Ten tips to make the most of pension freedoms

Planning for retirement in the new pensions landscape

The new pension savings market offers much more flexibility and choice post–6 April this year, which is a positive, but it can be overwhelming. For people planning for retirement in the new world of pension freedoms, there are both risks and opportunities – from passing on your pension to loved ones, to making the most of tax relief.

1. Pension freedoms– what are your next steps?

Make sure you have a clear picture of what pensions you have – some people lose track of old pensions from previous jobs, especially after moving property. Use the free government service to track down your money: www.gov.uk/find-lost-pension

2. If you have various pensions from former jobs, think about whether you want to ‘tidy up’ your pensions

There could be benefits in bringing them together and consolidating them in one pot, so it’s easier to keep an eye on what they’re worth and how they’re invested. This might not be suitable for everyone, and professional advice should always be obtained.

3. Check if you are making the most of your workplace pension

Your employer might match some of what you pay in. See if you could afford a bit extra each month to give yourself a better opportunity to build a larger pension pot. Remember that for every £80 you pay in, and depending on your particular situation, this normally gets topped up with £20 in tax relief, and more tax can be reclaimed if you pay tax at a higher rate.

4. Make sure your Beneficiary Nomination is up to date

The new changes mean it’s easier to pass on your pensions to loved ones. Your pension provider will normally look at your Beneficiary Nomination when deciding whom to pay your savings to, and your Will usually isn’t relevant. Keep your Beneficiary Nomination up to date by requesting a form from your pension company, or you might be able to do this online.

5. Talk to your family

With the new flexible rules about inheritance to bear in mind, you may want to work through these decisions together.

6. Check how your pension savings are invested

You might have selected the funds years ago, and they may no longer reflect your wishes today. Or perhaps you are in a ‘default’ fund, one which was automatically selected for you at the beginning. Either way, it’s prudent to look and see if the funds suit you. If you’re not sure, obtain professional financial advice.

7. Other savings

If you’re approaching retirement and have Individual Savings Accounts (ISA) or other savings, you may want to review these and consider moving your savings into your pension in order to make the most of tax relief. This won’t suit everyone but is worth considering.

8. Be aware of scams

The new flexibilities also give more opportunities for scammers. So remember, if it sounds too good to be true, it probably is.

9. Consider reviewing your retirement plans in light of the new rules

To make sure you’re on track to meet your retirement goals, it’s important to review your pension savings and estimate the income they’re likely to generate in retirement. If there’s a shortfall in your savings, the earlier you spot it, the easier it will be to fix.

10. Think ahead about how you might want to access your savings in retirement

You’ll have a choice of accessing cash, keeping your savings invested, drawing a flexible income, buying a fixed income or some combination of these. You’ll feel more confident making your final decision if you’ve spent time thinking about what’s right for you in advance.

Should you need Independent Financial Advice on any of the topics mentioned above, please call 01554 770022 or 07989 599423.  Alternatively fill out our online contact form, and I will contact you.

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.

A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.

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Pension Wise

Discussing life expectancy as part of your retirement planning is key

Pension Wise, the government’s guidance guarantee service, must discuss life expectancy as part of people’s retirement planning, according to a recent Aviva report.

More accurate picture of life expectancy

The special report on key retirement themes suggests that using nationally agreed longevity figures that take into account the differences between savers and non-savers will provide people with a more accurate picture of their life expectancy.

The report considers the implications for people who underestimate their life expectancy. In particular, people who are savers and healthy are likely to live significantly longer than the national average figures suggest.

New pension freedoms to take effect

People will have far more choice in what they do with their savings from 6 April this year when the new pension freedoms take effect. With the option to take all of their money in one lump sum if they wish, they could find themselves penniless if they outlive their savings. The report highlights significant regional differences in life expectancy in the UK, and the link to lifestyle factors such as smoking and obesity.

The lack of clarity around the interplay of factors affecting life expectancy could mean that many people default to average longevity figures that do not reflect their personal situation, either because they do not understand that as they get older their life expectancy increases or that, as a healthy saver, they need to add years on to their life expectancy.

