Financial Planning, Pensions Advice, Financial Adviser Dunfermline, Fife, Edinburgh and Central Scotland

Thursday 13th December 2018

How much do you know about your pension? Do you believe that you’re responsible for your retirement plans?

In the UK, around a quarter of individuals feel that their employer, the state or a pension provider is more responsible for their pension than they are, according to a report from State Street Global Advisers.

But while it can seem like a daunting topic to get to grips with, your comfort in your later years and ability to achieve retirement dreams is reliant on your pension. As a result, do you really want to hand over the reins?

The report assessed three core areas for retirement planning; responsibility, choice and advice. It evaluated these concepts on a scale of one to five, with five being the highest. The UK scored just 2.3. This compared to 4.9 in the US and 4.7 in Australia.

In the UK, the research found:

  • Only 14% of the working population are extremely confident in being financially prepared for retirement
  • But 18% don’t expect to make any sacrifices in retirement
  • Just 33% of retirees are confident their money will last in retirement

The findings suggest that there’s a disconnect between Brits and their pensions. More than seven in 10 are not confident about their finances supporting them throughout their later years. As a result, getting to grips with how they work can give you more certainty and set you on the right path.

If you’re looking to boost your pension knowledge, here are seven things you should know about Workplace Pensions to get started:

1. Your pension will be made up from contributions from you and your employer

If you have an end pension goal in mind, it can seem like a daunting target to reach. But it can seem far more manageable when you break it down.

The first thing to note is that most people with a Workplace Pension will benefit from employer contributions. Thanks to auto-enrolment more people than ever before are seeing their pension savings increase due to employer payments.

The amount your employer pays in will depend on legislation and your workplace policy, so be sure to check your contract or employee handbook.

2. You’ll benefit from tax relief too

On top of employer contributions, you’ll also likely benefit from tax relief. Again, this helps to increase your savings beyond what you’re putting in. In fact, it’s estimated that tax relief spending costs the government around £55 billion a year, delivering a boost to the nation’s retirement savings.

Tax relief means that some of the money you would have paid in tax on your earnings goes into your pension. The level of tax relief you benefit from will depend on the Income Tax band you’re in.

3. Your retirement savings are invested

On top of employer contributions and tax relief, there’s another incentive to pay into a pension; the potential investment returns.

The money in a pension can be invested, helping contributions outpace inflation and grow. The compounding effect, where the returns are reinvested to generate returns of their own, means your initial contributions could grow significantly as you work towards retirement.

Pension providers will usually offer several different investment options, reflecting varying levels of risk. The general rule is the longer you will be investing for, the greater the level of risk you can take, but it’s entirely dependent on your personal preference. Your financial adviser can help you determine the appropriate level of risk to take.

4. There are contribution limits

If you want to maximise the benefits of saving into a pension, there are two limits to be aware of.

The first is the Annual Allowance. The amount you can put into a pension each year is currently capped at £40,000 or 100% of your earnings, whichever is lower. If you exceed this amount, you won’t receive tax relief and may face additional charges.

Once you start making withdrawals from your pensions, the annual limit is reduced to £4,000.

The second is the Lifetime Allowance. You will usually need to pay tax if your combined pensions are worth more than this limit. It is currently set at £1.03 million and is based on the total value of your pension, not just your contributions. The rate payable will depend on how you choose to take your retirement income.

5. Pension Freedoms give you more flexibility when you retire

In the past, you may have been put off saving into a pension as you had little choice when you came to collect it.

However, Pension Freedoms introduced in 2015 means you have far more flexibility. Freedoms mean that with the right financial planning, you can make your pension income match your retirement aspirations. Once you’re 55, you’re free to withdraw all the money from your pension should you choose, although usually, only the first 25% will be tax-free. Alternatively, you can leave the cash invested within your pension, buy an Annuity, use Flexi-Access Drawdown or create a hybrid retirement strategy that suits you.

6. You may pay Income Tax when you retire

How you take your retirement income will affect the level of Income Tax you need to pay. As a result, looking at the different options when it comes to withdrawing from your pension is important.

If you want to take a lump sum, the first 25% is tax-free. You can take more but this is often one of the most costly ways to access your pension in terms of tax. If you’re receiving an income from your pension, you’ll pay tax if the annual amount is more than the Personal Allowance, which will rise to £12,500 from April 2019. You should also note that other sources of income can use up your Personal Allowance too.

7. Your pension can be used for Inheritance Tax planning

Your pension can be an effective way to pass on wealth when you die. Most pensions allow anyone to inherit your pension, not just your spouse or civil partner.

Money that is still left in your pension can be accessed completely tax-free if you die before 75. After the age of 75, the money within your pension can still be inherited but will be subject to Income Tax. In many cases, a pension can still be an efficient way to pass on wealth as it may fall outside of your estate for Inheritance Tax (IHT) purposes.

If you have further questions about pensions or would like to discuss your retirement provisions with your goals in mind, please contact us. With our expertise, we can help set you on the right track for the retirement you want.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, 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.

