Retirement Archives

Tax relief could boost your pension and mean you have more financial freedom in retirement. Yet it’s something that you may overlook when reviewing your pension, as analysis suggests that some workers aren’t claiming their full entitlement.

In fact, according to a report in the Telegraph, higher- and additional-rate taxpayers could have missed out on as much as £811 million of tax relief in the 2021/22 tax year.

So, how does pension tax relief work? Read on to find out.

Tax relief is like a bonus the government gives when you save for retirement

A pension provides a tax-efficient way to save for your future because of the tax relief you receive. Essentially, when you add money to your pension some of the money that would have gone to the government is added to your savings instead.

When you consider how this could add up over the long term, it means saving for retirement through a pension makes sense for two key reasons.

More money is going into your pension when you contribute so you could have a larger pot when you retire. As the money held in your pension is often invested, tax relief, along with other pension contributions, could grow further during your working life.
As saving into a pension is tax-efficient, contributing could reduce your overall tax liability. However, you should keep in mind that pension savings usually aren’t accessible until the age of 55, rising to 57 in 2028.

You receive tax relief at the highest rate of Income Tax you pay. The amount is calculated on your pre-tax earnings. So, as a basic-rate taxpayer, if you contribute £80 to your pension, you’ll receive £20 in tax relief, meaning a total contribution to your pension of £100.

To boost your pension by £100 in total, you’d need to contribute £60 and £55 as a higher- or additional-rate taxpayer respectively.

If you don’t earn more than the Personal Allowance, which is £12,570 for the 2022/23 tax year, you could still benefit from tax relief at a rate of 20%.

You may need to fill in a self-assessment tax return to claim your full entitlement

If you have a workplace pension, tax relief of 20% will usually be automatically added to your pension. This is known as “relief at source”.

However, if you have a different type of pension or you’re a higher- or additional-rate taxpayer, you will need to complete a self-assessment tax return to receive your full entitlement. You’d normally receive this additional tax relief through a tax rebate, which you can deposit into your pension if you choose.

It’s worth checking you’re receiving all the tax relief you’re entitled to, even if you believe it’s automatically added to ensure you’re not missing out. The Telegraph report indicates this is something many workers are overlooking.

How much tax relief can you claim?

If you can, contributing more to your pension could mean you receive more in tax relief so your money goes further.

There are limits to how much you can add to your pension before you could face an additional tax charge when you access your savings. These thresholds include the:

Annual Allowance: This is the amount you can add to a pension during a tax year while still retaining the benefits of tax relief. For the 2023/24 tax year, the Annual Allowance is up to £60,000 or 100% of your annual earnings, whichever is lower. There are circumstances when your Annual Allowance may be lower, including if you’re a high earner or have already taken an income from your pension. Please contact us if you have any questions about the Annual Allowance.
Lifetime Allowance: The Lifetime Allowance is the total pension benefits you can build up before suffering a tax charge. It covers the total value of your pension, rather than just your contributions, so you may also need to consider how tax relief, employer contributions, and investment returns will add up. Note that, in the spring Budget, the chancellor announced the Lifetime Allowance tax charge will be removed in 2023/24, and that he will then legislate to abolish the Lifetime Allowance altogether.

Contact us to talk about your pension

Pensions can be confusing and you may not be sure if you’re saving enough for the retirement you want. Contact us to talk about your long-term goals and the steps you could take now to help you reach them.

Please note:

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

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 results.

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.

Next year, Boris Johnson’s social care cap will be introduced. So, what is it and what does it mean for you?

The social care cap limits how much an individual will pay for care during their lifetime. It will start in October 2023. The cap is £86,000, but it may not be as generous as it first seems.

The cost of care and the financial decisions someone must make if they or a loved one requires care have been debated, especially as more people are requiring care later in life.

The cost of care varies hugely between locations and the type of care needed. However, according to carehome.co.uk the average cost of living in a residential care home is £704 a week, adding up to £36,608 a year. If nursing care is needed, this rises to £888 a week, or £46,176 a year.

As a result, it’s not surprising that many people are worried about how they will pay for care if they need it and the decisions they’d need to make to fund it.

While a local authority may pay for some or all of care costs, this is means-tested, and most people will need to pay for at least a portion of their care bill. It can mean some people needing to use care facilities are forced to sell their homes or deplete the assets they’d worked hard to secure.

“Daily living costs” are not covered by the care cap

The social care cap will only cover the costs of care. It will not include “daily living costs”. This means care home residents will still be liable for costs such as rent, utility bills, and catering even after they reach the social care cap threshold.

The average daily living costs of a care home resident is difficult to assess. At the moment, many care homes do not itemise bills.

The exclusion of living expenses means it’s still important for people to consider care costs beyond the £86,000 cap.

The distinction between costs has led to criticism of the cap. It’s also received criticism for other reasons, including:

The cap remaining the same for everyone. Individuals with total assets with a lower value could lose more of their estate, as a percentage, than wealthier individuals.
Not tackling the issue of what is classified as “social care” rather than “healthcare”. Dementia sufferers, for instance, will often face higher care costs because the support needed typically comes under “social care” rather than “healthcare”.

If the value of your assets exceeds £100,000, you will need to pay for the cost of care

Whether or not you have to contribute to care costs depends on the total value of your assets, this may include things like your savings, property, and investments.

Under the new rules, people with assets under £20,000 will not have to deplete their assets to pay for care. However, they may have to make contributions from their income depending on how much it is.

If the value of your assets is between £20,000 and £100,000 you may get help from your local authority to pay for care costs, this will be dependent on your income and assets.

If your assets are more than £100,000, you will need to pay for all the care costs until the value falls below this threshold.

