danielashby

The effect the media has on your financial decisions

In the digital age, it's impossible to escape the media. But you might not realise the influence it's having on your financial decisions. Often, it's subconscious, but being aware of the impact it could be having mean you're in a position to better understand the decisions you're making and ensure they're right for you.

The news and media aim to sell. And, as a result, it often sensationalises headlines and content to catch your attention and draw you in. When reading the financial section of a newspaper, how many times have you seen the words 'dive', 'crash' or 'plummet' to describe a fall in share price that is relatively short-lived? It's the same story for shares that have performed well.

It's not just the financial sections of media that may have an impact on how you view financial decisions either. Headlines on the state of the economy, which industries are fast growing, or challenges on the high street, for example, could affect your decisions. Whether you read the news in the paper or use social media to keep up to date, it can be challenging to filter out the sensational news and understand what matters to you.

Does it really have an impact? You might feel as though you're rarely influenced by the media when making decisions, but it has probably happened at various points throughout your life, for instance:

• After seeing multiple sources citing that the economy was suffering, you decided to slow down investment deposits and instead hold savings in cash. If a slowdown did come, you might have felt satisfied that you'd minimised the impact. However, typically, investments outperform cash over the long term and media influence may have actually meant you lost money.
• Alternatively, after seeing several news stories looking at funds that have outperformed or individuals that have made their fortune through investing, you may be tempted to take on more risk. Seeing regular media sources claiming how others have secured above average returns can make you feel it's more likely to have than the reality.

The solution: Financial planning

So, what can you do about the media influence on your financial decisions? Financial planning can offer a solution for five key reasons.

1. Bring the focus back to you: Often in the media, stories will be conflicting. Differing opinions and outlooks means that people will have very different views on the best financial steps to take. This is because which route is best for you will depend on a whole range of personal circumstances. Financial planning helps bring financial decisions back to you and what you want to achieve.

2. Ensuring regular reviews: Aspirations, opportunities and risks all change over time, and this should be reflected in your plans and decisions. Engaging with a financial planner on an ongoing basis means you can take advantage of regular reviews to ensure you remain on track and bring up concerns. So, if you're worried about how the economy is performing and the impact on investments, for example, a review can either ease your concerns or lead to adjustments where necessary.

3. Visualise the long-term impact of decisions: When making a financial decision, it can be difficult to comprehend the impact beyond the immediate. For example, reducing the amount you put into your pension may free up some extra cash now, but what impact will it have had in 30- or 40-years' time? Through using cashflow planning tools, financial planning can give you a visual representation and put decisions into context with long-term aspirations.

4. Offering an outside perspective: Media influences can be hard to recognise in ourselves. You may make a subconscious decision, believing it's right for you, when an alternative would be better suited. Working with a professional financial planner means someone else takes a look at your plans. Another pair of eyes and a different perspective can be hugely valuable when weighing up what you should do.

5. Confidence: It's important to have confidence in your overall financial plan and the decisions you make. This is what financial planning should aim to achieve. With a plan that's tailored to your short, medium and long-term aspirations, it can help block out some of the noise and influence from the media, which may not be right for you.

If you'd like to discuss your financial plan or concerns you may have with a professional, please get in touch.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

by danielashby

Trusts: What are they and what are they used for?

A trust may be one of those financial tools you've heard of but know little about. In some circumstances, they can be an excellent way to help manage assets and reduce tax liabilities. However, it's important to understand what they are and where setting up a trust can be useful before proceeding.

What is a trust?

Even the basics of a trust can seem complicated due to the legal jargon used. But the principle is relatively simple.

A trust is simply a legal arrangement for handing assets to one or more people or a company (trustees) to control on behalf of one or more people, known as beneficiaries. Whilst the trustees have control of the assets, they must act according to rules set out by the person that set up the trust (the settlor) and with the interests of the beneficiaries in mind.

Say, for example, you want to ensure a child in your family would be taken care of should something happen. A child won't be able to take control of an inheritance, but you may not want to hand over money intended for the child to another adult without being able to stipulate how it can be used. A trust allows you to set out some rules and have peace of mind that the trustee must act in the interests of the child.

Many different assets can be placed in a trust, including money, investments or property.

