Making plans for your retirement

Tailored to match your particular needs and aspirations

One of the most important stages in life which everybody has to save for is retirement. We work hard to enjoy our current lifestyle but are we doing enough to ensure that we can continue to enjoy it in our retirement? Many of us live for today, but saving into a private pension plan can help us retire sooner rather than later.

Pension plans are as individual as the people who invest in them. There is no one-size-fits-all, tax-efficient solution for private pensions. Instead they should be tailored to match your particular needs and aspirations.

Enjoy the lifestyle you want in later years

Private pensions are a tax-efficient way of saving money during your working life so that you have an income when you want to retire. With proper planning, your private pension will allow you to enjoy the lifestyle you want in later years. A private pension plan, also known as a personal pension, is a good option if you’re self-employed, as you won’t have the option to be automatically enrolled in a workplace pension.
The term private pension covers both workplace pensions (also known as occupational or company schemes), arranged by your employer, and personal pensions, which you manage yourself. There is no restriction on how many pensions you can have, and some people will have both.

Cap on the amount you can save every year

A personal pension operates in a similar way to a workplace scheme, except that you make the contributions yourself into a plan of your choosing. You can make monthly payments, one-off payments or a combination of the two. But the government places a cap on the amount you can save every year, upon which you can earn tax relief. This cap is known as the annual allowance, which is currently £40,000 in the 2019/20 tax year.
In addition, the lifetime allowance is a limit on the value of payouts from your pension schemes – whether lump sums or retirement income. The lifetime allowance currently for most people is £1,055,000 and applies to the total of all the pensions you have, including the value of pensions promised through any defined benefit schemes you belong to, but excluding your State Pension. The standard lifetime allowance is indexed annually in line with the Consumer Prices Index (CPI).

Radical reform gives people greater pension flexibility

To take advantage of your available allowances, typically you should contribute as much as you can into your pension, as early as you can and for as long as you can. This will allow you to take advantage of any compounding effects and long-term rises in the market. You should also consider increasing your payments in line with your earnings to help make maximum use of your annual and lifetime allowances.
In March 2014 the then Chancellor of the Exchequer announced a radical reform of the pensions system to give people greater flexibility to access their pension savings. The new pensions freedoms took full effect from 6 April 2015. To access your pension pot you must have reached the normal minimum pension age – currently 55 (or earlier if you’re in ill health or if you have a protected retirement age). Up to 25% of your accumulated fund can be withdrawn as a tax-free cash lump sum with the balance used to provide an income.

There are different types of pension scheme:

Defined Contribution (DC) – also known as a money purchase scheme

This is the most common type of pension today and works like a tax-efficient, long-term savings scheme. The idea is to build up your savings over your working life. When you come to retire, as early as 55 years old, you can take up to 25% of the total pot out as a tax-free lump sum. The remaining amount can be left to build up further until you decide what to do depending on your scheme.

Stakeholder Pension

This is a simplified form of the defined contribution scheme, which allows you to pay low minimum contributions and is very flexible. Charges are capped and providers offer default investment strategies.

Self-invested Personal Pension (SIPP)

A SIPP is a specialist type of personal pension that allows you to invest in a wider range of assets than a standard personal pension, which is limited to a restricted list of funds. A SIPP can hold individual shares, commercial property and exchange traded funds, for example. As the name suggests, it is self-invested, meaning that you can have the flexibility for managing your own investment portfolio. This approach in particular requires professional financial advice, unless you are an experienced investor

Defined Benefit (DC) Scheme

Defined Benefit pensions (also known as Final Salary schemes) are a type of workplace pension that guarantees a generous, index-linked fixed pension income for life. Nearly all of these schemes are now closed to new members. The amount of pension received is calculated as a percentage of the members salary typically in the last year of employment, usually the highest earning year though some schemes use other calculations such as the average career earnings.

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.

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.

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.

Inheritance Tax

No longer something that only affects the very wealthy

Inheritance Tax is no longer something that only affects the very wealthy, but the good news is that there are ways to limit the amount of Inheritance Tax your family may potentially face.

When someone dies Inheritance Tax a tax charged on their estate above a certain value. A person’s estate is basically everything they own, including their main property, any other properties, cars, boats, life assurance policies not written in an appropriate trust and other investments, as well as personal effects such as jewellery.

