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Retirement is often seen as the golden phase of life, a period earmarked for relaxation and pursuing personal interests. However, a recent study has pointed towards an increasing trend of ‘retirement anxiety’, especially among individuals aged over 40[1].

This anxiety stems from both financial and emotional concerns, with rising living costs adding to the financial strain. Many adults (39%) fear their savings might not suffice for their retirement years, while 33% worry about affording the activities they wish to undertake.

Evaluating existing resources

The initial step towards addressing these concerns is understanding your current financial resources. This includes pensions, Individual Savings Accounts (ISAs), other investments and potential rental income. The State Pension, which stands at £10,600 for the tax year 2023/24, can also supplement your retirement income. By evaluating your existing resources, you can gauge how close you are to the retirement lifestyle you envision.

Well-thought-out plan

In today’s economic climate, the study also highlighted that 29% of adults struggle to save for retirement while maintaining their current lifestyle. Regardless of the financial pressures, resisting the temptation to dip into your retirement savings prematurely is crucial. A well-thought-out plan can help you identify areas for potential cutbacks to grow your savings. A good rule of thumb is to allocate 50% of your income to essentials, 30% to discretionary spending, and save the remaining 20% or use it to reduce debt.

Multiple pension schemes

Consolidating multiple pensions into one pot could lower annual fees and simplify management. This process involves moving your pension savings from multiple schemes into one, which can offer several advantages. Having all your pension savings in one place allows you to explore and opt for funds better suited to your financial needs and goals. However, seeking professional advice is crucial before deciding on pension consolidation. Individual circumstances vary greatly, and a strategy that works well for one person may not be ideal for another. Always ensure you fully understand the potential implications of pension transfers before proceeding.

Reevaluating retirement

The rising cost of living and the current economic climate have caused many adults concerns regarding their retirement plans. With 39% expressing worry about the impact on their future, now might be a prime time to reevaluate how you plan to draw your income during retirement. Retirement no longer signifies a complete withdrawal from professional life for many. The research shows that 17% of adults fear being stereotyped as ‘old’ post-retirement, while 14% are apprehensive about losing their identity once they stop working.

Significant life events

Remember, retirement is what you make of it, whether that means kickstarting a new business, opting for a ‘flexible retirement’, working part-time or choosing a path that brings you joy and aligns with your values. For many, retirement always seems like a distant prospect, even when looming closer than we think. It’s one of those significant life events that can significantly benefit from expert guidance.

Want to discuss how to navigate you retirement confidently?

We’re here to provide support and help you understand the complexities of retirement

Managing retirement plans and paperwork can seem daunting in our fast-paced, constantly evolving world. Yet, it’s an essential chore that should not be pushed aside. Not staying up-to-date with your retirement plans can result in financial pitfalls that could easily have been avoided.

But worryingly, according to new research, 32% of Britons place pension administration at the bottom of their to-do list, even ranking it below managing hair and beauty appointments or planning holidays [1].

Interestingly, more than a fifth (22%) of pension savers confess that they fail to check their pension annually, not due to apathy but because they are uncertain about the process. An additional one in seven need help finding their pension information.

Pension engagement season is a time for a rethink

As Pension Engagement Season gears up, it is concerning to note that pensions rank last on Britons’ ‘life admin’ to-do lists. This is despite pensions’ crucial role in shaping people’s financial futures. The task of managing personal appointments with hairdressers or beauticians takes precedence over pension paperwork for 24% of respondents. Meanwhile, 18% prioritise planning holidays over reviewing their pension plans.

When consumers finally tackle pension administration, the research reveals that 27% only check their pension once a year or less frequently. Alarmingly, 14% confess to never having inspected their pensions.

Knowledge gap is a barrier to pension management

Among those who do not check their account at least annually, a fifth (22%) admit that they refrain from doing so simply because they lack knowledge about the process. This percentage escalates to a third (34%) among 35-54-year-olds, compared to 26% of 18-34-year-olds and 11% of over-55s.

A total of 16% of those who infrequently check their pension claim that they do not know where to access the information. Furthermore, 15% confess that they don’t know how to check it, while 13% feel their savings are too meagre to warrant engagement with their pension. Additionally, 12% avoid reviewing their pensions because they find the process overwhelming.

Understanding your current pension status

It’s not uncommon for many of us to be in the dark about the exact amount we’ve saved up in our current pension plan. However, it’s crucial to clearly understand your savings as this can reveal gaps between what you already have and what you might need for a comfortable retirement.

Your review should consider everyday expenses, occasional splurges like gifts and holidays, large purchases, and an emergency fund for unexpected costs. Remember to include any pensions from former employers or personal plans in your assessment. If you suspect that you’ve misplaced some pension information over time, the government’s pension tracker website is a resource that could help.

Leveraging workplace pensions

In today’s economic climate, short-term spending needs may take precedence. Nevertheless, when presented with an opportunity to join a workplace pension scheme, it’s generally advisable to seize it. Most employers must auto-enroll their employees into a workplace pension scheme, but you might still be offered a pension plan even if you’re not eligible for auto-enrolment.

