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

Monday 21st January 2019

When it comes to falling ill or being injured for an extended period of time, we often think it won’t happen to us. But when questioned about it, research shows it’s something that worries more than half of us. When you consider the potential financial implications, it’s not surprising.

According to research from Royal London, 52% of workers worry about their income if they were to become too ill to work for longer than a month. With official figures showing this is the case for more than a million workers every year, it’s more likely to become a reality than we’d like to think. Differing sick pay policies means it can be difficult to calculate how you’d cope financially should something happen, but it’s an important step to take.

Jennifer Gilchrist, Protection Specialist at Royal London, said: “Falling ill unexpectedly could happen to anyone. With a million workers off sick for more than a month, it’s important to think about how you would manage financially and make a plan, so you do not have the added financial worry if you were to fall ill.”

Statutory Sick Pay (SSP)

For workers, SSP is designed to act as a financial safety net should something happen. However, for many, it’s not enough to cover even the essential household outgoings.

To qualify for SSP, you have to be off work sick for four or more days in a row. It’s paid by your employer for up to 28 weeks and is currently £92.05 per week. While SSP can provide you with some certainty while you recover from an illness, 42% don’t think it would be enough to live on if they were off sick for a long period of time. For many families, the loss of income would leave a shortfall and may affect financial security.

Employer sick pay

In addition to SSP, some employers may also offer sick pay. Sick pay policies can vary significantly. However, a quarter of those surveyed by Royal London mistakenly believed sick pay was the same across all companies.

Worryingly, one in six workers doesn’t know what their company’s sick pay policy is, potentially placing more stress on them should they become ill. Even among those that do have the support of employer sick pay, 60% found the policy difficult to understand. Getting to grips with your sick pay policy is important for planning other measures that may support you.

Protecting your income

The average UK worker stands to lose almost £450 in pay when they’re off sick for a week without employer sick pay. If it’s a loss that could cause you financial hardship over the short, medium or long term, it’s wise to think about how you can take steps to improve the outlook.

One place to start is building up an emergency fund that can support you should your income unexpectedly stop. The Money Advice Service (MAS) recommends having between three and six months’ salary in an accessible savings account to tide you over. This can give you peace of mind that the immediate is taken care of, allowing you to focus on your recovery.

However, for long-term illness and injury, an emergency fund may not be enough. This is where protection products can provide you with some security.

There is a range of protection products on the market, including those that will provide you with a source of income should you become too ill to work. Policies may pay out a lump sum or monthly amounts, often a portion of your typical income, depending on the option and premium you choose.

Even if your employer offers sick pay, protection can still be worthwhile. Sick pay policies will usually run for a defined period of time, what happens when you get to the end of this? As protection products will have a deferred period, you can pick out an option that will dovetail with your employer’s policy and emergency fund. Typically, the longer the deferred period, the lower your premiums are.

It’s important not to look solely at income too. While your family may not rely on your income, illness can still have a significant impact. If, for example, you are the main provider of childcare, could your family cope if you were to need extra support? It could mean further expenditure for childcare providers that could place pressure on finances at a time when you’re likely already feeling stressed.

If you’d like to discuss protection products and which are right for your situation, please contact us. We’ll help you understand how they can support your financial security and other steps that you’re taking.

Every day we make financial decisions, but you’ve probably spent little time thinking about the thought process that goes on behind each one you make. After all, we’ve evolved to make our decision-making processes quicker and easier.

While you may quickly decide whether a purchase is good value for money or to deposit savings into an account, there’s a lot that goes into it. The decisions we make, including those related to finance, are based on experiences, information we’ve stored, our general perception of the world and more. It means we can make decisions incredibly fast, but it can also lead to cognitive bias. This leads to subjective views shaping actions rather than objective ones.

Even two people experiencing the same event can interpret and react differently, based on their own bias. In terms of finance, that means we could be making decisions that aren’t right for us, based on a news story we’ve read, a past experience or a perception of what we should do.

The study of psychology has found numerous ways bias affects decisions, many of which influence how we use our finances. Below are just three examples of this:

1. Confirmation bias

This is where we seek evidence to support the views we’ve already established and discredit those that contradict them. In the information age, it’s not hard to find something that will support an action or view. It means that you could be filtering out potentially useful information because you subconsciously ignore facts that refute the opinions you already hold.

