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What do the Government’s pension changes mean for you?

Archive for the ‘Pensions’ Category

What do the Government’s pension changes mean for you?

Thursday, March 30th, 2023

The Chancellor of the Exchequer recently delivered his Spring Budget  and among the raft of measures were big changes to pension allowances.

As part of the Government’s effort to drive growth, Mr Hunt wants to tackle economic inactivity, as there are over seven million adults of working age who aren’t in work (excluding students).

The Chancellor hopes that his pension reforms might encourage people who’ve retired early to rejoin the workforce, and those who are close to retirement to remain in work.

So what did he announce and what impact will the changes have on you?

And if you’re retired, are you now thinking of returning to work?

Let’s take a closer look at what the Chancellor has announced…

Tax-free pension limits raised

The pensions annual tax-free allowance is being increased from £40,000 to £60,000. So if you’re thinking of paying extra into your pension to make up for any years that you didn’t contribute much then this could be good news for you.

Lifetime allowance charge scrapped

The maximum amount you can draw from your pension in your lifetime without being hit with a higher tax bill is known as the lifetime allowance and currently stands at £1.07m.

If you go over the allowance, you may have to pay a tax charge on the excess if you take a lump sum or draw income from your pension pot.

So it was significant to hear from Mr Hunt that the charge would be scrapped this April , with the abolition of the lifetime allowance following next year.

The Chancellor believes this will simplify the UK’s tax system and incentivise older people to stay in work for longer.

It’s worth pointing out, though, that Labour swiftly promised to reverse this measure if it wins the next general election, while many analysts and experts are openly doubting whether the change will make a difference in encouraging people to remain in the labour market.

One thing is for sure, pensions look set to be a key battleground when the election finally comes.

Tapered Annual Allowance revised

If you earn a high salary with a threshold income above £200,000 or an adjusted income above £240,000  then the Tapered Annual Allowance limits how much tax relief you can get on your pension savings.

However, the minimum Tapered Annual Allowance is to increase from £4,000 to £10,000, and the adjusted income threshold will go up from £240,000 to £260,000.

Money Purchase Annual Allowance to increase

The Money Purchase Annual Allowance (MPAA) limits how much you can contribute to your pension tax-free every year after you withdraw money, which can make a big difference if you want to top up your income by dipping into your pension savings.

The Government therefore wants to give pension savers greater flexibility by increasing the MPAA to £10,000.

Pension Commencement Lump Sum

You can receive a tax-free lump sum when you become entitled to your pension benefits; this is called the Pension Commencement Lump Sum (PCLS). The maximum amount that most people can claim is currently 25 per cent of their available lifetime allowance when this sum is taken. Although the lifetime allowance is being scrapped, the PCLS will remain at a maximum of £268,275 and then be frozen.

So if you’re retired, will the changes to pensions make you go back into the labour market?

If you’re tempted, a recent poll by Interactive Investor suggests you’ll be in a minority as just nine per cent said increasing the pension annual allowance and MPAA would motivate them to return to work, while 54 per cent said scrapping the lifetime allowance wouldn’t encourage them to work as they like being retired.

It will be interesting to see what impact, if any, these measures will actually have, as we know many of you will have worked long and hard to enjoy a fulfilling retirement.

If you have any questions about what the latest changes to the pension system mean for you and your finances, please don’t hesitate to get in touch, and we’ll be happy to speak with you.

Get ready for the end of the tax year

Wednesday, March 1st, 2023

The end of the tax year is fast approaching and time is running out.

So in the weeks ahead of the April 5th deadline, what steps should you be taking to make the most of your money and reduce your tax bill?

Here are just a few areas you could look at.

Use your ISA allowance

You can save or invest up to £20,000 a year with a cash ISA, a stocks and shares ISA, or a combination of the two, tax-free.

If you haven’t invested this amount by April 5th, you can’t carry your allowance over and you’ll end up missing out.

Top up your pension contributions

You can pay up to £40,000 into your pension in a single tax year before you have to pay tax on it, so if you aren’t particularly near to this limit, diverting some money into your pension could be a good way to mitigate your wider tax bill.

Use Your Capital Gains Tax allowance

If you sell assets or personal possessions that are worth more than £6,000 – apart from your car – you must pay tax if the proceeds exceed £12,300.

Genuine gifts from a civil partner or spouse don’t count towards the allowance, so it’s worth checking where potential tax savings could be made.

Use your dividend allowance

A dividend allowance is an amount of dividends that you don’t have to pay tax on, which is currently £2,000. So if you’re a company director or shareholder, or get dividends through a Stocks and Shares ISA, you can receive up to this amount tax-free.