There are different savings and asset thresholds in Scotland and Wales.

So, once you consider the value of your property and other assets, it’s likely you would need to pay for care until the cap is reached, and then continue to pay for daily living costs.

It’s important to make potential care costs part of your long-term plan

No one wants to think about needing to use care services later in life. However, making potential costs part of your long-term plan can provide you with security.

Not only does it mean you have a fund to use if it’s needed, but it can also provide you with more choice if care is required. It may mean you’re able to choose a facility that offers the services you want or a residential care home that’s closer to your family and friends.

We can help you put a financial plan in place that will help you reach your goals and provide you with security when things don’t go to plan. Please contact us to talk about care and the steps you can take to create a care fund.

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

More retirees are planning to work in some way after they retire. While this flexibility can boost your income and help you strike a work-life balance that suits you, it can lead to some tax implications that you need to consider.

According to a report from abrdn, just a third of people retiring in 2022 plan to give up work completely while two-thirds will continue to work. Flexible retirement is a growing trend, in 2020 just a third of retirees planned to continue working.

When asked how they will work in retirement, 24% of those retiring this year plan to work part-time in their current job or a new position, including in the gig economy. 15% will continue to work in their own business and 12% want to use retirement to become entrepreneurs.

So, while more retirees plan to continue working, many are exploring different options that will help them build the lifestyle they want.

Financial concerns are playing a role in the flexible retirement trend, but it’s not the only reason

While creating an income in retirement is a key reason behind the flexi-retirement trend, it’s not the only one. In fact, 32% said they want something to keep them busy.

Creating a sustainable income that will last throughout your retirement can be difficult to understand. You will often need to consider a range of factors, from life expectancy to potential investment returns. So, it’s not surprising that only a quarter of 2022 retirees are confident that they’ve saved enough.

Higher levels of inflation are adding a layer of complexity.

In the 12 months to April 2022, inflation reached 9%. Retirees that don’t consider how inflation will affect their cost of living over their retirement could find that their spending power dwindles. Inflation can mean that an income that afforded a comfortable lifestyle at the start of retirement doesn’t stretch far enough in your later years unless it rises at the same pace.

Despite this, 27% of retirees said they didn’t know how to mitigate the effect of inflation on their retirement income.

Financial planning can help you understand how your pension savings and other assets can help you build an income you can rely on in retirement. It means you can start this chapter of your life with confidence. For some, it may mean they continue to work past their retirement date.

Financial planning could also help you make your income more tax-efficient if you do plan to continue working in retirement. Just 25% of retirees that want to work are aware of the potential tax implications, and it could mean they face a larger bill than they expect.

3 important questions to consider if you’ll work in retirement

One of the reasons tax can become more complex if you want a flexible retirement is that your income may come from multiple sources and may change depending on your needs.

These three questions can help you understand how your decisions will affect how much tax you pay, and what you can do to reduce your tax bill.

1. Will you access your pension while you work?

If you’re earning an income from working, will you still need to access your pension?

If you have a defined contribution (DC) pension, you can access it flexibly from the age of 55, rising to 57 in 2028. This can help you secure the income you need even if your income from work changes.

However, your pension may be subject to Income Tax, so it’s important to understand how withdrawals will affect your overall tax liability. If your total income exceeds tax thresholds, you could find you pay a higher rate of Income Tax than you expect.

If you don’t need your pension to supplement your income, leaving it where it is can make sense. Money held in a pension is typically invested and can grow free from Capital Gains Tax. So, leaving it invested until you need it can help your savings go further.

2. Will you continue to pay into your pension?

An advantage of continuing to work is that you may still be able to pay into a pension, this can boost your financial security later in life.

If you’re an employee under the State Pension Age and earning more than £10,000 in the 2022/23 tax year, your employer must automatically enrol you into a pension, and contribute on your behalf. Even if you’re not automatically enrolled, you can still add to a pension and benefit from tax relief.

One thing to be aware of is the Money Purchase Annual Allowance (MPAA). If you access your pension to take an income, the amount you can tax-efficiently add to your pension each tax year may fall to just £4,000. If you unwittingly exceed this limit, you could face an additional tax charge unexpectedly.

3. Will you claim the State Pension?

If you plan to work past the State Pension Age, you should consider if you’ll still claim the State Pension.

The State Pension may be liable for Income Tax if your entire income exceeds the Personal Allowance, and it could push you into a higher tax bracket. As a result, if you don’t need the income, it can make sense to defer your State Pension for tax reasons.

If you do decide to defer your State Pension, you will receive a higher amount when you claim it. Your State Pension payments would increase by 1% for every nine weeks you defer, which is just under 5.8% if you defer for a year.

If you want to make the most out of your retirement savings, a tailored financial plan that considers your assets, lifestyle decisions, and goals could help reduce your tax liability and give you peace of mind. If you’d like to arrange a meeting with us to talk about your retirement, please contact us.

Please note: This article is for information 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 tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

Whether retirement is over a decade away or just around the corner, you could face significant challenges that may affect the lifestyle you want. Learning more about these potential obstacles and taking steps to reduce their impact now could make heading into retirement smoother.

Almost half of people see retirement as a time of financial freedom

The Great British Retirement Survey from interactive investor found that 45% of people who have yet to retire view this chapter of their life as a time for financial freedom. Without work commitments, retirement can provide you with the space to focus on the things you enjoy. Achieving financial freedom can provide peace of mind so you’re able to embrace the lifestyle you want.

When asked what they hope to spend retirement doing, travel came out top. 3 in 10 (29%) of respondents said travelling more was their top priority when they retired. Using retirement as an opportunity to spend time developing a new business or hobby was popular too. 42% of people yet to retire are looking forward to this.

