Category: Retirement

Over half of the UK population are unaware of government plans to reform the State Pension and the impact that will have on them, according to recent research[1]. Among the 55 to 64-year-old age group, 32% are unaware of the changes due to come into effect in April 2016.

Underestimating State Pension values
Although most of the respondents underestimated the value of their State Pension and admitted to not knowing the details of the reforms, two thirds of men and women regard it as important to their retirement income planning.

Of those surveyed, just under half of 55 to 64-year-olds were unsure as to whether or not they would be better off under the new State Pension system compared to the current one.

Key part of government reforms
The flat rate State Pension is a key part of government reforms to the UK’s retirement planning and will benefit savers by demonstrating the value of pension saving. But just under half of those aged between 55 and 64 who are about to retire have no understanding of whether or not they will be better off.

Women are more likely not to know the detail of the flat rate pension reforms – which require people to have worked and paid National Insurance contributions for
35 years – than men. Around 57% of women admitted to not knowing the details, compared with 43% of men.

New State Pension
The new State Pension will be a regular payment from the Government that you can claim if you reach State Pension age on or after 6 April 2016.
You’ll be able to get the new State Pension if you’re eligible and:

– a man born on or after 6 April 1951
– a woman born on or after 6 April 1953

The new State Pension will replace the current State Pension scheme. You’ll receive your State Pension under the current scheme if you reach State Pension age before 6 April 2016. You can still receive a State Pension if you have other income like a personal pension or a workplace pension.

How much you can get
The full new State Pension will be no less than £148.40 per week. The actual amount will be set in autumn 2015. Your National Insurance record is used to calculate your new State Pension, and you’ll usually need 10 qualifying years to get any new State Pension.

The amount you receive can be higher or lower depending on your National Insurance record. It will only be higher if you have over a certain amount of Additional State Pension. In addition, you may have to pay tax on your State Pension.

Working after State Pension age
You don’t have to stop working when you reach State Pension age but you’ll no longer have to pay National
Insurance. You can also request flexible working arrangements.

Eligibility
You’ll be able to claim the new State Pension if you’re:

– a man born on or after 6 April 1951
– a woman born on or after 6 April 1953

The earliest you can receive the new State Pension is when you reach State Pension age. You’ll usually need at least 10 qualifying years on your National Insurance record to receive any State Pension. They don’t have to be 10 qualifying years in a row.

This means for 10 years, at least one or more of the following applied to you:

– you were working and paid National Insurance contributions
– you were getting National Insurance credits, e.g. for unemployment, sickness or as a parent or carer
– you were paying voluntary National Insurance contributions

If you’ve lived or worked abroad, you may still be able to receive some new State Pension and could also qualify if you’ve paid married women’s or widow’s reduced rate contributions.

Defer your new State Pension
You don’t have to claim the new State Pension as soon as you reach State Pension age. Deferring the new State Pension means that you may receive an extra State Pension when you do claim it. The extra amount is paid with your State Pension (e.g. every four weeks) and may be taxable.

How much you’ll get
The rates and minimum time you’ll need to defer for will be confirmed in 2015. It’s expected that you’ll need to defer for at least nine weeks – your State Pension will increase by 1% for every nine weeks you put off claiming. This works out at just under 5.8% for every full year you put off claiming. After you claim, the extra amount you get because you deferred will usually increase each year in line with inflation.

How it’s calculated
Your new State Pension is based on your National Insurance record. National Insurance contributions or credits on your National Insurance record before 6 April 2016 will count towards your new
State Pension.

Valuing your National Insurance contributions and credits made before 6 April 2016
Your National Insurance record before 6 April 2016 is used to calculate your ‘starting amount’. This is part of your new State Pension.

Your starting amount will be the higher of either:

– the amount you would get under the current State Pension rules (which includes basic State Pension and Additional State Pension)
– the amount you would get if the new State Pension had been in place at the start of your working life

Your starting amount will include a deduction if you were contracted out of the Additional State Pension. You may have been contracted out because you were in a certain type of workplace, personal or stakeholder pension.

If your starting amount is less than the full new State Pension
You may be able to get more State Pension by adding more qualifying years on your National Insurance
record after 5 April 2016 (until you reach the full new State Pension amount or reach State Pension age – whichever is first).

Each qualifying year on your National Insurance record after 5 April 2016 will add about £4.24 a week (which is £148.40 divided by 35) to your new State Pension.

