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Effective retirement planning often involves weaving together lots of different threads. As you think about your retirement, you might be unsure how to bring everything together, but a bespoke financial plan could put your mind at ease.

Over the last few months, you’ve read about the importance of deciding how you’ll retire, why you should set out your goals, and your options for accessing your pension. Now, read on to discover the challenges of bringing together these different strands of retirement planning and why a tailored financial plan could provide a solution.

The challenges of retirement planning you could face

A common concern among those approaching retirement is whether they have enough money to retire. Even after the milestone, you might worry about running out of money too soon.

Understanding what a sustainable income is for your circumstances can be difficult. After all, you don’t know how long you’ll spend in retirement and you might need to factor in a range of influences outside of your control, such as the effect inflation will have on your expenses.

As a result, you might not be confident in your ability to live the lifestyle you want once you give up work.

Uncertainty could mean you spend too much too soon, which could leave you in a financially vulnerable position in your later years. Alternatively, it might lead to you being more frugal than necessary and missing out on retirement experiences.

There could be other challenges too. Perhaps you’re considering taking a lump sum out of your pension or using assets to fund a one-off expense but you’re unsure about the long-term effect it may have. Or you want to ensure you leave an inheritance behind to support loved ones after you’ve passed away.

While pensions are often the main source of income in retirement, retirees will often have other assets at their disposal too. You might be unsure how you could use your savings, property, or investments to support your retirement goals, but financial planning could help.

A financial plan will bring together your aspirations and finances

When you think about what financial planning involves, your mind might turn towards understanding your assets. However, an effective financial plan starts by understanding what you want to achieve.

At retirement, this might be the lifestyle you want to enjoy for the rest of your life. You may have other priorities too, such as lending support to your family or ensuring your partner is also financially secure.

Once you’ve set out your lifestyle goals, you can start to review your assets and how they might make these objectives achievable.

One of the benefits of working with a financial planner is that they may help you bring together these different goals. So, a retirement plan that’s tailored to you may consider what a sustainable income is, but it might also include:

Gifting assets to your loved ones during your lifetime
Putting assets aside for your family to inherit when you pass away
Financial protection that could provide for your partner if the worst happened
A safety net that may give you peace of mind
Provisions in case you need care in the future.

Using a tool called “cashflow modelling”, we could help you visualise how to use your wealth to reach your goals.

By adding details about your assets, cashflow modelling could show how your wealth will change over time depending on the decisions you make. For instance, it could demonstrate how long your pension may last if it was used to provide an annual income of £35,000 or £45,000. Or how using your investments to supplement your income might provide you with greater financial freedom.

Cashflow modelling could also highlight potential risks. You can model different scenarios, including those that are outside of your control, to understand how they might affect your lifestyle and financial security.

For example, could the rising cost of living place pressure on your finances 20 years after you’ve retired? By identifying potential risks at the start of retirement, you may be able to take steps to mitigate them or create a safety net. To manage the effect of inflation on your outgoings, you may plan to increase the income from your pension each year to preserve your spending power.

As a result, working with a financial planner could help you realise your retirement goals and give you financial confidence as you start the next chapter of your life.

Contact us to talk about your retirement plans

If you’re preparing for retirement, whether it’s a milestone you hope to reach this year or it’s a decade away, we could offer you support. Please contact us to talk about your retirement aspirations and how your finances may provide you with security once you give up work.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate cashflow planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

The Magnificent Seven might conjure up images of the 1960s Western film or its 2016 remake, but there’s a new group in town – seven technology companies that outgained the market in 2023. Read on to find out more about these companies and the effect they’re having.

The S&P 500 is an index that tracks the stock performance of 500 of the largest companies listed on stock exchanges in the US. It’s widely regarded as a gauge for measuring the performance of large-cap US equities as it covers around 80% of the total market capitalisation of US public companies.

In January, the S&P 500 reached a new high. However, far from indicating a strong performance across the index, just a handful of companies, dubbed the “Magnificent Seven”, were largely responsible.

The 7 technology companies that are boosting the S&P 500

The Magnificent Seven has a huge market value. In fact, the seven stocks are the same size as the entire stock markets in the UK, Canada, and Japan combined. Analysis from Deutsche Bank also found the combined profits of the companies exceeded almost every G20 country in 2023.

The Magnificent Seven are all technology stocks and include:

Alphabet, the parent company of Google
Amazon
Apple
Meta, the parent company of Facebook
Microsoft
Nvidia
Tesla

Individually, the stocks of these companies soared between 50% and 240% in 2023. As a leader in AI, Nvidia saw the biggest gains and it may continue. In less than a year, the chipmaker doubled its market cap to reach $2 trillion (£1.58 trillion) at the start of 2024.

The Magnificent Seven could mask wider market trends

An index rising is usually viewed positively and as a sign that the market is performing well. However, the size of the Magnificent Seven could mask wider trends.

The S&P 500 is weighted by market capitalisation, so the movements of the largest companies affect the overall performance of the index more than smaller businesses. As a result, the stellar performances of the Magnificent Seven had an even larger impact on the index than you might expect.

According to the New York Times, the gains of the Magnificent Seven in the 12 months to January 2024 account for more than 60% of the return in the S&P 500. Indeed, after Tesla’s value increased by more than 64%, it led to an almost 3% rise in the S&P 500.

