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    Tag: Pension

    Common myths for financial planning

    Posted on by Laura Bannan

    The thought of financial planning can be overwhelming and the amount of conflicting advice can leave you feeling lost when it comes to planning ahead to make the most of your financial situation. To help, we explore a number of common myths when it comes to financial planning.

    Myth: Financial planning is only needed if you’re wealthy

    Although it is wise to plan your finances well if you have large amounts of wealth, it can still be hugely valuable even for those with modest wealth. Understanding your financial situation in detail and how to make the most out of it can help you plan in a way that is going to be most beneficial, and investing even a small amount can still provide good returns over time.

    It’s important to be clear of your lifestyle aspirations and then tailor your finances to achieving those goals, this is something your financial planner will be able to help you map out and ensure you’re planning ahead accordingly for the short, medium and longer term.

    At PM+M, once we have spent time getting to know our clients and understanding their needs and objectives, we can then test different scenarios using our cashflow forecast software to understand the best plan of action for the individual circumstances and objectives.

    Myth: I’m too young for retirement planning

    Retirement can be achieved at a variety of ages depending on many different factors, some people are able to retire much earlier than others by working extremely hard and with some extensive financial planning. If this is something you are aiming for, or even if you simply wish to plan ahead to ensure you are going to be comfortable in later life, the sooner you start planning the better!

    In terms of your pension for instance, the earlier you begin saving into your pension, the more time your money has to grow and it is highly likely something you will thank your younger self for in years to come.

    By looking ahead as to what you would like your retirement to look like in an ideal world, you are able to plan what steps you would need to take financially to allow you to achieve this. The more time you have to do this, the more you are able to spread the financial impact across a greater number of years, therefore reducing the impact you are likely to feel on your finances. This would also provide more time to make any necessary changes, should your desired retirement plans change.

    We can use our cashflow forecast software to test different scenarios to help understand the best plan of action for your individual circumstances and objectives.

    Myth: I can only invest if I have large amounts of money

    Obviously the more money you invest, the greater returns you are likely to see, but this does not mean it’s not worth investing smaller amounts of money.

    Whatever the amount, you may want to consider putting your money into medium or long-term investments (five years or more). Unlike savings, investments have more potential to grow over time. You have tax efficient options, for example, an ISA or a pension. A small amount regularly invested each month over a few years can often result in a good return over time, providing a strong investment strategy is in place.

    At PM+M, we offer a bespoke managed portfolio service (in partnership with AJ Bell) which we continually monitor and proactively make fund and asset allocation changes when we feel as though this is necessary. You can find out more about our portfolio service here.

    Myth: The State Pension will be enough for my retirement

    Depending on what you want to achieve from your retirement, you may find that relying on the state pension could leave you drastically short of achieving what you have in mind. The full State Pension is £203.85 per week for the 2023/24 tax year, providing you have paid the necessary 35 years National Insurance. This equates to around £10,600 a year which works out much less than you would earn if you were working a full-time job on minimum wage, this comparison helps put the figures into perspective.

    With the ever-rising costs of living, it is certainly worth doing your sums carefully and if you are planning on relying solely on your state pension, that it will enable you to live a lifestyle you are comfortable with in retirement.

    However, the State Pension does provide an invaluable income underpin.

    Get in touch

    For further information or advice on any of the common myths discussed above, contact a member of our financial planning team today to talk through your personal circumstances, email financialplanning@pmm.co.uk or 01254 679131.

    The information contained within this article is purely for information purposes and does not constitute financial advice.

    Where will my income come from when I retire?

    Posted on by Laura Bannan

    When you reach retirement age and no longer work, it’s important to have planned ahead and know exactly where your income is going to come from to enable you to enjoy the retirement lifestyle you would like. The first thing to consider, is the possible sources of income to understand what may work best for you.

    Pension plans

    There are 2 main types of pension which are generally referred to as defined contribution pensions (a pension pot which is based on how much is paid in) and defined benefit pensions (usually a workplace pension based on your salary and how long you’ve worked for your employer). It’s worth remembering that you are able to have several pension plans if you wish.

    With a defined contribution plan, potentially and dependant on various rules, a maximum of £60,000 (or 100% of your earnings, whichever is lowest) might be available to be paid into your pension And tax relief can be obtained. Your money will be invested, so any income you are able to take from the plan when you retire will be partly dictated by a combination of how much you have paid in and investment performance. You would be able to withdraw money from age 55 (changing to 57 from April 2028). 25% of the plan’s value is usually tax-free, with the remaining 75% being taxable at your marginal rate.