What do you need to consider?

You should accurately assess your life expectancy as part of your retirement planning, taking into account factors such as existing conditions and lifestyle choices

When thinking about how much money you will need in retirement, you should consider the total savings you have, including all of your assets (such as your property) and measure this against your expenditure and the years you expect to live in retirement

Your life expectancy may change as you get older, so once retired you should review your finances during the course of what could be a long retirement

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.

A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.

‘Am I diversified enough?’

What’s positive for one investment can be negative for anothergraph

Different types of investments are affected in different ways by factors such as economics, interest rates, politics, conflicts, even weather events. What’s positive for one investment can be negative for another, and when one rises another may fall. This interlinked movement between assets is known as ‘correlation’.

Different assets

Portfolios can incorporate a wide range of different assets, all of which have their own characteristics, like cash, bonds, equities (shares in companies) and property. Asset allocation is the process of dividing your investment between different assets. The idea behind allocating your money between different assets is to spread risk through diversification and to understand these characteristics, and their implications on how a portfolio will perform in different conditions – the idea of not putting all your eggs in one basket.

Potential returns

Investments can go down as well as up and these ups and downs can depend on the assets you’re invested in and how the markets are performing. It’s a natural part of investing. If we could see into the future there would be no need to diversify our investments. We could merely choose a date when we needed our money back, then select the investment that would provide the highest return to that date.

Moreover, the potential returns available from different kinds of investment, and the risks involved, change over time as a result of economic, political and regulatory developments as well as a host of other factors. Diversification helps to address this uncertainty by combining a number of different investments.

Asset classes

When putting together a portfolio there are a number of asset classes, or types of investments, that can be combined in different ways. The starting point is cash – and the aim of employing the other asset classes is to achieve a better return than could be achieved by leaving all of the investment on deposit.

Cash – The most common types of cash investments are bank and building society savings accounts and money market funds (investment vehicles which invest in securities such as short-term bonds to enable institutions and larger personal investors to invest cash for the short term).

Money held in the bank is arguably more secure than any of the other asset classes, but it is also likely to provide the poorest return over the long term. Indeed, with inflation currently above the level of interest provided by many accounts, the real value of cash held on deposit is falling.

Your money could be eroded by the effects of inflation and tax. For example, if your account pays 5% but inflation is running at 2%, you are only making 3% in real terms. If your savings are taxed, that return will be reduced even further.

Bonds – Bonds are effectively IOUs issued by governments or companies. In return for your initial investment, the issuer pays a pre-agreed regular return (the ‘coupon’) for a fixed term, at the end of which it agrees to return your initial investment. Depending on the financial strength of the issuer, bonds can be very low or relatively high risk, and the level of interest paid varies accordingly, with higher-risk issuers needing to offer more attractive coupons to attract investment.

As long as the issuer is still solvent at the time the bond matures, investors get back the initial value of the bond. However, during the life of the bond its price will fluctuate to take account of a number of factors, including:

Interest rates – as cash is an alternative lower risk investment, the value of government bonds is particularly affected by changes in interest rates. Rising base rates will tend to lead to lower government bond prices, and vice versa.

Inflation expectations – the coupons paid by the majority of bonds do not change over time. Therefore, high inflation reduces the real value of future coupon payments, making bonds less attractive and driving their prices lower.

Credit quality – the ability of the issuer to pay regular coupons and redeem the bonds at maturity is a key consideration for bond investors. Higher risk bonds such as corporate bonds are susceptible to changes in the perceived credit worthiness of the issuer.

Equities – Equities, or shares in companies, are regarded as riskier investments than bonds, but they also tend to produce superior returns over the long term. They are riskier because, in the event of a company getting into financial difficulty, bond holders rank ahead of equity holders when the remaining cash is distributed. However, their superior long-term returns come from the fact that, unlike a bond, which matures at the same price at which it was issued, share prices can rise dramatically as a company grows.

