The thought of it may be daunting; it can feel like an impossible mission. But with early planning, building up your nest egg is more discipline than difficult. The process of building a retirement fund typically involves a combination of consistent saving and long-term investments. But first, you have to figure out how much you need in order to set a goal.
Funds To Live Life To The Full In Retirement
Retirement is an exciting period in life. You might be looking forward to taking a trip to somewhere you’ve always wanted to go, dedicating more time to a favourite hobby or spending more time with family and friends. However, many people feel concerned about not having the funds to live life to the full in retirement.
Making sure you have enough money to enjoy your retirement is
a matter of sensible planning and being proactive. Ask yourself, what decisions can I make today to start preparing for retirement? Investing even small amounts of money on a regular basis in preparation for retirement could leave you with a larger nest egg.
Head Start On A Retirement Nest Egg
Investing for growth is suited to those who want to get a head start on
a retirement nest egg but won’t be retiring until further into the future. If your goal is to invest for growth, this means that you are more focused on growing your initial investment over a medium-to-long period of time (five years plus) and do not intend to use the investment to boost your current monthly income. For those investing for growth, investing as far in advance as possible from when they plan to start withdrawing the investment should give their funds the best chance of maximum growth.
Investing For Income
This investment goal is designed to generate a bit of extra money now and in the future by providing a boost to your monthly income. This goal could be suitable for those closer to retirement who are looking for their investment to help with paying regular bills and outgoings in retirement. When investing for income, selecting investment trusts focused on asset classes including equities and commercial property can provide a reliable and attractive income boost.
A Time When You Have Stopped Working
Setting up a retirement goal requires you to find out how much income you’ll need when you have stopped working. As part of the planning process, you’ll need to consider answers to questions such as: ‘At what
age do you plan to retire?’, ‘How many years should you plan to be in retirement?’ and ‘What is your desired monthly income during retirement?’
Your retirement fund needs certainty – you can’t risk losing your savings because you need it as a stable income. So how can one balance the need for growth with a certainty of returns when building a retirement fund?
The key lies in considering a number of different factors: RISK APPETITE
Are you a ‘conservative’ investor who cannot afford to lose the initial capital you put up? Can you sacrifice the certainty of having your investment protected in order to gain higher potential earnings?
If you do not already have a large sum of retirement savings, you probably shouldn’t take too much risk when you invest since you may not have the luxury of time to recoup the losses should your investment turn awry.
Generally, a bigger portion of your retirement portfolio can be apportioned to higher-risk investments if you start in your twenties. As you progress nearer towards the retirement years, your portfolio should increasingly focus on investments that are lower risk and provide more stable returns.
You can consider allocating your investments into products suitable for different investment horizons (short, medium and longer term) depending on your risk appetite. For example, a short-term investment can include some riskier assets such as single equities or investing in a fast-growing speciality fund. You should always be reminded that with higher expected returns come higher risks.
If you choose to save your way to retirement by putting cash in a savings account, the value of your money may be eroded due to inflation. In order to ensure that the money you have now preserved its purchasing power during your retirement years, you need to choose savings or investments that give you higher returns above inflation.
The key to growing your retirement fund includes having different asset classes in your portfolio, which is otherwise known as ‘diversification’. Diversification not only helps you manage the risk of your investments, but it also involves re-balancing your portfolio to maintain the risk levels over time.
The chancellor of the exchequer, Philip Hammond, delivered his spring budget to parliament on 9 March 2017. This budget was the last one to take place in the spring, The chancellor said last year that he wanted to simplify the whole business of setting taxes and government spending, which has become too complicated.
Key points from the Budget that could impact your personal financial planning:
New National Savings And Investments Bond Launched
A new NS&I bond paying 2.2% over a term of three years on deposits of up to £3,000 is now available for 12 months from April 2017.
£5K Tax-free Dividend Allowance Cut
The £5,000 tax-free allowance which commenced in 2016 is being cut to £2,000 from 2018.