There are many different types of trust, which may have different advantages depending on your needs. Among the most common types of trusts are:

Bare trusts: As the name suggests, these are the simplest types of trust. The beneficiary has the absolute right to the assets within the trusts, as well as any income they may generate. Whilst, the trustee will take responsibility for managing the trust's assets, they have no say in how or when the assets or capital is distributed.

Discretionary trusts: This is where you give the trustees the power to decide how to use the income assets which the trust generates. How much power they have is stipulated by the settlor in a letter of wishes. They may, for example, have the power to decide the portion of income that is paid out, which beneficiaries beneficiates will receive income and how frequently disbursements are made.

Interest-in-possession trusts: In this case, a beneficiary has the right to receive an income generated by the trust's assets or the right to use assets it holds. This can be for life or for a defined period of time. For instance, a beneficiary may have the right to live in a property that is held in trust until they die.

Settlor-interested trusts: If you or your spouse or civil partner will benefit from the trust, this is known as a settlor-interested trust.

Mixed trust: This is an option that blends multiple types of trusts. So, a portion of the assets held in trust can be set aside as an interest-in-possession trust, whilst the remainder can be treated as a discretionary trust, giving trustees greater control over a portion of the assets.

The above are examples of just a few of the types of trusts available. There are other options, which may be more suitable to your circumstances, if you're thinking of using a trust.

When can using a trust be useful?

There are many instances where a trust can be a useful way to hold assets, including:

• Providing certain conditions are satisfied, assets held in trust aren't considered part of your estate. This means they will not count towards a potential Inheritance Tax bill when you die.
• Having greater control over how and when assets are distributed after you die.
• Preserving the assets rather than splitting them up between beneficiaries. This may mean the wealth you've accumulated is able to grow further and still benefit loved ones.
• Holding and managing assets for people that are not ready or are unable to do so themselves. This may include children or vulnerable people.

Setting up a trust

If you think that setting up a trust is right for you, it needs to be a carefully considered decision, from both a financial and legal perspective.

Once a trust has been set up it may be impossible or very difficult to reverse the decision. As a result, it's vital that you ensure it's the right choice for you financially before you take any further steps. Ensure you look at the medium and long term when assessing how appropriate a trust is for your financial situation. It's also important to note that beneficiaries may pay tax on distributions they receive, this may play a key role in understanding if it's a good idea for you.

From a legal perspective, a trust needs to be precisely worded. For this reason, you should use a solicitor to help you set it up. You can expect solicitor fees to be around £1,000 or more, though this will depend on your personal situation and the complexity of the trust. It's a fee that could save you from making costly mistakes.

If you'd like to discuss the financial merits and drawbacks of a trust with your situation in mind, please contact us.

Please note: The Financial Conduct Authority does not regulate wills, trusts, tax or estate planning.

by danielashby

Brexit and your finances

Three years after the Brexit referendum, it's still uncertain how and when the UK may leave the EU. With political turmoil, highlighted by the recent EU election and Theresa May stepping down as Prime Minister, you might be worried about how Brexit is and will affect your finances.

Held on 23^rd June 2016, the Brexit referendum indicated that 51.9% of those voting supported leaving the EU. Whilst a majority, the vote was incredibly close, and it's led to difficult negotiations, both in the UK and the EU. As well as the close vote, there are many different forms that Brexit could take and navigating a plan that satisfies a majority is, again, proving difficult. The House of Commons has voted against several Brexit deals put forward by Theresa May.

When the UK invoked Article 50 it was intended to start a two-year process with the UK leaving the EU on the 29^th March 2019. The deadline has now been extended to 31^st October 2019.

What does it mean for your finances?

As Brexit is uncertain and the long-term impact it will have even more so, you may have concerns about how it'll affect your wealth and investments. Though it's important to remember that Brexit is just one of many influential factors that are outside of your control. It may cause increased volatility, but there are things you can do to minimise the impact and safeguard your wealth.

1. Focus on your long-term plan

Short-term fluctuations in investment values are normal, it's part of the investing process. However, it's easy to panic when you see values fall and think you should take action. Here, a long-term outlook is essential. When you began investing, it should have been with a long-term goal in mind, perhaps to fund retirement or support grandchildren through further education. A long time frame gives you an opportunity to ride out dips in the market and hopefully secure returns.

With this in mind, the volatility UK stocks may be experiencing at the moment should be looked at in the context of the bigger picture. It can be worrying but, typically, holding steady and sticking to your plan is the right option.

