Monthly Archives: November 2023

REFLECTING ON 75 YEARS OF STATE PENSIONS

In the 75 years since the inception of the State Pension, we’ve witnessed dramatic shifts in the workplace and significant strides towards gender equality. Yet, a stark reality remains: women are more likely than men to depend solely on the State Pension for their retirement income.

The State Pension currently stands at £886 per month, granted to those eligible for the full amount under the contemporary rules. Eligibility hinges on having either paid or been credited with 35 years of National Insurance.

New research reveals that nearly half (49%) of women are unaware of this stipulation, compared to 40% of men. This disparity is especially concerning in light of the fact that almost two million women (29%) anticipate relying solely on the State Pension in retirement versus only 13% of men.

FORECASTING THE FUTURE: STATE PENSION AGE AND FORECAST
Interestingly, fewer women have checked their State Pension age (53% vs 58% of men) or accessed a copy of their State Pension forecast (45% vs 50% of men). The latter is crucial as it outlines the accumulated State Pension and forecasts the potential amount upon reaching the State Pension age. However, women who have reviewed their State Pension forecast found it easier to comprehend (55% vs 52% of men).

FINANCIAL EXPECTATIONS IN RETIREMENT

When it comes to estimating monthly living costs in retirement, women expect to need less (£1153.70) than men (£1,279.20), a difference of over £1,500 annually. This difference in financial expectations extends to plans of working until the State Pension age, with 50% of men intending to do so, compared to 42% of women.

PRE-RETIREMENT FUNDING: BOTH GENDERS

For those planning to retire before reaching State Pension age, several differences emerge in their funding strategies. While similar proportions of both genders aim to fund their pre-retirement living costs through workplace pensions, cash savings or personal pensions, more men (28%) plan to utilise investment funds than women (17%). Meanwhile, 25% of women intend to access their partner’s pension or savings during this period, versus 15% of men.

THE STATE PENSION: A LIFELINE FOR MANY

The State Pension remains a cornerstone of retirement income for many, and for nearly one in three women, it’s the only source of income. Surviving on £886 a month is challenging, particularly amidst the current cost of living crisis. The gap between women’s estimated retirement living costs and their projected State Pension is concerning. Even after fulfilling all National Insurance contributions, women still anticipate needing an extra £250 per month beyond their State Pension.

Retirement should be a time of enjoyment and fulfilment, not financial hardship. With the current cost of living crisis squeezing many household budgets, depending solely on the State Pension could lead to challenging decisions about spending for many years.

READY TO DISCUSS YOUR RETIREMENT GOALS?
Your future shouldn’t be left to chance. If you’d like to learn more or need further information, please don’t hesitate to contact us.

A YEAR MARKED BY SEVERAL TAX CHANGES THAT IMPACTED HIGHER RATE TAXPAYERS

As we approach the end of the year, taxpayers should begin assessing their tax obligations. This is not a task to be left to the eleventh hour, especially considering tax changes coming into effect in 2024.

This is also particularly true for 2023, a year already marked by several tax changes that impact higher rate taxpayers. By understanding your tax obligations early on, you could avoid unwelcome surprises. Understanding these tax changes lets you plan and strategise effectively to meet your tax obligations without unnecessary stress or last-minute surprises.

Remember, proactive tax planning can help you optimise your finances and potentially reduce your tax liability.

TAX CHANGES AND THEIR IMPACT

In the 2023/24 tax year, the threshold for taxpayers in England, Wales and Northern Ireland paying the top tax rate of 45% has been reduced from £150,000 to £125,140. This figure aligns with taxpayers earning over £100,000, who lose all of their personal allowance. Scottish taxpayers face a similar situation, but the tax rate has increased to 47%.

Capital Gains Tax (CGT) allowances and dividend allowances have also been slashed. The annual exempt amount for CGT has dropped from £12,300 to £6,000 for this tax year and will further decrease to £3,000 from April 2024. Similarly, the dividend allowance has been cut from £2,000 to £1,000, with another £500 reduction planned for April 2024.

STRATEGIES FOR MITIGATING TAX RISES

The challenge for all is devising ways to counteract these tax increases. Here are some strategies for those likely to become additional rate taxpayers due to the threshold reduction, if applicable.