While you may be optimistically thinking about a time when you don’t have to go to work, reaching your retirement goals requires careful planning. There are challenges those approaching retirement could face, and they may derail your goals. Here are five challenges modern retirees need to think about to create a secure future.

1. Managing multiple pensions

Gone are the days when employees would stay at the same company for decades. Today, it’s far more common to frequently switch jobs to learn new skills and seize opportunities. The downside to this is that you can end up with multiple pensions. This can make it difficult to assess if you’re on track, and when you consider their various charges and investment performance, you could be missing out.

The Great British Retirement Survey found that 66% of people yet to retire have more than one pension, and 15% have four or more. Worryingly, 6% don’t know how many pensions they have. Keeping track of where your retirement savings are is important, as it can be easy to “lose” them. In some cases, consolidating your pension can make retirement planning simpler.

The challenge of multiple pensions is set to increase. Auto-enrolment means most employees will now benefit from a workplace pension. So, it can be easy to accumulate many different pots throughout your working life.

2. Deciding how to access your pension

How you access your pension has become more complicated. Previous generations would usually have a final salary pension or purchase an annuity to deliver a reliable income for the rest of their life.

This changed in 2015 when the government introduced Pension Freedoms. Under the new rules, you can still purchase an annuity, but you can also take a flexible income through drawdown or withdraw lump sums if you have a defined contribution (DC) pension. These changes provide more flexibility, but they also mean retirees have more responsibility and need to understand the pros and cons of each option.

Despite the complexities of this, just 27% of retired people in the survey worked with a financial planner. Those deciding how to access their pension were far more likely to rely on their own research (64%) or read the financial press (42%). While these steps can be useful, they can mean you miss vital pieces of information, and it can be difficult to understand how the options relate to your circumstances.

3. Running out of money

How long do your retirement savings need to last? Retirement can last for decades, and it can make it difficult to arrange your finances to deliver the income you need. It’s why 41% of workers worry about running out of money. Almost 3 in 10 (27%) retirees are still worried they don’t have enough to last their lifetime.

A financial plan can provide you with confidence about your long-term finances, even if you decide to take a flexible income.

4. Being affected by stock market volatility

If you decide to access your pension through drawdown, your savings will usually remain invested. This means your pension will remain exposed to market volatility. You may also have investments outside of your pension that you will use in retirement.

After the sharp market dip at the start of the Covid-19 pandemic, almost half of both workers and retirees list market falls in their top-three financial concerns. Market falls can mean your assets are worth less, but keep in mind that over the long-term, markets have historically recovered.

When you retire, having a financial buffer in cash can help reduce the impact of market volatility. Several months’ worth of expenses in an accessible account means you won’t have to withdraw from your pension amid short-term volatility. When investment values fall you have to sell more units to achieve the same level of income. Having cash to fall back on can help preserve your pension for the long term.

5. The rising cost of living

Inflation has been big news recently, so it’s not surprising that 42% of those that haven’t retired yet rate it highly among their concerns.

The Bank of England has an inflation target of 2% a year. However, due to Covid-19 and supply shortages, inflation in the 12 months to September 2021 was 3.1%. The central bank has said inflation could reach 4% in the coming months. Higher levels of inflation mean that day-to-day and luxury costs are likely to rise for households.

When making a retirement plan, you need to consider inflation and how it could affect your spending power. Over a retirement that could span decades, inflation can have a significant impact. There are several ways you can consider inflation when putting together your retirement plan. This may include leaving some of your pension invested with the aim of delivering returns that keep pace with or outstrips inflation. Or you may purchase an inflation-linked annuity to maintain your spending power.

Effective retirement planning can help you highlight challenges and put in place a plan that means you can overcome them and focus on what’s really important to you in retirement. If you’d like to talk about your retirement and the steps you can take to create financial freedom, 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.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.

Saving for retirement should be part of your financial plan and can help you secure the lifestyle you’re looking forward to. But watch out for these eight pension mistakes, which could ruin your plans.

1. Putting off paying into a pension

The sooner you start paying into a pension regularly, the better.

Throughout your career, even small regular deposits can add up. You will also have longer to benefit from the compounding effect of investments. However, some workers are cutting back or stopping pension contributions. According to Royal London, two in five workers aged between 18 and 34 stopped or reduced pension contributions due to Covid-19. Unbiased reports almost a quarter (24%) of under 35s have no pension savings at all.

That being said, it’s never too late to start a pension and plan for retirement.

2. Opting out of a workplace pension

The majority of workers are nowadays automatically enrolled into a workplace pension. While you can opt out, this would often be a mistake when you consider the long-term benefits. Pensions are a tax-efficient way to save for retirement, and by opting out you are effectively giving up “free money”.

Pension contributions benefit from tax relief at the highest level of Income Tax you pay, providing an instant boost to savings. On top of this, employers must contribute to your pension too. Currently, employers must pay a minimum of 3% of pensionable earnings on your behalf.

3. Making only the minimum contribution

Linked to the above point, paying only the minimum contribution level under automatic enrolment is likely to leave a shortfall when you retire. When you’re automatically enrolled, 5% of your pensionable earnings go to your pension.

Despite this, 37% wrongly believe the auto-enrolment minimum pension contribution is the government’s recommended amount to be comfortable in retirement, according to the Pensions and Lifetime Savings Association.

4. Sticking with a default pension fund

Pension providers typically offer several different funds, with various risk profiles. You’ll begin paying into a default fund, but you can switch. You may want a lower risk investment fund if you’re close to retiring or a higher risk option if you have other assets you can rely on. The default fund may be the right option for you, but you should review the alternatives.

