Month: April 2018

Defined Contribution Pension Schemes

Building up a pot of money that can be used to provide an income in retirement
With a defined contribution pension, the member builds up a pot of money that they can use to provide an income in retirement. Unlike defined benefit schemes, which promise a specific income, the income the member might get from a defined contribution scheme depends on factors including the amount they pay in and the fund’s investment performance.

How defined contribution schemes work
Defined contribution pensions build up a pension pot using the members and their employer’s contributions (if applicable), plus investment returns and tax relief.

If they are a member of the scheme through their workplace, then the employer usually deducts contributions from their salary before it is taxed. If they have set the scheme up for themselves, they arrange the contributions themselves.

In work
The fund is usually invested in stocks and shares, along with other investments, with the aim of growing it over the years before the member retires. They can usually choose from a range of funds to invest in. It’s important to also remember though that the value of investments can go up or down.

In retirement
Commencing from 6 April 2015, a qualifying member will be able to access and use their pension pot in any way they wish from age 55.

They will be able to:

Withdraw up to 25% tax-free

Convert some or all of the remaining amount into a regular retirement income (known as an ‘annuity’), and/or

Withdraw the remaining cash in stages or as one lump sum, subject to tax at their highest rate

Between 27 March 2014 and 6 April 2015, interim rules apply that give more choice than before about how much of the member’s pension pot can be cashed in.

The size of the pension pot and amount of income received at retirement will depend on:

How much is paid into the pot

The length of saving

How much the employer pays in (if a workplace pension)
How well the investments have performed
What charges have been taken out of the pot by the pension provider

How much is taken as a cash lump sum

Annuity rates at retirement – if the annuity route is chosen

Any other type of retirement income chosen

Defined Benefit Transfers

Safeguards to protect pension benefits

Transfers from defined benefit schemes to defined contribution schemes will continue to be allowed (but will exclude pensions that are already in payment). However, transfers from defined benefit schemes to defined contribution schemes will be restricted for members of unfunded public sector schemes, although you may be allowed to transfer in very limited circumstances.

There will also be some safeguards put in place to help ensure that members and their pension benefits are protected.

These include:

Taking advice from a regulated adviser before transferring from a defined benefit schemes, unless the pot is under £30,000. Advice will have to be paid for. But, if the transfer is to a connected employer scheme, or it is an incentivised transfer, the employer will pay; and Scheme Trustees will be given guidance on how to protect their schemes funding position from the impact of transfers out

Guaranteed guidance
Another new part of the changes includes access to guaranteed guidance. All individuals who have a defined contribution pension scheme will have access to high-quality, impartial and free guidance on their approach to retirement. This new guidance guarantee will offer quality, structured help with decision-making.

Minimum pension age increased to 57
The normal minimum pension age (the earliest age a member can normally access their pension pot) will increase from age 55 to age 57 in 2028. It will increase at the same rate as the increase in the State Pension age from then on. This means that the minimum pension age will remain ten years below State Pension age.

The change will apply to all pension schemes, with the exception of those in the public sector, that do not link their normal pension age to State Pension age from 2015. This includes fire fighters, police and armed forces.

Financial resilience

How prepared are you for any financial shocks?

Over three million working couples are classed as ‘double income, no option’ (DINOs), which means they are potentially financially vulnerable if one of the two loses their earnings.

The typical household today looks very different from the traditional image of a working family made up of one primary breadwinner and one homemaker. Instead, nowadays many households rely on two incomes to maintain their lifestyle, or even just to get by. Of the two thirds of Britons who are living as part of a couple, half (51%) are both currently working. Yet, without adequate savings or protection insurance, millions could be at risk financially if one of the main earners was unable to work for a period of time.

Dependent on two incomes
Research by LV= has found that there are 3.2 million working couples in Britain that would be classed as DINOs. This means they are dependent on two incomes to make ends meet, and would struggle to cope if they lost one of their incomes. The Money Advice Service (MAS) recommends the provision of 90 days’ worth of outgoings in savings to protect against a financial shock.

The lack of savings may be down to people simply not being able to afford to put money aside. A quarter (27%) of working couples surveyed say their double wage isn’t stretching as far as it did this time last year. However, not having a back-up source of money leaves many couples at a high risk of financial difficulty if one person couldn’t work for a period of time.