Income Tax Allowances Confirmed
The personal tax-free allowance has increased to £11,500, with the higher rate tax band rising from £42,385 to £45,000. The Chancellor said the changes ‘will make 29 million people better off’. The additional rate tax band remains at £150,000. Those in Scotland will have different Income Tax bands for earned income.
New Inheritance Tax Residence Allowance
When you pass on your main family home, you can now receive an additional £100,000 on top of the £325,000 Inheritance Tax allowance via the new main residence nil-rate band allowance.
Each individual can pass on up to £425,000 without paying Inheritance Tax as long as your family home is passed on to either children or grandchildren (and your share is worth at least £100,000 in 2017/18). The higher figure applies where more than one nil-rate band is available.
Lifetime Individual Savings Account (LISA)
This new savings product is available to adults aged 18 to 39. It’s designed to support plans to save for retirement or a first home. If you are a first-time house buyer, you can pay up to £4,000 a year into a Lifetime ISA and receive a 25% government bonus. Contributions can continue up to age 50 and can be used to purchase a first property at any time from 12 months after opening the account, or be withdrawn for retirement from age 60.
£20K ISA ALLOWANCE Individual Savings Accounts (ISAs) continue to provide a tax-efficient saving option for many. How much you can save into an ISA each year has been increased to £20,000 – an extra £4,760 of tax-efficient savings. This increase, from April 2017, complements the new dividend allowance and new tax treatment of savings interest.
Buy-To-Let Tax Changes
If you have a buy-to-let property, the amount of mortgage costs you can offset against rental income to assess your profits is being reduced.
The reductions will be phased and may impact how much tax you may need to pay.
Money Purchase Annual Allowance Cut
If you have accessed a money purchase pension flexibly, how much you can then pay into your money purchase pension under the Money Purchase Annual Allowance (MPAA) and receive tax relief is being reduced from £10,000 to £4,000. This only affects you if you have flexibly accessed your defined contribution pension. The reduction doesn’t apply if you have only taken your tax-free cash sum or are already in capped drawdown and remain within the capped drawdown rules.
It's Good To Talk
The Chancellor resisted making far-reaching tax changes in this last Spring Budget, but some of the announcements could have had an impact on your personal or business situation. If you would like to discuss your situation, or if you have any further questions, please contact us.
Levels, bases off and reliefs from taxation may be subject to change, and their value depends on the individual circumstances of the investor. Your home or mortgage. The value of your investments can go down as well as up, and you may not get back the full amount invested.
Coming in to a large amount of money is not something that happens often in a person’s lifetime. You may be tempted to spend, make gifts, give up your job or pay off existing debts and loans, but taking time to consider your options will put you in the best position for your financial future.
Don’t feel you have to take action straight away. Taking time to take in impartial advice about your new-found money will give you all of the options you need to make an informed decision that can potentially reward you well in the future.
The short term
Consider setting yourself up with a savings account that you keep separate. This may benefit you whilst you are deciding how you should deal with your money in the long term.
If you are considering investing your money, it’s important that you seek impartial financial advice so that all options are laid out for you. Independent Financial Advisers (‘IFA’) are not tied to any specific providers, which means that all advice provided to you is in your best interests only.
Financial planning begins with fully understanding where you are with your finances. It’s important to take time to understand all of your outgoings and incomings, so that you can see how your windfall fits in with your circumstances, and what level of risk you are willing to take if you choose to invest your money.
If you choose to receive advice from an IFA they will tell you what your options are, advise you on how best to proceed, and keep you informed at every stage so that you remain in control.
If you received a bonus at work, your employer will usually deduct tax and National Insurance from it on your behalf.
If you received money from an inheritance, then in most cases the tax is paid with funds from the deceased person’s estate. This will usually mean that by the time you receive your inheritance, you won’t need to pay any Inheritance Tax on it.
If you’re lucky enough to have received a lottery win, then these are not considered to be an income and are not taxed. Read more in our blog about lottery wins here.
