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Pensions

Boost Your COVID-19 Retirement Planning with these Tips | Independent Financial Adviser

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By Grant Ellis, Director Ellis Bates Group

Bear in mind that retirement savings are for the long run. The Coronavirus (COVID-19) is having a widespread impact across all elements of financial life, including retirement plans. The current global stock exchange turbulence, as a result of COVID-19, will undoubtedly be concerning for people whose retirement savings are spent partly or entirely during these volatile marketplace conditions. However, making decisions based on what is happening in the short term may be a risky thing to do. It may be tempting, for instance, to consider transferring all your investments into cash or other lower-risk investments – but in doing so, you not only lock in the loss as a result of recent falls, but you may also miss out as the value goes back up, so you’d lose out in the long term also.

Here are our tips on how to navigate these difficult times.

Allow time for markets to recover

It is really important to remember that retirement savings are for the long term. If you are young and paying towards a workplace pension, then there’s time for your pension pot to achieve growth over the long run and regain the losses caused by the volatility now being experienced in the stock markets. You shouldn’t be overly concerned, as you have many working years to come, and this will provide time for markets to recover before you’re ready to take your retirement income.

If you are older and closer to retirement, you may have seen your funds ‘lifestyled’. This means that your pension will have been transferred into generally less risky funds and invested in ‘safer’ areas like cash, gilts or bonds, which are lower risk and in the main provide a fixed rate of return. The older you get, the more pension schemes tend to invest in these assets to limit investment risk. But, not all pension schemes provide automatic lifestyling.

The reality of purchasing an annuity now

An annuity is a retirement income product that you purchase with some or all your pension pot. It pays a regular retirement income for life or for a set interval.  If you are intending to retire soon, and were preparing to buy an annuity, in March, the Bank of England cut the base rate twice in just over a week as a further emergency response to the Coronavirus pandemic, reducing it from 0.25% to 0.1%. This has meant annuity rates have also fallen.

If you’re still thinking of securing an income by buying an annuity, the current volatility indicates the importance of gradually reducing the risk in your portfolio as you approach your anticipated annuity purchase date. Doing so provides greater certainty over the lump sum you will have available to buy your annuity, which in turn will give you clarity over exactly how much secured income you can expect to make from the fund.

Drawdown

Drawdown is a way of taking money from your pension to live on during retirement. You need to be aged 55 or over and have a defined contribution pension to get your money this way. You keep your retirement savings invested when you retire and take money from (or ‘drawdown’) out of your pension pot. If the last few months have taught us anything, it is the stock markets can be quite volatile, so because your money remains invested — and it is usually in the stock market – should you select drawdown you will need to be comfortable that the markets and the value of your pension could fall as well as rise. The upside is that investment growth can provide higher returns and see your pension pot continue to increase in value even though you are taking an income from it.

If we continue to see a protracted period of negative investment returns, and you are already using drawdown or intend to move into drawdown shortly, you may also wish to avoid taking out more than you will need to while stock market values remain depressed. The more you are able to leave in, the more you’ll profit over time once there’s a recovery.

Keep making contributions

If you’re still in the process of saving for your retirement now might be a great time to think about increasing your pension contributions. Despite the fact that there is short term volatility in markets, increases in contributions over the long term can make a major difference to your eventual retirement fund’s value, especially if it coincides with a recovery in the market.

Stagger your retirement

A new study [1] has shown how many pensioners are choosing to stagger their retirement, moving part-time prior to giving up work entirely to make sure their pensions will last for as long as possible after they fully retire. With people living longer, and with the extra prospect of long term care costs in later life, retirees increasingly know the advantages of having a bigger pension pot.

Of those who have not touched their pension pot, half (51 percent ) say it’s because they’re still in work, while over a quarter (25 percent ) of those in their 60s say it’s because they need their pensions to hold out as long as possible.

Naturally, retirees who have not yet touched their pension pot must have alternative sources of revenue. When asked about their income, almost half (47 percent) said they take an income from savings, others rely on their partner or spouse’s income (35 percent) or the State Pension (22 percent), while 12% rely on income from property.