Use your Personal Savings Allowance

This allowance lets you earn interest on your savings without paying tax on it, but the size of the allowance depends on your income tax rate.

If you’re a basic rate taxpayer (20 per cent), you can earn £1,000 in savings interest per year tax-free, while higher rate taxpayers (40 per cent) can earn £500 in savings interest per year with no tax. Additional rate taxpayers (45 per cent) don’t get an allowance.

This is by no means an exhaustive list, and many of these options may not even apply to you.

That’s why it’s definitely worth speaking with a professional, regulated financial adviser with experience in this field. They can talk through the choices open to you to help you make the right decisions.

April 5th isn’t far away, so don’t delay!

Do you know where your old pensions are?

Wednesday, November 16th, 2022

It’s worryingly easy to lose track of old pensions, many of which will be worth considerable sums of money and could make a big difference to your retirement.

But the fact is, a huge number of people are losing touch with these pots of cash as time passes.

For example, many people will know that they should tell their bank and GP if they’re moving house, and make sure they do so as soon as they can. But how many will think to get in touch with their pension provider too?

Or if someone leaves one job for another, managing their previous workplace pension might be so far down their list of priorities that they forget about it completely.

According to new figures from the Pensions Policy Institute (PPI), the value of lost pension pots has gone up by 37 per cent in the last four years, rising to a staggering £26.6 billion. These are worth an average of £9,470 – a significant amount, to say the least.

Figures also showed that nearly three million pension pots are not currently matched with their owner. That’s an increase of 75 per cent since 2018.

So if you’re one of those people who has lost track of an old pension plan, what can you do?

Well, one option is to speak to your previous employer, as they could have the details that you need, or you could get in touch with the Money and Pensions Service (MaPS) for help.

The figures from the PPI should be the jolt that you need to take control of your pension planning and locate any pots of money you think you’ve lost track of.

It doesn’t have to be a time-consuming task, and the benefits can be very tangible and significant.

For example, it could be the key that helps you unlock a much more comfortable retirement, or even enable you to retire earlier than you originally thought.

Alternatively, it could empower you to take charge of your overall financial situation and make your money work harder for you.

For instance, you might still be paying for a pension provider to manage a pot you’ve forgotten all about, but now be able to switch to a provider with lower charges or no fees at all, thereby saving considerable sums of money.

Or perhaps you might be encouraged to check your wider investment choices, as the money in your newly recovered pension pot could open up new options and opportunities to you, and make you look again at your financial and lifestyle goals.

If you have any questions about reclaiming lost pension pots or deciding what to do with schemes you’d forgotten all about, feel free to get in touch with us, and we’ll be happy to help and discuss your options.

Sources

https://www.pensionspolicyinstitute.org.uk/media/4183/20221027-lost-pensions-press-release-final.pdf

https://nationalpensiontracingday.co.uk/why-join/ 

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-problems/tracing-and-finding-lost-pensions  

Autumn Mini Budget Overview 2022

Wednesday, September 28th, 2022

So what was it? A ‘fiscal event’? A Mini Budget? Or a full-blown Budget from a new Chancellor determined to take the UK in a very different direction from previous occupants of 11 Downing Street? As we will see in more detail below, reactions to the measures introduced by Kwasi Kwarteng on Friday September 23rd were sharply divided. 

Saturday morning’s papers, though, were quick to deliver their verdict. ‘At last! A True Tory Budget’ was the Mail’s headline. ‘We’ve got the courage to bet big on Britain,’ said the Express. The gambling theme was repeated in other papers. ‘Kwarteng gambles on biggest tax cuts in half a century’ was the Telegraph headline, while the Times went with ‘Truss’s great tax gamble’.

Irrespective of whether it was a ‘fiscal event’ or a full Budget, there was a lot to digest. We’ve detailed all the measures below, but first, let’s look at the background to Kwasi Kwarteng’s radical measures. 

The political background 

In July 2019, Boris Johnson replaced Theresa May as leader of the Conservative Party and Prime Minister. Liz Truss, MP for South West Norfolk and a supporter of Johnson in his leadership campaign, was appointed International Trade Secretary. Lower down the ministerial ladder, Kwasi Kwarteng, the MP for Spelthorne, was made a Minister of State at the Department for Business, Energy and Industrial Strategy. 

Five months later, Boris Johnson led the Conservatives to an 80-seat majority in the General Election on a promise to ‘Get Brexit Done’. His position appeared to be impregnable, but as we now know, he was forced to resign in the summer of 2022. The subsequent battle to replace him eventually came down to a straight fight between Liz Truss and former Chancellor – and early favourite – Rishi Sunak. Eventually, Truss won out, after endearing herself to Conservative members with a series of commitments to cut taxes. 