If your starting amount is more than the full new State Pension.
The difference between your starting amount and the full new State Pension is called your ‘protected payment’. Your protected payment is paid on top of your new State Pension and increases each year in line with inflation. Any qualifying years you have after 5 April 2016 won’t add more to your State Pension.

You didn’t make National Insurance contributions or get National Insurance credits before 6 April 2016
Your State Pension will be calculated entirely under the new State Pension rules. You’ll usually need at least
10 qualifying years on your National Insurance record to get any State Pension. You’ll need 35 qualifying years to receive the full new State Pension, and you’ll get a proportion of the new State Pension if you have between 10 and 35 qualifying years.

Get a State Pension statement
You can get a State Pension Statement that can tell you how much new State Pension you may get.

You’ve been in a workplace, personal or stakeholder pension
Your starting amount may include a deduction if you were in certain:

– earnings-related pension schemes at work (e.g. a final salary or career average pension) before 6 April 2016
– workplace, personal or stakeholder pensions before 6 April 2012

You may have paid lower National Insurance contributions and paid into one of these pensions instead. This is known as being ‘contracted out’ of the Additional State Pension and will affect most people who have been in work.

You can check with your pension provider if you’ve been contracted out in the past. The Pension Tracing Service
might be able to find your pension providers’ contact details if you’ve lost contact with them.

Changes to contracting out from 6 April 2016
On 6 April 2016, these rules will change so that if you’re currently contracted out:

– you will no longer be contracted out
– you will pay more National Insurance (which will be the standard amount of National Insurance)

Check if you’re currently contracted out
You may be able to see if you’re contracted out by looking at your payslip. You’re contracted out if the National Insurance contributions line has the letter D or N next to it. You’re not contracted out if it has a letter A. You can check with your employer or pension provider if there is a different letter.

You’re more likely to be contracted out if you work in public sector organisations and professions such as:

– NHS
– local councils
– fire services
– civil service
– teachers
– police forces
– armed forces

Lower rate National Insurance
You pay National Insurance at a lower rate if you’re contracted out. Check with your employer to find out if you’re contracted out.

Your new State Pension is based on your National Insurance record when you reach State Pension age. You’ll usually need to have 10 qualifying years on your National Insurance record to receive any new State Pension. You may get less than the new full State Pension if you were contracted out before 6 April 2016.

You may receive more than the new full State Pension if you have over a certain amount of Additional State Pension.

You’ll need 35 qualifying years to get the new full State Pension if you don’t have a National Insurance record before 6 April 2016.

Qualifying years if you’re working
When you’re working, you pay National Insurance and get a qualifying year if:

– you’re employed and earning over £153 a week from one employer
– you’re self-employed and paying National Insurance contributions

You might not pay National Insurance contributions because you’re earning less than £153 a week. You may still get a qualifying year if you earn between £111 and £153 a week from one employer.

Qualifying years if you’re not working
You may receive National Insurance credits if you can’t work – e.g. because of illness or disability, you’re a carer or if you’re unemployed.

For example, if you:

– claim Child Benefit for a child under 12 (or under 16 before 2010)
– get Jobseeker’s Allowance or Employment and Support Allowance
– get Carer’s Allowance

Gaps in your National Insurance record
You can have gaps in your National Insurance record and still receive the full new State Pension. You can obtain a State Pension statement which will tell you how much State Pension you may get. You can then apply for a National Insurance statement from HM Revenue and Customs (HMRC) to check if your record has gaps. You may be able to make Voluntary National Insurance contributions if you have gaps in your National Insurance Record that would prevent you from getting the full new State Pension.

Inheriting or increasing State Pension from a spouse or registered civil partner
You may be able to inherit an extra payment on top of your new State Pension if you’re widowed. But you won’t be able to inherit anything if you remarry or form a new registered civil partnership before you reach State Pension age.

Inheriting Additional State Pension
You’ll inherit part of your deceased partner’s Additional State Pension if your marriage or registered civil partnership with them began before 6 April 2016 and one of the following applies:

– your partner reached State Pension age before 6 April 2016
– they died before 6 April 2016 but would have reached State Pension age on or after that date

It will be paid with your State Pension.
Inheriting a protected payment
You’ll inherit half of your partner’s
protected payment if your marriage or registered civil partnership with them began before 6 April 2016 and:

– their State Pension age is on or after 6 April 2016
– they died on or after 6 April 2016

It will be paid with your State Pension.

