Are you aware of the Budget changes?

You could be missing out on your retirement options

More than one in three people approaching retirement are unaware of the pensions reforms announced in the March Budget, according to new research[1] from MetLife.

Its study among people aged 55 and over with pension savings shows 35% are either unaware or unsure about the overhaul due in April 2015, which will enable retirement savers with defined contribution schemes to access their money however and whenever they like from the age of 55.

Pension changes 
The research found 27% admitted to having not heard or read about the pension changes, while 8% did not know whether they had heard or read about the changes.
However the study – conducted after the Budget – showed a switch away from annuities, with 27% of savers definitely ruling out buying one before legislation is agreed, while another 22% were unsure of retirement income plans.

New pensions’ flexibility 
It is easy for the pensions industry to assume that everyone is focused on the Budget reforms and thinking about what they need to do. In reality, substantial numbers of people who need help and advice to navigate the new pensions’ flexibility are unaware that the industry has changed completely, and they will now have the freedom to control their retirement funds.

Source:
[1]Research conducted online between 1–7 April among a nationally representative sample of 568 adults aged 55+ with defined contribution pension savings by independent market research firm Consumer Intelligence.

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

Tracking retirement savings trends

Records at five-year high, according to new report

The number of people saving adequately for retirement at 53% is the highest it has been since 2009 and the biggest ever year-on-year rise, up from 45% in 2013, as the impact of auto enrolment and improvements in the wider economic environment begin to take effect.

T he monthly amount people are saving towards retirement outside a pension has also increased by 141% from £54 in 2006 to £130 in 2014, and the total amount people have in savings and investments is at its highest ever level; an average of £40,000 per person, according to the tenth Scottish Widows Retirement Report. Even when discounting those who have large amounts of savings[1], this represents an increase of almost £5,000 on 2013 levels alone – from £28,964 to £33,678.

An important role
Auto enrolment is playing an important role in increasing the number of people preparing adequately for retirement, with the average proportion of earnings put aside for employees of companies with 250 staff or more increasing from 9.7% to 11.6%. This is almost four percentage points more than the long-term minimum required under automatic enrolment of 8% of earnings, which shows that people are increasingly understanding the importance of long-term savings for retirement.

Improving attitudes towards finances and the wider economy have also played their role, with 37% of people saying they felt optimistic about their long-term finances compared to 32% in 2013.

Reasons of affordability
The proportion of people who cite affordability as a reason why they don’t plan to save any more over the next 12 months continued to fall from 71% in 2012 to 68% in 2013 and 59% in 2014; the number of people free from debt reveals a positive trend, increasing from 13% in 2012 to 14% in 2013 and 16% in 2014.

The proportion of people who cite affordability as a reason why they don’t plan to save any more over the next 12 months continued to fall from 71% in 2012, to 68% in 2013 and 59% in 2014; and the number of people free from debt reveals a positive trend, increasing from 13% in 2012, to 14% in 2013 and 16% in 2014.

Source:
[1]The Pensions Index covers those who could and should be preparing financially for retirement – those aged 30 or over, who are not retired and are earning at least £10,000 a year. Saving adequately is those saving at least 12% of their income or expecting their main retirement income to come from a defined benefits pension.
The Scottish Widows UK Retirement Report, which first launched in 2005 as the Pensions Report, monitors pension’s savings behaviour annually using the Scottish Widows Pensions Index and the Scottish Widows Average Savings Ratio. The research was carried out online by YouGov, who interviewed a total of 5,055 UK adults over the age of 18 in March 2014.

Wealth planning strategy comes under scrutiny

Concerns a tax planning arrangement was being abused

HM Revenue & Customs (HMRC) has confirmed that new proposals for a single nil rate Inheritance Tax (IHT) band for trusts will not be applied to existing trust arrangements, where no further assets are added or variations made to that trust.

Multiple trusts
Setting up multiple trusts on different days, each with its own nil rate band below the £325,000 IHT limit, has proved a popular wealth planning strategy for many individuals over the years. HMRC were concerned this tax planning arrangement was being abused, so they set about a period of consultation on how they could close down this practice by introducing a single nil rate band for all trusts created by the same individual.
It was feared the new proposals would be retrospective and HMRC would introduce a single nil rate band across all existing trusts. This would have meant some existing trusts facing a tax charge for the first time at the 10-year periodic charge point.

Dual regime
HMRC have proved to be pragmatic in their approach by proposing to leave existing trusts alone. Trusts set up prior to 6 June 2014 will remain under the current arrangements, creating a dual IHT regime for trusts. The proposed changes will take effect from 6 April 2015, and will only apply to trusts set up on or after 6 June 2014.

However, trusts created before 6 June 2014 are not completely out of reach. If any trust has additional assets added to it or where it becomes a relevant property trust on or after 6 June 2014, the change will bring that part of the settlement into the new regime. If this is applicable to your particular situation we could help your preserve the benefits of your existing trusts. For example, if you have more assets to add to your trust, the creation of a new trust may be more beneficial than adding it to an existing one.

Attractive option
With IHT on death set at a rate of 40%, using trusts could still be an attractive option for many families, despite the maximum charge of 6% every 10 years. Trusts continue to offer many advantages, such as no probate and more certainty and protection.

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.