Pensions

Financial commitments and pension planning

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A Delicate Balance 

Financial commitments and pension planning 

The challenge of managing bills and other financial obligations while simultaneously saving for a pension may seem daunting. However, it is certainly achievable with the right planning and timely action. The sooner you start, the more advantageous it could be if you contribute to a defined contribution pension. 

This is a type of pension where the amount you receive when you retire depends on how much you put in and how much this money grows. Your pension pot is built from your contributions and employer’s contributions (if applicable), plus investment returns and tax relief. 

Here are 6 practical strategies you can consider 

Utilising Salary Increases for Pension Contributions

Let’s begin with a straightforward approach if you find contributing as much as you’d like to your pension challenging. Initially, contribute an amount you can comfortably afford. Then, whenever you receive a salary increase, allocate a portion of it directly into your pension. This method ensures that you do not become accustomed to spending the additional income while still benefiting from the pay rise. 

Maximising Employer Contributions 

Many employers offer to increase their contributions if you decide to increase yours (up to a certain limit). Therefore, by contributing an extra per cent or two of your salary, they might also contribute more. It would be beneficial to inquire about your employer’s pension contribution policy. 

Boosting your Pension with Lump Sum Payments 

If you encounter a windfall, consider making a lump sum payment into your pension. This is a quick and effortless way to enhance your pension fund. As with regular contributions, the government will top up lump sum payments with tax relief (subject to certain limits). 

Delaying Access to Your Pension Pot 

Allowing your pension to remain untouched for an extended period can potentially lead to its growth. Leaving your pension invested for a few more years could make a substantial difference if you’ve had your pension for a while. However, it’s crucial to remember that there’s no guarantee of growth as investments can fluctuate. 

Being Selective with your Investment Choices 

Your investment choices for your pension can significantly influence your returns at retirement. For example, your scheme’s ‘default’ investment option may not be the most suitable for you. Therefore, it’s worth examining the investment funds where your money is placed. 

The process of making changes to your pension will vary depending on the type of scheme you have. With many modern schemes, alterations can be made online with just a few clicks. Check your policy information or speak to your employer for further details.  

Investing more when regular expenditure ends 

A similar strategy can be employed when you’ve completed regular payments. For instance, once a car loan is fully paid off, consider redirecting the freed-up funds into your pension plan. Even modest increases like these can yield significant results over time. Plus, should you need to reduce your outgoings in the future, it’s typically possible to decrease your contributions.

If you’d like to discuss your pensions with a professional Financial Adviser, please get in touch:

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Financial advice when planning retirement

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People who are confident about their retirement are most likely to have specific retirement goals and know what steps they need to take to reach them. But sadly, we see many people do not feel confident that they will have enough savings to live comfortably after they retire.

Many people have a fear of outliving their money, but most don’t have a clear idea of how much money they need during retirement. It’s important to remember that retirement doesn’t happen at a certain age, it happens when you have enough money to live on.

Seeking professional financial advice can help create a clear direction and understanding which will give you peace of mind that you are on the right track.

If you’d like to discuss your retirement, and would like to speak to an expert Financial Adviser, please get in touch:

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Money and Divorce

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Untangling your finances and navigating the financial aspects of divorce

Divorce is a complex process that often comes with various financial considerations, and preparing for a divorce is undoubtedly challenging, especially when it involves untangling your finances. The emotional strain can make it difficult to make clear-headed decisions, and the long-term consequences may not be immediately apparent.

It is crucial to carefully consider the financial aspects of divorce to ensure you can sustain the lifestyle you desire post-separation. It’s desirable to seek legal and financial advice from professionals specialising in divorce cases. Our team is here to assist you in navigating the financial aspects of divorce.

Here are some financial considerations:

Create a list of assets

Create a comprehensive list of all assets, including properties, pensions, investments, businesses you own and other financial accounts. Include accurate valuations, and be sure to note down both joint and individual assets. Additionally, document your income and outgoings, both joint and individual, to clearly understand your financial standing.

This will clarify what needs to be divided and help with accurate valuation.

Budget for the future

Consider your post-divorce financial goals and plan accordingly. Start saving and budgeting in advance to align with the life you envision for yourself after the divorce. Remember that what you desire financially from the divorce may not necessarily align with the outcome. Obtain a copy of your credit report, especially if you anticipate needing a new mortgage or taking on new financial responsibilities. A credit report will provide insight into any joint lending or liabilities you may still be responsible for after the divorce.

