Retirement planning: Bringing together your goals and finances

Effective retirement planning often involves weaving together lots of different threads. As you think about your retirement, you might be unsure how to bring everything together, but a bespoke financial plan could put your mind at ease.

Over the last few months, you’ve read about the importance of deciding how you’ll retire, why you should set out your goals, and your options for accessing your pension. Now, read on to discover the challenges of bringing together these different strands of retirement planning and why a tailored financial plan could provide a solution.

The challenges of retirement planning you could face

A common concern among those approaching retirement is whether they have enough money to retire. Even after the milestone, you might worry about running out of money too soon.

Understanding what a sustainable income is for your circumstances can be difficult. After all, you don’t know how long you’ll spend in retirement and you might need to factor in a range of influences outside of your control, such as the effect inflation will have on your expenses.

As a result, you might not be confident in your ability to live the lifestyle you want once you give up work.

Uncertainty could mean you spend too much too soon, which could leave you in a financially vulnerable position in your later years. Alternatively, it might lead to you being more frugal than necessary and missing out on retirement experiences.

There could be other challenges too. Perhaps you’re considering taking a lump sum out of your pension or using assets to fund a one-off expense but you’re unsure about the long-term effect it may have. Or you want to ensure you leave an inheritance behind to support loved ones after you’ve passed away.

While pensions are often the main source of income in retirement, retirees will often have other assets at their disposal too. You might be unsure how you could use your savings, property, or investments to support your retirement goals, but financial planning could help.

A financial plan will bring together your aspirations and finances

When you think about what financial planning involves, your mind might turn towards understanding your assets. However, an effective financial plan starts by understanding what you want to achieve.

At retirement, this might be the lifestyle you want to enjoy for the rest of your life. You may have other priorities too, such as lending support to your family or ensuring your partner is also financially secure.

Once you’ve set out your lifestyle goals, you can start to review your assets and how they might make these objectives achievable.

One of the benefits of working with a financial planner is that they may help you bring together these different goals. So, a retirement plan that’s tailored to you may consider what a sustainable income is, but it might also include:

·       Gifting assets to your loved ones during your lifetime

·       Putting assets aside for your family to inherit when you pass away

·       Financial protection that could provide for your partner if the worst happened

·       A safety net that may give you peace of mind

·       Provisions in case you need care in the future.

Using a tool called “cashflow modelling”, we could help you visualise how to use your wealth to reach your goals.  

By adding details about your assets, cashflow modelling could show how your wealth will change over time depending on the decisions you make. For instance, it could demonstrate how long your pension may last if it was used to provide an annual income of £35,000 or £45,000. Or how using your investments to supplement your income might provide you with greater financial freedom.

Cashflow modelling could also highlight potential risks. You can model different scenarios, including those that are outside of your control, to understand how they might affect your lifestyle and financial security.

For example, could the rising cost of living place pressure on your finances 20 years after you’ve retired? By identifying potential risks at the start of retirement, you may be able to take steps to mitigate them or create a safety net. To manage the effect of inflation on your outgoings, you may plan to increase the income from your pension each year to preserve your spending power.

As a result, working with a financial planner could help you realise your retirement goals and give you financial confidence as you start the next chapter of your life.

Contact us to talk about your retirement plans

If you’re preparing for retirement, whether it’s a milestone you hope to reach this year or it’s a decade away, we could offer you support. Please contact us to talk about your retirement aspirations and how your finances may provide you with security once you give up work.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate cashflow planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

Investment market update: March 2024

While inflation continues to be a challenge for many economies, there are positive signs in the UK and around the world. Read on to find out what may have affected stock markets and your investment portfolio in March 2024.

Remember, volatility is part of investing and most people should invest with a long-term outlook. If you have any questions about your investment strategy or performance, please contact us.

UK

In March, chancellor Jeremy Hunt delivered the 2024 Budget and set out the government’s spending and changes to taxation. One of the big announcements was a 2% cut to employee National Insurance, which follows a previous cut made in the 2023 Autumn Statement.