Level of financial pressure
The level of financial pressure is also clear in the numbers who anticipate they’ll be working for many years to come. Of couples who both work, three in five (58%) wouldn’t choose to work if they didn’t have to, while over half (54%) say the same of their partner. Three in ten (30%) people in a working couple expect that both they and their partner will have to work until retirement to make ends meet, while one in five (21%) think both of them will actually need to work throughout retirement.

Millions of couples need both incomes to pay the bills, with a significant proportion saying they’d have to make major changes if they had to rely on one income. And the impact of losing an income is not just financial. Two in five (42%) people in a couple say that if one of them couldn’t work, it would strain their relationship.
Few have income protection
Despite the reliance so many households have on both incomes, worryingly few have income protection, leaving them vulnerable if one member of the household was unable to work for a period of time. Three in five (59%) say that neither they nor their partner has any form of income protection.

If your household is reliant on two incomes to make ends meet, it’s important to consider how you would survive financially and emotionally if you were forced to live off one income. With so many households now relying on two salaries to get by, it has never been more important for couples to protect their joint incomes.

Help to support you financially
Income Protection (also known as ‘IP insurance’) is a form of insurance that helps support you financially if you have time off work and suffer a loss of earnings because of injury or illness. However, it is important to remember that Income Protection only covers you if you’re unable to work due to illness or injury – it does not pay out if you are made redundant.

This type of insurance covers most illnesses that leave you unable to work. What that means, exactly, depends on your individual policy. For example, it may cover you if you are unable to work due to a stress-related illness or a serious heart condition.

Source data:
Research conducted by LV= published 17/1/2018

Avoiding hidden dangers in retirement

Make sure you don’t run out of money or face a reduced standard of living

Increasingly, more and more pensioners are keeping much of their pension invested after they retire. This means they’re faced with two very different risks when deciding what to do with their savings in retirement in a world of ‘pension freedoms’. Since April 2015, people who reach retirement have had much greater flexibility over how they use their pension funds to pay for their later years.

A recent report[1] identified that many savers in retirement are either taking ‘too little’ risk (the ‘risk averse’ retiree) or taking ‘the wrong sort’ of risk (the ‘reckless’ retiree). Each of these approaches increases the danger of a saver either running out of money during their retirement or having to face a reduced standard of living.

The risk-averse retiree – how can you take too little risk?
An example of taking ‘too little’ risk is the saver who takes their tax-free cash at retirement and invests the rest in an ultra-low risk investment such as a Cash ISA, believing this to be the safe approach. The report points out that ‘investing in retirement is still long-term investing’ and shows that decades of low-return saving can seriously damage the living standards of retirees.

It highlights the case of someone who retired ten years ago with an illustrative pension pot of £100,000 which they invested in cash. Assuming they withdrew money at £7,500 per year (in line with annuity rates at the time), they would now be down to £27,000 and likely to run out in around four years’ time, less than fifteen years into retirement. By contrast, if the same money had been invested in UK shares, there would still be around £48,000 left in the pot, despite the 2008 stock market crash.

The reckless retiree – what is ‘the wrong sort’ of risk?
In an era of low interest rates, some retired people may be tempted to seek out more unusual forms of investment with apparently high rates of return but accompanied by much greater risk to their capital. Examples could include peer-to-peer lending, investment in aircraft leasing or even crypto currencies such as bitcoin.

Concentrated exposure to a single, potentially volatile investment can produce very poor outcomes, particularly if bad returns come early in retirement. The pension pot in the previous example would still have £88,000 in it if the bad year for UK shares had happened at the end of the ten-year period we looked at and not at the start.

The rational retiree – what is the best way to handle risk in retirement?
Rather than invest in an ultra-low-risk way or chase individual high-risk investments, the report identifies a ‘third way’ of spreading risk across a range of assets, including company shares, bonds and property, both at home and abroad. This multi-asset approach can be expected to provide better returns over retirement than cautious investing in cash but also helps to smooth the ups and downs of individual investments.

Pension freedoms open up new possibilities for people in retirement, but they create new dangers as well. There is the danger of being too cautious and not making your money work hard enough – investing in retirement is still long-term investing. There is also the danger of taking the wrong sort of risk, seeking high returns but putting your capital at risk. Spreading money across a range of asset classes and in different markets at home and abroad is likely to deliver better returns in retirement – and a more sustainable income – than remaining in cash, without exposing you to the capital risks that can come from chasing after more exotic or risky types of investment.

These investments do not include the same security of capital which is afforded with a deposit account. You may get back less than the amount invested.