Inheriting extra State Pension or a lump sum
You may inherit part of or all of your partner’s extra State Pension or lump sum if:

– they died while they were deferring their State Pension (before claiming) or they had started claiming it after deferring
– they reached State Pension age before 6 April 2016
– you were married or in the registered civil partnership when they died

Your partner’s National Insurance record and your State Pension
The new State Pension is based on your own National Insurance record. However, you might be able to increase your new State Pension if you’re a woman and paid married women’s and widow’s Reduced Rate contributions, so you need to find out if you’re eligible.

If you get divorced or dissolve your registered civil partnership The courts can make a ‘pension sharing order’ if you get divorced or dissolve your registered civil partnership. You’ll receive an extra payment on top of your State Pension if your ex-partner is ordered to share their additional State Pension or protected payment with you. Your State Pension will be reduced if you’re ordered to share your additional State Pension or protected payment with your partner.

Living and working overseas
You may contribute to the pension scheme of the country that you live or work in. Contact the pension service of the country you live or work in to find out if you are eligible. You may also get a State Pension from both the country you worked or lived in and the UK if you meet the eligibility for both countries. You’ll have to claim your pension in each country.

Your UK State Pension will be based on your UK National Insurance record. However, you may be able to use your time abroad to make up the 10 qualifying years needed to get any new State Pension.

This is most likely if you’ve lived or worked in:

– the European Economic Area (EEA)
– Switzerland
– certain countries that have a social security agreement with the UK

You will meet the minimum qualifying years to get the new State Pension because of the time you worked overseas. Your new State Pension amount will
only be based on the seven years of
National Insurance contributions you made in the UK.

Retiring overseas
You can claim the new State Pension overseas in most countries.

Your State Pension will increase each year but only if you live in:

– the European Economic Area (EEA)
– Switzerland
– certain countries that have a social security agreement with the UK

Your new State Pension may be affected if your circumstances change. You can obtain more information from the International Pension Centre.

Source:
[1] Research for MetLife conducted online between 21–22 May among a nationally representative sample of 2,038 adults by independent market research firm ICM.

Protecting your assets to give your family lasting benefits in an uncertain world

Inheritance Tax (IHT) in the UK is a subject that was once something that only affected very wealthy people. It may be one of life’s unpleasant facts but today it affects more people than ever, partly due to the rise in the property market that has not been matched by a corresponding rise in the IHT threshold.

Taxing times
The threshold is currently just £325,000 – any assets above this level are taxed at 40%. Married couples and registered civil partners have a joint estate of £650,000 before any IHT is payable. The threshold usually rises each year but has been frozen at £325,000 for tax years up to and including 2017/18. Unmarried partners, no matter how long-standing, have no automatic rights under the IHT rules.

Your estate consists of all the assets you own including your home, jewellery, savings and investments, works of art, cars, and any other properties or land – even if they are overseas.
It’s usually payable on death. But there are certain circumstances (if you put assets into certain types of trusts, for example) when IHT becomes payable earlier. Any part of your estate that is left to your spouse or registered civil partner will be exempt from IHT. The exception is if
your spouse or registered civil partner
is domiciled outside the UK.

Nil rate threshold 
Every individual is entitled to a ‘Nil Rate Band’ (that is, every individual is entitled to leave an amount of their estate up to the value of the nil rate threshold to a non-exempt beneficiary without incurring IHT). If you are a widow or widower and your deceased spouse did not use the whole of his or her Nil Rate Band, the Nil Rate Band applicable at your death can be increased by the percentage of Nil Rate Band unused on the death of your deceased spouse, provided your executors make the necessary elections within two years of your death.

Gifting it away
You are allowed to make a number of small gifts each year without creating an IHT liability. Remember, each person has their own allowance, so the amount can be doubled if each spouse or partner uses their allowances. You can also make larger gifts, but these are known as ‘Potentially Exempt Transfers’ (PETs) and you could have to pay IHT on their value if you die within seven years of making them.

Any other gifts made during your lifetime which do not qualify as a PET will immediately be chargeable to IHT and these are called ‘Chargeable Lifetime Transfers’ (CLT).

Gift With Reservation 
If you make a gift to someone but keep an interest in it, it becomes known as a ‘Gift With Reservation’ and will remain in your estate for IHT purposes when you die. For example, if you gave your son your house, but continued to live in it without paying a market rent, it would be considered a Gift With Reservation. But if you continued to live there and paid him a market rent each month, it would become a Potentially Exempt Transfer and move out of the IHT net, provided you survived for seven years. However, your son would be liable to pay income tax on the rent he received.

Where the total amount of non-exempt gifts made within seven years of death plus the value of the element of your estate left to non-exempt beneficiaries exceeds the nil rate threshold, IHT is payable at 40% on the amount exceeding the threshold.