From a financial perspective, it can have a significant impact. Take investing for example: If you have heard that a particular investment will outperform others and when searching for further information you only read the news stories that support this, you could miss vital data that suggests the opposite. In turn, this could mean you make a riskier investment decision than you normally would.

2. Familiarity bias

We’re often creatures of habit that prefer to be familiar with the decisions we make. As a result, we can tend to actively seek out those options that are familiar, even when trying something different could yield more positive results.

Again, from an investment perspective, this can lead to an investor placing their money into a fund or market that they’re already exposed to. While familiar investments can feel like they add security, it isn’t always the logical option and diversification could help minimise volatility in your portfolio.

3. Negativity bias

We often tend to place greater importance on negative experiences, and these are the ones that are more likely to stick in our mind. A look at newspaper headlines highlights this; you’ll often find numerous stories that focus on the bad in the world, even when the negative events are far rarer than the positive. Psychology suggests that this sensitivity is part of our survival instinct.

It’s a bias that can lead to us taking a more cautious approach when it comes to our finances and, in some cases, not taking steps we should be. For example, if you’ve read several articles on how pension schemes are collapsing, returns aren’t as expected, or that they’re failing to deliver the income needed, you may be less inclined to put more of your disposable income into a pension scheme, even if you could benefit in the long term.

These three examples demonstrate how bias could be affecting your financial security and the decisions you make. So, with this in mind, what can you do about it?

The first step is realising that bias naturally happens. This allows you to take action to reduce how much bias affect your decisions. From spending time researching both sides of an argument to objectively looking at your own experiences, understanding bias can improve outcomes. This is also an area that financial planning can help with.

How can financial planning help remove bias?

Financial planning gives you an objective professional that can help you see which financial decisions make sense for you and your circumstances. In some cases, the recommendations can be vastly different from the steps you would have taken alone. It gives you an opportunity to discuss why these steps are being advised, broadening your knowledge and helping you to see the decision from a different perspective.

Perhaps a past investment underperformed and you lost money, putting you off building your portfolio now. A financial planner will be able to show you how markets have performed, projected returns, and explain the risks. Armed with the right information and a balanced approach, you’ll be in a better position to make decisions that limit the influence of personal bias.

If you’d like the support of a financial adviser, please contact us. We’re here to help you make decisions based on facts to create a strategy that is logical for you and your aspirations.

One of the key decisions you need to make when investing is how much investment risk you want to take.

Weighing up the level of risk you’re willing to be exposed to can be challenging. It’s often one that’s ruled by emotions and your personal attitude to risk. While these factors should play a role, they aren’t the only areas you should be considering. Whether you’re reviewing your pension or building a personal investment portfolio, balancing risk is a crucial part of the process.

If it’s a step you’re taking, keeping these six points in mind can help.

1. Investment goals

Your investment goals should be at the centre of any decision you make. If your goal is to ensure your savings keep pace with inflation, for example, you may be able to achieve this with a relatively low-risk profile. If, on the other hand, you want to grow your money as much as possible, taking a greater amount of risk could help you achieve your aims.

As a general rule of thumb, the greater the level of risk an investment poses the higher the potential return. However, you do, of course, have a greater risk that your investment will decrease in value.

Your motivation for investing will undoubtedly have an impact too. If you’re investing to help pay for your child or grandchild’s education, you might want to take a more cautious approach. In contrast, if investment returns will be used to fund luxuries in retirement, taking on more risk may be appealing.

2. Investment timeframe

How long will your money be invested for? This is a factor that is likely to be linked directly to your investment goals, and it should also influence the level of risk you’re willing to take.

Stock markets do fluctuate. However, when you look at the long-term trend, investments have risen at a pace above inflation. Ultimately, the more risk you take on, the more volatility you should typically expect. So, if you’re investing for a short period of time, a more cautious approach might be advisable. However, if you’re looking to invest for a longer period, you’re in a better position to overcome the dips.

Generally, you should look to invest for a minimum of five years.

3. Capacity for loss

When you think about the money you want to invest, what would happen if it decreased in value or you lost it? Your capacity for loss should play a crucial role in deciding how much investment risk you want to take.

Clearly, if you’re in a position where you have enough disposable income to invest and don’t have to worry about the immediate impact volatility might have on your lifestyle, you’re likely to be in a better position to take more risk.

