Investing For Tomorrow helps keep Overgate Hospice open at the start of 2021

Chartered Financial Planner and Advising Partner Laurence Turner of IFT Wealth Management in Halifax is kick starting the New Year for Overgate Hospice with a donation of £7,000 to keep their doors open on the first day of 2021.

Laurence isn’t just an Overgate Hero, he is also a dedicated volunteer for the White Knights Blood Bikes charity and delivers urgent blood to people across Calderdale to help his local community. Over the past 12 month Laurence has made significant donations of £12,000 towards the Hospice’s Emergency Corporate Appeal which was launched back in May and also is a regular sponsor of their fundraising events: The Yorkshire Peaks Challenge, Overgate Garden Party and Mountain Bike Challenge and many more.

Sponsorships are one of the main ways which can help bring income into the Hospice and without this support the vast calendar of Hospice events wouldn’t happen. Laurence Turner said: “Our company ethos here is all about working together, sharing expertise and supporting each other. “We feel that the inspiring work which is done every day at Overgate Hospice is truly worthy of our support and it is so important to local people in the community and we’re very proud to be a part of it.”

Becki Marren, Business Partnerships Manager said: “This year has been incredibly difficult for the Hospice, but we are so grateful for businesses like IFT Wealth management and heroes like Laurence who are there to support us when we need it the most. “I want to thank Laurence for being so dedicated to Overgate for many years, your kindness makes such a difference to the Hospice and we are immensely grateful.”

If you are wanting to make a big difference like Laurence, for more information on Overgate Hospice’s Emergency Corporate Appeal, visit the appeal page here or to get involved in fundraising activities contact the fundraising team on 01422 387121.

This article was first published in the Halifax Courier here:
Generous donation helps keep Overgate open at the start of 2021.

Supporting younger generations

Giving grandchildren financial security is an important goal for many.

If you are a grandparent, it’s natural to want to help out the family. And if you’re able to give a financial boost – whether it’s a loan or a gift – to the younger generation, it can be enormously rewarding for you too.

Even during the current coronavirus (COVID-19) crisis, some grandparents may be enjoying generous final-salary pensions and are also benefiting from the property boom of recent decades, enabling them to help their grandchildren with student debts, funding education or getting them on the housing ladder. However, this is certainly not the case for everybody.

Long-term cash flow

If you’re a grandparent, it is important to secure your own lifestyle first, and only then gift what is possible. Understanding your long-term cash flow – for example, tracking income and outgoings and looking at how existing assets can support you – is key to putting a plan in place.

This will provide you with the clarity you need for your own situation and ultimately help you to make decisions about providing sustainable financial support to the younger generations as well. Much of the focus around the financial fall-out from COVID-19 has been on the recent volatility and concerns about the value of pension pots, but the pandemic has impacted all generations.

Financial support

Being a grandparent is a unique and special role in a child’s life, and research shows that nearly half (48%) of grandparents have stepped in to financially support their grandchildren during the COVID-19 outbreak, despite being concerned about their own retirement income[1].

Giving your grandchild financial security is an important goal for many grandparents. There are ways to save and invest for grandchildren that can have a more lasting effect on their financial independence beyond cash in a Christmas and birthday card each year. Lots of options exist that are tax efficient for them – and you too.

Rent and mortgage payments

A third (32%) of grandparents have given cash to their children, 8% have provided childcare, and 6% have helped with rent and mortgage payments. However, a quarter of grandparents haven’t been able to see their grandchildren during the lockdown periods – not even remotely.

20% of those questioned said they were worried about the value of their private pension, and a further 13% were also worried about the stability, as well as the value, of their workplace pension.

Entrepreneurial streak

Many grandparents have also shown an entrepreneurial streak to protect their retirement funds, with 45% taking action to generate income as a result of the pandemic. This includes selling items on eBay (23%) and looking for part-time work (10%).

The research shows that grandparents want to provide for their families, even if this makes them worry about their own financial future. However, it shouldn’t be the case that they are choosing their family’s financial stability over their own.

Source data:

[1] Killik & Co 21 July 2020

Millennials look to build long-term wealth

Giving up on cash altogether, disillusioned by today’s dismal savings rates.

The number of people in their 20s and early 30s choosing to invest in a Stocks & Shares Individual Savings Account (ISA) prior to the coronavirus pandemic outbreak increased according to the latest HM Revenue & Customs annual ISA data[1].

Research shows that Generation Z and Millennials are now more likely to invest than Baby Boomers. Many have given up on cash altogether, disillusioned by today’s dismal savings rates. An ISA is a tax-efficient investment vehicle in which you can hold a range of investments, including equities.