Inheritance Tax is potentially charged at a rate of 40% on the value of everything you own above the Nil-Rate Band threshold. This is the value of your estate that is not chargeable to Inheritance Tax. The amount is set by the government and is currently £325,000 which is frozen until 2021. When you die your estate is not liable to tax on any assets up to this amount. However, anything over this amount may be taxed at a rate of 40%.

Since 6 April 2017, if you leave your home to direct lineal descendants which includes amongst others your children (adopted, fostered and stepchildren) and grandchildren, the value of your estate before tax is paid, will increase with the addition of the Residence Nil-Rate Band, currently £150,000 in 2019/20.

Inheritance Tax is an unpopular and controversial tax, coming as it does at a time of loss and mourning, and can impact on families with even quite modest assets. However, there are legitimate ways to mitigate against this tax. However, some of the most valuable exemptions must be used seven years before your death to be fully effective, so it makes sense to obtain professional financial advice and consider ways to tackle this issue sooner rather than later.

Making plans to mitigate against Inheritance Tax:

Make a will

Dying intestate (without a will) means that you may not be making the most of the Inheritance Tax exemption which exists if you wish your estate to pass to your spouse or registered civil partner. For example, if you don’t make a will then relatives other than your spouse or registered civil partner may be entitled to a share of your estate and this might trigger an Inheritance Tax liability.

The facts:

Inheritance Tax is levied at a fixed rate of 40% on all assets worth more than £325,000 per person (0% under this amount) – or £650,000 per couple if other exemptions cannot be applied.

The Residence Nil-Rate Band is currently £150,000. This is an allowance that can be added to the basic tax-free £325,000 to allow people to leave property to direct descendants such as children and grandchildren – the allowance will be reduced by £1 for every £2 that the value of the estate exceeds £2m.

Make lifetime gifts

Gifts made more than seven years before the donor dies, to an individual or to a bare trust, are free of Inheritance Tax. So if appropriate you could pass on some of your wealth while you are still alive. This will reduce the value of your estate when it is assessed for Inheritance Tax purposes, and there is no limit on the sums you can pass on.

You can gift as much as you wish, and this is known as a Potentially Exempt Transfer (PET). However, you will need to live for seven years after making such a gift for it to be exempt from Inheritance Tax, but should you be unfortunate enough to die within seven years then it will still be counted as part of your estate if it is above the annual gift allowance.

You need to be particularly careful if you are giving away your home to your children with conditions attached to it, or if you give it away but continue to benefit from it. This is known as a Gift with Reservation of Benefit.

Leave a proportion to charity

Being generous to your favourite charity can reduce your Inheritance Tax bill. If you leave at least 10% of your estate to a charity or number of charities, then your Inheritance Tax liability on the taxable portion of the estate is reduced to 36% rather than 40%.

Set up a trust

Family trusts can be useful as a way of reducing Inheritance Tax, making provision for your children and spouse, and potentially protecting family businesses. Trusts enable the donor to control who benefits (the beneficiaries) and under what circumstances, sometimes long after the donor’s death.

Compare this with making a direct gift (for example to a child) which offers no control to the donor once given. When you set up a trust, it is a legal arrangement and you will need to appoint ‘trustees’ who are responsible for holding and managing the assets. Trustees have a responsibility to manage the trust on behalf of and in the best interest of the beneficiaries, in accordance with the trust terms. The terms will be set out in a legal document called ‘the trust deed’.

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 TRUSTS ARE COMPLICATED SO YOU SHOULD ALWAYS OBTAIN PROFESSIONAL ADVICE.

Wealth creation

Spreading risk by accessing different types of assets

Investing for the long-term means persisting through market swings. History shows that when people invest and stay invested, they’re more likely to earn positive returns in the long run. When markets start to fluctuate, it may be tempting to make financial decisions in reaction to changes to your portfolio.

Investing in a pooled investment, also known as a collective investment scheme, provides investors to access investments through a fund, rather than buying direct assets on their own. Investing in a fund, such as a unit trust, an Open Ended Investment Company (OEIC), or an investment trust, can give investors exposure to a wide range of companies and enables the spread of risk by providing access to different types of assets. Fund managers make the decisions about when to buy and sell assets.