The impact the Magnificent Seven have on the index might lead you to think they were the best-performing companies. Yet, this isn’t the case. For example, Royal Caribbean experienced a rise of 212% in the last year. However, as the cruise line is a smaller company, it holds less weight in the index.

The weighting could mean that even if most companies included in the index experience a fall, a strong performance from the Magnificent Seven could lead to the S&P 500 rising. As a result, if investors only viewed the headline data, they could form a very different picture of how the market is performing than it is in reality.

The effect of the Magnificent Seven could work the other way too. If they suffered a fall in value, it would have a much larger impact on the S&P 500 than if a smaller business experienced a dip.

2 important takeaways investors may want to keep in mind

1. Look beyond the headline data

The overall performance of the S&P 500 would suggest the market is strong thanks to the Magnificent Seven. Yet, once you look at the performance of the remaining 493 companies, it’s still positive but more subdued.

Headline data without context can be misleading. So, if you’re making investment decisions, it’s often wise to dig a little deeper.

2. Don’t make investment decisions based on hype

With the Magnificent Seven featuring in headlines around the world, you might be tempted to invest in them. However, one year of strong growth doesn’t automatically mean an investment is right for you. It’s important to consider whether it suits your profile and goals, and how it might fit into your wider portfolio.

Contact us to talk about your investment portfolio

If you want to review your investment portfolio, please contact us. We could help you identify investment opportunities that are right for your goals and risk profile. Please get in touch to speak to one of our team.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) 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.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

While many economies are still struggling with high inflation there are signs that the pace is starting to slow, which could pave the way for interest rate cuts later this year.

To reflect this, the OECD has lifted its 2024 global growth forecast by 0.3%, when compared to the end of 2023, to 2.9%. However, the international organisation warned that central banks should ensure underlying price pressures were “fully contained” before they cut interest rates.

Market rallies around the world on 22 February highlighted how interconnected markets are and how difficult it can be to predict movements.

US chipmaker Nvidia beat expectations and reported sales of $22.1 billion (£17.4 billion) in the final quarter of 2023 – a 22% increase when compared to the previous quarter and a huge 265% higher than in the final quarter of 2022. In fact, the company has gone from a market cap of $1 trillion to $2 trillion in a record eight months – less than half the time it took technology giants Apple and Microsoft.

It led to widespread optimism that the AI boom would continue. Tech-heavy US index Nasdaq jumped more than 2%, as Nvidia’s share price soared by 12%. The news led to Japan’s main index, the Nikkei, hitting a record high, Europe’s Stoxx 600 index increasing by 1%, and the FTSE 100 benefiting from a boost to its technology stocks.

Read on to find out what else affected markets in February 2024.

UK

The headline news is that the UK is in a technical recession, defined as two consecutive quarters of economic contraction.

The Office for National Statistics (ONS) figures show GDP fell by 0.3% in the final quarter of 2023, following a drop of 0.1% in the previous quarter. The ONS said the biggest drags on growth were manufacturing, construction, and wholesale.

The news places pressure on prime minister Rishi Sunak, who is expected to call a general election in the coming months.

ONS data also showed that UK inflation was unchanged in January at 4%. While positive news, as economists predicted a rise, it’s still double the Bank of England’s (BoE) 2% target.

The BoE’s governor, Andrew Bailey, said the bank needed more confidence that inflation would fall and stay low before it made cuts to interest rates. As a result, the BoE base rate remains at 5.25%. However, Bailey noted that inflation didn’t need to reach 2% before cuts would be considered, signalling that it could happen soon.

Tension in the Red Sea is continuing to affect supply chains around the world. The S&P Purchasing Managers’ Index (PMI) shows the manufacturing sector continued to contract in January, with the need for shipping firms to reroute vessels away from the Suez Canal contributing to challenges and rising costs.

In contrast, the PMI for the service sector showed three consecutive months of growth with the highest reading in eight months. The pace of new orders also increased, which led to firms hiring more staff.

After a pre-Christmas slump, retailers have benefited from sales bouncing back, according to the ONS. In January, retail sales volumes increased by 3.4% – the fastest growth recorded since April 2021.

However, the high street still faces significant challenges as consumers watch their spending during the cost of living crisis. The latest high-street casualty is well-known cosmetic brand The Body Shop, which filed for administration in February.

Europe

The eurozone is moving closer to reaching its inflation target of 2%. In the 12 months to January 2024, inflation was 2.8%. Steep falls of 6.8% in energy prices played a role in bringing down the headline figure.

The eurozone avoided falling into a recession, but the GDP data was far from positive. In the final quarter of 2023, eurozone GDP remained the same as the previous quarter as economies stagnated.

In response, the European Commission (EC) has cut its growth forecasts. The EC now expects the eurozone to grow by just 0.8% in 2024, while the wider EU is anticipated to grow by 0.9%.

There were warnings that Europe’s largest economy, Germany, could slip into a recession.

ING data suggest that German industrial production fell by 1.6% month-on-month in December, and was 3% lower than a year ago. What’s more, Destatis said German exports fell by 4.6% in December when compared to a month earlier as demand continued to affect business operations.

US

In the US, inflation fell to 3.1% in the 12 months to January and moved closer to the Federal Reserve’s 2% target.