Different types of investment options

The different types of investment that can be held in a Stocks & Shares ISA include: unit trusts, investment trusts, exchange-traded funds, individual stocks and shares, corporate and government bonds, and OEICs (Open-Ended Investment Companies).

The data shows that under-25s are now the fastest-growing demographic in terms of Stocks & Shares ISA subscriptions, followed by those aged between 25 and 34. Subscriptions across both age brackets jumped 92.3% from 131,000 to 252,000 between the 2016/17 and 2017/18 tax years.

More subscribe to a Stocks & Shares ISA

The number of under-25s with both a Stocks & Shares ISA and a Cash ISA also increased by 138% from 13,000 to 31,000 over the same period. The number of people aged between 25 and 34 subscribing to a Stocks & Shares ISA leapt 71% from 109,000 to 186,000 between the 2016/17 and 2017/18 tax years.
By comparison, analysis found that the number of people aged between 35 and 44, as well as those aged 65 and over, who subscribed to a Stocks & Shares ISA increased by just 4% and 5% respectively over the same period.

Less of an appetite for investment risk

The analysis also indicated that the figures for people aged between 45 and 54, as well as those aged between 55 and 64, subscribing to a Stocks & Shares ISA actually fell over the course of the year, indicating that these age groups had less of an appetite for investment risk.

The introduction of the Lifetime ISA, which gives subscribers a 25% government top-up on their savings (up to a maximum of £1,000 a year), is at least partly responsible for the uplift in the number of under-35s trying their hand at investing. Those aged between 18 to 39 can open a Lifetime ISA and save up to £4,000 annually, tax-efficiently, up to including the day before their 50th birthday.

You can’t carry any unused amount over

Since ISAs were launched 21 years ago, savers have accrued billions of pounds in these tax-efficient wrappers. The 2020/21 Stocks & Shares ISA allowance is £20,000 for individuals aged 18 and over. All savings held inside the ISA’s tax-efficient wrapper are exempt from Capital Gains Tax, dividend tax and Income Tax.

Bear in mind that the amount you can contribute into an ISA is limited by the type of ISA you have. The tax year runs from 6 April one year to 5 April the next, and you can’t carry any unused amount over to a new tax year – so it’s either use it or lose it. The ISA allowance simply resets back to the annual allowance again on 6 April.

Source data:

[1] https://www.gov.uk/government/statistics/individual-savings-account-statistics

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

Revolutionising the retirement landscape

Navigating complex decisions to shape your retirement finances.

Pension freedoms have put a greater onus on people to keep themselves informed of their options when it comes to accessing their pension money. However, little knowledge and understanding of the rules could mean some people risk making decisions that are not best for them.

For people in their 40s and 50s, understanding retirement savings is especially critical. Pension freedoms now give savers full access to their retirement savings from the age of 55. The reforms have given over-55s greater power over how they spend, save or invest their retirement pots.

Greater choices and flexibility

From 6 April 2015, new freedoms included removing the need to buy an annuity to provide income until you die, giving access to invest-and-drawdown schemes previously restricted to wealthier savers, and the removal of a 55% ‘death tax’ on pension pots left invested. Since its introduction, more than £35 billion has been withdrawn by 1.4 million individuals through the pension freedoms, according to HM Revenue & Customs data.

The pension freedom changes apply to people with ‘defined contribution’ or ‘money purchase’ pension schemes, which take contributions from both employer and employee and invest them to provide a pot of money at retirement. They don’t apply to ‘final salary’ or ‘defined benefit’ pensions which provide a guaranteed income after retirement.

Freedom numbers set to rise

The number of new people reaching pension freedoms age will reach a peak in 2020, new analysis has revealed. According to the latest Office for National Statistics (ONS) population estimates, it is estimated that the next six years will see consistently high numbers of people turning 55, should the minimum pension age stay at 55 for the foreseeable future.

Estimates show that 941,000 people will be turning 55 in 2020 – more individuals than any other age in the UK. Population estimates over the following six years also show that those approaching the age of 55 will consistently total above 900,000.

Consider alternative options

The coronavirus (COVID-19) crisis has thrown some of the nation’s retirement plans up in the air, but the full impact will depend on where your pension is invested. For those age 55 and over, even though it is positive that people have the option to use retirement savings intended for later life earlier to reflect their situation, just because you can access pensions early doesn’t mean you should.

The current crisis may see a significant number of individuals accessing pension funds earlier than planned, with others thinking about this. While this may alleviate short-term financial pressures, it leaves less of a retirement fund to provide an income throughout what can be decades of retirement. Taking larger amounts out of pensions can also mean paying more Income Tax – and it may be better to consider alternative options.