Inheritance Tax (IHT) is one of the most controversial taxes and it’s one that can lead to much confusion. If you’re planning how you’ll pass your wealth on to loved ones, IHT can be difficult to get your head around. Once you throw in Nil-Rate Bands, you might be at a loss as to what your beneficiaries could pay and how to mitigate it if necessary.

First, the basics of IHT. It’s a tax paid on your estate when you die. The current standard rate of IHT is 40%. The complexity starts when assessing who will need to pay IHT. Your estate includes most of your assets, including cash, property, possessions and investments. If your estate falls under certain thresholds, known as Nil-Rate Bands, no IHT will be due.

If your estate is liable for IHT, there are steps you can take to reduce the bill, or in some cases eliminate it entirely.

Who needs to pay Inheritance Tax?

If you choose to pass on your wealth to a spouse or civil partner, you will be exempt from IHT. Furthermore, you can pass on any unused allowance from Nil-Rate Bands on to them, increasing the amount they can pass on to loved ones without IHT being due.

If you’re passing on wealth to anyone else, including children and grandchildren, IHT may be due depending on the value of your estate. There are two Nil-Rate Bands to be aware of:

The Nil-Rate Band: The basic Nil-Rate Band threshold is currently set at £325,000. If the value of your entire estate is below this amount, no IHT will be due.

The Residence Nil-Rate Band: If you’re leaving your main home to your children or grandchildren, you may also be able to take advantage of the Residence Nil-Rate Band. However, to do so, your estate must be worth less than £2 million. The current Residence Nil-Rate Band is £125,000. The threshold is increasing £25,000 a year and will reach a maximum £175,000 in 2020/21.

The two Nil-Rate Bands mean you can currently pass up to £450,000 to loved ones without IHT being due. Should you share your Nil-Rate Band with a partner, your family can inherit up to £900,000 without having to worry about an IHT bill.

IHT Nil-Rate Bands in practice

If IHT still seems complex, this scenario gives you an example of it working in practice:

David and Jane are a married couple with an adult son, Sam. The home the couple live in together is valued at £400,000. They also have additional savings and investments totalling £1 million. All their assets are jointly owned.

David dies in 2015, so ownership of all the assets pass to Jane without any IHT being due. David’s unused Nil-Rate Band and Residence Nil-Rate Band also pass to Jane.

Three years later, Jane dies leaving her entire estate to her son Sam. As Jane’s estate benefits from her own Nil-Rate Bands and David’s, £900,000 is exempt from IHT. The value above this threshold is liable for IHT at a rate of 40%. This means Sam will face an IHT bill of £200,000. In total, he receives £1.2 million from his parent’s estate, minus other costs for administering.

What to do if your estate may be liable for IHT

The combination of the two thresholds, plus the ability to pass unused allowances on to spouses or civil partners, means that many estates don’t pay IHT. It’s estimated that one in 20 people pay the ‘death tax’. However, HMRC collected a record £5.2 billion from IHT in 2017/18 following an increase of 8% (£388 million) from the previous year.

As property prices have increased significantly over the last few decades, some families may be facing an IHT bill without realising it. Understanding the value of your estate and the thresholds is an important step. If IHT is likely to be an issue you face, there are some steps you can take to reduce liability, including:

  • Make a will: The first step you should take is to make a will, or, if you already have one in place, update your existing will. This will ensure that your assets are distributed according to your wishes, rather than intestacy rules. It also provides you with an opportunity to ensure you’re not paying IHT that could be avoided.
  • Use a trust: In some cases, it may be possible to put part of your wealth outside of your estate for IHT purposes by using trusts. For example, you can create a trust that will benefit grandchildren once they reach adulthood. This can be a complex matter and it’s not a solution that suits all situations. If you’d like to discuss using trusts, please contact us.
  • Gift assets now: You don’t have to wait until you pass away to provide financial support to loved ones. Gifting assets now can mean you get to see the benefits of your generosity and reduce IHT liability. There are some gifts that are immediately exempt from IHT, but others may not be should you die within seven years of them being received. Make sure you understand the gifting allowance before proceeding.
  • Leave some of your estate to charity: The standard IHT rate can be reduced if you leave 10% or more of your estate to charity. This would reduce the rate from 40% to 36%. Depending on the value of your estate, it can mean paying out less, as well as supporting causes that are close to your heart.
  • Take out life insurance: If your estate will be liable for IHT and you’re worried about how your loved ones will pay it, a life insurance policy can help. With the right set-up, it will pay out a lump sum on death, covering your IHT bill. As a result, the value of your estate can remain intact for your loved ones to inherit.

If you’d like to discuss the value of your estate and potential IHT liability, please contact us. We’ll help you understand the options open to you if IHT is a concern.

Please note: Tax and estate planning is not regulated by the Financial Conduct Authority.

When was the last time you reviewed your investment portfolio? It’s a task that can seem daunting and a one that’s easily forgotten about as life gets in the way. But it’s an important step to take to ensure your investments are on track with your personal goals in mind.

