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

Saturday 20th April 2019

When it comes to planning how your estate will pass to your loved ones, there could be a crucial element that you’re missing; your pension. While you’ve probably thought about who you’d like to inherit your home, investments and savings, pensions are often forgotten about.

It’s easy to see why, after all, while you regularly make contributions to your pension you can’t access it. As a result, it often ends up being an afterthought during the estate planning process. However, when you consider that your pension contributions will typically benefit from tax relief, employer contributions and investment growth over your career, it can be a sizeable sum to leave loved ones. When you look at it from an estate planning perspective, it can make sense too.

Why is using a pension to create an inheritance efficient?

The amount involved isn’t the only reason to consider where you’d like your pension to go should something happen. It’s also a tax-efficient way to pass on wealth, particularly if an estate may be liable for Inheritance Tax (IHT).

Money that’s left in a pension can usually be inherited tax-free. Should you die before the age of 75, money within a pension will go to beneficiaries tax-free if they access it within two years. If you die after the age of 75, the beneficiary will pay Income Tax on the money received at their standard rate.

In contrast, IHT is usually paid at a rate of 40% on an estate that exceeds the nil-rate bands. As a result, using a pension to pass on wealth is often tax efficient and can help more money go to your loved ones. The same benefits apply if you’re taking an adjustable income from the money that remains in a pension. However, once you withdraw money from your pension it will be considered part of your estate for IHT purposes.

Using your pension isn’t the only way to pass on wealth efficiently. You should also look at your wider estate plan to maximise other opportunities open to you alongside it.

How do you pass on your pension?

Usually, what you want to happen to your estate is set out in a will. However, this isn’t the case when it comes to your pension.

Who receives the pension savings of a member that is deceased is typically decided by the pension’s trustees. An expression of wish form is used to allow members to state who they’d like to benefit from their money should they die. These forms aren’t legally binding, however, they let your wishes be known and will be used by pension scheme trustees during the process. You can fill in and update your form by contacting your pension provider directly.

Much like a standard will, it’s important to keep the person nominated to receive pension death benefits up to date. A survey conducted by Canada Life indicated that three in five 16-54 year olds had an out of date expression of wish. Just 39% confirmed their pension would go to their preferred beneficiary should something happen to them. An out of date expression of wish can mean significant delays in beneficiaries accessing pensions or even mean hard-earned savings go to the wrong person.

Andrew Tully, Technical Director at Canada Life, said: “An expression of wish form is a vital piece of the pension jigsaw. Anyone who has a pension would have been asked at outset to complete a form to nominate who should receive the benefits of the pension in the event of their death.

“Given the complexities of life and how things can change so quickly, it is hardly surprising that many people say their form is out of date. But that shouldn’t excuse the fact these forms are vital to help pension trustees and scheme administrators pay benefits not only quickly and efficiently, but to the right people. Think of them as a ‘will for your pension’ and ensure you keep it up to date if your personal circumstances change.”

If you’d like to discuss passing on a pension and wider estate planning, please contact us. We can help you minimise potential tax liabilities on your estate, ensuring as much wealth as possible goes into the pockets of loved ones, rather than the taxman.

Please note: The 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 could also be affected by interest rates at the time you take your benefits.

Workplace Pensions are regulated by The Pensions Regulator.

Investment markets in 2018 saw the return of volatility. A range of factors, from Brexit to US trade policy influenced how well stocks and shares performed. For some people, it means investments may not have delivered the return expected. A glance at returns that are below projections can naturally lead to the feeling that something must be done, but is it the best course of action?

Investment in stocks and shares will always come with some degree of risk and should be considered a way to build wealth over the long term, rather than a quick fix. However, even with this in mind, when you see the value of investments fall a knee-jerk reaction can be common. While you hopefully invested with a long-term plan and goals in mind, a fall in value can cause concerns that you’ve gone off track, or your financial security is threatened.

But, often the best course of action to take is to do nothing at all.

When analysing historical data, it shows investment values typically bounce back, and go on to deliver returns. The 2008 financial crisis is a recent example. While those investing in 2007 are likely to have seen the value of their stocks and shares plummet over the course of 12 months due to the financial crisis, since then many funds and investment portfolios have gone on to recover their losses and generate positive returns.

The FTSE 100, which tracks the value of the 100 largest companies listed on the London Stock Exchange, tumbled 12.5% in 2018, the biggest annual decline since 2008. It wiped off more than £240 billion of shareholder value. It can be unnerving to see values fall, but a key thing to keep in mind is that losses are only set in stone when you sell.

So, while investment values may have tumbled in 2018, it doesn’t necessarily mean you need to change what you’re doing in 2019.