Professional financial advice counts

If you are about to retire, the amount of exposure you have will reflect both your attitude to investment risk and the time you have until retirement. Most of all, before making any significant decisions concerning your pension, take professional financial advice.

And there’s no need to fear – at this stage, we don’t know what the long-term consequences of Coronavirus will be. An adviser can help you focus on what’s important, weigh all your options, and take a balanced assessment of your risks.

Ellis Bates Financial Advisers are independent financial advisers with offices across the United Kingdom.  They manage over £1 billion of assets on behalf of clients, who have given them a 4.9/5.00 score with Trustist.  https://www.ellisbates.com/about/reviews/

For more information please visit their website www.ellisbates.com

 

Source information: [1] LV= poll of over 1,000 adults aged over 50 with defined contributions — 25 February 2020

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the amount of pensions benefits available. Pensions aren’t normally available until age 55. Your retirement income could also be affected by interest rates at the time you take your gains. The tax consequences of pension withdrawals will be dependent on your personal circumstances, tax legislation and regulations, which are subject to change. The value of Investments and income from them can go down. You might not get back the amount invested. Past performance is not a reliable indicator of future performance. Taking withdrawals may erode the capital value of the fund, especially if investment returns are poor and a high level of income is being taken. This could result in a lower income if and when an annuity is purchased.

Retirement Resilience

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Taking the reins and having more control over your pension pot.

Saving for retirement is one of our greatest financial priorities, especially as life expectancy is growing and retirements are likely to last longer. It may be the case that you’d prefer to take the reins and have more control over your pension pot. For appropriate investors, one option to consider is a Self-Invested Personal Pension (SIPP).

Please note that a SIPP is a type of Personal Pension, and the rules as to how much you can contribute to a SIPP are the same as a Personal Pension. Also, when it comes to taking the pension, the same rules apply to both a SIPP and a Personal Pension.

Saving Discipline

A SIPP is a tax-efficient wrapper for your pension investments and gives you control of your pension, whereas most members of a company pension scheme have very little control and almost no idea where their pension money is invested. SIPPs enforce saving discipline until retirement since you cannot withdraw your money early.

Also, with many of the UK’s largest companies closing their final salary schemes to all members, many members now have to look at taking their pensions into their own hands. You can make both regular and one-off payments into your SIPP, and even putting a small amount away early will make a difference to how much you will eventually have to fund your retirement.

Extra Flexibility

Once you reach 55, you can access your whole pension pot. You decide how and when to use the fund built up in your SIPP to provide you with an income. You can take up to 25% of your fund as a tax-free lump sum and use the balance to provide you with a pension through income withdrawal from your SIPP, or through the purchase of an annuity. You can also take a series of lump sums from your SIPP – it’s flexible.

SIPPs can be opened by almost anyone under the age of 75 living in the UK. You can open a SIPP for yourself or for someone else, such as a child or grandchild. Even if you’ve already retired, you can still open a SIPP and take advantage of the extra flexibility that it gives you over your pension savings in retirement – but you may be limited by how much you can pay into it.

Investment Control

SIPPs offer a wider investment choice than most traditional pensions based on investments approved by HM Revenue & Customs (HMRC). They give you the chance to pick exactly where you want your money to go and enable you to choose and change your investments when you want, giving you control of your pension and how it is organised.

Most SIPPs allow you to select from a range of assets, including:

  • Unit trusts
  • Investment trusts
  • Government securities
  • Insurance company funds
  • Traded endowment policies
  • Some National Savings & Investment products
  • Deposit accounts with banks and building societies
  • Commercial property (such as offices, shops or factory premises)
  • Individual stocks and shares quoted on a recognised UK or overseas stock exchange

Time to Take Control of your Retirement Plans for the Future?

A SIPP is not right for everyone, but the freedom it offers you compared to a traditional pension could far outweigh the extra time taken to run your own pension. To find out more about setting up a SIPP, please contact us and we’ll arrange a meeting to discuss your requirements – we look forward to hearing from you.

Please note: you must pay sufficient tax at the higher and additional rates to claim the full higher-rate tax relief via your tax return.