It’s also worth noting that many pension providers will start to reduce the level of investment risk you take as you near an assumed retirement date. Make sure the age you plan to retire is accurate.

5. Not checking pension performance

Your pension is usually invested and like other assets, you should track its performance with a long-term outlook. Regularly checking investment performance can help ensure you’re on track and identify where gaps may occur. In addition to reviewing investment returns, you should also review the charges you’re paying to the pension provider. In some cases, switching provider or consolidating pensions can make financial sense, as well as making your retirement savings easier to manage.

6. Losing track of old pensions

Most people will be automatically enrolled into a workplace pension. If you switch jobs, it can mean you lose track of where your retirement savings are.

If you’re not regularly checking your pension, it’s an asset that can slip your mind. Just 1 in 25 people consider telling their pension provider when they move home, according to the Association of British Insurers. It’s estimated there are 1.6 million unclaimed pensions worth £19.4 billion.

Going through your paperwork can highlight if you’ve “lost” a pension. The government’s tracking service can help if you can’t find the details you need.

7. Assuming State Pension will be enough

Almost two-thirds (64%) of people expect the State Pension to fund their retirement, research from accountants Kreston Reeves found.

The State Pension is a valuable benefit. However, for most people, it is not enough to enjoy the retirement lifestyle they want. For the 2021/22 tax year, the State Pension will pay £179.60 per week (£9,339.20 per year), assuming you have 35 years of National Insurance contributions or credits. Building up a separate pension provision is often essential for a comfortable retirement.

8. Relying on an inheritance

With conflicting short and long-term goals, it can be difficult to set money aside for retirement when you’re still working. For some, it means an expectant inheritance is the focus of their retirement plan. However, it means your retirement could be at risk due to factors that are beyond your control.

First, you can’t be sure when you’d receive an inheritance. You may need to delay your retirement as a result. Second, even if you’ve spoken to loved ones about receiving an inheritance, circumstances can change. A parent’s assets can be quickly depleted if they need care later in life, for example. Despite this, nearly one in five people are anticipating an inheritance to support them in retirement, according to a survey from Hargreaves Lansdown.

Planning for retirement is important. Please contact us to create a retirement plan that suits you, we’re here to help you avoid mistakes and secure a retirement lifestyle you can look forward to.

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

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.

Hello out there. It’s the weekend again. Where did that go?! I hope you’re all well and safe, spirits up and eager to learn of your next investment opportunity. This week I’m going to take a look at tax and more importantly saving it. It’s topical this week thanks to dear old President Trump and what seems like a great team of advisers he has. $750 income tax for a man of his wealth. Wow! Firstly though, I have a confession to make. The title of this post may be a little misleading. I am no magician and I’m not prepared to be ‘creative’ with the truth – that would be illegal. So, if you are a billionaire expecting me to get you a £750 tax bill this year, you will be sorely disappointed.

For most people out there however, spanning from those with a modest nest egg to those with millions, there is hope. Plenty of ways exist in which you can very legally keep your hard earned cash away from the dreaded tax man. This isn’t dodgy. This is just about making use of the allowances available to each and every one of us.

This list certainly isn’t exhaustive and should not be taken as individual advice, but here are a few of the main ways that you could get a little bit closer to paying tax like Trump…

1. Use your ISA allowance

OK, cash ISA’s offer very little return at the moment. I know. In fact, in some cases if all you can do is cash, you may be better off without the ISA – but only if you have relatively modest savings and don’t invest outside of cash at all. Otherwise, you should consider making use of your full allowance if you can do so. Why? Two reasons.

Firstly, because it’s a use it or lose it situation. You may not think the ISA is worth it now, but the returns will always be tax free (subject to no rule changes). That’s a very valuable benefit for those that have managed to, or are likely to, build more substantial sums.

Secondly, ISA’s can make use of many more investments than just cash. Most offer you a much better potential for return if you are prepared to accept even a cautious amount of risk and invest for a little bit longer. This can substantially increase tax free income.

2. Use your pension allowances and tax reliefs

By using a pension to save for retirement, you’ll also avoid paying some tax. That’s because your pension contributions qualify for tax relief. So if you’re a basic rate taxpayer, you’ll qualify for tax relief at a rate of 20%. Meanwhile, higher rate taxpayers qualify for tax relief at a rate of 40%.

Do you own your own private company? Great news, pension contributions in most cases will count as a business expense, therefore a saving of 19% corporation tax can be made.

You should note that the amount you can contribute to your pension is now limited to £40,000 a year, but your allowance for a limited number of previous years can be carried forward, so where funds exist this can be a substantial win. But this again could be classed as a use it or lose it situation.

Pensions grow tax free too, so they are are a great way to build up a tax-free nest egg for your retirement. That said, once you start to claim your pension income, you will have to pay income tax. Don’t worry! You do get the first 25% of your pot to withdraw tax free and you can structure your income appropriately – more later.

3. Use your personal income tax allowance.

Every one of us currently has a personal tax allowance, a nil rate tax band if you like, of £12,500. If you are part of a couple (that is in a good place I should add!) this presents you with a couple of opportunities to use it!

Firstly, just taking the pension issue a little further, it may be useful to structure some of your contributions to reflect that this allowance can be used by you both when you start to draw retirement income, but only if you’ve got sufficient funds to draw. This could be a useful tool for example if you are both directors of a family company or have excess income.

Secondly, if you are married or if tax and personal circumstances allow, you could transfer any income producing assets to his/her name and receive a nil or lower tax rate by using his/her personal allowance.

This means that for a couple, with the right investments and structuring of contributions to pensions, in retirement you could bag yourself an income of £25,000 before you start paying any tax and this could be drastically increase by also having a properly structured investment portfolio.