CHARITABLE DONATIONS

The tax system encourages generosity by providing tax relief on charitable donations. You won’t have to pay CGT on land, property or shares donated to charity. By deducting the value of your donation from your total taxable income, you can also pay less Income Tax.

SELLING SHARES

With the CGT allowance set to decrease further in the next tax year, it might be worth considering selling stocks that have gained value. However, investment decisions should align with your goals and objectives rather than purely tax breaks.

DEFER TAX WITH INVESTMENT BONDS

Offshore investment bonds can provide cash in the form of capital payments, deferring tax on growth. The trade-off is that the growth will be subject to Income Tax rather than CGT when the bond matures.

BOOST PENSION CONTRIBUTIONS

Pension contributions can reduce taxable income levels. If your earnings surpass £125,140, every £55 contributed to a pension will yield £100 of investment. How you receive the tax relief depends on whether you’re employed or self-employed. However, it’s essential to have enough ‘earned’ income to cover the gross contribution and be aware of the annual allowance limit. This is the limit on how much money you can contribute to your pension in any one tax year while still benefiting from tax relief. It currently stands at £60,000.

INVESTMENT SPLITTING

Splitting investment portfolios between spouses or partners allows you to use both CGT allowances and lower rate bands. Gifting investments to a non-earning spouse or partner can ensure their allowances aren’t wasted.

RESTRUCTURE COMPANY DIVIDENDS

Company owners might consider restructuring dividends to retain their personal allowance every other year. This approach requires careful planning and discipline to retain enough cash each high-income year.

FAMILY INVESTMENT COMPANIES

Family investment companies can serve as a longer-term wealth accumulation structure. Although the corporation tax rate has increased to 25%, dividends received by a company are not subject to tax, allowing for potential gross roll-ups of income.

TIME TO TAKE CONTROL AND FIND WAYS TO MINIMISE YOUR TAX BURDEN LEGALLY? Understanding your tax obligations early can help you plan better and avoid unnecessary financial stress. You can make the most of your tax planning options with careful planning and professional advice. Don’t wait until the start of the new tax year is upon you. Start today and explore the various strategies that could help you pay less tax. If you require further information, please get in touch with us.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. YOUR OWN PERSONAL CIRCUMSTANCES, INCLUDING WHERE YOU LIVE IN THE UK, WILL HAVE AN IMPACT ON THE TAX YOU PAY. LAWS AND TAX RULES MAY CHANGE IN THE FUTURE. SEEK PROFESSIONAL ADVICE.

CONSIDERING GILTS FOR YOUR INVESTMENT PORTFOLIO?

High interest rates make gilts an attractive option for some investors, especially higher
rate taxpayers who benefit from the tax exemption from capital gains. What exactly are gilts?
These UK government bonds, or debt securities, are issued to finance public expenditure. Their
appeal lies in their low-risk nature and guaranteed income.

SECURING SAFE INVESTMENTS WITH GILTS
Gilts are considered one of the safest investment options because the British government fully backs them. Think of a gilt as an IOU from the Treasury. Investors receive regular interest payments in return for lending money to the UK government. Most gilts offer a fixed cash payment (or a coupon) every six months until maturity, when the final coupon payment is made along with the return on the original
investment.

TRADING AND MATURITY OF GILTS
Investors have two options: hold on to the gilts until maturity or sell them on the secondary market, much like company shares. Short-term gilts mature between one to five years, medium term gilts have a lifespan of five to fifteen years, while long-term gilts exceed fifteen years, some even extending up to fifty years. Generally, gilts with longer lifespans have higher interest rates than those maturing soon.

UNDERSTANDING GILT YIELDS
The annual return an investor gets for holding a gilt over the next 12 months is known as the yield. It’s calculated by dividing the annual coupon payments by the current market price. Various factors influence gilt yields, including the outlook for interest rates, inflation and market demand for gilts. Interestingly, bond prices and yields move in opposite directions.

THE RISE OF GILT YIELDS
Since the pandemic, interest rates have skyrocketed as the Bank of England tries to control inflation. Interest rate changes significantly impact bond prices, especially when they are forecasted to keep increasing. As interest rates increase, bond prices generally fall, and vice versa. This inverse relationship is due to new bonds with high coupon rates being issued at higher interest rates than older bonds that
have been issued at lower rates.