She became Prime Minister on September 6th and, with the Queen’s death just two days later. Many people had expected Sunak’s successor, Nadhim Zahawi, to continue as Chancellor, but instead, Liz Truss opted for Kwasi Kwarteng – widely regarded as being on the right of the Conservative Party and a staunch advocate of tax cuts. 

The death of the Queen, the national period of mourning and the approaching party conference season meant that the timetable for the fiscal event was shortened. Budget speeches are normally delivered on Wednesday lunchtime, after Prime Minister’s Questions. This time, Kwarteng delivered his package of measures on Friday morning, ahead of the Labour Party Conference in the last week of September and the Conservative Conference the following week. 

The economic background 

‘Neither a borrower nor a lender be.’ Many of you will know that famous quotation from Hamlet, but over the last two years, the UK Government has had little choice other than to be a borrower – and to be a borrower on an almost unprecedented scale.

A document published by the House of Commons library revealed that borrowing for 2020/21 was £167 billion higher than had been planned before the pandemic. Total spending to deal with coronavirus was put in the range of £310 billion to £410 billion. 

That document, however, was optimistic about the cost of servicing the extra borrowing. Published in March 2022, it said: “The cost of borrowing is currently very low [but the public finances are] vulnerable to an increase in these costs.”

This, of course, is exactly what has happened. The rising cost of energy and the global supply chain crisis has caused inflation on a scale not seen for years: in order to try to keep a lid on inflation, central banks have increased interest rates – which, in turn, have increased the cost of servicing the UK’s debt. 

And there was more debt to come. Within days of becoming PM, Liz Truss had committed to borrowing ‘up to £150 billion’ in order to cap a typical household’s energy bill at £2,500 a year until 2024. “Extraordinary times call for extraordinary measures,” she said. 

Meanwhile, the cost of servicing the equally extraordinary borrowing was rising. On September 22nd, the Bank of England raised interest rates by 0.5% to 2.25% and conceded that the ‘UK may already be in recession’. 

Rising rates meant that the Government borrowed £11.8 billion in August, almost twice as much as the Treasury forecasters had expected, as high inflation pushed interest payments to an August record. The inflation rate for August – at 9.9% – was down very slightly on July’s 10.1%, but there are plenty of forecasters ready to suggest that it could go much higher next year. Despite the action on energy bills, UK consumer confidence slipped into negative territory for the first time since 2020. 

The tax cuts – including the changes to stamp duty, cuts in income tax and the reversal of the rise in National Insurance – had been well trailed in advance. Supporters of the Chancellor were looking forward to the speech, while critics were already sharpening their knives, with the Institute for Fiscal Studies warning that “the tax cuts gamble will make [the UK’s] debt unsustainable”.

The speech 

Opening remarks

Kwasi Kwarteng began by acknowledging that the cost of energy is the issue that is “worrying British people the most”, and described the recent support for households and businesses as “one of the most significant interventions the British state has ever made”.

However, he stressed that high energy costs are not the only challenge confronting the UK, as growth is “not as high as it should be”. Mr Kwarteng therefore pledged “a new approach for a new era”, with lower taxes at the heart of his strategy.

Personal taxation and allowances

What

A cut in the basic rate of income tax, from 20% to 19%.

When 

April 2023.

Comment

The planned reduction in the basic rate of income tax to 19p has been brought forward by one year. The Government says this means more than 31 million people will get £170 more per year on average, and works out to a tax cut of over £5 billion a year. Mr Kwarteng says this also makes the UK’s income tax system one of the most competitive in the world.

There will be a one-year transitional period for Relief at Source (RAS) pension schemes to allow people to continue to claim tax relief at 20%. That means that even though the income tax rate will be 19%, personal pension contributions will get 20% tax relief at source.

 

What

Top rate of income tax scrapped and single higher rate to be introduced.

When 

April 2023.

Comment

The highest rate of income tax currently stands at 45% and is paid by anyone who earns more than £150,000 a year. But from April 2023, a single higher rate of income tax of 40% will be introduced, a move that Mr Kwarteng believes will simplify the tax system, make Britain more competitive, reward work and incentivise growth. 

 

What

Increase in dividend tax rates to be reversed.

When 

April 2023.

Comment

The 1.25% increase in dividend tax rates is to be reversed, which will benefit 2.6 million dividend taxpayers with average savings of £345 in 2023-24. Additional rate taxpayers will also benefit from the scrapping of the additional rate of dividend tax. The Government believes the move will support entrepreneurs and investors, which can in turn drive economic growth.

 

What

Stamp duty cut.

When 

September 23rd 2022.

Comment

The threshold at which Stamp Duty Land Tax (SDLT) must be paid in England and Northern Ireland has been doubled to £250,000 for all home purchases. 