Steps to take if your investments have underperformed

Although investment markets have historically recovered, doing nothing at all as investments lose value can be a difficult mindset to master, even when you know it’s what should be done. Here are five things you can do to ease concerns and keep your investments on track amid volatility.

1. Take another look at your long-term plan: Looking at the bigger picture can put volatility into perspective and demonstrate how long you have for the value of investments to recover. Short-term volatility should be factored into an investment plan, so the impact of recent dips should be minimal when you look at the full timeframe.

2. Speak to your financial adviser: If you have concerns, speaking to a financial adviser can help you understand the impact volatility will have on your overall life goals. It’s an opportunity to bring up particular worries you may have with a professional that understands your aspirations.

3. Consider risk exposure: All investments carry some level of risk. However, if you feel uncomfortable with the level of volatility you’ve experienced in the last 12 months it may be time to reassess where money is being placed. Risk is individual and should consider both your attitude and circumstances, as both of these can change, regular reviews are important.

4. Evaluate portfolio diversity: An investment portfolio should place money in a range of areas, spreading risk and balancing exposure in line with your goals. It’s important to evaluate and rebalance your portfolio where necessary on a regular basis, reflecting your attitude to risk and wider market behaviour.

5. Set review points: It can be tempting to check how investments are performing frequently. However, markets naturally fluctuate on a daily basis and it can give you a skewed outlook of performance. Instead, set out points where you’ll review your investments and financial plans as a whole, for example, every six months, as well as following life events.

Is volatility an investment opportunity?

Falling investment values can present opportunities too. Having seen investment values fall you may be reluctant to put more money into the markets. However, it could deliver greater benefits. Buying stocks and shares when the price is low allows you to take advantage of potential rises in the future.

Of course, it’s important to weigh up the pros and cons of any investment decision before proceeding. You should evaluate a range of different areas, such as attitude towards risk, capacity for loss and portfolio diversity, to identify opportunities that are right for you.

Whether you’re concerned about your portfolio or would like to increase the amount invested, we’re here to offer you guidance and support throughout.

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.

As you approach traditional retirement age, you may decide that it’s not the right time for you to give up work yet. It’s part of a wider trend and there are any number of reasons you may decide to continue working. However, there are some key things to understand about your pension first.

Phased retirement is becoming increasingly popular. It’s an approach that blends the free time and flexibility of retirement with working. If phased retirement is something you’re considering, you’re not alone. In fact, research from Aegon suggested that half of UK workers over the age of 50 preferred an alternative to ‘cliff edge’ retirement. Rather than giving up work on a set date, a more gradual approach is now desired by thousands of those approaching the milestone.

Whether you want to continue employment to build up your retirement provisions further or because you enjoy it, your pension should be kept in mind, including these five areas:

1. You don’t have to access your pension

Pensions are now usually accessible from the age of 55. However, you’re under no obligation to make withdrawals at any point. If a continued income from work means your pension savings aren’t needed, you can choose to leave the money invested, hopefully continuing to grow.

Even when you do decide to leave work, your pension can still remain untouched. For inheritance purposes, this can be a prudent decision. Money left within your pension can typically be passed on tax efficiently to your loved ones. If your estate may be liable for Inheritance Tax, it can help to minimise the potential bill.

2. You can withdraw from your pension while working

Pension Freedoms introduced in 2015 aimed to give those approaching and in retirement more flexibility. If you choose, you can continue to work as well as accessing your pension. It can provide a way to supplement your income, allowing you to achieve lifestyle goals or boost the income from a part-time position.

From the age of 55, you can access your pension, no matter your work situation. This could mean taking a lump sum, often only the first 25% is tax-free, purchasing an Annuity, or using a Flexi-Access Drawdown product to make adjustable withdrawals.

If this is an attractive option for you there are a few things to keep in mind; limits on future pension contributions, potential tax liability, and ensuring sustainable withdrawals.

3. You can still contribute to your retirement savings, but may be limited

While you’re working, you may want to continue building up your pension. It’s often an excellent way to boost your savings, as employee contributions typically also benefit from employer contributions and tax relief.

The amount you can place into your pension tax-free will depend on whether you choose to access it. The standard Annual Allowance means you can place £40,000 into your pension each year. Although, if you’re a high earner, this may be reduced by as much as £30,000, to £10,000, due to the Tapered Allowance.

However, once you access your pension, the Money Purchase Annual Allowance (MPAA) will apply instead. This limits the amount you can place in your pension to £4,000 each year permanently. It’s reportedly already affected almost one million people over the age of 55.