2. Check the level of volatility you're exposed to is appropriate

If the ups and downs of investments worry you, it may be time to reassess the level of risk you're taking. There's no one-size-fits-all solution for risk, it should depend on a range of personal factors. However, it's important to recognise that the appropriate level of risk for you may change throughout your life. At some points, you may opt for a more cautious approach, but as your capacity for loss rises, you may decide to increase it, for example. If the impact of Brexit on your finances or potential falls in value makes you nervous, it's a good idea to take a look at how much risk you're taking and whether it's still appropriate for you.

3. Diversify your investments

Whilst you consider risk there's another area to assess in your current portfolio too: how diversified are your investments? By spreading risk across several different types of investments, you minimise the risk of significant falls in value as it's less likely a downturn will affect all investments. Often, it's asset classes that are focussed on here. But in the context of Brexit, assessing where geographically your money is invested, may be wise too. How much of your portfolio is invested in companies that are UK based, for example?

4. Keep an eye on performance

We know we said you shouldn't focus on the short term. But that doesn't mean you should ignore investment performance entirely. Keep an eye on how your portfolio is doing and ensure you regularly review it. Usually, we'd suggest a full financial review once a year or following big life events, this allows you to cut out some of the short-term peaks and troughs to see the overall performance.

A review also gives you a chance to spot opportunities. Brexit uncertainty might often be associated with values falling in the media, but that doesn't mean it can't bring opportunities too.

5. Speak to your financial adviser

If you're contemplating making changes to your investment portfolio or financial plan in light of Brexit, getting professional advice can help you put the impact your decisions could have into perspective, looking at both the short and long term. If you'd like to discuss how Brexit, investment volatility or any other concerns may affect your finances, please get in touch.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

by danielashby

Is an inheritance important to your financial plan?

As we make financial plans, it's often necessary to make some assumptions. Perhaps you've factored in a few pay rises before retirement or calculated what investments can expect to return. But research indicates some people could be relying on receiving an inheritance with little information about it to reach their aspirations.

If you're expecting to receive an inheritance, it can be tempting to build it into your financial plan. Maybe you hope to use it to fund retirement, pay off mortgage debt or tick something off your bucket list. However, it's a financial area you have little control over, making it difficult to effectively be part of realistic plans.

Recent research has highlighted how making an inheritance key to financial plans could affect security in the future. According to research, one in seven young adults expect to receive some inheritance before the age of 35, with the average expected to be almost £130,000. However, statistics suggest reality is very different. The typical inheritance age is between 55 and 64, whilst the average amount handed down is significantly below expectations at £11,000.

Further research conducted by Canada Life supports the potential gap between expectations and reality:

• 63% of over-45s had not told their beneficiaries how much inheritance they plan to leave them
• Two in five over-45s are concerned they will use up their assets to fund their own retirement, with nothing left for loved ones
• Furthermore, 40% are worried they have not saved enough to cover later life, suggesting they may not be able to leave an inheritance

These findings highlight the two biggest challenges of making inheritance part of your financial plan; you don't know when you'll receive it and can't say with certainty how much it will be.

1. When will you receive an inheritance?

There's no way to know when you'll receive an inheritance. Whilst in the past people may have received an inheritance in middle age, helping them to pay off a mortgage, support children through university or contribute to a pension, rising life expectancy means this often isn't the case now.

It's normal to think about how an inheritance can be used, but if your plans hinge on receiving an inheritance at a certain point, it could mean they derail. If a benefactor lives five or ten years beyond average life expectancy, how would it affect your financial security?

2. How much will you receive?

The research suggests that some people will be disappointed with the amount of inheritance received. This may simply be down to a lack of communication. Speaking to loved ones about how they intend to distribute their assets and the value of their overall estate can help to avoid misunderstandings.

However, this isn't the only reason for the gap. Potential benefactors may face unexpected expenses that mean the amount they leave behind is reduced. For instance, higher than anticipated living costs throughout retirement can slowly eat into money that had been earmarked for inheritance and often if care is required individuals will have to cover the costs themselves unless total assets are below £23,250. As a result, there's a chance that actual inheritance is below what the benefactor planned.

Should you include an inheritance in your financial plan?