Source data:

https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/
populationestimates/datasets/ulationestimatesforukenglandandwalesscotlandandnorthernireland

ACCESSING PENSION BENEFITS EARLY MAY IMPACT ON LEVELS OF RETIREMENT INCOME AND YOUR ENTITLEMENT TO CERTAIN MEANS TESTED BENEFITS AND IS NOT SUITABLE FOR EVERYONE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

TAX RULES ARE COMPLICATED, SO YOU SHOULD ALWAYS OBTAIN PROFESSIONAL ADVICE.

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

10 tips to achieving your financial goals

Time to diagnose your money situation with a financial health check?

Even if you have a solid financial plan in place, it still needs to be updated regularly to ensure it reflects any life changes. But what should your priorities focus on now? Is it time to turn your attention to your pension, your ISA, your mortgage, or something else?

Should you be thinking about investing more for your children’s education or putting an estate plan in place? And then there are those previous company pension schemes to review – is it three, four…or was it five?

If you’re unsure what diagnosis to give your current money situation, maybe it’s time to have a financial health check. But where do you start?

1 – Reduce debts

You need to know exactly how much you owe, how much interest you are paying, and to whom. If you already have a credit card or loan with a company, it is unlikely to allow you to take out a further loan or credit card to consolidate your debts – and you could end up with a rejection footprint on your credit record that will deter other lenders. If your debts are restricted to one or two credit cards which are incurring interest, the cheapest option is probably to transfer the balances to a zero-interest credit card deal.

If your debts are too large to move to one credit card account, you could move as much as possible to a zero-interest credit card deal, pay the minimum allowed on this account, and concentrate on paying the more expensive debt that you were unable to transfer. Alternatively, you could apply for a personal loan to cover the entire amount. Once you have added up all the debt, work out how much you can reasonably afford to pay off each month.

2 – Track your spending

Without a budget to monitor your spending, you won’t be able to track where your money is going. When you feel financially out of control, the knee-jerk reaction is to cut back. Your budget will make sure that your money is doing what you’re telling it to do. Tracking your finances gives you a baseline to help track your progress and helps you to see spending mistakes before they become disastrous personal finance problems. Once you get into the habit of tracking your expenses, you’ll find that the process makes you more mindful of the spending choices you make throughout the day.

One of the biggest sources of financial stress for some people is the eternal question of where all the money went. By tracking all of your expenses rather than feeling as though everything is out of control, you can transform the question into one of personal decision-making – something that’s far less stressful. In short, tracking your expenses returns the sense of control over your finances to you. You’re no longer just along for the ride on a financial roller coaster. There are a number of different iOS and Android budgeting apps that have been designed to help you keep track of your finances from your phone.

3 – Use tax allowances

For the 2020/21 tax year, there are a number of allowances to make use of – the tax year runs from 6 April to 5 April. The Income Tax personal allowance, which is the amount you can earn tax-free before you start paying Income Tax, is £12,500.

The tax-free dividend allowance is £2,000 for the 2020/21 tax year. On dividends received above the £2,000 threshold, basic-rate taxpayers pay 7.5% tax and higher-rate taxpayers pay 32.5%. Additional-rate taxpayers will be charged 38.1% tax on dividend income over the allowance. The dividend tax does not apply to investments held in an Individual Savings Account (ISA) or a pension.

Every year you can take advantage of your Capital Gains Tax allowance. In this current 2020/21 tax year you can make gains of £12,300 before you start paying Capital Gains Tax. Lower-rate taxpayers pay 10% tax on capital gains, and higher and additional-rate taxpayers pay 20%. The only exception is for second properties, including buy-to-let investments. Capital gains on these investments will be taxed at 18% for basic-rate taxpayers and 28% for higher and additional-rate taxpayers.

Pension contributions receive full Income Tax relief; this means it costs basic-rate (20%) taxpayers £80 to save £100 into their pension, while higher-rate (40%) taxpayers only need to pay £60 to save £100. The lifetime pensions allowance for the 2020/21 tax year, in line with inflation (Consumer Price Index), now stands at £1,073,100.

Most people are allowed to contribute up to £40,000 into their pension in 2020/21, known as the ‘annual allowance’. For the ultra-high earners who earn an ‘adjusted income’ of over £240,000, the annual allowance tapers by £1 for every £2 of income, to a minimum of £4,000 per year – the taper threshold is currently £240,000.

You can save a total of £20,000 in an Individual Savings Account (ISA) this tax year, where all your earnings will be tax-efficient. You won’t pay Income Tax, dividend tax or Capital Gains Tax on any investments you hold in an ISA. The limit applies to Cash ISAs, Stocks & Shares ISAs and Innovative Finance ISAs, and the allowance can be spread among the three types.

