You may have heard in the media concerns around the standard of advice some Defined Benefit pension holders have received. Usually, when they’ve explored the option to transfer out.
To combat this and give those with a Defined Benefit pension, also known as a Final Salary pension, the confidence to seek advice when needed, the Pensions Taskforce launched the brand-new Pension Transfer Gold Standard. It provides those planning their retirement with an easy way to identify where they can find high-quality pension advice they can rely on.
We’re thrilled to reveal that we have adopted the Gold Standard as part of our ongoing commitment to build relationships with clients based on trust. If you have a Defined Benefit pension scheme, we understand there are many reasons why you may be thinking of transferring out. By voluntarily adopting the Pension Transfer Gold Standard, our goal is to give you confidence in our expertise when you approach us for advice.
What is the Pension Transfer Gold Standard?
The new Pension Transfer Gold Standard is a code of good practice that financial advice firms can voluntarily adopt, led by the Personal Finance Society. It aims to safeguard those who want advice on whether transferring out of a Defined Benefit pension is right for them.
The code incorporated nine principles for financial advisers to follow:
- Helping you understand when advice is appropriate
- Ensuring advice given supports your overall wellbeing in the context of your stated objectives
- Ensuring you understand and accept all charges
- Ensuring the most appropriate and updated technical skills are applied
- Transparent management of conflicts of interest
- Helping you understand the cost of transferring benefits
- Avoiding unregulated investments and introducers
- Transparency in advice processes and outcomes
- Promoting the Consumer Guide to the Pension Transfer Gold Standard
What does the code of practice mean for you?
Our main aim of adopting the Gold Standard is to help those seeking advice on their Defined Benefit pension understand the nature of this advice and give assurances that they’re in safe hands. As part of adopting the Pension Transfer Gold Standard, we’ve committed to demonstrating high levels of financial and technical knowledge to deliver high-quality advice to every client.
Transferring out of a Defined Pension can affect your pension income for the rest of your life. It’s important that you fully understand the implications of any decision and have complete confidence in those advising you. The Pension Transfer Gold Standard help to give you certainty that both our firm and the adviser you’re working with have your best interests at heart throughout the process.
If you have a Defined Benefit pension and would like to explore the options you have, please contact us.
Leasehold homes have been in the press a lot recently; and not in a good way. Some homeowners have found themselves trapped in leasehold properties with escalating costs and little opportunity to sell. If you’re considering moving home and a leasehold property has caught your eye, there are some areas to be aware of.
Leasehold vs freehold
Most properties in the UK are sold as freehold. This is where you purchase both the property and the land. Your purchase of a freehold has no time limit.
Leasehold properties, on the other hand, you purchase for a fixed period, for example, 90 years. Once the fixed period is up, the ownership of the property reverts back to the person or organisation that owns the freehold. You only buy the property, rather than the land that it stands on. As a result, you’ll need to pay ground rent and potentially other costs, such as maintenance fees.
If you’re hoping to purchase a flat, you should expect it to be a leasehold. However, while most houses are freehold, a growing number are being sold as leasehold. For housebuilders, it provides an extra stream of income, but as a homeowner, it can mean your outgoings are higher and restrictions are imposed. The government has recently imposed restrictions on charges for newly built leasehold sales, including capping ground rents. But you should still take the time to fully understand your leasehold.
After buying a leasehold property, it may be possible to purchase the freehold, allowing you to take ownership of the property and land it’s built on. If this is how you want to proceed, ensure you factor these additional costs into your budget and be aware that the freehold can go up in price and change hands.
Leasehold property checklist
Purchasing any property is a big decision. You should always take the time to carefully look through contracts, surveys, and potential restrictions. With a leasehold property, there are a couple of additional things to keep an eye out for:
1. Length of the lease: When they begin, leases are usually long term, often 90 or 120 years. However, it’s a key figure to check especially if you’re not the first homeowner. Typically, you’ll struggle to get a mortgage for or sell a property that has less than 70 years remaining on the lease. It’s often possible to extend a lease on a property, though this will come at a cost.