If these seven signs are familiar to you, it may be time to arrange an investment review.

1. You can’t remember the last time you reviewed your investment portfolio

While you don’t want to be constantly monitoring your investments and worrying about temporary market fluctuations, your portfolio shouldn’t be something you never look at either. If you can’t remember the last time you reviewed your investments, it’s a sign that it’s probably been far too long.

It’s advisable to undertake an investment review on an annual basis at least, aligning with other financial planning steps that you take. A yearly timeframe gives you an opportunity to look at the long-term trajectory of your investments and still take action when necessary to minimise negative influences.

2. Your investment objectives aren’t clear

Your investments should reflect your wider goals in life. Do you want to grow a nest egg to retire comfortably in 20 years’ time? Or are you saving for your child’s education and need access to the money in just five years? Your objectives will have a big impact on how the money is invested and the level of risk you may be comfortable taking.

Reviewing your portfolio is the perfect time to think about what your objectives are and clearly define how your investments will support this.

3. Your financial situation has changed

Over the years your financial situation will undoubtedly change. Your investment strategy should too. Receiving an inheritance, for instance, may mean you can grow the overall size of your portfolio more quickly. While an increase in salary could mean you’re willing to take on more risk with a portion of your investments. Alternatively, having retired, you may start to withdraw some of your investment to use as income and reduce the level of risk you are subject to.

Your financial situation has a direct impact on how your investment portfolio should be structured.

4. You’ve experienced a big life event

Throughout life, events will have an impact on how you view finances and investments. If since your last portfolio review you’ve started a family, married, divorced, or retired, it’s time to look at how this may have changed the best approach for you.

Life events can influence our outlook on life and, therefore, money. It’s natural that this will affect your investment too. If your priorities have changed, it’s a good idea to see how your investment strategy continues to support them.

5. You have no idea how your investments have performed over the last year

It’s important not to get caught up in the short-term volatility that investment markets experience. It’s natural for the value of your investments to rise and fall over time. However, that being said, you should have a reasonable idea of how your investments have performed, allowing you to adjust where necessary.

Committing to regularly reviewing your investment portfolio means you’re aware of potential opportunities and risks you can take steps to avoid. It’s a process that can help maximise the value of your investments with your goals in mind.

6. You haven’t considered changes that are out of your control

While your personal circumstances and goals should be at the centre of your investment portfolio, wider changes also need to be considered. How economies perform will influence your investment value too, as well as other factors that are out of your control. While difficult, it’s important for them to be factored into your decisions.

A portfolio review gives you a chance to consider what key factors have changed in economies you’re invested in and how this may affect your portfolio’s value. Brexit is a current example of politics influencing investment portfolios, while environmental issues are increasingly affecting company values.

7. Your portfolio is losing value over the long term

Investments are highly likely to experience dips in value as markets fluctuate. But when you take a long-term view, beyond five years as a minimum, the value should be steadily increasing. If you look at your investment portfolio and see a sustained decrease in value it may be time to reassess your approach.

While you look at value, you should also consider the amount you’re paying in fees. These can quickly eat into your returns if the service you’re using isn’t delivering value for money.

If you’d like to understand how your investments are performing and whether steps could be taken to improve the results, we’re here to offer our support. Whether or not your circumstances have changed, we can help assess if your current investment strategy is suitable for your goals.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

More retirees with a Final Salary pension are choosing to take their money out of schemes and transfer into a Defined Contribution (DC) scheme instead. But why are they choosing to give up an income that’s guaranteed for life?

A Final Salary pension, also known as a Defined Benefit pension, pays a pre-defined amount on retirement based on a set of criteria. Often this is how long you have been a member of a scheme and your salary when leaving. Final Salary pensions are sometimes referred to as the ‘gold standard’. They’re typically generous and the responsibility to ensure the pension is paid over your lifetime falls to the scheme trustees, rather than you.

The alternative is a DC scheme, which is now more common. If you’re a member of a DC scheme, you make contributions to your pension, which are then usually invested. This may be supplemented by employer contributions and tax relief. The amount you have when you retire will, therefore, depend on the contributions made and the performance of the underlying investments.

Growing numbers leaving Final Salary schemes

Despite the certainty of income that Final Salary pensions provide members with, more retirees are choosing to transfer out of them.

Figures released by the Financial Conduct Authority (FCA) show that between October and March 2016, 5,056 Final Salary members transferred their pension to a DC scheme. This increased sharply to 34,738 transfers during the same period in 2018; a rise of 587%.

While not all transfers are covered in the survey, the FCA estimates that it accounts for around 95% of DC contract-based pension schemes.

Why are Final Salary members transferring out?

When you’re a member of a Final Salary scheme, you essentially have two options when you reach retirement age. The first is to simply take the income the scheme provides. The second is to transfer out, taking the money offered and placing it with an alternative DC pension provider. The latter is a step you can take before retirement age, but the money transferred to a DC scheme isn’t usually accessible until you’re 55.

