Retirement Page

Busting the myths about pensions

 560 315 Jess Easby
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If you are approaching retirement age, it’s important to know your pension is going to finance your future plans and provide the lifestyle you want once you stop working. Pension legislation is extremely complex and it’s not realistic to expect everyone to understand it completely. But, since we all hope to retire one day, it is important to get to grips with some of the basics.

Many of us have made pension provision, but some of us don’t know very much about the details. To help you get a handle on some of the myths around pensions, we’ve got answers to some of the things you may have been wondering about. It’s particularly helpful to become aware of the things you may have thought were facts that are actually myths. Here are some examples.

Myth: The government pays your pension

Fact: The government pays most UK adults over the pension age a State Pension, which is currently:

  • Retired post-April 2016 full rate State Pension of £185.15 a week
  • Retired pre-April 2016 full rate basic State Pension of £141.85 a week (a top-up is available for some, called the Additional State Pension)Not everyone is eligible for the full amount, which requires you to have at least 35 qualifying years on your National Insurance record. If you have less than ten qualifying years on your record, you’ll receive nothing. Even if you receive the full amount, you’ll usually need to supplement it with your own pension savings.

Myth: Your employer pays your pension

Fact: Most people are automatically enrolled into a workplace pension. Your employer is usually required to pay a minimum of 3% of your salary into it and you must also pay a minimum of 5% of your salary. If you keep your contributions at the minimum level, it might be difficult to save enough for retirement.

As life expectancies grow longer, your retirement can be almost as long as your working life. It’s therefore important to put aside a portion of your earnings to create a pension pot that will enable you to receive the income and live the lifestyle you want during retirement.

Myth: You can’t save more than your lifetime allowance

Fact: There is a lifetime allowance on the benefits you can access from your pension, which is currently £1,073,100 (tax year 2022/23). That doesn’t mean that you can’t withdraw any more after that, but it does mean that you’ll pay a tax charge of up to 55%. However, it was announced in the Spring Budget 2023 that this will be abolished from April 2023.

Myth: Your pension provider’s default fund is suitable for everyone

Fact: Most pension default funds will start out with a high-risk strategy and steadily move your capital into lower-risk investments, such as bonds and cash, as you get closer to retirement. This is to reduce volatility in the value of your investments so that you can have a higher degree of confidence in how much you’ll eventually end up with.

If you don’t plan to purchase an annuity, you don’t necessarily need to reduce volatility before retirement. You may be leaving some of your money invested for several more decades, in which case a higher risk strategy may be more appropriate.

Myth: Annuities are outdated

Fact: There was a time when almost everyone bought an annuity when they retired, and that time has passed because there are now alternative ways to access your pension savings. But annuities still have a useful role for generating a retirement income and can be an appropriate product for some people. Unlike other pension withdrawal methods, such as drawdown, an annuity offers a fixed income for life, so there’s no risk of your money running out. That’s a crucial benefit for many pensioners.

Myth: You can’t pass on a pension

Fact: If you’ve used your pension savings to purchase an annuity, the income from this will usually cease when you die. But if you have pension savings that you haven’t used to buy an annuity (for example, if you’ve been taking an income through drawdown), what’s left can be passed on to a loved one. If you die before the age of 75 there will usually be no tax to pay by the beneficiary. Otherwise, they will need to pay Income Tax according to their tax band.

Get in touch

If you would like more information on our pension planning services or are looking for financial advice, then please book a chat.

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Tax Year End

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Tax Year End Checklist – Have you made use of your 2022/23 Allowances?

  • ISA allowance: £20,000pa
  • Junior ISA allowance: £9,000pa
  • Pension annual allowance: £40,000*pa (*or 100% of your earning and this allowance varies for higher rate tax payers and business owners.)
  • Check your carry-forward pension allowance
  • Check your pension lifetime allowance status (£1,073,100)

For more information on our tax planning services, please get in touch.

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Retirement and Tax Planning

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Managing Director and Chartered Financial Planner, Michael Cope, discusses tax planning in retirement.

For more information on our retirement planning services or our tax planning services, please get in touch.

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Asset Allocation

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What is asset allocation and diversification?

Asset allocation involves diversifying your investments among different assets, such as equities, bonds, property and cash. Asset allocation may change depending on what works for you based on your financial goals and your ability to tolerate risk.

  • Cash: Cash equivalents and other forms of money can be easily accessed at any time.
  • Equities: Purchasing shares on the stock market, typically traded on the Stock Exchange.
  • Bonds: A fixed-income product representing a loan made by an investor, typically corporate or governmental, for a fixed period.
  • Property: Buying properties intending to make money e.g. rental income or selling a property.

When building our portfolios, we consider all the economic and technical market conditions that influence our exposures to the main asset classes of Ellis equities, bonds, property and cash.