Similar to other economies, the base interest rate was maintained in the US. However, speculation that rates would fall later this year led to the S&P 500 index reaching a new high on 7 February. This was driven by energy, consumer discretionary, and material stocks.

With a presidential election due to take place in the US in November, current president Joe Biden took the opportunity to state that the latest job figures show America’s economy is “the strongest in the world”.

Economists predicted that the US would add 180,000 new jobs in January. This forecast was far surpassed when figures showed 353,000 new jobs were created. In addition, average hourly earnings increased by 4.5% when compared to a year earlier and reached $35.55 (£28.10).

Both of these figures indicate that businesses are feeling confident about their prospects.

Asia

Over the last few decades, China has consistently been one of the fastest-growing major economies in the world. However, the International Monetary Fund (IMF) has warned that an economic slowdown is likely.

The IMF predicts China’s GDP will grow by 4.6% in 2024 although this growth will fall to 3.5% by 2028 due to weak productivity and an ageing population. While the figures may seem high compared to other countries, it follows growth of 5.2% in 2023 and is significantly below the medium-term average.

China’s markets have been experiencing volatility. As stock exchanges in Shanghai and Shenzhen fell to their lowest level since 2019 early in February, the government decided to remove the boss of the stock market regulator in a bid to calm the turbulence.

Official statistics from Japan show the country fell into a recession at the end of 2023. In the final quarter of the year, GDP fell by 0.1%, while the figure from the third quarter of 2023 was revised downwards to a fall of 0.8%.

The contraction means Japan is no longer the world’s third-biggest economy as it slipped into the fourth spot. Japan’s GDP fell to $4.2 trillion (£3.31 trillion) and is now lower than Germany’s GDP of $4.5 trillion (£3.55 trillion).

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Financial worries can harm the mental wellbeing of employees, and research suggests it could negatively affect the productivity of businesses too. As an employer, offering financial advice to your team could be a win-win.

Inflation has led to the cost of living soaring, so it’s not surprising that more households are concerned about their finances. What may be unexpected is the material impact it could have on your business.

A report from Aegon found that 12% of private workers missed work due to financial concerns in 2023. On average, these employees were absent from work for 4.7 days.

Staff taking time off work when they’re financially stressed could be just the tip of the iceberg. The report found that a more prevalent issue was presenteeism – where employees attend work but experience significantly reduced productivity due to personal and health-related factors.

Indeed, almost a quarter of employees surveyed said their work productivity had declined over the last two years due to financial worries.

These lost workdays are estimated to have collectively cost UK employers £10.3 billion over the year.

As younger generations are less likely to have accumulated wealth, it’s unsurprising that workers aged between 16 and 44 are more likely to be affected by financial stress.

Offering financial guidance as a workplace benefit could be valuable to both your employees and the business. Here are three reasons why.

1. You could help employees take control of their finances

Money concerns might affect more of your employees than you think.

According to research from National Debtline, almost half of UK adults started 2024 worrying about money, with 9% stating they felt unable to cope because of their finances. As high inflation continues to place pressure on households, nearly a third expect their finances to be worse by the end of 2024.

For some employees, meeting with a financial planner could identify steps they may take to improve their financial situation, or they might find they’re in a better position than they believe. As well as supporting daily money concerns, a financial plan could also address long-term worries, like whether they’re saving enough for retirement.

You might also want to signpost employees to organisations, such as StepChange, that could offer support if they’re struggling with debt.

If employees are taking time off work or experiencing lower productivity because they’re worried about finances, offering financial advice that’s either delivered to your team or on a one-on-one basis could have a direct effect on your business’s bottom line.

2. You can use financial guidance to highlight the benefits you provide

As an employer, you might offer financial benefits to your employees. Financial guidance offers a great opportunity to draw attention to them.

Taking the time to explain perks like salary sacrifice schemes, additional pension contributions, or group protection could mean more of your team makes use of them. Some of your employees may not know about all your workplace benefits, and others might not understand why they could be valuable to them.

Other perks could support reducing financial stress among your team too. For instance, providing access to a therapist may help them learn better ways to cope when they feel stressed.

Not only could discussing perks ease some of the financial concerns your employees may be facing, but it may benefit your business too. Being aware of workplace benefits could boost job satisfaction and improve employee retention.

We could work with you to review the financial workplace benefits you offer and improve awareness of them among your employees.

3. You could demonstrate you value your employees’ wellbeing

Don’t underestimate the importance of ensuring your employees feel valued – it could play an essential part in their job satisfaction and how long they remain part of your business.

Indeed, a 2023 survey published in People Management found that half of UK workers said they would prefer to have “great relationships” at work than a 10% pay increase. Demonstrating that your employees’ concerns are important to you could help improve relationships and how they view the business.

Contact us to talk about the financial wellbeing of your employees

If you’d like to discuss how we could improve the financial wellbeing of your employees, please contact us.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Workplace pensions are regulated by The Pension Regulator.

More than 1 million investors will be hit with a Dividend Tax bill for the first time in the 2024/25 tax year, according to an AJ Bell report. Read on to find out if you could be affected and discover some of the steps you could take to mitigate a tax charge.

A dividend is a way of distributing a company’s earnings to shareholders. Usually, dividends are issued quarterly, but some businesses may pay dividends monthly or annually. So, if your money is invested in a dividend-paying company or fund, you could receive regular cash payments from them.

