces, nephews or siblings. There is tapered withdrawal of the home allowance if your estate’s overall value exceeds £2 million.

One of the most common strategies involves giving away assets. By gifting money or assets, you enable your children, grandchildren, or others to benefit from your wealth during your lifetime, which can also reduce the portion of your estate subject to IHT. However, rules are in place to prevent you from entirely avoiding IHT through asset transfers.

Planning ahead for Inheritance Tax, where to begin?

Start by utilising the IHT exemptions and allowances available to individuals with substantial and modest wealth. This foundational step can set the stage for more advanced planning strategies. You can significantly reduce IHT liabilities by understanding and utilising various exemptions and allowances.

You can give away up to £3,000 each year, carrying forward any unused allowance from the previous year. Additionally, you can gift £5,000 to a child on their marriage or £2,500 to a grandchild. These routine gifts are an effective way of reducing your estate’s value without incurring IHT.

Gifts for maintenance and education

Certain gifts are exempt from IHT entirely. These include gifts to a former spouse, registered civil partner, or a dependent relative for their maintenance and payments towards a child’s education or training.

This exemption allows you to support your loved ones without increasing their tax burden.

Gifts to qualifying charities, political parties, or gifts for national benefit—such as donations to museums, universities, libraries, or the National Trust—are also free from IHT. Furthermore, if you leave 10% or more of your net estate to charity, you may qualify for a reduced IHT rate of 36%.

Using excess income for gifting

Another valuable strategy is to give away “excess” income. Once you have determined how much of your income qualifies as excess, this method can prevent your inheritance tax liability from growing. Gifts must fall within your after-tax income and not jeopardise your lifestyle to qualify.
Additionally, there must be an intent for the gift to form part of your regular expenditure.

You can increase the available excess income by switching investments from those that target growth to others that pay a higher income. This approach allows you to generate a steady stream of income that can then be gifted to your beneficiaries without affecting your financial stability.

Seven-year rule for larger gifts

When considering larger gifts, the “seven-year rule” applies. If you give away assets and survive for seven years, those assets are removed from your estate and are no longer subject to IHT. This principle encourages early and strategic gifting.

If you die within seven years, however, the assets you have given away may still be considered part of your estate and subject to IHT. The impact of this will depend on the size of the gift. If the gift is worth less than the IHT-free allowance, it will use up the allowance but not be subject to IHT. Gifts exceeding this threshold could result in additional IHT charges. Therefore, it is important to carefully plan your gifts’ timing and size carefully.

Repeated and frequent gifting

Strategically, you can make repeated gifts of up to £325,000 without triggering an IHT liability, provided they are made at least seven years apart. This allows for substantial portions of your estate to be transferred over time, reducing the overall IHT burden.

Of course, you can also give away larger amounts or make more frequent gifts. However, be aware that if you die, assets exceeding £325,000 gifted over the prior seven years will still be included in your estate calculations, although they might benefit from a lower IHT rate.

Using Trusts for gifts

You can also make gifts to trusts. Trusts can allow you to exert a degree of control over the assets you give away and may be useful in a wide range of scenarios, such as providing for very young grandchildren. Gifts into a trust are subject to slightly different rules than outright gifts.

An IHT “downpayment” of 20% is required on the value of gifts above the nil-rate band. If you die within seven years, additional IHT may be payable. People often ask whether they can give their children their house to avoid paying IHT on it.

Family investment companies

A family investment company can be a useful planning tool for those with larger amounts. Assets are transferred into a company, and shares are then granted to family members – or others – in accordance with how much control you want them to have.

Any growth in the assets is outside your estate immediately, although the seven-year rule applies to the assets gifted into the company. This method can help manage significant assets while keeping future tax liabilities in check.

Business relief opportunities

How can I benefit from business relief? Another set of IHT exemptions was introduced to promote entrepreneurial activity. If you establish or own a business and pass it on to your children, an exemption known as “business relief” means it will sit outside your estate.

Selling the business could result in cash returning to your estate unless it is replaced with other business relief-qualifying investments within three years. However, not everyone can tie up a significant amount of their wealth in business ventures, and raising cash may be a requirement at some point.

Transferring shares and AIM Investments

There are ways to plan for this. One approach is to transfer shares in a business into a trust. In the case of business relief assets, there is no limit on how much can be transferred, and there is no immediate 20% tax charge. The shares can then be sold, and if the business owner survives seven years, the proceeds remain outside the estate.