Higher or faster growth

Different funds take different levels of risk. Some are relatively low risk – for example they might invest mostly in cash. Others are very risky, investing in new, uncertain companies or markets with the aim of higher or faster growth. And there’s everything in-between. By obtaining professional financial advice before you invest you can ensure that your fund choices offer the right level of investment risk.
Dipping in and out of the market and trying to pick the best times to invest is an extremely risky strategy, as no-one knows for certain which way markets are likely to move next. One aspect of long-term investing is that it almost entirely removes your emotions from the equation.

Avoid making unwise decisions

Staying invested over the longer-term, preferably five years but ideally longer, gives investments a greater chance of positive returns, though there can be no guarantees. This means investors don’t need to focus on daily or short-term volatility that might occur. By monitoring performance only occasionally, investors should avoid making unwise decisions to cash them in earlier than necessary. Instead the focus should be on the long-term growth potential of the investments.

Investing on a regular basis not only suits most people’s income streams but it also helps to create discipline. Making a commitment to set aside an affordable amount each month is unlikely to affect someones lifestyle. Regularly investing money into the stock market rather than putting in a lump sum could also smooth returns over time, because investors can benefit from so-called ‘pound cost averaging’.

Smooth out market volatility

Investing regularly enables investors to take advantage of pound-cost averaging. By investing each month investors benefit from times when the markets are falling and are able to buy more units in a fund. This means the investment can acquire more shares when prices are low, and less when they are more expensive, with the theory being that investors effectively pay the average price over a fixed period, which can help smooth out market volatility. However, this strategy, as with any other, won’t always work and could lead to lower returns than if the investor had invested one lump sum at the outset.

Investors should consider investing in a variety of assets – including cash, fixed-interest bonds, equities and property. This provides diversification and avoids relying on one particular investment to produce gains. This also helps reduce the risk of losing money, as the asset types that are performing well can hopefully offset those that at the same time are experiencing a period of lower performance.

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.

Retirement longevity

Your destiny is now in your own hands

If you are in your 50s or 60s, your thoughts are probably turning towards retirement. When should you retire? How much money do you need?

In trying to answer these questions, you face a problem. Because of longevity trends, we are on average living longer. With longevity increasing, your wealth may have to provide you and your spouse or partner with an adequate income for 30 or even 40 years.

Britons aged 30 today have a 50% chance of living to more than 100, while 50-year-olds have an even chance of reaching 95[1]. Longer lifespans, however, raise financial challenges – for individuals as well as for families and society.

The idea of a retirement lasting many decades may seem appealing, but longer retirements mean more years of living off your pension and savings. Will yours be enough?

Extra benefit of compound interest

How much money you need to save depends on when you actually start saving and how much you want to save in total. The earlier you and potentially your employer (if they match your contributions) start adding to your pension pot, the less you will need to save each month because the cost is spread over a longer period.

Moreover, if you start saving earlier, your funds will accrue the extra benefit of compound interest throughout the duration of your savings. Making money from the interest means you can actively save less but still end up with the same amount.

Much more freedom and flexibility

The good news is that changes to pensions also now mean you have much more freedom and flexibility over how to take your benefits – whether as tax-free cash, buying an income for life, leaving your pension fund invested while drawing an income, or a combination of all these options.

Unless you believe the Government is likely to become more generous with the State Pension and other retirement benefits, individuals will almost certainly need to save more to enjoy the standard of living they would like in retirement.

Building a retirement nest egg

Over the last few decades, employer pensions have become generally less generous. Today, people starting a new job in the private sector are very rarely offered a traditional defined benefit pension – where the employer guarantees you a certain level of pension based on your salary and length of service.

Most employer-based pensions now depend on how much you and your employer have contributed and the investment returns achieved by that money. That said, for most people, saving via a workplace pension still remains the correct approach to take for building a retirement nest egg – not least because the employer contributions are effectively free money.

A number of attractive tax breaks

Importantly, pension savers benefit from a number of attractive tax breaks, including Income Tax relief on contributions and up to 25% of the proceeds being tax-free. For 2019/20, the annual limit on tax-relievable personal contributions is 100% of your salary (or £3,600 if more). In addition, there is a limit on tax-efficient pension funding called the ‘annual allowance’ (£40,000 for most people) – this applies to both contributions paid by you and contributions paid by your employer and, if exceeded, means you will pay tax on the excess (an annual allowance charge).

