Time to act if you have a 'Pensioner Bond'
For those who invested in 65+ Guaranteed Growth Bonds in 2014 and 2015, it is time to think about what to do with the returns.
What are 65+ Guaranteed Growth Bonds?
In 2014, NS&I (National Savings and Investments) released a series of bonds for those aged 65 and over. Known as 'pensioner bonds' they offered 4% taxable interest per year, for three years (Source: NS&I). As this was much higher than the market average, they were very popular, and 1.1 million people invested a total of £13.7 billion (Source: NS&I)
The first bonds, launched in January 2015, are now due to mature.
Those who invested the maximum of £10,000 will have a total of £11,300 to reinvest once their bonds mature.
That means that, if you were one of the thousands who invested in these bonds in 2014/15, you have an important decision to make; and you may not have long to act.
So, what are the options?
1. Do nothing
You may wish to leave your money invested in NS&I bonds. However, once the current bonds mature, it will automatically be reinvested into Guaranteed Growth Bonds. These offer a much lower return of 2.2% per year. But, once transferred, your savings are locked in for three years; early access incurs a penalty of 90 days' interest. (Source: NS&I)
This might seem like a suitable option. Your savings are secure and appear to continue growing. However, with inflation hovering around 3%, interest of 2.2% means that your money will lose value over the three years it is invested.
On the other hand, the 2.2% growth is guaranteed, so it may be a viable option if you are more risk-averse and just want to keep your money safe, rather than inflation-proofed.
2. Put your returns into a savings account
Of course, your money needs to be held somewhere, but with most guaranteed interest rates sitting below 2%, the returns on your savings currently won't beat inflation and you will lose value in real terms.
Why is this?
Put simply:
- Inflation is the rate at which the cost of goods and services increases year-on-year.
- Interest is the rate at which your money grows year-on-year.
If your money is growing at a slower rate than the cost of items you want to buy, your buying power is reduced.
3. Invest the cash
You can take the cash out of the bond once it has matured and invest it as you wish. Of course, all investments carry risk and there is a possibility that you could end up with less than you put in to begin with.
But, if you want the higher growth and returns, it may be a favourable option. Especially if you have other capital in savings and a stable income which supports your lifestyle. If you have money which has been tied up for three years already, which you have not needed to access, you may be more willing to take the increased risk.
What to do if you have 65+ Guaranteed Growth Bonds
Whilst we cannot tell you here how to manage the returns you will get from your matured 65+ Guaranteed Bonds, we can tell you that acting soon is a must. NS&I are sending letters to those people who invested in the bonds when they were available, to ensure that they are aware of the upcoming maturities.
However, if you have moved to a new house or have a loved one who purchased bonds but has since passed away, you will need to contact NS&I to access the returns.
You can get in touch with NS&I here.
The importance of advice
Talking to an independent financial adviser should be your first port of call when making any financial decision. However, if you haven't thought about talking to a professional before, this is an ideal reason to start.
A financial adviser will be able to analyse your circumstances. They will then take your aspirations and objectives into account when offering advice and products which will help you to continue to grow your assets.
Whether you're hoping to increase your income, supplement a loved one's living costs or leave a legacy when you die, a financial adviser will help you to make decisions to work towards those goals. This means that you can be comfortable and confident in your financial decisions and stability.
So, why not give us a call?
Please note:
The Financial Conduct Authority does not regulate NS&I products.
New Year, New Office
On the 1st February, we are opening an additional office in Stoney Stanton, Leicestershire and this month we have been busy getting it ready.
This new office will mean we will have client meeting rooms at three locations - Hilton Hall, Essington and Waterloo Place, Leamington Spa, being the existing two and now Shire House Business Centre, 4 Long St, Stoney Stanton.
The Business Centre at Stoney Stanton, will comprise of a variety of professional service firms including ourselves and a firm of solicitors.
We are particularly excited at developing this new location. If it's convenient for you, you are more than welcome to have your next meeting with us in the new Business Centre.