You can save £4,000 a year into a Lifetime ISA, and this can be used towards the cost of buying a first home or for retirement. If you’re looking to buy a home, there’s also the Help to Buy: ISA, but this is no longer available for new savers. Those who opened a Help to Buy: ISA before the ISA closed to new savers in December 2019 can save up to £3,400 in the first year and then £2,400 each year afterwards.

The Junior ISA allowance for the 2020/21 tax year is £9,000. This same limit applies to Child Trust Funds (CTFs). It has previously risen every year in line with inflation.

Basic-rate taxpayers can now earn £1,000 from savings before they start paying Income Tax on savings income. Higher-rate taxpayers start paying tax on savings income over £500. There is no savings allowance for additional-rate taxpayers.

4 – Start a new habit

Regular monthly investing promotes the discipline of saving, whereby a small amount invested every month over several years can build into a sizeable nest egg. Regular contributions are generally the route taken by people who don’t have a large amount to invest at one time, or by those who are more cautious about investing a lump sum and prefer to drip feed their money into the markets.

Investing monthly can also be a particularly effective way of investing through times of volatile markets, as we’ve been experiencing this year. A monthly direct debit takes the emotion out of investing, which can be invaluable at times of extreme volatility. Investing monthly also means that you don’t see the value of your investment change so dramatically, which can help you stay focused on your long-term goals.

When there is a market correction, your regular payment will acquire more units. And when the market rises, you will acquire fewer units, but the units you bought in previous months will be worth more. This smoothing out of investment returns is known as ‘pound-cost averaging’. As your circumstances change, you can adjust the amount of your regular savings. Ideally, you should look to increase the amount as your salary increases, but you have the flexibility to reduce it should your income fall.

5 – Top up your pension

To get the income you want during retirement, it’s important to regularly review the amount you’re contributing towards your pension savings. However, you need to be aware that over time, inflation can steadily erode the value of your contributions, so it’s important to review them regularly.

A pension is one of the most tax-efficient ways to save. Topping up your pension will help towards improving your financial security in retirement, and saving a bit more now could make a big difference to your future. The way in which the tax relief is given will depend on the type of pension scheme you’re in, and also whether or not you use salary sacrifice.

Many pensions allow you to choose to automatically increase your payments each year, say by 3–5%. It’s likely that they’ll stay in line with inflation without you having to worry about it. You should consider a larger increase if you receive a pay rise.

6 – Focus on your goals

Failing to plan is planning to fail. How often do you set goals? How often do you revisit your list of goals? We all know that setting goals is important, but we often don’t realise how important they are as we continue to move through life. Focusing on your goals can help ensure you aren’t distracted by current daily events, so that they don’t prompt you to veer off course.

Financial planning is essentially about setting short, medium and long-term financial goals and putting together a plan to meet them. It’s important to have a solid understanding of your finances and how to reach your goals. Setting goals helps trigger new behaviours, helps guide your focus, and helps you sustain that momentum in life.

How will your life be different in a year? Do you have the security of knowing where you’re heading financially? Are you going to be able to maintain your current lifestyle once you stop working? Have you made sufficient financial plans to live the life you want and not run out of money? Do you have a complete understanding of your financial position? What is ‘your number’ to make your current and future lifestyle secure? When you keep your focus on what you want to achieve in life, you are much more likely to reach your goals.

7 – Stick it out

Don’t let the coronavirus (COVID-19) pandemic derail your financial plans. There will always be some bumps along the way as you invest for your future, but as volatility emerges and emotional anxiety sets in, this can lead you to veer towards ‘flight’ instead of ‘fight’.

Now is the time to take steps to improve your relationship with money and the role it plays in your life, with a view to seeking a happier, more fulfilled existence. Instead of making knee-jerk reactions, it’s important to take time to consider your long-term plans and take deliberate steps that can further your long-term goals.

8 – Broaden your investments

Take the time to review your investments, and look for opportunities to diversify. Your investment strategy now could determine your financial success for years to come, which is why it’s important to have a broad diversified spread of investments. Diversification can be neatly summed up as: ‘Don’t put all your eggs in one basket’. The idea is that if one investment loses money, the other investments will make up for those losses.
You diversify by investing your money across different asset classes, such as equities, bonds (also referred to as ‘fixed income’), property and cash. Then, you diversify across the different options within each asset class. Diversification lowers your portfolio’s risk because different asset classes do well at different times. It is your best defence against a single investment failing or one asset class performing poorly. Having a variety of investments with different risks will balance out the overall risk of a portfolio.

9 – Keep emotions in check

Remember, as the old investment adage goes, it is ‘time in the market, not timing the market’ which is typically key to long-term gains. Shock events such as the COVID-19 outbreak and related stock market volatility can cause investors to act on their emotions.