The value of investments and income from them may go down. You may not get back the original amount invested. Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits and is not suitable for everyone. You should seek advice to understand your options at retirement.

Lifetime Allowance

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Breach may impact on more than a million workers

An estimated 1.25 million people are set to breach the current lifetime allowance (LTA) limit of £1.055 million for pension tax relief over the course of their working life, according to new research published.

The LTA is a limit on the amount of pension benefit that can be drawn from pension schemes – whether lump sums or retirement income – and can be paid without triggering an extra tax charge. It has been cut three times since 2010, and this research estimates that around 290,000 workers already have pension rights above the limit, and well over a million more people are at risk of breaching it by the time they retire.

Facing a tax charge of up to 55% on pension savings

Those who exceed the LTA could face a tax charge of up to 55% of their pension savings above this level at the time of testing. Around 290,000 non retired people have already built up pension rights in excess of the LTA. Fewer than half of these are thought to have applied for ‘protection’ against past reductions in the LTA and so could face significant tax bills when they draw their pension. Worryingly, many may be unaware of this. Almost half of these people who are already over the LTA are continuing to add to their pension wealth, thereby storing up an even bigger tax charge with every passing year. And amongst non-retired people who are not currently over the LTA, an estimated 1.25 million can expect to breach the LTA by the time they retire.

Groups likely to breach the lifetime allowance

The two main groups likely to breach the LTA are relatively senior public sector workers with long service, whose Defined Benefit pension rights will exceed the LTA, especially as they now have to work to 65 or beyond rather than 60 as in the past, and relatively well-paid workers in a Defined Contribution pension arrangement where their employer makes a generous contribution into their pension pot.

Highest earners may be less affected by the lifetime cap

Typical salary levels of those affected are in the range £60,000–£90,000 per year. But ironically, the very highest earners may be less affected by the Lifetime Cap because they are now heavily limited by the amount they can put into a pension each year. The data suggests that only a couple of thousand people exceeded the LTA in the latest year for which figures are available (2016/17). The number likely to face a tax charge could therefore increase more than a hundredfold, purely based on those who have yet to retire but who have already exceeded the LTA.

Workers who would not regard themselves as ‘rich’

The research finds that one of the reasons why so many people will exceed the LTA is that current policy is simply to increase it each year in line with price inflation (as measured by the CPI). By contrast, wages will tend to grow faster than inflation, and the money invested in pension pots should grow faster than inflation over the long term. This means that the LTA will ‘bite’ progressively more severely over time and will affect hundreds of thousands of workers who would not regard themselves as ‘rich.’ t

Source data:
[1] Research conducted for Royal London is based on detailed analysis of data on more than 7,700 workers from Wave 1 and Wave 5 of the ‘Wealth and Assets Survey’ March 2019.

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Tracing a Lost Pension

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magnifying glassNearly £20 Billion Unclaimed Money And Growing

The scale of the UK’s lost Pensions Mountain has been exposed by the largest study yet on the subject. The Pensions Policy Institute surveyed firms representing about 50% of the private defined contribution pensions market.

From this, the Pensions Policy Institute found 800,000 lost pensions worth an estimated £9.7 billion. It estimates that, if scaled up to the whole market, there are collectively around 1.6 million pots worth £19.4 billion unclaimed – the equivalent of nearly £13,000 per pot.

Findings Highlight The Scale Of The Problem

This figure is likely to be even higher as the research did not look into lost pensions held in the public sector, or with trust-based schemes typically run by employers. These findings highlight the scale of the lost pension’s problem. Unclaimed pensions can make a real difference to millions of savers who have simply lost touch with their pension providers.

Providers make considerable efforts and spend millions every year trying to reunite people with lost or forgotten pensions. In 2017, more than 375,000 attempts were made to contact clients, leading to £1 billion in assets being reunited with them. However, firms are unable to keep pace with a mobile workforce that moves jobs and homes more often than ever before. Prevention is better than cure, so be sure to keep all your pensions paperwork in one place. You should also tell your previous pension scheme administrator about any changes of address.