Other categories including shares may be subject to Capital Gains Tax (CGT) if they have increased in value. Whilst there is a tax-free allowance – you can find out more by checking the GOV website.
Your IFA will give you a full breakdown of applicable taxes depending on your circumstances.
Talk to Beaumont about how we can help you to make investment decisions that are right for you. Call us on 01691 670524 to arrange an appointment for a free initial Independent Financial Review with one of our advisers.
Did you contribute towards the £4.6 billion worth of over-payment in tax to the UK Government in 2016?
Whilst paying tax is a good thing, as it keeps the country running, paying too much tax for an individual or business is not a good thing. There are plenty of legitimate ways to reduce the amount of tax you pay, but you may not be aware of them all, or how you can take advantage of them. Perhaps you may not have done anything about it despite knowing how.
Tax can be complicated, especially if you have more than one income stream or manage a business. Whilst there are many things that can affect the amount of tax you pay each year, the fear of paying too little tax means that we sometimes pay too much.
The most common areas where we tend to waste tax are:
We can help you to identify areas to help you become more tax efficient, which could potentially save you significant amounts of money. As well as assessing your current situation, we can also anticipate how future changes in tax law can affect you or your business, in a good or bad way.
Not all areas of Tax Planning are regulated by the Financial Conduct Authority.
To book your appointment, please call us on 01691 670524. Alternatively, connect with Mark Evans and Matt Hignett on LinkedIn.
Over-55s risk falling prey to the inheritance ‘sibling tax trap’
On 6 April 2017, a new additional main residence nil-rate band (RNRB) was introduces, which allows for less inheritance tax to be paid in situations when a family home is left to children, grandchildren or certain other 'qualifying beneficiaries' - including stepchildren and foster children.
But more than 1.7 million over-55s could miss out because they’ve assigned their sibling to inherit their family home and not a direct descendant.
PASSING A FAMILY HOME TO SIBLINGS RATHER THAN TO CHILDREN OR OTHER DESCENDANTS
Research from the LV= independent legal service shows that one in ten over-55s (10%) have written their Will to pass their family home to their siblings rather than to their children or other descendants, which would lead them to be ineligible to utilise the additional RNRB. Previously, if an estate of a married couple was left to any descendant, anything above the £650,000 combined threshold (£325,000 allowance per individual) would have been taxed at 40% Inheritance Tax.
INHERITANCE TAX–FREE ALLOWANCE FOR THE FAMILY HOME
However, from 6 April 2017, the RNRB has been introduced with an RNRB of £100,000 per person, taking the total maximum individual personal allowance for Inheritance Tax from the current level of £325,000 to up to £425,000, or a total of up to £850,000 for married couples and registered civil partnerships.
LEAVING THE FAMILY ESTATE WITH AN INHERITANCE TAX LIABILITY
The allowance for the family home is set to increase by £25,000 per tax year, so by 6 April 2020 onwards a couple with a family home may potentially be able to leave their children or other direct descendants a combined estate of up to £1 million without any Inheritance Tax to pay. However, if the same couple were to leave their family estate to a sibling, the Inheritance Tax of 40% would apply on the difference between £650,000 and £1 million, leaving an Inheritance Tax bill of up to £140,000.
YOU MAY NEED TO AMEND YOUR WILL
The majority of the people surveyed (72%) don’t know of or understand the changes that have come into force in this new tax year. If appropriate, you may need to amend your Will to ensure your estate can benefit from the increased allowance. Even among those who do know about the changes, half (53%) didn’t realise that the increased tax-free amount can apply to cash proceeds from the sale of the home if you downsize or have to go into care.
WELL-THOUGHT-OUT ESTATE PLAN
Worse still, many people living ‘as married’ with partners – who would want their wealth passed to each other – don’t have Wills (44%). Therefore, unless assets are jointly owned as ‘joint tenants’, their estate will pass to their children who would have no obligation to provide anything to their father or mother’s partner. It has never been more important to have a well-thought-out estate plan, complete with an appropriate Will and supporting documentation, to ensure your assets can pass to your loved ones in a tax-efficient manner.