2. Ground rent: The affordability of a leasehold property will depend on ground rent. This may be a monthly or annual bill you pay as you don’t own the home your land is on. Some ground rents will be capped, while others may escalate quickly. Make sure you check how much the ground rent is now as well as when and how it will increase in the future. Some homeowners have found their ground rent doubles every decade, turning a relatively small fee into a significant bill in the long term.
3. Service and maintenance fees: In addition to the ground rent, you are also likely to have to pay service and maintenance fees. Again, if you fail to factor this into your calculations when testing affordability, you may find you struggle to afford payments. You may also be asked to contribute additional sums to the maintenance of the building depending on the terms of your lease.
4. Alterations: When purchasing a home, you may have an idea of changes you’d like to make, perhaps updating the bathroom or simply giving it a fresh lick of paint. However, with a leasehold, you may have to seek permission from the freeholder before you make any changes. Some families living in leasehold properties even have to pay to make alternations, which may mean plans end up stretching budgets.
5. Restrictions: As the freeholder still retains ownership of the house to some degree and the land, they may also name other restrictions within the leasehold. Some of these could impact your lifestyle, such as pets not being allowed within the property. In other cases, they will have little to no impact on your decisions. However, it’s important to be aware of what the restrictions are and think about how they will affect your ability to sell the leasehold.
6. Ability to purchase freehold: If you hope to buy the freehold in the future, start making enquiries about it as soon as possible. This will help give you an idea of whether the property is right for you in the long term. Keep in mind, though, that the terms of sale set out now may not be the same in a few years’ time.
If you have any questions about purchasing a property, including a leasehold home, please get in touch, we’d be happy to help.
Retirement is a huge milestone and one that’s lasting longer for many people. You now have more choice around when you want to retire, how to take an income, and what you want to do after you’ve given up work. Whilst more flexibility has certainly been welcomed, it can present you with some challenging decisions too.
Retirement used to be associated with kicking back and taking it easy. That might still be an important part of what you’re looking forward to. But, today, retirement is just as likely to be associated with new experiences. It’s not just the retirement lifestyle that’s been transferred over the last few decades either. As life expectancy has increased, our time after working lives has gotten longer too. It’s not uncommon for people to spend 30 or even 40 years in retirement.
On top of these two key factors, the way we take an income in retirement has changed as well. The introduction of Pension Freedoms in 2015 gave retirees far greater flexibility when they decided to access the money saved into a pension. It means retirement no longer follows a fairly similar path for most; retirement can be what you make it.
Financing a longer retirement
When you think about retirement planning, it’s often the financial side that first springs to mind. That’s natural, after all, it’s your finances that will allow you to achieve aspirations you may have.
Spending longer in retirement will clearly have an impact on finances, as they’ll need to stretch further. As a result, you’ll need to think carefully about how you’ll access the provisions in your pension and how you’ll use other assets. Purchasing an Annuity, which provides a guaranteed income for life, can offer security, but it may not suit your lifestyle.
On the other hand, your pension can remain invested and accessed flexibly using Flexi-Access Drawdown. But you’ll need to ensure you’re accessing your pension in a way that’s sustainable and considers life expectancy. If you only plan to make withdrawals for 20 years but end up living for another decade, it could place you in a financially vulnerable position.
Your life expectancy is a crucial part of calculating a retirement income and setting out your goals. However, it’s not just finances that should be considered in a longer retirement.
When and how to give up work
Have you thought about when you’d like to give up work? You may have a firm plan or a rough idea in your head, but if you’ve not considered life expectancy, you’re missing a crucial factor. If retiring at 60 means you’ll have four decades of not working, would it still appeal to you? For some, that will sound like a dream, but for others, it will give a reason to rethink.
In addition, you should think about how you’ll retire. More workers are attracted to giving up work gradually. Whether it’s cutting down current working commitments or launching a business, blending retirement and work is becoming more common. You may even decide to give up work entirely for a set period of time, before returning to the world of work further down the line. When you think about longer retirements, it makes sense that some will want to continue employment in some way once they pass traditional retirement age.