Consider the division of your home

There are several options for dividing your home, such as selling it, one partner buying out the other’s share or maintaining joint ownership until certain circumstances arise. It’s important to consider the financial implications of each option. Keeping the home may be challenging, especially if managing mortgage repayments on a single income becomes difficult. Consult a financial professional to assess the financial viability of each option.

Seek advice on splitting pensions

During divorce proceedings, it is essential to consider the division of pension savings, often overlooked in favour of other assets like the family home. Dividing pensions can have long-lasting effects on your financial security.

There are two commonly used methods for dividing pensions during a divorce or separation. Pension sharing involves splitting one or more pensions between the separating partners.

Alternatively, with pension offsetting, the value of the pension rights is balanced against other assets, such as property or savings. This approach allows for a more flexible and customised asset division based on the separating partners’ unique circumstances.

Evaluate savings and investments

The process is usually straightforward when splitting cash savings accounts during a divorce. One partner can transfer money from their account to their ex-spouse’s account. However, if you have Individual Savings Accounts (ISAs), you or your ex-spouse would need to withdraw the money first and then provide it to the other partner. It’s important to note that dividing investments and savings may have tax implications and involve charges. Therefore, seeking professional financial advice is crucial to ensure that the division is done appropriately and is financially beneficial.

Be aware of CGT liabilities

Capital Gains Tax (CGT) may apply when transferring assets during a divorce. As of 6 April 2023, new rules have been implemented that extend the time frame for separating partners to transfer assets without incurring CGT. Under the new rules, you now have up to three years from the end of the tax year in which you separate to make these transfers without facing CGT liabilities.

Do you need professional advice to take the first step towards a secure financial future? We understand the complexities of divorce and finances and are here to help you make informed decisions. Contact us today to discuss your specific needs:

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Navigating the Financial Aspects of Divorce

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We understand the complexities of divorce and finances and are here to help you make informed decisions. If you’d like more information on Pensions and divorce, please download our free guide:

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Understanding Pension Schemes

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Retirement forecasting can be tricky and that’s where the cash flow forecast software comes into its own, helping you visualise your expenditure, income and preferred lifestyle.

Cash flow forecasting is a way of planning and analysing your financial goals, projecting them forwards over time, to consider how changing circumstances will impact this plan and to see how likely it is these financial goals can be achieved and the actions needed to be taken along the way.

If you’d like to know more about cash flow forecasting, or would like to talk to us about retirement planning, please get in touch:

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What are the tax implications when I receive my pension pot?

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As expert Financial Advisors we are here to make the complex straight forward. We work with you to ensure you maximise all tax relief available and to look at all your current and future finances to mitigate a whole range of liabilities including inheritance tax, income tax and capital gains tax.

Ensure your investments are tax efficient

The UK tax system is notoriously complex, but the benefits of structuring your finances tax efficiently can be significant. It is important to keep up with any changes that could affect your tax position now and in the future.

If you’d like to speak to us about tax implications surrounding your pension, please get in touch

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Building A Reliable Income for your Golden Years

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Annuity Shopping

When it comes to using your pension pot, buying an annuity is one option that provides a regular and guaranteed retirement income for either your lifetime or a fixed term. However, it’s important to note that purchasing an annuity is typically an irreversible decision.

Do you know that shopping around for an annuity could earn you £15,000 more over your retirement? Recent analysis has shed light on the benefits of exploring your options regarding annuities. Therefore, it becomes crucial to carefully consider your options, select the appropriate type of annuity and strive to secure the best possible deal.

Valuable tool for retirement planning

Annuities are a valuable tool for retirement planning as they offer a reliable and predictable income stream, often lacking in other investment options. Furthermore, certain annuities can be linked to inflation rates, providing stability during periods of economic volatility. This makes annuities attractive for individuals prioritising risk aversion in their pension savings strategy.

The primary difference between annuities and pension drawdown products is that annuities require using the entire pension pot to purchase an insurance product that provides a fixed retirement income. In contrast, pension drawdown products allow flexible income withdrawals with the remaining funds invested.

Balance security and flexibility

Unlike pension drawdown arrangements, annuities do not typically pass down any remaining funds to beneficiaries after the holder’s death. However, it is possible to balance security and flexibility by partially combining annuities with pension drawdown.

According to the analysis, a 66-year-old with a £100,000 pension pot can now purchase

an annuity with an annual income of £6,790. This represents an increase of £842 compared to the previous year. The surge in interest rates has resulted in the highest demand for annuities in years.

