Monthly Archives: September 2023

MAKE SURE YOU MAXIMISE YOUR RETIREMENT INCOME THROUGH 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’ll 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.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE 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.

WHY DEFINED CONTRIBUTION PENSIONS ARE EVEN MORE APPEALING FOR WEALTH TRANSFER

The announcement of the removal of the Lifetime Allowance (LTA) from the 2024/25 tax year in March’s 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 TAX (IHT)

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.

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. However, nearly three in ten over-55s say they were unaware of this.

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, the amount that can be taken out of a pension as a tax-free lump sum has also been capped at 25% of the old LTA. 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.

HERE ARE SOME TIPS TO HELP ENSURE YOUR LOVED ONES 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.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE 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.

STARTING ESTATE PLANNING EARLY AND IMPLEMENTING IT IN STAGES IS DESIRABLE

The UK Treasury has been receiving record-breaking Inheritance Tax (IHT) receipts. IHT receipts amounted to approximately £7.09 billion British pounds in 2022/23, compared with £6.05 billion in the previous financial year.

For individuals and families who have to pay it, IHT can be emotionally challenging, often requiring the sale of cherished family assets to settle the tax bill. That’s why starting estate planning early and implementing it in stages is essential. Also, having an open conversation about estate planning with family members is very beneficial but depends on family dynamics and wealth levels.

MINIMISE TAX LIABILITIES

However, families should take proactive measures to minimise the possibility of facing a substantial IHT bill. By planning ahead and seeking professional advice, individuals can ensure their assets are managed to minimise tax liabilities.

Creating a comprehensive wealth strategy involves considering various factors.

HERE ARE SOME KEY POINTS TO KEEP IN MIND

LIFETIME CASH FLOW

We can help you assess your assets and income to ensure we support your desired lifestyle throughout your lifetime. By understanding your cash flow needs, we can assist in structuring investments and creating a sustainable financial plan.

LIFETIME GIFTING

Gifting can be a valuable tool in wealth planning, allowing you to reduce a potential IHT tax burden. We can guide you on the various gifting allowances and exemptions available, such as the annual gifting allowance, wedding gifts and gifts from normal expenditure out of income.

TRUSTS

Most trusts offer flexibility and control over how your assets are distributed. They can also help reduce taxes on inheritance. This excludes Absolute Trusts, where control over assets is discretionary. Working closely with us, you can explore different trust options and understand how they can be incorporated into your wealth planning strategy.

PENSIONS

Pensions are important in wealth planning, offering tax advantages and the potential for long-term financial security. We can help you navigate the complexities of pensions, including risk assessment, accessing pension funds and maximising tax benefits.

PROTECTION COVER

Protecting your loved ones in the event of death or illness is crucial. We can advise on selecting the right protection products to provide liquidity for IHT and other associated costs.

BUSINESS RELIEF

Incorporating business relief into your wealth planning strategy can be advantageous if you own a business or have qualifying assets. We’ll help you understand the eligibility criteria and how to leverage this relief effectively.

FINANCIAL CONTROL AND ESTATE PLANNING

Creating a Will ensures that your assets are distributed according to your wishes. Additionally, appointing a Lasting Power of Attorney provides someone with financial control over your assets and peace of mind if you cannot manage your affairs.

Estate planning is not a one-size-fits-all approach. Although there is no requirement to address IHT, proactive planning can minimise the tax burden on families. Seeking professional advice and taking steps early can help reduce the risk of leaving loved ones with a larger tax bill than necessary.

WANT THE PEACE OF MIND TO TAX-EFFICIENTLY PASS ON YOUR
WEALTH TO LOVED ONES?
When you’ve worked hard to build up your wealth, you want the peace of mind to pass this on to your loved ones. There’s much to consider, especially if you have a complex estate. Who should it go to? And when? Is it sensible to pass on wealth during your lifetime? To discuss how we can help, don’t hesitate to contact us.

THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN YOU INVESTED.

THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE.

ESTATE PLANNING IS NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND ON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.

DEVELOPING AN INVESTMENT STRATEGY TAILORED TO YOUR GOALS

Committing to a financial plan is crucial for building wealth and achieving long-term financial goals. When you have a plan, you are more likely to stay focused on your objectives and take the necessary steps to reach them.

Planning allows you to develop an investment strategy tailored to your risk tolerance and financial goals. It helps you understand different investment options, diversify your portfolio and make informed decisions about where to allocate your funds. A comprehensive investment strategy also addresses potential risks and provides contingency measures.

BASIC PRINCIPLES TO FOLLOW FOR INVESTING AND AVOIDING COSTLY MISTAKES

Invest early: Starting early is critical to building wealth. Investing for a more extended period allows for the power of compounding, where your savings generate even more earnings over time.

Invest regularly: Consistent investing throughout the year is essential. By investing a fixed amount regularly, you can buy more when prices are low and less when prices are high, potentially reducing the average cost of your investment.