Filling your time in retirement
How do you plan to fill your days when you’ve retired? What one-off experiences do you want?
Answering these questions is important to create a retirement lifestyle that suits you. Perhaps you’re looking forward to spending more time with grandchildren, have grand plans to travel, or want to invest your free time in a hobby that’s been neglected.
However, whilst retirement is a time to look forward to, will you still be happy and fulfilled a few years into it? This is where planning your lifestyle is important. Retirement can promise much, but leave something to be desired if you don’t think about what’s important to you and set out priorities. Keep in mind how long you’re likely to spend in retirement as you set out making plans that will fill your time.
Of course, the above considerations are still linked to finance too. If you’d like help understanding what your retirement provisions could offer you and how to achieve your goals after giving up work, please contact us.
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.
One in three middle-aged Brits is set to retire on the State Pension alone and many more face a shortfall in their pension. It could leave a significant gap between expectations and reality. If you’re not sure what income your pension could deliver in retirement, checking sooner rather than later gives you an opportunity to plug the gap.
Based on the spending habits of those that are already retired, Nationwide estimates that those retiring in the future will be almost £400 short each month. Over the course of a 15-year retirement, it leaves a shortfall of £68,000. When you factor in that those considered middle-aged today are likely to be in retirement for longer than 15 years and many will want to enjoy a comfortable lifestyle with some luxuries, such as holidays, the gap is even more significant.
The research also found:
- Less than one in ten workers that are middle-aged have clear retirement goals
- 52% are worried about affording retirement and 43% believe they won’t be able to afford the lifestyle they want
- Just four in ten have a private pension in place
- Over half of those saving into a pension don’t know the value of it
How much you need to save for retirement is dependent on the lifestyle you want to enjoy once you’ve given up work. However, if there is a potential shortfall, the sooner you discover it the greater the opportunity you’ll have to take action, whether you’re planning a retirement that’s focussed on taking it easy or one filled with new experiences.
What is your target income in retirement?
The first step to take is to calculate the level of income you need for retirement.
Many retirees find that their overall expenditure decreases once they give up work, as travel and other associated costs will be reduced. However, you may be planning to invest more in hobbies, family and travelling, for instance. When working out a target income, be sure to include both the essential bills and those luxuries you’re looking forward to, as well as any large one-off costs that will come out of your pension too.
To give you a general idea, Which? research indicates that the average retired household spends around £2,200 a month; £26,000 a year. This covers all the basic areas of expenditure, as well as a few small luxuries, such as European holidays and eating out. Those that enjoyed long-haul trips, new cars and other further luxuries were found to spend around £39,000 annually.
Remember, this is simply an average, your desired retirement income may be different. As a result, it’s important to think about how you’re likely to spend.
The next thing to do is to see how this matches up with your current retirement provisions.
If you’re a member of a Defined Benefit (DB) scheme, you can contact the scheme directly to understand the current level of retirement benefits you’ve built up. This income is guaranteed and often linked to inflation. The accrual rate will be defined too, allowing you to calculate how this income may change between now and the retirement date.
If you hold a Defined Contribution (DC) scheme, again, you can contact the provider to receive the current value of your pension. However, it can be difficult to work out what this means for your retirement income, as contributions may change, and the savings are typically invested. This is an area we can help with.
You may have more than one pension, and possibly a mix of both DB and DC schemes; make sure you check them all.
What should you do if you find a shortfall?
After you’ve done the above, you may find there’s a gap between your expected income and how much you need for the lifestyle you want. Don’t panic, uncovering a shortfall now is far better than not finding out until you reach retirement, when your options may be limited.
So, what options do you have? Among them may be:
- If you haven’t already, check your State Pension projection. With the State Pension paying £8,750 each year, assuming you have 35 years on your National Insurance record, it serves as a useful foundation to build the rest of your retirement income on.
