Finance

Is it time to give your pensions a health check?

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Entering your 50s is not just another chapter in your life; it’s a profound and exciting phase in your financial journey. By this time, life may have settled into a more predictable rhythm. Perhaps your children are financially independent, and your career is at a peak, providing a stable income.

Pension review

In your 50s, a pension review is pivotal in preparing for a secure retirement. This review thoroughly evaluates your current pension plans to understand their performance and projected future income.

Conducting this review ensures that you know how on track you are to achieving a comfortable retirement, providing you with confidence and clarity as you approach this life stage.

Obtain a State Pension forecast: If you haven’t already done so you can obtain a State Pension forecast from the Gov.uk website.

Review pension statements: Gather and review your latest pension statements to understand your current savings and projected retirement income.

Evaluate progress: Check if you are on track to meet your retirement goals. Consider factors like your desired retirement age and lifestyle.

Consolidate your pension pots: If you have had more than one employer in your lifetime, you’ll probably have more than one pension pot, too. If appropriate, consider transferring your old pensions and combining them under one roof, giving you more control of your money and where you’re invested in the run-up to and in retirement.

Envision your future: Start imagining what retirement might look like for you. Consider travel, hobbies, part-time work or any other aspirations.

Have a retirement plan: A general idea of your retirement goals can help shape your financial planning and savings strategy.

Amplified retirement savings: If appropriate, you can boost your pension contributions to increase the overall amount saved, creating a larger pool of funds to support your retirement lifestyle. Even small increases can lead to substantial growth, ensuring you have more resources to draw upon in your golden years.

Power of compounding: One of the most important aspects of saving for retirement is the effects of compounding, which allows your money to grow exponentially. The earlier and
more you contribute, the more time your savings have to benefit from compounding. This means your contributions not only earn interest, but that interest also earns interest, leading to significant growth over the years.

Tax relief advantages: Pension contributions are highly tax-efficient. Depending on your tax bracket, you receive tax relief on the money you contribute, effectively reducing the net cost of your contributions. For example, if you’re a basic rate taxpayer, a £1,000 contribution might only cost you £800 after tax relief. This government top-up adds an extra layer of growth to your pension fund, enhancing its value.

Increase financial security: By ensuring you have sufficient savings for retirement, you reduce the risk of financial insecurity later in life. This financial cushion can help maintain your standard of living and provide peace of mind that you won’t outlive your savings.

Flexibility and options in retirement: A larger pension pot provides more choices when it comes to retirement planning. Whether you want to travel, pursue hobbies or ensure you can cover healthcare costs, having additional funds gives you the freedom to make these decisions without financial constraints.

Protection against inflation: Increasing contributions helps counteract the eroding effect of inflation on your savings. As the cost of living rises, having a robust pension fund means you’re better positioned to keep up with expenses, maintaining your purchasing power well into retirement.

Discuss retirement plans: Share your retirement goals and plans with your family to ensure everyone is on the same page.

Involve your partner: If applicable, coordinate financial planning efforts with your partner to optimise joint retirement outcomes.

Track investment performance: Regularly check how your pension investments perform against projections.

Adjust investment strategy: Be open to adjusting your investment strategy if your pension isn’t growing as expected.

Understand your Pension Annual Allowance: Check your Pension Annual Allowance, typically £60,000 or 100% of your UK relevant earnings, whichever is lower. If you have no relevant earnings, up to £3,600 could qualify for tax relief. Note any reductions if you have a high income or have triggered the Money Purchase Annual Allowance (MPAA).

Explore carry-forward options: Investigate the possibility of carrying forward unused allowances from the previous three tax years. !is can be complex, so ensure you meet the eligibility criteria.

Optimise Individual Savings Account (ISA) contributions: Consider contributing up to the £20,000 limit in the 2024/25 tax year. ISAs offer tax-efficient growth and withdrawals, making
them an effective savings tool.

Choose the suitable ISA: Examine your balance between cash and investments. Decide between Cash ISAs or Stocks & Shares ISAs based on your risk tolerance, capacity for loss and financial goals.

Capital Gains Tax exemption: Be aware of the annual Capital Gains Tax exemption, which allows you to realise gains up to a certain amount without paying tax (£3,000 in 2024/25). Plan
asset sales accordingly.

Dividend and Personal Savings Allowance: Utilise the Dividend and Personal Savings Allowance to minimise taxes on investment income and savings income.

Review annually: Make it a habit to review your tax strategy annually, ensuring it aligns with your goals  and takes full advantage of available allowances.

Discuss financial strategies: Share your tax planning strategies with your family to ensure they understand and can support your financial decisions.

