Posts By: DG Financial

GETTING FINANCIAL HELP DURING THE CORONAVIRUS (COVID-19) PANDEMIC

The coronavirus (COVID-19) pandemic has not only dealt a blow to the UK economy, many people and families have unfortunately experienced financial hardship. According to a recent survey, 31% of the population say they are struggling with their finances due to the effects of the pandemic.

With the pandemic causing many workers to lose working hours or their jobs, it’s more important than ever to know what financial options you have.

UNDER-35’S ARE MOST LIKELY TO BORROW

But the survey shows that the impact is not spread evenly. It appears that people aged 18-35 have experienced the most financial difficulty and are most likely to seek help from others.

During the pandemic, 18-35s have been four times more likely than any other age group to receive financial support from their family or friends. They’ve also been twice as likely as other age groups to take out a loan to make ends meet.

PEOPLE AGED 35-55 HAVE BEEN IMPACTED LESS

Those in the 35-55 age group have been less likely to need to borrow than the under-35s, and also less likely to report a worsening of their financial situation than those aged 55-65, But that’s not to say that they have it easy. Nearly one in three people in this age group say their finances are worse now.

PEOPLE AGED 55-65 HAVE THEIR RETIREMENT PLANS DISRUPTED

Many people in the 55-64 age group have had to change their retirement plans. Income from work for one in four of these people has fallen 40%.
A rise in unemployment has led to increasing numbers of people taking early retirement, with some relying on their property wealth to fund this.

OVER-65S ARE SUPPORTING THEIR FAMILIES

Over-65s have been less affected than the general population, with 17% reporting that they are struggling financially. This is likely due to their pension income, which, in a lot of cases, will have remained level. More than one in ten of those aged over 65 say they have offered financial support to family members, which is the highest of any age group.

Before providing help to younger family members, it’s important to make sure that you can afford to without affecting your standard of living. Consider how your costs might rise later in life and ensure that you retain enough wealth to cover these additional expenses.

SUPPORT IS STILL AVAILABLE IF YOU, YOUR FAMILY OR YOUR BUSINESS NEED IT

In response to the impact of coronavirus, the government agreed a raft of measures with providers across a range of sectors to ensure struggling consumers are treated fairly. For those still worried about paying utility bills or repaying credit cards, loans or mortgages due to the impact of coronavirus, support is still available. Visit www.gov.uk.

People struggling to pay essential bills are encouraged to:

• Contactproviders:ifyouthinkyoumighthave a problem paying bills, contact your providers to explain the situation and receive help
• Askforhelpifitisneeded:ifyouarestruggling with your bills or credit commitments, free advice is available. Coronavirus has affected the entire nation and many people need support now, even if they never have before
• Explore payment options: if you are struggling with bills, it is better to agree a payment plan with your provider/s and keep making regular instalments, rather than cancelling direct debits and letting debt build

Source data: https://www.lv.com/about-us/press/ coronavirus-outbreak-leaves-young-people- turning-to-bank-of-gran-and-grandad

HELP AND FINANCIAL SUPPORT:

Even though the government has relaxed some of the COVID-19 restrictions, this is still a particularly difficult time for many households across the UK, with some struggling to keep up with bills, loan payments and mortgages. If you would like to discuss your situation, please contact us for more information.

PLAN FOR A BETTER TOMORROW, TODAY

Responsible investment is a catch-all term to broadly describe funds that invest to make a positive change, either to the environment or for society. Within this umbrella term there are four broad investment approaches: ethical exclusion; responsible practice; sustainable solutions; and impact funds.

Increasingly more pension savers are asking where their funds are invested. Many are no longer just concerned about getting the best returns – they also want their money to be used in a way that helps society and the planet. The Department for Work and Pensions (DWP) is currently consulting on improving the governance, strategy and reporting of occupational pension schemes on the impact of climate change.

The growth of Environmental, Social and Governance (ESG) issues – from an increasing awareness of climate change, global responsibilities and social issues to investing in companies that act responsibly and prioritise making the economy cleaner, safer and healthier – is an important consideration for many investors.