Re-assessing your finances in the New Year
The festive period can bring with it a great deal of financial stress; more so than at any other time of the year. So, when opening your bank or credit card statement in January, it may be the case that you are nearing or have exceeded your credit limit.
This often sparks an overall assessment of your financial position for the New Year ahead. It usually makes sense to clear existing expensive credit card and other unsecured loan debt. At the same time, you may also be considering raising additional finance for home improvements, a car purchase or (especially during these cold, grey days) a holiday.
Consolidation of existing debt, even with raising additional monies at the same time, can considerably reduce your monthly outgoings if the right solution is found.
Your first port of call is normally your existing bank or high street lender for a further advance, but your request will be declined if you do not meet the present underwriting requirements.
Your attention may then turn to re-mortgaging away from your current lender. This can of course be done, but in some instances a re-mortgage is not a viable option because of the following circumstances:
- The existing mortgage is a low Base Rate Tracker on an Interest Only basis, and to re-mortgage would ultimately be more expensive on a monthly basis.
- The existing mortgage is on a Fixed Rate and has punitive redemption penalties.
- Since taking out the existing mortgage there has been some impaired credit registered against you.
- You have a low credit score and will subsequently not pass a new lenders' affordability criteria.
Taking into account the above, a 'second charge' mortgage may be a option. Second charge mortgages have secondary priority behind your main (or first charge) mortgage. They are a secured loan, which means they use the borrower's home as security. This may be a viable option because:
- Second charges are not as expensive as you may think, with rates available from as low as 4% and with the vast majority having no early redemption penalties.
- A second charge can convert a re-mortgage decline into an accept because of differing underwriting criteria.
- Second charge loans are available for people with an impaired credit history.
- A second charge term can exceed the existing mortgage term and hence pass affordability criteria.
- Speed is normally of the essence when raising additional finance - second charge loans can be completed in weeks.
Whilst the circumstances that lead to a request for financial assistance may be quite daunting , in most cases there are options available to help resolve your monetary situation.
For more information on how our sister company Beaufort Capital Solutions can help you, please contact Clive Willson on 07966 074195 or email: cwillson@beaufortcapitalsolutions.co.uk
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage. There will be a fee for mortgage advice, the precise amount will depend upon your circumstances.
Seven changes you need to know about in 2018
As we head into 2018, with a new financial year a few months away, the government is preparing to introduce several changes. These will come into effect in April, and it is likely that you will be affected by at least one of them. Being prepared is the key to making the most of the changes and deadlines that are approaching.
To ensure that you are informed about the upcoming changes to allowances, savings and pensions, here are the seven biggest things you need to know about.
- Higher Lifetime Allowance
As inflation hit 3% in the second half of 2017, Philip Hammond announced in the Autumn Budget that the Lifetime Allowance would rise accordingly, from £1 million to £1.03 million.
The Lifetime Allowance dictates how much you can hold in your pension before tax charges are potentially applied. For example;
- 25% lifetime allowance charge applies to funds in excess of the Lifetime Allowance if they are placed in drawdown or used for annuity purchase
- 55% Lifetime Allowance charge applies to excess funds if they are withdrawn as lump sums
- Increased Personal Allowance
The Personal Allowance is the income you can receive each year before starting to pay Income Tax. It's currently £11,500 but will be increasing to £11,850 in April. That means that, during the financial year 2018/19, you can benefit from an extra £350 tax-free income.
The government has previously announced that they are aiming to raise personal allowance to £12,500 by 2020.
- Dividend Allowance decrease
Although the change was announced in early 2017, the dividend tax-free allowance will fall from £5,000 to £2,000 at the beginning of the next tax year. This means that business owners and contractors who work for a limited company structure will pay tax on annual dividends of more than £2,000.
- Auto-enrolment contributions increase
Automatic enrolment for all eligible employees into workplace pensions reaches its final stages for existing employers this year. In addition, the minimum contributions made by both employees and employers will rise.
Currently, both parties are required to contribute 1% of qualified earnings. However, from April, this will increase to a minimum of 2% from the employer and 3% from the employee. And will rise once again in April 2019 to 3% for employers and 8% in total.
