Last month saw the launch of the latest new polymer banknote in the UK. The new £20 note was released in late February and becomes the third new banknote to enter circulation in the last four years.
Considering that the £20 note is the most common note in this country, the introduction of a new banknote is a big deal. So, here are five important facts you should know about the new £20 in your pocket.
1. Who is on it
Following in the footsteps of William Shakespeare, Michael Faraday and Edward Elgar, the £20 note featuring economist Adam Smith was the most recent paper note introduced, back in 2007.
Now, the new polymer note will feature the acclaimed English artist JMW Turner, alongside a blue and gold design which depicts the Margate lighthouse and Turner Contemporary gallery, also located in Margate, where the artist grew up.
Mark Carney, governor of the Bank of England, said: “Turner’s contribution to art extends well beyond his favourite stretch of shoreline.
“Turner’s painting was transformative, his influence spanned lifetimes, and his legacy endures today. The new £20 note celebrates Turner, his art and his legacy in all their radiant, colourful, evocative glory.”
2. Bring the note to life with Snapchat
The brand-new polymer £20 notes feature a self-portrait of Turner and one of his most celebrated paintings, The Fighting Temeraire.
However, in a first for a British banknote, these images can also be brought to life using augmented reality.
If you have a new £20 note and the Snapchat app, you can hover the camera in your smartphone over a Snapcode (like a QR code) on the banknote. By using Snapchat’s search function to find the £20 note lens, the paintings on the note will come to life.
The feature works by overlaying interactive images onto the banknote, in a similar way to how facial filters can be placed over a user’s face when using lenses in the Snapchat app.
“The launch of the new £20 will result in Turner’s paintings being amongst the most widely distributed artworks in the UK, maybe even the world,” said Ed Couchman, Snapchat’s UK general manager.
“We want to make sure that Snapchatters are encouraged to take note, look at the cash in their wallet and appreciate these great paintings. Hopefully, this partnership will help introduce a whole new generation to one of Britain’s greatest ever painters.”
3. Security features
As you would expect, the new £20 note has a range of security features which will help you to determine that your note is genuine:
- The hologram – If you tilt the front of the note, the word on the hologram will change from ‘Twenty’ to ‘Pounds’
- The window – If you look at the metallic image over the main window, the foil should be blue and gold on the front of the note and silver on the back. There is also a smaller window in the bottom corner of the note
- The Queen’s portrait – You should see a portrait of the Queen on the window with ‘£20 Bank of England’ printed twice around the edge
- Silver foil patch – A silver foil patch above the see-through window on the front of the note contains a 3D image of a crown
- Purple foil patch – On the back of the note, directly behind the raised silver crown on the front of the note, you will find a round, purple foil patch containing the letter ‘T’
- Raised print – On the front of the note, you can feel raised print on the words ‘Bank of England’ and in the bottom right corner, over the smaller window.
- Ultraviolet number – Under a good-quality ultraviolet light, the number ’20’ appears in bright red and green on the front of the note, against a duller background.
4. Serial numbers that could make the note worth more than face value
In the past, new £5 and £10 notes have sold for big sums if the serial number is of particular interest.
As the first new £20 notes enter circulation, it can pay to take a close look at the serial number on your note as it could be worth more than its £20 face value.
Every banknote is printed with a unique number. When the new £5 and £10 notes were released, the earliest ones to be printed had serial codes that began with AA01 followed by an eight-digit number, starting at 00000001.
These notes can be worth more than their face value. This may especially be true in this case if the serial codes also contain something of interest to collectors – perhaps JMW Turner’s year of birth (001775) or year of death (001851).
5. What to do with old £20 notes
There is sometimes confusion when a new banknote is introduced, with many believing that the ‘old’ notes are immediately out of date.
However, the Bank of England is at pains to point out that the paper £20 notes remain legal tender.
You will still be able to use the paper £20 note until the Bank withdraws it from circulation. The Bank of England has confirmed that they will give six months’ notice of the withdrawal date of the existing £20 note.
Many banks will accept withdrawn notes as deposits from customers, while the Post Office may also accept withdrawn notes as a deposit into any bank account you can access at the Post Office. You can also exchange withdrawn notes with the Bank of England.
If you have a Final Salary pension, retirement planning can seem more straightforward. However, there are still important decisions that need to be made and it’s crucial that you understand the income it will provide. Whether retirement is just around the corner or some years away, reviewing your pension arrangements can provide confidence.
First, what is a Final Salary pension?
Final Salary pensions, also known as Defined Benefit pensions, are often referred to as ‘gold plated’. This is because your income in retirement is defined, protected and the benefits are typically competitive when compared to the alternative.