The Resolution Foundation, a thinktank, said pensioners were among the biggest losers in the Budget, as National Insurance is paid by workers but not people who are retired.

Investment bank Citigroup responded to the Budget by saying the Office for Budget Responsibility (OBR) was being too optimistic when it assumed productivity would grow by 0.9%. The organisation predicts a more modest 0.5% and said it means the UK could be “fiscally offside by around £50 – £60 billion”.

The OBR recognised that productivity has been poor since the 2008 financial crisis. In fact, growth has fallen from 2.5% a year to 0.5% – the economy would have been around 30% bigger today if the pre-2008 trend had continued.

David Miles, a member of the OBR, said the last 15 years have been so bad, that the next 5 to 10 years are likely to be a “bit better”. He particularly noted that AI could help boost productivity. 

Inflation continued to fall in the 12 months to February 2024, with a rate of 3.4% – the lowest since September 2021.

Despite the positive news, the Bank of England (BoE) held its base interest rate at 5.25%. Huw Pill, chief economist at the BoE, said he believed more compelling evidence was needed before a cut would be made and it could be “some way off”.

The UK fell into a technical recession at the end of 2023, but the BoE said signs suggest it is already over.

Figures from the S&P Global Purchasing Managers’ Index (PMI) also support this. Private sector growth hit a nine-month high in February, indicating that the recession was shallow. However, the manufacturing sector continued to face challenges, with PMI data showing weak demand and supply chain disruption are contributing to a downturn.

The FTSE 100 – an index of the 100 largest companies listed on the London Stock Exchange – hit a 10-month high on 21 March when it increased by around 1.1%. Mining stocks were among the main risers amid expectations that the US Federal Reserve will cut its base interest rate soon.

Greggs also saw its stock rise during March. The bakery chain revealed like-for-like sales increased by 13.7% in 2023, while pre-tax profits jumped 27% to £188.3 million. The firm added it expected another year of good progress in 2024.

Europe

According to data from Eurostat, inflation across the eurozone continued to fall in February 2024, when it was 2.6% compared to 2.8% a month earlier.

While many countries in Europe are battling high inflation, Turkey’s rate of inflation has consistently been in double digits since the end of 2019. In February, it hit a 15-month high of 67%. In a bid to cool the soaring cost of living, Turkey’s central bank increased its interest rate to 50%; this compares to a rate of 8.5% just a year ago.

The pan-European Stoxx 600 index reached a record high on 13 March boosted by upbeat company results from the likes of energy supplier E.ON and retailer Zalando. Buoyant company forecasts indicate that businesses are feeling optimistic about the future. 

US

Inflation in the US unexpectedly increased to 3.2% in the 12 months to February 2024. The news dampened hopes that an interest rate cut would be announced soon.

A consumer sentiment index from the University of Michigan suggests Americans have a gloomy outlook about economic conditions and prospects for the future. Pessimistic consumers might be more likely to curb their spending, which could harm businesses.

Data from the US Federal Reserve also indicates that businesses are taking a more cautious approach. Average hourly earnings increased by just 0.1% in February 2024, while unemployment reached 3.9% – the highest figure since January 2022.

Technology giant Apple saw its shares fall by around 2.5%, wiping around $70 billion (£55 billion) off the value of the company, on 4 March following an EU-issued fine. The EU fined the company €1.8 billion (£1.54 billion) after it was found to have broken competition laws by imposing curbs on app developers.

Asia

Japan’s main index, the Nikkei, hit 40,000 points for the first time on 4 March after it increased by 0.5%, partly thanks to a weak Japanese Yen helping exporting businesses. The milestone follows a strong start to the year – the Nikkei has gained almost 20% since the start of 2024 thanks to booming technology firms.