Source data:
[1] Research report published 13 January 2018 by mutual insurer Royal London

Life events

What will influence your retirement income needs?

Retirement is a time for you to do the things you’ve always wanted. When considering your retirement income needs, you need to consider the types of events you would like to happen after you retire that may impact your budget. Thinking about these early could help you when you’re deciding the best way to take your pension savings.

Perhaps you’re looking forward to having more time to explore faraway places. Or maybe you dream of simply waking up each day and doing whatever takes your fancy. However you see your future, retirement is a time for you to do the things you’ve always wanted to do.

Concept of retirement
The very concept of retirement has changed. ‘Phased retirement’ is becoming more common; the way we access our pension is now a lot more flexible, and in the UK we’re living longer than ever before. A longer retirement and more choice over how you take your pension require planning ahead to help ensure you’re on track to a financially secure future.

Working habits
Although you may have retired from full-time employment, perhaps you may wish to earn money from part-time work. Besides the State Pension, consider any other income sources you’ll have when you finish working full-time and find out when they commence.

Supporting your family
Perhaps you have children or grandchildren that you plan to help through further education. How will you provide this financial support once you’ve retired? Some people intend to help their children onto the property ladder. Have you made a plan for how you’ll afford this?

Leading a healthy lifestyle can help ensure you’ll be fighting fit during your retirement. However, ill health can strike at any time. And although you may not like to think about it, it’s important to factor things like medical costs into your financial planning.
In the longer term, you may also need to pay for residential care for yourself, your partner or your parents.

Savings and property
The amount you have in savings may influence what you’ll need from your pension. Is this enough to live on?
If you own a home, you may have decided that you’ll sell your home and move somewhere that better suits your lifestyle needs. You’ll also need to think about how you would pay for a new property, and factor in any repair costs to a new or existing home.

How you choose to take your pension
The way you choose to take your pension can impact things like your tax position or pension allowances. If you choose to move provider, you may lose any guarantees that you may have with your existing pension provider. You should also think about the impact of taking any tax-free cash, income or lump sums may have on any means-tested benefits you currently receive.

The effects of inflation
The effects of inflation may reduce the buying power of your savings and investments in the future, so think about how you’ll maintain your lifestyle if your money doesn’t stretch as far.

Financial Fitness

Time to track and celebrate your wealth goals?

With the Christmas festivities now a distant memory, money matters are firmly on people’s minds this year according to recent research[1].

A poll of more than 3,500 UK adults[2] found the most common money goals are: putting more money into their savings accounts (21%); paying off their credit cards or loans (17%); and starting a regular savings habit (15%). Some people also plan to reduce their household expenses by switching energy suppliers and insurers (9%).

Clear goals in mind
Many are planning to save or invest this year, with clear goals in mind. Four out of ten (38%) people are saving for a holiday, one in ten are putting money aside for a new car (11%) and the same number (11%) are tightening their belts so they can financially help their children. A further one in ten (10%) are saving for a deposit for a house.

However, one in seven (14%) are thinking long term and investing for their retirement, and one in 13 (8%) are saving for later life care.

Setting a financial plan
Others are keen to set a financial plan (7%) and use all their Individual Savings Account (ISA) allowance (6%) in the year ahead. While some (6%) say they want to more actively manage their investments in 2018, one in 20 (5%) people say they want to start investing – perhaps recognising that they need to start making their money work harder for them in 2018.

Most people acknowledge that they may need help if they want to change their money habits in 2018. While some people turn to their mum (12%), dad (9%) and friends (8%) for advice, six out of ten (62%) say they’ll do their own online research in order to achieve their financial goals in 2018.

Familiar goals listed
The poll also found people have some familiar goals on their list for 2018. For instance, losing weight (26%), exercising more (25%) and travelling (15%) are all activities that many people want to do in 2018. Other common goals include: getting organised (12%); spending more time with family and friends (11%); and learning a new skill (9%).

An ambitious one in ten (9%) people have set their sights on getting a pay rise or a new job (8%) this year. τ
Source data:
[1] Brewin Dolphin research published 28 December 2017.
[2] Opinium surveyed 3,500 UK adults online between 8 and 13 December 2017.
Results weighted to reflect a nationally representative audience.

Why being over 40 is the new mid-20s

Healthier lifestyles and feeling happier about financial planning for retirement

An increasing number of middle-aged Britons are getting healthier as they exercise more and eat better than they did when they were younger. Over-40s are turning to healthier lifestyles, with more than half rating themselves as more health-conscious than they were in their mid-20s, according to new research[1].