4. Pension withdrawals are subject to Income Tax

Much like an income from employment, the money you receive from a pension will usually be subject to Income Tax. If you’re continuing to work alongside making withdrawals this can unexpectedly push you into the next tax bracket and increase the amount paid.

As a result, carefully choosing how you’ll access your pension and when you’ll make withdrawals throughout the year is important. Figures from the Office for Budget Responsibility highlight how crucial efficient tax planning is. It’s projected that for the tax year 2018/19 HM Treasury will receive an extra £400 million in tax from pension withdrawals, taking it to a total of £1.3 billion.

For the tax year 2019/20, the Personal Allowance is £12,500, while the higher-rate threshold has increased to £50,000.

5. Your investment strategy may change as you approach retirement age

Most pension funds will automatically adjust how your savings are invested as you approach retirement age. Typically, your investments will be transferred to a portfolio that is considered less risky. This is done in a bid to limit the amount of volatility your pension is exposed to before you’re expected to begin making withdrawals.

If you plan to access your pension on the expected date, this may be the right strategy for you. However, if you plan to leave your pension invested for an extended period of time, selecting investments that have a higher risk profile may suit your goals more closely. It’s important to look at the investment time frame, capacity for loss, and your overall attitude to risk should you decide to change how your pension is invested.

If you have any questions about your retirement plans, please contact us. We’re here to help you get the most out of pensions and other retirement provisions, whichever approach to giving up work you decide to take.

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.

Workplace Pensions are regulated by The Pensions Regulator.

If your income were to suddenly stop, how long would you be able to continue your current lifestyle for? If you made cutbacks, how long would your savings last for?

It’s not something anyone wants to think about, but the truth is, people lose their income every day. Understanding how you’ll get by should something happen can put you in a better position financially and reduce the stress experienced if you’re affected. There is a range of unexpected reasons why your regular income may stop, either in the short or long term, from being involved in an accident to facing redundancy.

When it comes to negative events like this, we often think ‘it won’t happen to me’. However, the reality is very different. Official figures show that more than a million workers are off work for more than a month every year. Do you have a capacity to cover a month’s worth of outgoings without it impacting your lifestyle? If the answer is ‘no’, you’re not alone. Research from Royal London found that more than half of workers would worry about their income should they become too ill to work for an extended period of time.

With the risk of not being able to work in mind, taking steps to secure your financial future, whatever unexpected events happen, is important.

Building an emergency fund

One of the best places to start when taking steps to improve your financial security is to start building up an emergency fund, if you haven’t already done so.

It’s recommended that you have between three and six-months’ income readily accessible should you experience a financial shock, from an unexpected bill to losing your income. This gives you a financial buffer to fall back on without having to compromise your lifestyle. It’s a step that can help give you peace of mind too; should something happen, you’ll know your bills and other financial responsibilities will be taken care of.

While several months salary can seem like a big step initially, even putting relatively small sums away each month means your safety net will quickly grow.

When searching for a home for your emergency fund, you want to make sure it’s accessible at any point. Of course, an account that will generate as much interest on this sum as possible is attractive, but be sure your money isn’t tied up for a defined period of time before making a decision.

Check your sick pay entitlement

Next, check what your employer’s sick pay policy is. These vary significantly between employers and with the current gig economy, some firms don’t offer sick pay at all. Understanding what you’ll be entitled to if you were unable to work due to illness or injury puts you in a better position to plan and make further deposits to your emergency fund if necessary.

Statutory Sick Pay (SSP) covers most employees, however, some are excluded, and is paid by the government if you’re off work for a minimum of four consecutive days. It will pay out for up to 28 weeks, but at just £92.05 per week, it’s likely many will face a shortfall if relying solely on SSP.

Company sick pay policies are often more generous, paying your average wage or a portion of it each month for a set period of time. It’s a benefit that can give you peace of mind and security should something happen.

However, as stated above, not everyone will be entitled to company sick pay. If your employer doesn’t offer one, you will need to rely on SSP and your own provisions. Your entitlement should be included in your contract. If you have any questions about the amount of money you’d receive and how long sick pay would be paid for, it’s best to speak to your employer directly.

Consider protection products

Finally, protection products can be used to provide further security should something happen. These are policies that will pay out in certain sets of circumstances. Before you start to look at protection products, there are some important things to think about.

First, is the type of protection product you want. This will depend on your circumstances and priorities, in some cases, you may want to take out multiple products or one that covers a range of areas. Critical illness cover, for example, will pay out a lump sum if you, or those covered by the policy, are diagnosed with a medical condition that’s named in the policy. Income protection, on the other hand, will usually pay out an income on a monthly basis if you become too ill to work, after a certain period of time. Some policies will continue to pay for a fixed period, such as a year or two, while others will provide income until a maximum age such as 65 or 75.