The Bank of Japan also made its first interest rate hike in 17 years and ended eight years of negative interest rates, which sought to encourage lending. The bank’s base rate increased from -0.1% to 0.1% after board members said they expected to achieve 2% inflation in the coming year after decades of deflation and stagflation.

China continues to face a property crisis, which is affecting consumer spending and lending, as well as economic growth.

The Chinese government previously cracked down on property speculation that sent prices soaring. However, the property market peaked in 2020 and has faced a downturn ever since.

According to the country’s National Bureau of Statistics, house prices continued to fall in major cities in February. The organisation said it expects real estate to remain the main drag on economic growth in 2024.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Pensions and Childcare: What do they have in common?

By Jessica Best, 8th March 2024

With today being International Women’s day and it being Mother’s Day on Sunday let’s talk about women’s wealth and how a pension contribution can help you retain your free childcare.

The UK government provides 30 hours’ free childcare for 3 and 4 years olds each year, on the basis that their parent or guardian household has at least £16,000 of annual income.

This tax-free benefit saves households with children thousands of pounds worth of childcare costs each year; to put this into perspective, Money Helper says the average cost of only 25 hours’ of childcare in the UK in 2023 was £7,210 Average childcare costs | MoneyHelper.

However, this benefit will be lost once either parent/guardian in the household has net adjusted earnings that exceed £100,000. Net adjusted earnings are total earned salaried income, self-employed income, some state benefits, dividends, pension, trust and rental income and savings interest. This is not to be confused with net income which is after tax.

What’s more, exceeding this £100,000 bracket, not only would you fully lose your entitlement to 30 hours’ free childcare, your income will also fall into the effective 60% rate of income tax because you will start to lose your personal allowance by £1 for every £2 of gross income above this limit.

Pensions are a really good answer to helping you retain these tax benefits, and you will also be helping future you.

Women are characteristically more likely to let their pension contributions suffer when caring for children because we are more likely to spend our money looking after others.

This is one of the main reasons we have a gender pension gap, which coincides with women being more likely to have time out of work and, therefore, miss opportunities for pay rises and subsequent increased pension contributions too.

In making a pension contribution your adjusted net income will reduce. You can take off the ‘grossed-up’ pension contribution value by £1.25 for every £1 contributed towards a pension. But what does this really mean?

When you make a pension contribution using taxed money, the government will automatically increase your pension contribution by 20% basic rate income tax relief, effectively giving you the tax back. As a higher or additional rate taxpayer the remaining 20% or 25% tax relief can be claimed through self-assessment.

Say for example, you have a salary of £92,500 and rental income of £22,500, your total net adjusted income for the year is £115,000. Meaning you lose your 30 hours’ free childcare and £15,000 of your income has fallen into the 60% income tax bracket. You could alternatively make a personal pension contribution of £14,400 from your bank account and then the government would automatically raise this by £3,600, to total a pension contribution of £18,000, resulting in your net adjusted income falling to £97,000 and all the tax benefits will be retained.

Be a little selfish, put some money into a pension for future you and make sure you can still get free childcare for your little one too.

The same principle can also be applied to child tax benefits. The UK government announced in Wednesday’s Spring Budget that the threshold for child tax benefit eligibility is increasing to £60,000 from £50,000 effective 6th April 2024, and the high income child benefit charge will now apply from £60,000 up to £80,000 and that this applies to earnings of both parents/guardians in the household individually. This means that child benefit is now only fully withdrawn if a parent/guardian has earnings above £80,000.

Making a personal pension contribution to reduce net adjusted income below £60,000 will mean the family will now receive the full child benefit. Alternatively, a pension contribution to lower net adjusted earnings below £80,000 will now mean the family can still retain some child benefit.

At the time of writing on Friday 8th March 2024, there is just under a month until the end of the 2023-2024 tax year on Friday 5th April and this means that you still have time to make a pension contribution up to the pensions annual allowance of £60,000 and benefit from these tax savings.

If you would like to discuss this opportunity further and see how a pension contribution can help your family, then please do get in touch: jab@mclarencapital.co.uk.