Dividends from investments are not guaranteed. Companies may reduce or cut dividends if profits fall or the business faces risks.

Some business owners also choose to use dividends as a tax-efficient way to extract money from the company.

Dividends may play an important role in your financial plan and could supplement income from other sources. However, changes to the Dividend Allowance could mean your tax bill is higher than expected.

The Dividend Allowance will fall to £500 on 6 April 2024

In the 2022/23 tax year, you could receive up to £2,000 in dividends before Dividend Tax was due.

The Dividend Allowance fell to £1,000 for the 2023/24 tax year. The AJ Bell report suggests this meant an extra 635,000 people paid Dividend Tax. The Dividend Allowance will halve again on 6 April 2024 to just £500 – a move that is forecast to drag a further 1.15 million investors into the tax net for the first time.

The amount of tax you pay on dividends that exceed the Dividend Allowance will depend on which Income Tax band(s) the dividend falls within once your other income is considered. For the 2023/24 tax year, the tax rates on dividends are:

Basic-rate: 8.75%
Higher-rate: 33.75%
Additional-rate: 39.35%.

So, even though the Dividend Allowance is less generous than it once was, the tax rate you pay could still be lower than Income Tax.

5 practical ways you could lower your Dividend Tax bill

1. Review your total income

Managing the income you receive from other sources could help you avoid a Dividend Tax bill or reduce the rate of tax you pay.

If dividends fall within your Personal Allowance, which is £12,570 in 2023/24 and 2024/25, they will not be liable for tax. Similarly, ensuring your total income doesn’t push you into the higher- or additional-rate tax bracket could mean you benefit from a lower tax rate.

2. Plan as a couple to use both of your Dividend Allowances

If you’re planning with your spouse or civil partner, it’s important to note that the Dividend Allowance is per individual.

As a result, passing on some dividend-paying assets to your partner could mean you’re able to utilise both of your Dividend Allowances and collectively receive £1,000 in 2024/25 before tax is due.

3. Hold dividend-paying assets in an ISA

An ISA is a tax-efficient wrapper for your savings and investments.

Dividends that you receive from investments that are in an ISA will not be liable for Dividend Tax and won’t impact your Dividend Allowance. In addition, the profits you make when selling investments in your ISA are free from Capital Gains Tax (CGT).

In the 2023/24 tax year, you can add up to £20,000 to ISAs.

4. Use your pension to invest for your retirement

If you’re investing for your retirement, pensions may provide you with a tax-efficient way to invest. Investments held in a pension are not liable for Dividend Tax or CGT. In addition, you’ll receive tax relief on your pension contributions.

Remember, you cannot usually access your pension before the age of 55, rising to 57 in 2028. As a result, it’s important to consider your investing goals and time frame, as a pension may not be appropriate for you.

In 2023/24, you can usually add up to £60,000 to your pension (or 100% of your earnings, if lower) without incurring an additional tax charge. If you’ve already accessed your pension flexibly or are a high earner, your pension Annual Allowance may be lower.

5. Assess alternative ways to boost your income

Dividends are a popular way to boost your income, but there are other options you might want to explore too.

For example, payouts from bonds may be classed as interest and could supplement your income. Interest may be liable for Income Tax, but the Personal Savings Allowance (PSA), the amount of interest you can earn in a tax year before tax may be due, could mean it’s a useful option for you.

Your PSA depends on the rate of Income Tax you pay. In 2023/24, the PSA is:

£1,000 for basic-rate taxpayers
£500 for higher-rate taxpayers
£0 for additional-rate taxpayers.

Another option is to invest in non-dividend paying stocks or funds with the long-term goal of selling the assets for profit. The money you make selling investments held outside of a tax-efficient wrapper may be liable for CGT. However, the rate you pay could be lower than Dividend Tax and the Annual Exempt Amount could help you avoid a bill.

In 2023/24, the Annual Exempt Amount means you can make up to £6,000 profit before CGT is due. This allowance will halve to £3,000 in the 2024/25 tax year.

If CGT is due, the rate you pay will depend on which tax band(s) the taxable gains fall into when added to your other income. In 2023/24:

If you’re a higher- or additional-rate taxpayer your CGT rate would be 20% (28% on gains from residential property)
If you’re a basic-rate taxpayer, you may benefit from a lower CGT rate of 10% (18% on gains from residential property) if the taxable amount falls within the basic-rate Income Tax band.

Keep in mind that investment returns cannot be guaranteed. The value of investments can fall as well as rise.

Contact us to talk about your tax strategy for 2024/25

Using tax allowances and being aware of different options could reduce your overall tax liability. Please contact us to discuss your tax strategy for the 2024/25 tax year and beyond.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning.

As Generation X, often described as those who were born between 1965 and 1981, starts to retire, research has found that many don’t feel confident about their financial future. If you’re worried about how secure your life will be once you stop working, there may be some practical steps you could take.

According to a survey from Just Group, 52% of Generation X say they are not confident that they will have enough saved for a good standard of living after work.

It’s not surprising that Generation X isn’t feeling confident about retirement – many are supporting other generations. 3 in 10 are providing financial support to adult children, while around 1 in 10 are helping elderly relatives.