We’ll help keep track of your pension contributions so that you know if you’re getting close to your annual limits.

Maximum tax-free retirement savings

In some cases, we may be able to ask your pension provider to pay the charge from your pension benefits. You may not be subject to an annual allowance charge (or a lower charge may apply) if you have unused annual allowances from the previous three tax years that can be carried forward.

Increasingly, more people are also being caught by the ‘lifetime allowance’, which puts a limit on the total value of their pension funds that can be accumulated without suffering a tax charge. From 6 April this year, the pensions lifetime allowance increased to £1,055,000. The pension lifetime allowance is the maximum amount that you can accumulate in your pension plans without suffering a tax charge (lifetime allowance charge).

Source data:
[1] The 100 Year Life: Living and Working in an Age of Longevity, by Andrew Scott and Lynda Gratton, September 2018

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.

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.

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.

Give a triple boost to your children

Don’t miss out on this little-known tax rule

For those parents who have spare cash, putting money into their children’s pension will boost the retirement prospects of their offspring. The money will be topped up by the addition of tax relief and could also earn their children a tax refund if they are higher-rate taxpayers and reduce the penalty they face if they are a higher earner receiving child benefit.

Under current rules, there is nothing to stop a parent making a contribution into the pension of an adult child. With millions of younger workers having been newly enrolled into a workplace pension, many now have a pension for the first time but are only making very modest contributions.

Building a more meaningful retirement pot

An additional contribution from parents early in their working life, benefiting from compound interest as it grows, could help them to build a more meaningful retirement pot and is money that cannot be touched until later in life.

A campaign has been launched by Royal London to make parents aware of the ‘hidden advantages’ of paying into the pension pot of their adult children. It is a little known fact that a parent who puts money into their child’s pension could be doing them a favour three times over.

Improving long-term financial security

First, the recipient will get a boost to their retirement pot, including tax relief at the basic rate. Second, recipients who are higher-rate taxpayers can claim higher-rate tax relief on their parents’ contributions, which will increase their disposable income. And third, recipients affected by the high income child benefit charge can see this penalty reduced because of their parents’ generosity.

Not every parent has spare cash to pay in to their children’s pensions, but many will be in a better financial position than their children can expect to enjoy. By paying in to their children’s pension, they can give them a triple boost and improve their long-term financial security.

Recipient receives basic-rate tax relief

A little-known feature of the pensions system, however, is that the contribution by the parent is treated as if it had been made by the recipient. So, for example, if a parent pays £800 into their child’s personal pension, the recipient will get basic-rate tax relief on the contribution, taking the amount in the pot up to £1,000.

In addition, there are two further benefits to the recipient:

If the recipient is a higher-rate taxpayer, he or she can claim higher-rate relief on the contribution made by the parent; this would be done through the annual tax return process and would reduce the tax bill of the recipient.

If the recipient is affected by the ‘high income child benefit charge’ and is earning in the £50,000-£60,000 bracket or slightly above, the money contributed by the parent is deducted from their income before the high income child benefit charge is worked out, thereby reducing their tax charge; for example, if the recipient is earning £60,000 and therefore faces a child benefit tax charge of 100% of their child benefit amount, a pension contribution by the parent of £8,000 grossed up to £10,000 by tax relief would reduce the recipient’s income to £50,000 for purposes of the child benefit charge and would completely eliminate the tax charge.

Reducing a future inheritance tax bill

Apart from generally wanting to help their children, parents may be interested in this idea particularly because they may be up against their own annual limits for pension contributions and may therefore have spare cash. Contributions may reduce future Inheritance Tax bills if they qualify for one of the standard exemptions, such as regular gifts made from regular income.

The amount that the parent can contribute with the benefit of pension tax relief is not limited by the parent’s pension tax relief limit but by the limit that their children face – which in many cases will be up to their annual salary or £40,000, whichever is the lower.

Contributing money into a child’s pension

Parents can also contribute money into a child’s pension, which will reduce the size of their estate for Inheritance Tax purposes on death if a valid Inheritance Tax exemption applies or after seven years if there isn’t a valid exemption.

For example, the ‘normal expenditure from income exemption’, which is unlimited, would apply if the contributions are not at such a level so as to reduce the current standard of living of the parents and are made on a regular basis, such as an annual contribution from the parents’ regular income.