- Help to Buy ISA / Lifetime ISA transfer deadline
Any deposits made into a Help to Buy ISA before April 2017 can be transferred into a Lifetime ISA (LISA), without impacting the annual Lifetime ISA allowance until 5th April 2018. This could give you a double bonus. You can put twice as much into your LISA this year, and still receive the 25% bonus when you buy a house or retire.
- Basic State Pension increase
Each year, the Basic State Pension increases in line with whichever is higher out of:
- The rate of Inflation
- Average Earnings growth
- 5%
This is known as the triple lock system.
In October 2017, inflation reached 3% and set the bar for the State Pension's 2018 rise.
If you already receive a State Pension, this is good news. Those people entitled to a full basic State Pension will now receive an extra £4.80 per week.
- Higher Income Tax rates in Scotland.
In the 2017/18 tax year, Scottish Income Tax rates for earned income are:
- Up to £11,500: Tax-free Personal Allowance
- £11,501 to £43,000: 20%
- £43,001 to £150,000: 40%
- over £150,000: 45%
However, from April 2018, proposals have been made to change them to:
- Up to £11,850: Tax-free Personal Allowance
- £11,850-£13,850: 19%
- £13,850-£24,000: 20%
- £24,000-£44,273: 21%
- £44,273-£150,000: 41%
- Above £150,000: 46%
This is quite a difference which will affect Scottish taxpayers at all income levels.
Making the most of the 2018/19 financial year
A lot of changes are happening at the beginning of the new financial year. So, make sure that you are informed and able to maintain your financial security when they come into effect. The three main ways to stay on top of your finances are:
- Staying informed
- Knowing how the changes affect you
- Seeking advice
For more information about how the new financial year could affect you, contact us.
2018: A big year for auto-enrolment
2018 marks 10 years since auto-enrolment was first debated in 2008. As the new financial year approaches, we look at what April 2018 has in store for workplace pensions.
What is auto-enrolment?
Introduced into law in 2011, auto-enrolment will be in its final roll-out phase this year. This means that, from April, eligible employees from all sizes of business should be included in a workplace pension (unless they have chosen to opt out).
Eligible workers are those who:
- Are aged between 22 and the current State Pension Age (which you can check here)
- Meet or exceed the earnings limit. This is currently £10,000 or more each year/£833 per month/£192 per week, but this is reviewed yearly and may to change
- Have a contract of employment (i.e. subcontractors and non-contracted partners will not count)
Employees who do not fit these criteria can ask to join the workplace pension on an individual basis.
The end of the five-year phase-in period
Since auto-enrolment came into effect, nine million people have been enrolled; one million of whom joined during 2017. (Source: Department for Work and Pensions (DWP)) During the first few months of 2018, small businesses will be joining the ranks as part of the final stage of auto-enrolment's introduction.
February 1st is the final phase-in deadline. After which, all employers will be under immediate duty to enrol new staff members who are eligible.
Contribution changes
Perhaps the biggest change we'll see, is the change to the minimum contribution levels. Currently they are:
- 1% employer contribution
- 2% total contribution (meaning at least 1% employee contributions if the employer pays 1%)
From April, the minimum contribution levels will rise to:
- 2% employer contribution
- 5% total contribution (meaning at least 3% staff contribution if the employer pays 2%)
12 months later, in April 2019, these minimum contributions will increase once again to:
- 3% employer contribution
- 8% total contribution (meaning at least 5% employee contribution if the employer pays 3%)
Many companies and experts have expressed concern that raising the minimum contribution amounts will encourage employees to opt out of their workplace pension.
Currently 10% of people opt out, but experts have warned that the number could rise to 21.7% in 2018 and 27.5% in 2019 (source: Your Money).
However, it appears that those worries may be unfounded, as just 4% of people have made up their mind to leave their workplace pension when the increase comes into effect. Fortunately, half of employees are committed to their scheme:
- 50% will definitely stay in their workplace pension
- 34% are unsure what path they will take
- 12% will consider leaving their scheme
- 4% will definitely opt out
(Source: Aviva)
What's almost certain, though, is that those who opt out will face a financially difficult retirement.