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This article has been written as per current legislation of the 2023-2024 tax year.

Past performance cannot be seen as a guide to the future and returns can go down as well as up. This is for information only and you should seek tax advice in conjunction to any financial planning decisions you make.

Are you risking a pension shortfall by overlooking longevity?

A survey suggests that some retirees could risk running out of money during their lifetime because they haven’t considered how long their assets need to last. Failing to factor longevity into your retirement plan could mean your later years don’t live up to expectations or you may face financial insecurity.

The report published in IFA Magazine found a worrying 68% of Brits have not thought about how many years of retirement they need to fund.

It’s an oversight that could mean you don’t put enough away for retirement during your working life and may not spot the potential gap until it’s too late. Or that you unintentionally withdraw too much from your pension during the start of your retirement.

The average person could spend two decades in retirement

The survey found that most people expect to retire between the ages of 65 and 69. Data from the Office for National Statistics (ONS) suggests the average person could spend at least two decades in retirement.

A 65-year-old man has an average life expectancy of 85. For women of the same age, it’s 87. As life expectancy has increased, younger generations are likely to spend even longer in retirement if they plan to stop working in their late 60s.

However, creating a retirement plan based on the average life expectancy could still leave you facing a significant shortfall.

A quarter of 65-year-old men are expected to celebrate their 92nd birthday, and 1 in 10 will reach 96. If they only planned for a 20-year retirement, they could find they don’t have enough money to maintain their lifestyle in their later years.

Similarly, a quarter of 65-year-old women are expected to live to 94, and 1 in 10 could reach 98.

Retirees today often need to consider how they’d cope financially if they live to become centenarians to create long-term financial security and peace of mind. With retirements that span decades becoming the norm, it’s more important than ever that those nearing the milestone consider longevity.

A retirement plan could help you create a sustainable income

Understanding what income you can take sustainably from your pension or other assets in retirement can be difficult. After all, you don’t know exactly how long you need to create an income for.

Another key challenge is that your income needs might not stay the same throughout retirement.

Indeed, inflation alone is likely to affect your outgoings even if your lifestyle remains the same. Even when inflation is stable, the rising cost of living may compound. The Bank of England’s inflation calculator shows how your income would need to grow to maintain your lifestyle.

Between 2003 and 2023, inflation averaged 2.8% a year. That might seem relatively small, but it can have a huge effect on your essential and discretionary spending. If you retired in 2003 with an income of £30,000, to simply maintain your spending power, it would need to have grown to more than £52,000 a year in 2023.

 There are other reasons why you might want to adjust your income in retirement too, such as:

·       Changing your lifestyle

·       Paying for care

·       Financially supporting loved ones.

Working with a financial planner to create a retirement plan that’s tailored to you is a step that could ensure you’re financially secure throughout retirement and offer peace of mind.

We’ll be able to work with you to explore the different options and assess which ones are appropriate for you. For instance, if you’re worried about running out of money and would prefer a reliable income, we may offer advice about annuities, which could provide a guaranteed income for the rest of your life. Or if you want to take a flexible income that you can adjust to suit your needs, we can work with you to understand how you might manage risks.

A retirement plan may also address concerns you might have, such as how your partner would cope financially if you passed away or what would happen if your investment portfolio experienced volatility. 

Contact us to discuss how you could create financial security in retirement

The thought of running out of money in your later years could make planning your retirement seem like a daunting prospect. Luckily, we’re here to offer you guidance as you near the milestone and then settle into your new life.

As part of your retirement plan, we’ll help you consider how to create long-term financial security using your pension and other assets, as well as other areas, from how you could improve your tax efficiency to setting out your wishes in a will.

Please contact us to arrange a meeting.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

More than 1 million investors are expected to pay Dividend Tax for the first time in 2024/25

More than 1 million investors will be hit with a Dividend Tax bill for the first time in the 2024/25 tax year, according to an AJ Bell report. Read on to find out if you could be affected and discover some of the steps you could take to mitigate a tax charge.