With the alternative pension scheme, a Defined Contribution pension, employees and employers make contributions, which benefit from tax relief and is invested. At retirement, pension savers have a lump sum of pension saving that will be dictated by how much they’ve contributed and investment performance. At retirement, they will have to decide how to access the pension and ensure it lasts for the rest of their lives.
In contrast, with a Final Salary pension, the pension scheme takes responsibility for how investments perform, which don’t have an impact on your retirement income. Instead, future pension income is defined from the outset. This is usually linked to how many years you’ve been a member of the scheme and either your final or average salary. At retirement, a Final Salary pension will pay out a regular income for the rest of your life.
Among the benefits of a Final Salary pension are:
- You don’t take responsibility for investments: You don’t need to decide where to place your pension contributions, this is in the hands of the pension scheme trustees. The performance of investments won’t affect your retirement income.
- It provides an income for life: Life expectancy can make planning for retirement challenging, as you don’t know how long pension savings need to last for. With a Final Salary pension, your income is guaranteed for life, taking away this element of uncertainty.
- The income is usually linked to inflation: In addition to a lifelong income, Final Salary pensions are usually linked to inflation. This means your income will rise in line with the cost of living, preserving your spending power in real terms.
- Many Final Salary pensions come with additional benefits: Your Final Salary pension may offer auxiliary benefits that provide peace of mind, such as a pension for your spouse, civil partner or children if something were to happen to you.
As a result, Final Salary pensions can be incredibly valuable for providing certainty and security in retirement.
Calculating your retirement income
The good news is that understanding the income you can expect to receive when you retire is usually straightforward.
How the income delivered from a Final Salary pension is calculated varies between scheme. But this will already be defined. If you can’t find the paperwork detailing this, contact your pension scheme. There will typically be three factors used to define your Final Salary income:
- How long you’ve been a member of the scheme
- Your final salary or a career average
- The accrual rate, this is the fraction of your salary that’s multiplied by the years you’ve been a member of the scheme.
Let’s say you earned £60,000 at retirement and it was your final salary that was taken into consideration. You worked at the company for 40 years and the accrual rate was 1/60. Your income in retirement would be £40,000 annually using the below formula.
Years as a member (40) x accrual rate (1/60) x salary (£60,000)
You should receive an annual statement from your pension scheme, which will include providing a value of your pension at retirement.
Creating flexibility with a Final Salary pension
A Final Salary pension can provide you with security throughout retirement. Yet, you may still want a flexible income to meet your retirement goals. This may be because you plan to spend more in early retirement or at other points. For example, you may have mortgage debt remaining, plan to travel or want to financially support loved ones.
There are ways that you can achieve the best of both worlds.
Many Final Salary pension schemes will allow you to take a one-off lump sum from your pension to kick-start retirement. This will reduce your income during retirement but does provide the capital for flexibility if needed.
Other options include using a Defined Contribution pension to fund a one-off expense if you have one and using your other assets, such as investments, to create a flexible income. It can be difficult to understand how your different assets fit together to help you reach retirement goals. This is an area we can help you with.
Transferring out of a Final Salary pension
If you have a Final Salary pension, you may be considering transferring out.
At retirement, you do have the option to give up the benefits of a Final Salary pension and receive a lump sum instead, which must be transferred to a Defined Contribution pension. There may be some benefits to doing this, such as providing greater income flexibility, but for most people transferring out isn’t the most appropriate option for them.
Receiving a lump sum can seem attractive. However, what you’re giving up, a guaranteed income for life is often more valuable. It’s important to weigh up your financial security and retirement goals before making a decision. If your Final Salary pension is worth more than £30,000, you must take regulated financial advice first.
Please contact us to discuss your Final Salary pension and what it means for your retirement lifestyle. Usually, there are ways to create a flexible income stream that will suit your goals whilst retaining the security one offers.
Please note: Transferring out of a Defined Benefit pension is not in the interest of the majority of people.
Being self-employed comes with many perks, but it will mean you need to take more responsibility for your income and financial security too. From managing incoming work though to submitting tax returns, there are extra tasks you’ll be faced with. One of them is organising your pension.
Most people traditionally employed will now benefit from auto-enrolment. As a result, the number of people saving for retirement has seen a huge surge, but this has yet to be extended to the self-employed. Figures from the National Employment Savings Trust (NEST) estimate that just 24% of self-employed workers are actively saving into a pension and 55% want more guidance on how best to save for retirement.