Other potential changes
In late 2017, the Government indicated that they would extend auto-enrolment to those aged 18 and over. However, this won't happen until the mid-2020s. Currently, employees who are under the age of 22 must request to join their employer's workplace pension. While those under the age of 18 will not usually be eligible for employer contributions to their scheme.
It is estimated that lowering the minimum age threshold will mean that 900,000 more people will be automatically enrolled into a workplace pension.
If you are a business owner, employer or employee, to discuss how the pension changes might affect you, feel free to get in touch.
Pension Freedoms: Ignorance isn't bliss
Real knowledge is to know the extent of one's ignorance.
Attributed to Chinese philosopher Confucius, this timeless phrase has never been more apt than when applied to the topic of Pension Freedoms.
A new report, from Old Mutual Wealth has revealed that many 50-60-year olds are uninformed about Pension Freedoms, with:
- 45% not knowing about Pension Freedoms at all, or not knowing how the new rules affect them
- 37% not knowing how or when they should access Pension Freedoms
Why is knowledge important?
Pension Freedoms are perhaps the biggest revolution to take place in the retirement arena in the past 20 years. Used well, the reform means that you can retire early, in a way which is more flexible and suits your lifestyle.
That freedom has given many people more control over their finances. It means that you can take lump sums from your pension pot for big purchases, or to help loved ones financially, as well as planning ahead to leave larger legacies to your loved ones.
However, the new-found freedoms come with potential dangers and pitfalls. For example, withdrawing too much, too soon could leave you facing financial difficulties later in life.
Current concerns
Research from AJ Bell has shown that some pensioners may run out of money within 12 years, due to three factors:
- Withdrawing too much each year
- Underestimating how long they will live
- Spending money frivolously
44% of over-50s choose to withdraw over 10%, a figure usually considered to be unsustainable, of their pension savings annually. Worryingly, the biggest group of people doing so (57%) are aged 55 to 59. As well as over-withdrawing, more people are taking money without planning for the future, as:
- 47% take ad-hoc lump sums
- 35% rely on an income of regular withdrawals
In addition, the same age group (55-59) severely underestimate how long their pension will need to last, with:
- 51% estimating that their pension will need to last for 20 years or less
- 24% believing that they will need to make their pension last for less than 10 years
The combination of large withdrawals and a lack of planning for the future means that many people are at risk of running out of money part way through their retirement. According to the Office for National Statistics (ONS), the life expectancy for someone who is currently 55 is:
- 81 for men
- 85 for women
That means that pensions may need to last for more than 25 years for both sexes.
Another concern is the reasons behind the withdrawals. Whilst Pension Freedoms means that you can access the whole pension fund for any reason; it doesn't necessarily mean that you should.
AJ Bell's research shows that 40% of 55-59-year olds make withdrawals for day-to-day living costs (a pension's intended purpose). Meanwhile, a quarter (25%) have used Pension Freedoms to make luxury purchases, including holidays and cars.
Using your pension wisely
Pension Freedoms are in place to give you more control over the way you use your pension savings. However, it has never been more important to plan ahead and make sure that you are using them in a way which benefits you both now and in the future.
It might be tempting to withdraw large amounts and go on a spending spree; but that could potentially leave you exposed to financial danger for the rest of your life.
So, how can you use the Pension Freedoms reform to meet your needs?
There are four key points to remember:
- Have an open mind: Old Mutual's research revealed concerns that consumers may be choosing the "path of least resistance" by accepting the drawdown option offered by their pension provider without shopping around. It can be all too easy to stick to what you know and reject any new options out of comfort. But a little research could go a long way toward making the most of your pension savings.
- Avoid the threats: Unfortunately, the new rules have inspired a range of new scams and fraud attempts. Stay vigilant and never accept an unsolicited offer. Always verify companies through the Financial Conduct Authority (FCA). Secondly, remember that your pension pot may have to last for 20, 30 or 40 years. Spending too much, too soon could cause you financial difficulty in the future.
- Take advantage of the opportunities: taking advantage of pension freedoms could help you retire early, or more flexibly, in a way which suits your preferred lifestyle. It can also help you leave a legacy to younger generations.
