Enjoy the time of your life

Reviewing your 
retirement planning
Having a pension today is recognised as just one important step along the path to achieving your dreams once you have stopped working. Now, not only must you carefully consider where you actually invest your pension money and how you are going to use your pension, but if appropriate you should also review other forms of retirement savings. Reviewing your retirement planning is critical, and probably the single most important decision you can make to help you realise your long-term goals.

Different investment choices produce different results. It’s essential that you review all your retirement investments to make sure they are heading in the right direction. If your circumstances change, some investments may no longer be appropriate. It’s important to get these things right as you will be relying on the provisions you make now to generate income after you retire.

Factors that will 
determine your strategy
When building or reviewing your pension portfolio there are a number of factors that will determine your strategy, including the level of risk you are willing to take. This is likely to change throughout your life, which means your investment strategy will also need to change. Receiving professional financial advice plays a vital role in helping to make sure that your pension holdings match your risk profile and your investment goals.

Typically, people in the early years of the term of their pension may feel they have time to take more risks with their investments to increase the potential for higher returns. As they approach retirement and the duration of the investment is shorter, they may prefer more predictability to start to plan for their future after work. Alternatively, if they have reached their pension age and are still investing part of their fund while drawing benefits, they may prefer to keep an element of greater risk in return for higher potential growth.

When it comes 
to retirement planning
Your 40s is ‘the golden decade’ when it comes to retirement planning. This is when you should be putting as much as possible into your pension to give your contributions time to grow.

In your 50s you may want to start making decisions about your retirement. If you are going to convert all of your retirement funds into income the moment you retire, you may wish to start reducing risk now. If you expect to keep it mainly invested, you may wish to keep a good weighting in investments based on shares. After all, with the growing trend towards taking work in retirement, many people may feel they can afford to keep their pension invested for longer while drawing an income.

Delaying the start of your retirement provision will have an obvious impact on the potential growth of your pension. Not only will the time period for growth potential be reduced, but you could also be passing up the opportunity for valuable tax relief.

Streamlined pension regime
Pensions have always provided a highly tax-efficient environment for long-term retirement investments. However, in April 2006, a streamlined pension regime introduced a number of extra benefits, including the potential to contribute larger sums into your pension fund when the timing is right for you.

Since the rules were simplified, pensions have become easier to navigate. Whether you have occupational pensions, personal pensions or both, you now have one overall annual and one Lifetime Allowance for pension savings. You can save as much as you like into any number and type of registered pension schemes and receive tax relief on contributions of up to 100 per cent of your earnings (salary and other earned income) each year, provided you paid the contribution before age 75. But the amount you save each year towards a pension from which you benefit from tax relief is subject to the ‘Annual Allowance’. The Annual Allowance 
for the tax year 2013/14 is £50,000.

Excess taxed on income
The Lifetime Allowance, the amount you can save in total in all your pensions, is for most people £1.5 million in the current tax year 2013/14. It applies to all the pensions you have, excluding your State Pension. In 2014/15 the Lifetime Allowance will reduce to £1.25 million. If you save more than this, you will be taxed on income from the excess at an effective rate of 55 per cent if taken as a cash sum, and 
25 per cent if taken as pension benefits. These charges are on top of any income tax due on the pension payments.

Consolidating funds
Another feature of pensions is that you can consolidate payments from one UK registered pension scheme to another. This could be either to access different benefit options or simply to consolidate your funds in one place. It is important to note that there are costs involved, and obtaining professional financial advice is essential to ensure that you take the appropriate course of action for your specific situation.

If you have more than one pension plan in your name, there could be a number of advantages to consolidating all your plans into one. Having one pension can make it much easier for you to keep track of funds, monitor performance and change strategy if necessary. Consolidation may also cut down on paperwork and could make estate planning simpler.
Again, it’s possible that consolidating pension funds may not be beneficial for your particular circumstances. You should always receive professional financial advice before deciding if it is the right course of action for you.