You can find info about personal tax allowances here.

4. Use your other allowances – all of which most people have!

Savings Allowance

Since April 2016, savers have been able to grow their money tax free, thanks to the ‘personal savings allowance’. This allows you to earn interest up to £1,000 interest tax-free if you’re a basic-rate (20%) taxpayer, or £500 if you’re a higher-rate (40%) taxpayer. Additional-rate taxpayers don’t receive a personal savings allowance, so if you earn more than £150,000 each year, you’ll need to pay tax on all your savings.

All interest from savings is now paid gross, which means tax will no longer be deducted by your bank or building society. At today’s rates you could have a fair amount invested in cash before you start paying tax on the returns. I would of course suggest that this is a terrible idea given inflation would eat away at your capital quite readily. All is not lost however, as some investment funds offering higher potential returns (with some risk) are also ‘interest’ producing. This means you can structure your investment portfolio accordingly to make use of this allowance.

Dividend Allowance

Everyone has a tax free dividend allowance of £2000 per year. This means that for owners of private limited companies taking company profits as dividend, or investors in public shares receiving dividends this is a valuable allowance.

Taking regular dividends over time from an income producing share portfolio or share based fund portfolio can add a healthy amount onto your retirement income. These could be phased into ISA’s over time, further reducing tax and giving you a slice of the profit from the great companies of the world. For the well informed investor this strategy is a must.

Capital Gains Tax Allowance

You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance (called the Annual Exempt Amount). The Capital Gains tax-free allowance is £12,300. This gives you the opportunity to purchase investments with readily available capital at any time and then phase them, as detailed above, into more tax efficient environments such as ISA’s.

This also gives you the ability to realise amounts of capital for one off expenditure, such as those kitchens, cars and cruises!

So what now?

OK so that’s it. Nothing hard there at all?! But even with some of the more experienced savers and investors out there, in most client meetings I can usually manage to save some tax. It’s all about structure and it’s all better off in your pocket than with the tax man.

If however what you’ve just read means nothing to you, but you have pensions and other assets that you’ve worked hard to build over time, you could probably use some advice. Structuring your future wealth and income properly could quite literally save you thousands and I always find it is well worth it.

I appreciate some of you may like to see this in practice, so at the end of this post I’ve added a case study example. It’s an easy one I know and I fully appreciate that everyone is different and the world is not ideal. So why not drop me a line? I am always on hand to answer any questions you may have – just email advice@agileifa.co.uk or use our contact form and we will gladly contact you.

Thanks for reading . Until next week.

Chris @ Agile

Case Study David & Rachel, both 66. Target after tax income – £30,000.

David and Rachael are ready to retire, they have just celebrated their 66th birthdays. They each have money purchase pension pots, David has a sum £200,000 whilst Rachael has £150,000. Their children left home a while ago and since then they have done a great job at saving. They also inherited a small amount from parents. Having managed to fund ISA’s to some extent for a number of years they recently decided these should be invested rather than held in cash given terrible cash rates. They are currently worth £75K each. They like to keep a cash buffer too, so have £50,000 in a savings account paying 1%.

Knowing that their spending habits will change now that they are no longer working, Rachel set out to create a budget that would fit their lifestyle in retirement. They no longer have a mortgage so it’s really as simple as day to day spending, the occasional holiday and social. This comfortably comes within £2500 per month.

The zero tax solution…

	David	Rachael	Tax	Notes
State Pension	£9,110	£9,110	£0	Within Tax Free allowance
Pension Drawdown Income	£4,520	£4,520	£0	Uses remainder of personal allowance as taxable income and includes the tax free cash available on the payment.
ISA 3% Withdrawal	£2,250	£2,250	£0	Income and capital gains both tax free
Savings Interest	£250	£250	£0	Within personal savings allowance.
Total Income & Tax	£32,260		£0

This allows them to live comfortably to their lifestyle and have money left in pensions and investments for the ‘big things’. Of course, if you are younger than state pension age great – just replace it with private pension withdrawals. They’ve even got a little Brucie Bonus on top of their desired 30K. Happy days!

Hello again readers! I hope you are all well and getting to grips with the second new normal. Over the last few months we have been trying to ‘control the virus’ and I have been trying, probably with more success, to ensure that this temporary blip in the road doesn’t lead to irrational investor behaviour. What I’m failing at is the urge to link these posts to coronavirus. I’ll stop soon I’m sure, but for now, here’s another insight that could help you to use the impending further lock down to take positive steps for your financial future. This week the topic is inflation, the silent killer of your nest egg.

What’s your number?

Everyone should have a number. For everyone it’s different. What number? Your number. The one that represents the amount of money you’re going to need for retirement. The one that let’s you answer ‘yes’ to the question ‘am I going to be OK’? The number is the answer to the sum of your life. It’s based on the lifestyle you want in the future and have become accustomed to after your years of toil. So what if slowly and silently the value of the money it represents was siphoned off? So sneakily and slowly that you never realised, until all of a sudden you hit 70 and find that your three weeks in the Caribbean have turned into a caravan in Cleethorpes?

There are a few predators that can deviously devour your retirement nest egg if they aren’t kept in check. Some of these you can control, such as the charges on your investment portfolio. There are others such as tax, which you can control to a certain extent, by making use of your tax efficient allowances such as ISA’s and pensions. Don’t worry, I intend to delve deep into these topics on future blog posts so sit tight! For today however, I will concentrate on one killer that you unfortunately have absolutely no control over – and that’s inflation.