- Seek advice: Research from Unbiased has shown that people who take financial advice save an average of £98 more each month, which leads to an additional £3,654 in annual retirement income.
For more information on Pension Freedoms and how your retirement could be affected, feel free to contact us.
The effects of inflation - and how to combat the latest rise
November 2017 saw inflation hit 3.1%; the highest it has been since 2012, as reported through the Consumer Price Index (CPI).
As 2018 gets underway, thousands of households will be feeling the squeeze and looking for ways to combat the shrinking value of their income or capital.
What is inflation?
According to the Office of National Statistics (ONS), inflation is The rate at which the cost of goods and services rises year on year.
Over time, goods and services increase in price, if income and capital fails to grow at the same rate, household budgets can feel tighter as a result.
Inflation cannot be avoided, it is a necessary factor in any successful economy. The resulting increase in demand for products and services drives production and manufacturing, which ensures that there are enough jobs and that people can afford to live.
As individuals, we can't impact the rate of inflation. However, it is necessary to monitor the rate at which it is increasing, as this is what will affect our living standards.
The Consumer Price Index (CPI) measures and reports the rate of inflation. It does so through fluctuations in the price of everyday products. It does not show the effects on individual markets, but it does offer a great overview of the cost of living for an average person or household.
Consider everything you buy throughout the year; from food staples, to clothing, holidays and hobbies. The CPI works by comparing the total cost of the products and services year-on-year.
The effects of inflation
As inflation rises:
- The cost of living increases
- Interest rates could potentially rise
- Capital is de-valued; and so is your income
- It becomes more difficult to make big purchases
- The value of your savings is eroded
When inflation rates are high, almost everyone is affected in some way. However, different groups see different outcomes, for example:
- Savers: If the interest rate is lower than the rate of inflation, the real value of savings will decrease. Therefore, savers, who are more risk averse by definition, could very well experience the one thing they are trying to avoid; a loss of capital value.
- Annuity holders: An Annuity provides a guaranteed income for the rest of your life, and potentially, your spouse or partner's. When bought, the consumer is able to choose between a level or Index-linked product. Level Annuities are the most commonly purchased. As the cost of living rises, a pensioner receiving a flat pension income may find it harder to meet their financial needs over time.
- Employees: If your pay rises are not in line with inflation, the buying power of your income is diminished. This, combined with the rise in interest rates, designed to offset the effects of inflation, can put a squeeze on household budgets.
Offsetting the effects
Combatting the effects of inflation is an ongoing battle. However, with careful planning and by staying informed, you can remain financially stable. Nine things you can do to help yourself are:
- Shopping around for the best savings account: putting in the effort now could save you a lot in the long term, as well as helping you to maintain the value of your capital.
- Hold savings tax efficiently: utilising products which allow you to collect the returns tax free, will mean that you see more of your returns than if you had to pass some of the interest on to the taxman. Cash ISAs are the best example of these. Use your Personal Savings Allowance (Up to £1,000 of interest tax free for basic-rate taxpayers and £500 for higher rate).
- Consider investing rather than saving: Over a longer term, investing has the potential to produce higher returns than saving. Of course, this comes with a risk to your capital and the value can fluctuate over time. However, currently saving accounts are almost guaranteed a real-term loss of value for your money. So, now might be the time to consider becoming an investor.
- Retiring: Fewer people are buying an Annuity when they retire, due to Pension Freedoms. However, if you do decide to purchase an Annuity, think long and hard about the effects of inflation.
- Budgeting: While inflation may not be having an immediate effect on your budget, if the gap between price rises continues for a long period, you will notice it. Therefore, preparing now will pay off in the long term. The price of living may be going up, but the best way to stay financially secure is to plan your finances in advance.
- Increase your income: Put yourself in as good a position as possible for pay rises, bonuses and other financial incentives which may be available from work.
- Build a safety net: Most experts advise having an emergency fund which could cover three months to one year's living expenses. Having this in place gives you an added layer of financial security which will be extremely useful in the event of an emergency, illness or unexpected rise in the cost of living.