COULD YOU FALL PREY TO THE SIBLING TRAP?
This increased Inheritance Tax allowance is a boost to those who’ve seen their homes rise in value and want to be able to pass on this wealth without further tax charges, but it’s crucial that they don’t fall prey to the sibling trap. The RNRB rules can be complex. Getting the right professional advice and amending your Will could take a few hours, but with potential to save a lot of money it’s time well spent.
Levels, bases off and reliefs from taxation may be subject to change, and their value depends on the individual circumstances of the investor.
 There are 17.6 million over-55s in the UK (ONS population maps). Of the over-55s surveyed, 10% said they’d left their home to siblings rather than their children or grandchildren – equivalent to 1.7 million over-55s. LV= commissioned Opinium Research to conduct bespoke research among a sample of 1,000 UK residents who are over 55 years of age. Surveys were conducted online between 8 and 14 December 2016 and are nationally representative.
There are lots of old sayings that infiltrate our everyday lives. You may not even be aware that you’re saying some! We decided to investigate the history behind some of the Beaumont team’s favourite sayings about money.
We all love to ‘bring home the bacon’, but where did the saying come from?
Mark tells us, “Like many sayings about money, this one is said to have come from a historical reference – in this case from 1111AD where an Essex woman promised any man in England the prize of a side of bacon, known as a flitch, if they could show that they had been blissfully married for the preceding year and a day. In the next 500 years, there were but 8 winners.It’s even mentioned by Geoffrey Chaucer in The Wife of Bath’s Tale and Prologue, circa 1395: “But never for us the flitch of bacon though, That some may win in Essex at Dunmow.” After the tradition was re-established in 1858, it continued every four years in Great Dunmow.
Today, of course, the saying refers to earning money out of a deal or bringing home a salary. Likewise, you’ll hope that your investments will ‘bring home the bacon’. Talk to Beaumont about how we can help you to make investment decisions that are right for you. You can email mark direct at firstname.lastname@example.org
Where did the term ‘cash cow’ come from?
Matt says, “the term has strong links to the history of farming, and is a metaphor for a dairy cow, which, after being bought, can be milked daily for consistent financial return. The cow can also produce an annual calf that can be sold on, kept or eaten. In the business world, we use the term to describe a company or product that makes dependable and consistent income or cash.”
It might be that you’re looking for a dependable income in your retirement, maybe alongside other investments while you’re still earning. The Beaumont team can help you to establish which products might prove to be your ‘cash cow’. Call Matt on 01691 670524 or email him, email@example.com, to discuss your own financial goals.
How about ‘saving for a rainy day’?
Matt explains, “If you’ve been saving for a rainy day, you’ve been doing what others have for centuries. It’s important to put away extra money for your future in anticipation for when you may need to draw down on these resources. Whilst there are many references to this quote throughout the centuries, the earliest one can be traced back to 1561 in an Italian comedy called La Spiritata, by the Florentine playwright A. F. Grazzini. The plot follows Formosus who manages to get 3,000 crowns from his tight-fisted father Amadeus, as he is secretly wed to a woman who comes to him without a dowry.”
Another popular phrase is ‘keeping up with the Joneses’. Who were they?
Claire says, “Whilst there are several versions of the origin of the phrase, our favourite comes from Edith Wharton (born Edith Newbold Jones) who was a Pulitzer prize-winning novelist in New York in the 1920s. The Joneses were a prominent family in the city with investments in Chemical Bank, obtained through marriage, and they set about building country villas in Hudson Valley. In 1853, a 24-room gothic villa was built, spurring on more building in the neighbourhood, which created the phenomenon known as ‘keeping up with the Joneses’.”