Nearly one in five (17%) of working over-40s say they are physically fitter than they were in their mid-20s, the nationwide study shows. And the fitness bug even applies to older age groups, with 11% of over-65s reckoning they are physically fitter than in their mid-20s.

Career, finances and relationships
The study asked over-40s to rate themselves now compared with their mid-20s and found 53% believe they have a healthier general lifestyle now. However, being happier with their lifestyle than in their mid-20s does not necessarily translate into all aspects of their lives according to the research which asked about career, finances and relationships.

Just 45% of over-40s feel happier about their financial planning for retirement than in their mid-20s, while a worried 36% admit to feeling less positive about retirement planning than in their mid-20s. Over-40s are most positive about financial security and relationships now compared with in their mid-20s.

But being happier at work now than in their 20s and being generally happier is not always the case as findings show.

Less positive about retirement planning
Growing older means changing attitudes, and it is striking that more than half of over-40s believe that they are healthier now than in their mid-20s, with nearly one in five claiming to be fitter. As people earn more and save more, it is good to see they feel more financially secure. However, it’s worrying that so many are less positive about retirement planning, especially as many will be fast approaching retirement.

The commitment to healthier lifestyles does not always translate into taking exercise – around 30% admit they either rarely (if ever) exercise for 20 minutes or only do it once a month. However, a committed 22% say they exercise for 20 minutes every day.

Source data:
[1] Research conducted by Consumer Intelligence for Prudential amongst 1,057 adults aged between 40 and 65 across the UK from
6 to 11 July 2017.

New lease of life

Pensioners embracing the benefits of retirement and new-found time

As with any new life stage, planning often helps a smooth transition from the old to the new. Preparing properly for anything new requires planning and commitment. Spending time on planning now will ensure you enjoy the retirement you’ve worked hard to achieve.

According to new research[1], retirement has meant a new lease of life for millions of people who have given up work in the last ten years, with more than one in four (26%) saying they are fitter and healthier since they stopped working. Far from winding down, nearly half of those who have retired since the height of the financial crisis (48%) say they are busier and more active than they anticipated.

Experience of retirement
Through embracing the benefits of retirement and making the most of the new-found time, more than one in three (35%) say they have more time to make their life more adventurous than they could have hoped while they were still at work.

When asked how else their experience of retirement was exceeding their expectations, many of those who have become pensioners in the last ten years pointed to improvements in their relationships. More than a quarter (26%) believe they now get on better with their partner, while 25% think that their relationship with their family is happier since stopping work. Meanwhile, just under one in four (23%) say their social life has improved more than they expected.

Professional financial advice
As people who plan to finish work in the next ten years begin to look forward to their retirement, there’s plenty they can still do to make sure they are as comfortable as the people who have become pensioners over the last decade. Most importantly, in the face of changing pension rules, many people will benefit from obtaining professional financial advice in the run-up to retirement.

Retirement will continue to change over the coming years, but for many people the desire to make the most of their new-found free time will remain. Reflecting on their retirement in general, the vast majority who gave up work in the last ten years (86%) said that it had met their expectations or they were happy with how it had panned out so far, while only one in eight (13%) said that it has been a disappointment.

Thoughts, feelings, emotions
Nearly two in five (37%) thought they would have missed work more than they have since retiring, and in fact one in four (26%) wish they had retired earlier. Meanwhile, on reflection, more than one in ten (11%) wish they had been more active or found a job in the early years of their retirement.

It’s important to prepare your thoughts, feelings and emotions for the next phase in your life: a time to look forward to and welcome as a chance to do the things you have been dreaming about, as well as a rest after a long career. There is likely to be a mixture of feelings and thoughts as you start on this new venture into uncharted territory.

Source Data:
[1] Consumer Intelligence conducted an independent online survey for Prudential between 26 May and 5 June 2017 among 751 adults in the UK who had retired within the last ten years.

Financial freedom

Creating and maintaining the right investment strategy

Our life is an endless series of daily choices, and how we manage those choices determines the outcome of our life. We all want financial freedom, but how will we achieve it? Financial goal-setting is the key to building wealth.

There are always going to be bumps in the road on every journey, which is why it’s essential to be flexible enough to adjust your plans when the unexpected happens. Your wealth creation objectives need to be able to adapt to whatever’s going on in your life. Nothing should stand between you and your long-term goals.