The threshold at which first-time buyers are liable to pay SDLT, meanwhile, has increased from £300,000 to £425,000, and the value of the property on which first-time buyers can claim relief goes up from £500,000 to £625,000.

Mr Kwarteng says the measures take 200,000 people “out of paying stamp duty altogether” and will be a permanent change to the SDLT system.

Business investment and taxation

What

Corporation tax increase to be cancelled.

When 

Immediately.

Comment

The Government had planned to increase corporation tax from 19% to 25% in April 2023, but this will no longer go ahead.

Mr Kwarteng says this will give the UK the lowest rate of corporation tax in the G20 and plough almost £19 billion a year back into the economy. This, he maintains, gives businesses more money to “reinvest, create jobs, increase wages or pay the dividends that support our pensions”.

 

What

Removing caps on bankers’ bonuses.

When 

Immediately.

Comment

The cap on bonuses bankers are allowed to receive on top of their salaries, which was introduced by the European Union in 2014 after the global financial crisis, has been scrapped.

Under the previous system, bankers’ bonuses could not be higher than twice their annual salary without the agreement of shareholders. However, the Government believes that payment in bonuses “aligns the incentives of individuals with those of the bank”, which can in turn support economic growth.

Although the move is likely to prove controversial, Mr Kwarteng has insisted that the bonus cap “never capped total remuneration”, and instead pushed up the basic salaries of bankers or drove activity outside Europe.

In his statement, he argued that a strong UK economy depends on a strong financial services sector, with global banks creating jobs, paying taxes and investing “here in London, not Paris, not Frankfurt, not New York”.

 

What

New investment zones.

When 

No dates confirmed.

Comment

The Government will liberalise planning rules in designated sites, releasing land and accelerating development. This will be accompanied by tax cuts, with enhanced tax relief for structures and buildings, 100% first year allowance on qualifying investments in plant and machinery, and no stamp duty payments on purchases of land and buildings for commercial or new residential development. 

Newly occupied business premises will be exempt from business rates, and if a company residing in the designated site hires a new employee to work in the tax site for at least 60% of the time, they will pay no National Insurance on the first £50,270 that they earn.

 

What

Simplifying IR35 rules.

When 

April 2023.

Comment

Workers who provide services via an intermediary will be responsible for determining their employment status and paying the appropriate amount of National Insurance and tax.

The Government believes reforms to off-payroll working introduced in 2017 and 2021 have added “unnecessary complexity and cost for many businesses”. As a result, it hopes this latest change will “free up time and money for businesses that engage contractors that could be put towards other priorities.” 

 

What

Energy Bill Relief Scheme.

When 

Immediately (announced earlier this month).

Comment

The Government will provide businesses and non-domestic energy users, including schools, hospitals and charities, with a discount on energy prices for six months.

 

National insurance

What

1.25% rise in National Insurance to be reversed.

When 

November 6th 2022.

Comment

The Government is reducing Class 1 and Class 4 National Insurance contributions (NICs) by 1.25 percentage points from November and cancelling the introduction of the Health and Social Care Levy. This was set to be introduced in April 2023, and proved to be one of the most controversial policy announcements of Boris Johnson’s premiership, as the Government had pledged not to increase NI in its election manifesto. 

However, Liz Truss spent much of the recent leadership contest pledging to reverse this policy. The Government says the move enables almost 28 million people to keep an extra £330, on average, of their money next year.

 

The cost of living crisis

What

Energy Price Guarantee (EPG).

When 

Immediately (announced earlier this month).

Comment

The Government has pledged to limit the unit price that consumers pay for gas and electricity, which means typical annual household bills will be £2,500 for the next two years. This is on top of the previously announced plan to give all households £400 towards their bills this winter.

As part of the Energy Price Guarantee, the Government will also cover environmental and social costs, as well as green levies, currently included in domestic energy bills, for two years.

Other measures

Alcohol duty

What

Planned duty increase for beer, cider, wine and spirits scrapped.

When 

February 1st 2023.

Comment

Duty rates for beer, cider, wine and spirits will be frozen, which the Government believes will support businesses and help consumers with the cost of living.

An 18-month transitional measure for wine duty has also been announced, while draught relief will be extended to cover smaller kegs of 20 litres and above, which the Government says will help smaller breweries.

 

VAT-free Shopping

What

VAT-free shopping for overseas visitors.

When 

No date confirmed.

Comment

A digital VAT-free shopping scheme, designed to boost the high street and create jobs in retail and tourism, will be introduced. Under the scheme, overseas visitors to the UK will be able to purchase items VAT-free. Although no date has yet been confirmed, Mr Kwarteng said he wants to see this put in place as soon as possible.