So, you might not only be worrying about your circumstances but those of your loved ones. Supporting others financially could mean you’re neglecting your long-term financial wellbeing too.

If you’re nearing retirement, here are seven practical tips that could help you feel more confident about the future.

1. Understand what your income needs in retirement will be

There isn’t a one-size-fits-all answer when calculating how much you need to save for retirement. If you haven’t already taken a closer look at your income needs, doing so now could help you feel more confident. Sometimes the uncertainty can be more worrisome than the answer.

You might find you’ve put enough away to secure the retirement you want. On the other hand, if you find there’s a shortfall, you’re now in a better position to adjust your retirement plan or take steps to bridge the gap.

It can be difficult to take your annual income needs and understand how this relates to your pension or other assets. Working with a financial planner could be useful if you’re struggling to see how you could use a lump sum to create a regular income.

2. Review all your sources of retirement income

While your pension is likely to be your main source of income in retirement, it probably won’t be your only one.

You may receive a State Pension in your later years. For the 2024/25 tax year, the full new State Pension is more than £11,500 a year. This may not be enough to fund the retirement lifestyle you want alone, but it could provide a useful foundation to build on.

In addition, you might have other assets that you could use to create an income, such as savings, investments, or property.

So, if you’re worried you aren’t saving enough for retirement when reviewing your pension, a comprehensive financial plan could put your mind at ease.

3. Take steps to reduce debt

Taking steps to reduce outgoings by paying off debt ahead of your retirement could be useful.

Not only does it mean you may be financially secure with a lower income in retirement, but making overpayments could reduce the amount of interest you pay to service the debt.

With mortgage or rental repayments often being one of the largest bills households face, paying off a mortgage before you retire could be beneficial. Indeed, the Just Group survey found that homeowners are significantly more confident that they will achieve a good standard of living in retirement.

4. Check how your pension is invested

Usually, the money you pay into a pension is invested. Over the long term, potential investment returns may help your pension grow. As a result, checking your pension is invested in a way that’s appropriate for you could be valuable.

Typically, you’ll be able to choose from several different funds when deciding how your pension is invested. These funds will have different risk profiles and criteria, so you could choose one that’s right for your needs. If you haven’t selected a fund, your money will often be invested through the default option, which might not be right for you.

Keep in mind that investment returns cannot be guaranteed and investing carries risk. It’s important you choose a level of risk you’re comfortable with and that reflects your financial circumstances, as well as your retirement plans.

5. Make sure you’re claiming all the pension tax relief you’re entitled to

To encourage people to save for retirement, the government provides pension tax relief. This means some of the money you’ve paid in tax is added to your pension. As a result, a pension is a tax-efficient way to save for retirement.

Pension providers will usually claim tax relief at the basic rate on your behalf. However, if you’re a higher- or additional-rate taxpayer, you’ll need to fill in a self-assessment tax return to claim the full amount you’re entitled to.

6. Increase your pension contributions

If you find there is a gap between the value of your pension and the amount you need to live the retirement lifestyle you want, one of the most obvious options is to increase your pension contributions if you’re able to.

Even a small, regular boost can really add up. Your contributions will usually benefit from tax relief and, as the money is invested, it has the potential to grow during your working life. As investment returns will then be invested themselves, you could benefit from the effect of compounding.

In some cases, your employer may also increase the pension contributions they make on your behalf.

7. Book a meeting with a financial planner

It’s never too soon, or too late, to start working with a financial planner to create a tailored retirement plan. Whether you’re hoping to retire in the coming year or it’s still more than a decade away, a comprehensive financial plan could help you step into retirement feeling more secure and confident.

We could work with you to create a retirement plan that considers your goals and circumstances. Please contact us to arrange a meeting.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

When you give up work, your pension is likely to play a key role in creating an income. So, an essential part of retirement planning is often deciding how you’ll access your retirement savings.

Last month, you read about the importance of setting out your retirement lifestyle goals and how financial planning could help. Your income will play a key role in whether you can turn many of them into a reality. So, read on to discover what your options are when you want to withdraw money from your pension.

If you have a defined contribution (DC) pension, you’ll retire with a pot of money that you can access in several ways.

While the freedom to decide how and when to withdraw money from your pension could help you create an income that suits your needs, it also means you need to understand your options. You’ll be responsible for ensuring your pension creates financial security for the rest of your life.

Your pension options explained

1. Taking a lump sum

You can withdraw lump sums from your pension as and when you choose to.

This could be a good option if you have one-off expenses. For instance, if you’re taking on a home renovation project or want to lend financial support to a loved one.

However, you should keep in mind that pension withdrawals may be liable for Income Tax. While you can take up to 25% of your pension as a tax-free lump sum, withdrawals above this amount may be added to your income. As a result, taking a large lump sum could unexpectedly push you into a higher tax band.

2. Using flexi-access drawdown

Flexi-access drawdown allows you to take a regular income from your pension that you’re in control of. You could increase or decrease the income to suit your needs.

To ensure you don’t run out of money in your later years, you might want to consider factors like life expectancy or how inflation could affect your income needs over the long term. If you take too much from your pension, there’s a risk you could run out in the future. So, thinking about how you could create long-term financial security may be important.

3. Purchasing an annuity

You could also use the money held in your pension to purchase an annuity, which would then provide you with a regular income. Retirees often choose an annuity that will pay an income for the rest of their life, but you could also select an annuity that lasts for a defined number of years.