Creating and maintaining the right investment strategy plays a vital role in helping to secure your financial future. Whether you are looking to invest for income, growth or both, we can provide you with professional expert advice to help you achieve your financial goals. So what do you need to consider?

Set a goal and start early
Short term, ultra specific goals are generally very easy to achieve as they don’t really involve any planning, but longer-term goals on the other hand require you to actually plan out how you are going to achieve the goal. Remember that wealth creation is about creating a lifestyle of your choosing, and the earlier you start to invest, the sooner you can enjoy the benefits of compound growth working for you to build value and make your money work harder for you.

By taking the time to step into your future, you can look back and visualise what needs to happen today for you to enjoy the lifestyle you want tomorrow. Ask yourself these three questions to help you visualise your future needs: what do I have? What do I want? When do I want it?

Develop an investment habit
If you think that investing a few hundred pounds every month will offer little in return, you should change your mindset. To start your investment strategy, you should adopt a stable and organised investment routine that will help you achieve your goals. Compound growth is the central pillar of investing. It is why investing works so well over the long term.

The more you invest and the earlier you start will mean your investments have that much more time and potential to grow. By investing early and staying invested, you’ll also be able to take advantage of compound earnings. Making money on your money is the concept behind compounding. Compounding is when the money you earn from your investments is reinvested for the opportunity to earn even more. However, you need to keep in mind that while compounding can make an impact over many years, there may be periods where your money won’t grow.

Be consistent
Many people stop their investment planning particularly during market downturns, as we’ve seen in recent weeks. By doing this, they often miss out on opportunities to invest at lower prices. If you keep to your investment strategy and keep moving ahead consistently, this helps spread risk and enables you to grow your wealth for the long term through pound-cost averaging and careful asset allocation.

It’s important to remember that investing is an ongoing process, not a one-time activity. The right way to begin your investment strategy is by establishing goals that need to be achieved over the short, medium and long term. Secondly, it is necessary to assess your current position in the financial lifecycle. Thirdly, you must ascertain your risk profile, as that decides how much risk you should take while investing. This is particularly important as different financial objectives require different investments approaches.

Maintain a well-diversified portfolio with regular reviews
Regular reviews of your portfolio enable you to adjust your portfolio to meet your changing needs and risk appetite at different stages of your life and in different market conditions. This helps you keep up your investing momentum towards achieving your long-term financial goals. It’s also important not to put all your investment eggs into one basket.

Investing randomly into different asset classes without ascertaining their asset allocation, not following a disciplined approach to investing, exiting abruptly from an asset class and investing without a clear time horizon are some of the most apparent inconsistencies in any investment process. τ




Tips to minimise the tax you pay

Have you utilised all your year-end tax planning deadline opportunities?

As we near the 2017/18 tax year end on 5 April, if appropriate to your particular situation, we’ve provided some tax planning tips to help you maximise the use of your various tax allowances and minimise the tax you pay.

We take a personal approach to your tax needs. Informed by our detailed knowledge of your affairs, we explore some of the best options which you could consider to help manage your tax obligations most effectively.

Income Tax planning
Ensure income-producing investments are held by the spouse who has the lowest tax rate
Make use of the transferable married couple’s allowance where one spouse is not fully using their personal allowance and the tax- paying spouse only pays the basic rate of tax
If your income is around the £100,000 figure, look at ways of preserving the personal allowance. You could consider making Gift Aid payments or pension payments to help minimise loss of this allowance
Consider topping up any Individual Savings Accounts (ISAs) you or your spouse have to the maximum limit, which is £20,000 each
Make use of any unused annual pension allowance brought forward before it is lost
Make use of the £5,000 dividend allowance available when considering salary and dividend options
If your company car arrangement is coming up for renewal, consider opting for cars with lower emissions and list prices to help minimise an Income Tax charge

Inheritance Tax (IHT) planning
Use your annual exemption for gifts of up to £3,000 per tax year; this exemption can be carried forward to the next tax year
Regular (qualifying) gifts out of net incomeare exempt from IHT – consider establishing a pattern of regular gifting to take advantage of this tax break
Wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, or £5,000 for a child) are exempt from

Small gifts exemption up to £250 – you can give as many gifts of up to £250 per person as you like during the tax year, providing you haven’t used another exemption on the same person

Capital Gains Tax planning
Make use of the annual exemption – currently £11,300 – and remember that assets can be transferred between spouses and registered civil partners tax-free