Finance

Planning for an early retirement  

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Living life to the fullest and accomplishing long-held dreams. 

It’s common for individuals to either overestimate or underestimate their lifespan. As average life expectancy gets longer, some people may spend over 20 years or more in retirement. 

Early retirement typically signifies reaching financial autonomy before the statutory pension age, usually in the mid-60s. In the United Kingdom, retirees can begin drawing their State Pension at age 66. However, this retirement benchmark is set to increase to age 67 by 6 April 2028. 

Consequently, the early retirement age could be anywhere in your early 60s. Yet, for most, the concept of early retirement begins at age 55, when individuals can start drawing on their personal or workplace pension savings. However, this age is also due to increase to 57 from 6 April 2028. 

Aspects of Life 

During the early retirement phase, the focus tends to be on living life to the fullest and accomplishing long-held dreams. One’s spending might then reduce as activity levels decline, only to surge again later, possibly due to rising care needs. 

It’s common for individuals to either overestimate their health or underestimate their lifespan. As average life expectancy gets longer, some people may spend over 20 years or more in retirement – over twice our grandparents’ duration. Yet, as with many aspects of life, this depends on luck. 

Complex Calculation 

In fundamental terms, full retirement implies that your lifetime expenses should not surpass your income plus any remaining assets, such as savings and investments. This can be a complex calculation in many instances. It will require you to weigh your pension and other income sources against your expenditure and evolving needs as you age. 

Simultaneously, it’s crucial to consider investment returns and inflation, which refers to the rising cost of living. As we have recently witnessed, everyday prices can escalate rapidly, significantly diminishing the purchasing power of a fixed income or cash savings. 

Multiple Factors 

Embracing early retirement doesn’t necessarily translate to a full-stop on professional life. Instead, many individuals transition into more flexible, part-time roles or switch towards volunteering. This shift allows retirees to sidestep less appealing aspects of working life, such as long commutes or stressful work environments while reaping employment benefits. 

Unfortunately, early retirement due to ill health isn’t a choice but a necessity, creating unique challenges for some. Time constraints limit opportunities to plan and build retirement finances. Additionally, careful planning for care and support becomes a priority. Making the decision to retire early is significant and requires thorough consideration of multiple factors. 

To determine whether you can retire early, you will need to assess your financial standing. This means calculating your total pension pots, tracking lost ones and considering other possible income sources or debts. Additionally, you need to envision your ideal early retirement lifestyle and estimate its costs. 

Assessing your Financial Health 

To begin, you need to calculate your total pension pots. This includes private or workplace pensions and any final salary pensions you might have. If you’re considering early retirement, remember that the State Pension won’t be included in this income. 

Reclaiming Lost Pensions 

It’s not uncommon to lose track of pensions over time. The government’s free Pension Tracing Service can assist if you suspect a missing pension but lack any supporting information. Visit their gov.uk website or phone them on 0345 600 2537. Consolidating your pensions might also be a sensible strategy. 

Understanding your State Pension 

Check up on your State Pension to understand how much you’ll receive and when the payments will start. This is crucial for your overall retirement planning. 

Identifying Additional Income Sources 

Consider other potential income sources after retirement. This could include savings and investments, property ownership, or even starting a part-time job or your own business. 

Managing Debts and Loans 

Take stock of any outstanding debts or loans. Consolidating them could potentially expedite their clearance. Set a specific date to pay them off entirely. 

Estimating Retirement Income 

We can help you estimate your retirement income and offer valuable insights into your financial future. 

Envisioning Your Retirement Lifestyle 

Next, plan your essential retirement spending by mapping out mortgage repayments, utility bills and other necessary expenses. Then, envision your ideal retirement lifestyle. What do you want your life to look like once you’ve retired? How much will it cost? 

Factoring in Responsibilities 

Consider any responsibilities that might impact your retirement plans. Will your children still be dependent on you? Might you need to care for older parents or relatives? Are there any other responsibilities you should bear in mind? 

Deciding Where To Live 

Housing decisions are a crucial part of retirement planning. Do you want to stay in the same house, release equity with a lifetime mortgage, move somewhere new, downsize and release some money, or even move to a cheaper region and upscale? 

Estimate Retirement Spending 

Finally, combine all the above factors to estimate your total retirement spending. There’s a lot to consider here. But as you work through it, you might realise that you’re more prepared to retire early than you initially thought. 

If you are considering early retirement and would like professional retirement advice, please get in touch:

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What do you need to consider when planning an early retirement?