We screen and choose all our funds, not just our Socially Responsible Investment portfolios, against a range of Environmental, Social and Governance (ESG) factors so you can see the impact your investments are having.

Read more on our screening process for sustainable investment funds.

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Retiring Early

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Retiring early can give you that change of lifestyle you’ve been craving, but requires some careful planning. Financial Adviser, Andy King, discusses how he helped a client by discovering that they could retire early.

If you are unsure whether you can retire early, use our handy retirement age calculator to see how much you may need to save.

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Is your money working hard for you?

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Are you feeling uncertain on the way forward to your retirement?

We offer a range of retirement planning services, including a handy retirement calculator to see how much you need to save for retirement. Alternatively, find out more about how our cashflow modelling service can help you visualise your expenditure, income and preferred lifestyle in retirement.

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Early Retirement

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Regional Manager and Financial Planner, Dax Bayley, shares how he enhanced someone’s life by using cashflow modelling to help them to retire earlier than they had planned.

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Feeling uncertain on the way forward to your retirement?

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Funding the lifestyle you want – get your retirement plans in motion

One of the most common concerns among those approaching retirement is whether they will have enough money to last them. A new study[1] shows that only 25% of retirees feel very confident they’ve saved enough for retirement.

As food prices continue to soar and petrol costs reach an all-time high in the UK, the rising cost of living is without doubt having an impact on many people’s financial plans, both short and long term.

If you’re approaching retirement or have already started taking money from your pension or other retirement savings, you wouldn’t be alone in feeling a little anxious about the effect the cost-of-living crisis might have on your lifestyle in retirement.

While it’s impossible to predict the future with complete certainty, there are a few things you can do to feel more confident about spending your money in retirement.

Add up all your sources of income

Your main source of retirement income may well be your pension plan. But when it comes to planning your finances in retirement, it’s important to think beyond this. Consider other potential sources such as Individual Savings Accounts (ISAs) and other investments, as well as any rental income you receive from rental properties you let.

And don’t forget the State Pension, which is currently £185.15 a week (£9,628 a year) for a single person with a full entitlement. Although the State Pension’s annual increase is currently below inflation, every little helps and the total of all your savings and income might add up to more than you think.

Watch out for unnecessary tax bills

Paying too much tax in retirement is a common pitfall for some retirees, and one that could be potentially avoided with having the right plans in place.

If you’re already taking or plan to take income from multiple sources, you need to consider how that will be taxed. When and how you take your money can make a big difference to how much tax you pay and how long it will last. Taking money little and often could make all the difference when it comes to reducing your tax bill.

When it comes to your pension savings, you can typically take 25% tax-free from age 55 (age 57 in 2028), either in one go or spread out over a longer period. After this, any money you take from your pension savings, as well as your State Pension, is taxable just like any other income.

That means you’ll need to pay income tax on anything over your tax-free cash limit and any annual personal Income Tax allowance you get.

It’s likely that the more money you take, the more tax you’ll have to pay, although how much will depend on which tax band your income falls into. So if you take all of your pension savings at once, or in big lump sums, you could be paying more tax than you need to. But by taking your pension savings over a number of years and taking just enough to stay in the lowest tax band you can, you could keep more of your money overall.

Make the most of your Individual Savings Account (ISA)

Another way to avoid an unnecessary tax bill is to make the most of your ISA savings. You don’t pay tax on any investment growth or interest you earn, or on the proceeds you take from an ISA. So it’s a very tax-efficient way to save.

You could consider using any ISA savings you have first and delay accessing your pension savings, giving them more time to stay invested and potentially grow in value. Remember though, the value of all investments can go down as well as up, and you may get back less than you paid in.

Or, if you’ve already started taking an income from your pension, you could use your ISA savings to supplement that income. This could allow you to take smaller payments from your pension and avoid overpaying Income Tax on them.

Getting to grips with tax implications can be a bit overwhelming as there’s a lot to consider. Tax rules and legislation can change, and personal circumstances and where you live in the UK also have an impact on your tax treatment. On top of that, tax varies for other sources of income like property, state benefits, or even your salary if you’re planning on working in some capacity for a little longer.

Keep track of your investments

Where your money is invested could have the biggest impact on how long it will last in retirement. It’s important to regularly review your investments to make sure they remain on track and remain aligned with your plans and attitude to investment risk.

For example, your pension savings may be invested in fairly high-risk funds that have the potential to grow significantly in value, but also are more likely to be impacted, particularly during periods of market volatility. Moving to lower-risk investments means that you’re less likely to see big ups and downs in the value of your pension savings.

However, if you’re relying on your pension savings to provide you with a comfortable income for the rest of your life, you also need to make sure that your investments will provide enough growth potential. This is particularly important in the current climate where your money faces the double challenge of rising inflation and potentially having to last for many years.

Want to review your retirement plans?