The array of post-retirement options is vast and will need to be considered carefully. The best option for you will depend on factors such as the size of your fund, your ongoing involvement, the risk you are willing to take and the level of benefit flexibility you want.

Annuities have long been the mainstay of turning your retirement pot into income. When it comes to buying a pension annuity you can choose from any provider in the market, with the option of inflation-proofing it or buying a guarantee so that it continues to pay out for a set period of time. You might also want an income to continue for your spouse after your death. All these options will reduce the amount you initially receive.

You have other options besides buying an annuity, such as using a drawdown facility and leaving your pension invested but receiving an income from the fund. If you do this, you can still take your 25 per cent tax-free lump sum out of your pension.

There are many choices to make during the pre- and post-retirement years. However, these choices are some of the most important you will ever make, so careful consideration is essential in order to safeguard your financial future and give you the retirement you are dreaming of. We can provide professional help and advice on retirement planning, so please contact us to arrange a meeting.

Some occupational schemes may not be able to offer you all the options referred to within this article. While annuities are generally guaranteed to be paid, remaining invested and using drawdown means that the value of your pension, and the income from it, can go down as well as up. Therefore there is a chance that you may not get back as much as you would by using an annuity. Drawdown is a high-risk option which is not suitable for everyone. If the market moves against you, capital and income will fall. High withdrawals will also deplete the fund, leaving you short on income later in retirement. The value of investments and the income from them can go down as well as up. You may not get back as much as you invested.

Make the most of every available tax-planning opportunity

No one likes to pay more tax than they have to but one of the challenges of wealth is the high taxation it attracts. With real-terms tax increases the prospect for the foreseeable future the pressure is on to make the most of every available tax-planning opportunity.

Different ideas will suit different people but you’d better get your skates on. With the end of tax year fast approaching on the 5 April 2014, sorting out your finances now is vital. Please ensure that you take professional advice before acting. Here are some examples of the ways in which legitimate planning could save you money by reducing your tax bills:

Make full use of personal allowances and tax-rate bands

Whatever your top rate of tax, if you have some flexibility over the timing of income, consider arranging for investment income, earnings or profits to fall into a later tax year. So long as this doesn’t increase the rate of tax you pay, deferring income may mean you can delay when you have to pay the tax.

Maximise your pension provision

Pension tax relief is due to be restricted yet further from 6 April 2014, so do you need to maximise your contributions now to make the most of your annual and lifetime allowances? Currently the annual pension contribution allowance is £50,000 but will reduce to £40,000 from 6 April 2014. The lifetime allowance will also be reduced, from £1.5 million to £1.25 million but many people may now find their chance to build their pension ‘fund’ up to the lifetime maximum restricted.

Take advantage of tax-efficient investments

There are a number of tax-advantaged investments of varying complexity. Individual Savings Account (ISA) allowances provide a tax shelter for income and capital gains. The 2013/14 limit is £11,520 per person but, if not used, the allowance is lost.

Junior ISAs are also now available which enable parents and grandparents to save up to £3,720 a year tax-efficiently for their children or grandchildren who were ineligible for child trust funds.

Enterprise Investment Schemes (EIS) can have significant advantages such as 30% income tax relief, capital gains tax exemption, a capital gains shelter and potential relief from inheritance tax after 2 years.

Venture Capital Trusts (VCTs) also offer 30% income tax relief and exemption from both income tax on dividends and capital gains tax.

Make full use of Capital Gains Tax (CGT) reliefs and exemptions

Individuals have a CGT-free allowance of £10,900 in the current tax year. If you have not realised gains of this amount, you should look at whether assets can be sold before 6 April 2014 to take advantage of this tax-free amount. If you are married or in a registered civil partnership and want to realise a gain on shares to use up the exemption, but want to keep the benefit of those shares in your family, your spouse or registered civil partner can buy back a similar number of shares to those sold –although a direct sale or gift to your spouse or registered civil partner will not achieve the desired result. If your relationship is not formalised by marriage or registered civil partnership, a gift to your partner will achieve the same result without the need to incur dealing costs.