With over 15% of the UK workforce now self-employed, the lack of pension savings could mean millions face financial insecurity in their later years. The good news is that it’s never too late to start saving for retirement and there are steps you can take to boost your pension.
Why use a pension to save for retirement?
The money contributed to a pension is locked away until you reach retirement age. Currently, pensions become accessible at 55 but this is expected to rise alongside the State Pension age in the coming years.
When you’re self-employed, your income may fluctuate and there may be periods where you’re not earning an income. It can mean that locking money away for potentially decades can be a daunting prospect. Yet, a pension remains the most efficient way to save for most people.
There are three key reasons for this:
- Whilst you won’t receive employer contributions topping up your pension, you will still receive tax relief. Assuming you stay within the limits of the Annual Allowance, you’ll receive tax relief at the highest rate you pay Income Tax. It’s an advantage that can help your pension grow at a faster pace.
- Pensions are usually invested and over the long term, this helps your savings grow. Over the decades you may be saving for retirement, investing can help your savings outpace inflation to deliver returns. As you can’t access these returns, you’ll also benefit from the compounding effect.
- Returns generated through investments held in a pension aren’t taxed either. Instead, your income is taxed when you start making withdrawals.
7 tips for building your retirement pot
1. Set up regular contributions
Regular payments throughout your working life add up. Getting into the habit of making consistent contributions to a pension can lead to security in later years.
This is something that many self-employed workers recognise. Some 56% said they favoured the idea of automatically diverting a portion of their income to saving for retirement. Whilst this is a key part of auto-enrolment for employed workers, you’ll need to take a more proactive approach. It can be as simple as setting up a standing order for the end of each month, so you don’t even have to think about it.
Keep in mind, though, you won’t be able to make withdrawals from your pension before you reach retirement age. Ensure you’re putting away an affordable amount.
2. Contribute more when you can
Affordability is a crucial part of building up your retirement income. If your income fluctuates throughout the year, set up regular contributions based on what you know you can afford.
However, don’t leave contributions there. In the months where you receive a higher income, divert a greater portion to your pension for a retirement boost. Alternatively, you may want to contribute a lump sum at tax year end. Making a one-off payment to your pension is usually simple and can be done online in most cases.
3. Understand pension investments
How is your pension invested?
There are numerous options for self-employed workers, from using NEST, a workplace pension scheme set up by the government which allows you to choose a fund, to a Self-Invested Personal Pension (SIPP) if you’re confident choosing your own investments. What’s right for you will depend on your circumstances and investment knowledge.
Whatever options you choose, understanding your investments is important. All investments involve some level of risk and you need to ensure it aligns with your risk profile. This will depend on a range of factors, including how far away retirement is, the other assets you hold and overall attitude to risk. Understanding the risk and expected returns of your investments support retirement planning.
4. Keep track of your pension
Regular retirement contributions are important for building your pension up. However, your involvement shouldn’t stop there. Keeping track of how your pension is growing is just as important.
Areas to keep an eye on include investment performance and fees. Here, it’s crucial that you look at the bigger picture. At times, investment volatility will mean investment values fall. But when you take a long-term view you should see your pension gradually rising to reach your goals, thanks to contributions, tax relief and investment performance.
5. Recognise other assets can be used in retirement too
Pensions are an efficient way to save for retirement but it’s not the only asset that can be used to create an income or capital once you give up work. Where flexibility is needed, these other assets can provide peace of mind. They could include investments held in ISAs (Individual Savings Accounts), property or an emergency cash fund.
Take some time to understand how these might provide for you in retirement and whether you’re getting the most out of your capital. It’s a step that can provide confidence as you plan for retirement.
6. Check your National Insurance contributions
The State Pension might not be enough to retire on alone but for many, it’s an important foundation for creating a financially stable retirement income.
To qualify for the full State Pension, which will be £9,110.49 annually in 2020/21, you’ll need 35 years on your National Insurance record. It’s worth looking at how many qualifying years you already have and consider how long you expect to continue working. It is often possible to fill in the gaps if necessary, to boost the amount you’ll receive when you’re retired.
7. Speak to a financial adviser
Pulling together the different aspects of retirement planning can be difficult. How much do you need to retire comfortably? Should you increase your pension contributions? What income can you expect in retirement?
Working with a financial planner whilst still working can help make sure you’re on track to meet retirement goals. It’s a step that can address where gaps are and what you need to do to bridge them. Please contact us if you’re self-employed and have questions or concerns about your retirement. Whether you’re already paying into a pension or have yet to open one, we can help create a plan that allows you to achieve the retirement you’re looking forward to.
Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.