An annuity can be valuable if you’re worried about running out of money or don’t want the responsibility of managing your pension. However, it’s less flexible than other options.

Mixing your 3 pension options

You don’t have to choose a single way to access your pension – you can mix the options.

So, you could take a lump sum from your pension to kickstart your retirement plans. Then you might use a portion of the remaining amount to purchase an annuity to create a reliable income you’ll receive for the rest of your life. The rest of the money you could access flexibly using flexi-access drawdown.

Leaving your money in a pension could make financial sense

In most cases, you can access your pension when you’re 55, rising to 57 in 2028. However, you don’t have to make withdrawals at any point during your retirement if you don’t want to.

In fact, leaving money that you don’t need in your pension could make financial sense.

A pension is a tax-efficient way to invest. So, leaving your money in your pension to be invested in a way that’s appropriate for you could help it grow further.

Money that’s held in your pension could also be passed on to your loved ones when you die. Usually, pension savings aren’t considered part of your estate for Inheritance Tax (IHT) purposes. Instead, beneficiaries may pay Income Tax on the money, which could be a lower rate depending on their other sources of income. So, holding money in your pension may form part of your long-term estate plan.

You should note that pensions aren’t usually covered by your will. You will need to complete an expression of wishes with your pension provider to state who you’d like to receive your pension if you pass away.

Contact us to talk about your retirement plan

If you have any questions about how to access your pension or other aspects of your retirement plan, please get in touch. As financial planners, we could work with you to create a plan that’s tailored to your goals and assets.

Next month, read our blog to discover how financial planning could help you bring together the different strands of retirement planning so you can enjoy the next chapter of your life.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

The 2024/25 tax year is just a month away, and chancellor Jeremy Hunt has delivered his 2024 Spring Budget, outlining the government’s plans for the next fiscal year and beyond.

With a general election looming – prime minister Rishi Sunak has said he will call it before the end of the year – the chancellor claimed that the government had met the prime minister’s three economic priorities laid out at the start of 2023, having:

Halved inflation, down from highs of 11% last year to 4% in January 2024
Kept debt falling in line with fiscal rules
Grown the economy, fully 1.5 percentage points higher than expected.

Amid this backdrop, the chancellor called this a “Budget for long-term growth”, with goals to “deliver more jobs, better public services, and lower taxes”.

Read on for a summary of some of the key measures and announcements from this year’s Spring Budget, and what they might mean for you.

National Insurance will be reduced by another 2%

Arguably the biggest announcement from the chancellor’s Budget this year is that the main rate of Class 1 National Insurance contributions (NICs) will be reduced by a further 2%.

During the Autumn Statement in November 2023, the chancellor reduced the main National Insurance rate by two percentage points, falling from 12% to 10% from 6 January 2024.

Now, this main rate will fall a further two percentage points to 8%. Meanwhile, the main rate of Class 4 self-employed NICs will fall to 6%. Both changes will take place from 6 April 2024.

According to the OBR, an employed individual with average earnings of £35,400 will save £450 a year thanks to this cut, and £900 when including the previous cut in November 2023.

Furthermore, there will be no further requirement to pay Class 2 NICs from 6 April 2024, as outlined in the 2023 Autumn Statement.

However, offsetting these tax cuts is the news that the Income Tax Personal Allowance and tax bands will remain frozen until 2028.

As wage inflation increases, this could see many taxpayers pulled into a higher tax band over the next four years, an effect known as “fiscal drag”.

The High Income Child Benefit Charge will be reformed

Having been a contentious issue for some time, the chancellor confirmed reforms to the High Income Child Benefit Charge.

This tax taper effectively reduces the amount received from Child Benefit for those earning £50,000 or more. Those earning £60,000 or more must repay all Child Benefit or opt out from payments entirely.

Crucially, this rule only applies to one higher earner per household. So, a household with one person earning £55,000 and the other £10,000 would be affected by the charge, while two people each earning £49,000 would not be affected at all.

So, by April 2026, the government will introduce a household income charge, assessing both earners’ income against the threshold, rather than just an individual higher earner’s.

Furthermore, from 6 April 2024, the £50,000 threshold will be raised to £60,000, and the top taper to £80,000. According to the government, this will see half a million families gain an average of £1,260 in 2024/25.

The higher-rate Capital Gains Tax charge for residential property transactions will be reduced

To promote the housing market and encourage more property transactions, the chancellor announced a reduction in the higher rate of Capital Gains Tax (CGT) for gains on residential property, excluding main residences.

Under the current rules, the standard higher CGT rate is 20%, with an additional 8% charged on residential property transactions. This will be reduced from 28% to 24% from 6 April 2024, encouraging landlords and second-home owners to sell their properties, with the aim of increasing the housing supply for first-time buyers in particular.

The 18% charge for gains made in the lower rate band will remain unchanged.

On top of this, the chancellor also abolished the Furnished Holiday Lettings (FHL) tax regime, removing an incentive for landlords to offer short-term holiday lets rather than long-term residential lets, and Multiple Dwellings Relief, a bulk purchase relief in the Stamp Duty regime.