Workplace pension schemes comprise your contributions (usually 5% or more of earnings, this can vary depending on the arrangement with your employer), deducted directly from your salary before tax, and your employer’s contribution, which must be at least 3% of your earnings. Many employers offer to match your additional payments, so ensuring you’re maximising this benefit is worthwhile.

Regular reviews of your pension investments are essential

Consider upping your pension contributions. Even small, regular monthly payments can accumulate significantly over time, thanks to the power of compounding. Also, contemplate making one-off payments into your pension, such as when you receive a work bonus or an inheritance.

Life is ever-changing, and your retirement plans should adapt accordingly. Your envisioned retirement age may have shifted, or your financial circumstances may have evolved. It’s important to note that you don’t have to wait until the State Pension age (currently 66) to access your workplace or private pensions. You can typically begin drawing from these at age 55, although this will increase to 57 from 2028.

However, accessing your pension benefits early could restrict future savings and leave you with a smaller retirement income. Furthermore, your investment choices when establishing your plan may need to be revised. Regular reviews of your pension investments are essential to ensure they continue to align with your goals.

Diversifying your investments over time

Pension savings, being invested funds, can fluctuate in value. However, these fluctuations shouldn’t cause undue worry. Remember, pensions are long-term investments that usually yield better returns over extended periods than traditional savings accounts.

To mitigate the risk of significant fluctuations, consider diversifying your portfolio by investing in various asset types. Most workplace default investment options already provide this diversification, and many personal pensions offer packaged investment options for those who prefer to avoid building their portfolios.

Simplifying your retirement and consolidating pension plans

Pension administration can prove challenging, especially if you’ve accumulated several plans over the years from different jobs. Consolidating these into one plan can streamline your paperwork, provide a clearer view of your overall pension value, simplify investment tracking and potentially reduce charges.

However, consolidation is only suitable for some. There’s no guarantee of a better pension plan through consolidation, and you might lose valuable benefits or guarantees from other plans. Thus, seeking advice before consolidation is crucial.

Approach your retirement planning journey with confidence

For more information or to discuss your retirement plans, feel free to get in touch. We’re here to help you navigate your retirement planning journey with confidence.

Have you recently evaluated your personal tax situation? Is your tax structure optimised for efficiency?

As we approach the end of the tax year on 5 April 2024, it presents an ideal opportunity to assess and leverage the various allowances and reliefs available to enhance your tax profile. Allocating time for this review can provide valuable insight into potential opportunities for you and your family.

The vast scope and complexity of the UK tax system may seem daunting. However, navigating it with careful planning can lead to significant financial benefits. Understanding your tax affairs is key to maximising your wealth and ensuring your financial future.

Take advantage of potential reliefs or allowances

However, the tax landscape has witnessed considerable changes, making the situation more challenging for taxpayers and investors alike. As we near the end of the 2023/24 tax year, every taxpayer should understand the importance of this date and consider their tax position.

Furthermore, 5 April 2024 marks the end of your personal earnings year. Knowing your yearly income will help you understand your tax band and ensure you take advantage of potential reliefs or allowances. The current tax year officially ends on 5 April 2024. The following day, 6 April 2024, ushers in the 2024/25 tax year.

As the tax year end approaches, we’ve provided some planning tips to consider:

Marriage allowance

This allowance provides a unique opportunity for couples where one partner is a basic rate taxpayer and the other partner’s income falls below the personal allowance threshold. With the Marriage Allowance, you can transfer up to £1,260, which equates to 10% of the personal allowance, from the lower-income partner to the higher-income partner.

This transfer can significantly reduce the tax liability for the basic rate taxpayer, potentially saving up to £252 in the current year. It’s important to note that this allowance is specifically designed for married couples or registered civil partners. By efficiently utilising this allowance, couples can optimise their combined tax liabilities and make the most of their financial situation.

Employee tax reliefs

In the course of your employment, there are several tax reliefs you may be eligible to claim. These provisions are designed to offer financial respite for certain expenses related to your job. One such relief is for professional subscriptions. If you must maintain membership in a professional body as part of your job, you can claim tax relief on these fees.

Another provision is the working from home allowance. This relief is aimed at employees who incur additional costs due to working from home. It’s designed to alleviate some financial pressure from maintaining a home office. You may also be entitled to claim relief for business miles travelled in your personal vehicle. If you use your own car for work-related travel, this relief can offer significant savings.

Trading and property allowances

These allowances are aimed at individuals who earn small amounts of income from activities like selling items on eBay or Amazon or renting out spaces on Airbnb. Each of these allowances offers up to £1,000 of tax-free income.

Furthermore, if you rent out a portion of your home, you may be eligible for the Rent-a-Room relief. This relief allows you to receive up to £7,500 tax-free from letting out a room in your home.