Number Of People With Multiple Pensions To Increase

Nearly two thirds of UK savers have more than one pension, and changing work patterns means that the number of people with multiple pensions will increase. People typically lose track of their pensions when changing jobs or moving home. The average person will have around 11 different jobs over their lifetime, and move home eight times. The Government predicts that there could be as many as 50 million dormant and lost pensions by 2050.

NEARLY TWO THIRDS OF UK SAVERS HAVE MORE THAN ONE PENSION, AND CHANGING WORK PATTERNS MEANS THAT THE NUMBER OF PEOPLE WITH MULTIPLE PENSIONS WILLS INCRE ASE.

Tracking Down Unclaimed Personal Or Workplace Pensions

If you have lost track of a pension, it’s important to write down the dates and contact details of the companies you had pensions with. If you have all the information, then you can contact the pension provider directly to find how much there is in your pension pot. Alternatively, you can contact the Pension Tracing Service. They will help you find the addresses and details you need and can help you locate or trace any pensions that you may have lost or misplaced. You can also contact them to track down unclaimed personal or workplace pensions for deceased relatives. It’s possible that their estate or a surviving partner or relative could be eligible to claim a percentage. The Pension Tracing Service telephone number is: 0800 731 0193 (from outside the UK: +44 (0)191 215 4491; text phone: 0800 731 0176).

The Sooner You Trace A Lost Pension, The Better

It’s not always easy to keep track of a pension, especially if you’ve been in more than one scheme or have changed employer throughout your career. But it’s important that you do claim your pension, so the sooner you trace a lost pension, the better. If you would like to discuss any concerns you may have, please contact us.

Findings Highlight The Scale Of The Problem

This figure is likely to be even higher as the research did not look into lost pensions held in the public sector, or with trust-based schemes typically run by employers. These findings highlight the scale of the lost pension’s problem. Unclaimed pensions can make a real difference to millions of savers who have simply lost touch with their pension providers. Providers make considerable efforts and spend millions every year trying to reunite people with lost or forgotten pensions. In 2017, more than 375,000 attempts were made to contact clients, leading to £1 billion in assets being reunited with them. However, firms are unable to keep pace with a mobile workforce that moves jobs and homes more often than ever before. Prevention is better than cure, so be sure to keep all your pensions paperwork in one place. You should also tell your previous pension scheme administrator about any changes of address.

Number Of People With Multiple Pensions To Increase

Nearly two thirds of UK savers have more than one pension, and changing work patterns means that the number of people with multiple pensions will increase. People typically lose track of their pensions when changing jobs or moving home. The average person will have around 11 different jobs over their lifetime, and move home eight times. The Government predicts that there could be as many as 50 million dormant and lost pensions by 2050.

Source data:] The Association of British Insurers is the voice of the UK’s world-leading insurance and long-term savings industry.

The Lost Pensions Survey includes data from 12 large insurers, covering around half of the defined contribution pensions market.

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. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY 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

The Final Retirement Countdown

The Final Retirement Countdown

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The Final Retirement CountdownTime to review your financial plans with a financial check-up?

If you are aiming to retire within the next five years, it’s time to get into the mindset of considering the practicalities of fulfilling your desired lifestyle and making plans. While you should think about retirement planning as early as possible, the five years leading up to retirement are critical.

Retirement may be looming with terrifying urgency, and the reality is that you have just 60 pay packets left until you retire. This is a time when you’ll need to obtain up-to-date pension forecasts and obtain professional financial advice to make sure your retirement plans are on track. So if you believe you are five years or less away from retirement, now is the time to seriously review your financial plans with a financial check-up.

What are the key things to concentrate on?

The first step is to ask yourself if you are actually ready to retire. There are many factors to consider. Your financial affairs are the big factor to begin with. Your ability to afford retirement depends on your lifestyle, your family situation and home ownership. If you have dependent children, or have 15 years left on your mortgage, the time might not be quite right. You have to ensure retirement is the right move for you. Work can be stressful, but it can be rewarding and give you a sense of achievement. People may miss the routine of working life and the day-to-day interaction with people.

Taking a different path

What you need might not be retirement, it could be change. A chance to get out from behind your desk to do something meaningful. Perhaps retirement is your ticket to achieving this – taking a different path where money is no longer the prime motivation. If you are afraid about having time on your hands after retirement, explore options for filling it well before you take the leap.