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There’s a lot to consider if you are planning an early retirement. But as you work through it, you might realise that you’re more prepared to retire early than you initially thought. 

If you aspire to retire early, it’s vital you plan your finances to be sustainable for the long term and our expert team of Financial Advisors are here to help you every step of the way.

If you’d like to speak to us about early retirement, please get in touch:

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Planning for Inheritance Tax

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Plan for Inheritance Tax

Whenever someone dies, the value of their estate may become liable for Inheritance Tax. If you are domiciled in the UK, your estate includes everything you own, including your home and certain trusts in which you may have an interest.

Inheritance Tax is potentially charged at a rate of 40% on the value of everything you own above the ‘nil-rate band’ (NRB) threshold. The nil-rate band is the value of your estate that is not chargeable to UK Inheritance Tax.

Gift assets while you’re alive

The amount is set by the government and is currently £325,000, which is frozen until 2026. In addition, since 6 April 2017, if you leave your home to direct lineal descendants, the value of your estate before tax is paid will increase with the addition of the ‘residence nil-rate band’ (RNRB). For the 2023/24 tax year, the RNRB is £175,000.

One thing that’s important to remember when developing an estate preservation plan is that the process isn’t just about passing on your assets when you die. It’s also about analysing your finances now and potentially making the most of your assets while you are still alive. By gifting assets to younger generations while you’re still around, you could enjoy seeing the assets put to good use, while simultaneously reducing your Inheritance Tax bill.

Make use of gift allowances

A non-exempt gift from one individual to another constitutes a Potentially Exempt Transfer (PET) for Inheritance Tax. If you survive for seven years from the date of the gift, no Inheritance Tax arises on the PET.

Some exempt gifts are immediately out of your estate: Each tax year, you can give away £3,000 worth of gifts (your ‘annual exemption’) tax-free. You can also give away wedding or registered civil partnership gifts up to £1,000 per person (£2,500 for a grandchild and £5,000 for a child). In addition, you can give your children regular sums of money from your surplus income.

You can also give as many gifts of up to £250 to as many individuals as you want, although not to anyone who has already received a
larger gift from you that tax year. None of these gifts are subject to Inheritance Tax.

Invest into IHT-exempt assets

For experienced suitable investors, another way to potentially minimise Inheritance Tax liabilities is to invest in Inheritance Tax exempt assets. These schemes are higher risk and are therefore not suitable for all investors, and any investment decisions should always be made with the benefit of professional financial advice.

One example of this is the Enterprise Investment Scheme (EIS). The vast majority of EIS-qualifying investments attract 100% Inheritance Tax relief via Business Relief (BR) because the qualifying trades for EIS purposes are very similar to those which qualify for BR. Qualification for BR is subject to the minimum holding period of two years (from the later of the share issue date and trade commencement).

Life insurance within a trust

If you’re looking to potentially minimise any Inheritance Tax your estate may be subject to, then consider placing life insurance within an appropriate trust. This allows the pay out from the policy to be given directly to your beneficiaries, which won’t be included in the calculations for any Inheritance Tax.

Taking this step can offer peace of mind for you and financial security for your heirs. Remember your life insurance policy is likely to be a significant asset – by putting it in an appropriate trust, you can manage the way your beneficiaries receive their inheritance.

Keep wealth within a pension

A defined contribution pension is normally free of Inheritance Tax, unlike many other investments. It is not part of your taxable estate. Keeping your pension wealth within your pension fund and passing it down to future generations can be very tax-efficient estate planning.

If you die before 75, your pension will be passed on tax-free (as long as no Lifetime Allowance charge applies). However, if you die after 75, your beneficiaries will pay tax on any payments they receive at their marginal Income Tax rate. Your pension will not usually be covered by your Will, so you will need to ensure that your pension provider knows who your nominated beneficiaries are.

Preserved wealth for future generations

We all have one thing in common: we can’t take our assets with us when we die. If you want to ensure that your wealth is preserved for future generations and passed on efficiently, an estate plan is crucial.

If you want to know more about Inheritance Tax and planning for your future, please get in touch

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Inheritance Tax

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You may well want to pass your estate onto your children when you die, but unless you make suitable plans your children will pay 40% inheritance tax (IHT) in the UK on all your estate above £325,000 which in today’s property market is most people’s property value alone.

You worked hard to earn your wealth, so let us work hard preserving it and help you and your family maintain its financial strength from one generation to the next.