Putting a plan in place when markets turn south and reviewing that plan when emotions are running high can temper this impulse. Although short-term volatility swings can be difficult to stomach, it’s important for long-term investors to persevere.

While it may be tempting to pull out of investment markets, you may miss out on a potential market rebound and opportunity for gains while you’re on the sidelines. During any period of volatility, thinking about your reasons for investing and what you ultimately plan to do with your money is important.

10 – Reinvest dividends

Reinvesting dividends is one of the most powerful tools available for boosting returns over time. When you reinvest dividends, you can dramatically increase your annual returns and total wealth. At the point an investment you own pays dividends, you have two options: either take the money and use it as you would any other income, or reinvest it.

Although having the extra money on hand may be appealing, reinvesting your dividends can really pay off in the long run. When you eventually reach the stage where you’d prefer to use your dividends to supplement your income, you can simply stop reinvesting the dividends and start spending them!

ACCESSING PENSION BENEFITS EARLY MAY IMPACT ON LEVELS OF RETIREMENT INCOME AND YOUR ENTITLEMENT TO CERTAIN MEANS-TESTED BENEFITS AND IS NOT SUITABLE FOR EVERYONE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

TAX RULES ARE COMPLICATED, SO YOU SHOULD ALWAYS OBTAIN PROFESSIONAL ADVICE.

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

No-desire to retire generation

Why working and retirement are no longer binary terms.

Giving up the 9-to-5 doesn’t necessarily mean stopping work. Many people are now considering staggered or flexible working. It can suit some individuals who have caring responsibilities or health issues, or those thinking about retiring in the next few years.

When you picture yourself in your golden years, are you sitting on a beach, hitting the golf course or working behind a desk? For many people of retirement age, continuing to work makes perfect sense.

Unsettling period

Several decades ago, working and retirement were binary terms, with little overlap. People were either working (and under the age of 65) or had reached the age of 65 and were retired. That’s no longer true, however, as staggered retirement is becoming more popular and more common.

Few people benefit from the sudden transition from working five days a week to suddenly not working at all. Retirement can often be an unsettling period, and it’s not surprising given that the most common path into retirement is to go ‘cold turkey’ and simply stop working.

Pension pot

New research has highlighted the fact that fewer people are deciding against completely stopping working and are opting for a staggered and more flexible retirement and working part-time[1]. Nearly one on three (32%) of pensioners in their 60s and 16% of over-70s have left their pensions untouched.

Of those who haven’t accessed their pension pot, nearly half (48%) of those in their 60s, and 24% over 70s, say it is because they are still working. With people living longer, and the added prospect of health care costs in later life, retirees increasingly understand the benefits of having a larger pension pot in later life.

Of course, retirees who haven’t accessed their pension pot must have alternative sources of income. When asked about their income, nearly half (47%) said they take an income from cash savings, others rely on their spouse or partner’s income (35%) or the State Pension (22%), while 12% rely on income from property investments.

Still working

Of those who haven’t accessed their pension pot, half (51%) say it is because they are still working, while more than a quarter (25%) of people in their 60s say it is because they want their pensions to last as long as possible.

Of course, retirees who haven’t accessed their pension pot must have alternative sources of income. When asked about their income, nearly half (47%) said they take an income from cash savings (47%), others rely on their spouse or partner’s income (35%) or State Pension (22%), while 12% rely on income from property investments (12%).

Good health

This trend for staggered retirements offers many financial and health benefits. It is often taken for granted, but continued good health is one of the best financial assets people can have. The benefits of working – such as remaining physically active and continued social interaction – can make a big difference to people’s mental well-being and overall health in retirement.

People are increasingly making alternative choices about retirement to ensure that they do not run out of money, but it’s also really important to make pension savings work past retirement age so as not to miss out on the ability to generate growth above inflation for when there is the requirement to start drawing a pension.

Source data:

[1] Research from LV survey of more than 1,000 adults aged over 50 with defined contributions

Take it to the max

How to make the most of the various pension allowances.

Saving into a pension is one of the most tax-efficient ways to save for your retirement. Not only do pensions enable you to grow your retirement savings largely free of tax, but they also provide tax relief on the contributions you make.

There are various pension allowances that you need to be aware of and understand how to make the most of. These limit the amount of money you can contribute to a pension in a year, as well as the total amount of money you can build up in your pension accounts while still enjoying the full tax benefits.

Lifetime Allowance

All your pensions, including workplace pensions, count towards the Lifetime Allowance, with the exception of the State Pension and overseas pensions. The standard Lifetime Allowance is £1,073,100 since 6 April 2020 and increases with inflation each year.

You don’t pay a tax charge until you take your pension savings over and above your Lifetime Allowance (or reach age 75, if earlier). The charge is only on the excess money saved in your pension that is above your Lifetime Allowance.