Major change in lifestyle

Retirement means a major change in lifestyle. You need a clear mind as to what you want your life to look like and how to spend your time. Then you can work on arranging your finances to suit. Decide on your priorities for retired life. Do you want to travel, or split your time between home and somewhere hot and exotic? Is there a particular hobby you want to immerse yourself in? What kind of leisure and social activities matter to you?

Later years in your retirement

Try not to get caught up in what happens right after you end work – also consider the later years in your retirement. Will long-term travel continue to be feasible as you get older? Will you need such a large house, or will it become a burden? And what about in the latter stages of life? Would you need to fund care? You must also have a clear picture of what kind of life you would like to lead in retirement and what it will cost. Then you can start to dig a little deeper into what you might be able to afford. This means getting to grips with your sources of income once your earnings stop.

Request up-to-date forecasts

Your first port of call is your pension – or pensions. Contact previous pension trustees to request up to-date forecasts. If you’ve lost details of a pension scheme and need help, the Pension Tracing Service (0800 731 0193) may be able to assist you.

You should also find out what your likely State Pension entitlement would be – you can do this by completing a BR19 form or by visiting www.direct.gov.uk.

Consolidate existing pensions

If you have personal pensions, you need to find out where they are invested and how they have performed. Also check if there are any valuable guarantees built into the contracts. It may make sense to consolidate existing pensions, making it easier for you to keep track of everything and reduce the amount of correspondence you receive. With investments in general, it is important to review your strategy before you take the leap into retirement. You don’t need to suddenly become an ultra-conservative investor – you still want your portfolio to grow over the next few decades. Should the investment markets make a correction, you may want to limit your downside. Don’t forget, there may be another 30 years ahead.

Don’t put off confronting the truth

If your investments don’t look on course to give you the income you’d hoped for in retirement, don’t put off confronting the truth. You may need to revise your projected living costs. Alternatively, there’s still time to change your investments, and you could also cut back on spending while you are still earning to generate more savings. Your income can be used in other ways besides topping up your savings as you prepare for retirement. Clearing debts, including your mortgage, should be a priority before you retire. Whatever you owe on credit cards and loans, focus on paying off the debt that charges the most interest first. Debt will be the biggest burden once you do not have a regular working income.

Consider re-adjusting your finances

Having no mortgage to pay is a major step towards re-adjusting your finances for a post salary life. You might also decide you want to sell up, whether to downsize, to give you a lump sum of cash to live off, or to fund your dreams of moving abroad. Either way, use your working income while you can to improve your home, maximising potential revenue when you come to sell it. Finally, retirement is a huge change, both personally and financially – so big it might be too much to take in all at once. It makes good sense to practice at being retired before it becomes a reality, especially if you will have to make certain adjustments and sacrifices to compensate for a reduced income. You might even consider a phased retirement, cutting back on your hours gradually. This will not only soften the financial effect, but it will also get you used to having more spare time to fill.

Taking The Right Steps Today To Ensure You Have The Retirement You Want Tomorrow?

Retiring is a huge life event and can sometimes leave us feeling as though we’ve lost our identity. After decades of working and saving, you can finally see retirement on the horizon. But now isn’t the time to coast. If you plan to retire within the next five years, we can ensure you take the right steps today to help ensure that you have what you need to enjoy a comfortable retirement lifestyle. To arrange a meeting, please contact us.

Guide To Tax Matters

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2019/20 Key Changes You Need To Know

In this guide we set out the main tax changes that apply to the 2019/20 tax year, which commenced on 6 April 2019. Reviewing your tax affairs to ensure that available reliefs and exemptions have been utilised, together with future planning, can help to reduce your tax bill. Personal circumstances differ, so if you have any questions or if there is a particular area you are interested in, please do not hesitate to contact us.

Increases to the tax-free personal allowance announced in last year’s Budget have now also come into effect, alongside a number of other proposals. We’ve provided our summary of the key changes.