Second, you’ll want to ensure the protection you take out dovetails with the sick pay you’ll receive, as there will typically be a deferred period. If, for example, your company will pay your full salary for six months should you fall ill, ideally, you’ll want a protection policy that will have a six-month deferment period. This allows you to reduce the premiums paid as much as possible.

If you’d like to discuss your financial situation and the steps you can take to improve short, medium and long-term security, please contact us.

If you’re in a position to support loved ones financially, it can be difficult to know what to do. How should you go about passing on your wealth, helping to improve their financial security? There is more than one option for you to consider, as well as the impact it could have on your own financial situation.

With younger generations often struggling to secure their financial future, a gift can help them find their feet. However, you need to balance the good it can do for your loved ones with the impact on you and the most efficient way of doing so. If it’s a step you’re planning to take, there are seven key things to do first.

1. Assess your wealth

First, you should assess your entire estate, from investments to property. You might already have a good idea of the value of your assets, but they can change over time. Getting a clear, accurate picture of what you own and how much each individual asset is worth is crucial. It’s a step that can help you see the full range of options open to you and fully understand how supporting loved ones could affect both you and them.

2. Understand the impact gifting could have

With a picture built up of your estate, do you know what impact gifting to loved ones now would have? If, for example, you were to gift a lump sum to each of your children, would it affect your lifestyle? Would you still be able to meet your retirement aspirations? And would you still be able to cover the potential cost of care in the future? Effective financial planning can help you answer these questions and give you the confidence to move forward if you decide it’s the right decision for you.

3. Speak to your loved ones

To get the most out of the estate you’ve built up, inter-generational wealth planning is important for families. Speaking with your beneficiaries is crucial, as is engaging them on financial decisions that could affect them. Understanding the financial challenges your loved ones are facing can help you formulate a plan that suits everyone. Perhaps you plan to leave your estate in your will. But, if your beneficiaries are struggling to get on the property ladder now, a gift while you’re alive could have a far greater impact on their financial security.

4. Get to grips with the gifting rules

While gifting now may suit both you and your loved ones, it’s not always as straightforward as handing over assets. It’s important to get to grips with the gifting rules before you decide. Gifts that aren’t immediately exempt from Inheritance Tax (IHT) are known as Potentially Exempt Transfers (PET). Should you die within seven years of a PET, it may still be liable for IHT.

Gifts that fall immediately outside of your estate for IHT purposes includes gifts up to £3,000 a year, wedding or civil ceremony gifts up to £1,000 per person, rising to £2,500 for grandchildren and £5,000 for children, and gifts that are paid for out of your surplus income, such as Christmas and birthday gifts.

5. Check if your estate may be liable for Inheritance Tax

IHT is the tax paid on an estate, which includes the vast majority of your assets when you die. The Nil-Rate Band means no IHT is due if the value of your estate is below the £325,000 threshold, an allowance that can be passed on to a spouse or civil partner. The Residence Nil-Rate Band can further increase the allowance if you’re leaving your main home to children or grandchildren. It is currently £125,000, rising to £150,000 in 2019/20. The standard IHT rate is 40% and could leave your loved ones with a hefty bill.

Understanding your IHT position can help you plan for the future and ensure as much of your wealth as possible goes to your loved ones. If your estate is liable for IHT, there are steps you can take to reduce the bill, or potentially eliminate it. If you’d like advice on this area, please contact us.

6. Write a will

The most important step to take when planning how your wealth will be distributed after you pass away is to write a will. Despite setting out your wishes, more than half of adults in the UK haven’t gotten around to drawing up their will yet. It gives you an opportunity to clearly dictate who will receive what from your estate. Without a will, your estate would be distributed according to Intestacy Rules, which may be vastly different from what you want. If you’ve discovered your estate could be liable for IHT, a will can help reduce this too.

7. Don’t forget about your pension

If your retirement provisions remain in a pension wrapper when you die, it’s often a tax-efficient way to pass on wealth. Typically, if you die before the age of 75, your beneficiaries will pay no tax on any pension savings left to them. After your 75th birthday pension assets become taxable, but only at the marginal rate of Income Tax. As a result, leaving your pension to loved ones is often more efficient than other means. Rather than naming beneficiaries to receive your pension in your will, you nominate someone to inherit what remains. You can do this by contacting your pension fund.

If you’re planning on transferring some of your wealth to loved ones, we’re here to help you. With our support, we’ll help you understand the impact on your other aspirations and offer advice on the best way to do so.