Non-taxpayer or earning less than £3,600

If you have no earnings or earn less than £3,600 a year, you can still pay into a pension scheme and qualify to receive tax relief added to your contributions up to a certain amount. The maximum you can contribute is £2,880 a year. Tax relief is added to your contributions, so if you pay £2,880, a total of £3,600 a year will be paid into your pension scheme, even if you earn less than this or have no income at all.

This applies if you pay into a personal or stakeholder pension yourself (so not through an employer’s scheme) and with some workplace pension schemes – but not all. The way some workplace pension schemes give tax relief means that people earning less than the personal allowance (£12,500 in the 2020/21 tax year) won’t receive tax relief.

Money Purchase Annual Allowance

The Money Purchase Annual Allowance (MPAA) rules were introduced as an anti-avoidance measure to prevent widespread abuse of the pension freedoms which commenced from 6 April 2015. It’s intended to discourage individuals from diverting their salary into their pension with tax relief and then immediately withdrawing 25% tax-free.

The MPAA applies only to money purchase contributions and has remained at £4,000 since 6 April 2017. If you have taken flexible benefits that include income, such as an ‘Uncrystallised Funds Pension Lump Sum (UFPLS)’ or flexi-access drawdown with income – and you want to continue making contributions to a defined contribution pension scheme – you will have a reduced annual allowance of £4,000 annually towards your defined contribution benefits.

Annual Allowance

The pension Annual Allowance is the maximum amount of money you can contribute towards a defined contribution pension scheme in a single tax year and receive tax relief on. All contributions made to your pension by you, your employer or any third party, as well as any tax relief received, count towards your Annual Allowance.

The standard pension Annual Allowance is currently £40,000, or 100% of your income if you earn less than £40,000. A lower Annual Allowance may apply, however, if you are a high earner, or you have already started accessing your pension. High earners may potentially be subject to the Tapered Annual Allowance, while those who have already started accessing their pension potentially face the Money Purchase Annual Allowance (MPAA).

Carry forward

Carry forward is a way of increasing your pension Annual Allowance in the current tax year. It is used when your total pension contribution amounts for a tax year exceed your annual pension Annual Allowance limit for that year.

You can do this by carrying forward unused allowances from the three previous tax years to make contributions this year. This may enable you to absorb or reduce any pension Annual Allowance excess paid in the current tax year which, in turn, would reduce any potential Annual Allowance charge amount. The 2020/21 tax year allows use of unused allowances from 2017/18, 2018/19 and 2019/20.

Tapered Annual Allowance

The Tapered Annual Allowance calculations will now not affect anyone with a Threshold Income level below £200,000. The taper starts in this tax year at £240,000 and extends to a minimum of £4,000 Annual Allowance. This reduces the level of pension funding high earners and their employers can make into pension schemes.

If high earners exceed the threshold and adjusted income amounts, their Annual Allowance may be reduced by £1 for every £2 of adjusted income over this level until the minimum annual allowance level of £4,000 is reached. The maximum Tapered Annual Allowance reduction is £36,000.

Pension contributions tax relief

Everyone, whether working or not, is entitled to receive basic rate tax relief at 20% from the Government when making contributions to their pension. Depending on the type of pension, tax relief can either be a reimbursement of the tax already paid on a pension contribution or it can be the ability to put away for your pension straight out of your wage, before paying any tax.

Basic-rate taxpayers, and those who don’t pay tax, will earn 20% tax relief. Higher-rate taxpayers earn 40%. For additional-rate income taxpayers, who earn over £150,000 a year, tax relief is 45%. There are other rules that apply for additional-rate payers depending on specific circumstances.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

TAX RULES ARE COMPLICATED, SO YOU SHOULD ALWAYS OBTAIN PROFESSIONAL ADVICE.

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

Delaying retirement

Pandemic forcing a widespread rethink of retirement plans.

The coronavirus (COVID-19) pandemic crisis has thrown some of the nation’s retirement plans up in the air. As a result, a number of people over 50 and in work are set to delay their retirement (15%) by an average of three years, or keep working indefinitely (26%) as a direct result of COVID-19, according to new research[1].

The pandemic is forcing a widespread rethink of retirement plans. Currently 1.5 million workers aged over 50 are planning to delay their retirement as a direct result of the pandemic. The most recent data from the Office for National Statistics highlights the number of workers aged above 65 years is at a record high of 1.42 million[2]. However, if people change their retirement plans in response to the pandemic, this could increase considerably.

Delaying retirement by five years or more

One in six people aged over 50 and in work (15%) believe that they will delay, while 26% anticipate having to keep working on a full or part-time basis indefinitely due to the impact of the virus. On average, those who plan to delay their retirement expect to spend an additional three years in work. However, 10% admit they could delay their plans by five years or more.