Changes to how and where pension funds are invested

As part of the chancellor’s goal to channel more capital into UK equity markets, the government is working alongside The Pensions Regulator (TPR) and Financial Conduct Authority (FCA) on the “Value for Money” pensions framework to “ensure better value from defined contribution (DC) pensions, by judging performance on overall returns, not cost”.

This looks to address where pension schemes prioritise short-term cost savings at the expense of long-term outcomes, as well as where savers may be prevented from receiving value because of a scheme’s current scale.

The FCA and TPR will have full regulatory powers to close schemes from new employer entrants or wind them up entirely if the schemes are “consistently offering poor outcomes for savers”.

The government will also seek to work with the FCA to increase UK equity allocations in DC pensions, asking pension funds to publicly disclose where this money is invested. These requirements will also extend to Local Government Pension Scheme funds.

Furthermore, the chancellor confirmed the government’s commitment to exploring a lifetime provider model for DC pensions, previously referred to as the “pot for life” in the 2023 Autumn Statement.

This would give pension savers the right to choose the pension scheme that their employer pays into, rather than being auto-enrolled into a scheme chosen by the employer.

Investments in UK-focused assets will be encouraged with the new “UK ISA”

As well as expanding pension investments into British businesses, the chancellor intends to create a new UK ISA, offering an additional tax-efficient allowance of £5,000 for investment in UK-focused assets. This is another move that aims to channel more investment into UK equities.

This will be on top of the existing ISA allowance, which remains at £20,000 for the 2024/25 tax year.

Other key changes

Fuel and alcohol duty remain frozen

Fuel duty will remain frozen for another 12 months instead of increasing in line with inflation, and the 5p cut to fuel duty, originally set to expire on 23 March, has been extended for a further 12 months. Government figures claim that this tax cut will save an average car driver £50 in 2024/25.

Meanwhile, the alcohol duty freeze will be extended until February 2025, benefiting 38,000 pubs across the UK.

Tax rises will bolster the government’s coffers

While this Budget has seen many tax cuts, the chancellor also announced measures that will see certain taxes increase.

Firstly, the government is abolishing the current tax system for UK non-doms, and replacing it with a “simpler and fairer” residence-based system.

From 6 April 2025, anyone who has been resident in the UK for more than four years will pay UK tax on any foreign income and gains, provided they have been non-tax resident for the last 10 years. In 2028/29, this will raise £2.7 billion. There will be transitional arrangements for those who have already benefited from the previous system.

There will also be a new levy on vaping products from October 2026, raising £445 million in 2028/29. Meanwhile, to encourage vaping over smoking, tobacco duty will also increase in October 2026, raising a further £170 million in 2028/29.

Household support fund extended

There will be an extra £500 million to extend the Household Support Fund in England from April to September 2024. This fund provides support with essentials such as food and utilities to vulnerable households.

Full business expensing extended, and increased to VAT thresholds

After initially making full business expensing permanent in November 2023, the chancellor announced plans to extend this to leased assets, when fiscal conditions allow for it. Draft legislation is to follow.

Furthermore, the chancellor increased the VAT registration threshold for small businesses from £85,000 to £90,000, and the deregistration threshold from £83,000 to £88,000 from 1 April. These thresholds are frozen at these levels.

Get in touch

If you have any questions about how the Spring Budget will affect you and your finances, please get in touch.

All information is from the Spring Budget documents on this page.

The content of this Spring Budget summary is intended for general information purposes only. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice.

While we believe this interpretation to be correct, it cannot be guaranteed and we cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained within this summary. Please obtain professional advice before entering into or altering any new arrangement.

With one eye on a forthcoming general election, the chancellor has announced a Budget aimed at generating long-term growth, with “more investment, more jobs, better public services and lower taxes”.

While the headlines will inevitably focus on Jeremy Hunt’s cut in National Insurance contributions (NICs), many less headline-grabbing messages will affect millions of families and businesses.

Read on to find out who were the winners and losers from the 2024 Spring Budget.

Winners

Working people

The chancellor said that his Budget gave “much-needed help in challenging times”, adding “if we want to encourage hard work, we should let people keep as much of their own money as possible”.

Calling NICs a “penalty on work”, Hunt announced a cut in Class 1 NICs, from 10% to 8% from 6 April 2024. These cuts follow a similar reduction in the rate of NICs announced in the 2023 Autumn Statement.

The chancellor says that these cuts, in conjunction with the reductions announced in the 2023 Autumn Statement, would mean the average worker on £35,400 would benefit from a tax cut of more than £900 a year.

He also announced that, instead of falling from 9% to 8% as previously announced, Class 4 self-employed NICs would fall from 9% to 6% from 6 April 2024. This is in addition to the removal of the requirement to pay Class 2 NICs from the same date.

He added that 2 million self-employed people would benefit, with the average self-employed person earning £28,000 seeing a tax cut of around £650 a year.

The Treasury say that this means UK taxpayers face the lowest combined basic rate of Income Tax and NICs since the introduction of the modern structure of National Insurance in 1975.

Parents earning Child Benefit

The chancellor highlighted the “unfairness” in the current Child Benefit system that means a household with two parents each earning £49,000 a year will receive Child Benefit in full, while a household earning less overall but with one parent earning more than £50,000 will see some or all of the benefit withdrawn.

Consequently, he announced a plan to move the High Income Child Benefit Charge to a “household” system from April 2026.