Hopefully your own financial goals aren’t driven by ‘keeping up with the Joneses’, but with careful planning tailored to your circumstances and attitude to risk, you’re more likely to achieve your aims. Talk to the Beaumont team about keeping up the momentum in your financial plans today! Call Claire on 01691 670524 to arrange an appointment for a free Independent Financial Review with one of our advisers.
Are you ‘worth one’s salt’?
Mark recalls, “Whilst today salt might just be for seasoning chips and adding flavour to your dinner, it has played a vital and valuable role in history. Before the age of refrigeration, the only method of preserving food was with salt. Without this, groups of people were unable to migrate long distances; travelers would be unable to explore and armies would remain immobile without food. As a result, salt came to represent power.
This saying has its roots in ancient Rome, where soldiers would be given an allowance to purchase salt. The ancient Latin word ‘salarium’, refers to a soldier’s allowance, or salary, and is derived from the Latin word for salt”
Mark and the team at Beaumont Financial are certainly ‘worth their salt’ when it comes to helping clients plan their financial affairs and investments. That’s why we have a 97% client satisfaction rating on VouchedFor.co.uk and why Mark is listed in the Sunday Times Top 250 IFAs in the country. Find out why for yourself – call for a free Independent Financial Review on 01691 670524 or email firstname.lastname@example.org
Most people with their finger on the financial pulse are familiar with the term ‘in the red’.
Mark explains, “The origins of this saying begin in the bookkeeping industry, where it was customary to make an entry for a loss in red ink, hence why it’s now associated with a debt. The first known existence of the phrase comes from 1907, in Montgomery Rollin’s roll-off-the-tongue title ‘Money and Investments; a reference book for the use of those desiring information in the handling of money or the investment thereof.’ How catchy!
Even in this day and age of computerised accounts, it survives. If you notice on Microsoft Excel, the system will flag up debits in red. Why red though? No one really knows.”
While the value of investments may, of course, fall as well as rise, in the long term using an Independent Financial Adviser can mitigate against risk, provide objective advice and opinion to suit your own goals and approach to risk, and hopefully keep you ‘in the black’. Call Beaumont today to arrange a free Independent Financial Review with one of our trained IFAs.
The idea behind seeking financial advice is to ensure your investments, pensions and protection are right for your needs and circumstances. There are many different ways that you can benefit from Mark and Matt’s advice, such as:
Return on Investment
They can review your needs and circumstances and ensure your invest accordingly.
Ensuring you will have enough income in later life (e.g. pension planning).
Peace of Mind
Knowing you have made the best practical choices and obtained the best deals the market has to offer you.
Making sure you and your family have safeguards in place against unfortunate circumstances (e.g. illness, job loss, premature death).
Overcoming challenges and reaching milestones.
Reducing the risk of making financial decisions you regret, or falling victim to fraud.
Discovering new and unexpected ways to make your money work harder for you.
Divorcees twice as likely to have no savings
A daunting part of separation or divorce for most couples is sorting out the finances. Financial Disputes can be a major stumbling block in the divorce process and could take longer than the divorce itself.
This is the business side of divorce, and it may be the most important financial event of your life. The choices and decisions that you make will have an important influence on your financial well-being for many years to come. Divorced or separated people are twice as likely to have no savings or investments compared with those who are married (32% vs. 14%), according to research by Zurich UK.
Post-divorce Financial Considerations
1. Create A New Budget
With your household income being impacted, it’s essential to go through your finances. Creating a budget sheet will help you to keep track of your incomings and outgoings. It will also help you to spot where you can make cutbacks. If you’re unsure about how to get started, there are many tools available online to help.
2. Protect Your Credit Score
You’ll be surprised at how many financial products and agreements you share with your ex-partner, from utility bills to mortgage repayments and credit cards, so it’s worth checking your credit record. Your credit report will list the details of every financial agreement you have. This will help protect your credit score from anomalous payments on the part of your former spouse.
