Monthly Archives: January 2024

HOW TO GET YOUR RETIREMENT PLANS IN MOTION

Retirement signifies a well-deserved achievement, a significant turning point in life.

It should be a period of anticipation and joy, an opportunity to indulge in activities that bring happiness and contentment. Currently, retirement is marked by increased flexibility in accessing your pension savings. While this offers many choices, it also gives rise to numerous queries.

Retirement planning, accompanied by crucial decision-making and understanding various options, might seem daunting, especially with the escalating cost of living affecting several financial plans. This is where the value of professional retirement advice comes into play. We can help you simplify major decisions by clarifying your options, instilling confidence in your choices and ensuring they are beneficial and tax-efficient.

RETIREMENT LIFESTYLE

With the UK witnessing record-breaking inflation in food and fuel prices, the rising cost of living undoubtedly influences our financial plans. If retirement is on the horizon, apprehension about increasing inflation, interest rates and the potential impact of the cost of living crisis on your retirement lifestyle is quite natural.

We can guide you in such circumstances and assist in determining an achievable retirement date based on your total income and expenses. When you include all your potential income sources, not merely your pension savings, you might discover the possibility of retiring earlier than anticipated or gradually reducing work hours before fully retiring. Even if immediate retirement is outside your agenda, we can help you understand when you can afford to retire.

INCOME SOURCES

We’ll work with you to analyse all your income sources to estimate your possible annual income post-retirement while ensuring you have sufficient funds for as long as you need. Income sources will likely include pensions, your entitlement to a State Pension, and any savings or investments like Individual Savings Accounts (ISAs). Rental income from a buy-to-let property may also be an option, in addition to any equity in your home that you’re willing to release, either through downsizing or equity release.

As your retirement may last 30 to 40 years, ensuring your income lasts throughout this period is crucial. As we’ve witnessed over the previous few years, inflation rates have reached double-digit figures, so ensuring your money is working hard for you is more important than ever.

BEAT INFLATION

Investing a portion of your money during retirement also offers growth and an opportunity to beat inflation. This is where our professional advice is essential, helping to ensure your money is invested wisely and that your investments align with your retirement plans. However, remember that investments can fluctuate in value, and you may get back less than you initially invested. Overpaying taxes in retirement is another common pitfall. For instance, if you withdraw more from your pension savings than necessary, you could pay more tax than required. We can guide you through this, ensuring you draw your retirement income in the most tax-efficient way. However, bear in mind that tax laws and legislation can change. Your circumstances, including your location within the UK, will significantly impact your tax treatment

ARE YOU IN CONTROL OF YOUR RETIREMENT PLANS?
If you require further information or have more questions, please get in touch with us. We are always ready to provide guidance and answer any queries. We’ll work with you to ensure you control your retirement plans so your retirement is as comfortable and fulfilling as possible.

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

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.

THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY-TO-LET MORTGAGES.

‘TRIPLE LOCK’ TO INCREASE BY 8.5% FROM 6 APRIL 2024

The State Pension is set to increase commencing on 6 April 2024 due to a mechanism known as the ‘Triple Lock’. Chancellor Jeremy Hunt has announced an increase of 8.5%, which pensioners will welcome.

The State Pension is a recurring benefit paid out every four weeks by the government. This payment is made available to individuals who have reached the qualifying age and have sufficiently contributed to National Insurance.

CHANGES IN THE WEEKLY PENSION AMOUNTS

Qualifying for a full State Pension is based on your National Insurance Contributions (NICs). The number of years you’ve paid or been credited with these contributions and when you start claiming your State Pension determines the amount you receive. You can access government websites to check your personal NI record and forecast your State Pension.

This increase announced during the Autumn Statement translates to significant changes in the weekly pension amounts. For those receiving the full, new flat-rate State Pension, the weekly amount will be £221.20. Meanwhile, for those on the full, old basic State Pension, the weekly figure will be £169.50.

THE HIGHEST OF THE THREE MEASURES

The State Pension ‘Triple Lock’ concept might seem complex, but it’s quite straightforward. It’s a system that ensures the State Pension increases each April, with the increase based on the highest of three measures.

The ‘Triple Lock’ system measures inflation as per the Consumer Price Index of the previous September, the average wage increase across the UK or a minimum of 2.5%. Whichever of these three measures is highest dictates the increase in the State Pension.

WANT TO FIND OUT MORE ABOUT YOUR RETIREMENT PLANNING OPTIONS? Understanding your pension options thoroughly is vital to planning a comfortable retirement. Feel free to contact us if you require further insights or have specific questions regarding your State Pension or your retirement plans. 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.

SIGNIFICANT REFORMS AND RATES CUT FOR MILLIONS OF WORKERS

National Insurance is a cornerstone of the welfare and benefits system. As a citizen, your contributions will likely play a significant role in funding state provisions such as pensions, maternity leave and bereavement support. If you’re over 16, under the State Pension age and either employed or self-employed, chances are you’re making National Insurance Contributions (NICs).

The amount of NICs you’re required to pay is contingent upon your earnings and employment status. In other words, your contribution is calculated based on how much you earn and whether you’re an employee or run your own business. This system ensures that everyone contributes fairly to the welfare system based on their financial capabilities.