You’ve set out a financial plan and followed the course of action you were advised on. Now, you can simply kick back and forget about it, right? Wrong. Effective financial planning is about much more than simply coming up with an initial strategy. Regularly going back to your plan and checking in with your financial adviser or planner is crucial for ensuring it remains suited to your needs and aspirations. It should be, at least, on an annual basis.

As with all of life’s plans, things go awry, opportunities can present themselves or you may simply have a change of heart. If you fail to go back to your financial plan you may find years later that it hasn’t suited your goals and priorities for some time.

It’s also the perfect time to reassess your life goals. Often, the bigger picture can get lost in the day-to-day. Frequently coming back to what you want to achieve, and whether you’re on track to meet aspirations should be part of your financial plan.

If you’re still not convinced about the need to revisit your financial plan at regular intervals, we’ve got six reasons you should be doing so.

1. Your aspirations and priorities change

When you look back at what you wanted to achieve a decade ago, it’s likely there’s been at least some change. It’s normal for your aspirations and priorities to shift over time.

You may have started with an investment portfolio that took a relatively high level of risk in a bid to deliver higher returns. However, after welcoming children, stability may now be a greater priority, for example. Likewise, as you plan for retirement you may have taken a measured approach to spending, putting money away to fund your later years. Now that you’ve reached the milestone, you may want to increase spending to really enjoy your life after giving up work.

Chatting with your financial adviser about what your priorities are now and how they have shifted gives you an opportunity to realign your wealth and assets with this in mind.

2. Your situation can alter

It’s not just your attitude and personal goals that can change either. Perhaps you’ve received a pay rise at work and now have more disposable income to invest. Or maybe you’ve received an inheritance and your current financial plan hasn’t taken this into consideration.

When your personal situation changes, it’s always worth taking a step back and asking if it’s something that should affect how you’re handling your finances. It means you can get the most out of your money for your circumstances, helping you stay on track and maybe even exceed the targets you set previously.

3. Review performance

While constantly watching the performance of your investments isn’t a good idea, as they will fluctuate, ensuring you effectively review your plan is crucial. How will you know if you’re on the right path otherwise?

Setting set points when you’ll review how your plan is progressing is an important element in meeting your goals. You may find that you’ve gone off course at some points. However, taking action as early as possible means you can minimise the impact it has on your overall goals. It’s also an opportunity to review those areas that have outperformed and could give you a nudge to restructuring assets to follow this.

4. Wider political and economic factors have an impact

Your personal situation and aspirations should be at the centre of your financial plan. But there’s no denying that some factors outside of your control can have an impact too. From legislation altering the way you can access your pension at retirement and tax-efficient allowances changing, to geopolitical tension influencing investment performance. There are many factors to consider.

It’s often not possible to predict all these events or the full impact they’ll have. However, by regularly reviewing your financial plan, you’re in a better position to prepare and respond to potential risks and opportunities.

5. Improve your confidence in your finances

If you ever feel worried about your money or unsure if you’re making the right financial decision, touching base with your financial planner can help. The world of finance can seem complex and ever-changing. As a result, you may not be certain about whether a decision is the right one, even if it’s something you’ve previously covered in a financial plan put together some years ago.

The more you assess your finances and engage with your plan, the more confidence you’ll feel with making decisions. It’s a process that can help give you peace of mind that you’re taking steps towards the financial independence you want.

6. Effective estate planning

While passing away isn’t something anyone wants to think about, Inheritance Tax and estate planning is an important part of the financial planning process. As your circumstances, views, and wealth change, it’s natural that what you want to happen to your estate will change too. A review is a perfect time to think about your financial plan beyond our life, who would you want to benefit from your wealth?

If you’d like our help, whether to create or review a financial plan, please get in touch.

With university fees, rising house prices and other financial pressures, young adults can struggle to achieve financial security and tick off milestones. If you’ve got children or grandchildren, you may be considering starting a nest egg to help them along the way. It’s a decision that could make their transition into adulthood smoother.

Whether you’re used to taking control of your finances or not, saving for a child can seem like a huge decision; it could affect their long-term financial security and the decisions they make as they enter adulthood. Thinking about these five questions, to begin with, can help you set out a savings plan that matches your goals and select a product that’s right for you.

1. Will it be a lump sum or regular contributions?

How often will you be adding to the nest egg over the years? If you plan on depositing a single lump sum and leaving it to grow with interest or investment returns, you could benefit from a different product to someone who will be making regular contributions. Some savings accounts, for example, require you to deposit a minimum amount monthly to receive the best interest rate.

It also affects how hands-on you’ll want to be throughout the process, but with either option, you should aim to check on the savings at least once a year.

Also, if you are investing, regular contributions can help smooth out the effect of any market volatility. This is known as pound-cost averaging.