Importance of shopping around

Data further emphasises the importance of shopping around. It has revealed that the difference between the best and worst annuity rates available can be substantial. For a 66-year-old with a £100,000 pension pot, rates can differ by as much as 9.1%, translating to a potential annual income difference of £622 or a staggering £14,928 over the average retirement period.

The recent focus on annuities can be attributed to rising interest rates, which have a tangible impact on the income of those who have already purchased an annuity. However, it is essential to understand that while record rates are advantageous, they should be considered part of a broader discussion.

Looking for a guaranteed income throughout your lifetime?

Annuities continue to be attractive for individuals seeking peace of mind and the assurance of a guaranteed income throughout their lifetime. If you are contemplating an annuity, speak to us and we will explain how to assess all your options. As the research suggests, shopping around is crucial in securing the best possible deal for your retirement income.

If you’d like to discuss your retirement income, please get in touch using the form below:

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Passing on wealth through your pension

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New research reveals that almost a fifth of those aged over 55 (18%) do not plan to access their tax-free pension cash, to enable them to pass on more wealth to loved ones without incurring Inheritance Tax charges. Men are more likely to do this than women, and 38% of workers also plan to leave their tax-free pension cash where it is, three in ten over-55s say they were unaware of this.

If you’d like to discuss how to transfer wealth through your pension, please get in touch:

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Will you make the right decisions around your pension pot?

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Will you make the right decisions around your pension pot?

The announcement of the removal of the Lifetime Allowance (LTA) from the 2024/25 tax year in the Spring Budget 2023 has made defined contribution pensions even more appealing for wealth transfer. This benefits individuals over 55 who intend to leave their tax-free lump sum intact with their pension to maximise their benefits.

There may be further changes to pension allowance rules. However, removing the LTA charge allows for an unlimited sum tax-free for individuals who pass away before age 75. After the age of 75, the sum will be subject to taxation at the beneficiary’s marginal rate. It is important to note that although the charge has been removed, an LTA check still takes place to work out available tax free cash and the taxation of certain lump sum payments.

Without incurring Inheritance (IHT) Tax

New research* reveals that almost a fifth of those aged over 55 (18%) do not plan to access their tax-free pension cash, to enable them to pass on more wealth to loved ones without incurring Inheritance Tax charges. Men are more likely to do this than women, and 38% of workers also plan to leave their tax-free pension cash where it is, three in ten over-55s say they were unaware of this.

Pensions usually don’t count towards a person’s estate for IHT purposes, and can be passed on completely tax-free if someone dies before the age of 75. With no LTA charge and an increased annual pension allowance, pensions have become attractive for those looking to mitigate IHT.

Pension as a tax-free lump sum

The research also found that almost half of all consumers (46%) believe that the amount that can be taken out of a pension as a tax-free lump sum should increase in line with inflation. It is worth noting that since the LTA has been abolished, an LTA check still takes place to work out available tax free cash and the taxation of certain lump sum payments. This means that individuals are currently limited to withdrawing a maximum of 25% of the previous LTA as a tax-free lump sum from their pension, unless any protection is in place.

Tips to ensure your beneficiaries benefit from your pension:

  • Check if your pension offers death benefits: Not all pensions provide the same level of flexibility when it comes to death benefits.
  • Check with your provider to see if your pension plan allows you to nominate beneficiaries who will inherit your pension savings, as beneficiary drawdown may not be an option.
  • Specify your beneficiaries: While making a Will can be beneficial in many ways, it usually doesn’t control who inherits your pension savings. Your pension provider or trustees have the final say in where your pension savings go.
  • Name your beneficiaries directly with your pension provider or employer to ensure your wishes are considered.
  • Regularly review your beneficiaries: Life circumstances change, and reviewing and updating your beneficiaries as needed is essential. Major life events like the birth of children, marriages or divorces can impact who you want to receive your pension savings. Ultimately the trustees of a scheme have discretion. So although there are no guarantees, by keeping your beneficiaries up to date, you can ensure that your desired
  • Beneficiaries are considered first when it comes to your pension savings should you pass away.
  • Consider the tax implications: Pensions can be a tax-efficient way to pass on your wealth since they are not typically subject to
  • Inheritance Tax. With the removal of the lifetime allowance charge, pensions offer an even more attractive option for passing on your wealth to your loved ones. However, it’s essential to consider any potential tax liabilities your beneficiaries may face when receiving your pension funds.

Remember, seeking professional advice tailored to your specific circumstances regarding financial planning and pension matters is essential.

Do you want to discuss creating a retirement plan to give you the confidence to enjoy later life?