Returns from equities are made up of changes in the share price and, in some cases, dividends paid by the company to its investors. Share prices fluctuate constantly as a result of factors such as:

Company profits – by buying shares, you are effectively investing in the future profitability of a company, so the operating outlook for the business is of paramount importance. Higher profits are likely to lead to a higher share price and/or increased dividends, whereas sustained losses could place the dividend or even the long-term viability of the business in jeopardy.

Economic background – companies perform best in an environment of healthy economic growth, modest inflation and low interest rates. A poor outlook for growth could suggest waning demand for the company’s products or services. High inflation could impact companies in the form of increased input prices, although in some cases companies may be able to pass this on to consumers. Rising interest rates could put strain on companies that have borrowed heavily to grow the business.

Investor sentiment – as higher risk assets, equities are susceptible to changes in investor sentiment. Deterioration in risk appetite normally sees share prices fall, while a turn to positive sentiment can see equity markets rise sharply.

Property – In investment terms, property normally means commercial real estate – offices, warehouses, retail units and the like. Unlike the assets we have mentioned so far, properties are unique – only one fund can own a particular office building or shop.

The performance of these assets can sometimes be dominated by changes in capital values. These unusually dramatic moves in capital value illustrate another of property’s key characteristics, namely its relative illiquidity compared to equities or bonds. Buying equities or bonds is normally a relatively quick and inexpensive process, but property investing involves considerable valuation and legal involvement.

As such, the process is longer and dealing costs are higher. When there is a wholesale trend towards selling property, as was the case in 2007, prices can fall significantly. Conversely, when there are more buyers than sellers, as happened in 2009, price rises can be swift.

The more normal state of affairs is for rental income to be the main driver of commercial property returns. Owners of property can enhance the income potential and capital value of their assets by undertaking refurbishment work or other improvements. Indeed, without such work, property can quickly become uncompetitive and run down.

When managed properly, the relatively stable nature of property’s income return is key to its appeal for investors.

Mix of assets

In order to maximise the performance potential of a diversified portfolio, managers actively change the mix of assets they hold to reflect the prevailing market conditions. These changes can be made at a number of levels including the overall asset mix, the target markets within each asset class and the risk profile of underlying funds within markets.

As a rule, an environment of positive or recovering economic growth and healthy risk appetite would be likely to prompt an increased weighting in equities and a lower exposure to bonds. Within these baskets of assets, the manager might also move into more aggressive portfolios when markets are doing well and more cautious ones when conditions are more difficult. Geographical factors such as local economic growth, interest rates and the political background will also affect the weighting between markets within equities and bonds.

In the underlying portfolios, managers will normally adopt a more defensive positioning when risk appetite is low. For example, in equities they might have higher weightings in large companies operating in parts of the market that are less reliant on robust economic growth. Conversely, when risk appetite is abundant, underlying portfolios will tend to raise their exposure to more economically sensitive parts of the market and to smaller companies.

How do I build my own diversified portfolio?

Some investors choose to build their own portfolios, either by buying shares, bonds and other assets directly or by combining funds investing in each area. However, this is a very time-consuming approach and it can be difficult to keep abreast of developments in the markets whilst also researching all the funds on offer. For this reason, most investors prefer to place their portfolio into the hands of professional managers and to entrust the selection of those managers to a professional adviser

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.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

Pension Freedom

£ locked in IceThe most radical reforms this century

In Budget 2014, Chancellor George Osborne promised greater pension freedom from April next year. People will be able to access as much or as little of their defined contribution pension as they want and pass on their hard-earned pensions to their families tax-free.

For some people, an annuity may still be the right option, whereas others might want to take their whole tax-free lump sum and convert the rest to drawdown.

Extended choices

‘We’ve extended the choices even further by offering people the option of taking a number of smaller lump sums, instead of one single big lump sum,’ Mr Osborne said.

From 6 April 2015, people will be allowed full freedom to access their pension savings at retirement. Pension Freedom Day, as it has been named, is the day that savers can access their pension savings when they want. Each time they do, 25% of what they take out will be tax-free.