A few, but growing number, of Final Salary schemes, will also allow you to partially transfer. This would mean you take a lower guaranteed income and receive a lump sum transferred to a DC scheme, to compensate for the portion of income you’ve given up.

The growing number of retirees choosing to transfer can be linked to two main factors:

High values: When you approach a Final Salary pension provider to transfer, they will offer you a Cash Equivalent Value Transfer (CEVT). Operating Final Salary schemes is expensive for the pension trustees, and as life expectancy has increased, so has the cost of meeting responsibilities. As a result, many Final Salary schemes have been closed to new members and high CETVs are being offered to encourage existing members to leave. It’s now not unusual to receive a CETV that is 30 or even 40 times higher than your expected annual income. With such high sums available, it’s easy to see why some are tempted to cash out.

Pension Freedoms: In 2015, the government announced the biggest shake-up to pensions in decades with new Pension Freedoms. These changes aimed to provide more flexibility for those drawing an income from a DC pension, reflecting how retirement and lifestyles have evolved. From the age of 55, DC pension holders can now choose to access all their pension savings if they wish (although usually, only the first 25% is tax-free). They could also choose from purchasing an Annuity, providing a guaranteed income for life, or using Flexi-Access Drawdown, where money can be withdrawn from a pension as and when it’s needed.

While transferring out of a Final Salary pension does offer you more freedom with how you access your pension, as well as potential Inheritance Tax benefits for passing on your pension when you die, there are some downsides to consider:

  • You’ll be giving up a guaranteed income: The impact of giving up a guaranteed income for life shouldn’t be underestimated. It gives you security throughout your retirement. You won’t have to worry about how investments perform or running out of funds in your later years. A lot of people underestimate their lifespan too, which is important to consider, as they may run out of DC pension income.
  • You will need to account for inflation: The income provided by a Final Salary scheme is usually linked to inflation. This means that your spending power is maintained over time. If you choose to transfer out, you’ll need to ensure that you’ve considered how inflation will affect your income over the course of your retirement.
  • You may also be giving up other valuable benefits: Depending on your personal circumstances, a Final Salary scheme may also offer other important benefits. These could include a pension paid to support a spouse, civil partner or dependent should you pass away.
  • You’ll need to take responsibility for investment performance: With a Final Salary pension, the trustees are responsible for investment decisions and ensuring they can meet obligations. If you choose to transfer out, you’ll need to take on that responsibility and poor investment performance or financial decisions would impact the income available to you.

The key thing to remember when deciding whether to transfer a Final Salary pension is that it’s final. Once you’ve left a Final Salary scheme, you won’t be able to reverse your decision. It’s important to carefully weigh up your options before you move forward. If you’d like to discuss your Final Salary pension and how transferring out would affect your finances, please contact us.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, 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.

New Year is just around the corner, and what better time to make a commitment to improving your financial security in the future. Making a few financial changes next year could improve your finances in 2019 and beyond. A New Year’s resolution that turns into a good money habit can set you on the right path for the rest of your life.

With that in mind, here are some financial resolutions you could consider making to improve your prospects.

1. I will keep a spending diary

If you found you were overspending in 2018, a diary of where your money is going is a simple but effective place to start. Sometimes it’s easy to forget about those small purchases that add up, especially if you’re using contactless or shopping online. Having all your expenses in writing means you can keep track of where your money is going. If you prefer tech, there are plenty of apps and tools to help manage spending too.

Of course, keeping a diary alone isn’t enough. You should also be looking at where you can cut back, if necessary, and how to make the most of your money.

2. I will start/grow my emergency fund

If you don’t already have an emergency fund, starting one can significantly boost your financial security. The recommended amount to have in an easy-access savings account is between three and six months’ salary. This means you have a buffer to overcome financial shocks, from an unexpected bill to losing your job.

If you already have six months’ salary saved, it may be best to start looking at alternatives. Low interest rates likely mean your money is losing value in real terms. Alternatives to consider are investments or a fixed rate savings account where your money is locked away for a defined period.

3. I will reduce the amount of debt owed

Debt can mean your outgoings are much higher, and much of the repayment is likely to be paying off interest rather than the money you borrowed. If you’re at a stage in your life where you still have debt, such as credit cards or car finance, making a commitment to reduce this can vastly improve your financial security.

Overpaying by even a small amount can cut down the total amount of interest you’ll pay significantly. Reducing or eliminating debt altogether in 2019 can help put you on the right path for the future.

4. I will increase my pension contributions

When you make a New Year’s resolution, you often hope to feel the benefits relatively quickly. But looking to the future can mean the advantages are even greater. Giving your pension contributions a regular monthly boost can mean you reap the rewards when you retire. As the money is usually invested, you will hopefully see returns on your efforts that outweigh inflation and interest. Plus, you may also benefit from employer contributions and tax relief.

If you pay into a Workplace Pension already, be aware that minimum auto-enrolment contributions will automatically increase in April 2019.

5. I will overpay my mortgage payments

A mortgage is often one of the biggest financial commitments you make. It’s not unusual to plan to still be paying your mortgage 30 or even 40 years after you first purchased. As a result, the accumulated interest over the years is significant. Making regular overpayments or paying off lump sums can cut down the total interest paid and means you’ll own your home sooner.