Investing in certain shares quoted on London’s junior stock market, the Alternative Investment Market (AIM), is another way that investors can benefit from business relief. If held for two years before death, no IHT is due on these investments. This allows you to build a reasonably diversified portfolio without concentrating your assets on a few smaller businesses.

Importance of specialist professional advice

However, the portfolio may be very volatile, and you need to ensure that your investments maintain their IHT-exempt status after purchase, as businesses can evolve and may no longer meet the relevant criteria. Given the complexity of IHT, it is advisable to seek professional advice from a specialist.

IHT planning can take time to become effective, and you may want to consider insurance to complement your approach. Policies can be tailored to meet your IHT tax bill, either on death or until seven years after a gift expires. If the policy is “written in trust,” the proceeds will be outside your estate.

Keeping thorough records

Whatever estate planning methods you use, be sure to keep thorough records and pass them on to your executors. Your will should also be drawn up to complement your IHT planning and kept up to date.

If you want to reduce your IHT bill without falling foul of the law, our experts can help. We’ll explain how you can ensure that your loved ones receive the maximum possible benefit from your estate while remaining compliant with legal requirements. We’ll guide you through the rules around making gifts and highlight common pitfalls and misconceptions around IHT liability.

THE FINANCIAL CONDUCT AUTHORITY DOESN’T REGULATE TRUST PLANNING AND MOST FORMS OF INHERITANCE TAX (IHT) PLANNING. SOME IHT PLANNING SOLUTIONS PUT YOUR MONEY AT RISK, AND YOU MAY GET BACK LESS THAN YOU INVESTED. IHT THRESHOLDS DEPEND ON INDIVIDUAL CIRCUMSTANCES AND THE LAW. TAX AND IHT RULES MAY CHANGE IN THE FUTURE.

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

Understanding pension consolidation

Pension consolidation is a process that can gather up your previous pensions and bring them together. As you move from job to job and change addresses, it can be tricky to manage pensions. With every new one, there’s more admin to deal with.

By combining them, you can have a clearer view of how much money you have for retirement, where it’s invested, and what you’re being charged. This consolidation can simplify your financial landscape. It’s important to remember that a pension is an investment. Its value can go down as well as up and could be worth less than what was paid in. Pension consolidation won’t be right for everyone.

Managing your retirement savings

Gathering up your pensions could give you a better idea of your overall pension pot and what it could be worth when it’s time to retire. Lower charges are another benefit; you could potentially save on management fees, which can help your pension pot grow faster.

The more pensions you have, the harder it can be to track them and how they’re performing for you. With just one pension, managing your retirement savings becomes much easier.

Simplifying your financial future

Consolidating your pensions can provide peace of mind by offering a straightforward overview of your retirement funds. This reduces the administrative burden and makes making informed decisions about your financial future easier.

It’s crucial to stay informed about the value of your pension pot and the different options available to boost your retirement savings. Taking proactive steps now can ensure a more secure and comfortable retirement.

Role of professional financial advice

Obtaining professional financial advice is invaluable when considering pension consolidation. We can provide tailored recommendations based on your unique circumstances and long-term goals. We’ll help you navigate the complexities of pension schemes and select the right options for consolidating your pensions effectively.

Engaging with us also ensures that you are making well-informed decisions, maximising the potential of your pension savings, and preparing for a financially stable retirement.

Source data:

[1] Lloyds Bank research 09.05.24

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

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE 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 FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE TAX PLANNING.

Gaining control through Trusts

A person known as the ‘settlor’ places assets into a Trust, which may include money, property or other types of assets like life insurance policies and investment portfolios. This may be done during their lifetime (a Lifetime Trust) or can be triggered by death through a valid Will (a Will Trust). By placing the assets into this structure, the original owner may relinquish some of their rights and delegate responsibility to a trustee during their lifetime.

However, they can gain a lot more control in other ways. A settlor can project their wishes years into the future. Provided a Trust is set up correctly, you can determine who gets what and when with a good deal of precision. Trustees can be professionals (who work for a Trust company) or any other competent person prepared to take on these responsibilities.

Very wide-ranging powers and tasks

Trustees can have very wide-ranging powers and tasks, including settling tax bills and hiring investment management and legal professionals. If the Trust is discretionary, meaning they have discretion regarding the distribution of assets, they might also have to make certain decisions about how to use the Trust income and/or capital.

For these reasons, many prefer to have their Trust administered by professionals, paying them annual fees from the Trust’s assets. However, others looking to structure family wealth may appoint a mixture of professional and family friend trustees to create a balance of objectivity and personal knowledge of the beneficiaries’ situations and needs.