4. Diversify

The saying ‘don’t put all your eggs in one basket’ certainly applies to investing. Diversifying your portfolio can be important. As a result, taking a look at the existing investments you hold should inform your decision.

Diversifying gives you an opportunity to create a balance that suits you. If you hold potentially high-risk global equities, for example, you may choose to partially invest in bonds that are usually deemed lower risk. This might offer more stable growth, that could help to offset stock market uncertainty.

If you’d like help reviewing your current investment portfolio to understand how to diversify, please contact us.

5. Other assets

On top of your existing investments, take some time to look at your other assets. From savings accounts to your home, understanding your wider financial position can help you see whether investing is the right option for you and, if it is, the level of risk that’s appropriate.

If your finances and lifestyle are relatively secure, you may find that you’re in a better position to take greater investment risk. However, if your comfort would be affected should investment values fall, or you want to withdraw your money in the short term, taking a more cautious approach or an alternative route entirely may serve you better.

Remember that investing isn’t your only option. Depending on your circumstances and goals, you may find that alternatives, such as using a Cash ISA (Individual Savings Account), is more appropriate for your needs.

6. General attitude

While thinking about how much you can afford to invest and what your other assets are, consider your general attitude to risk. Some of us are more inclined to take a large risk for the chance of a larger reward at the end. Others will prefer a more cautious approach to life and their finances.

You need to feel comfortable and confident in your investment decisions, including the level of risk you’re exposed to. Your risk profile should reflect both your situation and your goals.

If you’d like help to understand risk profiles and the options open to you, please get in touch. We’re here to help you weigh up the pros and cons of taking investment risk and what it could mean for your finances.

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.

The retirement milestone should be one that’s celebrated. But all too often it’s one that’s affected by doubt and uncertainty too. Giving up your working life is a big decision and one that’s in your hands. However, knowing when you’re ready to retire and in the financial position to do so can be challenging.

As you approach retirement, it’s common for money to be a concern. After all, you’ll be giving up your salary and you’ll be responsible for making sure that your pension and other retirement provisions provide you with the lifestyle you want. When assessing if you can afford to retire, there are some key factors to take into consideration:

  • Life expectancy and health: It’s impossible to calculate if you’re retirement provisions will support you throughout your life, without first considering your life expectancy. Those retiring today can expect to live into their 80s, with some reaching their 100th For most people, that means your pension and assets need to provide an income for between 20 and 40 years.
  • State Pension: Your State Pension provides a foundation to build your retirement income on. Your first step should be to check whether you have a full record of National Insurance contributions and what your weekly income from this will be. You can check this here.
  • Personal Pensions: Throughout your working life you’ve probably contributed to several Personal Pensions. If you don’t already know, you should get an up to date valuation of each. From here, you’ll need to decide how you want to access your pension. There are several different options, from an Annuity that will provide a guaranteed income to those that are more flexible to suit changing lifestyle needs. This is an area we can help you with.
  • Other assets: Other assets can also be used to fund your retirement plans, from savings to property. If you intend to use these throughout your retirement, including them in your initial financial plan can give you a more accurate picture of the income you can expect.
  • Expenditure: With an understanding of your assets and projected income, you’ll need to compare this to your expected expenditure. A general rule of thumb is that you need two-thirds of your current income to maintain your lifestyle in retirement. Of course, this will vary depending on your priorities and plans.

Even with these calculations, it’s normal for there to be some doubt. This is where cashflow modelling can help. It can give you a visual representation of how your wealth and income will change over time, demonstrating the lifestyle you’re able to lead. It can also be used to show how different decisions and unplanned events may affect your retirement income too. For example:

  • How would your annual income be affected if you decided to retire three years early?
  • How would downsizing boost your disposable cash?
  • What would happen if investments underperformed?

With a grasp on how your decisions will influence finances, you’ll be in a better position when deciding when the right time to retire is.

Don’t forget the emotional side

While retirement planning often focuses on the financial side and ensuring you have enough to support yourself, you shouldn’t underestimate the psychological process of giving up work.

Your career has likely influenced you and your lifestyle for decades. It may play a big part in your social life, wellbeing and sense of pride. As a result, giving up work needs to focus on more than just the money you’ve stored away in your pension. Asking, ‘How will I spend my time in retirement?’ is just as crucial as looking at how you’ll spend your money.