These figures are significantly higher for the 26% of over-50s workers who have been furloughed or seen a pay decrease as a result of the pandemic. One in five of these workers will delay (19%), and 38% expect to work indefinitely.

Forced to rethink retirement plans

The financial impact of the COVID-19 pandemic seems to be particularly pronounced for people aged over 50 who are still in work. While some people will choose to work for longer, or indefinitely, the key consideration when it comes to this research is that it seems this decision has been driven by the financial impact of the pandemic, rather than personal choice.

One in five (18%)[3] plan a change to their target retirement age, and 20% of over-55s who hadn’t accessed their pension prior to the crisis have since taken out money from their pension (12%) or are considering doing so (8%) because of the pandemic. The self-employed have been particularly affected, with two in five (40%) forced to rethink retirement plans, and 22% now expecting to delay their retirement.

Impact on people’s ability to retire

This is a key stage in people’s retirement planning, so seeing a material impact on household income will naturally lead to pessimism about achieving retirement goals. While it would be naive to say that these financial issues will not have an impact on people’s ability to retire, it’s important for people to have a strong understanding of the options available to them before concluding that their retirement needs to be delayed or forgotten indefinitely.

That employment uncertainty, in combination with volatility in the financial markets, is understandably concerning to some people approaching retirement age. Those who have been furloughed or seen a pay decrease could benefit from a financial review to assess their options before changing their plans.

Source data:

[1] Opinium Research ran a series of online interviews for Legal & General Retail Retirement among a nationally representative panel of 2,004 over-50s from 15–18 May 2020.
[2] Office for National Statistics, Labour market overview, UK: May 2020
[3] https://www.cofunds.aegon.co.uk/content/ukcpw/customer/news/covid-19_has_widereachingimpactonretirementplans.html

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

TAX RULES ARE COMPLICATED, SO YOU SHOULD ALWAYS OBTAIN PROFESSIONAL ADVICE.

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

Planning to leave a family legacy?

Impact of coronavirus (COVID-19) on Will making.

We are living in extraordinary times right now, in the grip of a global coronavirus (COVID-19) pandemic. Many people are concerned to ensure that their affairs are in order and that they have made a Will, which is one of the most important legal documents you can create in life.

It is always sensible to have a valid Will in place to ensure that your estate is divided among the people (or charities) you want to receive it. The coronavirus outbreak has given further impetus to many people to put their affairs in order, and having a valid Will in place is particularly important if you suffer from any underlying health issues or are elderly.

Need to discuss Wills and inheritance

Families are becoming more open about their finances, with the COVID-19 crisis highlighting the need to discuss Wills and inheritance. A study conducted at the height of the pandemic shows the pandemic has encouraged more people to make a Will[1].

A third (33%) of people in the UK have either drafted a new Will or have amended an existing one as a result of the global health and humanitarian crisis we’re facing. The research highlights that this is also having a broader effect and is making families more open about their finances. Nearly four out of five (78%) believe the pandemic will lead to more conversations about inheritance planning within their families.

Complex family set-ups the new normal

The pandemic has not spurred everyone to act: more than a fifth (22%) of people surveyed say they do not have a Will, and do not plan to draw one up. Worryingly, around one in ten say they believe doing so would be tempting fate.

Families can face major problems if there is not a Will in place, particularly as complex family set-ups are increasingly becoming the new normal. Nearly one in seven (13%) families in the UK now have a stepson, stepdaughter and/or adopted son or daughter as part of their family. And a fifth (21%) of parents have been involved in two or more romantic relationships that have led to them being legally responsible for children to whom they have no biological link.

Significant impact on estate planning

An outdated Will can be challenged, which could be a drain on a family’s estate. This is especially pertinent as only 27% of adults are confident that their current Wills are unlikely to offend relatives. Nearly half (49%) of those with a Will have never rewritten or amended it. Just 24% have amended their Will once, 16% have amended it twice, and only 5% have amended it three times.

Rising concerns over marital health is also having a significant impact on estate planning. The study also found that over two thirds (67%) of parents have decided to delay family inheritance planning for fear that their children’s marriages will end in divorce, with the likelihood of wealth and assets leaving the family estate.

Mitigate substantial wealth leaving the family

In fact, a quarter (27%) of parents have little or no confidence about the prospects of their children’s marriages lasting a lifetime, and one in six (16%) have doubts about their in-laws’ financial competence. The findings show that these worries are not unsubstantiated, with more than one in four parents (27%) having children who are separated or divorced.

To mitigate substantial wealth leaving the family in the event of divorce, a fifth of parents (21%) are gifting small amounts to their children to help with day-to-day living, while 19% are gifting directly to their grandchildren. Parents have other reasons for restricting levels of financial support: 13% of parents say it will reduce their children’s incentive to work, and 12% think there would be little left for their grandchildren.