CLASSIFYING CONTRIBUTIONS

National Insurance rates are segmented into ‘classes’, each corresponding to a specific earnings range and employment status. Typically, employees fall under Class 1, while self-employed individuals are categorised as Class 4. This classification helps streamline the process and accurately calculates each individual’s contributions. Once you’ve reached the State Pension age, your obligation to contribute to the National Insurance pool ceases. This means you can enjoy your retirement without worrying about further deductions from your income for National Insurance.

AUTUMN STATEMENT 2023

In the Autumn Statement 2023 last November, Chancellor Jeremy Hunt announced significant reforms to National Insurance. This is the third change to National Insurance since 2022.

But despite these cuts, the tax burden is still expected to remain at a record high.

Mr Hunt cut the main rate of Class 1 employee NICs from 12% to 10%. This took effect on 6 January 2024. There will also be a cut in the main rate of Class 4 self-employed NICs from 9% to 8%. This will take effect from 6 April 2024. From 6 April 2024, Mr Hunt said no one will be required to pay Class 2 self-employed NICs.

Details of the National Insurance Contributions (NICs) changes are:

• From 6 April 2024, self-employed people with profits above £12,570 will no longer be required to pay Class 2 NICs but will continue to receive access to contributory benefits, including the State Pension.
• Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits, including the State Pension, through a National Insurance credit without paying NICs as they do currently.
• Those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits, including the State Pension, will continue to be able to do so. The government will set out the next steps for Class 2 reform next year. As part of this reform, the government will protect the interests of lower-paid self- employed people who currently pay Class 2 NICs voluntarily to build entitlement to certain contributory benefits, including the State Pension.

NATIONAL MINIMUM & LIVING WAGE UPRATING

From 1 April 2024, the National Living Wage (NLW) will rise by 9.8% to £11.44 an hour for eligible workers aged 21 and over across the UK. Young people and apprentices on the National Minimum Wage (NMW) will also see a wage increase.

OUR SUCCESS IS ENSURING YOUR SUCCESS. WANT TO FIND OUT MORE?
Intrigued and want to know more? Please get in touch with us if you require further information or have questions about any matters that will impact your future financial plans. A deeper understanding will empower you to manage your finances better and plan for a secure future.

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 HIGH PRICE OF HALTING PENSION CONTRIBUTIONS

In times of financial stress or uncertainty, it may be tempting to hit pause on your pension contributions. However, before you do so, it’s essential to understand the long-term implications this decision may have on your retirement savings plan.

Decisions to increase short-term income can dramatically affect future wealth. It may seem like a viable solution to current financial struggles to reduce or stop pension contributions. However, this short-term increase in take-home pay can significantly impact long- term pension values. Higher earners stand to lose almost four times as much.

TAX RELIEF ADVANTAGE

Pension contributions attract tax relief. Research shows that a worker earning £35,000 annually and saving 5% in a workplace pension scheme matched by their employer could increase their take-home pay by £117 monthly, or £1,404 yearly, if they stopped paying into their pension. But they would lose £341 monthly, or £4,092 yearly, in pension savings due to lost matched contributions and tax relief.

MAGIC OF COMPOUNDING

Pension wealth hugely benefits from compounding – the longer money is invested, the more it could grow. In 20 years, the £4,092 could have boosted the pension pot by £10,575 through investment growth if contributions hadn’t been paused.

IMPACT ON HIGHER EARNERS

For higher rate taxpayers earning £70,000, the difference is even more significant. They could increase their take-home pay by £3,360 yearly by stopping 8% matched pension contributions. However, their pension pot would be worse off by £12,192 in that period. Their pension savings would also be worse off by a projected £31,508 in 20 years if they had not taken a one-year pause.

THE TOLL ON PERSONAL FINANCES

The research involving over 6,000 UK adults shows that the past two years have strained people’s finances. A third (33%) of workers across all age groups confessed to decreasing or stopping their pension contributions. Among younger workers, the figures are even more alarming – nearly half (49%) of workers aged 18-34 are looking at the impact of adjusting their pension contributions.

COST OF OPTING OUT

Exiting your savings scheme means forgoing the benefits of saving through a workplace pension. Initially, you’ll miss out on your employer’s contribution. Any breaks in savings could also delay your retirement or mean you’ll have less income when you stop working. Catching up on any breaks will mean saving even more when you resume to achieve your desired lifestyle in retirement.

WEIGHING UP THE DECISION

While the number of people opting out of schemes remains relatively low, it’s clear that many have considered the option in a bid to boost their take-home pay. However, the decision to pause pension contributions must be weighed carefully, especially for those at the start of their career.

SHORT-TERM GAIN, LONG-TERM LOSS PARADOX

Stopping or reducing contributions might be necessary for some, but decisions mustn’t be taken impulsively. Figures from the research show that the money gained in the short term doesn’t seem like great value when compared to what’s being given up in the long term.

IT’S ESSENTIAL TO FULLY UNDERSTANDTHESE IMPLICATIONS BEFORE MAKING A DECISION
While pausing pension contributions may seem like a quick fix in the short term, it could have substantial long-term costs. It’s essential to fully understand these implications before making a decision that could affect your financial security in retirement. For further information or guidance, please get in touch with us. Your financial future is too important to leave to chance.

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.

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.