For some people, the question of when they’re ready to retire comes down to the emotional side more than the finances. You may have enough saved to comfortably retire now but if you’d miss working and your aspirations still centre on your career, it’s probably not the right time for you. Your decision needs to balance both money and emotions.

If you’re still uncertain about giving up work, remember the decision doesn’t have to be final. More retirees are taking advantage of flexible working options once they’ve passed traditional retirement age, with some choosing to go back to work in some form. Whether you opt to work part-time or freelance from the comfort of your home, retirement isn’t as linear as it once was. Today’s agile workforce and technology means you can carve a path that suits you, including continuing to work if you choose to.

Working with a financial planner

As financial planners, we help you combine the two distinct yet key considerations when you’re considering retiring; can you afford to and are you ready to?

Financial planning puts your aspirations and goals at the centre of the strategy. As a result, it helps forge the retirement you want with your financial situation in mind. Our goal is to give you the confidence to give up work when you’re ready to. Many clients find they’re in a better financial position than they believed, allowing them to retire sooner, support family, or follow other dreams.

If you’re struggling with a retirement decision, please contact us. We’re here to help you get the most out of your retirement years and give you the confidence to move ahead with 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 tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

Pensioners are increasingly taking advantage of the Pension Freedoms introduced in 2015. While the move offered far more flexibility in how you take an income in retirement, it also means there’s more responsibility on your shoulders too. For retirees that have chosen to leave some or all of their pension invested, protecting its value and the income it provides is important.

Flexi-Access Drawdown allows pensioners to leave some or all their pension invested, rather than purchasing an Annuity that provides a guaranteed income. It’s an attractive option for two key reasons:

  • Firstly, it allows pensioners to withdraw flexible amounts of money when it suits them. As retirement lifestyles and aspirations change, this can be beneficial.
  • Secondly, as the money remains invested, it has an opportunity to continue growing. With retirement lasting longer, a useful way to potentially boost pension income.

But how can remaining invested during retirement affect your income, and why might you need to protect it?

As with all investments, there’s a chance it can decrease in value. Should you decide to make a withdrawal at a low point, you would need to sell a larger percentage of your pension fund to receive the same level of income. This means that your savings are used quicker, which has a knock-on effect that reduces future growth too. This is known as pound-cost-ravaging.

As a result, it’s recommended that retirees take a lower level of income when their investments are underperforming. However, it’s a step that many are failing to take. According to research from Zurich:

  • 36% of people keeping their pension invested through retirement do not have a cash safety net to fall back on, meaning they could be hit harder if markets fall
  • Among the 64% that are holding cash in reserve, fewer than one in ten would think to use it if there was a significant drop in the stock market
  • 49% of people taking an income in drawdown said they would continue to withdraw the same amount in the event of a market correction; just 12% would scale back withdrawals

Alistair Wilson, Zurich’s Head of Retail Platform Strategy, said: “A staggering number of retirees appear to be in the dark over how to protect their pensions if stock markets tumble. Withdrawing the same level of income in a downturn could take a bigger bite out of your pension fund – yet it’s a trap that’s easily avoided.”

What steps can you take to protect your pension?

1. Hold a cash reserve

Holding some of your savings in a cash reserve gives you an opportunity to ride out bumps in the market. If investment values fall, using your cash assets, rather than withdrawing from your pension, can help protect value.

How much you should hold as a reserve will depend on your personal circumstances, including living expenses and other liquid assets you have access to. This is a step many retirees are taking but the research suggests a high portion will be reluctant to use cash. However, it’s a step that could improve value and wealth in the long term.

2. Understand what withdrawal rate is sustainable

Understanding how much you can sustainably afford to withdraw from your pension is a critical step before you proceed with Flexi-Access Drawdown. When you choose this route, you’re responsible for ensuring that your pension will continue to support you throughout your life. As a result, investing some time in understanding what’s sustainable is important.

Again, a sustainable level will depend on your personal circumstances. But an annual withdrawal rate of around 3% can be a benchmark for some. As a result, if the value of investments falls, so too will the withdrawal amount. If you want help in understanding how you can take a flexible income from your pension, please contact us.

3. Regularly review investment performance

If your pension does remain invested in retirement, you need to take a more active role in monitoring its performance. As this will have a direct impact on your income, regular reviews should be considered essential.