2. How long will you be saving the money for?

The timeframe between now and when you plan to gift the money is important. Firstly, it means you can calculate the likely sum at the end and set realistic expectations. Secondly, it’s an important factor when deciding between cash accounts and investments.

Historically, investments have outperformed cash savings over the long term, but this does come with volatility. If you’ll be saving for at least the next five years, investing is an option to consider. The longer the timeframe, the more opportunity the savings have to recover from dips in the market and generate higher returns to give the nest egg a boost.

3. Are you willing to take a level of risk with the savings?

Again, this links back to the common dilemma; should you use a cash account or invest?

Money held in a cash account will be protected up to £85,000 under the Financial Services Compensation Scheme. However, with interest rates low, its potential for growth is limited. Investments have the potential to deliver higher returns, but do have an element of risk; is this something you’d feel comfortable with?

It’s important to note that there are a variety of investment options when saving for a child. You don’t necessarily have to choose a high-risk portfolio to generate returns that will beat inflation.

4. What’s the likelihood of you wanting to access it early?

Some child saving accounts will allow you to make withdrawals, others will do so with a penalty, and others are locked away until the child comes of age. As a result, considering whether you’ll want to dip into savings, for example, to fund school trips or tuition fees, is an important factor when you’re selecting the right product for your circumstances.

If there’s a chance you will want to use the savings at different points, one option is to use several different products to give you more flexibility.

5. Do you want the child to have control of the nest egg at 18?

This can be a difficult question to judge, especially if the child is still young. Receiving a nest egg as a teenager can certainly lead to the temptation to spend it, but they will be an adult and you may want to give them the freedom and responsibility to control the gift themselves.

If you have very set ideas about how you want the money to be spent, an option that allows you to retain control may be favourable.

Three saving options to consider

Whatever your answers to the above questions, there are options available when you want to save for a child’s future, these three among them:

1. Children’s savings account: There is a huge range of child saving accounts that you can open. They’re often a good way to build up a flexible nest egg, including some that will allow you to make withdrawals, though this often comes at the cost of more competitive interest rates. There are also regular saving accounts to encourage you to make monthly deposits towards your goal.

2. Junior Individual Savings Account (JISA): A JISA can be opened for a child, with money only accessible to them once they turn 18. Up to £4,260 can be added this tax year and like their adult counterparts, a JISA provides a tax-efficient way to save. With a JISA you can choose either a Cash or Stocks and Shares account, allowing you to invest relatively easily if you choose.

3. Child pensions: If you’re looking far into your child’s future financial security, a child pension could be a solution. You can start saving for their retirement as soon as they’re born and deposits will benefit from valuable tax relief. However, as the money won’t be accessible until the child is 55, under current legislation, it’s a step that’s unlikely to help with many young adult milestones. It can, however, provide them with security in their later years.

If you’re saving for a child’s future and want advice on your options, considering your personal circumstances, please get in touch. We’ll help you understand how your contributions could add up to support them in the future.

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 Financial Conduct Authority (FCA) does not regulate NS&I products.

Investing in a fledgling business can deliver returns and tax incentives, but this needs to be carefully balanced with the risks of doing so. Start-ups might offer high growth potential, but a significant portion of new firms also end up failing, with investors potentially losing their money.

One of the easiest ways to invest in new businesses is through a Venture Capital Trust (VCT). These are investment companies that are listed on the London Stock Exchange and are set-up to invest in particular small or early-phase businesses. These firms need capital to achieve their growth ambitions and have the potential to deliver high returns. However, it’s riskier than investing in companies that are already established.

Despite the risks, investing in smaller companies is growing in popularity. According to HM Revenue and Customs (HMRC)  figures, VCTs issued shares to the value of £745 million in 2017/18. The figure represented a 30% increase from the previous tax year and is the highest amount raised since 2005/06. Since the introduction of VCTs in 1995, it’s estimated they’ve raised around £7.7 billion.

While the increasing popularity of VCT capital is partly due to a strong start-up culture in the UK, it’s also due to the tax benefits investors receive, designed to encourage them to financially back riskier companies.

What do you need to know about VCTs?