Making an expected inheritance integral to your financial plans could cause financial insecurity and lead to decisions that may not be right for you. For instance, if you choose to forgo paying into your pension with the expectation that an inheritance will come before you expect to retire, what will you do if it's received a few years later than anticipated or not at all? Believing you have a lump sum coming in that you can fall back on may mean you take more risk with investments than you may otherwise have done, for example.

Whilst inheritance can and should be included in your financial plan, ideally, it shouldn't be essential for achieving the lifestyle you want. A plan should ensure the income you have greater control over can provide for you, with inheritance being used as a bonus that can enhance your lifestyle or bring plans forward. It's an approach that can give you more confidence in the future and your financial security.

If you'd like to discuss your financial plan and inheritance, whether you're expecting to benefit from inheritance or want to protect what you'll leave behind for loved ones, please contact us.

Please note: The Financial Conduct Authority does not regulate estate planning.

by danielashby

The challenges of balancing different goal time frames

When you think about financial and lifestyle goals, there are probably several, each with a different timeframe. Juggling them and weighing up your priorities can be challenging. Should you focus on paying off your mortgage quickly now, or saving into a pension for retirement that's still many years away?

With conflicting goals, it can be difficult to have confidence in your finances and long-term financial stability. When you start thinking about goals, it's likely there's several with different time scales, and it can be tempting to focus on those that are closer at the expense of the long term. For instance, someone in their 40s may have goals that include:

• Building up a financial safety net
• Paying school fees or supporting children through university
• Paying off the mortgage
• Using investments and savings to go travelling in ten years' time
• Contributing enough to a pension that it's possible to retire at 65

So, how do you balance these?

Owning your home can mean a greater sense of security, lower monthly repayments and an asset to pass on to loved ones when you die. As a result, you may consider cutting pension contributions to make overpayments. However, pensions often benefit from tax relief and employer contributions, effectively giving you free money. Add in potential investment returns, compound growth and the annual allowance, which limits contributions you'll receive tax relief on, and you could find yourself worse off in the long term.

But, with so many influential factors, understanding which goals to focus your attention on and how to split up your assets or income can be challenging.

The first thing to do here is to define what your goals are and when you want to achieve them. We often think about the immediate future when saving; perhaps you're looking forward to a family holiday or your child will be heading to university in September. But the medium and long-term goals are just as crucial and shouldn't be overlooked in favour of the short term.

Understanding the impact of your decisions

One of the key challenges of balancing different goals is understanding the long-term impact different decisions will have. This is where effective financial planning can help. One tool we use in particular, cashflow planning, can give you a visual representation of your wealth.

By inputting details about your current wealth and projected income, cashflow modelling can give you an idea of how your wealth will change over time based on your current lifestyle. However, it offers greater value than this. You can use the tool to show how your wealth will change based on decisions, giving you the information needed to base them on.

For example, you may be thinking about voluntarily increasing pension contributions but would the short-term sacrifice in disposable income be worth it? Or would you be better off directing that spare money to savings, investment or reducing mortgage debt? Often, there's no clear right or wrong answer, but cashflow modelling can help you understand how a choice will affect medium and long-term goals that you may have.

Combined with a financial plan that focuses on your goals, cashflow planning can give you real confidence in the progress you're making. You'll know that you have a blueprint in places that takes into account all your different aspirations, from those that are just around the corner to the ones that are still a few decades away.

One key thing to remember is that cashflow planning is restricted by the data that's input. As a result, you need to regularly update the information, reflecting both positive and negative changes. This allows you to respond effectively to these changes and make adjustments where necessary. For instance, an unexpected salary increase may mean you may be able to retire two years earlier than anticipated if you choose to. On the other hand, poorly performing investments could mean it's wise to delay your plan, allowing time for the markets to recover.

When it comes to financial planning, we're here to provide you with support. Using a range of tools and techniques, we'll help you see how the decisions you make now will have an impact in the near, medium and long term.

by danielashby

Longer lives and retirement plans

Retirement is a huge milestone and one that's lasting longer for many people. You now have more choice around when you want to retire, how to take an income, and what you want to do after you've given up work. Whilst more flexibility has certainly been welcomed, it can present you with some challenging decisions too.

Retirement used to be associated with kicking back and taking it easy. That might still be an important part of what you're looking forward to. But, today, retirement is just as likely to be associated with new experiences. It's not just the retirement lifestyle that's been transferred over the last few decades either. As life expectancy has increased, our time after working lives has gotten longer too. It's not uncommon for people to spend 30 or even 40 years in retirement.