A dividend is a way of distributing a company’s earnings to shareholders. Usually, dividends are issued quarterly, but some businesses may pay dividends monthly or annually. So, if your money is invested in a dividend-paying company or fund, you could receive regular cash payments from them.

Dividends from investments are not guaranteed. Companies may reduce or cut dividends if profits fall or the business faces risks.

Some business owners also choose to use dividends as a tax-efficient way to extract money from the company. 

Dividends may play an important role in your financial plan and could supplement income from other sources. However, changes to the Dividend Allowance could mean your tax bill is higher than expected.

The Dividend Allowance will fall to £500 on 6 April 2024

In the 2022/23 tax year, you could receive up to £2,000 in dividends before Dividend Tax was due.

The Dividend Allowance fell to £1,000 for the 2023/24 tax year. The AJ Bell report suggests this meant an extra 635,000 people paid Dividend Tax. The Dividend Allowance will halve again on 6 April 2024 to just £500 – a move that is forecast to drag a further 1.15 million investors into the tax net for the first time.

The amount of tax you pay on dividends that exceed the Dividend Allowance will depend on which Income Tax band(s) the dividend falls within once your other income is considered. For the 2023/24 tax year, the tax rates on dividends are:

·       Basic-rate: 8.75%

·       Higher-rate: 33.75%

·       Additional-rate: 39.35%.

So, even though the Dividend Allowance is less generous than it once was, the tax rate you pay could still be lower than Income Tax.

5 practical ways you could lower your Dividend Tax bill

1. Review your total income

Managing the income you receive from other sources could help you avoid a Dividend Tax bill or reduce the rate of tax you pay.

If dividends fall within your Personal Allowance, which is £12,570 in 2023/24 and 2024/25, they will not be liable for tax. Similarly, ensuring your total income doesn’t push you into the higher- or additional-rate tax bracket could mean you benefit from a lower tax rate.

2. Plan as a couple to use both of your Dividend Allowances

If you’re planning with your spouse or civil partner, it’s important to note that the Dividend Allowance is per individual.

As a result, passing on some dividend-paying assets to your partner could mean you’re able to utilise both of your Dividend Allowance and collectively receive £1,000 in 2024/25 before tax is due.

3. Hold dividend-paying assets in an ISA

An ISA is a tax-efficient wrapper for your savings and investments.

Dividends that you receive from investments that are in an ISA will not be liable for Dividend Tax and won’t impact your Dividend Allowance. In addition, the profits you make when selling investments in your ISA are free from Capital Gains Tax (CGT).

In the 2023/24 tax year, you can add up to £20,000 to ISAs.

4. Use your pension to invest for your retirement

If you’re investing for your retirement, pensions may provide you with a tax-efficient way to invest. Investments held in a pension are not liable for Dividend Tax or CGT. In addition, you’ll receive tax relief on your pension contributions.

Remember, you cannot usually access your pension before the age of 55, rising to 57 in 2028. As a result, it’s important to consider your investing goals and time frame, as a pension may not be appropriate for you. 

In 2023/24, you can usually add up to £60,000 to your pension (or 100% of your earnings, if lower) without incurring an additional tax charge. If you’ve already accessed your pension flexibly or are a high earner, your pension Annual Allowance may be lower.

5. Assess alternative ways to boost your income

Dividends are a popular way to boost your income, but there are other options you might want to explore too.

For example, payouts from bonds may be classed as interest and could supplement your income. Interest may be liable for Income Tax, but the Personal Savings Allowance (PSA), the amount of interest you can earn in a tax year before tax may be due, could mean it’s a useful option for you.

Your PSA depends on the rate of Income Tax you pay. In 2023/24, the PSA is:

·       £1,000 for basic-rate taxpayers

·       £500 for higher-rate taxpayers

·       £0 for additional-rate taxpayers.