Free to choose

Mr Osborne said, ‘People who have worked hard and saved all their lives should be free to choose what they do with their money, and that freedom is central to our long-term economic plan.’

From 6 April 2015, people aged 55 and over can access all or some of their pension without any of the tax restrictions that currently apply. The pension company can choose to offer this freedom to access money, but it does not have to do so.

Accessing money

It will be important to obtain professional advice to ensure that you access your money safely, without unnecessary costs and a potential tax bill.

Generally, most companies will allow you to take the full amount out in one go. You can access the first 25% of your pension fund tax-free. The remainder is added to your income for the year, to be taxed at your marginal income tax rate.

This means a non–tax payer could pay 20% or even 40% tax on some of their withdrawal, and basic rate taxpayers might easily slip into a higher rate tax band. For those earning closer to £100,000, they could lose their personal allowance and be subject to a 60% marginal tax charge.

Potential tax bill

If appropriate, it may be more tax-efficient to withdraw the money over a number of years to minimise a potential tax bill. If your pension provider is uncooperative because the contract does not permit this facility, you may want to consider moving pension providers.

You need to prepare and start early to assess your own financial situation. Some providers may take months to process pension transfers, so you’ll need time to do your research.

Questions to ask

It’s important to ask yourself some pertinent questions. Are there any penalties for taking the money early? Are these worth paying for or can they be avoided by waiting? Are there any special benefits such as a higher tax-free cash entitlement or guaranteed annuity rates that would be worth keeping?

If you decide, after receiving professional advice, that moving providers is the right thing to do, then we can help you search the market for a provider who will allow flexible access.

Importantly, it’s not all about the process. You also need to think about the end results.

Withdrawing money

What do you want to do with the money once you’ve withdrawn it? You may have earmarked some to spend on a treat, but most people want to keep the money saved for their retirement. Paying off debt is usually a good idea.

If you plan just to put the money in the bank, you must remember you will be taxed on the interest. With returns on cash at paltry levels, you might be better keeping it in a pension until you need to spend it. Furthermore, this may also save on inheritance tax.

Finally, expect queues in April 2015. There’s likely to be a backlog of people who’ve put off doing anything with their pension monies since last year. Those who get through the process quickly and efficiently will be the ones who’ve done the groundwork.

For retirement advice call Jeremy on 01554 770022 or 07989 599423 or use the Contact form:

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.
PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.
A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

Act now to get the pension income you deserve

At retirement, many people will use all or some of their accumulated pension fund to purchase an annuity.

This provides them with a guaranteed pension for life. The amount they receive depends on several factors, including how long they are likely to live.

On 21 December 2012, the EU Gender Directive comes into force for individual pensions. From this date, annuity providers will no longer be able to offer different pension rates for men and women. Traditionally, men have received a higher annual annuity income than women, due to their lower life expectancy. This will not be the case in future. The new Directive is likely to reduce the pension income of men retiring after 20 December this year.

What this could mean for men due to retire:

It is estimated by leading annuity provider Partnership Assurance that male annuities will be reduced on average by 2% to 4% . This could directly affect men (and their spouse or partner, if it is planned to take out a joint life annuity).

How seeking Independent Financial Advice can help

At a time of historically low annuity rates, it is essential that retirees receive the maximum pension available – but annuities can vary widely, and your current pension company may not offer the best deal.

As your local Chartered Financial Planner, Jeremy Phelps is able to search the entire market, review all the options and recommend the most suitable annuity for you.

Jeremy and his firm, Financial Solutions Wales offer up to one hour’s complimentary consultation and the purpose of this is to identify needs and objectives, establish what benefits would result from using their services, outline any associated costs and give you the opportunity to appoint a financial adviser.

If you have any questions about this article, and how it may affect you, call Jeremy Phelps at Financial Solutions Wales on 01554 770022.

Our short guide to ISAs

‘ISA’ stands for Individual Savings Account, a tax-efficient wrapper offered under Government legislation as a way of encouraging you to save. An ISA sits over your choice of a number of different investments to shelter them from further tax on any income or gains earned.