Individual Savings Account (ISA) allowance

You receive an ISA allowance of £20,000 in the current tax year. Contributions can be allocated to a Cash ISA, Stocks & Shares ISA, Lifetime ISA, or Innovative Finance ISA. ISAs are a ‘tax efficient wrapper’ which can make a big difference to your money over time. As a couple, it’s important to think about making the most of each of your individual allowances so that each of you has access to tax-efficient savings for the future. At death, a surviving spouse or civil partner is entitled to an extra ISA allowance equivalent to the value of their spouse’s ISA, allowing these savings to pass tax-efficiently to the surviving partner.

Investors who have yet to use up their full ISA allowance should discuss with us the potential to sell shares yielding dividends outside their ISA and buying them back within this tax-exempt wrapper. However, care should be taken as this could trigger a Capital Gains Tax charge.

Junior ISA (JISA) allowance

Children are entitled to a Junior ISA (JISA) allowance of £9,000 per annum. Consider funding a JISA to give your children a tax-efficient nest egg which they can access at 18 or convert to an ISA, allowing them to continue the saving habit you have instilled in them.

The lifetime ISA

A Lifetime ISA (LISA) applies to individuals aged 18 to 40 who are either planning to purchase their first home or preparing for retirement. With the ability to invest up to £4,000 annually, the government bolsters your efforts with a 25% bonus, up to a maximum of £1,000 per year. This money can be used to buy a new property (subject to certain restrictions) or accessed when you turn 60 to supplement your retirement income.

Pension contributions

Pension contributions should be a key consideration at the end of each tax year. There are several advantages to doing so. For example, the pension scheme can reclaim basic rate tax from HM Revenue & Customs (HMRC). You’ll receive additional tax relief if you’re subject to a higher tax rate exceeding 20%. You’re establishing a pension fund for your retirement or to pass on to future generations. Contributions to pension schemes can also be made on behalf of your minor or adult children and your grandchildren, helping them to boost their retirement savings and potentially improving their current tax position too.

In the current tax year of 2023/24, contribution limits have increased.

All UK residents under the age of 75 can contribute up to £3,600 gross (£2,880 net) per year, irrespective of income level. For those with income, the annual pension contribution limit has increased and is now the lesser of your relevant earnings or an annual allowance of £60,000 gross, corresponding to a net payment of £48,000. If your income exceeds £260,000, then these allowances are tapered, and if income exceeds £360,000 then the annual allowance is £10,000.

For individuals aged over 75, no tax relief is provided on contributions made. If you can make additional contributions, you can use any unused allowances carried forward from the previous three years. Reviewing your pension status and that of your family members is crucial for effective financial planning.

‘Carry forward’ rules

The ‘Carry Forward’ rules allow you to carry forward unused allowances from the previous three tax years if eligible. As we reach this tax year end, you’ll lose any unused allowance for the 2020/21 tax year if it remains untapped. Considering these rules when planning your pension contributions would be best.

Capital gains tax allowance

In light of the changing landscape for Capital Gains Tax (CGT), it’s essential to understand how you can optimise your financial strategy. Before 6 April 2024, you have an opportunity to solidify your capital gains and make the most of the annual CGT exemption, which is capped at £6,000. However, please note that this benefit is not extended to individuals who are taxed on a remittance basis with income and capital gains exceeding £2,000.

One effective method to crystallise capital gains involves strategically selling and repurchasing stocks and shares. This approach enables you to maximise the annual CGT exemption. It offers an opportunity to elevate the base cost for future sales, potentially reducing your tax liability in the long run.

However, knowing the timing and the party involved in the repurchase is crucial. To derive the maximum benefit from this strategy, the repurchase should ideally occur after a gap of more than 30 days. Alternatively, the buyback can be executed by your spouse, registered civil partner or through an Individual Savings Account (ISA).

Dividend allowance

For those with invested assets, the dividend allowance can offer substantial benefits. You can receive up to £1,000 per year tax-free, with dividend tax rates applied to amounts over £1,000. The dividend allowance will be reduced to £500 per annum in the 2024/25 tax year.

Gifting for estate planning

Certain gifts can be exempt from Inheritance Tax, immediately leaving your estate upon gifting. These are commonly referred to as exempt gifts and include gifts presented to your spouse or registered civil partner. In addition, contributions to charities or political parties are exempt as well as gifts valued up to £250, provided each gift is given to a different recipient and is the only tax-exempt gift they’ve received from you within that tax year. This often encompasses birthday and Christmas gifts derived from your regular income.

Also exempt are wedding gifts from a parent to their child up to £5,000, from grandparent to grandchild up to £2,500, or up to £1,000 to anyone else. Additionally, you’re allocated an annual exemption each tax year, allowing you to give cash or property up to the value of £3,000. This can be given to a single individual or divided among several recipients. If the previous year’s exemption wasn’t utilised, it can be carried forward to the current tax year, effectively doubling the exemption to £6,000.