While monitoring performance should be a step you take, it’s important to remember that short-term volatility is normal. Don’t panic if you see that your pension has decreased in value but have a plan in place for when it happens.

4. Take action when needed

Reviews alone aren’t enough, you need to take action when necessary. Should investment values fall, scaling back the amount you’re withdrawing or even stopping can help preserve the value of your pension in the long term. Often dips are only temporary, and you’ll be able to begin sustainably withdrawing the same level of income again in future.

Of course, you need assets you can fall back on. This is where a cash reserve can help provide you with security should a downturn occur.

If your investments are too volatile, you may benefit from diversifying or reducing the level of investment risk you’re taking.

5. Seek professional advice

Working with a financial planner can help create a retirement plan that works for you, bringing together your aspirations with your pension savings. By working with a professional, you can be more confident in the decisions you’re making and understand how potential investment downturns will affect your income.

If you’re using a Flexi-Access Drawdown product or are considering doing so, please contact us. We’ll help you understand how market volatility could affect your income in the short, medium and long term, and the steps to take to safeguard your retirement aspirations.

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. Your pension income could also be affected by the interest rates at the time you take your benefits. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

Retiring is a milestone many of us look forward to as it draws near. The prospect of leaving the world of work behind and having more free time to dedicate to the things you enjoy is certainly appealing. But research suggests that many of those approaching retirement don’t know when they can expect to receive their State Pension, putting their financial security and plans at risk.

The State Pension age has gradually been increasing for women over the last few years and it’s now increasing for all. Yet research commissioned by Age UK, suggests that many of those approaching retirement aren’t aware of the changes. The poll found:

  • One in four people aged between 50 and 64 don’t know when they can claim their State Pension
  • Almost a fifth found their State Pension age was higher than expected
  • Three in ten people have never checked their State Pension age

Caroline Abrahams, Charity Director at Age UK, said: “Clearly, there is still much confusion about the age at which people can expect to receive their State Pension and our worry is that many who have few resources to fall back on are in for a nasty shock.”

While you can choose to retire before collecting your State Pension, it’s important to understand the level of income you can expect to receive and how it will change over time. As a result, knowing your State Pension age and how much you’re entitled to should be considered a priority.

The State Pension has changed a lot in recent years.

In 2010, the State Pension age was 65 for men and 60 for women. However, women’s State Pension age has gradually been increasing and in November 2018 equalised with men. Gradual increases mean that by October 2020, both men and women will need to be 66 before they’re entitled to the State Pension. Further plans mean it’s expected to reach 67 in the next decade. As life expectancy rises, it’s likely that further increases to the State Pension age are on the horizon.

There have also been changes to the State Pension itself. The new State Pension system affects those reaching State Pension age on or after 6 April 2016. The amount you receive under the new system is dependent on the number of National Insurance (NI) credits you have.

Checking your State Pension

Luckily, it’s relatively simple to check your State Pension.

The government’s calculator lets you check when you’ll reach State Pension age and your Pension Credit to calculate your income. You can find the tool here.

There have been several news stories recently that have highlighted the importance of understanding your State Pension.

Women born in the 1950s have been affected by the equalising of the State Pension, leaving some struggling financially as they were unprepared or uninformed of the changes. It’s led to a campaign group representing women affected urging the government to give women born in the 1950s the State Pension they would have received if the changes had not occurred. It’s a situation that’s currently under judicial review following a High Court ruling.

You may also have heard of parents having less NI credits than expected due to not applying for Child Benefit when they were taking time off work or working reduced hours to raise children. To maintain a NI record when bringing up children, parents must apply for Child Benefit, even if they know they’re not eligible to receive it.  It means some parents could receive less State Pension than anticipated.

As a result, keeping track of your State Pension age and projected income is crucial for effectively planning your retirement.

Why your State Pension age is important

Even when you’ve made other retirement provisions, your State Pension age is crucial.

For many, the State Pension offers a foundation to build your retirement income on. It can provide a base level of income and security as you enter retirement. Your State Pension is likely to be an important part of your financial plan as you give up work, whether you want to wait until your State Pension age, retire early, or even continue to work. It’s a factor that should inform the decision you make about other income streams and your overall retirement aspirations.