On top of these two key factors, the way we take an income in retirement has changed as well. The introduction of Pension Freedoms in 2015 gave retirees far greater flexibility when they decided to access the money saved into a pension. It means retirement no longer follows a fairly similar path for most; retirement can be what you make it.

Financing a longer retirement

When you think about retirement planning, it's often the financial side that first springs to mind. That's natural, after all, it's your finances that will allow you to achieve aspirations you may have.

Spending longer in retirement will clearly have an impact on finances, as they'll need to stretch further. As a result, you'll need to think carefully about how you'll access the provisions in your pension and how you'll use other assets. Purchasing an Annuity, which provides a guaranteed income for life, can offer security, but it may not suit your lifestyle.

On the other hand, your pension can remain invested and accessed flexibly using Flexi-Access Drawdown. But you'll need to ensure you're accessing your pension in a way that's sustainable and considers life expectancy. If you only plan to make withdrawals for 20 years but end up living for another decade, it could place you in a financially vulnerable position.

Your life expectancy is a crucial part of calculating a retirement income and setting out your goals. However, it's not just finances that should be considered in a longer retirement.

When and how to give up work

Have you thought about when you'd like to give up work? You may have a firm plan or a rough idea in your head, but if you've not considered life expectancy, you're missing a crucial factor. If retiring at 60 means you'll have four decades of not working, would it still appeal to you? For some, that will sound like a dream, but for others, it will give a reason to rethink.

In addition, you should think about how you'll retire. More workers are attracted to giving up work gradually. Whether it's cutting down current working commitments or launching a business, blending retirement and work is becoming more common. You may even decide to give up work entirely for a set period of time, before returning to the world of work further down the line. When you think about longer retirements, it makes sense that some will want to continue employment in some way once they pass traditional retirement age.

Filling your time in retirement

How do you plan to fill your days when you've retired? What one-off experiences do you want?

Answering these questions is important to create a retirement lifestyle that suits you. Perhaps you're looking forward to spending more time with grandchildren, have grand plans to travel, or want to invest your free time in a hobby that's been neglected.

However, whilst retirement is a time to look forward to, will you still be happy and fulfilled a few years into it? This is where planning your lifestyle is important. Retirement can promise much, but leave something to be desired if you don't think about what's important to you and set out priorities. Keep in mind how long you're likely to spend in retirement as you set out making plans that will fill your time.

Of course, the above considerations are still linked to finance too. If you'd like help understanding what your retirement provisions could offer you and how to achieve your goals after giving up work, please contact us.

Please note: 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. Your pension income could also be affected by the 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.

by danielashby

Protecting your money from inappropriate investment products

It's natural to want your hard-earned savings to grow as much as possible. However, as the saying goes 'if something seems too good to be true, it probably is'. When we hear about people losing their life savings, it's often related to scams and fraudsters. However, recent headlines show that getting sucked into inappropriate products can be just as dangerous.

The case of London Capital & Finance

Over the last few weeks, you may have heard of London Capital & Finance; the scandal has been covered in the media all over the country.

The firm was authorised by the Financial Conduct Authority (FCA) and HM Revenue and Customs (HMRC) had granted the bonds it was selling tax-free ISA (Individual Savings Account) status. For most investors looking for somewhere to put their money, this would have signalled that their cash was in safe hands. Yet, this wasn't the case.

More than 11,000 investors put £239 million into the bonds. It's easy to see why people were tempted; London Capital & Finance were offering advertising interest rates of up to 8%. With interest rates still low following the financial crisis, this far surpasses what you can find at banks and building societies. Even when investing in the stock market and being exposed to risk, 8% returns would be considered highly optimistic and unlikely.

So, what went wrong? While the company pulled customers in with talk of bonds, only a very small portion of the money actually went into these investments. A large portion of the remainder went into high-risk investments, such as property developments in the Dominican Republic and oil exploration off the Faroe Islands.

The company collapsed at the beginning of the year, sparking an investigation at the FCA, as well as arrests by the Serious Fraud Office.

What happens now is still to be decided; it's thought that as little as 20% of the money placed with London Capital & Finance will ever be recovered. Investors that have been affected currently can't place a claim with the Financial Services Compensation Scheme (FSCS), though the scheme is working with administrators to identify where claims for compensation may be made.