If you have specific questions about funding your retirement lifestyle, feeling anxious about spending money in retirement or asking yourself “how much do I need to retire?” then speak to us to discuss your retirement options.

Source data: [1] Class of 2022 UK retirement report consumer research of 2,000 UK adults for abrdn who were either planning to retire in the next 12 months, or who had retired in the 12 months prior. Research was conducted by Censuswide in late November / early December 2021.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless plan has a protected pension age).

The value of your investments (and any income from them) can go down as well as up 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. Tax treatment varies according to individual circumstances and is subject to change.

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Cost of living crisis

UK Cost of Living Crisis

 560 315 Jess Easby
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Cost of living crisisFunding the retirement lifestyle you want vs the cost of living: time to get your retirement plans in motion!

One of the most common concerns among those approaching retirement is whether they will have enough money to last them with only 25% of retirees feel very confident they’ve saved enough for retirement.

The cost of living crisis

As food prices continue to soar and petrol costs reach an all-time high in the UK, the rising cost of living is without doubt having an impact on many people’s financial plans, both short and long term.

If you’re approaching retirement or have already started taking money from your pension or other retirement savings, you wouldn’t be alone in feeling a little anxious about the effect the cost-of-living crisis might have on your lifestyle in retirement. While it’s impossible to predict the future with complete certainty, there are a few things you can do to feel more confident about spending your money in retirement.

Add up all sources of income

Your main source of retirement income may well be your pension plan. But when it comes to planning your finances in retirement, it’s important to think beyond this. Consider other potential sources such as Individual Savings Accounts (ISAs) and other investments, as well as any rental income you receive from rental properties you let.

Don’t forget the State Pension, which is currently £185.15 a week (£9,628 a year) for a single person with a full entitlement. Although the State Pension’s annual increase is currently below inflation, every little helps and the total of all your savings and income might add up to more than you think.

Watch out for unnecessary tax bills

Paying too much tax in retirement is a common pitfall for some retirees, and one that could be potentially avoided with having the right plans in place. If you’re already taking or plan to take income from multiple sources, you need to consider how that will be taxed. When and how you take your money can make a big difference to how much tax you pay and how long it will last. Taking money little and often could make all the difference when it comes to reducing your tax bill.

When it comes to your pension savings, you can typically take 25% tax-free from age 55 (age 57 in 2028), either in one go or spread out over a longer period. After this, any money you take from your pension savings, as well as your State Pension, is taxable just like any other income.

That means you’ll need to pay income tax on anything over your tax-free cash limit and any annual personal Income Tax allowance you get. It’s likely that the more money you take, the more tax you’ll have to pay, although how much will depend on which tax band your income falls into. So if you take all of your pension savings at once, or in big lump sums, you could be paying more tax than you need to. But by taking your pension savings over a number of years and taking just enough to stay in the lowest tax band you can, you could keep more of your money overall.

Make the most of your individual savings accounts (ISA)

Another way to avoid an unnecessary tax bill is to make the most of your ISA savings. You don’t pay tax on any investment growth or interest you earn, or on the proceeds you take from an ISA. So it’s a very tax-efficient way to save.

You could consider using any ISA savings you have first and delay accessing your pension savings, giving them more time to stay invested and potentially grow in value. Remember though, the value of all investments can go down as well as up, and you may get back less than you paid in.

Or, if you’ve already started taking an income from your pension, you could use your ISA savings to supplement that income. This could allow you to take smaller payments from your pension and avoid overpaying Income Tax on them. Getting to grips with tax implications can be a bit overwhelming as there’s a lot to consider.

Tax rules and legislation can change, and personal circumstances and where you live in the UK also have an impact on your tax treatment. On top of that, tax varies for other sources of income like property, state benefits, or even your salary if you’re planning on working in some capacity for a little longer.

Keep track of your investments

Where your money is invested could have the biggest impact on how long it will last in retirement. It’s important to regularly review your investments to make sure they remain on track and remain aligned with your plans and attitude to investment risk. For example, your pension savings may be invested in fairly high-risk funds that have the potential to grow significantly in value, but also are more likely to be impacted, particularly during periods of market volatility.

Moving to lower-risk investments means that you’re less likely to see big ups and downs in the value of your pension savings. However, if you’re relying on your pension savings to provide you with a comfortable income for the rest of your life, you also need to make sure that your investments will provide enough growth potential. This is particularly important in the current climate where your money faces the double challenge of rising inflation and potentially having to last for many years.

Want to review your retirement plans?

If you have specific questions about funding your retirement lifestyle, or if you’re feeling anxious about spending money in retirement, speak to us to discuss your options

Find Your Local Adviser

Women Seeking Financial Support

 150 150 Jess Easby
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Financial Planner, Carol Lammy-Steele, discusses why women are less likely to seek financial support from a Financial Adviser.

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