Retirement should be the golden age of your life. It’s when you finally relax, enjoy new hobbies, travel or spend time with loved ones. But retirement can only be fully enjoyed if you have financial freedom. To discuss your options or to find out more, please get in touch with us using the form below:

 

*Opinium conducted research for Standard Life among 2000 UK adults, aged 18+ between 12-16th May 2023, results weighted to nationally representative.

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Dealing with Divorce

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Revolution in family law finally removes the need for blame as a basis for divorce

No one enters into marriage expecting it to end in divorce. However, for many couples, divorce is the sad reality. If you are facing divorce, it is important to know that you are not alone. Each year, thousands of people go through the divorce process.

While divorce can be a difficult and emotionally charged time, there are things you can do to make the process go more smoothly when important decisions need to be made. Keeping a level head to negotiate a fair financial settlement is vital.

No-fault divorce removing the need for blame

From 6 April 2022 no-fault divorce came into effect in England and Wales. This is a long-awaited revolution to family law, finally removing the need for blame as a basis for divorce. Now the only ground for divorce is that the marriage has ‘irretrievably broken down’.

This means the law no longer requires blame to be apportioned, neither is there any requirement to !it your particular circumstances into one of the five facts that you previously had to prove, i.e. there is no need to cite behaviour or adultery nor wait for the minimum two-year separation period.

More amicable resolutions for parties

In addition, further crucial changes are that the respondent to the divorce is now unable to contest the divorce (the limited grounds to challenge a divorce relate to jurisdictional grounds or validity of marriage).

If you and the other party both agree the marriage has broken down irretrievably, then a joint application for divorce can now be made.

If you find yourself in this situation, here are 5 points to consider

1. Seek professional advice immediately

Seek legal and separate financial advice immediately. Your professional Financial Adviser can help you draw up a list of joint and personal assets and valuations, so any legal advice you seek is based on accurate information. This can make an appointment with your solicitor more time and cost effective.

You’ll need to draw up a list of assets e.g. first or second homes, pension pots, investments, value of any businesses etc., checking when they were purchased and finding out if they should fall into the category of marital assets. In addition, list all your outgoings both joint and individual.

2. Cancel all shared finances

Cancel any financial commitments that might be in a joint name immediately. The more unscrupulous partner could take advantage otherwise and saddle you with debt you are liable for. So cancel credit cards, joint accounts, personal loans and even overdrafts if possible and set up afresh in your own name.

3. Timing is everything

Although it may be the last thing on your mind, choosing the right time of year to divorce could significantly impact on the financial outcome for each individual. When a marriage or registered civil partnership breaks down, it is likely that tax will not be at the top of the agenda.

Your tax position refers to the amount of Income Tax and Capital Gains Tax you’ll need to pay. During the divorce process, there is a window of time where a spousal exemption applies and then drops off.

4. Splitting pensions

When it comes to pensions, finding a way to achieve a clean break so you are not tethered to your partner forever is key. What can be divided depends on where in the UK you are divorcing. In England, Wales and Northern Ireland the total value of the pensions you have each built up is taken into account, excluding the basic State Pension.

In Scotland, only the value of the pensions you have both built up during your marriage or registered civil partnership is considered. Normally, anything built up before you married or after your ‘date of separation’ does not count. There are two main ways of dealing with pensions at divorce that apply across the UK.

1. Pension sharing is often the favoured way of dividing a retirement fund because it achieves a ‘clean break’. This involves couples splitting one or more pensions. The aim is to ensure that the future incomes of both spouses are equalised. Your professional Financial Adviser will be able to help you implement any pension sharing order after the splitting process is complete.

2. The second option, pension offsetting, sees pension rights balanced against other assets, such as the home. Typically, if one spouse has a pension fund worth £500,000 and the couple jointly own a property worth £500,000, one may keep the property and the other keep the pension – though things are rarely that simple, so professional advice is key.

5. Budget for your future

Whatever happens, your life is going to be very different once the divorce is complete so it’s important to budget for the future life you want to live. Obtaining a copy of your credit report is a good start, so you know what your standing is, especially as many people will need to think about a new mortgage after divorce. A credit report will also highlight any joint lending you might be liable for.

Financial planning for divorce – what do you need to know?

Obtaining professional financial advice can be invaluable in guiding you through the myriad financial decisions from valuing and splitting pensions, financial disclosure and income planning, to valuing investments, managing tax and implementing court decisions to get your finances back on a sound footing. To discuss your options, please contact us.

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