CONSIDERATIONS WITHIN RETIREMENT PORTFOLIOS

While ESG concerns have been gaining profile in the investment world for many years, there is reason to believe that there will continue to be a big shift toward these considerations within retirement portfolios and the coming transfer of wealth to sustainability-minded Millennials.

Eight out of ten people (83%) think global warming will be a serious problem for the UK if action is not taken, and there is a lack of awareness about the extent to which pension funds are working to reduce the impact of climate change. In the survey, around half (51%) say global warming is ‘extremely’ or ‘very’ important to them.

CATEGORIES OF CRITERIA USED TO ASSESS COMPANIES

However, there remains a lack of understanding among some savers as to how pension schemes are taking action against climate change.

Three-fifths of workplace pension holders (59%) say they don’t know if schemes are taking any action; just one in seven (15%) workplace pension holders think schemes are.

ESG refers to the three categories of criteria used to assess companies when investing responsibly: ‘E’ stands for ‘environmental’ factors such as, carbon emission and water management; ’S’ stands for ‘social’ factors, such as employee welfare, diversity and inclusion; ‘G’ stands for ‘governance’ factors, such as business ethics and corruption.

PERCENTAGE OF PEOPLE’S WEALTH IN THEIR PENSIONS

The concept of ESG investing has existed for decades but has grown enormously in popularity over the last five years. While early adopters
of this practice were often driven by moral or ethical concerns, over time the financial benefits of ESG investing have become clearer, which has encouraged mass adoption.

ESG investing is becoming increasingly popular, and many investors are choosing ESG funds for their Individual Savings Accounts (ISAs) and general investment portfolios. However, these accounts usually hold a lower percentage of people’s wealth than their pensions.

GREATER TRANSPARENCY AROUND CLIMATE IMPACT

The survey also found a number of people don’t understand what pension schemes do with their money. Little more than two-thirds (68%) of the general population understand that pension schemes invest in a range of companies and other investments, and only one in five (22%) pension holders say they know the types of companies that their pension invests in.

Despite these knowledge gaps, when it comes to pensions there is still strong support for greater transparency around climate impact, in terms of the investments that are made and the way firms operate. Six in ten (62%) people think that pension schemes and other investors should hold those in charge of the companies they invest in to account for their efforts to minimise their impact on climate change.

BEHAVE IN A WAY THAT HELPS TACKLE CLIMATE CHANGE

Two-thirds (66%) think investors have a responsibility to encourage the companies they invest in to behave in a way that helps tackle climate change. A similar proportion (65%) think that financial services firms should report on the impact the companies they invest in have on climate change.

Around seven in ten people (68%) say that pension schemes should be transparent about the extent to which they invest in a climate-aware way. Seven in ten (69%) also want financial services firms to be transparent about the impact of their own operations on climate change

LOOKING FOR MORE FREEDOM OVER HOW YOUR PENSION IS INVESTED?

Pension holders now have far more freedom over how their pension is invested than many realise. If you would like to ensure your pension is invested according to your preferences, including a preference for ESG investments, contact us for more information.

Source data:

[1] Research was conducted for the Pensions and Lifetime Savings Association (PLSA) by Yonder (formally known as Populus), an independent research agency. They achieved a nationally representative online sample of 2,082 UK adults aged 18+. The fieldwork was conducted between 25-26 November 2020.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME

FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

SHARING YOUR WEALTH DURING YOUR LIFETIME CAN MAKE A BIG DIFFERENCE

With all of us leading longer lives, you might be considering how you can help your family when it matters most. Sharing your wealth during your lifetime can make a big difference and bring you a lot of joy, particularly when helping younger generations who are dealing with rising house prices and university fees.

After you’ve determined how much you can afford to give, there’s a simple starting point. What exactly do your grandchildren need, and when do they need it?

The right way to give presents for your grandchildren can vary depending on how old they are, and whether you’re concerned about turning over a sizeable amount of money to a child who may still be impressionable.