Most importantly, if you make regular gifts that are affordable from your income to loved ones, then these are not considered when calculating inheritance tax. For example, beginning a regular pattern of making pension contributions for grandchildren out of your annual income could allow you to pass on wealth in a tax-efficient way. Whatever you decide to do, good record keeping is essential and understanding these exemptions will help in efficient tax planning and potentially reduce your Inheritance Tax liability.

Other available allowances

Your Personal Savings Allowance (PSA) refers to the amount of savings interest income/growth you can earn tax-free. Current levels are set at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers, however, are not entitled to this allowance.

Don’t leave it to chance. Are your finances arranged as tax-efficiently as possible?

Time is running out if you want to ensure your personal affairs, family and business affairs and plans for the long term are arranged tax-efficiently. For further information on tax year-end planning opportunities get in touch today

Pensioners are set to see a substantial increase in their income next year. The State Pension is projected to rise by 8.5% in April 2024, following a 10.1% increase in April 2023[1]. Whilst this may be seen as helping many pensioners combat the cost-of-living crisis, it’s not all good news. Pensioners may also face a potential tax pitfall, this is because Income Tax bands remain fixed. So as the State Pension escalates, a proportion of this pension increase is lost in tax, so you may not be as better off as you thought.

The government’s ‘triple lock’ mechanism, guarantees that State Pension benefits increase in line with wage growth, inflation or 2.5% – whichever is higher. Consequently, a full new State Pension could increase from £10,600 this tax year to slightly over £11,500 in 2024/25. What is still unconfirmed by the Prime Minister is whether the ‘triple lock’ system will remain in place in 2024 and beyond.

Understanding the impact of the lurking risk

Your personal allowance is the limit you are able to earn without paying any income tax. This limit is static and equates to £12,570 a year. In some situations, an individual could have a higher amount than this tax-free, for example if all income is savings income. This could mean some people might receive less tax-free income from other sources. This situation may result in a tax code change on a pension or annuity, or necessitate reporting other income to HMRC for the first time.

Utilising your allowances

When retiring it’s good to be aware of certain ‘allowances’ that could help you earn from your cash and shares without paying tax. Understanding these allowances is the first step towards paying less tax in retirement.

For instance, take note of the personal savings allowance. This allows basic rate taxpayers to earn £1,000 of interest in 2023/24 before paying tax. The allowance is lower (£500) for higher rate taxpayers, while additional rate taxpayers don’t receive any personal savings allowance.

Extra savings and dividend allowances

An additional ‘starting rate’ for savings offers a special 0% rate of Income Tax for savings income of up to £5,000 for those whose general taxable income falls below £17,570 in 2023/24.

The dividend allowance is another tool at your disposal. It allows you to receive £1,000 tax-free from shares for the 2023/24 tax year, which is reduced from £2,000 in the previous tax year. Come 2024/25, the allowance will drop further to just £500.

Protecting your savings from tax

There are different ways to shelter your savings from tax. One such method is using a Cash Individual Savings Account (ISA), where any interest earned is tax-efficient. However, remember that the more you use your £20,000 a year ISA allowance for cash, the less you’ll have available for investments in a Stocks & Shares ISA. This could be more useful in avoiding tax on income or gains from shares or other assets.

National Savings and Investments (NS&I) also offer certain tax-free cash savings products, like Premium Bonds. With these, your money is secure, and you are entered into a monthly prize draw where you can win between £25 and £1 million tax-free.

Planning pension withdrawals

Under the current rules, once you reach normal retirement age, you can usually take an invested pension pot, such as a Self-Invested Personal pension (SIPP), as cash in one go. But remember, taxes on retirement income will generally apply to 75% of this pension sum. It’s also added to other income in the tax year it is received, so it could push you into a higher Income Tax band.

Depending on the scheme options available, you can ‘phase’ your retirement pension income by taking the 25% tax-free lump sum and taxable income in stages. Spreading withdrawals over multiple tax years in this way may help you make the most of tax allowances and avoid paying more tax than necessary.

Using ISAs for tax-efficient income

Stocks & Shares ISAs are a tax-efficient way to invest your money for the long term. Unlike a pension, an ISA also offers the freedom to withdraw money easily whenever you want to without paying any tax. Proceeds are free of Income Tax and Capital Gains Tax.

These features make ISAs very useful for almost any investing need. They can be beneficial in retirement as a way to supplement income without any tax consequences. For example, they can complement pension income, which is usually taxable beyond the first 25% of the pot, or in some circumstances, help bridge a gap until you access a pension.

Deferring the state pension

It’s worth noting that you don’t have to claim your State Pension as soon as you’re entitled. By not claiming your State Pension immediately, you’re giving up income in the short term, but if you’re still working and know you’ll experience a drop in income later on, it can make sense. You could pay less tax, plus you’ll receive a larger amount when you take it.

However, you must also be confident you will live a relatively long life. The longer you live, the more valuable deferring gets, but if you live significantly shorter than the average, it is unlikely to be worth it.