Headline returns

Every investor hopefully wants to generate real returns after charges and tax and should do everything in their power to keep these as low as possible. This is just a no brainer. But what else? The media spends much of it’s time giving us headlines and never more than over the last few months. I’ll give you two examples of this.

Savings rates

We are always aware of changes in the Bank of England rate and the subsequent change in savings rates. During the first few weeks of recent government support for firms and individuals, some of the best rates around could be found at National Savings. I never thought I would be saying to clients that for funds held in instant cash (and this should only be your emergency funds people!) they should use premium bonds. Alas, the amazing return of 1.4% has now come to an end and has reduced to a mere 1%. It was only kept high because the government needed your money. Now it appears they want it less and last week has seen commentators jump all over this.

The markets

For the investors out there (and even if your only asset is a workplace pension you are an investor) you may have been paying more attention to the level of the stock market. We have recently had daily headlines of ups and downs, sometimes in the region of 9%. You always hear about the downs more than the ups! Of course you shouldn’t have been giving this more than a passing glance. These are temporary falls. If this ever isn’t temporary, capitalism will have failed. We will have much more to worry about.

For the financially informed, the stock market (and by this I mean global businesses) represent the best long term return available. You just have to be well behaved and accept the ups and downs, but I invite you to look around you right now. You are surrounded by everyday products that represent your support for global businesses. Do you plan to stop buying things? Do you think anyone else does? Why wouldn’t you want your share in the profit of all of our spending, magically compounded over time? I’ll leave that thought with you.

Inflation should be much more of a worry for you now, but we don’t tend to spend a lot of time talking about inflation rates. BBC and Sky news don’t show us a lovely inflation graph every day, but they should. Why don’t they? Because it’s not a headline, it’s just there every day, slowly and sneakily stealing the buying power from your wealth.

Inflation isn’t like it used to be

The 1970s to the 1990s were a time of high inflation, but by and large this has been off the table as an issue for investors since then. Just have a think back to this time though. In 1990 the rate of inflation was a whopping 9.46%, but if you were savvy you could get interest on a bank account of 14%. That is a real return. From cash. Who would believe that now! Let’s take a look at today. We have an RPI inflation rate of 1.5% and the most you can get from a bank account (if you are lucky) is 1% and that’s for premium bonds or locking your money away for a lengthy amount of time. The majority of cash accounts now pay next to nothing.

I refer to RPI specifically, because this is the rate of inflation more related to the things we spend on a day to day basis. You may also hear the term CPI also used. Why is this important? CPI usually measures lower, but RPI is your main concern! Confused? Check out this handy ONS explainer.

Why you should be concerned

A lot of savers these days are holding large cash balances in the hope of riding out current market volatility. The problem is, with the return on cash hovering around 0% in nominal terms and -1.5% in real terms, this puts investors in a pretty deep hole. If you believe the inflation predictions this will only get worse.

The reality is unless you are getting over 1.5% net (current rate of RPI) then you are guaranteed to lose money. So, if you’ve got your maximum £50K in premium bonds this means a real loss per year from now of at least £250. This may not seem so bad to you. But if your remaining 50K is paying no interest at all, in total you are losing £750 a year in real terms. £100K in a normal savings account paying nothing? You’ve lost £1500.

Inflation is by far the biggest investment risk over your lifetime

Take a step back and say to yourself. “I put my money in the safest place I thought I could and I’ve lost a grand.”

Does this sound mad? Are you hearing yourself right? Yes, you damn well are.

This is money that would and should have been spent on you. It was part of ‘your number’ and was for whatever makes you happy. It’s been stolen. It hasn’t been taken away from your balance on paper, but ‘your number’, that amount you need for a great life, just went up. Same difference. This is the wrong kind of compounding, the reverse of what you have become accustomed to.

The answer

So, what can you do about it? This is very simple in principle. You can have a proper financial plan. A plan which carefully considers your current and future lifestyle. One with a carefully selected set of investments designed to provide you with access to capital and income exactly when you need it. A plan which includes a long term investment strategy that can allow your nest egg to create real returns. It should pin down and focus on what you want out of life and make certain that you’ll have ‘your number’.

It doesn’t matter where you are in your financial life or where your capital is invested at present. A plan is a mandatory, crucial and responsible thing to do if you want to ensure the continued prosperity of your family isn’t pilfered by inflation. If you’re thinking about getting something together you can find some things to think about in our retirement blog post.

The best time to make your plan was 20 years ago. The second best time is now.

Thanks for reading.

Until next week…

Chris @ Agile

I’ve been trying to think of things you might associate with the number six. Six eggs. Six pack – ha I wish! Six geese a laying. Six of one and half a dozen of the other. Some readers, I’m sure, will remember spending a sixpence in their younger years, otherwise known as a ‘tanner’. Given that’s the number of the now, we should all try and remember it somehow.

I wouldn’t want any readers to inadvertently breach the new rule of six and bag a £100 fine. That would be a terrible move for the health of your finances and the nation. Even if you think that’s a price worth paying to visit grandma with the kids, or the local rave if that’s your thing, I wouldn’t recommend it. So, in order to keep the number firmly on your mind, here are six things to (potentially) avoid if you want to maintain healthy finances for a lifetime…

1. Slacking on saving

Most people tell me that they have managed to save more recently, perhaps more than ever. We obviously haven’t had as much to spend our money on! Holidays are a risk, there was no point in new summer clothes and getting out and about to shop or socialise has been much more of a chore. But as the new normal starts to materialise, we are all going to be compelled to loosen the purse strings a little.

