27th April 2018
WHAT IMPACT WILL LIVING LONGER HAVE ON YOUR RETIREMENT PLANNING?
Planning for retirement and the need for laterlife care are becoming the decade’s most talked-about areas of social policy. In the UK we are seeing a major shift in emphasis; financial provision for our retirement years is moving from being the responsibility of the state, to being the responsibility of the individual.
Increased life expectancy means that people retiring at 65 today can reasonably expect to live on into their 80s if not longer, and some can expect to live to 100. However, when it comes to planning for retirement people can underestimate the odds of reaching a great age, and may not be adequately prepared financially for the years ahead. This may be one of the reasons behind the recent increase in the number of those working beyond state retirement age.
Making the most of your pension savings
Unless you’re in a pension scheme that pays you an income based on your salary when you retire, you’re most likely to be saving into a scheme that provides you with a sum of money, your pension pot. How you turn your pension pot into income is one of the biggest financial decisions you have to take at retirement, and there are many pitfalls to avoid. Getting advice will give you the comfort of knowing that you’re doing the right thing with your money, and means that you will have in place a detailed plan that takes a holistic view of your finances.
What a good retirement plan looks like
There’s a lot to think about when making plans for a comfortable retirement. A good retirement plan needs to take account of factors such as inflation, investment risk and the potential need for funds for long-term care. With the increase in life expectancy, more of us can expect to need help and support at some time in our lives. Residential and nursing care costs can often be around £1,0001 a week.
Take the right steps
Taking professional advice about your pension has never been as important as it is today. Many of us struggle to find the time to plan our retirement finances properly, and it can be hard on your own to make informed decisions. Taking advice can give you peace of mind and help ensure you don’t run out of funds in later years.
1 LaingBuisson, 2017
If you’re making plans for your retirement and would like some professional advice, then please get in touch. The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.
WHY BEING DIVERSIFIED ALWAYS MAKES SENSE
Overall, the stock market has been generous over the course of the past eight years or so. This optimism continued into 2018, with further strong gains seeing equity indices around the world soar.
This run was halted at the end of January and the market subsequently witnessed a correction with many share indices retreating from record highs.
The markets actually fell for the same reason that they had risen so strongly across 2017: good news on the economic front, specifically a US employment report showing stronger than expected jobs growth and an increase in wage levels. The data was viewed with trepidation amid fears of rising inflation and impending monetary tightening. Concerns that monetary policy is set to be tightened at a quicker pace and to a greater extent than previously envisaged has begun to weigh on market sentiment. Stock market volatility is an inevitable part of investing. What you have to decide as an investor is how much risk is right for you. While the process of building a portfolio includes strategies to reduce risk, it cannot be eliminated altogether. Stock market performance is unpredictable and investing is all about adopting a longer-term view, diversifying risk and allowing your money time to grow.
The benefits of a diversified approach
The old adage about not putting all your eggs in one basket certainly applies when it comes to adopting an investment strategy. One way we can help you is by recommending a combination of different assets. Diversification is the process of spreading your money around different types of investments, so that your exposure to any one of them is limited, helping to reduce your exposure to risk and volatility. That way, a poorly-performing investment shouldn’t greatly damage your overall returns, and your money has more opportunities for growth.
The goal of a diversified strategy is not necessarily all about boosting performance, but once you’ve established the level of investment risk that you’re comfortable with, based on your chosen investment goals and time horizon, diversification has the potential to improve returns for your preferred level of risk. Regardless of what amount you have to invest, we can recommend the most cost-effective way to achieve this mix – often through collective investments.
It is important to regularly revisit your objectives and any changes in your personal circumstances which may affect your finances.
The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.
ISAs AND INHERITANCE TAX – KNOW THE FACTS
ISAs are a great way to save, and there are now several types, each designed to help young and old, home buyers and children save for their future. But while ISAs are tax-efficient during your lifetime, they may have disadvantages when it comes to Inheritance Tax (IHT).
It’s easy to think that ISAs are tax-free, full stop. After all, when the then Chancellor, George Osborne, announced that from 2015 they could be passed on without incurring tax, the move was widely welcomed. It meant that a widow or widower wouldn’t face a tax bill if they inherited an ISA from their spouse. This is achieved by what’s called an “additional permitted subscription” allowance (APS), which is equivalent to the amount the deceased held in ISAs at the date of their death, and is in additional to the normal ISA allowance. What’s more, the surviving spouse is still entitled to the APS even if their spouse or civil partner leaves the funds in their ISAs to someone else.
Investors do not pay any personal tax on income or gains, but ISAs do pay unrecoverable tax on income from stocks and shares received by the ISA managers.
Passing ISAs on
However, ISAs are still included in calculating the value of a deceased’s estate. While funds left to a spouse are free of IHT, those passed directly to children or other beneficiaries are not. IHT is payable at a rate of 40% on the value of your estate over the current individual allowance of £325,000.
This means that it may be preferable for IHT planning purposes to think about passing on your pension to future generations and living off the tax-free income from your ISAs. However, everyone’s circumstances differ, so it’s important to get financial advice that’s tailored to your particular circumstances.
Tax treatment depends on individual circumstances.
Tax treatment, rates and allowance are subject to change.