Another option is to invest in non-dividend paying stocks or funds with the long-term goal of selling the assets for profit. The money you make selling investments held outside of a tax-efficient wrapper may be liable for CGT. However, the rate you pay could be lower than Dividend Tax and the Annual Exempt Amount could help you avoid a bill.

In 2023/24, the Annual Exempt Amount means you can make up to £6,000 profit before CGT is due. This allowance will halve to £3,000 in the 2024/25 tax year.

If CGT is due, the rate you pay will depend on which tax band(s) the taxable gains fall into when added to your other income. In 2023/24:

·       If you’re a higher- or additional-rate taxpayer your CGT rate would be 20% (28% on gains from residential property)

·       If you’re a basic-rate taxpayer, you may benefit from a lower CGT rate of 10% (18% on gains from residential property) if the taxable amount falls within the basic-rate Income Tax band.

Keep in mind that investment returns cannot be guaranteed. The value of investments can fall as well as rise.

Contact us to talk about your tax strategy for 2024/25

Using tax allowances and being aware of different options could reduce your overall tax liability. Please contact us to discuss your tax strategy for the 2024/25 tax year and beyond.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning.

3 savvy tips that could help you pay off your mortgage sooner

Paying off their mortgage is a goal for many homeowners, and research shows that more households now own their property outright. If you’re still making mortgage repayments, read on to find out how you could pay off your mortgage quicker.

According to a report in IFA Magazine, the number of households who own their property outright has gradually been increasing over the last three decades.

In 1992, just over a quarter of households owned their property outright, and around 43% were paying off a mortgage. By 2021/22, more than a third owned their property outright, while almost 30% were making mortgage repayments.

It’s not surprising that older generations are the most likely to own their home outright – just 5% of homeowners aged 65 or over still have a mortgage.

Paying off your mortgage could significantly reduce your outgoings and give you more financial freedom. Once you’ve reached the milestone, you might plan to retire or use your increased disposable income to indulge in your hobbies.

If you have a repayment mortgage and keep up with repayments, you’ll eventually own your home outright. But if you want to reach the goal quicker, here are three practical steps you could take.

1. Overpay your mortgage

Overpaying your mortgage is a simple way to pay down the debt quicker. As well as helping you become mortgage-free sooner, it could also reduce how much you pay in interest.

For example, if you used a 20-year repayment mortgage to borrow £200,000 with an interest rate of 4.5%, your monthly repayments would be around £1,260 a month. By making regular overpayments of £200 a month, you could be mortgage-free four years sooner.

As interest is calculated based on the outstanding balance, you’d also save almost £23,000 in interest in the above scenario.

Alternatively, you could pay a lump sum off your mortgage.

Again, let’s say you’ve borrowed £200,000 over 20 years through a repayment mortgage with a 4.5% interest rate. If you choose to make a one-off overpayment of £20,000, you could pay off your mortgage three years earlier. In addition, you could save more than £25,000 in interest.

You should check the terms of your mortgage before you make repayments as some may charge you an early repayment fee. Often, you can repay up to 10% of the outstanding balance each year without incurring a fee.

2. Shorten your mortgage term

When your mortgage deal ends, it could be worthwhile to review the period you’ll pay your mortgage over, known as the “mortgage term”.

Traditionally, first-time buyers take out a mortgage with a term of 25 years. However, as house prices have increased, many are choosing longer terms.

You might increase your mortgage term for various reasons too. Perhaps you increased it to manage your outgoings when you moved to a more expensive home or borrowed more through your mortgage to complete a home improvement project?

Shortening the mortgage term would increase your monthly outgoings, but would mean you pay off the debt sooner.

Borrowing £150,000 through a repayment mortgage with a 25-year term at an interest rate of 4.5% would result in repayments of around £833. If you shortened the mortgage term to 20 years, your repayments would rise to £949.