- Increasing your contributions is one of the simplest ways to increase your pension pot if you have the earnings to do so. This may also mean you benefit from further tax relief and employer contributions to boost your savings further.
- Assess how you could use other assets. Few retirees rely solely on their pension to create an income. Take a look at how savings, investment, property and other assets could be used to make up the shortfall.
- Decide where you’d make compromises. If increasing your retirement savings isn’t an option, making compromises is an option. Would you be willing to work for a few extra years to achieve the lifestyle? Could you reduce retirement spending in any way?
If you’re worried about your retirement income, please get in touch. We’re here to help you make sense of where your retirement savings are now and how to get on track with your goals in mind.
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 regulations which are subject to change in the future.
Once you’ve set out a financial plan, you might think all the hard work has been done. But keeping on top of the progress you’re making and ensuring it’s still suitable is essential for getting the most out of your assets.
When was the last time you revisited your financial plan? It’s a task that you might be tempted to put off or believe there’s no need to complete. Perhaps you have reviewed your finances, but how in-depth did you go? It should be considered just as important and worthwhile as the initial work you did when setting out a financial plan.
Think back just ten years ago, your lifestyle, priorities, wealth and aspirations have probably changed at least to some degree during that time. As a result, the financial plan you created a decade ago may no longer be what’s right for you. Coming back to your financial plan is a key way of making sure you’re still on track financially.
Why review your financial plan?
1. Reflect personal changes: As we’ve mentioned above, your own situation can change significantly. Perhaps you’ve celebrated a pay rise over the last few months, welcomed a new family member or have invested in a second home. These can have an impact on your finances now as well as the best way to save and invest. A regular, full financial review gives you a chance to build these life events into your plan. Even seemingly small changes in your personal life may mean there’s a better route for reaching your goals.
2. Review your goals: This one links with personal changes. Whilst your life may be similar to last year in terms of work and family, you may find that your aspirations have changed significantly. Perhaps you’ve decided you’d like to retire from work in a few years, which may mean you should start increasing pension contributions or reducing investment risk, for example. Taking some time to think about what you want to achieve in life and the role money will play in helping you reach goals can ensure your financial plan is aligned to you.
3. Keep track of progress: Even if your goals remain the same, you should take steps to measure your progress. From saving to purchase your first home to making retirement plans. Despite efforts, even the best-laid plans can face bumps along the way, some of which may be outside of your control. Reviewing how you’re progressing is crucial for ensuring reality and expectations are in line.
4. Highlight potential risk and opportunities: New opportunities and risk are always emerging. A financial review is a perfect time to take a look at these and respond where necessary. You should also take the time to review your current exposure to risk is still right for you. It’s a factor that should be influenced by many different areas, from your goals to capacity for loss, which may also change over time.
5. Take regulatory changes into account: As well as changes to your life, you also need to consider regulatory changes. These can be hard to keep track of, as some will barely be mentioned in the press. From changes to Inheritance Tax thresholds to the Lifetime Allowance for pensions, keeping on top of regulations can be time-consuming. View your financial review as an opportunity to discuss what’s changed and how it affects you with your financial adviser.
6. Consider long-term wealth projections: As part of your original financial plan, you may have projected how your wealth will change over the year through cashflow planning tools. This can provide an invaluable insight that you can base financial decisions on. However, the output is only as good as the information the tool has used to reach conclusions. As a result, the core data needs to be updated and reviewed frequently to continue getting the best out of it.
7. Have confidence in your plan: Finances can seem complex and a cause for concern. But you should have confidence in the decisions you make and the direction that you’re heading in. Reviewing your finances can give you a greater sense of control and you know you’re basing decisions on information that’s up to date.
When should you review your financial plan?
With so many reasons for reviewing your financial plan, you may be wondering when and how often you should undertake the task. Ideally, we advise clients to thoroughly review their finances every year. This makes it far easier for you to keep on top of potential changes and ensure that your financial plan suits your current situation. On top of this, it’s a good idea to review your finances following big life events too, from buying a home or getting married to celebrating retirement.