Reduce CGT charges from 28% to 18% or 10%

If you own assets on which you qualify for Entrepreneurs’ Relief (ER) you can claim to pay a reduced rate of 10%. This relief is subject to certain criteria being met for at least a year and there is a lifetime limit of £10 million, so it is extremely important to ensure your assets qualify for this relief where possible.

Use CGT losses to the full

If you already have taxable gains, review your other assets to see if you can crystallise losses to reduce the gains on which you pay tax. If you do this, take care only to realise enough losses to reduce your gains to below the level of the annual exemption. If you have made losses that you don’t need to set off against this year’s gains, you should still claim them.

Ensure wills are up to date

You should ensure that your will is up to date and reflects your wishes. The will should be written in a way that both minimises tax and gives your family flexibility and protection in the future, for instance, by using tax-efficient trusts. Trusts may enable your heirs to make more tax-efficient plans than if assets were put into their hands absolutely, as well as helping to protect assets.

Make full use of allowances and reliefs

Inheritance Tax (IHT) allowances and exemptions to be aware of include:

£3,000 annual allowance and any unused allowance from last year

£250 per individual donee

gifts in connection with marriage

lifetime gifts that are ‘normal expenditure out of income’

Take advantage of IHT-efficient investment structures
There are numerous types of structure that offer the ability to reduce your estate for IHT purposes whilst still retaining the benefit of income or underlying capital. The amounts can be adapted to your personal needs and wishes and, for some of these investments, a portion of the amount transferred reduces the value of your estate immediately.

The Financial Conduct Authority does not regulate taxation & trust advice or will writing.

Its good to talk

Don’t leave tricky money confersations hanging in the air this New Year

The Family Financial Tree report from Standard Life looked at the family money tree over four generations and makes some surprising findings. It reveals how families collectively manage and have talked about their personal finances.

The findings, based on survey data of over 4,000 adults in Great Britain, draw compelling conclusions about what is effectively one of the last taboo subjects for families – the uncomfortable discussions around money, inheritance and retirement.

How money flowed across four generations

The research tracked how money flowed across four generations of a family and also established how this flow of cash is reliant on families having some tricky conversations. The report also finds that many of us remain typically British and private about our finances. While we might involve our spouse or partner in discussions and future planning, few people say they communicate freely with others in their family about their finances.

Family financial plans involve all the generations

More than a third of parents (35%) and two fifths (43%) of grandparents would not ask anyone within their family for advice about finances. And despite evidence that a large volume of money is moving freely between generations, only one in four (25%) people say that their family financial plans involve all the generations. However, the attitude of new parents is very different. Almost four in five parents (79%) with children under the age of five would ask the family for money (79%) and three quarters (75%) would ask the family for financial advice.

Three distinct types of families

The research has identified three distinct types of families: ‘talkers’ and ‘gifters’, who are likely to benefit from discussing the family money tree, and ‘avoiders’, who are failing to release the power of the family financial tree.

Which type of family are you?

‘Talker families’ are the 25% of the population who involve all of the generations when planning family finances – they are likely to be open with each other, discussing salaries, upcoming bills and even inheritance.

‘Gifter families’ are families who gift money between the generations to help with both big and small purchases, whether it be a mum paying for Gran’s supermarket shopping or a granddad contributing to his granddaughter’s education. ‘Gifters’ are also likely to be ‘talkers’.

‘Avoider families’ however are the least likely to benefit from the family financial tree, as they avoid money chat in their household, particularly the more difficult conversations. This means they could be missing out on the combined strength of planning for the future together and could be making decisions based on little information about future commitments or needs.

The research is based on survey data. 4,071 UK adults were surveyed by YouGov on behalf of Standard Life between 4th and 7th October 2013, weighted to nationally representative criteria. Of the base sample, 1,633 (unweighted) parents, who were not also grandparents, were asked a series of specific questions based on their status. In addition, of the base sample, 885 (unweighted) grandparents were asked a series of specific questions based on their status. The survey was conducted online.