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.

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.

Looking at the bigger picture

Creating plans of action to ensure you reach your financial goals

To be prepared for the road ahead, it’s critical to think about having a plan. For many people it’s not clear where their money will come from when they no longer receive a salary. And that can be stressful. When you add in the pressures of today’s bills and basic living costs, not to mention the nice things like holidays, the thought of the future can seem a bit overwhelming.

Planning for the future means making conscious decisions now. And even though we fill our lives with plans for our future selves, we’re always preoccupied with day-to-day events so we forget how important it is to take the time to take a step back and look to the bigger picture.
With our help, you can create a plan of action to ensure you reach your financial goals.

Will a plan really help me? Put simply, ‘yes’.

Where is my money going now?

The first step of your financial planning process is to determine your current financial situation in relation to income, savings, living expenses, and debts. Preparing a list of current asset and debt balances and amounts spent for various items will give you a clearer picture of where you stand financially. A monthly budget is an important step towards your financial fitness and should form the foundation of your financial planning process.

Have I built up a rainy day emergency fund?

The number one reason you should establish a rainy day fund is because, unfortunately, things unexpectedly do go wrong in life. So you also need to make sure you have an emergency fund and work towards saving six months worth of living expenses. This is money that you set aside for the unpredictable and unplanned and to cover expenses such as being made redundant or a sudden change in your income.

What are my financial goals in life?

Specific financial goals are vital to your financial planning. It’s time to consider now what matters to you. You need to decide what’s within reach, what will take a bit of time and what must be part of your longer-term strategy. Apply a SMART- goal strategy to this process. That is, make certain your ambitions are specific, measurable, achievable, relevant and timely. You should also periodically analyse your financial goals to make sure you’re always on track.

Have I prepared for unexpected events?

There are certain times when life-changing events happen. So it’s essential to protect both your and your family’s financial future. It may be difficult to think about, but if something were to happen to you or your partner, you’d want to know you are both protected financially. Think about how much money your family would need to maintain their current lifestyle if you weren’t around. This will give you a better idea of how much protection you need should different events occur – whether this is your ill-timed death, or suffering from an illness or disability.

What big moments do I need to plan for?

Life has a habit of surprising us, disrupting the best-laid financial plans. Having a plan will help you prepare for whatever comes your way, while saving for the things you care about. Whether it’s buying a property, starting a family, changing your career or life after you’ve finished work – whatever your vision for the future, having more money will help to make it rosier.

Are my financial plans still on track for success?

The financial planning process is dynamic and does not end when you take a particular action. You need to regularly reassess your financial decisions. Changing personal, social and economic factors may require more frequent assessments. When life events affect your financial needs, this financial planning process will provide a vehicle for adapting to those changes. Regularly reviewing this decision-making process will help you make priority adjustments that will bring your financial goals and activities in line with your current life situation.

Source data:
[1] The research for Royal London was carried out by Research Without Barriers (RWB) between 12/04/2019 and 15/04/2019 amongst a sample of 1,012 UK adults who have been married and separated, divorced and/or widowed. All research conducted adheres to the MRS Code of Conduct (2014).
[2] There were 101,669 divorces in the UK in 2017, according to the ONS

Planning for every eventuality

Responding to situations rather than reacting to them

As the saying goes, ‘People don’t plan to fail, but they do fail to plan.’ To enable you to achieve want you want to, whether that’s trying to lose weight, getting fitter or securing that promotion, having a plan and being prepared for every eventuality is a great way to help move you closer towards your goals.

You can do almost anything when you feel confident about your finances. So how confident are you? No matter what your current age or financial situation, if you haven’t already started or you need to make improvements to your existing finances, the best time to start is right now. The financial plans you put in place today will lay the foundations for your and your family’s financial security and independence tomorrow.

Trying to get your attention

The truth is, though, some of us are better planners than others and some of us live for the now and spend in the moment. But somewhere out there, beyond the shiny feel-good of today, our future selves are waving their arms around trying to get our attention.

Being a good planner means you need to be more goal oriented and able to take control of your life. By planning ahead, you can then identify the associated risks, weigh and categorise them, prioritise and create a financial plan. In this way you can transform risks into opportunities and experience the rewards of taking them.