This reduces to 36% if the estate qualifies for a reduced rate as a result of a charity bequest. In some circumstances, IHT can also become payable on the lifetime gifts themselves – although gifts made between three and seven years before death could qualify for taper relief, which reduces the amount of IHT payable.

Exempt gifts
Some gifts you make during your lifetime are exempt from IHT. If you make a transfer to your spouse, this will always be exempt as long as they have a permanent UK home.
Your executors or legal personal representatives typically have six months from the end of the month of death to pay any IHT due. The estate can’t pay out to the beneficiaries until this is done. The exception is any property, land or certain types of shares, where the IHT can be paid in instalments. Then your beneficiaries have up to 10 years to pay the tax owing, plus interest.

Taper relief
Taper relief applies where tax, or additional tax, becomes payable on your death in respect of gifts made during your lifetime. The relief works on a sliding scale. The relief is given against the amount of tax you’d have to pay rather than the value of the gift itself. The value of the gift is set when it’s given, not at the time of death.

Write a Will
This is the first step in making effective plans. Whilst making a Will on its own does not reduce IHT, a Will makes sure your assets go to the people you choose quickly and with minimum effort. It also helps you to identify areas where you could take other action. If you die without a Will, your estate is divided out according to a pre-set formula, and you have no say over who gets what and how much tax is payable.

You need to keep your Will up-to-date. Getting married, divorced or having children are all key times to review your Will. If the changes are minor, you could add what’s called a ‘codicil’ to the original Will. This is a document which can have the effect of making small amendments to your original Will.

Trusts
Many people would like to make gifts to reduce IHT but are concerned about losing control of the money. This is where trusts can help. The rules changed in 2006 making some of them less tax effective, as a small minority will require you to pay IHT even before you have died, but if appropriate they should still be considered.

Life cover
If you don’t want to give away your assets while you’re still alive, another option is to take out life cover, which can pay out an amount equal to your estimated IHT liability on death. Make sure you write the policy in an appropriate trust, so that it pays out outside your estate.
Policies written on a joint life second death basis – paying out when both of the couple are dead – can be the most cost-efficient way of mitigating an IHT liability.

On your death
When you die, your estate has to be distributed one way or another. If you have a Will, your executors have to gain a Grant of Probate in England and Wales or Northern Ireland (a Grant of Confirmation in Scotland). If there’s no valid Will, or the named executors in the Will are unwilling or unable to carry out their duties, a Grant of Letters of Administration is needed. This is known as ‘dying intestate’.

What could happen if you don’t write a will?
The government lays down strict guidelines on how money is to be paid out if you die without making a Will. These could mean that a long-term unmarried partner ends up receiving nothing and the Crown gets all your estate.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE WILL WRITING, INHERITANCE TAX PLANNING OR TAXATION ADVICE.

Baby boomers are some of the least prepared for retirement

A recent survey has revealed the concerning fact that 40% of baby boomers, those aged 55 to 74, have not started to save specifically for retirement yet, despite two-thirds of respondents understanding the State Pension will not be sufficient.

The BlackRock Global Investor Pulse survey found that Britain’s baby boomers are some of the least prepared for their retirement. The challenge remains to encourage short-term savers to become long-term investors.

The findings show that 59% of respondents are concerned they will not live comfortably in retirement, while 63% hold their non-pension savings in cash, causing inflation erosion. Of the participants, 81% said they did not know how to access income with their pension savings.

Pension reforms
In light of the pension reforms commencing from 6 April this year, 9% say they will invest their pension pot to generate an income, while 8% will move their pension into a cash savings account.

The survey highlighted that 28% of the respondents are undecided on what to do, while 26% plan to stay invested in their pension plan but take out cash regularly and use some of it to buy an annuity. Meanwhile 6% of participants say they will use part of their pension to clear debt or similar, while 3% plan to blow the lot on whatever they desire.

Approaching retirement
If you are about to retire or are approaching
your retirement, it’s important that you think
very carefully about how you will sustain your income through a much longer retirement than previous generations.

The research shows that many will use the flexibility and choice offered by the pension reforms to stay invested in their pension for longer, while taking regular income, and combine purchasing an annuity alongside it, potentially later in life. Meanwhile, almost one in five baby boomers may take advantage of the freedom to invest their money elsewhere, with half choosing a cash savings account.

More than half of the people surveyed said that they would be encouraged to save more if the Government provided a stable pensions system that is not changed by successive political parties.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.