If you’re ready to look over your financial plan, please contact us.
When estate planning, Inheritance Tax (IHT) can be a concern. Naturally, you want to leave as much as possible to your loved ones and ensure they’re not stressed about paying a bill at what is already a difficult time. Luckily, there are usually many ways you can reduce the IHT your estate will be liable for.
Despite this, IHT receipts are rising. For the tax year 2018/19, HM Revenue and Customs (HMRC) collected an additional £160 million in IHT when compared to the previous year. It means more than £5.4 billion was paid from the estates of the deceased.
It’s an issue that’s set to grow too. By 2030, Canada Life predicts the total amount paid in IHT could reach a staggering £10 billion due to the value of assets increasing while thresholds for paying no IHT remain static.
IHT is the amount owed on your estate when you pass away should it exceed certain thresholds. The standard Nil-Rate Band is £325,000. An estate valued up to this amount is exempt from IHT. In addition to this allowance, there is also the Residence Nil-Rate Band. This can be used if you’re passing your main home to children or grandchildren. It’s currently £150,000, rising to £175,000 in 2020/21.
Therefore, if the value of your estate is more than £475,000 for this tax year, or £500,000 from April 2020, some of your estate may go to the taxman rather than loved ones. However, with an effective plan in place, it is possible to eliminate or reduce an IHT bill. Among the things you can do are:
1. Make a will: A will is always an essential part of estate planning. It’s the only way to ensure your wishes are carried out when you pass away, without one in place, your assets will be distributed according to Intestacy Rules. This may vary significantly from what you want. It’s also an opportunity to assess the size of your estate and reduce IHT, for example, by the way assets are passed to loved ones.
2. Make full use of the Nil-Rate Band allowances: The value of your estate that falls under the Nil-Rate Band allowances is not liable for IHT. As a result, your first action should be to ensure you make full use of them where possible. If you’re married or in a civil partnership, you can pass on unused Nil-Rate Band allowances on to them. This means you can effectively pass on up to £1 million free from IHT from 2020/21 if your partner hadn’t used any of their allowances.
3. Use the gifting allowance now: Giving away assets now can help reduce the value of your estate, minimising the amount of IHT your estate will be liable for on your death. However, caution does need to be exercised here. For IHT purposes, assets given in the seven years before your death may be considered part of your estate, and therefore liable for IHT. However, you can gift up to £3,000 annually, which is immediately considered outside of your estate. Making use of this allowance can form part of your wider estate plan.
4. Give gifts out of your excess income: Following on from the above, gifts that are given from your regular income are also not included in your estate. These may include Christmas and birthday gifts. The key here is that you must be able to maintain your standard of living after making the gift. This can be tricky to understand in some situations, if you have any questions, please contact us. There are other gifts that are immediately excluded from your estate too, which can be found here.
5. Place assets into a trust: Assets placed within a trust are not considered part of your estate, and, therefore, aren’t liable for IHT. There are several different types of trusts and whether any are right for you will depend on your circumstances and goals. However, a trust can be useful in some cases, for instance, if you want to create an inheritance for children or still receive an income from the assets. For help understanding trusts, please get in touch.
6. Leave 10% of your estate to charity: If your estate is likely to be liable for a significant IHT bill, leaving 10% of your estate to charity can reduce the overall amount. Rather than paying IHT at the standard rate of 40% on assets above the Nil-Rate Bands, the rate will be reduced to 36%. It’s also an opportunity to support the causes or organisations that are close to your heart so it can be a win-win solution.
7. Take out life insurance: It isn’t always possible to eliminate an IHT entirely and you may be worried about how your loved ones will pay the bill. Taking out a life insurance policy and placing it in a trust can ensure it doesn’t eat into the inheritance you leave behind, as the sum paid out by the policy can be used to pay the bill. Placing the policy in trust is important, otherwise, it would be considered part of your estate and may increase your IHT bill further.
Please note: The Financial Conduct Authority does not regulate tax or estate planning.