Income Tax

The tax-free personal allowance increased from £11,850 to £12,500, after Chancellor Philip Hammond announced in the 2018 Budget that he was bringing the rise forward by a year. The higher-rate tax band increased from £46,350 to £50,000 in England, Wales and Northern Ireland. But in Scotland, where Income Tax rates are devolved, the higher-rate tax band remains at £43,430 – £6,570 lower than the rest of the UK.

National Insurance contributions across the UK have also increased to 12% on earnings between £46,350 and £50,000. In line with the rest of the UK, someone in Scotland pays National Insurance at a rate of 12% on earnings up to £50,000, before this reduces to 2% on earnings above this level.

Inheritance

The threshold at which the 40% Inheritance Tax rate applies on an estate remains at £325,000. However, the Residence Nil-Rate Band increased to £150,000. This is an allowance that can be added to the basic tax-free £325,000 to allow people to leave property to direct descendants such as children and grandchildren, taking the combined tax-free allowance to £475,000 in the current tax year. However, the allowance is reduced by £1 for every £2 that the value of the estate exceeds £2 million.

When you pass on assets to your spouse, they are Inheritance Tax-free, and your spouse can then make use of both allowances. This means the amount that can be passed on by a married couple is currently £950,000.

Pensions

The State Pension increased by 2.6%, with the old basic State Pension rising to £129.20 a week, and the new State Pension rising to £168.60 a week.

The amount employees now pay into their pensions has increased to a minimum total of 8% under the Government’s auto-enrolment scheme. The increase means employers now pay in a minimum 3% of a saver’s salary, while the individual pays in a minimum 5%.

The level of the State Pension rises every year by the highest of 2.5%, growth in earnings or Consumer Price Index (CPI) inflation. This is due to the ‘triple lock’ guarantee, which was first introduced in 2010.

The pension lifetime allowance increased to £1,055,000 on pension contributions, in line with CPI inflation. This is the limit on the amount retirees can amass in a pension without incurring additional taxes. Anything above this level can be taxed at a rate of 55% upon withdrawal.

The overall annual allowance has remained the same at £40,000, along with the annual allowance taper which reduces pension relief for those with a yearly income above £150,000.

Student Loans

The earnings threshold before you start to repay a student loan for:

  • Plan 1 loans has increased to £18,935 (from £18,330)
  • Plan 2 loans has increased to £25,725 (from £25,000)

If you’re a director being paid salary and dividends from your company, and you’re paying back a student loan, you must remember the threshold for repayment is based on your total income. This will apply to all current and future student loans where employers make student loan deductions. So if you run a payroll for any employees who have student loan deductions, you need to ensure you have a record of what type of loan they have, so that the correct deductions are made.

Investors

The Junior Individual Savings Account (ISA) limit increased to £4,368. All other ISA limits remain the same. The annual amount that can be sheltered across adult ISAs stays at £20,000 for the 2019/20 tax year.

The Capital Gains Tax annual exemption, that everyone has, increased to £12,000. Above this amount, lower-rate taxpayers pay 10% on capital gains, while higher and additional- rate taxpayers pay 20%. However, people selling second properties, including buy-to-let landlords, pay Capital Gains Tax at 18% if they are a basic-rate taxpayer, or 28% if a higher or additional-rate taxpayer.

Capital Gains Tax for non-UK residents has been extended to include all disposals of UK property.

Entrepreneurs’ Relief gives a Capital Gains Tax break to those who sell shares in an unlisted company, provided they own at least 5% of the shares and up to a lifetime value of £10 million. The holding period to qualify for the relief is 24 months.

This is also the first tax year where claims can be made for Investors’ Relief which, in a similar way, gives Capital Gains Tax breaks to those who sell shares in unlisted firms. While the former is aimed at company directors, the latter is geared to encourage outside investment in firms.

There is no minimum shareholding to be eligible, but investors must have held the shares for at least three years. As the relief was introduced in 2016, this is the first tax year when it can be used.

Buy-to-let Landlords

On 6 April, the next stage of the phased removal of mortgage interest relief came into effect. Buy-to-let landlords used to be able to claim the interest paid on their mortgages as a business expense to reduce their tax bill. Now, they will only be able to claim a quarter of this amount as tax deductible ahead of the complete removal of the relief in the 2020/21 tax year.