If you are worried about Inheritance Tax and want to plan for the future, get in touch with us today:

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Free Guide: Estate Planning

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What is the importance of estate planning?

Estate planning is about more than just tax. It is about making sure the people left behind are financially supported, that your assets are protected and that the tax your estate pays is fair.

Wealth preservation and wealth transfer are becoming an increasingly important issue for many families today.

Your estate consists of everything you own. This includes savings, investments, pensions, property, life insurance (not written in an appropriate trust) and personal possessions. Debts and liabilities are subtracted from the total value of all assets

There are various ways to legally avoid paying inheritance tax and we have produced a free Estate Planning guide to support you with Inheritance Tax Planning:

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Global Temperatures and the Energy Gap

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Global Temperatures and the Energy Gap

The summer of 2022 will be etched in the memories of many, marking the first time in the UK’s history when temperatures reached 40°C (the UK’s longstanding temperature record makes this event quite remarkable). These conditions were not confined only to our shores; temperatures across multiple continents exceeded the norm, and NASA satellite observations revealed that Arctic and Antarctic sea ice coverage had melted to record (or near-record) lows.

In comparison, the summer of 2023 was relatively mild. The hottest day, during the September heatwave, saw the Met Office recording a high of 33.5°C in Kent[1]. Nevertheless, this warmth was mostly confined to southern England and Wales, making September unseasonably warm for those areas.

Globally, though, the average temperature was so high last year that Professor Ed Hawkins, a climate scientist at the University of Reading, had to add a deeper shade of red to his climate stripes graphic[2], which represents the average temperature each year since 1850 compared to the long-term average. The right end of the image, dominated by red bars, illustrates the potential influence of human-induced climate change.

With the high figure of 2023 being lower than that of 2022, how could this be? This is explained by the fact that, on average, temperatures surpassed the norm in eight out of 12 months in 2023[3]. Additionally, 2023 marked the first year on record that every single day surpassed pre-industrial levels by more than 1°C. Nearly half of these days exceeded 1.5°C, with some approaching 2°C[4]. These numbers may sound small, but they signify a substantial increase in accumulated heat, carrying profound implications for global ecosystems and weather patterns.

The data underscores the necessity for governments to set more ambitious climate goals. While we recognise the collective responsibility of all parts of society – governments, companies and individuals – in these efforts, it is crucial to acknowledge the role that governments play in shaping governance, policymaking and systemic change.

Governments are particularly influential in steering the transition to renewable energy. Their power to implement policies incentivising the development and deployment of renewable technologies not only benefits the environment (by reducing greenhouse gas emissions), but also enhances national energy security, ultimately reducing energy bills for households and businesses. In the UK, about 40% of electricity generation comes from renewable sources[5] (via about 1,000 solar farms[6], 1,500 operational onshore and offshore wind farms[7], and 1,500 hydropower plants[8]). A further 14% comes from nuclear power. However, the current renewable generation of 175 terawatt-hours falls short of the domestic consumption of 275 terawatt-hours a year, necessitating a scaling up of renewable farms and plants to bridge this gap.

Regardless, a 2023 study by campaign group Britain Remain[9] reveals that over 70 councils across England collectively opposed one-fifth of renewable project applications, capable of powering an estimated 4.4 million homes for a year. One significant reason for rejection is the impact on agriculture: solar/wind farms are often criticised as land-intensive, raising concerns about competition for finite land resources that could otherwise be used for food production. In a world already grappling with issues such as soil degradation and water shortages affecting agricultural productivity, energy goals must be carefully balanced with the need for sustainable food production. Another aspect contributing to opposition is the impact on the landscape, with some arguing that such farms and plants are eyesores that mar the natural beauty of the countryside.

Encouragingly, technological advancements offer promising solutions to address these concerns. Notable strides have been made in developing solar panels with improved performance and efficiency, reducing the land footprint of solar farms while maintaining substantial energy outputs. Innovation such as bifacial solar panels (capable of capturing sunlight from both sides) contribute to increased energy yields without a proportional increase in the land footprint. Similar progress in wind energy technology has led to the creation of turbines with blades made from innovative materials, enhancing efficiency and durability.

This progress in renewable energy, coupled with the growing demand for sustainable solutions, creates an attractive landscape for investment. Our SRI portfolios reflect our commitment to fostering environmentally conscious opportunities, with funds such as Ninety One Global Environment (which invests primarily in companies that are contributing to sustainable decarbonisation) and M&G Global Sustain Paris Aligned (which invests in companies that contribute to climate change goals) aligning with our values of promoting sustainability.