It doesn’t matter how rich you are, your fear of missing out on the best phone, best car, best clothes and other important (?) luxuries can have a serious affect on financial planning for the future. You may have heard the wise Chinese proverb that says “The best time to plant a tree was 20 years ago. The second-best time is now.” Well that pretty much applies to saving too. While the best time to start saving may have been 20 years ago, don’t panic. There’s plenty of time to control the FOMO and direct some of your cash into a long term savings plan.

I’m all for having a great lifestyle now, but as humans we are compelled to black out the future. Thinking of today and putting off until tomorrow creates one thing – uncertainty. It’s my job to remove it. So read on…

2. Prioritising other people

Only you are responsible for your financial future. That’s it. Fact. There are fewer final salary pension schemes these days. The state pension gets further into the future by the year, and if you haven’t already, I advise you to check when you will get yours here. To top it all off, your company pension usually needs to be invested with care and diligence in order for it to provide you with the retirement you deserve. That’s because it’s got risk attached to it and guess what? The risk is yours.

Why then do people often set priorities that are the total opposite of good financial planning? I often see people paying tens of thousands for children’s education, weddings, house deposits, cars and so on. Are you creating a future problem?! Yes, if you are forced to move in with those kids to survive in later life or if your holidays move from Barbados to Blackpool!

I’m not saying that you shouldn’t help out the kids, far from it, but the ‘bank of mum and dad’ needs a prudent manager. One that can put the outlay into the context of your wider financial planning, make sure it’s affordable and won’t affect your future. There are ways to fund education, such as student loans. There are government incentives to fund housing, such as help to buy. Then there are of course the more traditional ways to fund this stuff like good old fashioned responsible saving… theirs I mean. These options can all be exhausted before your nest egg is.

3. Declining to defend

“It will never happen to me.” Well maybe it won’t, but as we are all too aware these days, it can and will. No-one knows how or when. That’s why you need to consider two key things that can soften the blow when disaster strikes.

Firstly, you need an emergency fund. A few months expenditure in a relatively accessible place that can help you deal with a disaster. If you lose your job this will give you some breathing space. If your boiler packs in, you need the money to sort it.

Secondly, you should consider insurance to cover anything that can’t be paid for with your emergency funds. If you will eat into your retirement savings to fund a disaster, such as loss of income or in the worst case due to a death in the family, then it should be covered with insurance. Why? Because if it isn’t covered and the worst happens your retirement could end up looking much less rosy.

Yes you will pay a monthly premium and it’s a cost. Put that cost into the bigger picture and in the majority of cases, if something does go wrong, it will be a much lower cost. You don’t want to affect your retirement through spending your nest egg. You shouldn’t be forced to damage your health further by the need to work to pay the mortgage. Cover it.

4. Selling not staying

What is a ‘paper loss’? Let me explain. Let’s say you buy a house for £300K and then 6 months later it’s valued at £250K. Have you lost £50K? No. You still have the house and the loss is on paper. You’ve only made a loss if you sell the house!

This also applies to investments. Often when investments fall in value people panic, their gut instinct tells them to sell and without someone (like me) to steady their nerves their paper loss turns into a real one. What’s more, they typically then try to time the markets, miss out on gains and are left in a much worse position. Do this a few times in your investing life and your financial plan will catch more than a cold! You can read more in my post on timing the investments markets here.

The main thing to remember is that you should only be selling investments to create cash that you will absolutely need in the short term. Otherwise sit tight and do absolutely nothing!

5. Living too much life

We all become accustomed to a lifestyle. It’s inevitable that as we hopefully increase our income we will use some of that to enjoy the finer things in life. However, once you’ve got this lifestyle you are going to want it to continue, for life.

The problem is that one day you are going to want (or need) to slow down a bit. Less work means a loss in income and that needs to be replaced. That’s going to have to come from savings or pensions, both of which need to be contributed to now.

Some of you may have heard of a famous investor, the one and only Mr Warren Buffet. His quotes get banded about quite often but always aid good financial planning! I make no apologies for highlighting the following two…

“Do not save what is left after spending; instead spend what is left after saving.”

“Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date.”

Thanks Warren. Enough said.

6. Passing on the professionals

This can be a big problem. There’s a reason why we use professionals to do jobs we think we might be able to do ourselves. My oven recently decided to start indiscriminately burning everything to a crisp – so I bought a new one. It was lockdown, it could not be fitted by the well known appliance firm for health reasons and to top it all off they would only leave it at the bottom of the drive. “OK Chris” I said to myself, with the oven up the drive and steps, two coffees down and much head scratching later, “you can do this.”

I enthusiastically began work removing the old oven. Three hours and many expletives later I had finished the whole task. Along the way there was an argument with my other half re positioning, the unnecessary removing and then refitting of the cabinet housing and the dislodging of the gas pipe to the hob. After the final screw had been turned and the oven was proudly in place, I found the protective plate, to be fitted to the electrics at the back, right there on the kitchen side. This was as well as all the other minor issues, you know the ones, “where is that screw?”. You get my point. I’m a great financial planner but I’m terrible at fitting ovens. This would have been a safer and shorter job with a pro.

A less stressful alternative…

Many people go it alone when it comes to financial planning, but often they don’t know what they don’t know. As a result, they can’t fix what they don’t see. Like the oven debacle, it could cause much stress, mistakes and in the case of financial planning , retirement doom. Luckily I could hear and smell the gas. You can’t hear and smell lost investment returns.

In client conversations I often uncover blind spots in estate planning, tax and investment strategies that were hiding in plain view. That’s as well as acting as a great sounding board for all of the financial decisions that get thrown at me, whilst always making very clear the effects of these on the longer term plan.

A good financial planner can serve as a guide to help you see your blind spots and help you avoid sabotaging your financial future. It’s about helping you make the right decisions and avoid costly mistakes. If you’re thinking that’s a great idea, I know a good one.