- Mortgage: Mortgage rates should be monitored constantly to ensure that you have the most competitive rate available. Interest rate rises are common when inflation is high, and that means a rise in monthly payments for tracker and variable rate products. Make sure that you can afford repayments if interest rates rise and your budget is squeezed further.
- Seeking advice: An Independent Financial Adviser will help you to make the most of your income. By getting to know you and your circumstances, they can point you toward the best products, methods, and budgets for you and your family.
For more information about inflation, or to discuss ways to protect your finances, contact us.
Families to pay an extra £900m Inheritance Tax by 2022
The Office for Budget Responsibility (OBR) has revealed figures which show that the estimated Inheritance Tax (IHT) payable on estates over the next five years is due to rise by almost £1 billion; from £32.4 billion to £33.3 billion.
This rise is due, in part, to a larger population; more people are dying, therefore more IHT is being paid.
However, other research shows that an improved understanding of IHT regulations could result in many people paying less IHT. Currently, the figures show that, due to a lack of knowledge, IHT is being taken from estates which could have otherwise been avoided.
More information needed
A worrying number of people do not know how the assets that they leave behind will be affected by IHT, according to research from WAY Investments. In fact, almost half (48%) described their understanding of IHT as 'not very good' or 'terrible'. Meanwhile:
- 25% did not know whether their assets would incur IHT when they die
- 48% did not know that IHT can be as high as 40%
- 22% did not know that ISAs can be subject to IHT
As well as lacking information and understanding surrounding IHT, many people showed that they are very disorganised where their assets and estate are concerned. When asked if they had made and updated their will:
- 35% admitted that they do not have a will
- 47% of people who do have a will, have not updated it within the past five years
What difference does it make?
The advantages of knowing how IHT will affect your assets should be obvious. If you know how your estate will be taxed, it is easier to make tax-efficient arrangements. That way, you can leave more for your loved ones and lose less to the taxman in IHT.
Similarly, ensuring that you have a will and keep it updated and valid ensures that your estate is distributed according to your wishes. Without a valid will, your assets will be distributed according to complex intestacy laws, which will lead to two things:
- Your assets will not necessarily be given to the people you would choose to benefit from them
- Your assets may be divided in a way which is not the most tax-efficient. This will mean that your loved ones will lose more than is necessary in tax and will benefit less from the savings and property that you leave behind
Avoiding unnecessary IHT
Making sure that you have IHT-efficient plans in place for your estate is better done sooner rather than later. Unfortunately, none of us has a crystal ball, and whilst we would all like to believe that we will live forever, we do not know what is around the corner.
Seeking professional financial advice is the first step toward mitigating as much IHT as possible. We can help you to explore the ways in which IHT will affect you, and find solutions which ensure that your loved ones see the benefits of your legacy.
For more information, please take a look at our free resources on our 'Focus On' page of this website. Alternatively, feel free to get in touch.
Please note:
The Financial Conduct Authority (FCA) does not regulate Tax Planning and Estate Planning.
Putting off taking financial advice could be a costly mistake
Have you ever talked yourself out of seeking professional financial advice?
You are not alone, almost half (49%) of over-50s who are not yet retired have done the same thing. But, with research by Dunstan Thomas showing that those who take financial advice could enjoy £13,000 more each year in retirement than those who don't, it is worth challenging that decision.
Why do people avoid taking professional financial advice?
According to research from Retirement Advantage, cost and trust are the top factors deterring over-50's from seeking professional advice. In a study of people who had yet to retire:
- 42% said that the cost of financial advice put them off
- 31% do not feel that they can trust financial advisers
- 31% do not think that taking financial advice is necessary
- 18% do not think that financial advice will benefit them
- 15% said that they can get the advice they need directly from their pension adviser
Where else do people turn for advice?
Rather than seeking advice from a professional, respondents said that they have, or will, get their information from:
- The internet (44%)
- The Government's Pension Wise guidance service (42%)
- Their pension provider (35%)
- Their employer (18%)
There is a range of great information available on the internet for those who want to understand their finances and options better. However, this information is very generalised and will not be tailored to your own needs and circumstances. The same is true for the Pension Wise guidance service, they are in place to give you the facts, not recommendations.