If you’re tempted to invest in VCTs, there are some key things you should know before going any further:

  • Annual limit: Should you decide to invest in VCTs, the annual limit you can claim tax relief on is £200,000. If you’re interested in investing more than this amount over the course of a year without incurring a tax charge, there are other options available, such as an Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS), please get in touch for further information on either.
  • Income Tax benefit: You’ll receive Income Tax relief on newly issued VCTs, currently at a rate of 30% on investments up to the annual limit. The tax relief is set against the Income Tax you pay and can’t exceed this amount.
  • Other tax breaks: There are other benefits of investing in VCTs too. Firstly, you won’t have to pay Income Tax on any dividends from VCT shares. Secondly, when you sell your VCT shares you won’t be liable for Capital Gains Tax either.
  • Selling your shares: You can sell VCT shares at any point. However, there are two points to note here. The first is that you have to hold shares in a VCT for a minimum of five years to keep the tax incentive benefits. The second is, while growing, the VCT market is still considered relatively niche. This can make it more difficult to sell your shares should you decide to.
  • Charges: Compared to other investment vehicles, charges on VCTs tend to be higher. They may also be more complex. For example, you could be charged a performance fee that’s linked to how well the VCT performs, eating into your potential returns. It’s important to fully understand all charges before choosing where to place your money.
  • Risk: VCTs effectively allow you to pool your investments with other investors. This gives you an opportunity to spread the investment risk over a number of small companies. However, while the risk is more spread out, compared to you investing directly in a start-up, VCTs might still present greater risk than investing through more traditional stocks and shares.

There are many reasons you may be considering using a VCT due to the tax incentives. If you’re a higher earner, for example, your annual pension allowance may be as low as £10,000, limiting your tax saving advantages for retirement. If this is the case, a VCT may provide you with an alternative solution. Of course, there are other options too; have you already used your ISA subscription, for example?

Before making any investment decision, it’s wise to look at your financial situation and security as a whole. To assess which investment vehicle, if any, is right for you. It’s important to answer questions such as:

  • What’s your capacity for loss?
  • How long will you invest for?
  • What is your ultimate goal?
  • What is your attitude towards risk?
  • Do you know of any likely changes in your short-term circumstances?

If you’re looking for ways to grow your wealth and take advantage of tax breaks, please contact us. We’re here to help you assess your financial strategy and how to get the most out of the options open to you.

Please note: The value of your investments 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.

If you’ve been saving into a pension throughout your working life, you might be closer to the Lifetime Allowance than you think. Going over the threshold could mean facing additional tax charges on your future income and, as a result, some members are opting to leave their scheme. However, that’s not always the best option.

What is the Lifetime Allowance?

Currently set at £1.03 million, the Lifetime Allowance is the total amount you can save into pensions over your life. It can seem like a figure that’s far-off, but when you consider you’ll likely be paying into a pension for four decades, along with employer contributions, tax relief and potential investment returns, the value of your pension can be larger than expected.

What happens if you exceed the Lifetime Allowance?

You can legally exceed the Lifetime Allowance. However, you will need to pay additional tax. If, when you start taking your pension, the value exceeds the Lifetime Allowance, the excess benefits will be subject to:

  • 55% tax if the pension is taken as a lump sum
  • 25% if withdrawn as an income

With this in mind, it’s easy to see why some employees are choosing to retire early, reduce hours or opt out of a pension scheme entirely when approaching the Lifetime Allowance. After all, no one wants to pay additional tax on their retirement savings.

It’s a trend that’s particularly evident among high earners and those with Final Salary pension schemes, which typically offer greater benefits than alternatives. It’s a penalty that’s been well publicised for affecting doctors, but it’s also an issue for other earners that have been paying into their pension scheme throughout most of their career.

To account for a Final Salary scheme in your Lifetime Allowance you must multiply your expected annual income by 20. If, on the other hand, you transfer out of the scheme, the Cash Equivalent Transfer value may be quite high and contribute towards a large proportion of your allowance.

Even if you’re approaching the Lifetime Allowance, there are two key reasons to continue paying into your pension:

1. Employer contributions: If you leave your employer’s pension scheme, they will stop paying in too. Depending on your scheme and the level of contributions your employer makes, this could end up costing you money overall. While the tax implications may mean paying into a pension is less tax-efficient once you breach the Lifetime Allowance, it doesn’t necessarily mean all the benefit is lost. Where your employer is contributing at high levels, it may be the case that this offsets the additional tax you pay, and you still end up with more than you put in.

2. Auxiliary benefits: Before you even consider leaving your pension scheme, looking at the additional benefits on offer is crucial. Some pensions, particularly Final Salary pensions, offer auxiliary benefits that may be valuable to you; leaving the scheme typically means forfeiting these. One of the most common auxiliary benefits is a pension for your spouse, civil partner or dependents. It can provide financial security for your loved ones should you pass away first, it will usually pay out a percentage of your pension or salary.

While avoiding paying unnecessary tax on your savings makes sense on the surface, it’s important to take a balanced approach. Weighing up how the decision can affect your financial security, as well as that of your family’s, now and when you reach retirement is important. In some cases, paying more tax could prove beneficial when you look at the bigger picture.