YOUNGER GRANDCHILDREN

JUNIOR INDIVIDUAL SAVINGS ACCOUNT (JISA)

If your grandchild is under the age of 18, you might put money into their JISA account. While you won’t be allowed to open one on their behalf, you will be able to donate up to their annual JISA limit, which is £9,000 for the 2021/22 tax year.

The benefit of the JISA is that they can’t touch the money until they turn 18 after that, it’s theirs to use as they choose. The funds may be stored in cash, invested in securities, or a mixture of both. Investment growth is tax-efficient in a Stocks & Shares ISA, while a Cash ISA’s interest is tax-free. If you put money away for 18 years, it might grow into a sizeable amount, but the value of any investment will go up and down.

CHILD’S BANK ACCOUNT

Alternatively, a child’s savings account is a convenient and easy place for families and friends to deposit money for smaller presents.

Keep in mind, though, that savers’ rates have been poor in recent years and over time, inflation can reduce the value of the savings, because prices typically go up in the future.

OLDER GRANDCHILDREN

LIFETIME INDIVIDUAL SAVINGS ACCOUNT (LISA)

If your grandchild is 18 or older, a LISA will be able to assist them in saving for their first home. If they turned 40 on or before 6 April 2017 they won’t be eligible. Only first-time buyers can use a LISA to buy property under age 60.

For every £4 saved, the government will add £1 (worth up to £1,000 every tax year until they turn 50 years old). Up to £4,000 a year is eligible for the 25% bonus (they can add more but it won’t receive a government contribution).

The bonus is paid every month, so they benefit from compound growth. They can invest in either cash or stocks and shares and this forms part of their overall annual ISA limit, which is £20,000 in tax year 2021/22.

WOULD YOU LIKE THE REASSURANCE OF SOME CONTROL?

It’s understandable to be concerned about giving too much money to grandchildren too young. You might like to have a say in where your money is spent and where it is spread. Putting a gift into trust will alleviate concerns over giving substantial sums to grandchildren before they have reached financial maturity and it can provide grandparents with the leverage they want.

You maintain some control of the assets and to whom and where they are paid as a trustee, and gifts to the trust will lower the estate for IHT. Giving money to your grandchildren may eventually affect the way your estate is taxed, so it’s important to obtain professional advice before doing this.

PLAN AHEAD FOR A BRIGHTER FUTURE FOR ALL

There’s a lot grandparents can do today, with a little extra thinking and forward planning, to ensure that the money donated goes towards ensuring a brighter future for your loved ones – when you’re still alive to enjoy it.

GIVING YOUR LOVED ONES FINANCIAL GIFTS
If you’re unsure about the best approach for you, talk to us to discuss your options. Please contact us for more information .

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

WHAT CAN YOU DO WITH YOUR PENSION POT?

When the time comes to access your pension, you’ll need to choose which method you use to do so, with options including:

• buying an annuity
• taking income through (flexi-access) drawdown
• withdrawing lump sums
• Or a combination of all of them.

There are advantages and disadvantages to each method, and in some cases your decision is permanent, so it’s important to ensure that you obtain professional financial advice when considering your different options.

This is a complex calculation that must take into account the growth rate your investments might achieve, the eroding effects of inflation on your savings, and how long your savings will need to last.

ANNUITIES – GUARANTEED INCOME FOR LIFE

Annuities enable you to exchange your pension pot for a guaranteed income for life. They were once the most common pension option to fund retirement. But changes to the pension freedom rules have given savers increased flexibility.

You can normally withdraw up to a quarter (25%) of your pot as a one-off tax-free lump sum, then convert the rest into a taxable income
for life – an annuity. There are different lifetime annuity options and features to choose from that affect how much income you may receive. You can also choose to provide an income for life for a dependent or other beneficiary after you die.

FLEXIBLE RETIREMENT INCOME – PENSION DRAWDOWN

When it comes to assessing pension options, flexibility is the main attraction offered by income drawdown plans, which allow you to access your money while leaving it invested, meaning your funds can continue to grow.

This option normally means you take up to 25% of your pension pot, or of the amount you allocate for drawdown, as a tax-free lump sum, then re- invest the rest into funds designed to provide you with a regular taxable income.