If you would like to give your pensions a health check, get in touch today:

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Financial planning for a secure future

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Professional financial review

 

Receiving regular professional financial reviews in your 50s is an essential step towards securing your financial future. Professional financial advice offers a comprehensive assessment of your current financial health, providing expert insights into retirement planning, investment and protection strategies. This proactive approach will enhance your financial stability and provide peace of mind during this pivotal life stage.

Recognise the need for professional guidance: Professional advice will clarify and simplify decision-making as your financial situation becomes more complex.

Identify goals: Clearly define your financial goals, such as retirement planning, investment growth or securing your family’s future.

Discuss your needs: Discuss your financial goals and challenges to set the groundwork for a tailored financial plan.

Investments: Evaluate if your investment portfolio is aligned with your risk tolerance and financial goals.

Retirement planning: Assess whether you are on track to meet your retirement savings goals and explore options to enhance your pension or retirement accounts.

Tax-efficiency: Review strategies to ensure your investments and savings are as tax- efficient as possible.

Customised strategies: Benefit from personalised advice considering your unique financial situation and goals.

Peace of mind: Gain confidence knowing that your financial decisions are informed by expert analysis and recommendations.

Action plan: Implement a strategy that addresses your immediate and long-term financial needs. Monitor progress: Regularly review your financial plan with your adviser to ensure it remains relevant and practical.

Discuss plans with your family: Share your financial strategy with your family to ensure everyone is informed and supportive of the decisions being made.

Plan for emergencies: Collaborate with your adviser to develop a financial contingency plan for unforeseen events.

As you reach this critical milestone in your 50s, it’s time to focus on securing your legacy and ensuring financial peace of mind for the years to come. We’ll guide you through the complexities and create a personalised strategy that aligns with your goals and protects what matters most.

Start building a future that reflects your aspirations and safeguards your wealth. Find your local adviser today:

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Autumn Statement 2024: What it could mean for your finances

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On 30 October, Chancellor of the Exchequer Rachel Reeves will deliver the Autumn Budget Statement 2024. It will be a critical indicator of the Government’s approach to managing the economy, aiming to foster an environment conducive to sustainable growth. The outcomes of this Autumn Budget will have far-reaching implications, potentially influencing everything from tax rates and public services to business investment and consumer confidence. As such, it is a pivotal moment that will shape the economic landscape in the months and years ahead.

If you want to know more about what the Autumn Statement could mean for your finances, please head to our downloads page to download your free guide:

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How do we achieve client-centric outcomes?

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Autumn budget statement 2024

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On 30 October, Chancellor of the Exchequer Rachel Reeves will deliver the Autumn Budget Statement 2024 accompanied by a comprehensive fiscal statement from the Office for Budget Responsibility (OBR). This significant event comes as the new government, elected to boost economic stability and growth, takes its first important step in addressing the nation’s financial health.

The Autumn Budget will outline the government’s economic strategy, providing insights into their taxation, public spending and fiscal policy plans. It will be a critical indicator of the government’s approach to managing the economy, aiming to foster an environment conducive to sustainable growth.

BALANCING THE NATION’S BOOKS

The new government has faced the challenge of assessing the state of public spending and has identified a significant spending gap in the nation’s finances. This gap underscores the complexities of balancing the nation’s books while striving to implement growth-oriented policies. The Autumn Budget will likely address these challenges head-on, proposing measures to stimulate economic activity while ensuring fiscal responsibility.

The outcomes of this Autumn Budget will have far-reaching implications, potentially influencing everything from tax rates and public services to business investment and consumer confidence. As such, it is a pivotal moment that will shape the economic landscape in the months and years ahead.

ECONOMIC STABILITY AND GROWTH

Following an ambitious King’s Speech, the new government’s first budget will seek to announce initiatives for growth alongside the activation of plans to balance the books across the spectrum
of personal and business taxes and employment policy. But what could the new Labour government mean for your finances?

Prime Minister Starmer’s Labour manifesto emphasised wealth creation. The manifesto aimed to grow the economy and ‘keep taxes, inflation and mortgages as low as possible’. To fulfil those plans, Labour may have to make changes that could affect taxes, allowances, and various investment schemes and rules. Given the pledges made in the manifesto, doing so may prove challenging.

PLEDGES AND CHALLENGES
Although the manifesto is not legally binding, it best indicates Labour’s government plans. Here, we highlight what the pledges could mean for your finances.

PENSIONS
Ahead of launching its manifesto, Labour announced that it would drop plans to reintroduce the lifetime allowance, a cap on how much people can save into their pensions before paying tax. Importantly, Labour committed to upholding the pensions ‘triple lock’, which ensures that the State Pension will continue to increase yearly in line with the highest of three factors: wage growth, inflation or a minimum of 2.5%. This policy is designed to protect the purchasing power of retirees and ensure they can maintain a stable standard of living in retirement.