In the interim, from April 2024, the High Income Child Benefit Charge threshold will rise from £50,000 to £60,000 while the top of the taper will rise to £80,000. This means that the full amount of Child Benefit will not be withdrawn until individuals earn £80,000 or more.

The government estimates that nearly 500,000 families will gain an average of £1,260 in 2024/25 as a result.

The hospitality industry and their customers

In a move designed for “backing the Great British pub”, the chancellor has extended the freeze on alcohol duty. The freeze was due to end in August 2024 but has been extended to February 2025, benefiting 38,000 pubs across the UK.

The Treasury says that this results in 2p less duty on an average pint of beer than if the planned increase had gone ahead.

This measure will cut costs for breweries, distilleries, restaurants, nightclubs, pubs, and bars.

Motorists

The chancellor argued that lots of families and sole traders depend on their cars and so wanted to continue supporting motorists.

Consequently, he maintained the temporary 5p cut in fuel duty and froze the duty for another 12 months.

Hunt said that this would save the average car driver £50 in 2024/25.

Small businesses

In a boost to small businesses, Hunt announced that, from 1 April 2024, the VAT threshold would increase from £85,000 to £90,000 – the first increase in seven years.

ISA and National Savings and Investments savers

To encourage investment in small British businesses, the chancellor announced his intention to launch a new “UK ISA”.

This will enable savers to invest an additional £5,000 in a tax-efficient wrapper, increasing the total ISA subscription limit to £25,000 – assuming these additional monies are invested exclusively in UK firms.

The government will consult on the details.

The chancellor also announced that National Savings & Investments (NS&I) will launch a British Savings Bonds product that will offer consumers a guaranteed interest rate, fixed for three years.

This new NS&I product will be brought on sale in early April 2024.

Creative industries

From film to theatre and music to art, UK creative excellence is unmatched.

To support the UK’s creative industries, the chancellor announced a further £1 billion package of additional tax relief over the next five years, to boost inward investment and attract production companies from around the world.

Hunt also confirmed £26.4 million of support for the globally renowned National Theatre.

Pensioners

The Spring Budget also committed to supporting pensioner incomes by maintaining the State Pension “triple lock”.

In 2024/25, the Treasury say that the full yearly amount of the basic State Pension will be £3,700 higher, in cash terms, than in 2010.

Sellers of second homes

Capital Gains Tax (CGT) is often due when an individual sells a second home – such as a buy-to-let property or holiday home.

In a move designed to increase the number of transactions, and consequently increase the revenue from the tax, the chancellor announced he would reduce the higher rate of property CGT from 28% to 24%.

The lower rate will remain at 18% for any gains that fall within an individual’s basic-rate band.

Losers

Vapers and smokers

In an attempt to discourage non-smokers from taking up vaping, and to increase revenue for the NHS, the chancellor announced a new duty on vaping.

The Treasury says this will raise £445 million in 2028/29.

There will also be a one-off tobacco duty increase of £2 per 100 cigarettes or 50 grams of tobacco from 1 October 2026 to maintain the current financial incentive to choose vaping over smoking. The government say this will raise a further £170 million in 2028/29.

Non-economy airline passengers

The chancellor announced that rates for individuals flying premium economy, business, and first class and for private jet passengers will increase by forecast Retail Prices Index (RPI) and will be further adjusted for recent high inflation to help maintain their real-terms value.

Some “non-doms”

In a move borrowed from Labour, the chancellor announced the abolition of the “remittance basis” of taxation for non-UK domiciled individuals (“non-doms”) and a replacement simpler residence-based regime.

Individuals who opt into the new regime will not pay UK tax on any foreign income and gains arising in their first four years of tax residence, provided they have been non-tax resident for the last 10 years.

This new regime will commence on 6 April 2025 and applies UK-wide – and transitional arrangements will apply.

The Treasury says that this measure will raise £2.7 billion in the year 2028/29.

Owners of holiday lets

The chancellor said that the current tax regime creates distortion, meaning there are not enough properties available for long-term rental.

Consequently, he intends to abolish the Furnished Holiday Lettings (FHL) tax regime from 6 April 2025, meaning short-term and long-term lets will be treated the same for tax purposes.

Anyone subject to fiscal drag

Freezing tax thresholds increases the amount of tax that individuals and businesses pay without nominal tax rates actually increasing. Called “fiscal drag”, this results in additional revenue to the government as more taxpayers are “dragged” into paying tax, or into paying tax at a higher rate.

Freezes in a range of thresholds mean that millions of individuals and businesses will face “fiscal drag” in the coming years.

For example, while the increase in the threshold at which small businesses and self-employed people have to register for VAT will be welcome to many businesses, the fact that the threshold had been frozen for seven years means that more businesses will likely have been forced to register for VAT than if the threshold had risen each year in line with the cost of living.

Similarly, freezes to the Income Tax Personal Allowance and thresholds mean more people will either start to pay tax, or pay more tax at a higher rate, than if these thresholds had risen in line with inflation.

Get in touch

If you have any questions about whether you are a winner or a loser from the Spring Budget, and how it will affect you and your finances, please get in touch.

All information is from the Spring Budget document published by HM Treasury.

The content of this Spring Budget summary is intended for general information purposes only. The content should not be relied upon in its entirety and shall not be deemed to be or constitute advice.