You set the income you want, though this might be adjusted periodically depending on the performance of your investments. You need to manage your investments carefully because, unlike a lifetime annuity, your income isn’t guaranteed for life.

SMALL CASH SUM WITHDRAWALS – TAX-FREE

This is an important consideration for those weighing up pension options at age 55, the earliest age at which you can take up to 25% of your pension pot tax-free. You should ask yourself whether you really need the money now. If you can afford to leave it invested until you need it then it has the opportunity to grow further.

For each cash withdrawal, the remaining counts as taxable income and there could be charges each time you make a cash withdrawal and/or limits on how many withdrawals you can make each year. With this option your pension pot isn’t re-invested into new funds specifically chosen to pay you a regular income and it won’t provide for a dependant after you die.

There are also more tax implications to consider than with the previous two options. So, if you can, it may make more sense to leave it to grow so you can enjoy a larger tax-free amount in years to come. Remember, you don’t have to take it all at once – you can take it in several smaller amounts if you prefer.

COMBINATION – MIX AND MATCH

Of all the pension options, if appropriate to your particular situation, it may suit you better to combine those mentioned above. You might want to use some of your savings to buy an annuity to cover the essentials (rent, mortgage or household bills), with the rest placed in an income drawdown scheme that allows you to decide how much you can afford to withdraw and when.

Alternatively, you might want more flexibility in the early years of retirement, and more security in the later years. If that is the case, this may be a good reason to delay buying an annuity until later in life.

THE VALUE OF RETIREMENT PLANNING ADVICE

There will be a number of questions you will need answers to before deciding how to use your pension savings to provide you with an income. These include:

• How much income will each of my withdrawals provide me with over time?
• Which withdrawal option will best suit my specific needs?
• How much money can I safely withdraw if I choose flexi-access drawdown?
• How should my savings be invested to provide the income I need?
• How can I make sure I don’t end up with a large tax bill?

HOW MUCH ARE YOU SAVING FOR YOUR RETIREMENT?
We can advise on your retirement planning, whether you are in the process of building your pension pot or getting ready to retire. Working closely with you, we will identify what you want from your pension and develop a structure that meets your requirements. To find out more, contact us to discuss your options.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028). 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 TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION WHICH ARE SUBJECT TO CHANGE IN THE FUTURE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

ACCESSING PENSION BENEFITS EARLY MAY IMPACT ON LEVELS OF RETIREMENT INCOME AND YOUR ENTITLEMENT TO CERTAIN MEANS TESTED BENEFITS AND IS NOT SUITABLE FOR EVERYONE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

CREATING A ROADMAP FOR YOUR FUTURE FINANCIAL SUCCESS

It’s always a good time to consider financial planning, but at the start of a new tax year, when you have a fresh set of annual allowances to take advantage of, you have the perfect opportunity to get your financial affairs in order and align them with your goals.

Able to mitigate some of the adverse effects. Taxes on savings, investments and earnings all come with bands, reliefs, allowances and exemptions.

Financial planning ensures that you take advantage of these by organising your finances to make the most of your money and avoid situations you may not have anticipated. Taxation can affect net investment returns, and maximising your net return will help you meet your financial objectives. There are a number of potential financial planning solutions to help you meet your goals in a tax-efficient way.

MITIGATING THE COVID-19 ECONOMIC IMPACT

The UK government has accumulated massive deficits while trying to mitigate the economic impact of the coronavirus (COVID-19) pandemic on individuals and businesses.

Essentially, they have three options to try and reduce their debt burdens:

• Implement austerity, including higher taxes, so that the borrowing can be repaid;
• Deliver economic growth so that the debt burden to GDP falls;
• Or allow inflation to erode the real value of the debt.

MEET YOUR GOALS IN A TAX-EFFICIENT WAY

The good news is that if you start considering the recent and potential tax changes now, you should be able to mitigate some of the adverse effects. Taxes on savings, investments and earnings all come with bands, reliefs, allowances and exemptions.

Financial planning ensures that you take advantage of these by organising your finances to make the most of your money and avoid situations you may not have anticipated. Taxation can affect net investment returns, and maximising your net return will help you meet your financial objectives. There are a number of potential financial planning solutions to help you meet your goals in a tax-efficient way.