 

Universal Credit

What

Tighter rules on Universal Credit.

When 

January 2023.

Comment

Universal Credit claimants who earn less than the equivalent of 15 hours a week at the National Living Wage will have to regularly meet with their work coach and actively take steps to increase their earnings, or risk having their benefits cut. The Government believes this will bring a further 120,000 people into the more intensive work search regime.

 

Industrial Action

What

Trade unions will have to put pay offers to members.

When 

No date confirmed.

Comment

The Government will legislate to require trade unions to put pay offers to a member vote, so that strikes can only be called once negotiations have genuinely broken down. Legislation to ensure Minimum Service Levels can be put in place for transport services, so that strike action does not prevent people getting to and from work, will also be introduced. 

 

Infrastructure planning legislation 

What

New laws to simplify infrastructure planning rules.

When 

No date confirmed.

Comment

Legislation to simplify the planning system for major infrastructure projects is to be put forward, as the Government believes the existing process is “too slow and fragmented”.

Mr Kwarteng said the time it takes to get consent for “nationally significant projects is getting slower, not quicker, while our international competitors forge ahead”.

He therefore wants to streamline assessments, appraisals, consultations and regulations, and review the Government’s business case process to speed up decision-making.

A list of infrastructure projects to be prioritised for acceleration has been published, covering sectors such as telecoms, energy and transport.

 

Reforms to the pension charge cap  

What

Pension Charge Cap no longer to apply to well-designed performance fees.

When 

No date confirmed.

Comment

Draft regulations to remove well-designed performance fees from the occupational defined contribution pension charge cap will be brought forward.

The Government believes this will unlock pension fund investment into UK assets and innovative, high growth businesses, and ensure savers benefit from higher potential investment returns.

 

Reaction to the speech 

Reaction to the Chancellor’s speech was – as we have already seen – sharply divided. Many right-wing commentators could not contain their excitement, while those on the left derided it as a ‘Budget without numbers’ and one that would benefit ‘only the rich’. 

Writing in the Telegraph, Allister Heath described Kwarteng’s statement as “the best Budget I have ever heard a Chancellor deliver, by a massive margin”. He added that “hardcore, unapologetic liberal Toryism is back”, before praising the Chancellor for his commitment to “a flatter and simpler tax system”. 

Across the political divide, the Resolution Foundation accused Kwarteng of ‘blowing the Budget’ with half of his planned tax cuts going to ‘the richest 5%’. The £45 billion package, the Foundation said, would ‘raise interest rates and see an additional £411 billion of borrowing over five years’.

There was plenty of reaction from other think tanks and lobbying groups too. Unsurprisingly, the Taxpayers’ Alliance called the speech ‘the most tax-friendly Budget in recent memory’. Adding a cautionary note on excessive spending, Chief Executive John O’Connell wrote: “Taxpayers will be delighted with a Budget that eases the burden on their bottom lines and promises a growth game changer.” 

The Adam Smith Institute was similarly enthusiastic, saying that the Mini Budget was ‘the first step to getting the British economy back on track’. Head of Research Daniel Pryor said: “The planned increase in Corporation Tax would have hammered business, choked off investment and reduced workers’ wages. It’s also encouraging to see the Chancellor understands the importance of capital allowances.” 

Meanwhile, Director of the Institute for Economic Affairs Mark Littlewood commented: “This isn’t a trickle-down Budget, it’s a boost-up Budget. It’s refreshing to hear a Chancellor talk passionately about the importance of economic growth, rather than rattling off a string of state spending pledges.”

Not everyone, though, was reaching for the champagne. The Resolution Foundation added the note that growth in the short term ‘is in Putin’s hands rather than ours’.

Director of the Institute for Fiscal Studies Paul Johnson welcomed the cuts to stamp duty, but drew worrying parallels with Anthony Barber’s 1972 ‘dash for growth’ Budget, which ‘ended in disaster’ and was now ‘acknowledged as the worst of modern times’. 

The left-wing Momentum organisation’s take on the announcements was even simpler, and used just six words: “The Tories have declared class war.” 

What about the markets? There are, of course, many other factors acting on the FTSE-100 index of leading shares and the pound, but the pound went into free fall after the Chancellor’s statement, and by the following Monday morning, it had fallen to a record low against the dollar.

Conclusions 

Kwasi Kwarteng didn’t waste time in his first major speech as Chancellor. He spoke for just 25 minutes, starting by dealing with the cost of energy and then proceeded to rattle off a string of tax cuts. 

“We won’t apologise,” he said in conclusion, as he dismissed the ‘tax and spend’ approach of previous governments, both Conservative and Labour. “Our entire focus is on making the UK more competitive in a fiercely competitive global economy.” 