Emotional aspects of Trust management

Combining professional expertise with personal familiarity can ensure that both the technical and emotional aspects of Trust management are adequately addressed. Professional trustees bring technical know-how and impartiality, while family friends may offer deeper insight into the beneficiaries’ circumstances.

By thoughtfully selecting trustees, you can achieve effective and empathetic management of your Trust, ensuring that your wishes are fulfilled as intended. A blend of professional and personal trustees can provide a balanced approach, safeguarding the beneficiaries’ financial and personal interests.

Types of Trusts

Various types of Trust are available, and the settlor needs to decide which type is best suited for the circumstances.

A quick summary of the principal types of Trust is as follows:

Bare/Absolute Trusts – Where the settlor transfers the legal ownership of assets to the trustee for the benefit of the beneficiary absolutely.

Interest in Possession Trusts – The beneficiary (or sometimes known as ‘life tenant’) holds a right to the Trust fund’s income or the right to use Trust assets. The remainderman’s (the person who receives the property after the death of the life tenant) entitlement relates to the underlying capital.

Discretionary Trusts – This arrangement gives trustees flexibility and control over how best to use the Trust assets for the benefit of the beneficiaries. This flexibility helps in situations where children or grandchildren may not yet be born at the time the Trust is set up, as they would therefore automatically be included as a beneficiary.

Note that these are just a few examples; many other types of Trust can be used under different circumstances.

Tax planning and Trusts

It’ll be of no surprise that one of the main reasons for using Trusts is for tax planning and mitigation. For example, when an individual dies, their estate (i.e., net assets) is subject to Inheritance Tax (IHT), meaning the beneficiaries may lose up to 40% of their net inheritance.
If assets are put into trust during a settlor’s lifetime and they survive seven years, they are not part of the estate on death and may escape IHT at that time subject to the 14-year rule not being invoked. Trusts are used in certain IHT planning arrangements for the settlor’s benefit, such as Gift and Loan plans, Discounted Gift Trusts and Flexible Reversionary Trusts.

Trusts in Wills

Trusts are frequently created in Wills, particularly where the beneficiaries are minor children who need someone to look after them financially. Any asset left to a minor under a Will is effectively held in trust for the minor by the executors until the minor reaches majority unless the Will allows payment to be made to a parent.

Trusts can be explicitly created in Wills to ensure that a beneficiary does not benefit until some other age is attained or a condition is fulfilled. There are many other reasons for setting up Trusts, notable examples being to provide a pension, provide for families, assist a charity, give property to those who legally cannot hold it, and gain protection from creditors and business protection.

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

Financial insecurity among British retirees

The figures also showed that 11% of British retirees have no savings at all. Almost one in five retirees across the UK will be on the poverty line as they do not have sufficient money in their pension pots, reflecting a concerning trend of financial insecurity among the older population.
One in seven retirees said that worrying about funding their retirement was the largest strain on their mental health. This highlights the urgent need for effective financial strategies and support systems to ensure a dignified and secure retirement.

Unlocking the value of property

Equity release is an alternative way to help some pensioners access capital to fund their retirement if appropriate. Equity release allows homeowners to unlock the value of their property without selling their home or taking on additional monthly repayments.

Equity release allows homeowners to access the equity built up in their property, providing a tax-free lump sum to supplement regular income whilst still retaining ownership and the right to live in their home for life or until they move into long-term care. This can be particularly advantageous for retired or with limited income, offering financial flexibility and stability without the burden of servicing higher mortgage repayments.

There are two equity release options

The two main types of equity release are the lifetime mortgage and home reversion. Each offers unique benefits tailored to different needs.

Lifetime Mortgage

With a lifetime mortgage, you take out a mortgage secured against your property, provided it’s your main residence while retaining ownership. This product allows you to continue living in your home as usual. One notable feature is the ability to ring-fence some of the property’s value as an inheritance for your family. This ensures that a portion of the home’s value is preserved for your loved ones.

You can decide whether to make regular repayments or allow the interest to roll up. The loan amount, along with any accumulated interest, is repaid through the sale of the property when the last borrower either dies or moves into long-term care. This option provides a way to access funds without selling your home immediately.

A lifetime mortgage can significantly enhance financial stability during retirement by providing a tax-free lump sum or regular payments. This can be especially advantageous for individuals with limited income or savings, offering additional funds without the necessity of monthly repayments. The flexibility of choosing between making repayments or letting the interest accumulate can be tailored to individual financial circumstances.
Moreover, modern equity release products now come with increased flexibility and protections, ensuring retirees can select the best option for their needs. These features make lifetime mortgages a viable solution for many looking to supplement their retirement income while remaining in their homes.