It’s worth noting that as you gain more equity within your property, the interest rate you pay on your mortgage might fall. So, shortening the mortgage term might not lead to repayments increasing by as much as you expect.

3. Consider an offset mortgage

For some people, an offset mortgage could help reduce their mortgage repayments and pay off the debt quicker.

An offset mortgage links a savings account to your mortgage. The money held in the savings account usually won’t earn interest. Instead, your mortgage lender will use the money in your savings account to “offset” the amount you need to pay. So, the more you have in the savings account, the more your repayments could fall.

This could be a useful option if you want to make overpayments but retain some flexibility in case of emergencies. It could also be valuable if you have cash that’s set aside for a particular purpose. For example, if you’re self-employed, you might have a large amount of money that you’ll use to pay tax bills or in case of emergency if your income is volatile.

As your repayments could fall when using an offset mortgage, you might have more opportunities to make overpayments or use the money in the linked savings account to clear the debt when you have enough.

There are drawbacks to weigh up before deciding if an offset mortgage is right for you. For instance, your savings wouldn’t be earning any interest.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

Have you overlooked speaking to your beneficiaries as part of your estate plan?

You may already have your estate in order and have written your will accordingly, but have you overlooked the value of speaking to your beneficiaries?

A new report by PIMFA suggests that 58% of people in the UK have never discussed inheritance with their family members.

Not doing so could mean that your beneficiaries may be unprepared for receiving an inheritance, or they perhaps expect to inherit a substantially different amount than you intend. It may also mean that far more of your estate may be liable for Inheritance Tax (IHT).

The research also revealed differing generational attitudes towards talking about finances. 49% of Generation X and 63% of baby boomers said they never talk about their finances with friends. Conversely, more than 80% of millennials and Generation Z said they do so at least once a year.

So, what are the benefits of speaking to your beneficiaries?

Understanding your beneficiaries’ goals

Your beneficiaries may have goals and ambitions that they have not yet shared with you or other family members. Speaking with them about your estate plan could allow you to make adjustments that better suit their goals.

Perhaps one of your beneficiaries has dreams of starting their own business, in which case you could consider investing in their business now rather than leaving them a lump sum later? Or maybe a beneficiary wants to send their children to a particular school or university and would rather the money be kept in a fund for when the children are old enough?

Your beneficiaries may also want to use their inheritance to boost their own pension fund or buy a property.

In each case, you may find that there are better ways to use your wealth and align your beneficiaries’ goals with your estate, provided you are given ample time to plan for it.

Reducing potential Inheritance Tax liabilities

In the 2023/24 tax year, individuals can usually pass up to £325,000 on their death without IHT being due. The threshold can increase by £175,000 if a direct descendant inherits your main residence. With married couples or those in a civil partnership able to transfer any unused allowance, you could leave up to £1 million before IHT is due.

If your estate is valued above the nil-rate bands, your beneficiaries could be liable to pay IHT on everything they inherit above that figure.

If you make gifts to your beneficiaries at least seven years before your passing, they may not have to pay IHT on the value of these gifts. This is known as a “potentially exempt transfer”.

So, talking to your beneficiaries about transferring wealth intergenerationally may mean you can make gifts sooner. You’re much more likely to survive for seven years after making a gift at the age of 50 than at the age of 90.

Clarifying expectations

Speaking to your beneficiaries about their potential inheritance also gives you a chance to ensure they are clear about what to expect. It can remove any shock or surprise when your loved ones receive less or more than they anticipated.

For example, if you have chosen to leave some of your estate to charity or a friend, you may want to inform your family about it before they read your will. It might also smooth over any potential misunderstandings as you can explain the decisions you have made.

Ensuring your beneficiaries are prepared

Talking openly with your beneficiaries about your estate plans may provide them with peace of mind that they’ll be in a good position to manage an inheritance.

In preparation, they may want to open new accounts, begin exploring different investment options, or start looking for properties within their budget.