Corporation Tax

Corporation Tax is payable on business profits and remains at 19%. The Government is planning to reduce this to 17% for the 2020/21 tax year (on 6 April 2020).

Would you like help with tax planning?

The UK tax system is very complex, but the benefits of structuring your finances tax- efficiently can be significant. Ellis Bates are here to ensure that you have made the best use of the reliefs and allowances available for your particular situation. There are a variety of planning ideas available for individuals, entrepreneurs and business owners. Should you need to discuss or require advice on tax planning ideas, please do not hesitate to contact us.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.
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Millennials Get Real With The Numbers

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Making Sacrifices For Home Ownership Over Retirement

Millennials are chasing the home ownership dream at the potential cost of a lower income in retirement, new research[1] shows.

Over a third (35%) of millennials say they prioritise saving for a deposit on a home instead of their retirement. Nearly a fifth (19%) say buying a house is the main reason they don’t save more into their pension, while 10% say student debt stops them saving into a pension. One in 11 (9%) admits that frequently changing jobs affects their ability to make regular pension contributions.

Millennials seem willing to make sacrifices for home ownership, with one in ten (10%) living with parents instead of renting to help save more money for a home. The study found men are almost twice as likely (20%) to be heading home compared to women (11%).

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Bank Of Mum And Dad

Despite worries about graduate debt and the squeeze on wages, on average, nearly a third (31%) expect to buy their first property by the age of 30, with men (39%) more confident than women (26%) they’ll achieve their ambition. However, the research shows they won’t all have to save hard – an optimistic 20% expect to receive financial aid from the Bank of Mum and Dad.

Industry data[2] shows millennials are right to be hopeful about home ownership – around 365,600 first-time buyers completed mortgages in the year to July 2018, borrowing a total of £59.9 billion. The average age of the first-time buyer during the year was 30, borrowing an average £145,000 on a gross household income of £42,000.

But pensions are feeling the strain. The research found around 21% say they have not started saving for retirement yet, while 15% say pension saving does not motivate them, and 12% believe pensions are irrelevant to millennials.

 

Focused On Home Ownership

Retirement can seem daunting for millennials and is, of course, a long way off when you are contending with student debts and high rents. However, it is crucial to start saving for your pension as early on as possible, putting away as much as you can each time.

It is easier if you start doing this as soon as you start working, so you get used to the money going straight into your pension pot. Many will, at least, be saving through the workplace, which is a good start, and contributions should be regularly reviewed to ensure a significant fund can be built up.

Not all millennials, however, are focused on home ownership. According to the survey, approximately 17% of under-35s say buying a house is a not a realistic option at present, while 11% say that saving for a house deposit is not a financial priority. And it is not just millennials, as the research shows that one in seven 35-54-year- olds have given up on the hope of ever owning a home.

houses

Don’t Let Saving Become A Daunting Prospect

Juggling buying a house with saving for retirement is no doubt a challenge, and it is inevitable that something may get dropped, which unfortunately appears to be retirement saving. However, it is important to start saving for your pension as early on as possible. To find out how we can help, please contact us – we look forward to hearing from you.

 

Source data
[1]Consumer Intelligence conducted an independent online survey for Prudential between 20 and 21 June 2018 among 1,178 UK adults
[2]https://www.ukfinance.org.uk/house-purchase-activity-slows-in-june-but-remortgaging-activityremains-high/

 

Tax Relief and Pensions

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Annual and lifetime limits

When it comes to managing money, one of the things some people find most difficult to understand is the tax relief they receive on payments into their pension. Tax relief means some of your money that would have gone to the Government as tax goes into your pension instead. You can put as much as you want into your pension, but there are annual and lifetime limits on how much tax relief you get on your pension contributions.

Tax relief on your annual pension contributions

If you’re a UK taxpayer, in the tax year 2018/19 the standard rule is that you’ll receive tax relief on pension contributions of up to 100% of your earnings or a £40,000 annual allowance, whichever is lower. Any contributions you make over this limit will be subject to Income Tax at the highest rate you pay. However, you can carry forward unused allowances from the previous three years, as long as you were a member of a pension scheme during those years.