Options if you leave your pension scheme

While it’s not the right option for all, for some leaving a pension scheme may make the most sense considering their situation. If you decide to move ahead with this, it’s crucial to have a plan in place to secure your financial future. There are other tax-efficient ways to save for your future, such as Cash and Stocks and Shares ISAs (Individual Savings Account).

If you’d like to discuss how your retirement provisions and tax liabilities could affect your wealth, please contact us. We can help you understand if leaving your employer’s pension scheme is the right thing to do in your situation.

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.

Since Pension Freedoms were introduced in 2015, more of us are choosing to access our pensions flexibly when we reach retirement. With greater choice, the number of retirees opting to purchase an Annuity is falling, but is it still a route you should consider?

While an Annuity provides you with a guaranteed income throughout retirement, figures from the Financial Conduct Authority (FCA) show it’s an option that’s falling in popularity. Instead, retirees are increasingly favouring Flexi-Access Drawdown. This allows you to adjust the amount of income you receive while the remainder of your pension typically stays invested. According to the latest statistics:

  • Annuity sales fell 14% in 2017 year-on-year; Drawdown sales increased 11% in the same period
  • One in three consumers are using Drawdown in retirement, this compares to 10-15% opting for an Annuity

First, what exactly is an Annuity? It’s a product that you can purchase during your retirement. Traditionally, retirees would take the money saved within a pension and use this to buy a guaranteed income for the rest of their life. This income is often linked to inflation, maintaining spending power throughout retirement. It’s one way to create financial security once you’ve stopped working.

Why are Annuities falling out of fashion?

Retirement has changed considerably in recent years. As a result, some retirees are favouring flexibility over security.

Research from the Institute for Fiscal Studies suggests that retirees underestimating their longevity also plays a role in falling Annuity sales. Those in their 50s and 60s were found to substantially underestimate their chances of survival through their 70s and 80s. As a result, they placed less value on the security that an Annuity can deliver.

The findings also present concerns for those using Flexi-Access Drawdown. As retirees are responsible for setting the level of income they want to withdraw when using this way to access a pension, there is a risk they’ll run out of money if they live longer than expected.

The research states: “People who believe that an Annuity product offers them a low income may still choose to buy it if the insurance value it gives them is great enough. In other words, if someone is sufficiently worried about the chance of outliving their financial resources, they may choose to buy an Annuity even if they think that, on average, it will return them less than they paid for it.”

There are other reasons why retirees may choose to shun Annuities, including:

  • The anticipation of large one-off purchases
  • In order to pass wealth to children and grandchildren
  • They already have a secure income for retirement
  • They believe they can achieve a higher rate of return

If you’re approaching retirement, understanding the pros and cons of an Annuity can help you make the right decision for you.

The benefits of an Annuity

It provides a guaranteed income: If security is important to you, an opportunity to secure a guaranteed income is likely to be high on your list of reasons to purchase an Annuity. With this route, you don’t have to worry about your income in later years of retirement or what will happen if stock markets are volatile. It’s an option that can allow you to effectively budget each month without having concerns that your income will dip.

It can be linked to inflation: Inflation means the cost of living typically rises each year. If your retirement income is static, it means your spending power will slowly be eroded as time goes by. When purchasing an Annuity, you have the option to choose a product that will rise in line with inflation, preserving your ability to maintain the retirement lifestyle you want.

There is a range of options: An Annuity doesn’t just offer a single option, there are multiple products available. This allows you to choose one that’s right for you. A joint Annuity, for example, can be purchased by couples. If you’re worried about how your partner would cope financially when you pass away, for example, it can help to give you both peace of mind.

The drawbacks of an Annuity

Inflexible: Once you’ve purchased an Annuity, you can’t change your mind.  You won’t be able to adjust your income, as you can in Flexi-Access Drawdown either. If flexibility throughout retirement is a priority and you don’t have other retirement provisions to use to achieve this, you may find an Annuity restrictive.

It may offer a lower level of income: Annuity providers offer various rates for calculating the income they’ll provide, so it’s important to shop around. Depending on investment performance and longevity, an Annuity may not offer the best deal when it comes to the total income it pays out.

Creating a retirement income that suits you

The most important thing to remember when planning your retirement finances is to create a plan that suits you. While an Annuity will be right for some retirees, particularly those that value certainty, it doesn’t mean it’s the best option for everyone. It’s also important to remember that you don’t necessarily have to choose between an Annuity, Flexi-Access Drawdown or another option. You can use your pension savings as you want, creating a hybrid approach if it’s more suitable for your lifestyle and priorities.

If you’re unsure which retirement income is best for you or want to explore the alternatives, financial planning can help. Please contact us for more information on your next steps.

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