It’s a resolution that can have more immediate benefits too. Paying extra means you’ll own more equity in your home, which typically means you’ll be able to access lower interest rates when remortgaging. Be sure to check your terms first though, some lenders may charge you for overpaying.

6. I will start/grow my investment portfolio

Investing can be an excellent way to grow your money. Once you’ve built up a savings account, putting regular amounts into investments can mean the opportunity to generate returns above interest rates. Ideally, you should be investing with the view of holding stocks and shares for at least five years, this helps to smooth out dips in the market.

When you’re investing, be sure to consider the level of risk you’re willing to take and how well-placed you are to withstand potential losses.

7. I will create a long-term financial plan

Don’t just focus on the immediate financial goals this year, look at your wider objectives too. The steps you take now could help them turn them from a dream to a reality. Thinking about what you want to achieve should be your first step. From here you can start to create a strategy that’s aligned with what you want.

This is an area where financial advice can be invaluable. We’ll help you understand how your current finances are suited to your goals and the steps you should be taking to secure the future you want.

If you’d like help getting to grips with your finances in 2019, please contact us. We’d be happy to discuss steps that could improve your long-term financial security and how we can add value to your plans.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, 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 value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

We all know we should be saving for retirement. But research suggests many of us don’t know how much we’ve put aside for life after work, even as we approach the milestone.

Understanding your projected income for retirement is crucial for making important decisions, from when you can afford to give up work to how much you can sustainably take annually. Without this vital piece of information, you could be at risk of making a decision that may cause financial insecurity later in life. Or you may find you’ve saved enough to retire sooner than you thought. As a result, checking the figure is vital for your retirement plans.

If keeping an eye on your projected income isn’t something you’ve been doing, you’re not alone. Research from Aviva found:

  • Two in five employed 46 to 55-year-olds don’t know how much they have saved for retirement despite approaching traditional retirement age
  • This compares to 24% of employees aged 22 to 30
  • 49% of all UK employees believe they need to save more
  • And the most common emotion associated with people’s savings is worry (18%)

While keeping track of retirement savings is important throughout your working life, it’s particularly critical as you approach the date you want to give up working.

Alistair McQueen, Head of Savings and Retirement at Aviva, said: “Not knowing how much you have saved in your pension pots is like approaching retirement with a blindfold on. For those in their 40s and 50s, understanding retirement savings is especially critical. They can be accessed at age 55, at which point some big decisions might need to be made. Without knowing how much you have saved, it’s difficult to put a plan in place that could improve your retirement.”

If you’re among the workers that don’t know how much you’ve saved for retirement or what your projected income is, here are some steps you can take.

1. Gather information about all your pensions

Your first step should be to see just how much you already have stored away in pensions. You should get annual statements from pension providers, showing you the total value held. However, if you’ve moved and forgotten to update your address, you could have some ‘lost’ pensions.

With the average UK adult holding 11 jobs over their lifetime, it’s not surprising that we lose touch with a few of our pensions. But recent figures from ABI calculated the total amount in ‘lost’ pensions was almost £20 billion. You could have a nest egg that’s quietly been growing without you realising.

Once you have the information for all your pensions, you’ll need to decide what to do with them. You have two options. You can either keep them as separate pensions, which can be difficult to keep track of, or consolidate them. Whether or not consolidation is right for you will depend on your circumstances. You could face additional charges and you’ll have to decide which provider to transfer your other pensions into. Your existing pensions might also have special benefits that would be lost on transfer, so it’s important to get financial advice. If this is an area you need help with, please contact us.

2. Assess your other sources of retirement income

In addition to your Workplace and Personal Pensions, you’ll probably have income coming from other sources too.

For most people, the State Pension will provide the foundation of their retirement income. Assuming a full National Insurance (NI) record, the State Pension currently pays £164.35 per week. If you have less than 35 qualifying NI years but more than ten, you’ll receive a portion of the State Pension. You can see how much State Pension you can expect to receive here.

On top of this, you may have investments, savings and assets like property that will supplement your pensions. Gathering all this information together can seem like a time-consuming task but it’s one that’s worthwhile. It’ll help you plan for your future and could give you peace of mind if you have concerns.

3. Think about when you want to retire

The age you want to retire will have a big impact on the income you can sustainably take from your pension each year.

If you’re hoping to retire before the State Pension age, you’ll also need to factor in covering this shortfall in income initially. Alternatively, you may decide that you want to continue earning an income through employment or self-employment, giving you greater flexibility. Your retirement plans will play a significant role in what you can afford to take out of your pension both when you first retire and in the future.

While we’re on the topic of taking a sustainable level of income, it’s wise to consider your life expectancy at this step too. Many people underestimate how long they’ll live for and this can leave them struggling financially in later years.

4. Seek financial advice

Sorting through multiple income streams can be challenging, particularly if you have some complex assets. This is where seeking professional financial advice can help.