If you’d like to discuss how your State Pension age affects your retirement plans, please contact us. We’ll help you put your projected State Pension income into the context of your wider retirement goals and other provisions you’ve made.

The long-awaited ban on pension cold calling came into effect on the 9th January 2019. In a bid to protect pensioners being targeted by fraudsters, the ban has now been approved into law. It’s a move that should help the Financial Conduct Authority (FCA) and other organisations reduce pension fraud.

Previous figures released by the FCA and The Pensions Regulator (TPR) have shown how devastating pension scams can be. On average, victims lost £91,000 in 2017. It’s a significant sum that could have a long-lasting effect on retirement plans, as well as causing stress.

Pensioners and those approaching retirement are often targeted by scammers through unsolicited contact. In fact, Citizens Advice previously suggested 97% of scam cases about pension unlocking services stemmed from cold calls.

Attempting to entice pension savers, scammers will often offer ‘a free pension review’, the ability to unlock a pension early or suggest investments that are ‘high return, low risk’. These suggestions should be a red flag. However, a poll found almost a third of those aged 45 to 65 wouldn’t know how to check if they’re speaking to a legitimate pension adviser or provider. 12% would also trust an offer of a ‘free pension review’.

Highlighting the scale of the problem, TPR recently revealed it’s investigating six people for pension fraud. It’s believed around 370 people have been persuaded to transfer around £18 million.

An attractive target for criminals

It’s easy to see why criminals are targeting pensions. Some savers may find pensions complex, meaning they’re far more likely to be duped into giving away their pension or personal details. On top of this, a pension is often one of the largest sums of money people have saved over their working life, and many don’t regularly check it. As a result, it’s thought many pension scams go unreported.

This, combined with the way criminals target pensions, has led to increasing calls for pension cold calling to be banned. After delays, it’s a step that’s now been taken. So, what does this mean for you?

Firstly, it does offer you more protection. You know that if you’re receiving a cold call from someone wanting to talk about your pension, you should hang up. Reputable providers and advisers that you want to work with will take note of the ban and cut out this form of contact if they’ve been using it previously.

But that doesn’t mean you should let your guard down. A ban on cold calling doesn’t mean fraudsters will stop using this tactic if it continues to work. Awareness of the ban and giving pension holders the confidence to step back from unsolicited contact is crucial. There are also loopholes that criminals will try to exploit to pose as genuine advisers and providers.

1. Calling from abroad: The cold calling ban only applies to UK phone numbers. As a result, it’s thought that fraudsters will call from abroad, allowing them to navigate around the ban.

2. Contact via email and text: The new legislation only covers calls, not unsolicited contact via email or text. While this is an area that’s covered to some degree by EU regulations, it’s still something to be cautious of.

Six steps to prevent pension scams

The risk of being targeted by scammers wanting to get their hands on your pension is still very real. These six steps can help you reduce the risk.

1. Understand your pension: The more you understand about your pension, the better the position you’re in to safeguard it. For instance, scammers may suggest they can help you access your pension before the age of 55. However, this is only possible in very rare circumstances and should be done by contacting your pension provider directly.

2. Don’t make any quick decisions: Pension decisions can affect your income and financial security for the rest of your life. As a result, you should take your time. Reputable professionals will understand this, while criminals will try to pressure you into making a snap decision.

3. Be cautious of all unsolicited contact: While the cold calling ban does offer some protection, you may still be targeted by unsolicited contact. Be cautious when responding to any type of communication you’re not expecting.

4. Check the authenticity of who you’re speaking to: The FCA Register offers a simple, effective way to check if you’re speaking to a regulated person or company. Be aware that criminals may use the genuine details of an adviser or firm. So, if you’d like to talk to a professional, call them directly using the details listed on the register.

5. Ask questions: Scammers rely on you taking them at their word. Asking questions can help you uncover the lies they’re telling. From investment risk to legislation, genuine providers will be happy to answer your questions, understanding that any pension decision is a big one.

6. Be realistic: The golden rule ‘if it sounds too good to be true, it probably is’, certainly applies to pensions. There’s no simple way to significantly boost your pension savings or access it early. If there were, more people would be doing it.

If you’d like to discuss your pension, whether you think you’ve been targeted by scammers or not, please get in touch. We’re here to help you understand what your pension options are.

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.

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.

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