    With a defined benefit pension plan, how much you will get would depend on your salary when you retire or leave the scheme. Sometimes it is worked out using your average salary and will also depend on how long you have been part of the scheme for. You would receive a pension income for the rest of your life with a defined benefit plan and the age at which you could start drawing money from your plan would depend on the individual scheme. There could be the possibility to take a tax-free lump sum from a defined benefit plan, or even the option to take your whole plan as a lump sum.

    State pension

    The state pension could potentially make up a large portion of your retirement income but isn’t always enough on its own to fund a retirement lifestyle, depending on your individual requirements.

    Men born on or after 6 April 1951 and women born on or after 6 April 1953 can claim the new State Pension once they reach State Pension age, which is currently 66 but rising to 67 by 2028. The full amount you are able to get is just over £10,600 per year, if you have made the required national insurance contributions.

    Property ownership

    It could be a possibility that some of your retirement income comes from rental income if you are the owner of any buy-to-let properties, and this can be a great source of retirement income. However, it should not be relied on as it is not possible to guarantee that the property will be let out all of the time. You would also be required to pay income tax on any rental income you receive.

    Investment options

    You may want to consider putting your money into medium or long-term investments (five years or more). Unlike savings, investments have more potential to grow over time. You have tax efficient options, for example an ISA.

    At PM+M, we offer a bespoke managed portfolio service (in partnership with AJ Bell) which we continually monitor, conduct ongoing due diligence in funds held in the portfolio and proactively make fund and asset allocation changes when we feel as though this is necessary. You can find out more about our portfolio service here.

    Utilising tax breaks

    Investments aren’t the only way you can protect your savings from losing value. You should look to make use of any tax breaks available to help make the most of your savings and investments.

    ISAs are a popular and tax-efficient way of investing your cash in the long term, a £20,000 tax-free allowance per tax year is available to everyone and goes a long way to help you maintain the value of your money. There are four types of ISAs available:

    • Cash ISAs
    • Stocks and shares ISA
    • Innovative finance ISA
    • Lifetime ISA

    How do I know if I will have enough?

    This is a common question we are asked and unfortunately there is no ‘one size fits all’ solution when it comes to retirement planning, and the answer could vary greatly for each individual based on their specific circumstances. Research from Aviva has found that one tenth of the UK’s workforce does not know if they will be able to have a comfortable level of income in retirement.

    When planning for retirement, it is important to consider seeking support and guidance from an experienced financial adviser. Typically, your adviser will work with you to establish a clear understanding of what income will be required to support your proposed retirement, when you plan to retire and what assets are already in place to support this. With the information, your adviser will be able to build a cashflow model, using sensible assumptions, to work backwards and highlight what you should be saving to achieve your desired retirement.

    Get in touch

    For further information or advice, contact a member of our financial planning team by emailing equiries@pmm.co.uk or call 01254 679131.

    The information contained within this article is purely for information purposes and does not constitute financial advice.

    Could potential changes to workplace pensions impact your payroll?

    Posted on by Laura Bannan

    Could potential changes to workplace pensions impact your payroll?

    The Pensions (Extension of Automatic Enrolment) (No.2) Bill has now passed the second reading in the House of Lords, if passed it could mean some important changes for workplace pensions.

    Since automatic enrolment was brought into force in 2012, we have seen a dramatic transformation to pension savings, with over 10.8 million employees being automatically enrolled into a workplace pension as of January 2023. However, there are still some gaps in coverage which has prompted the proposed changes.

    Currently missing out are those aged 18 – 21 and part-time workers who are earning less than the current earnings threshold. Also, when considering the savings adequacy measure used by the Pensions Commission, there are still estimated to be around 12.5 million individuals under-saving for their retirement, who make up 38% of the working age population.

    Plans put forward in the Bill are to lower the enrolment age to 18 (currently 22) and to remove the lower qualifying earnings band (currently £520.00 per month), meaning pensions will be calculated from £1.00 of earnings for anyone over the age of 18.

    The aim of the proposed changes is to bring in a further 0.5 million individuals into saving £1 billion per year. Although it is not yet known when the policy changes being reviewed would be implemented, it is important to consider the additional costs which could be faced by both employers and employees, and plan accordingly.