Depending on your political standpoint, you may regard the statement as “the best Conservative Budget since 1986”, as Nigel Farage described it, or perhaps you feel nervous about the Chancellor’s decision to ‘gamble on the biggest tax cuts in half a century’.

What is certain is that the new PM and her Chancellor will not be changing course. As Mr Kwarteng sat down, your immediate reaction might have been to wonder what further tax cuts he would introduce in his March Budget. According to the Sunday papers, we may not have to wait even that long. ‘Truss plans to cut taxes again in the New Year’ was the Sunday Telegraph headline, and the Express was rather more forthright with ‘Chancellor: You ain’t seen nothing yet’.

Former Chancellor George Osborne always made the same point in his Budget speeches: whatever measures he took, the UK could easily be blown off course by factors beyond his control. Right now, that “fiercely competitive global economy” includes the conflict in Ukraine, increasing tensions between the US and China, energy prices that are far higher than they were a year ago, increasing base rates to counter inflation and seemingly endless supply chain problems. 

So the world – and the global economy – may look very different by the time Kwasi Kwarteng rises to present his March Budget. Rest assured though, that whatever happens in the next six months, we will – as always – keep you fully up to date with all the news, and how it impacts your savings, investments and long-term financial planning.

Are you leaving your retirement planning too late?

Wednesday, June 1st, 2022

For many of us, old age and retirement can feel a long way off, and with the world seemingly lurching from crisis to crisis, many of us are focused on simply getting through the next few days and weeks, rather than looking too far ahead.

However, that approach could simply store up problems for the future, which is why we’d urge anyone to start planning for their retirement as soon as possible.

According to a new study by Hargreaves Lansdown, one in five people said they would leave planning their retirement until they’re aged 60 or above.

The same survey showed that one in five people would only begin retirement planning at the age of between 30 and 39. Similarly, just one in seven people said they started planning for retirement when they were aged between 18 and 24.

So what does this mean for future retirees? Well, it’s a fact that the sooner you start putting money into your pension, the more time you have to build up a sizeable sum that should see you through your retirement.

Conversely, if you start too late, you’ve got a very short space of time in which to build up a retirement fund, which could hugely affect your ability to lead the lifestyle you want to enjoy after you finish working.

And if you start projecting your likely pension income in retirement, you may find that you don’t have very long in which to make up any shortfall.

Commenting on the figures, Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, acknowledged that it can be “easy to put off planning until the last moment”.

However, she insisted that pensions were a “long-term game”, which means action needs to be taken sooner rather than later.

“It’s worth taking the time earlier in your career to think about what kind of retirement you would like and put a plan in place to help you achieve it,” Ms Morrisey commented.

A lack of financial knowledge and education about pensions and retirement could be one big reason why so many people are kicking in the can down the road.

In fact, according to a YouGov survey, commissioned by Drewberry, 41 per cent of people with a workplace pension don’t actually know what they’re paying in and what they’ll get from it when they retire.

More than half of those polled also said they’d like to know if they’re saving enough for retirement, and significantly, one in three believe their employer should pay for them to discuss retirement planning with a financial adviser to get a better understanding of their finances.

Whether a lack of financial education leads to people ignoring and putting off financial planning is a constant topic of debate in the financial services industry. But it’s clear that more needs to be done to engage with both employers and savers on this issue, so people are properly set up for later life, and the fear factor that surrounds pension planning is taken out of the picture.

Interestingly, 87 per cent of the people polled by YouGov said they pay into a workplace pension, while 56 per cent said the provision of a workplace pension is important to them when they’re looking for a new job.

That suggests that many people do want to lay down the groundwork to secure a happy and prosperous future, but don’t necessarily know how – and that’s where making financial advice available and accessible becomes so important.

Sources

https://www.pensionsage.com/pa/One-in-five-leaving-retirement-planning-till-aged-60.php 

https://hrnews.co.uk/brits-baffled-by-complicated-pensions/

https://www.drewberryinsurance.co.uk/knowledge/research/workplace-pension-survey-uk-2022?msclkid=65faf7b5cfce11ec91c6843402068810

The Pensions Triple Lock: broken promises!

Wednesday, October 6th, 2021

At the last General Election the Conservative Government made a promise, a so-called “manifesto commitment.” That pledge is commonly known as the “pensions triple lock:” that the state pension will be increased each year by annual price inflation, average earnings growth or a guaranteed 2.5%, whichever is the greater. 

For pensioners this has been good news. It meant that pensions would keep pace with wage growth and inflation and, if both those were low in one particular year, pensioners would be a little better off. 