Efficient asset distribution

If appropriate to your situation, consider splitting income-producing assets if you’re married or in a registered civil partnership. This can be done by holding them in joint names or allocating them to the partner with the lower income and tax liability. The beneficial ownership, as well as the legal ownership, would need to be transferred.

You can also think about how you arrange your asset types across different accounts. For example, it can make sense to prioritise your ISA allowances for dividend-producing investments rather than cash. However, your needs, objectives and circumstances will dictate what’s best for you.

Start minimising your retirement tax

Many factors come into play when looking at your income and the tax you pay in retirement. But with careful planning, you can secure your financial future. Please don’t feel that you have to go it alone. We’re here to help you take control of your finances, giving you freedom and peace of mind.

Understanding the intricacies of retirement tax can be complex. Please get in touch with us for further information.

While many people mark January 1 by taking stock of their lives and making resolutions to accomplish new goals or change behaviours, the new tax year in April kickstarts a good time to take stock and put in place a few financial resolutions.

Fairstone independent shares five top tips to kickstart your new tax year to help keep your finances on track over the next 12 months.

Get to grips with your allowances

It is important to utilise all the tax reliefs and allowances available to you in a tax year to minimise any potential liabilities.

These include your personal reliefs; married couples should consider utilising each other’s personal reliefs and if they could make gifts of income-producing assets, which must be outright and unconditional, to distribute income more evenly between the two.

Trust funds can also help protect your assets and guarantee that your loved ones have financial stability for the future. Crucially, a trust can help avoid IHT and ensure that the majority of your money, shares, and equity, are passed on in the most efficient way.

Tax efficient wrappers

One of the easiest ways to reduce your tax bill is to make the most of your annual allowances and to then shelter any returns above your allowances in tax efficient wrappers.

ISAs are easy to understand, flexible and most importantly, you don’t have to pay income or capital gains tax on your savings or investments.

You get one ISA allowance per tax year, which this tax year is £20,000, and any unused allowance will not be rolled over…. so it really is a case of use it or lose it.

Each tax year you can save up to this amount in either a Cash ISA or Stocks and Shares ISA or a mix of the two. A Cash ISA is similar to a normal deposit account, except you don’t have to pay tax on the interest you earn and withdrawals are tax free too. Stock and Shares ISAs allow you to invest in equities, bonds or commercial property without paying personal tax on your proceeds.

If you’re aged between 18 and 39, a Lifetime ISA (LISA), can be useful if you’re saving to buy a first home or for later life. The Government will add a 25% bonus to your contributions up to a maximum of £1,000 each tax year.

And don’t forget your children or grandchildren – parents and guardians can invest up to £9,000 in a Junior ISA. Interestingly, children aged 16 and 17 have both the £9,000 Junior ISA allowance and in addition, a £20,000 personal ISA allowance providing this is used for a cash ISA. This means they have the potential to save £29,000 per year in tax-efficient wrappers.

Check your pension is on track

If you want to boost your retirement savings, the simplest solution is to increase your contributions. You may think you can’t afford to, but even a slight increase can make a big difference and for those lucky enough to receive a pay rise in line with inflation every year, increasing your pension contributions by just 1% could add thousands to your eventual pot.

Pensions are a tax-efficient way to save for retirement. You can get tax relief on personal pension contributions up to 100% of your UK earnings, or £3,600 if this is greater (if you’re a low or non-earner).

It is possible to ‘carry forward’ unused allowances from the previous three tax years so long as the amount does not exceed 100% of the taxpayer’s earnings.

If your employer offers a workplace pension which you qualify for, that should typically be your first port of call for your retirement savings, particularly if they offer salary sacrifice.

Once your employer is making contributions into your pension at the maximum level, then a Lifetime ISA could be a more tax-efficient choice for any other retirement savings. It’s worth noting that if you save into a Lifetime ISA (LISA) instead of a pension, your entitlement to certain means-tested state benefits could be affected.

Also, the first 25% taken out from a pension from age 55 (rising to 57 in 2028), is usually tax free.

It’s also worth checking out how much your pension is worth and what it is expected to pay out at your retirement, which you will be able to get from your pension provider.

Review/ make a will

A will is a very important factor of an estate plan, and it is always sensible to have a will in place to ensure that your estate is divided among the people (or charities) you want to receive it.

This will ensure that your financial assets are distributed how you want them to be after you have passed away and the people you wish to benefit from your estate will do so, as quickly as possible and with minimal Inheritance Tax.

If there is no will, the deceased’s estate will be distributed under the terms of law, which may not align with their loved one’s wishes. Receiving the right professional advice and setting up a financial plan can ensure you are best able to look after your family when the time comes.

Revisit your investment goals

The start of a tax year is a good time to review and rebalance your investment portfolio to make sure that it still aligns with your goals.

Things to consider are your level of risk – are you still happy with that and also have your personal circumstances changed. If so, you might need to make some slight changes.

If you’ve just topped up ready for the start of the tax year, you could think about rebalancing your portfolio which will make sure you’re matching the level of diversity and risk you planned on when you started out.