Encouraging them to seek sound financial advice

Speaking to your beneficiaries is a good opportunity to encourage them to seek ongoing financial advice that may improve their long-term security.

It might be useful to ask them to consider using financial advisers you have already spoken to and who you trust. It can even be useful for the whole family to work with the same firm or adviser so they can align their interests and ensure the tax-efficient transfer of wealth.

Speaking to your beneficiaries can be an important part of planning your estate, though many families overlook the benefits. Get in touch to find out how we can help you and your family.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning, Inheritance Tax planning, or will writing.

Retirement planning: The 3 main ways you could access your pension

When you give up work, your pension is likely to play a key role in creating an income. So, an essential part of retirement planning is often deciding how you’ll access your retirement savings.

Last month, you read about the importance of setting out your retirement lifestyle goals and how financial planning could help. Your income will play a key role in whether you can turn many of them into a reality. So, read on to discover what your options are when you want to withdraw money from your pension.

If you have a defined contribution (DC) pension, you’ll retire with a pot of money that you can access in several ways.

While the freedom to decide how and when to withdraw money from your pension could help you create an income that suits your needs, it also means you need to understand your options. You’ll be responsible for ensuring your pension creates financial security for the rest of your life.

Your pension options explained

1. Taking a lump sum

You can withdraw lump sums from your pension as and when you choose to. 

This could be a good option if you have one-off expenses. For instance, if you’re taking on a home renovation project or want to lend financial support to a loved one.

However, you should keep in mind that pension withdrawals may be liable for Income Tax. While you can take up to 25% of your pension as a tax-free lump sum, withdrawals above this amount may be added to your income. As a result, taking a large lump sum could unexpectedly push you into a higher tax band.

2. Using flexi-access drawdown

Flexi-access drawdown allows you to take a regular income from your pension that you’re in control of. You could increase or decrease the income to suit your needs.

To ensure you don’t run out of money in your later years, you might want to consider factors like life expectancy or how inflation could affect your income needs over the long term. If you take too much from your pension, there’s a risk you could run out in the future. So, thinking about how you could create long-term financial security may be important.

3. Purchasing an annuity

You could also use the money held in your pension to purchase an annuity, which would then provide you with a regular income. Retirees often choose an annuity that will pay an income for the rest of their life, but you could also select an annuity that lasts for a defined number of years.

An annuity can be valuable if you’re worried about running out of money or don’t want the responsibility of managing your pension. However, it’s less flexible than other options.

Mixing your 3 pension options

You don’t have to choose a single way to access your pension – you can mix the options.

So, you could take a lump sum from your pension to kickstart your retirement plans. Then you might use a portion of the remaining amount to purchase an annuity to create a reliable income you’ll receive for the rest of your life. The rest of the money you could access flexibly using flexi-access drawdown.  

Leaving your money in a pension could make financial sense

In most cases, you can access your pension when you’re 55, rising to 57 in 2028. However, you don’t have to make withdrawals at any point during your retirement if you don’t want to.

In fact, leaving money that you don’t need in your pension could make financial sense.

A pension is a tax-efficient way to invest. So, leaving your money in your pension to be invested in a way that’s appropriate for you could help it grow further.

Money that’s held in your pension could also be passed on to your loved ones when you die. Usually, pension savings aren’t considered part of your estate for Inheritance Tax (IHT) purposes. Instead, beneficiaries may pay Income Tax on the money, which could be a lower rate depending on their other sources of income. So, holding money in your pension may form part of your long-term estate plan.

You should note that pensions aren’t usually covered by your will. You will need to complete an expression of wishes with your pension provider to state who you’d like to receive your pension if you pass away.

Contact us to talk about your retirement plan

If you have any questions about how to access your pension or other aspects of your retirement plan, please get in touch. As financial planners, we could work with you to create a plan that’s tailored to your goals and assets.

Next month, read our blog to discover how financial planning could help you bring together the different strands of retirement planning so you can enjoy the next chapter of your life.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.