Invest enough: Saving enough today is crucial for achieving long-term financial goals. Knowing how much you need to save now can help you have a sufficient investment portfolio for your future goals.

Have a plan: It’s essential to have a well- structured plan to avoid making hasty investment decisions based on short- term market movements. Maintaining perspective and long-term focus can help you stay committed to your plan.

Diversify your portfolio: Diversification is critical to managing risk and improving your chances of success. Investing in various asset classes, geographical markets and industries allows you to tap into different opportunities and potentially create a smoother investment experience.

Building wealth is a long-term endeavour. A financial plan keeps you focused on the bigger picture, reminding you of your long-term objectives even during short-term market fluctuations or economic downturns. It instils discipline and patience, key traits for successful wealth-building.

Remember, these principles provide general guidance, and it’s always important to consult a financial professional before making investment decisions.

LOOKING FOR HELP TO TAKE THE NEXT STEP WITH INVESTING?
Investing your money could be a good way to start if you’re looking to build wealth over time. Don’t know where to begin? To find out more, speak to us today.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.

THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP AND YOU MAY GET BACK LESS THAN YOU INVESTED.

THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

CHOOSING THE RIGHT PENSION PAYMENT STRATEGY

When planning for your future, consider increasing your pension savings. But should you do this through a lump sum or by raising your regular contributions? In this article, we look at each option.

WHY INVEST IN YOUR PENSION PLAN?

First, it’s crucial to recognise the advantages of investing in your pension plan. Saving for your future is essential for your future financial independence and security, and your pension plan is one of the most tax-efficient ways to do it.

Pension tax relief on your contributions, employer contributions (especially if they offer a matching scheme) and investment growth potential are just a few of the benefits of investing in your pension plan. All these factors make contributions to your pension plan an effective way to maximise your savings.

SHOULD I MAKE A LUMP SUM PAYMENT INTO MY PENSION PLAN?
If you suddenly receive a large sum of money, such as an inheritance, work bonus or tax refund, should you invest it in your pension plan?

Exceeding your regular pension contributions can bring you closer to achieving your retirement savings goals. A lump sum payment is a quick and straightforward method to enhance your plan while utilising your pension annual allowance before the end of the tax year.

Investing your lump sum as soon as possible allows it more time to grow, giving you more money during retirement. Additionally, depositing a work bonus into your pension plan could save you on tax and National Insurance deductions.

However, ensure that your payment doesn’t exceed your pension annual allowance to avoid tax charges. For the 2023/24 tax year, the pension annual allowance is set at £60,000, and this is the total value that can be paid into all your pensions each tax year before triggering a tax charge. Lower limits may apply if you’re a high earner or you’ve already accessed a pension,

SHOULD I INCREASE MY REGULAR PENSION CONTRIBUTIONS?
If you can’t afford a lump sum payment but still want to save more for your future, consider increasing your regular contributions. This is an excellent habit to develop, as even small increases can accumulate over time when combined with tax benefits and potential investment growth. Additionally, regular contributions can benefit from pound cost averaging.

You can also make contributions to your spouse’s or partner’s pension. These contributions will count towards their annual allowance, not yours – so it’s essential to make sure they have enough allowance left before making any payments on their behalf. You can contribute up to £2,880 a year to the pension of a non-earning spouse, partner or child which becomes a contribution of £3,600 into the pension with tax relief.

WHAT IS POUND COST AVERAGING?

Pound cost averaging involves investing smaller sums at regular intervals instead of a more significant amount as a lump sum. This strategy can reduce the risk and impact of investing a considerable sum just before potential market drops.

Let’s say you have £12,000 to invest. If you put the entire amount into the market and then experience a 10% drop over the next year, your investment would decrease in value significantly. However, if you decide to invest £1,000 each month across the year and the market experiences the same drop, you would buy into the market at a lower price each time. This means your overall investment may only decrease by 5% in total.

Of course, if the market rises instead of falls during that period, you’ll make smaller profits than you would have with a lump sum investment. But it’s important to remember that markets tend to recover long-term. While pound cost averaging might not necessarily yield better returns, it could make it easier foryoutohandlesignificantmarketdrops.

It is a valuable investment strategy for those looking to minimise risk and manage the impact of market fluctuations. Investing smaller amounts at regular intervals can reduce losses and maintain a more balanced portfolio.

WHICH OPTION IS RIGHT FOR ME?

Deciding on the best pension strategy for your future can be daunting. Ultimately, your best choice depends on your financial situation, goals and risk tolerance. Take the time to assess your current circumstances and evaluate each option thoroughly. And keep in mind that the last day of the tax year is 5 April 2024; that’s your deadline for maximising your pension annual allowance for the 2023/24 tax year.

WANT TO GET YOUR RETIREMENT PLANNING ON TRACK?
By planning ahead and choosing the right strategy, you can secure a comfortable and financially stable retirement. We will dedicate our time, expertise and experience to creating a retirement plan centred on what you want your retirement to be. To discuss your options or to find out more, please get in touch with us.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE 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.