Keeping your plan on track also means evaluating the progress on a regular, ongoing basis.

Whatever your personal investment goals may be, it is important to consider your time horizon at the outset, as this will impact the type of investments you should consider to help achieve your goals.

Taking steps now to review your finances will help to keep your goals on track.

Remember there is little point in setting goals and never returning to them. Any new year’s resolutions can be impacted by life changes so it’s worth setting a formal annual review at the very least to check you are on track to meeting your goals or if you need to make any adjustments.

As you sail into your 50s, it becomes pivotal to consider your financial strategy. Life has likely found a steady rhythm by now. Children have probably taken flight, becoming financially self-sufficient, and the idea of reducing work hours or even retiring completely starts to surface.

Each person’s life journey is unique and has different resources and challenges. However, there are shared goals and steps that one can take during this stage. Knowing where to begin can be daunting, whether you aim to maximise your earnings or lay down a robust financial plan.

Finding the balance between cash and investments

The key to financial stability lies in balancing cash and investments. It’s generally advisable to have an emergency fund that can cover three to six months of living expenses and any planned spending. This provides a safety net for unexpected events like job loss or significant sudden expenditures. However, the exact amount depends on factors such as employment security and expense levels.

While it may be tempting to hoard cash, having too much idle money is only sometimes the best strategy. For long-term goals, investing can offer the opportunity for your money to grow and outpace inflation.

Boosting retirement savings with higher earnings

As you enter your 50s, retirement planning should take centre stage. This period often comes with increased earnings, which, when channelled towards pension contributions, can yield extra benefits from tax relief. Determining how much capital you’ll need for the rest of your life can be challenging, but tools like pension calculators can provide guidance.

If your income has increased compared to in your 30s or 40s, consider using the extra money to accelerate your retirement savings. This could be in the form of additional pension contributions, with options like a Self-Invested Personal Pension (SIPP) offering flexibility.

Understanding State Pension forecasts

The State Pension forms a significant part of most people’s retirement income. Yet, there’s often confusion about its specifics. In your 50s, it’s crucial to understand the rules for qualifying, how much you’ll receive and from what age.

You can obtain a State Pension forecast from the government website https://www.gov.uk/check-state-pension, which helps you understand how much you could get and how to increase it. Monitoring your National Insurance (NI) contribution record is also essential, and you can fill any gaps in contributions from the last six years through voluntary payments.

Weighing mortgage payments against investments

Deciding between paying off your mortgage or investing the money is a personal decision that involves considering factors such as your risk tolerance, financial goals and tax situation.

If you’re risk-averse, you may prefer to pay off your mortgage quickly for peace of mind. On the other hand, investing could provide higher returns, especially for higher rate taxpayers making pension contributions if you’re open to taking some risks. Downsizing could also be an option if you own a large home. This could free up equity to fund your retirement and reduce maintenance costs.

Planning for succession and Inheritance Tax

As you age, it becomes increasingly important to plan for the future, particularly regarding passing on assets and managing Inheritance Tax. Even those who aren’t exceptionally wealthy may be subject to this tax.

Inheritance tax is levied on the value of an estate upon the owner’s death, but there are ways to reduce this liability, such as making gifts or setting up trusts. Ensuring your Will is updated to reflect your current circumstances is also crucial.

For a no obligation chat about your position and future plans get in touch today.

Many pensioners may face a lurking tax risk as the State Pension grows, Fairstone looks at the potential impact of the triple lock under current circumstances.

Pensioners are set to see a substantial increase in their income next year. The State Pension is projected to rise by 8.5% in April 2024, following a 10.1% increase in April 2023[1]. Whilst this may be seen as helping many pensioners combat the cost-of-living crisis, it’s not all good news. Pensioners may also face a potential tax pitfall, this is because Income Tax bands remain fixed. So as the State Pension escalates, a proportion of this pension increase is lost in tax, so you may not be as better off as you thought.

The government’s ‘triple lock’ mechanism, guarantees that State Pension benefits increase in line with wage growth, inflation or 2.5% – whichever is higher. Consequently, a full new State Pension could increase from £10,600 this tax year to slightly over £11,500 in 2024/25. What is still unconfirmed by the Prime Minister is whether the ‘triple lock’ system will remain in place in 2024 and beyond.

Understanding the impact of the lurking risk

Your personal allowance is the limit you are able to earn without paying any income tax. This limit is static and equates to £12,570 a year. In some situations, an individual could have a higher amount than this tax-free, for example if all income is savings income. This could mean some people might receive less tax-free income from other sources. This situation may result in a tax code change on a pension or annuity, or necessitate reporting other income to HMRC for the first time.

Utilising your allowances

When retiring it’s good to be aware of certain ‘allowances’ that could help you earn from your cash and shares without paying tax. Understanding these allowances is the first step towards paying less tax in retirement.

