KEEPING ON TRACK FOR YOUR RETIREMENT
Recent stock market volatility may have made you anxious about your pension, particularly if you are nearing retirement, but it is important to consider the wider picture to keep your plans on track.
Those who stick to their carefully-thought-out financial plans will inevitably be in better shape to ride out market volatility. Furthermore, those close to retirement may have already benefited by having their pension fund ‘lifestyled’, which automatically switches funds into safer assets such as cash, gilts and bonds.
Making decisions based on what is happening in the short-term can be a very risky thing to do, with the potential to lock in any losses you have incurred. Pensions are long-term investments, so for younger investors, there should be plenty of time for markets to recover and pension pots to achieve the necessary growth before retirement income is needed.
For those closer to retirement, it is a good idea to review your pension pot alongside other savings and investments to get a full picture of your financial situation.
An increasingly popular option to consider is that of a staggered retirement, where you continue to work part-time before giving up work completely. With people living longer, to ensure your pension lasts as long as you do, this trend provides for greater flexibility and preserves retirement funds into later life.
Recent months have seen an increased demand for professional financial advice. It has never been more important to get sound advice to keep your retirement plans firmly on track.
If you are concerned about the impact of the pandemic on your retirement plans, contact us. We can review your options and tailor make plans specifically to your individual needs.
One way of ensuring that your loved ones receive assets is to pass them over while you’re still alive. However, this needs careful thought as you may not want to relinquish control and you need to make sure you keep enough yourself to live off – a difficult balancing act.
As a starting point, you need to value your estate, including your home, other property, shares and investments, money and savings, business assets, cars, jewellery and other personal possessions. From this, deduct debts and liabilities, including your mortgage, bills, loans, credit cards, overdrafts, and funeral expenses.
Successful estate planning includes having a valid Will in place and establishing trusts which manage money or other assets on behalf of beneficiaries. Trusts can give you control over who receives what and when.
It is also a good idea to set up lasting powers of attorney (LPAs), covering ‘health and welfare’ and ‘property and financial affairs’ at an early stage.
Estate planning can be used to reduce the amount of IHT payable, enabling you to pass on more of your assets. The current IHT nil-rate threshold is £325,000 for individuals and £650,000 for a married couple or civil partners. Any unused portion of the nil-rate band can be passed to a surviving spouse or civil partner on death. IHT is usually payable at a rate of 40% beyond these thresholds.
A main residence nil-rate band (currently £175,000) may also apply if you want to pass your main residence to a direct descendant.
If you have surplus income, you could consider gifting money to the next generation. Professional advice on the current rules is recommended, to ensure gifts are made in the right way to qualify for relevant exemptions, so that IHT is not chargeable on them later unless the rules change.
Our advice will help you to pass on your assets to the people you want, in the most effective and tax efficient way.
The Financial Conduct Authority do not regulate estate planning.
History can provide several examples that show the old adage about eggs and baskets to be true – spreading risk has always made sense.
Fifty years ago, the share price of Australian nickel mining company, Poseidon, rocketed from A$0.80 to $280.00 over the course of a few months before profit-taking began and the share price crashed. Receivership followed in 1974.
Twenty years later, another ‘rising star’ of the stock market burned out. Minor fashion house, Polly Peck, was acquired by new owners in 1980 and used as a vehicle for ventures in Northern Cyprus. After a series of deals in the 1980s, the growth was such that the company’s shares entered the FTSE 100, before being suspended in September 1990 amid fraud allegations.
Before Poseidon and Polly Peck, there had been plenty of previous warnings about the risk of blindly following the herd, on an opportunity ‘not to be missed.’ The South Sea Bubble ruined many British investors as far back as 1720.
As a general principle, any investment in shares needs to be spread across different areas, such as industry sectors and geographical regions, so that if one share price slumps it only affects part of your overall portfolio. A sensible way to achieve a spread of risk is through collective investment schemes with a risk profile to match your objectives and needs. We can advise on the investment strategies and products most appropriate for your individual circumstances.
Here are a few figures worth knowing in 2020/21 to help maximise your tax allowances and exemptions:
The National Insurance threshold is £9,500 and the Personal Allowance remains the same as last year, at £12,500.
The Annual Allowance for pensions is £40,000 and begins to taper (to a minimum of £4,000) for those who have an income above £240,000.
The Lifetime Allowance – the maximum amount you can have in a pension over a lifetime – has increased to £1,073,100.
From April, the new single-tier State Pension has risen to £175.20 per week and the older basic State Pension increased to £134.25 per week.
The annual amount you can save into a JISA (Junior Individual Savings Account) or Child Trust Fund has increased substantially, from £4,368 to £9,000. The ISA (Individual Savings Account) allowance, including the Lifetime ISA allowance if used, is £20,000.
The current IHT nil-rate threshold is £325,000 for individuals and £650,000 for a married couple or civil partners. Beyond these thresholds, IHT is usually payable at a rate of 40%. The main residence nil-rate band, which may apply if you leave your main residence to a direct descendant, is £175,000.
We can advise you on taking sensible steps to reduce the amount of tax you pay, on the path to achieving your financial goals.
Investing in an ISA is a great way to build up your savings. Research1 looking into the savings habits of hypothetical stocks and shares ISA investors has demonstrated that the earlier in the tax year you invest, the better off you’ll be.
According to the report, based on the performance of the FTSE All-Share Index, ‘Early Shirleys’ who have invested their full ISA allowance on the very first day of the tax year for the past 20 years would be £12,000 richer than ‘Last Minute Laras’, who waited to invest until the end of each tax year.
The study also looked at ‘Monthly Monty’, who has invested according to a monthly savings plan. By paying in regular instalments, he would also reap better returns than if he’d invested at the last minute. Splitting your investments in this way over the 20-year period would still leave you £7,496 better off than a ‘Last Minute Lara’.
1Fidelity International, April 2020
|It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK.|