MARCH BUDGET 2021 CHANGES ANNOUNCED

These involve making use of tax allowances each year, assessing investments that suit your tax profile and considering long-term plans for you and your family. This might necessitate some financial restructuring. Business owners will also need to prepare and plan for the changes announced in the March budget.

The Chancellor of the Exchequer, Rishi Sunak, delivered Budget 2021 to Parliament on 3 March. Here are some of the key announcements around tax and financial planning.

PENSIONS

Despite predictions that the many tax advantages of pensions could be cut back, they were left untouched. The most significant change was the decision to freeze the lifetime allowance (the amount you can hold in pensions without paying a tax charge) at its current level of £1,073,100 until April 2026.

Pensions still remain one of the most tax- efficient ways to invest, particularly for higher and additional rate taxpayers. In addition to tax relief on what you pay in, any growth is free of UK Income Tax and Capital Gains Tax and any remaining funds in your pension on death are usually free of Inheritance Tax after your death.

INDIVIDUAL SAVINGS ACCOUNTS (ISAS)

The Chancellor left ISA allowances unchanged. Any proceeds from an ISA remain free of UK Income Tax and Capital Gains Tax and, therefore, this is a key consideration in financial planning. As soon as the new tax year started on 6 April, your annual ISA allowance limit was reset.

For the current tax year, savers can contribute up to £20,000 each across the four main types of ISA, which include Cash, Stocks & Shares, Innovative Finance and Lifetime accounts.

CAPITAL GAINS TAX (CGT)

Despite proposals to increase CGT, there were no new announcements, other than the decision to freeze the annual tax-free allowance at its previous level of £12,300 until April 2026.

As part of financial planning, it still makes sense to make as much use as possible of the valuable ISA and pension allowances, to ensure your funds are held in the most tax-efficient manner.

INHERITANCE TAX (IHT)

Again, no changes were made to the standard nil-rate band of £325,000 and the residence nil- rate band of £175,000, both of which have been proposed to remain frozen until April 2026.

If you’re thinking about how you can reduce the Inheritance Tax your beneficiaries have to pay when you die, there are various options you should consider.

ACHIEVE YOUR GOALS AND FUTURE WELLBEING
The purpose of creating a financial plan is to help you understand where you stand now and where you could be in the future if you take the right steps. It’s about creating a roadmap for your money to help you achieve your goals and future wellbeing.

Putting in place a comprehensive financial plan and keeping it updated will be amongst the most important decisions you ever make. It should include details about your cash flow, savings, debt, investments, insurance and any other elements of your financial life and wellbeing.

Even if you’re in a good position financially, there are various ways that financial planning could help improve your current situation, for example by:

• Improving the growth rate your investments are achieving
• Introducing new streams of income
• Minimising the tax you pay
• Recommending solutions and products you might not be aware of

AVOID COSTLY FINANCIAL MISSTEPS

Designed to help secure your financial future, a financial plan seeks to identify your financial goals, prioritise them and then outline the exact steps that you need to take to achieve these goals.

It can also help you avoid costly financial missteps, such as making a risky investment, being subject to an unexpected tax charge or underestimating the liquidity you need, resulting in the forced sale of your assets. But the value of financial planning isn’t just limited to the returns you get from it.

There are also practical and emotional benefits to receiving professional financial advice, for example by:

• Freeing up time spent managing your finances n reducing the administrative burden on you n removing financial stress, which could impact on your health.
• Giving you peace of mind that you’re moving in the right direction

HELPING YOU ACHIEVE YOUR GOALS AT EVERY STAGE OF YOUR LIFE

Creating a financial plan isn’t a static process. It’s important to adjust your plan as your life and situation evolve. It’s helpful to reevaluate your financial plan after major life milestones, like getting married, starting a new job, having a child, planning for their education, losing a loved one and retirement planning. Everyone has different priorities. To discuss your options, please contact us today to find out more.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME

FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE TAXATION & TRUST ADVICE.