3. Close Joint Accounts and Open New Ones In Your Name
It’s really important to make sure that all joint credit cards and accounts are closed, paid off in full or at the very least changed to either your name or your former partner’s. Not doing so could mean them being able to use your accounts, run up debt or use your savings.
This could have a negative impact on your future. Going forward, make sure you open any accounts solely in your name.
4. Think About Your Pension
If you’ve just been through, or are currently going through, a divorce or separation, your pension is probably the last thing on your mind, but it’s essential for your future that you plan ahead – your future could depend on it. You and your partner may have built up a strong pension pot, so it’s important to pay particular attention to how this is divided, to make sure you are getting the best outcome. It’s particularly important for women who may depend on their husband’s provisions for their retirement, as they could be in for a nasty shock.
5. Don't Forget About Your Protection Needs
If you already have life cover in place in the form of a joint policy, make sure you check the policy terms. Some include a ‘Joint Life Separation Option’, which means that the contract can be amended to cover both parties individually. Many policies also contain options that allow you to increase the amount of cover you have following life events, including divorce or separation, without needing further underwriting. You may want to consider increasing your cover if you have had to take on a new or larger mortgage or other debts.
6. Make The Most Of Your Protection Cover
Once you have changed your policy to protect you individually, it’s worth making use of any support that is offered. Many protection policies contain valuable support or counselling benefits that can provide vital help or advice if you are going through a divorce. This support can cover areas from financial to legal to emotional support. Protection can also play a key role in covering any maintenance liabilities for an agreed period, such as when children reach 18, in the event of severe illness or even death.
7. Update Your Will
Now that you are divorced or separated, your existing Will is unlikely to be appropriate to your new circumstances. Make sure you update this as soon as possible to ensure that your wishes are followed.
Taking A Long-Term View
Divorce can be an incredibly challenging time, both emotionally and financially. Understandably, the focus is naturally on splitting immediate assets, but it’s important that the long-term is also part of the planning. In fact, after the family home, a pension can actually be the biggest asset at stake, so protecting this in the first instance is crucial.
All figures, unless otherwise stated, are from YouGov Plc. The total sample size was 2,073 adults. Fieldwork was undertaken between 25 and 26 October 2016. The survey was carried out online. The figures have been weighted and are representative of all UK adults (aged 18+). 900 adult participants (19–55+) who are representative of the general population took part in the Mindlab experiment in the UK from 25–26 October 2016.
Millions of workers across the UK could be heading for a significant shortfall in the amount of pension they need for an adequate income. The World Economic Forum (WEF) has issued a warning that calls on the government to impose faster pension-age rises as it earmarks the UK as one of several countries facing a 'pension time bomb', with the UK pension savings gap reaching £25 trillion by 2050 if action is not taken soon.
The pension savings gap is defined as the shortfall between current retirement
pots and the amount of money needed to maintain an income of 70% of pre-retirement
levels. Commenting, the WEF head of financial and infrastructure systems, Michael Drexler,
said: ‘The anticipated increase in longevity and resulting ageing populations is the financial
equivalent of climate change.
‘If increases in life expectancy were matched by corresponding increases in the retirement
age, the challenge would be less acute.’ He added that policymakers need to consider how to integrate 75 and 80-year-olds into the workplace. The WEF analysis also calls for the £1 million lifetime allowance to be scrapped, arguing it
sends the ‘wrong signal’ that there is a limit to pension contributions.
State Funding Expectations
A study by the Organisation for Economic Cooperation and Development (OECD) in 2015
found that savers in the UK could, on average, expect the state to fund 38% of their workingage
income when they retired – lower than any other major advanced economy. Across
the 35 major economies in the OECD, the average was 63%.
While the think tank has praised the UK Government’s shake-up of the pensions system, many are still not saving enough into private pension schemes, the OECD warned.
The WEF said a five-point plan was needed to ensure those born today can retire and
still receive a comfortable income. They also noted that life expectancy has been increasing
‘rapidly’ since the middle of the last century, rising on average by one year, every five years.
This means that babies born today can expect to live for more than 100 years.