Increasing your net worth

Most people believe the key to wealth is a high-paying job. Yes, of course it’s easier to amass assets if you have more money coming in every month, but one key to increasing your net worth is to spend less than you make and then make it work really hard for you, and not someone else.

Thinking long term is an important characteristic of accumulating wealth and achieving financial independence. Being financially independent means that the income you generate from investments alone is enough to cover all your expenditure.

Having a sound financial plan

But without proper financial planning we are not ready to respond to challenges that life may throw our way. Hence we become reactive. Having a sound financial plan in place ahead helps us to become proactive.

By becoming proactive, we are then able to take the right action in the face of certain challenges and adversities. When you are proactive, you respond to situations rather than reacting to them.

Your future

How to build wealth that stands the test of time

Long-term investments tend to be less risky in the end. By investing for the long term, you are committing to your investments, and history has shown that this strategy can pay off handsomely.

This is also often the best way to build wealth that stands the test of time. It’s how you plan for retirement and build a legacy to pass on to your children and grandchildren. But it’s important to keep your eye on long-term goals like retiring, paying for your child’s education and passing on some of your wealth to your family.

Regular saving as part of a long-term investment strategy offers a flexible, affordable solution for many people. And by keeping some of your wealth liquid in the form of cash deposits or short-term government securities, you should not be forced into realising investments at what might be an unfavourable time.

Long-term investment points to consider

1. Don’t disregard income

Investment is about more than capital growth. For your money to really grow, dividend income is key. The main benefit of reinvesting income from your investments is that it can be used to buy more shares or units within funds which have the potential to grow in value and boost your overall returns. Reinvesting income is essential to grow your portfolio. You will usually have the option of reinvesting all or a portion of your proceeds back into your original investments.

2. Take some risk

All investments involve some degree of risk. Differences include: how readily you can get your money when you need it, how fast your money will grow, and how safe your money will be. Risk isn’t always a bad thing, especially if you are looking for long-term rewards. Understanding risk means identifying your own attitude towards it and identifying the different types of risk. Rebalancing can also help to maintain the overall risk of a portfolio in line with your needs.

3. Balance change and constancy

Chasing trends at the expense of stability is not wise. The feeling that you’re missing out on a great performance can be very strong. Contrary to what the media may portray, you can do well – and reach your long-term investment goals – with a diversified approach that doesn’t require you to discover the latest investment fad. Resist this approach. The smart money has probably already moved on.

4. Don’t put all of your eggs in one basket

Diversification is key for successful long-term investing. Spreading your assets while focussing on long-term returns is generally a recipe for stock market success in any economic environment. It is not a case of investing large sums of money in one go, but investing wisely and consistently.

5. Invest regularly

Putting money into the stock market at regular intervals allows you to ride out stock market volatility. Drip-feeding money is the perfect solution if you want to invest but are unsure of when to do it, and it removes the uncertainty of putting a large sum of money into the market all at once. Remember, it is the time in the market that is by far the most important consideration, not any attempts at timing the market – a strategy fraught with danger.

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.

What’s important to you?

Reaching those milestones starts with setting clear financial goals

We all have dreams for the future, and many of those dreams require money and planning to make them become a reality. Reaching those milestones starts with setting clear financial goals. Making decisions with a clear endpoint in mind can make it easier to achieve financial security and allow you to enjoy your life to the full, so we’ve put together this brief rundown to help you get closer to your goals today.

Be prepared for any financial emergency

Typically, emergencies don’t let you know they’re on their way, and in some cases, you can’t afford for them to happen – so it’s always good to be prepared for any financial emergency with savings. The amount of rainy-day savings you need will of course depend on your situation, but financial experts recommend aiming to have around three to six months’ worth of your regular expenses put away.

Savings can act as a safety net until you get back on your feet or until the situation changes. By having an emergency fund, it helps you deal with those surprises without needing to get into debt. Depending on your budget, saving might not be easy, but if you can spend less than you earn, it’s recommended to put some money aside for a rainy day.

Focus on your time horizon

It’s important to know the ‘when’ of your financial goals, because investing for short-term goals differs from investing for long-term goals. Your investment strategy will vary depending on how long you can keep your money invested. As your priorities or life circumstances change, you may also find that you want to delay certain goals by a year or two, while others you may want to try to meet sooner. And some – such as an expensive family holiday – you may decide to forego altogether.