For instance, take note of the personal savings allowance. This allows basic rate taxpayers to earn £1,000 of interest in 2023/24 before paying tax. The allowance is lower (£500) for higher rate taxpayers, while additional rate taxpayers don’t receive any personal savings allowance.

Extra savings and dividend allowances

An additional ‘starting rate’ for savings offers a special 0% rate of Income Tax for savings income of up to £5,000 for those whose general taxable income falls below £17,570 in 2023/24.

The dividend allowance is another tool at your disposal. It allows you to receive £1,000 tax-free from shares for the 2023/24 tax year, which is reduced from £2,000 in the previous tax year. Come 2024/25, the allowance will drop further to just £500.

Protecting your savings from tax

There are different ways to shelter your savings from tax. One such method is using a Cash Individual Savings Account (ISA), where any interest earned is tax-efficient. However, remember that the more you use your £20,000 a year ISA allowance for cash, the less you’ll have available for investments in a Stocks & Shares ISA. This could be more useful in avoiding tax on income or gains from shares or other assets.

National Savings and Investments (NS&I) also offer certain tax-free cash savings products, like Premium Bonds. With these, your money is secure, and you are entered into a monthly prize draw where you can win between £25 and £1 million tax-free.

Planning pension withdrawals

Under the current rules, once you reach normal retirement age, you can usually take an invested pension pot, such as a Self-Invested Personal pension (SIPP), as cash in one go. But remember, taxes on retirement income will generally apply to 75% of this pension sum. It’s also added to other income in the tax year it is received, so it could push you into a higher Income Tax band.

Depending on the scheme options available, you can ‘phase’ your retirement pension income by taking the 25% tax-free lump sum and taxable income in stages. Spreading withdrawals over multiple tax years in this way may help you make the most of tax allowances and avoid paying more tax than necessary.

Using ISAs for tax-efficient income

Stocks & Shares ISAs are a tax-efficient way to invest your money for the long term. Unlike a pension, an ISA also offers the freedom to withdraw money easily whenever you want to without paying any tax. Proceeds are free of Income Tax and Capital Gains Tax.

These features make ISAs very useful for almost any investing need. They can be beneficial in retirement as a way to supplement income without any tax consequences. For example, they can complement pension income, which is usually taxable beyond the first 25% of the pot, or in some circumstances, help bridge a gap until you access a pension.

Deferring the state pension

It’s worth noting that you don’t have to claim your State Pension as soon as you’re entitled. By not claiming your State Pension immediately, you’re giving up income in the short term, but if you’re still working and know you’ll experience a drop in income later on, it can make sense. You could pay less tax, plus you’ll receive a larger amount when you take it.

However, you must also be confident you will live a relatively long life. The longer you live, the more valuable deferring gets, but if you live significantly shorter than the average, it is unlikely to be worth it.

Efficient asset distribution

If appropriate to your situation, consider splitting income-producing assets if you’re married or in a registered civil partnership. This can be done by holding them in joint names or allocating them to the partner with the lower income and tax liability. The beneficial ownership, as well as the legal ownership, would need to be transferred.

You can also think about how you arrange your asset types across different accounts. For example, it can make sense to prioritise your ISA allowances for dividend-producing investments rather than cash. However, your needs, objectives and circumstances will dictate what’s best for you.

Start minimising your retirement tax

Many factors come into play when looking at your income and the tax you pay in retirement. But with careful planning, you can secure your financial future. Please don’t feel that you have to go it alone. We’re here to help you take control of your finances, giving you freedom and peace of mind.

Understanding the intricacies of retirement tax can be complex. Please get in touch with us for further information.

Many over-55s are unaware that they can access 25% of their pension pot tax-free.

A surprising 43% of individuals over 55 need to be made aware that they can withdraw 25% of their pension pot tax-free, according to recent research[1]. Knowledge could lead to better decision-making when it comes to accessing pension savings.

Similarly, 52% of those surveyed between the ages of 50 and 54 were also unaware of this rule, indicating a widespread lack of understanding about pension withdrawal options.

Maximising your tax-free pension withdrawal

The study found that among the 57% of over-55s who know about the tax-free pension withdrawal option, 21% have already taken advantage of this benefit, while 9% plan to do so in the future.

Most individuals who plan to take their tax-free lump sum did or will do so at retirement (69%). However, 16% have made or intend to withdraw at different points during retirement.

Understanding the various options available

The study emphasises the importance of understanding the various options available when withdrawing from your pension pot, including the 25% tax-free cash entitlement.

Considering factors such as whether to take the lump sum all at once or split withdrawals into smaller chunks over time and the potential implications and benefits of each approach are essential.

Important questions regarding tax-free pension withdrawals:

How much can you withdraw tax-free?

Typically, most people can withdraw 25% of their total pension pot tax-free, although this may vary depending on the type of pension plan and if you’ve exceeded your lifetime allowance. The remaining 75% is subject to Income Tax when withdrawn.

When can you access your tax-free lump sum?

Generally, you can access your pension savings, including the tax-free lump sum, at age 55 (rising to 57 in 2028). In rare cases, you may be able to access your pension earlier due to ill health or a protected scheme.