Some investors stand to lose their life savings after investing through London Capital & Finance in a product that wasn't appropriate for them. It's a costly mistake in terms of losing money, but also the stress it would have caused and the aspirations that now can't be achieved.

Choosing the right investments for you

The case of London Capital & Finance highlights why it's important to carefully check investment offerings before you proceed, even when they appear to be secure. If you're tempted by a lucrative offer but aren't sure it's right for you, these tips can help:

• Ask 'is it too good to be true?': If you're left wondering how a product can offer such high returns and why everybody else isn't snapping it up, it's a sign that you should delve a bit deeper. If it sounds too good to be true, there's probably a catch somewhere. Go through the document and available resources to understand all the ins and outs before you even think about parting with your money.
• Take the time to understand the products: While diversifying is important in investments, so too is understanding where your money is. Financial products can be confusing and complex, however, if you're having a difficult time getting your head around how you'll make money, take a step back.
• Don't rush into any decisions: No important financial decision should be rushed, particularly ones that could affect your future financial security. Take your time to weigh up the pros and cons of an investment before you go ahead. If you feel like you're being pressured into making a decision or there are time-sensitive offers, this should be a red flag.
• Do your research: With so much information available online, there's no excuse for not doing a bit of research before deciding whether to invest. It can help you identify the pros and cons, as well as those signs it's an investment to stay well away from. Of course, one of the challenges with this step is verifying the information you can trust, so be careful here.
• Remember not all products are right for everyone: Whilst someone might be singing the praises of a particular investment, it doesn't mean it's right for you. Your investment decisions should reflect a whole range of factors, such as attitude to risk, capacity for loss, and goals.
• Speak to your financial adviser: Go to your financial adviser with any questions or concerns you may have. They're in a position to offer you advice, based on your wider financial plan, and have the experience to understand when you should pass up an offer.

If you're planning to invest your money, but aren't sure which options are right for you, please contact us.

Please note: The value of investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

by danielashby

Pension changes to be aware of for the 2019/20 tax year

As the start of a new tax year begins, it's often a time to consider how your financial plan is shaping up and ensuring it's still relevant for aspirations and goals. You may be thinking about how you'll use your ISA (Individual Savings Account) allowance this year or how to make the most of investable assets. One key area you should be considering is your pension.

As you plan for retirement, there are three important changes to keep in mind when you're saving and building an income.

1. Auto-enrolment minimum contributions increase

The auto-enrolment initiative to encourage more people to save for retirement has been hailed a success; with ten million more people saving into a pension. From April 6 2019, workers making the minimum contribution will see their pension contributions rise. This is the latest in a series that aimed to gradually get employees used to the idea of saving for retirement. There are no further planned rises in the future, but they could be announced at a later date.

In the previous tax year, employees were contributing at least 3% of their pensionable earnings. This has now increased to 5%. The average UK employee is expected to pay an extra £30 each month.

Whilst it does eat into the income received and could place pressure on low earners, there are two benefits to the rise. First, by saving more consistently, workers are putting themselves in a better financial position for retirement. Second, employer contributions have increased too, from 2% to 3%, delivering a welcome boost to pots.

It's also important to note that the Personal Allowance, the portion of income where no tax is paid, has increased to £12,500. This may help to offset some of the income losses for those paying minimum auto-enrolment contributions.

2. Lifetime Allowance increase

The Lifetime Allowance (LTA) is the total amount you can hold in a pension without incurring additional charges when you reach retirement.

The LTA is increasing in line with inflation. This means it's risen from £1.03 million to £1.055 million for 2019/20. However, it's still below the high of £1.8 million in 2011/12. If your pension is approaching the LTA, it's a crucial figure to keep in mind. The additional tax charges placed on your pension can be as high as 55% if you were to make a lump sum withdrawal.

Whilst the LTA can seem high, it's easier to reach than you might think when you consider how long you'll be paying into a pension for. If you're approaching the LTA there may some steps you can take to mitigate the amount of tax you'll pay. If you have a Defined Benefit pension, the value of your pension is typically calculated by multiplying your expected annual income by 20. For a Defined Contribution pension, the total value will be considered when applying the LTA, this includes your contributions, as well as employer contributions, tax relief and investment returns.