It’s important to stay flexible and adapt your timetable to your changing needs and priorities. While past performance is no guarantee of future results, historical returns consistently show that a well-diversified investment portfolio can be the most rewarding over the long term.

Be patient

Building wealth for most of us takes time, so you have to be patient. And achieving your financial goals can have its ups and downs. But sometimes, challenges aren’t about failing to reach your goals – they’re about setting better goals in the first place. Set yourself up for success from the start by creating realistic, achievable financial goals that are connected to what’s important to you.

If you know what your financial goals are, you can start working to accomplish them. And working out what those goals are is the very first step. Setting financial goals is essential to financial success. Once you’ve set these goals, you can then write and follow a roadmap to realise them. It helps you stay focused and confident that you’re on the right path.

Little and often

Having set clear goals, getting started by saving little and often and seeing your own progress towards your goals can reinforce your motivation. Regular saving from a young age can make life easier when you need to access money quickly for a large purchase further down the line. Gradually watching those small amounts build up into more significant savings will further encourage you to save more.

One of the major benefits of long-term saving is the ability to make substantial gains through compound interest. ‘Simple’ interest is calculated on the original amount of a deposit. But compound interest is calculated on this amount and also on the accumulated interest of previous periods. Put simply, compound interest is ‘interest on interest’.

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 AND DEPEND ON YOUR INDIVIDUAL CIRCUMSTANCES.

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.

Retirement resilience

Taking the reins and having more control over your pension pot

Saving for retirement is one of our greatest financial priorities, especially as life expectancy is growing and retirements are likely to last longer. It may be the case that you’d prefer to take the reins and have more control over your pension pot. For appropriate investors, one option to consider is a Self-Invested Personal Pension (SIPP).

Please note that a SIPP is a type of Personal Pension, and the rules as to how much you can contribute to a SIPP are the same as a Personal Pension. Also, when it comes to taking the pension, the same rules apply to both a SIPP and a Personal Pension.

Saving discipline

A SIPP is a tax-efficient wrapper for your pension investments and gives you control of your pension, whereas most members of a company pension scheme have very little control and almost no idea where their pension money is invested. SIPPs enforce saving discipline until retirement since you cannot withdraw your money early.

Also, with many of the UK’s largest companies closing their final salary schemes to all members, many members now have to look at taking their pensions into their own hands. You can make both regular and one-off payments into your SIPP, and even putting a small amount away early will make a difference to how much you will eventually have to fund your retirement.

Extra flexibility

Once you reach 55, you can access your whole pension pot. You decide how and when to use the fund built up in your SIPP to provide you with an income. You can take up to 25% of your fund as a tax-free lump sum and use the balance to provide you with a pension through income withdrawal from your SIPP, or through the purchase of an annuity. You can also take a series of lump sums from your SIPP – it’s flexible.

SIPPs can be opened by almost anyone under the age of 75 living in the UK. You can open a SIPP for yourself or for someone else, such as a child or grandchild. Even if you’ve already retired, you can still open a SIPP and take advantage of the extra flexibility that it gives you over your pension savings in retirement – but you may be limited by how much you can pay into it.

Investment control

SIPPs offer a wider investment choice than most traditional pensions based on investments approved by HM Revenue & Customs (HMRC). They give you the chance to pick exactly where you want your money to go and enable you to choose and change your investments when you want, giving you control of your pension and how it is organised.

Most SIPPs allow you to select from a range of assets, including:
Unit trusts
Investment trusts
Government securities
Insurance company funds
Traded endowment policies
Some National Savings & Investment products
Deposit accounts with banks and building societies
Commercial property (such as offices, shops or factory premises)
Individual stocks and shares quoted on a recognised UK or overseas stock exchange

Tax treatment

You receive tax relief upfront from the Government when you make contributions, which can feel like the Government is giving you money to save for your retirement. Currently, an investor can receive up to 45% tax relief when they make a personal contribution to a personal pension such as a SIPP, with 20% paid by HMRC to the pension and any higher and additional-rate tax relief reclaimable via your tax return. The tax treatment of pensions depends on your individual circumstances and is subject to change in future.

Please note: you must pay sufficient tax at the higher and additional rates to claim the full higher-rate tax relief via your tax return.

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