If you’d like to find out more about Ellis Bates’ approach to SRI, please download our guide:

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How can I invest in green pensions?

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Sustainable investing is growing ever more popular due to the impact of climate change. Financial Advisor, Gary Davies, outlines the growing popularity and availability of investing in green pension funds.

If you’d like to speak to us about green pensions, please fill out the form below:

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Investing in combatting global warming and the energy gap

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Investing in combatting global warming and the energy gap

With notable progress in renewable energy, coupled with the growing demand for sustainable solutions, this creates an attractive landscape for investment.

Our SRI (socially responsible investing) portfolios reflect our commitment to fostering environmentally conscious opportunities:

  • Sustainable decarbonisation
  • Promotion of sustainability
  • Wind & Solar innovation
  • Contribute to climate change goals

Find out more about how you can choose impactful investments options

Download our Guide to SRI here:

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Money and Divorce

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Untangling your finances and navigating the financial aspects of divorce

Divorce is a complex process that often comes with various financial considerations, and preparing for a divorce is undoubtedly challenging, especially when it involves untangling your finances. The emotional strain can make it difficult to make clear-headed decisions, and the long-term consequences may not be immediately apparent.

It is crucial to carefully consider the financial aspects of divorce to ensure you can sustain the lifestyle you desire post-separation. It’s desirable to seek legal and financial advice from professionals specialising in divorce cases. Our team is here to assist you in navigating the financial aspects of divorce.

Here are some financial considerations:

Create a list of assets

Create a comprehensive list of all assets, including properties, pensions, investments, businesses you own and other financial accounts. Include accurate valuations, and be sure to note down both joint and individual assets. Additionally, document your income and outgoings, both joint and individual, to clearly understand your financial standing.

This will clarify what needs to be divided and help with accurate valuation.

Budget for the future

Consider your post-divorce financial goals and plan accordingly. Start saving and budgeting in advance to align with the life you envision for yourself after the divorce. Remember that what you desire financially from the divorce may not necessarily align with the outcome. Obtain a copy of your credit report, especially if you anticipate needing a new mortgage or taking on new financial responsibilities. A credit report will provide insight into any joint lending or liabilities you may still be responsible for after the divorce.

Consider the division of your home

There are several options for dividing your home, such as selling it, one partner buying out the other’s share or maintaining joint ownership until certain circumstances arise. It’s important to consider the financial implications of each option. Keeping the home may be challenging, especially if managing mortgage repayments on a single income becomes difficult. Consult a financial professional to assess the financial viability of each option.

Seek advice on splitting pensions

During divorce proceedings, it is essential to consider the division of pension savings, often overlooked in favour of other assets like the family home. Dividing pensions can have long-lasting effects on your financial security.

There are two commonly used methods for dividing pensions during a divorce or separation. Pension sharing involves splitting one or more pensions between the separating partners.

Alternatively, with pension offsetting, the value of the pension rights is balanced against other assets, such as property or savings. This approach allows for a more flexible and customised asset division based on the separating partners’ unique circumstances.

Evaluate savings and investments

The process is usually straightforward when splitting cash savings accounts during a divorce. One partner can transfer money from their account to their ex-spouse’s account. However, if you have Individual Savings Accounts (ISAs), you or your ex-spouse would need to withdraw the money first and then provide it to the other partner. It’s important to note that dividing investments and savings may have tax implications and involve charges. Therefore, seeking professional financial advice is crucial to ensure that the division is done appropriately and is financially beneficial.

Be aware of CGT liabilities

Capital Gains Tax (CGT) may apply when transferring assets during a divorce. As of 6 April 2023, new rules have been implemented that extend the time frame for separating partners to transfer assets without incurring CGT. Under the new rules, you now have up to three years from the end of the tax year in which you separate to make these transfers without facing CGT liabilities.

Do you need professional advice to take the first step towards a secure financial future? We understand the complexities of divorce and finances and are here to help you make informed decisions. Contact us today to discuss your specific needs:

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Meet the Financial Adviser: Dawn Elkington

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Dawn is experienced in advising elderly clients and their families, particularly on long-term care and equity release. She believes in involving families in financial planning to make the best long-term decisions for their future.

Dawn also advises on Group Pension Schemes and specialises in pension advice in relation to divorce.

If you’d like to know more about Dawn and how she can support you through each stage of your life, take a look at her profile:

Dawn Elkington