According to the forum, the number of people aged over 65 will increase from 600 million
today to 2.1 billion in 2050.
Public Purse Pressure
As population growth slows, this will mean the number of workers paying for the pensions of
those in retirement will fall from eight workers today to four per retiree in 2050, putting
pressure on the public purse.
The WEF believes working for longer is inevitable. George Osborne, the former
Chancellor, linked the State Pension age to life expectancy in the previous
parliament. As a result, the Office for Budget Responsibility (OBR), the Government’s fiscal
watchdog, forecasts that workers will have to retire at 69 by 2055.
Under current plans in the UK, the State Pension age will rise to 66 by 2020 for both
men and women.
The OBR’s latest long-term projections suggest this move is necessary for the State Pension to
remain sustainable. Official projections show 26.2% of the UK population will be aged over
65 in 2066, compared with 18% last year and 12% in 1961.
The WEF believes workers need to save between 10% and 15% of their average annual
salary to support a reasonable level of income in retirement. It warned that many workers
faced a shock in later life, with current savings rates ‘not aligned with individuals’ expectations
for retirement income – putting at risk the credibility of the whole pension system.’
When Would You like To Retire?
As people’s retirements get longer, the responsibility for funding them will shift even further towards individuals. If you have not retired but have a specific retirement date in mind, it is essential to obtain professional financial advice to put a savings plan in place to aim to meet that goal with sufficient savings in your pension pot. To discuss your requirements, please contact us.
Research by Royal London shows that more people than ever are breaking pension rules, and they run a risk of HMRC claiming back any tax perks acquired through the annual pension allowance.
Between the tax years 2012-13 and 2014-15, extracted by a request through the Freedom of Information Act, data shows there was a 79% increase in the amount of people who saved beyond the allowance allowed during that time of £50,000.
However, true figures are likely to be much higher, as the statistics submitted to HMRC only represent people reporting their pension contributions.
Many others, predominantly those in “defined benefit” pension schemes, will be unaware because of employers’ contributions and the complex methods used to calculate the total.
The annual allowance has been dramatically cut from a high of £255,000 from as recently as 2010-11, and now sits at £40,000 for 2016-17. These changes came about in an attempt to save billions in pension tax incentives.
For taxpayers earning under £32,000 p.a. your contribution toward your pension is topped up by the Government by 20%. This means that for every £80 you save for your pension, it is topped up to £100. A higher-rate taxpayer has to pay in only £60 to make a £100 pension contribution.
However, if HMRC finds that you have been saving beyond these levels, it will reclaim any tax relief that it has paid out.
How much can I put into my pension each year?
• You can contribute as much as you earn in a year, up to £40,000 annually
• You can also use the past three year’s pension contribution limits if you were a member of a registered pension scheme during that period, and haven’t already – HMRC’s “carry forward rules”
• Your pension limit will be affected if you draw any income from it (not including tax free cash), falling to £4,000. Prior to the Autumn Statement this was £10,000.
Are you a high earner?
• Workers earning over £150,000 will have their annual pension allowance gradually reduced to £10,000 once they earn £210,000 or more.
• To work out whether you will be affected you need to calculate a “threshold” and “adjusted” income.
• If your threshold income is more than £110,000 and adjusted income is more than £150,000 a year you will be caught and start to see your annual allowance drop.
• Threshold income includes income from all sources, not just your salary. From this deduct pension contributions. If the figure produced is less than £110,000 then your annual allowance will be £40,000. If it is above this limit however, you need to calculate adjusted income.
• Adjusted income is calculated in a similar way to threshold income but includes the pension contributions that you and your employer make both from gross pay and via salary sacrifice.
• If adjusted income totals more than £150,000 the taper applies and your annual allowance will fall by £1 for every £2 of adjusted income between £150,000 and £210,000
If you’re concerned about your pension planning or how the information above affects you, please call us on 01691 670524 and speak to an Independent Financial Adviser.