Thanks for reading.

Until next time…

Chris @ Agile

I love helping clients on the journey to retirement! With the right plan it can be one of the most fulfilling times of life. In this post I’ll take a look at some of the things to think about. There are only two things I ask of you. 1) Put aside some time. 2) Get a pad and pen dedicated to only this.

A number of retirement transitions

Retirement for many is no longer about hanging up their boots and hitting the rocking chair. You can now expect to live a third of your life after what would have traditionally been considered the age of ‘retirement’. That’s means income needs to be found for a lot of years.

As a result, more and more people are mixing a gradual slow down in work with an increase in leisure and family activities. That might be in the same job, or if it’s likely to increase their wellbeing, a completely different challenge!

This style of transition means more people can continue to afford their desired lifestyle for longer, but with all the purpose and social activity that work can give.

Being prepared for retirement

People are busy. So much so that I find most don’t sit down early enough to have a good think about how their future might look. Crazy! A good set of starting ideas, even if they become unrealistic over time, can be immensely useful. It’s much better to be in the picture about the future you would like, whether you can afford it and if you need to consider things differently.

Here are some questions. The answers should certainly set you on your way to a good plan…

What would you like to do with your time?

What will your days actually look like? How will you spend the time you would have spent at work? When I ask this question some common themes include helping with grand kids and more holidays. That’s fine, but actually looking at your time and considering how much will be spent on each activity can be a really beneficial exercise.

If you work a full time role you will spend at least 1800 (but for lots of people many more) hours a year at work, plus all of the travel time and lunch breaks. That’s some time to fill! A thought provoking task can be to draw up a week planner – try to fill it with the daily activities that would fill a week in your ideal retirement. This could be harder than you might think.

Other than daily life, I always encourage thinking big! What are the things you’ve always dreamed of doing and why do you want to do them? If you’ve always fancied a trekking the Inca Trail, owning that Harley Davidson or adding that dream extension now is the time to get that on a list. You might just find that what seemed like a pipe dream becomes all the more possible with good planning.

How much will you spend?

An expenditure planner will help you understand how much income you will need to create. I know this sounds really boring – I get it.. but trust me this is the most important bit!! This should include a potential spend for absolutely everything but you can pretty much break it down into three categories – essential, luxury and aspirational.

Start by reviewing your statements and have a think about how your current spend may change. It’s worth creating a ‘before and after’ list for the first and second phase of retirement. Things like the cost of travel will undoubtedly change with fewer days in work. Tip – once you’ve done this put it to one side, leave it for a couple of weeks and then pick it up and review it… and then do that again! Without a doubt there will be things you have forgotten. I can’t stress how important it is to be strict with yourself on this one. That occasional coffee, window cleaner and haircut all adds up to what can be a substantial sum.

Finally, think about your answers to my first question– what would the rough cost of those bucket list items?

What does the pension pot look like?

Get together a value or income projection for all of your pension schemes. You can get a state pension forecast by visiting www.gov.uk/check-state-pension. For your workplace and private pensions things can be a little more tricky, as many now retire after having several employers. I can’t count the number of times I’ve dealt with 10+ pensions for a single client and found other lost ones in the process. As pension schemes can change management many times, this can be a task in itself. This is where the expertise of an adviser can be invaluable.

Are things looking healthy or do you need to do more? Are all of the pots invested in the right place? Do you understand all of your schemes?

This is of course where people like me come in handy and can help to take away the complexity, but it’s definitely worth getting things together and taking a look. Most people who tell me ‘they haven’t got a clue about pensions’, when it comes to it should give themselves more credit.

What are you worth?

Besides pensions, I always encourage people to keep track of their net worth. It’s important because it will highlight what you’ve got to work with for retirement.

Make a list of all your other assets and their value, whether that be bank accounts, investments, property or premium bonds. Everything of value can form part of the plan and make a big difference to your retirement lifestyle. Those accounts that you’ve been putting off sorting out will need to work as hard as they can.

If you have any, also make a list of your liabilities. That could include mortgage, loans and credit cards. Prioritising which of these can be cleared will be an important first planning step.

How’s your health?

This is an area that people often put off, but ‘health before wealth’ is a good motto to have. The point of retirement is a good time to make sure you are fully MOT’d, so you can enjoy everything that you’ve planned for. Make sure you’ve taken up the offer of your free NHS health check. This is important, because health conditions can increase the retirement income you will get should you take certain forms of income. Importantly, you can ensure there are no nasty surprises ahead.

Your health situation will also form part of the plan in other ways, such as if mobility could cause a necessity to move house or if you may need increased care at some stage.

Who’s important?

You may need to depend on family or friends at some point in retirement. This could be as you get further into old age or particularly as health can change rapidly. Discussing this with them can be a good idea and formally appointing them via a power of attorney is always something I would recommend you consider.

You’ll also need to make sure you know who will receive your assets when you’ve gone and made sure it’s in your will. Getting all of this sorted early will give you peace of mind it’s done and out of the way.

I know this is something that many don’t want to think about, but this can cause your family lots of pain and stress! When care is required, there is more death tax being paid than necessary or when no will causes a family bust up many wish they had just done it!

Do you need retirement advice?

Putting all of the above together can sometimes seem quite complex but getting the initial ideas and outline of plan is so important. Speaking to an adviser can help you to understand what position you are in and how you can model your cash flow. You might be surprised at the opportunities you have to live the perfect retirement.

If you feel like you need to speak to someone about any of your answers, I’d obviously love to have a chat. I can’t count the number of times it’s been my pleasure help my clients map out all of the above and say the words ‘relax, you’re going to be OK!’