Home Reversion Scheme

Home reversion involves selling part or all of your home to a home reversion provider in return for a lump sum or regular payments. You retain the right to live in the property until your death, but you must agree to maintain and insure it. This option also allows you to ring-fence a percentage of your home for later use, which could be earmarked for inheritance purposes.

The percentage of the property retained remains constant, irrespective of fluctuations in property values, unless further cash releases are taken. Upon the last borrower’s death or move into long-term care, the property is sold, and the proceeds are divided according to the ownership proportions agreed upon at the outset.

Home reversion plans allow you to remain in your familiar surroundings while accessing a portion of your home’s value. This can offer financial security without affecting your current living arrangements. However, it is essential to maintain and insure the property as per the agreement with the home reversion provider.

When the time comes to sell the property, the sale proceeds are shared based on the predetermined ownership percentages. This structure ensures that you benefit from your home’s value while still planning for future needs or inheritance.

Investigate a multitude of options

However, it’s vital to investigate a multitude of options that could help ease financial obligations, as remortgaging may not always be the right option. The right equity release mortgage product, particularly those that offer the greatest flexibility through limited prepayment penalties, may be an appropriate option versus a more traditional mortgage when you want to unlock the value in your home.

A recent Equity Release Council (ERC) study found that a fifth of people do not expect to retire mortgage-free. This further illustrates future retirees’ financial challenges and the potential benefits of innovative financial products like equity release.

Source data:

[1] Senior Capital surveyed 2,070 respondents – 05.06.24

A growing trend among retirees

Although most retirees will be in their 50s, 60s, and 70s or more and less likely to have dependent children, research shows that nearly 40%[1] of those surveyed support grown-up children, a spouse or partner, a parent, an elderly relative, or a friend. It is fair to say that many people have been struggling with rising costs over the last few years, and it’s perhaps not surprising that most of that support has gone towards day-to-day living costs.

Following this, helping with house buying, wedding costs, education, or university fees are common reasons for offering financial assistance. Advancing an inheritance and covering care or medical costs were other major motivations for providing support, too.

Finances and setting realistic boundaries

Thankfully, helping their children is something many retirees are happy about, with almost half (47%) saying it’s very important or essential to be able to do that throughout their lives. If helping your children and other loved ones throughout your lifetime is important to you, there are some things to consider carefully. Your money has to last as long as you do to support yourself throughout your retirement, however long that might be. If the money you’re giving to loved ones was an unexpected outgoing, do you know the impact that might have on your financial goals?

Balancing the desire to help with the need to maintain your financial stability is crucial. Having a clear understanding of your finances and setting realistic boundaries for how much you can afford to give will ensure your and your family’s needs are met. Additionally, transparent communication with your loved ones about your financial limits can prevent misunderstandings and ensure everyone is on the same page.

Making your money work harder

We can help you devise plans to make your money work harder and recommend the best ways to use tax allowances to minimise the amount of tax you may incur. This could be achieved through estate planning, which aims to reduce or, where possible, avoid Inheritance Tax (IHT). Another approach includes reviewing your pension and other savings to ensure they are being utilised in the most tax-efficient manner.

We’ll also consider your individual needs and circumstances to prepare a recommendation that helps you plan for a financially secure future. This personalised strategy ensures that your financial goals are met effectively.

Planning for your legacy

Around three-quarters (76%) of those surveyed expect to leave an inheritance of some kind to their children. They want the next generation – and sometimes a wider family – to benefit from financial support after they’ve gone and during their lifetime. This necessitates having a plan to ensure you have sufficient funds left.

Ensuring you have an up-to-date Will that reflects your wishes is crucial. It’s equally important to consider any pension you may leave behind and whether you have a beneficiary who will receive some or all of your pension after you die.

Pension management and beneficiaries

Pensions aren’t normally covered by a Will, so you’ll need to complete a ‘Nomination of Beneficiary’ form with your pension provider – or providers if you have more than one pension – to guarantee any pension savings go to the individuals you intend them for. This process can usually be done online for convenience.

Regularly reviewing your beneficiaries and ensuring all address details are current is vital, especially if circumstances change, such as having more children or getting divorced. This ensures that your wishes are accurately executed.

Tax implications and efficient transfers

Those who inherit your pension savings typically pay income tax, so what they withdraw and when they do it can significantly impact the actual amount they receive. We provide guidance on passing your money and pension savings on in the most tax-efficient way, including managing any IHT liabilities.

Our expert advice aims to minimise tax implications and maximise the benefit for your loved ones. By navigating these complexities, we help preserve your financial legacy effectively.