Consulting your pension provider may seem like a logical decision, but bear in mind that they are a business. As a business, their main aim is to retain you as a customer and ensure that you keep your money in a place where they can benefit from it. That means that they are unable to make recommendations of more suitable products from other providers, as they are restricted to their own range.
Unless they work as a financial adviser or planner, your employer is not qualified to give financial advice.
Is financial advice worth the cost?
In short, yes.
When compared to other sources of financial information, independent financial advice is priceless. Whilst guidance and facts are available in abundance, both online and through guidance services, it does not compete. Financial advisers and planners work to get to know your situation, then suggest strategies, services and products which work both with you and for you, to help you to reach your financial goals.
The advantages of taking independent financial advice include:
- Unbiased information: The advice you receive from an adviser will not be designed to sway you toward a particular provider or products
- Ongoing education: Financial advisers work hard to keep their knowledge up to date. That means that any information they give to you is guaranteed to be correct, whether financial, legal or product-based
- Experience: Your financial adviser will be able to make applications, handle paperwork and communicate with other professionals in a very efficient way. It is common for those who choose to undergo complex financial processes alone to get confused or take longer than those with help
- Protection: As financial advisers are regulated by the Financial Conduct Authority (FCA), you get peace of mind, knowing that you are supported in the event of unexpected issues
It is vital to ensure that you do not view the value of financial advice on the cost alone. Consider the value of an ongoing relationship with a professional who is available to help you to make complex, and sometimes, life-changing decisions when you need them.
If that is not convincing enough, Unbiased.co.uk has found that people who take financial advice boost their assets by £41,099, on average.
For more information and to find out how we can help you, please get in touch.
Budget 2017 first rise in Pensions Lifetime Allowance for seven years
For many people, Philip Hammond's announcement that the Lifetime Allowance will be rising is welcome news.
As part of the Autumn 2017 Budget, the amount you can hold in a pension fund, without incurring taxes, will rise by £30,000; from £1,000,000 to £1,030,000, effective from April 2018. This is a welcome increase, considering that the Lifetime Allowance started at £1.5 million in 2006/7, rose to £1.75 million in 2010/11 and fell to £1 million, where it remained until the budget announcement.
But what does that mean for you?
Understanding the Lifetime Allowance
The Lifetime Allowance is the maximum amount you can hold in your pension, before tax will apply. This includes all forms of pension, including the capital value of any Defined Benefit pension plans.
Your pension is 'tested' against the Lifetime Allowance when certain trigger events occur. These include:
- When you move money into drawdown
- Death
- When lump sums are paid, including those paid in the event of ill health
- If you choose to transfer your pension fund to a qualifying recognised overseas pension scheme (QROPS)
- If your pension increases beyond a certain limit
- In some cases, when you reach the age of 75
If your pension value is above the Lifetime Allowance, the value by which it is over the threshold will be subject to tax at:
- 55% of lump sums
- 25% of pension income
Who will benefit from the increase, and how?
The rise in the Lifetime Allowance will affect most people who are saving, preparing and already receiving, their pension.
For those in the early stages of saving toward retirement, the increase should offer increased possibilities to make the most of your pension funds, in the future, whilst minimising the amount you lose in tax. Of course, the Allowance is not guaranteed to continue rising indefinitely, but this rise does signal an improvement.
If you will be reaching retirement age in the next few years, the rise could not have come at a better time for you. When your funds are crystallised, the total value will be checked against the new, higher rate. This means that you will be able to keep more of the money you have worked hard to save.
For those who are already retired and receiving their pension in some way, the Allowance rise will offer more flexibility in the amount you can access before incurring tax. However, if you have already exceeded the Lifetime Allowance, the rises will not affect you and it is best to seek professional advice to see how you can manage your remaining pension funds as tax-efficiently as possible.
For more information on how this affects you and tax-efficient methods of saving, contact us.
Please note:
The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.
Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.