That, of course, was before the pandemic, the enormous cost of it and the financial juggling the Chancellor will need to do to pay for all the support measures put in place, and the consequent sharp rise in Government borrowing. 

In early September, as had been widely rumoured, the Government broke not one, but two manifesto pledges. It increased national insurance to pay for social care and, crucially for pensioners, it suspended the triple lock for a year. 

This was obviously bad news, and the move begs an immediate question. If the Government has suspended it for one year, could it do it for another year? After all, the bill for Covid-19 is not going to be paid any time soon. 

Unsurprisingly, a poll showed that two-thirds of pensioners were against the suspension. Interestingly though, the research carried out by ComRes suggested that the move would be largely forgiven by the next General Election. 

In this instance the triple lock has been watered down and become a “double lock,” with the wages element removed. But as we hinted above, we might well see other elements removed in the future, now that the precedent has been set. Many commentators expect inflation to hit 4% by the end of the year, could the Government remove that element in the future, too? 

It will be interesting to see what Chancellor Rishi Sunak has to say when he delivers his Budget speech on October 27th. He will presumably be setting out plans for starting to repay the enormous cost of the pandemic. Given the cost of servicing all the new borrowing the Government is vulnerable to a rise in interest rates, and nothing, including the triple lock, can be ruled out. The next Election is not due until December 2024 and the Government may gamble on the pandemic and the measures taken to counter it being a distant memory by then. 

The uncertainty for pensioners means that your ongoing financial planning becomes more important than ever. It is important that your existing savings and investments are arranged as tax-efficiently as possible and that you make use of all your available allowances. All this is an integral part of our regular review meetings with you, but any clients with immediate questions on the ending of the triple lock should not hesitate to get in touch with us.

What is ESG?

Wednesday, October 6th, 2021

There have been a thousand-and-one articles written since the pandemic on people’s changing attitude to work. Millennials and the generations that follow them – so we are told – want different things from work. Flexibility, the option of working from home and, above all, to work for a company that shares their values: that values purpose as much as profit. 

It is not surprising then that we are hearing more and more from companies about ESG – their environmental, social and governance credentials. What really is ESG? And can it possibly matter as much as profits? After all, without profit you cannot pay your employees: you cannot re-invest in the business and you cannot pay dividends to your shareholders. 

You could argue that companies’ concerns with ESG are not new. The origins could be traced back to the 1800s when religious groups such the Quakers and Methodists ran their businesses according to socially responsible principles, and established socially responsible investment guidelines for their followers. 

More recently – in 2006 – the United Nations launched a set of six investment principles which perhaps started the incorporation of ESG into mainstream investment practice. Simply put ESG criteria judge how a company meets its environmental obligations, how it manages relationships with employees, suppliers, customers and the local community and the principles, composition and behaviour of the leadership team. 

By the same token ESG investing looks to invest in companies that espouse those values. This, in some ways, brings us back to the generations mentioned above. Millennials and their successors not only want to work for companies that share their values, they want to invest in them as well. Often they want to go one step further, and make investments that have a positive and measurable social and economic impact. 

“Impact investing,” as it has been dubbed, is now the fastest growing area of responsible investment. The World Economic Forum estimated that $1tn (£730bn) of assets were committed to impact investing in 2020, with the sector forecast to grow at $250bn (£183bn) annually. 

It is small wonder then, that companies are paying more and more attention to meeting their ESG obligations. Of course the bottom line remains important – although many of us remember Uber famously being valued in the billions despite saying that it may never make a profit – but now both investors and employees are using other criteria to judge companies. You will hear a great deal more about ESG and impact investing in the months and years to come.

Major pension funds commit to net zero carbon by 2050

Thursday, April 1st, 2021

A new Net Zero Investment Framework has been launched by the Institutional Investors Group on Climate Change (IIGCC) which outlines a commitment to net zero carbon emissions by 2050. The framework aims to encourage investors to develop an investment strategy that achieves net zero, and the framework is already being put into practical use.

At the time of writing, 36 investors collectively managing assets of over £6.1trillion have adopted the framework. Among these investors are a significant number of pension schemes: Scottish Widows, the Environment Agency Pension Fund, Royal London, National Grid UK Pension Scheme, the Church of England Pensions Board, Brunel Pension Partnership, Northern Local Government Pension Scheme, Lloyds Banking Group Pensions Trustees Limited and Nest. 

The investment framework is designed to deliver on the Paris Agreement goal of keeping global warming well below 2 degrees celsius, compared to pre-industrial levels, preferably below 1.5degrees. It’s built upon three specific types of target which will be used to measure success. These are portfolio level targets for decarbonisation and investment in climate solutions, timebound portfolio coverage targets for companies and assets to meet net zero or aligned criteria, and engagement coverage threshold ensuring intensive engagement to drive the transition. 