There are now just two types of ISA – the Cash ISA and the Stocks and Shares ISA – and the combined allowance for both in 2012/13 is £11,280.

Within this, the limit for Cash ISAs – or for the cash element within a Stocks and Shares ISA – is £5,640.

However, there is flexibility over how these limits can be used – you can, for example, put the maximum £5,640 in a cash account and £5,640 in a stocks and shares account. Alternatively, though, if you place just £2,000 in cash, you can use the entire remaining balance – £9,280 in this case – to invest in stocks and shares. If you wish, you may put the full £11,280 into a Stocks and Shares ISA.

In addition, you can transfer existing Cash ISA holdings to a Stocks and Shares ISA without impacting on your current tax year allowance. So, if you have £10,000 already sitting in existing cash ISA plans then this amount can be moved to a Stocks and Shares ISA, yet leave your entire current tax year allowance.

Finally, if you already have an ISA, you are permitted to transfer it to a new plan manager, without using any of your annual allowance.

Please feel free to download the ‘Guide to ISAs‘ brochure*. It contains plenty of information on what you should consider when considering investing in an ISA.

Alternatively, if you require independent financial advice on ISAs, feel free to call on 01554 770022 and we can arrange a no obligation appointment.

*Guide provided courtesy of http://www.adviser-hub.co.uk

Investing for children

No parent will need reminding children cost money.

Many parents or grandparents are in the fortunate position to be able to save for their family and so often need advice on what may be the most suitable route.

With so many options available, where do you start?  A bank account, Junior ISA, Child Trust Fund or shares, to name a few?  Protection from inflation also needs to be considered.

Your timeline is very important.  A savings account for a toddler has a longer time horizon, and maybe you could afford to take more risk.  On the other hand, putting money aside for a teenager will probably need more security, and may be better suited to a deposit account.  Your attitude to risk will probably drive the most suitable investment.

Here are some considerations:

  1. Use personal allowances – the child will be able to earn £8,105 free of tax (2012/13).
  2. Are Junior ISAs or Child Trust Funds suitable?
  3. Trusts – these may provide the saver with more control over the investment.
  4. A pension contribution for the child may be desired.
  5. Friendly Society savings bonds may offer a suitable solution.
Please feel free to download the ‘Investing for Children‘ guide.  It contains plenty of information on what you should consider when investing for a child.
If you require advice on savings for a child, feel free to call on 01554 770022 and we can arrange a no obligation appointment.

Financial advice you can trust

Independent Financial Advice from Jeremy Phelps, Chartered Financial Planner

The Chartered titles, awarded under the Chartered Insurance Institute’s (CII) Royal Charter from the Privy Council, are steeped in history and they are just as relevant in today’s market.

A uniquely British institution, the Royal Charter is a stamp of quality that has stood the test of time and remained the gold standard for professional services in the UK and abroad.  Its reputation has held fast whilst governments have fallen and whole systems of economic theory have crashed to the ground.  The Chartered title remains a symbol of an unparalleled mark of quality – merit, competence and commitment to the highest standard of professionalism.

They remain the ‘gold standard’ of excellence and integrity.  My Chartered status provides you with comfort and security, serving as a benchmark for quality and ethical practice.

Consumer research by the CII has shown that ‘Chartered’ resonates best with the public in terms of recognition, trust and confidence – both in the insurance and financial planning sectors, and in the broader world of professional services.

Financial Advice is NOT free.

Retail Distribution Review (RDR for short) – a huge shift in financial services, and I for one think it is for the better.  It comes into effect in January 2013, but it’s started now.

Yesterday, I attended a RDR conference, covering subjects such as VAT, adviser charging, and positioning my proposition to my clients.  There are objectors to the change and others, like my firm – Financial Solutions Wales, who are embracing the change.  My firm is well positioned to provide advice to our clients well into the future.  Both advisers are suitably qualified to provide advice for the future, and I have gained Chartered Financial Planner status. (the Personal Finance Society describe Chartered Financial Planner as ‘the pinnacle for the financial planning professional’).