Source data:

[1] Research conducted by Consumer Intelligence for Handelsbanken in April 2020 with over 1,000 respondents

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS.

ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE RULES AROUND WILLS ARE COMPLICATED, SO YOU SHOULD ALWAYS OBTAIN PROFESSIONAL ADVICE.

Investing during retirement

Why it’s important not to view your portfolio with an element of finality.

Retirement is a major accomplishment for most people. You’ve worked hard all of your working life to save and prepare for your retirement, and now you’ve finally retired. So how should you approach investing now that you’re no longer earning a salary? When it comes to investing during retirement, with the right strategy, you can help make sure your retirement savings last.

It is not unusual for people to live more than 30 years in retirement, due to increased incentives to quit work early and rising life expectancy, which in itself can present a major risk that retirees may outlive their savings. The longer the time spent in retirement, the harder it becomes to be certain about the adequacy of your assets.

Retirement income boost

You’ve been investing for decades to earn enough money to retire, and the day has finally come that you can stop working. At this point, your investment risk profile and strategy will almost certainly need to adjust in order to look at ways of making your money work as hard as possible, but with a view to generating income to boost your retirement income.

This is a time to look at how balanced your investments are and whether you are exposed to more risk than you are comfortable with in certain areas. It’s time to conduct a review of all of your investments and decide how much you can afford to withdraw each year and whether this balances with your needs.

Too risk-averse

An elementary mistake that some retirees make is to view their portfolio with an element of finality – and this makes them too risk-averse and unwilling to look beyond their current financial position. Of course, retirement means different things to different people.

For some, it’s about never working again, and instead spending their days doing the things they enjoy most, such as travelling, pursuing hobbies, and spending more time with family and friends. For others, retirement means working part-time to stay busy and engaged in a profession, but without the need to earn a regular income.

Time of your life

Regardless of what retirement looks like to you, the key is to enjoy this time of your life, while making sure you don’t outlive your retirement savings. For many retirees, that means developing an investing strategy that will allow them to withdraw money from their portfolio, while still enabling it to grow over the longer term.

There are a lot of ways to invest even after you have retired and your working days are done. It goes without saying that once you have retired, you’ll want your retirement nest egg to last as long as possible. And with people living longer than ever, your nest egg may need to stretch further than you’d thought when you first started saving for retirement.

Potential investment options

For most retirees, that means developing an investing strategy that will allow them to withdraw money from their portfolio, while still enabling it to grow over the longer term. Given the potential investment options available to post-retirement retirees, at the point of investing, it’s really important to consider the effects of future financial market volatility and inflation.

While the risk of portfolio declines can’t be overlooked, retirees also face another type of risk: inflation. Even though we currently have historically low inflation, it’s critical for retirees’ investments to keep up with inflation throughout their retirement years. Cutting exposure to equities too aggressively could hinder the growth of a nest egg, potentially leaving retirees with less than they need.

Keeping up with inflation

While many retirees should stay invested, they must make sure a good portion of their investments is in safer assets. Today’s low interest rate environment means your money may not grow quickly, or even keep up with inflation, but those assets will likely be better protected than equities in a market downturn.

If appropriate, retirees should typically have a healthy mix of equities, bonds and other investments, such as property. The right mix will depend on an individual’s personal risk tolerance. Retirees should also set up their portfolios in a way that better protects the funds they may need in the next five years, in the event of future stock market corrections.

Toning down risk appetite

It can be hard for some retirees to tone down their risk appetite when investing during their retirement years, following decades of investing for growth. But diversification is just as important for investors at any age, and may be most critical when investing in retirement.

This is a time of your life to ensure that you spread your investments across and within asset classes to make sure you are well diversified. You can spread your money across the three major asset classes (equities, bonds and cash equivalents). This is known as ‘asset allocation’. To balance the risks and returns of the asset classes – and the investment within the asset class itself – you can also spread your money across various investment options within a particular asset class.

Increasing financial security

The most careful plans and preparation for retirement can fall apart due to any number of post-retirement risks. However, making the right investment decisions can help you increase your financial security and provide income that you can use to live comfortably after you stop working.

It is a good idea to try and set aside up to two years of living expenses in cash. Having some money that you can access quickly in an emergency situation will protect you from the need to sell some of your riskier investments at a loss and cover you for a period of time if you are falling slightly short of your income generation target.

THE VALUE OF YOUR PENSION CAN GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN HAS BEEN PAID IN.

EQUITY INVESTMENTS DO NOT AFFORD THE SAME CAPITAL SECURITY AS DEPOSIT ACCOUNTS.