Source data:

[1] Data from the Great Retirement report by the Wisdom Council, in association with M&G – 17/05/24

Unmet financial expectations

One in ten retirees (11%) did not anticipate how much money they would need in retirement and found life after work more difficult than expected. They wished they had planned properly. More than a third (36%) of retirees said they had experienced unexpected health challenges; however, 27% mentioned that although they weren’t living the retirement they’d planned, they were still very happy.

Economic pressures affecting retirees

Money, or lack thereof, is a significant driver of overall retirement satisfaction for the over 55s. Inflation and the cost-of-living crisis are hurting retirees, with one in five (21%) saying they hadn’t factored rising costs into their plans. Additionally, preparing for unexpected costs has caught retirees off guard, with 13% receiving bills they weren’t expecting.

Savings and retirement planning

One in ten retirees (12%) cited a relative lack of savings, saying they didn’t have enough money to live the retirement they had planned. Similarly, some people over 55 (11%) did not anticipate how much money was needed to fund retirement. This insight clearly shows that people’s retirement experiences vary widely. Later life varies for each individual, but generally, people go through four key financial stages: beginning retirement savings, assessing their progress, utilising their savings, and planning their legacy.

Navigating retirement challenges

While a lack of retirement funds and the impact of rising costs are clearly issues facing the current generation of retirees, unexpected health issues often trump both, leading to the dreams of many being shattered due to these unforeseen circumstances. Planning your retirement and ensuring it is flexible enough to navigate the many challenges you will face is vital to feeling in control and enjoying your later years.

Source data:

[1] Research conducted by Opinium among 663 over 55s who said they were retired, with fieldwork conducted between 19th – 22nd March 2024.

Key pension questions to consider

How many different pension plans do you have? Do you have the details for each plan? Do you know how much is saved in each one? How well are they performing? What are the charges and levels of risk for each plan? How much income will you need in retirement to live life the way you want? Are your pension funds and other assets enough to provide that income?

Reviewing your pension plans

If you are unsure of the answers to some of these questions, this could be an ideal time to review your pension and retirement plans and make any changes to provide the future you want. Recent changes in pension legislation may offer a beneficial opportunity.

You may already know that there have been two key changes to pension rules recently. This has created opportunities to increase pension savings for some people and take stock of what they already have.

Removal of the Lifetime Allowance tax charge

Firstly, the Lifetime Allowance (LTA) tax charge has been removed as of 6 April 2023. Previously, anyone withdrawing benefits from their pension fund above the LTA of £1,073,100 (or the applicable fixed, enhanced, individual or primary protection amount) was subject to a tax charge. This charge could be either 55% or 25%, depending on whether they were taking a lump sum or income.

The Spring Budget in March 2023 reduced this charge to 0%. More recently, the Autumn Statement 2023 confirmed that the LTA would be removed entirely from 6 April 2024, which has now taken effect.

Opportunities for pension contributions

As a result, you can now theoretically add to your pension (with set limits applying to tax relief) without worrying about a penal tax charge if you breach the old LTA. So, if you have had to stop paying money into your pension fund to avoid this tax, now would be a good time to discuss with us whether it would be prudent to add more.

Increased annual contribution limits

Secondly, the maximum annual contribution has been increased from £40,000 to £60,000 subject to relevant earnings or those who have triggered the MPAA. It’s worth noting that this legislation could change again.

These changes could benefit you if you want to pay more into your pension and have a pension fund above or near the previous LTA figure or a higher fixed protection amount. Additionally, if you stopped contributing to your pension and applied for fixed protection in 2012, 2014 or 2016, now would be a good time to discuss this with us.

A tax-efficient way to invest

At a glance, these changes seem to make pensions an even more tax-efficient way to invest – but pensions are complex, and these rules are not straightforward. There’s no guarantee that the LTA will not be reinstated, which could create issues. It is also possible that another protection scheme may be introduced if the LTA is reinstated.

Changing your pension contributions might also affect how you draw your salary. This means it’s desirable to get the right professional advice and consider your financial arrangements as a whole before making any decisions.

What are your options?

If any of these questions apply to you, you may want to consider obtaining professional advice about your options. Do you have one or more old pension funds that might be treated differently under the new rules? Are you aiming to retire within the next couple of years, or would you like to retire earlier than you planned? Have you already made withdrawals from your pension but then returned to work?

Do you want to reduce the Inheritance Tax burden on your heirs? Might you inherit a pension soon? If any of these apply to you and you think you might be able to benefit from the recent changes, get in touch with us.

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