Using cashflow modelling techniques, we’ll be able to show you a visual representation of your finances and how they may change. As a result, you’ll be able to clearly see how your retirement provisions will be affected by making different decisions. For example, how would retiring five years early affect you? Or what difference would withdrawing 3% compared to 6% annually through Flexi-Access Drawdown make?

If you’re approaching retirement, please contact us. We can help you understand how your current retirement provisions align with your goals and the steps you can take to make your aspirations a reality.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, 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.

Deciding to retire is a huge decision. But it’s often one that focuses on finances rather than your aspirations. However, giving up work is about a whole lot more than whether you can afford to.

Finances undoubtedly play an important role in your retirement. Yet, focussing on just money matters can mean your retirement falls short of expectations. What you want from retirement could be vastly different to someone else who is approaching the same milestone. Defining your life after work, beyond the finances can help you achieve a fulfilling retirement that suits you.

Choosing when to retire and what you’ll do with your extra free time isn’t just a financial choice. Often, it’s one that’s psychological and social too. If you’ve been planning your retirement and only looking at what your projected income would be, you’re focussing on a very small part of what your retirement is.

Answering these questions can help you to start to think about the type of retirement you want.

1. What does your ideal retirement look like?

Take a few minutes just to sit back and consider what your ideal retirement would be. For some, it may be ticking some holiday destinations off their bucket list. For others, it may be spending more time with young grandchildren. If finances aren’t considered, what would you want to do? Considering what your perfect retirement would be can act as a starting point for setting out goals and income. Your priorities as you head into retirement should set the foundation for your plans.

2. How will you fill your days?

When you think about what you’ll do in retirement, it’s probably big plans that enter your head to begin with. Or you might say, ‘I’ll spend more time on the golf course’. But that’s not normally enough to fill your days. Without work commitments, you’ll have hours to do with as you please. It can seem like an exciting prospect, and also one that can lead to unfulfillment if you don’t have any sort of plan.

3. Do you want to give up work completely?

In the past, you reached retirement age and that was it for the world of work. However, times have changed, and you have a lot more freedom to choose how to retire. Work plays a big role in your identity, as well as offering a social aspect. If you’re not quite ready to give up work completely there are many different options, including working part-time, freelancing, and consulting. You could even launch your own business. Alternatively, volunteer work can help give you some of the same structure as work did.

4. Will you stay in your current property?

Do you see yourself living in your current property throughout retirement? If so, is it likely any adaptions will need to be made? While the answer to this question will affect your finances, it also plays a role in your lifestyle. You may want to stay close to family and friends, move out of a city, or opt for a retirement community with amenities on-site.

5. What are your concerns as you approach retirement?

It’s completely normal to have some worries as you approach your retirement. Taking some time to consider them now gives you an opportunity to put your mind at ease before you tick the milestone off. While finances are often one of the biggest concerns, there are many others too. It’s common to be apprehensive about giving up work after dedicating so much time to your career.

6. If care was needed, what would you want?

Nobody wants to think about care. But more of us are needing some level of support as we enter our later years. There is a range of choices when it comes to care and deciding what your preference would be, and making them known, can help ensure you’re wishes are followed. Discussing potential care with loved ones can help give you peace of mind too, they may be able to reassure you that they’ll be in a position to offer support.

7. How long is your retirement likely to be?

In the past, 20 years in retirement was considered normal. Today, it’s not unusual for people to spend 30 or even 40 years enjoying their retirement years. This obviously has an impact in terms of money and ensuring you have enough pension. However, it may also affect your lifestyle choices and how you decide to spend your free time.

With a better idea of what you want retirement to look like, you need to link this to your pension and other savings. This is what financial planning does; align your goals with your finances. Engaging with a financial planner as you approach and prepare for retirement can help you achieve the retirement lifestyle you’ve been looking forward to.

Please contact us to start your retirement planning, with your aspirations placed at the centre.

Media plays a huge role in the decisions we make on a daily basis. From digital news sites to social media, you can hardly escape its influence. But is ‘financial porn’ affecting your decisions and financial security?

Sensationalist news has become commonplace; it’s evident with just a glance of the headlines in the morning’s newspapers. And the financial industry hasn’t escaped either. It seems you’re bombarded with claims of ‘funds to invest in now’ or ‘stocks plummeting’ on a daily basis. Clickbait headlines are designed to draw you in.

Of course, newspapers and news stations are governed by legalities. They would face hefty fines and backlash if what they printed were unfounded. However, often they show just a snapshot of a story. After all, it’s difficult to go through all the ins and outs of the stock market in just a few column inches. A headline proclaiming a ‘stock market CRASH’ is unlikely to look more in-depth at what’s caused the crash, long-term trends, and how the average investor should respond.

As a result, basing financial decisions on the news is unwise, you’d be acting on just a portion of the information.

When you look beyond the traditional news outlets, it gets even worse. How often have you come across a blog or social media post from an ‘expert’ offering advice? There are sites that can be invaluable when you’re searching for some guidance but often it’s unclear what credentials the authors have. As with many things published online, information from unreliable sites can be biased and misinformed, not to mention the risk of potential scams.