UK Pensions Minister, Guy Opperman, had this to say about the framework: “Bringing climate change to the top of the agenda and ensuring that Britain’s pension investments act on managing climate change risk will not only help the UK reach net zero, but ensure a brighter future for all.”

“In the run up to COP26 (the UN Climate Change Conference) more countries than ever are signing up for net zero. This creates huge opportunities, but also risks, for institutional investors such as pension schemes. That is why we’re the first major economy to legislate to require pension schemes to set targets to manage their own climate risks.”

“I therefore welcome both the ambition and hugely practical guidance contained in this framework, which will help even more institutional investors aim for net zero.” 

 

How much should I be saving towards my pension?

Wednesday, February 10th, 2021

Research shows that we put ambitious targets on our retirement income and then underestimate how much we need to save to get there.

Before we delve into how much you should be saving, here’s a quick overview of the two main types of pension schemes:

In a defined benefit scheme your employer promises to deliver you an income in retirement. You’ll most likely have to contribute each month too, putting in a required amount.

These ‘gold-plated’ schemes are increasingly rare.

The other type of scheme is a defined contribution scheme. If you have this type of scheme, you will save into this and get contributions from your employer too. The money is invested to build a pot which will then fund your retirement.

If you have a defined benefit scheme, you just need to save as much as your employer says. But with a defined contribution scheme things are a little more complicated… The onus is on you to deliver the money you need in retirement – the more you save, the more you get.

 

How much will I need in retirement?

In retirement, your outgoings are likely to be lower. For instance, most people will be mortgage free and not supporting children. In the finance industry, there’s a vague rule that some currently aged 40 would need around 50% of their current income to have the same standard of life in retirement.

You should also factor in the state pension. Under the new flat-rate scheme this is worth £155.65 per week (£8,094 per year). So, someone targeting a retirement income of £23,000 would need to contribute £16,000 from their own pensions.

 

How much should I be saving?

Naturally, the amount you need to save depends on the size of the pension you want. However, it also depends on your age.

For instance, putting 12% of your salary towards your pension might be enough if you start in your 20s, but if you leave it until you’re 40, you might need to pay in closer to 20% to get the same level of income.

It’s sometimes said that the rule for working out what percentage of your salary needs to be going into a pension is half the age from when you started saving. So, if you started at age 30 it would be 15%.

This said, given the variation in salaries and personal circumstances, it can be a good idea to get a slightly more profound insight into your finances. 

You could use some sort of pension calculator. There are plenty of different calculators online that let you play around with the numbers. A quick search on Google will reveal plenty. 

All things considered, this can’t give you quite as clear a view on your financial retirement scenario as speaking to an independent financial adviser. They should have the knowledge and experience to help you get both a clear view of your current situation and the changes you could make so that your money works harder towards your goals.

Minimum age for pensions freedoms rises to 57

Wednesday, February 10th, 2021

The government has confirmed that the minimum age for drawing a personal pension is to rise to 57 in 2028.

Savers who pay into a personal pension either directly or through their workplace can currently access their money at 55. However, the government plans to raise the age as a result of increased life expectancy.

The change hasn’t yet been brought into law, but Treasury Minister John Glen has confirmed there are plans for legislation. 

In parliament, he said: “In 2014 the government announced it would increase the minimum pension age to 57 from 2028, reflecting trends in longevity and encouraging individuals to remain in work, while also helping to ensure pension savings provide for later life.”

The change will affect workers currently aged 47 and under, and was first announced by then chancellor George Osborne.

As chancellor, George Osborne significantly changed the way we can access our pensions.

He brought in rules that allowed retirees more access to their personal pensions, removing both the limit on cash withdrawals and the requirement to buy an annuity to ensure a secure retirement income.

Opponents to the rise in pensions age claim that the changes restrict workers’ freedom to retire. The changes will make it more difficult for some to retire sooner.

One investment analyst has described the change as a “kick in the teeth at a time when many people are reassessing their work/life balance after a terrible year socially, emotionally and economically.”

However, others believe that the changes are a positive step because they give people two years more to pay into their pension funds. They argue that this will increase the chances that retirees will have enough saved in their pension pots to provide an adequate level of income for the remainder of their lives.

Those who were planning to access their pensions at 55 but can no longer do so could look at other options. These could include saving into an Isa to fund the two year period before turning 57. 

Most savers will agree that the government is right to give so much advance warning, unlike with the increase in state pension age for women from 60 to 65, which caused some animosity. These changes do not affect when you can claim your state pension.

If you have any further questions around your pension pots, please get in touch.