Can you take the lump sum in smaller amounts?

This depends on your pension product and its terms. Taking smaller withdrawals over time can be beneficial in most cases, as it allows for potential growth and tax-efficiency.

Should you take the lump sum immediately?

It’s essential to consider the longevity of your pension savings throughout retirement. Taking too much too soon could result in running out of funds later in life. Delaying access to your savings may allow for additional growth.

Are there any implications to be aware of?

Accessing your pension savings can impact state benefits, such as Universal Credit or Pension Credit. Additionally, taking a tax-free lump sum won’t affect the amount you can contribute to your pension plan, but accessing taxable income may reduce your annual allowance.

Looking to create a solid retirement strategy that allows you to achieve your dreams?

Understanding your pension withdrawal options and seeking professional guidance or advice will help you make informed decisions and maximise your retirement savings. To learn more about how we can help you, please don’t hesitate to contact us.

What are the risks and long-term implications of hitting the pause button by halting your pension contributions as a quick financial fix.

In times of financial stress or uncertainty, it may be tempting to hit pause on your pension contributions. However, before you do so, it’s essential to understand the long-term implications this decision may have on your retirement savings plan.

Decisions to increase short-term income can dramatically affect future wealth. It may seem like a viable solution to current financial struggles to reduce or stop pension contributions. However, this short-term increase in take-home pay can significantly impact long-term pension values. Higher earners stand to lose almost four times as much.

Tax relief advantage

Pension contributions attract tax relief. Research[1] shows that a worker earning £35,000 annually and saving 5% in a workplace pension scheme matched by their employer could increase their take-home pay by £117 monthly, or £1,404 yearly, if they stopped paying into their pension[2]. But they would lose £341 monthly, or £4,092 yearly, in pension savings due to lost matched contributions and tax relief.

Magic of compounding

Pension wealth hugely benefits from compounding – the longer money is invested, the more it could grow. In 20 years, the £4,092 could have boosted the pension pot by £10,575 through investment growth if contributions hadn’t been paused.

Impact on higher earners

For higher rate taxpayers earning £70,000, the difference is even more significant. They could increase their take-home pay by £3,360 yearly by stopping 8% matched pension contributions. However, their pension pot would be worse off by £12,192 in that period. Their pension savings would also be worse off by a projected £31,508[3] in 20 years if they had not taken a one-year pause.

The toll on personal finances

The research involving over 6,000 UK adults shows that the past two years have strained people’s finances. A third (33%) of workers across all age groups confessed to decreasing or stopping their pension contributions. Among younger workers, the figures are even more alarming – nearly half (49%) of workers aged 18-34 are looking at the impact of adjusting their pension contributions.

Cost of opting out

Exiting your savings scheme means forgoing the benefits of saving through a workplace pension. Initially, you’ll miss out on your employer’s contribution. Any breaks in savings could also delay your retirement or mean you’ll have less income when you stop working. Catching up on any breaks will mean saving even more when you resume to achieve your desired lifestyle in retirement.

Weighing up the decision

While the number of people opting out of schemes remains relatively low, it’s clear that many have considered the option in a bid to boost their take-home pay. However, the decision to pause pension contributions must be weighed carefully, especially for those at the start of their career.

Short-term gain, long-term loss paradox

Stopping or reducing contributions might be necessary for some, but decisions mustn’t be taken impulsively. Figures from the research show that the money gained in the short term doesn’t seem like great value when compared to what’s being given up in the long term.

It’s essential to fully understand these implications before making a decision

While pausing pension contributions may seem like a quick fix in the short term, it could have substantial long-term costs. It’s essential to fully understand these implications before making a decision that could affect your financial security in retirement. For further information or guidance, please get in touch with us. Your financial future is too important to leave to chance

Building up your nest egg is more discipline than difficult

For today’s retirees, retirement has changed almost beyond recognition since their parents’ day. Building a retirement fund requires one to save enough money to pay your bills and continue living comfortably when you are no longer drawing an income.

‘INVESTING FOR GROWTH IS SUITED FOR THOSE WHO WANT TO GET A HEAD START ON A RETIREMENT NEST EGG BUT WON’T BE RETIRING UNTIL FURTHER INTO THE FUTURE.‘

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 need to decide 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 favourable 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 for 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.

This investment goal is designed to generate an extra bit of 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 support 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 between the need for growth and 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 principal 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.

Timescale

Generally, a bigger portion of your retirement portfolio can be apportioned for 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 a 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 risker 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.

Inflation

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 preserves its purchasing power during your retirement years, you need to choose savings or investments that give you higher returns above inflation.

Diversification

The key to growing your retirement pot 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.

Build your retirement funds Planning for your retirement can seem like a daunting process. Keep in mind that there are no hard and fast formulas to how you build your retirement funds, but keeping the above factors in mind will definitely help you work towards achieving your retirement goals. Want to review how to enhance your retirement plans?