In the Autumn Budget, there are rumours the Chancellor could look to change pension tax relief, with speculation that this might be one of her targets. One option for Reeves is to cut pension tax relief to 20%. This would be no change for basic rate taxpayers. But it would be a considerable reduction for higher and additional rate taxpayers, who receive 40% and 45% relief on some or all of their pension contributions.

However, further clarity on the scope of this and the challenges they are looking to address has yet to be made available. In the meantime, making the most of all your pension allowances is essential to build your financial resilience in retirement.

INHERITANCE TAX
Although Inheritance Tax has been widely discussed recently, it was a noticeable absence from the Labour manifesto. It contained no comments on future Inheritance Tax rates or reliefs (such as Business and Agricultural Relief).

VAT
The Labour manifesto confirmed that it intended to introduce VAT on private school fees and will end business rates relief for the schools, with such measures estimated to raise around £1.5bn for the government.

The delay until 2025 gives families additional time to consider their options and improve their planning. Families typically have a finite number of financial planning options that can be used to meet additional expenditures, namely reducing other expenditures, increasing earnings, targeting higher returns (with the additional risk that comes with this), looking to borrow and gifting from relatives.

INCOME TAX
Whilst Labour had pledged not to increase taxes on working people (including Income Tax at the basic, higher and additional rates), this does not preclude utilising fiscal drag to increase Income Tax revenues. Fiscal drag occurs when inflation and income growth push taxpayers into higher tax brackets, which will remain frozen until at least 2028. This policy results in higher taxes for affected individuals, even though the tax rates themselves have not changed.

One area to watch could be taxes on dividend income. These have not been mentioned and may be outside the scope of the pledge as a non-working source of income with its own Income Tax rates. Moreover, Labour has pledged to reform the taxation of carried interest, which is a share of profits from a private equity, venture capital or hedge fund. The manifesto did not specify exactly how Labour would close the carried interest ‘loophole’, but the intent is clear: private equity is the only industry where performance-related pay is treated as capital gains. Labour will look to close this loophole.

CAPITAL GAINS TAX (CGT)
The Labour manifesto did not specifically mention CGT rates, and the party’s senior figures have said that they have no plans to reform these rates – with the exception of their proposed policy on carried interest. That said, future increases have not been ruled out entirely.

NATIONAL INSURANCE CONTRIBUTIONS
Labour supported the Conservatives’ cuts to National Insurance in the 2024 Spring Budget, and its manifesto outlined a commitment not to raise current rates. However, Labour may utilise fiscal drag with frozen tax rates until 2028.

As the 30 October Autumn Budget approaches, individuals and families should take proactive steps to manage their personal finances. Anticipating potential changes and being prepared can significantly affect one’s financial wellbeing.

Remember, proactive planning is key to financial stability and peace of mind. Don’t wait until the last minute – take action now to secure your financial future.

To discuss the potential impacts of the upcoming Autumn Budget on your finances, we can provide tailored advice and help you navigate any changes that might affect your tax liabilities, pension contributions or investment strategies. If you need further guidance or personalised advice, please don’t hesitate to contact us.

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Your Financial Adviser – Your Trusted Confidante

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‘Building up a relationship is really, really important over the years’, Nigel Swan Regional Director and Financial Planner.

Your financial adviser is here to understand and look after you, your family and your finances, to be there for you through the bad times and the good. 

‘We are there to take the burden away’. 

 If you would like to discuss your financial future, get in touch with us today

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8 Principles of Growing your Money

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Investing your money could be an effective way to reach your long-term goals and aspirations. By investing your money, you could potentially earn a higher return than if you were to simply save it in a low-interest savings account. This means that over time, your money could grow substantially, giving you a better chance of achieving your financial goals. For more information please download our free guide:

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Guide to Making the Most of Your Pension

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How to turn your pension savings into an income for life.

There are many things to consider as you approach retirement. It’s good to start by reviewing your finances to ensure your future income will allow you to enjoy the lifestyle you want.

The earlier you start thinking about what you’ll need for a comfortable retirement and where your money is going to come from, the more control you can have over that period of your life.

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Free Guide: Trusts

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To download your free guide to Placing Assets into a Trust, please fill out your details below:

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How much tax will you pay on your pension pots?

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Since 2015, individuals over the age of 55 with defined contribution (DC) pension pots have enjoyed full freedom to decide how to manage their pensions; purchasing an annuity (a guaranteed income for life) is no longer mandatory. More than 221 people fully withdrew a pension pot of £250,000 or more between October 2022 and March 2023[1], resulting in a tax bill of at least £97,500 each[2], according to new analysis of FCA figures.