I feel more comfortable dealing with clients who understand that financial advice is not ‘free’.  Any adviser, like those at your bank, independent advisers, tied agents do not provide free advice, they must get paid!  This has traditionally been through commission, where the product provider sets the payment levels, advisers choose how much they would like from that offered by the firm he/she places the business with.  I like to agree all fees up front, it’s fairer to you – my client.  I met a potential client last week, who was offered a solution from another adviser, and  she was shocked to see the charge was £9000!  You won’t be surprised to understand that she asked me how much I’d charge for the same work – around a quarter of what she was quoted by the other adviser, agreed up front with our firm, delivering a proposition to meet her needs now and in the future.

As an independent financial adviser (IFA) I offer a professional service to my clients, often matching their needs with solutions available.  I have calculated the amount of time spent on providing advice is around 10 hours on average.  My clients see me for around 1/4 of that time, usually an initial meeting and then when I provide my recommendation.  Often, to ensure that they are comfortable with my recommendation, we may add another meeting or two.  ‘Behind the scenes’, I prepare for appointments, telephone providers, design solutions, research products, complete applications and follow up the application until it is in place.

This takes a considerable amount of time.

I must say that I agree that some people will be priced out of taking advice, because as I say before, it is rarely ‘free’.  However, I look forward to taking on those clients who value my services, and feel content with the solutions I provide.

Jeremy.

Realising life-long ambitions

You now have more options than ever before to help you find a solution

For many people, retirement now represents an opportunity to realise life-long ambitions, pursue new passions or help family members with their income needs. Since pensions freedoms, you now have more options than ever before to help you find a solution. Our experience is that clients are seeking more information on whether they can afford to retire earlier than they originally anticipated.

Save now to accumulate the right sum for your future

We all want to save enough to ensure that we have a comfortable retirement. But the challenge is to know just how much income we’ll need as a pensioner – and how to work out how much we’ll need to save now to accumulate the right sum.

Be honest about how you want to live in retirement

It’s important to make realistic estimates about what kind of expenses you will have in retirement. You need to be honest about how you want to live in retirement and how much it will cost. These estimates are important when it comes to calculating how much you need to save in order to comfortably afford your retirement.

Estimate your retirement costs by looking at your current expenses

Part of the process is to estimate your retirement costs by looking at your current expenses in various categories, and then estimate how they may change. For example, your mortgage might be paid off by then – and you won’t have commuting costs. Then again, your health care costs are likely to rise.

A Cash Flow report could help you calculate what you need through the different stages of retirement, and help ‘visualise’ this often overlooked part of financial planning.

To achieve the retirement income you require, you need to know the answers to these questions:

  • What is the value of your pension pot?
  • What are your other sources of retirement income likely to be worth? (These include the State Pension, Individual Savings Accounts, property, and other savings and investments)
  • How long will your money need to last?
  • How much will you require to achieve your essential and additional income needs in retirement?

It’s important to make a distinction between essential income needs and additional requirements.

  • Essential income needs: the minimum level of income for basic lifestyle needs.
  • Additional requirements: these could include travel, hobbies, starting a business or helping younger generations onto the property ladder.
  • Unexpected costs: healthcare costs, family emergencies.
  • Leaving a legacy: passing on an inheritance.

Whether your retirement is fast approaching or decades away, many people are unable to retire when they’d like to because of their financial situation. With careful planning, you can avoid this predicament. Planning ahead for retirement allows you to decide when and how you will retire, and whether you will continue to work. Even if you have not begun to plan, you can still start preparing yourself at any time – it is important to give yourself the best chance for a happy and secure future!

New intestacy rules aim to make things simpler and clearer

CouplejpgWhy the consequences could be far-reaching for you and your loved ones

Significant changes to existing intestacy rules came into force on 1 October 2014 in England and Wales, with the aim of making things simpler and clearer. The consequences could be far-reaching for you and your loved ones, and while there are increasing entitlements for surviving spouses and registered civil partners, the changes highlight the importance of making a Will to ensure your wishes are carried out.