But, there is an exception to this standard rule. If you have a defined contribution pension and you start to draw money from it, the annual allowance is reduced by £1 for every £2 income where adjusted income exceeds £150,000.

The Money Purchase Annual Allowance (MPAA)

In the tax year 2018/19, if you start to take money from your defined contribution pension, this can trigger a lower annual allowance of £4,000. This is known as the ‘Money Purchase Annual Allowance’ (MPAA).

That means you’ll only receive tax relief on pension contributions of up to 100% of your earnings or £4,000, whichever is the lower.

Whether the lower £4,000 annual allowance applies depends on how you access your pension pot, and there are some complicated rules around this.

The main situations when you’ll trigger the MPAA are:

  • If you start to take ad-hoc lump sums from your pension pot
  • If you put your pension pot money into an income drawdown fund and start to take income

The MPAA will not be triggered if you take:

  • A tax-free cash lump sum and buy an annuity (an insurance product that gives you a guaranteed income for life)
  • A tax-free cash lump sum and put your pension pot into an income drawdown product but don’t take any income from it

You can’t carry over any unused MPAA to another tax year. The lower annual allowance of £4,000 only applies to contributions to defined contribution pensions and not defined benefit pension schemes.

Tax relief if you’re a non-taxpayer

If you’re not earning enough to pay Income Tax, you’ll still qualify to have tax relief added to your contributions up to a certain amount.

The maximum you can pay is £2,880 a year or 100% of your earnings – subject to your annual allowance.

Tax relief is added to your contribution, so if you pay £2,880, a total of £3,600 a year will be paid into your pension scheme, even if you earn less than this.

How much can you build up in your pension?

A pension lifetime allowance puts a top limit on the value of pension benefits that you can receive without having to pay a tax charge.

The pension lifetime allowance is £1,030,000 for the tax year 2018/19. Any amount above this is subject to a tax charge of 25% if paid as pension, or 55% if paid as a lump sum.

Workplace pensions, automatic enrolment and tax relief

Since October 2012, a system has been gradually phased in requiring employers to automatically enrol all eligible workers into a workplace pension.

It requires a minimum total contribution, made up of the employer’s contribution, the worker’s contribution and the tax relief.

For more information please visit our pension page  or book a chat with our expert team now.

retirement planning

Start Planning Early

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retirement planningThings you can do to increase your chances of success

The future may seem far away, but you need to start planning early. Regardless of your goals, there are things you can do to increase your chances of success! It is important to look objectively at your plans and adapt them as your priorities change over the years and you go through different life events.

Many of us have got things in mind we’d like to do when we retire, whether it’s travelling the world or simply doing more of what you love. But how can you save enough for a decent retirement without having to give up what makes life good today?

Eagerness to retire

According to research[1], almost three quarters (73%) of people aged 45 or over are longing for the day when their life is no longer confined by their working routine. Yet, despite an eagerness to retire, the research shows that almost half (46%) of over-45s with a pension have no idea how much it is currently worth, and that more women (52%) than men (41%) don’t know the value of their own pension savings.

Shift in lifestyle

A fifth (19%) of those aged 45-plus don’t have a pension in place yet. Two thirds of those aged 45- plus (67%) are hoping for a shift in lifestyle, keen to retire early before the State Pension age kicks in. But only one in ten of them (12%) has proactively increased how much they are investing in their pension when they’ve been able to, in order to help make this happen.

Pension freedoms benefits

Once people reach the age of 55 (age 57 from 2028), they can benefit from pension freedoms which allow them to start withdrawing money from their pension savings if they need to. It’s a point at which some key decisions can be made, and the importance of knowing the value of their pension should come sharply into focus. But, even among this group of people aged 55–64, some 45% still have their eyes shut and don’t know what their pension savings are worth.

For more information please visit our pension page  or book a chat with our expert team now.

 

Source data [1] The research was carried out online for Standard Life by Opinium. Sample size was 2,001 adults. The figures have been weighted and are representative of all GB adults (aged 18+). Fieldwork was undertaken in November 2017