Following the reduction of the 45p rate of tax from £150,000 to £125,140 from April 2023, a pot of £250,000 withdrawn in the current tax year (2024/25) would lead to a tax bill of at least £ 8,700 each – over £1,000 more. In the same period, October 2022 to March 2023, 1,537 people fully encashed a pot of between £100,000 and £24 ,000, leading to a minimum £27,400 tax bill for each person.

Someone fully withdrawing a pot of £174,500, the middle point of that range, would have paid at least £63,500 in 2022/23 and a minimum of £64,700 now. These figures only consider the pension – people with other sources of income at the time of withdrawal would pay even more tax.

Paying significant amounts of tax to access pensions

This is because when people fully encash their pension, HMRC taxes anything above their 25% tax-free pension cash as income, subject to the LSA position of the individual, so it’s taxed like an ongoing salary. The analysis shows there are hundreds of people out there paying significant amounts of tax to access their pensions.

It’s impossible to know whether their circumstances warranted them being subject to a big tax hit, but for most people, it’s something you’ll want to avoid.

It’s important to remember that most pension income is subject to tax, like other income. Fully encashing a large pot will almost always mean a very large tax bill, sometimes taking away many years’ worth of savings. Often, when people fully withdraw their pension, it is simply to move the money to their bank account. Not only does this mean their savings become eligible for tax, but they’re also potentially giving up investment returns.

Withdrawing retirement savings more tax-efficiently

The good news is that there are ways to make withdrawing your retirement savings more tax- efficient, and it’s possible to spread your withdrawals over many years, which can be more efficient. Taking just one option at retirement, such as cash or an annuity, could mean you miss out on an opportunity to maximise tax efficiency and consider your financial needs in the round.

It’s worth considering a ‘mix and match’ approach to your retirement income, which could help you achieve the best of all worlds – you could, for example, annuitise a portion of your pension fund to cover essential outgoings and leave the rest in drawdown to access as and when you need it. Annuitising is the process of converting a lump sum of money into a stream of regular payments that are made over a specified period of time. Be sure to speak to your pension provider about your options, and we’d strongly recommend seeking advice or guidance when taking your pension.

How much tax will I pay on my pension pots?

First, most individuals will receive 25% of their pension pot tax-free, while the remaining 75% is taxable. The amount of tax payable on that 75% depends on factors such as your tax code, the amount you withdraw at a time and whether you have any other income sources.

It is important to remember that the total amount you can typically take tax-free across all your pension pots is now £268,275 unless you have specific protections in place. Most people cannot access their pension pots until they reach age 55 (rising to 57 on 6 April 2028).

Understanding your personal allowance

Everyone is entitled to a tax-free Personal Allowance each tax year, just like when working. For the 2024/25 tax year, the Personal Allowance is £12,570, which has been fro]en at this level for several years. Any amount above this will be taxed as earned income according to your tax band. The simplest way to avoid paying excessive tax is to ensure you do not withdraw more from a pension pot than necessary. Taking it in small, regular amounts could help keep your tax bill down.

Remember, you only pay Income Tax on anything over your Personal Allowance. Therefore, if a pension pot is your sole income source, you could withdraw
£12,570 from it each tax year without paying any tax. Conversely, taking large lump sums in the same tax year (outside of your 25% tax-free entitlement) could push you into a higher tax bracket.

Combining tax-free with taxable withdrawals

You do not necessarily need to take all of your tax-free lump sum at once. Often, you can take it in chunks over several months or years, provided your pension plan allows this. For instance, you could withdraw from the taxable portion of your pot and top it up with some of your tax-free amount.

Exploring ISAs as an income source

Unlike your pension pots, savings in your Individual Savings Accounts (ISAs) are generally not taxed upon withdrawal. You can contribute up to £20,000 in the 2024/25 tax year (across all your ISAs) and will not pay tax on withdrawals or gains. If you have savings in an ISA, consider using them to supplement your pension income to help reduce your tax burden. Alternatively, you could use your ISA to cover your entire retirement income before touching your pension.

For some, the early years of retirement can be more costly, necessitating a higher income. Hence, using tax-efficient withdrawals from your ISA to cover this period might be sensible. As you age and settle further into retirement, your expenses may decrease. Perhaps you have paid off your mortgage, enjoy less expensive hobbies or your children no longer rely on you financially. This could mean you can eventually afford to live off a more modest pension income, thus reducing your tax liability.

Ready to discuss how to manage your pension efficiently?

For further information and personalised advice on managing your pension withdrawals efficiently, please contact us so we can guide you in the most appropriate way for your unique situation.

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Source data:

  1. Retirement income market data 2021/22 FCA
  2. Calculated using Which’s tax calculator, Income Tax calculator and salary calculator for 2024/25, 2023/24 and 2022/23 – Which? Figures rounded to the nearest £100.