THE TAX BENEFITS OF GILTS
While Income Tax applies to the interest earned from gilts, they are entirely exempt from Capital
Gains Tax (CGT). This means there’s no CGT to pay on any profits from selling a gilt or when it matures. This exemption is especially beneficial for higher rate taxpayers who’d otherwise have to pay a 20% CGT. Moreover, there’s no tax on gilts held in a tax-efficient wrapper like an Individual Savings Account (ISA) or a SelfInvested Personal Pension (SIPP).

PROTECTING CAPITAL WITH INFLATION-LINKED GILTS
For investors concerned about inflation, inflation-linked gilts offer a reliable way to protect their capital if held to maturity. The principal and interest are tied to inflation, ensuring investors receive a return that keeps pace with the cost of living.

GILTS AND PORTFOLIO DIVERSIFICATION
Gilts provide a safer alternative during uncertain times, and their low correlation with stock
markets makes them an alternative diversifier. By including gilts in a diversified portfolio, investors
can mitigate risk and balance their exposure to different asset classes as the coupon is fixed at
the outset.

ARE YOU LOOKING TO MAKE BETTER-INFORMED INVESTMENT DECISIONS?
Don’t hesitate to get in touch for further information or advice on adding gilts to your portfolio. We’re here to help you make informed investment decisions. To find out more, contact us – we look forward to hearing from you.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
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.

NEARLY HALF OF WOMEN AGED 50-65 PLAN TO CONTINUE WORKING IN SOME CAPACITY AFTER REACHING THE STATE PENSION AGE

Years of gender-based earnings disparity have resulted in a significant pension savings gap between men and women, leaving many women in their 50s and 60s financially precarious. According to analysis, women are more than twice as likely to rely on financial support from their partner.

One in three women feel somewhat unconfident or not at all confident about their retirement provision meeting their needs, compared to 28% of men. Additionally, nearly half of women aged between 50 to 65 plan to continue working in some capacity after reaching State Pension age. Of this group, 13% plan to work the same hours, while 31% plan to work fewer.

FINANCIAL SECURITY

The analysis is based on qualitative data from the Office for National Statistics. It shows
that 34% of women in this age group have changed their retirement plans in the two years before September 2022 and expect to stay in paid work for longer.

The study also highlights the stark contrast in future financial security between men and women. While the State Pension is the most common means of funding retirement for both genders, significantly fewer women plan to rely on a private pension than men.

SECURING EMPLOYMENT

The analysis suggests that the number of women planning to continue working after the State Pension age may have increased even further due to the subsequent cost of living crisis. The challenges faced by women in securing employment after periods of unemployment or caregiving responsibilities contribute to their vulnerability. Many women aged 50-65 struggle to find work due to age discrimination or a lack of flexible work opportunities.

RETIREMENT PROSPECTS

Additionally, they are too young to claim their State Pension, further exacerbating their financial situation as they approach retirement. While the State Pension age for men and women may now be equal, this data demonstrates that the retirement prospects of men and women are far from equal.

The analysis underscores the need for addressing gender disparities in earnings, pension savings and access to flexible work opportunities to ensure financial security and equality in retirement.

HERE ARE FIVE WAYS TO BOOST YOUR RETIREMENT SAVINGS:

Maximise your pension contributions: Add as much as possible to your workplace pension or retirement savings to take advantage of tax relief. Check if your employer offers matching contributions.

Save more by making small changes: Review your budget and find areas where you can cut expenses to increase your savings.

Consider investing: Explore options providing higher long-term growth than a traditional savings account. Investments come with risk, so do thorough research and consider lower-risk options.

Make the most of joint allowances: If you’re in a partnership, examine your pensions and savings together to optimise your retirement plan.

Adjust your retirement plans: If you’re nearing retirement age and are concerned about insufficient funds, consider delaying retirement or switching to reduced working hours. Inform your pension provider about any changes and explore investment options that align with your new timeline.

READY TO GET YOUR RETIREMENT PLANS IN MOTION?
Remember, it’s never too early or late to start saving for retirement. Take action today for a more comfortable future! To tell us about your situation or for advice, don’t hesitate to contact 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.