3. State Pension increase

For many retirees, the State Pension provides a foundation to build their retirement income on. Thanks to the triple lock, which guarantees annual rises, those already claiming their State Pension will notice an increase.

Each year the State Pension rises by either the previous September's CPI inflation, average earnings growth, or 2.5%, whichever is higher. For 2019/20, this means a 2.6% rise to match wage growth. What this means for you in terms of money will vary slightly depending on when you retired, your National Insurance record and, in some cases, the additional pension benefits built up.

If you've retired since 6 April 2016, you'll be on the single-tier State Pension. Should you have a full National Insurance record of 35 qualifying years, your State Pension will rise from £164.35 to £168.60. Over the course of the year, it means an extra £221 in your pocket, helping to maintain spending power.

For those that retired before 6 April 2016, your new State Pension will depend on which tier you fall into. Those receiving the basic State Pension will see a boost of £3.25 a week, taking the weekly amount received to £129.20. If you benefit from the additional State Pension, the maximum cap has risen from £172.28 per week to £176.41.

If you'd like to discuss your pensions and retirement plans, including how changes in the new tax year may have an impact, please contact us.

Please note: 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. Your pension income could also be affected by the 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.

by danielashby

The cost of opting out of a Workplace Pension as minimum contributions rise

Millions of more workers are now saving into a pension thanks to auto-enrolment. The retirement saving initiative saw minimum contributions rise at the start of the 2018/19 tax year. While it may be tempting to opt out in light of this, it could mean you're hundreds of thousands of pounds worse off once you reach retirement.

Whilst you may not be affected by auto-enrolment, it's likely that someone in your life is, perhaps children or grandchildren. The majority of workers are now automatically enrolled in their employer's pension scheme in a bid to improve financial security once they give up work. If you know someone that's thinking about opting out of their Workplace Pension, speaking to them about the potential long-term impact could help.

Why is opting out a concern now?

When auto-enrolment was first announced there were concerns that a high level of employees would decide to opt out. However, these concerns proved unfounded and millions of workers have embraced saving for their future. Even following subsequent minimum contribution rises, opt-out rates have remained relatively stable.

As the new tax year started on 6 April 2019, the last of the currently planned increases came in. Employees now pay 5% of their pensionable earnings into their pension, an increase of 2% when compared to the last year. For the average worker, this means losing around £30 from each pay cheque.

Whilst that sum may seem small, it's come at a time when many workers are facing low wage growth and a rising cost of living. As a result, it's understandable that some may be considering leaving their Workplace Pension when the increased contributions are realised. However, it's a decision that could significantly impact retirement income.

The cost of opting out of a Workplace Pension

Employer contributions: First, when you pay into a Workplace Pension, so does your employer. Should you decide to leave your pension scheme, it's highly likely your employer will also halt contributions. In the new tax year, minimum contribution levels for employers also increased to 3%. It's an effective way to boost your pension savings with 'free money'.

Tax relief: Again, tax relief offers you a boost on your pension savings that could make your retirement far more comfortable. It means that some of the tax you would have paid on your earnings is added to your pension in a bid to encourage you to save more. Assuming you don't exceed the Annual Allowance, tax relief is given at the highest rate income tax you pay. So, if you're a basic rate taxpayer and add £80 to your pension, this will be topped up to £100. Higher and additional rate taxpayers can benefit from 40% and 45% tax relief respectively.

Investment returns: Typically, your pension is invested. This gives it an opportunity to not only keep pace with inflation, but hopefully outpace it too. As you usually save into a pension over a timeframe that spans decades, you should be able to overcome short-term market volatility and ultimately profit. As all returns delivered on investments in a pension are tax-free, it's an effective way to invest with the long term in mind. When you start a Workplace Pension, you'll often have several different investment portfolios to choose from, allowing you to pick the one that most closely aligns with our attitude to risk.

Compound interest: The effect of compound interest links to the above point. As you can't make withdrawals from your pension until you reach at least 55, investment returns are reinvested, going on to generate greater returns. This effect helps your pension to grow quicker, building a larger pension pot for you to enjoy when you decide to retire.

It can be difficult to balance short, medium and long-term financial needs. Often the different areas you need to save for can seem conflicting. This is where creating a financial plan that reflects personal aims, both now and in the future, can help. If this is an area you'd like support in, please contact us.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

by danielashby