It’s clear that basing financial decisions on what you see in the media can be risky, but it does happen.

Influencing decisions

But how does this have an affect your decisions? Even if you haven’t consciously realised that media coverage has changed the way you view money, it probably has to some degree.

Perhaps after reading about some share prices falling, you were tempted to move some of your money out of investments. Or maybe after reading about those that have made a fortune investing in Bitcoin, you considered taking a greater level of risk in the hope of profiting.

If you’re not convinced by the influence media can have, Tesla is the perfect example. Back in August, the electric car company saw stock prices leap. In a single day, Tesla stock climbed 11%, reaching $379.57. What sparked it? A tweet from CEO Elon Musk stating: ‘Am considering taking Tesla private at $420. Funding secured.’ It’s a deal that never materialised yet many took financial action based on that single tweet.

The sensationalist nature of the media can lead to people making rash, impulsive decisions based on limited information. And, if it doesn’t pan out, those that disseminated the information are unlikely to be held accountable. If a newspaper article declares a fund is worth investing in because if you’d invested ten years ago, you’d have received a return of 12%, you won’t be compensated if you take the advice and lose money, for example.

Even when media advice proves right for one person, it doesn’t necessarily mean that it will work for you. There’s no one-size-fits-all strategy when it comes to personal finance. This is one of the crucial elements that’s missing from picking up advice from media outlets and other sources.

What’s the solution? Financial planning

Financial planning looks at the steps that would be appropriate in your personal circumstances in the context of your goals. It’s a service that can add value and help give you peace of mind. You’ll be able to understand how your finances will be affected by different scenarios.

When looking at investments, for example, you can weigh up how different levels of risk can affect potential growth. If you’re considering a high-risk strategy, financial planning will be able to demonstrate what may happen, ranging from best to worst case scenarios. It’s a process that can help you understand how the decisions you make can have an impact.

But financial planning isn’t just about the end figures. It puts you at the centre of a financial plan and aims to create a strategy that allows you to achieve your aspirations. Your goals should have a huge influence on the financial decisions you make, after all, that’s what you’ve been working and saving for. A goal of retiring on a comfortable income at 55 will need a very different strategy to someone that wants to provide financial support to children in a few years’ time. A financial plan helps you put your finances in perspective.

To better understand your finances and the action you should be taking, please contact us today. We’ll use our skills to create a strategy with you in mind.

It’s still talked about today and mentioned in the headlines, but the financial crisis happened a decade ago. How has it affected finances? And what can we learn from it?

The 2008 global financial crisis is often referred to as the worst financial crisis since the Great Depression in the 1930s. It began with the subprime mortgage market in the US in 2007 and developed into a banking crisis, with investment bank Lehman Brothers famously collapsing in September 2008. Excessive risk-taking by some banks meant the crisis reached global proportions.

Governments implemented fiscal policies and undertook bail-outs to prevent a possible collapse of the financial system. Here in the UK, the government announced a £37 billion rescue package for Royal Bank of Scotland, Lloyds TSB and HBOS, the economy experienced a recession for five quarters, and an austerity programme was adopted by the government.

In his most recent Budget, Chancellor Philip Hammond may have announced that austerity was over, but some figures suggest the 2008 financial crisis is still having an impact.

What impact did the financial crisis have?

The financial crisis affected many areas of the UK economy. These five may have impacted your personal finances too:

1. Salaries: When you just glance at average wages and salary growth over the last ten years, it often looks like we’re better off. However, inflation has eroded buying power and, in many cases, mean people have less income in real terms today than they did before the financial crisis.

In fact, analysis conducted for the BBC found that people’s wages are 3% below what they were a decade ago. The research suggests that the average wage in 2008 was £24,100, falling to £23,300 in 2017. The younger generation has been among the hardest hit, with a decline of 5%.

2. Interest rates: In response to the recession, the Bank of England decreased interest rates. At the end of 2008, the base rate was 3%. However, this fell sharply to 0.5% between then and March 2009. The interest rates have been at a historical low ever since and have only begun to climb again in the last 12 months, now sitting at 0.75%.

How this has affected you will depend on your circumstances. If you have cash in savings accounts it’s likely it’s been decreasing in value in real terms, as inflation has outpaced interest rates. However, the low interest rates have had a positive impact on some. If you’ve borrowed money, for example, a mortgage or loan, it’s likely you’ve benefitted from rates remaining low.

With two small rises in the last 12 months, it’s expected that interest rates will slowly begin to climb again. But they still have some way to go before they reach pre-financial crisis levels.

3. Stock markets: The impact the financial crisis had on stock markets support the long-held wisdom that staying invested throughout volatility is important. Many people that held investments between 2008 and 2009, saw the value of their stocks and shares fall. However, overall the market did recover and, ultimately, delivered returns in the long term.