Radical rule changes

From 1 October 2014, the Inheritance and Trustees Powers Act 2014 radically alters the way in which the assets of people who die intestate are shared among their relatives. The biggest change will affect married couples or registered civil partnerships where there are no children. In the past, the spouse received the first £450,000 from the estate, with the rest getting split between the deceased’s blood relatives. Under the new law, the surviving spouse will receive everything, with wider family members not receiving anything.

Life interest concept abolished

Couples who have children will also be affected by the changes. Previously, the spouse of the deceased received the first £250,000 and a ‘life interest’ in half of the remainder, with the children sharing the other half. Under the new rules, the life interest concept has been abolished, with the surviving married partner receiving the first £250,000 and also half of any remainder. The children will receive half of anything above £250,000 and will have to wait until they are 18 to access any funds.

No protection for couples

These changes go some way to improving the position for married couples and registered civil partners. However, they still leave couples who are not married or in a registered civil partnership with no protection. Where an individual in an unmarried couple dies without a Will, their partner is not entitled to receive any money from their estate.

Distributing assets tax-efficiently
The changes therefore highlight again how important it is to make a Will to ensure that your wishes are followed and that assets are distributed tax-efficiently. Wills are also often used to express a preference for who should act as guardians for minor children in the event that parents die.

If a person dies without leaving a Will, the chances are that the estate will be distributed in a way that the deceased would not have wanted. This can have very real and distressing consequences, as well as unanticipated inheritance tax costs.

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 FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE WILL WRITING OR TAXATION ADVICE, INCLUDING INHERITANCE TAX PLANNING.

The Triviality Limit is £18,000? – Well, not always!

I’ve been helping a client recently, who was looking to draw the benefits from his personal pension plan.CII-Chartered Financial Planner gold copy

He was hoping to draw it all out in one go, sometimes known as using the Trivial Lump Sum or Triviality option.  His problem is that the fund was worth £18,700 – which is more than the Triviality limit of £18,000.

He had visited his financial adviser at his bank, and was told there was no way he could get the lump sum out as a trivial lump sum.  His only choice, he was told, was to take 25% as tax-free cash, and then choose an annuity for the rest of his life with the balance.  The income he was quoted was around £680 each year.

My client was not happy.  He was extremely disappointed that HIS pension fund would take roughly 20 years to be returned to him, and he didn’t know whether he was going to live for 20 years.  He wanted his pension NOW!!

Now, this is where it pays to see a good Independent Financial Adviser.

The bank adviser was correct in many ways, but failed to explore my client’s circumstances sufficiently.

The pension was with Legal and General, and it turns out the pension was in their Managed Fund.  Upon contacting Legal and General, I identified that the fund was indeed worth now £18,900.  Too high for a Trivial Lump Sum?

However, I enquired with Legal and General whether there was any point within the last three months when the fund was valued below the £18,000 Triviality limit, as the Managed Fund is known to be quite volatile and can fluctuate widely.  I also knew that in June this year, there was quite a sharp fall in equity prices.

As I expected, on the 26th June, the fund value fell to £17,790.  The following days it increased again to beyond £18,000.  What my client had not been told by his bank adviser was that he was permitted to use a ‘nomination date‘.  The nomination date can be used to identify a point when the Triviality rules could have applied.  Thankfully, my client used the 26th June as his nominated date.  The result is that he could use the Triviality rules, as he wanted initially.

The result is one happy client.   Just last week he had just under £16,000 paid into his bank account (after HMRC had taken their bit!).  The fund had risen to £18,900 at the date that he eventually claimed his benefits, and the Triviality rules permitted him to keep the growth in the fund beyond the £18,000 limit.

My client was overjoyed by the advice he had received.  My fee, for this work, for this client, was £295.00.  Good value for money for some sound advice.

I would like to point out that this article is based on all the information presented to me by the client, and the research I undertook on his behalf.  It is my professional opinion on the matter, and I would be more than happy to discuss any similar offers.

If you need advice on this or a similar matter, please give me a call on 01554 770022, and I will explain how I may be able to offer professional independent financial advice.