The FTSE 100, an index that measures the performance of shares of the 100 largest companies listed on the London Stock Exchange, for example, had a share price of 6,202 on 11 January 2008. By the 20 March 2009 it had fallen 3,842.85; a significant fall for investors. But those that continued to hold their shares will have seen the value rise again. As of 9 November 2018, the FTSE 100 price stood at 7,105.34.

With the markets experiencing some volatility recently, the recovery since the financial crisis demonstrates that, in many cases, holding investments long term is the answer.

4. Property: One of the sector’s hit by the financial crisis was the property market. Prior to the financial crisis, the UK had experienced a period of rising house prices. However, the trend quickly changed in 2009. Official figures show the 12-month percentage change to February 2009 was 15.6%. It caused concern for many homeowners and even left some with negative equity, especially those with high LTV (loan-to-value) percentage mortgages.

The dip was relatively short-lived, and prices began to climb again later that year. Since then, there have been peaks and troughs, but when you look at the overall trend, they’re increasing. As of September 2018, the average house price in the UK is £253,554, according to the UK House Price Index. In September 2009, it was £165,134.

5. Regulation: Perhaps one of the most lasting effects of the financial crisis has been the regulation put in place in an attempt to prevent a similar situation happening in the future. Lending institutions have been forced to take on more responsibility to ensure those they’re lending to can afford to meet repayment obligations.

One sector where this is evident is the mortgage industry. When you apply for a mortgage, banks must take steps to ‘stress test’ your situation to see how likely you are to cope should interest rates begin to increase. You’ve probably heard that mortgages and other forms of borrowing are harder to access now, this is the reason why, although it is becoming easier.

While the UK has slowly recovered from the financial crisis and continues to do so, there are still some effects being felt in terms of personal finances and the wider economy. When you look at the uncertainties present now, such as Brexit, and consider how your money will be affected it can be a concern. If you’re worried about your money, please contact us. We create bespoke strategies with your goals and personal circumstances in mind.

The cost of care is becoming an increasingly important consideration when planning retirement finances. But research indicates that many are a long way off being able to cover the total cost of their needs should they be required to use care services.

According to research, a typical Individual Savings Account (ISA) holds £24,035. It may sound like a decent sum to have stashed away but it falls considerably short of care costs. The average elderly person going into a care home will live there for 130 weeks. However, the average ISA will cover just 30% of the bill; the equivalent of 39 weeks.

The cost of care varies hugely around the country, making it an even bigger challenge if you live in an affluent area. According to Paying for Care, a two-year stay in a care home would cost £55,000 in the North West. But live in the South East and you can expect the figure to rise to £78,000.

Even when care home services aren’t required, it’s likely that you will need some support at home in your later years. You may be able to rely on your family to provide some help but using professional home care services may be necessary. You can expect to pay around £15 per hour, an amount that can quickly escalate. Just a couple hours a day will add up to almost £11,000 annually.

With more of us likely needing some form of care in our later years and high costs, it needs to be a consideration when saving. But the uncertainty of whether you will even need care, or the level required, makes it difficult.

A proposal: A Care ISA

It’s clear that there needs to be a greater focus on the potential cost of care. One of the suggestions that’s been put forward to the government is a Care ISA. This would aim to incentivise more people to ringfence some of their savings for future care costs.

While it’s just a proposal at the moment, it’s been suggested that a Care ISA would have its own cap outside of the £20,000 that can be placed in ISAs annually tax-free. The cap would reflect an average cost of care. The money within a Care ISA wouldn’t be accessible for any other purpose than care.

Where reports suggest it could be an attractive option, is when it comes to inheritance. If it’s not used, it’s thought that a Care ISA could be passed on as inheritance without being liable for any Inheritance Tax (IHT). If you have an estate that’s above the nil-rate band threshold for IHT, it could make a Care ISA a tax-efficient way to pass on wealth.

As the government grapples with the rising cost of care services, other proposals for footing the bill are being put forward too. Among these have been an additional tax for the over 40s, following similar levies in other countries, including Germany.

The solution: Financial planning

While proposals are being put forward, the government has yet to announce any changes to how care will be funded in the future. For many people, they will be expected to pay a portion of care costs, if not all of it.

Paying for the cost of care yourself also gives you more freedom in later years. You’ll be able to dictate on a range of factors that may otherwise be out of your hands if you’re relying on the state, such as choosing a care home that’s close to your family or one that has facilities that match your interests. Flexibility to choose care can help make your later retirement years more comfortable.

  • But how much should you save for care?
  • Where should you place the saved money?
  • And how will it affect your retirement income?

These are all questions that financial planning can help your answer. We can help you calculate what portion of your savings would be needed to fund care depending on your location and personal choices. We’ll then be able to use cashflow modelling to demonstrate how this would have an impact on your wealth over your retirement years.

Furthermore, we can offer advice on the best product for placing your care savings, as well as estate planning should your care fund never be used. It’s our goal to give you complete confidence in your finances, whether you need care later or not, allowing you to enjoy what life has to offer.

If you’re worried about how you would fund the cost of care later in life, please contact us. Our financial planning services can help give you peace of mind.

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