    Get in touch

    If you think the proposed changes could impact your payroll and would like discuss further the measures you may need to put in place, get in touch with a member of our payroll team by emailing payroll@pmm.co.uk or call 01254 679131.

    Full details of the Bill can be found here.

    A comment to note that the article does not constitute personalised advice and that advice should be sought before taking any action.

    Could you boost your state pension?

    Posted on by Laura Bannan

    Could you boost your state pension?

    The state pension usually forms a large part of retirement planning, and it is important to check that you have made the necessary national insurance contributions to receive the full amount. If you find you have fallen short, there is the option to ‘top up’ with voluntary contributions but there are restrictions on this.

    The original deadline to plug any missing gaps dating back to 2006 was 31 July 2023, however following the massive number of calls received ahead of the deadline it has now been extended to April 2025. The extension means that individuals will have a longer period to fill any gaps to ensure they will be eligible to receive the full state pension at retirement. Filling in the gaps normally offers great value for money, as the break even point could be around 4 years in to receiving your state pension.

    To qualify for any state pension, you will require a minimum of 10 years national insurance contributions. As of the tax year 2022/23, the full state pension entitlement is £203.85 per week and to qualify for this, a full 35-year national insurance contributions is required.

    Presently state pension age is 66 for both males and females. Current legislation is for state pension age to increase to 67 in 2028, and it is being ratified for an additional increase to age 68 in 2039.

    Summary

    If you think you may fall short of receiving your full state pension because of gaps in your national insurance contributions, looking to top these up with voluntary contributions could be a great way to ensure you’re going to have sufficient funds to live the lifestyle you desire in retirement.

    Along with many other considerations, your state pension should be a key factor in your retirement planning. We can help you plan ahead by creating a personalised cashflow plan which is based upon your current circumstances and an agreed set of assumptions.

    Get in touch

    For further information or advice on your pension savings and planning for your retirement, get in touch with a member of our financial planning team by emailing financialplanning@pmm.co.uk or calling 01254 679131.

    A comment to note that the article does not constitute personalised advice and that advice should be sought before taking any action.  

    How to spend your pension savings sustainably

    Posted on by Laura Bannan

    HOW TO SPEND YOUR PENSION SAVINGS SUSTAINABLY

    For many, saving into your pension is something that has formed a huge part of your life and although it may seem like a very long time before you will be able to access your pension savings, it often comes around quicker than you think. Building up the pension fund (accumulation) is often the part of the process which comes naturally, but one area that is sometimes overlooked is thinking about the process of how you are going to extract that money (decumulation).

    Very few have the luxury of a defined benefit or final salary pension these days, where your pension income is a defined amount for life, rather than being determined by the amount of money you have actually contributed to the pension. Therefore, the majority of us have to decide when and how to withdraw funds. The last thing you would want would be to save into your pension for your entire life and then run out prematurely because you have spent too much, too quickly.

    HOW SHOULD I PLAN?

    Exactly what your plan should look like will vary dramatically based on your individual circumstances and there are many external factors that will need to be taken into account, some of which will be completely out of your control. For example, you have no way of accurately predicting your life expectancy, market performance or levels of inflation – however, you could think about how you may cope with such scenarios should they happen.

    KEY CONSIDERATIONS

    • Where is your money?

    You may have a mix of workplace, private and state pensions which all kick in at different ages. You would also need to find out what state pension you will be entitled to. Perhaps you are lucky enough to hold some money outside of pensions, maybe in savings, the stock market or rent from property. This would all need to be considered as part of your plan.

    • When do you want to retire?

    The earlier you begin your retirement, the longer your money will need to last you. You will need to ensure that you have enough money to live the lifestyle you desire and this could have an impact on what age you are realistically able to do that. Obviously, no one can accurately predict their life expectancy so it’s difficult to know how long you will need your money to last but there are tools we can use to help you plan accordingly for different situations, along with the correct expert advice.

    • How much retirement income would you like?

    A very general guide that is often worked to is that it’s a good idea to aim for a retirement income which is two thirds of your current salary, but there are many outside factors which would also need to be considered. There are tools available to help estimate what a minimum, moderate and comfortable retirement might look like for your personal circumstances and we would be able to advise the best course of action to get you there. You could even create an expected budget further to a review of what you currently spend.

    • How much retirement income do you have?

    Although it’s wise to spend time thinking about the kind of retirement you would like, it is obviously heavily determined by the reality of the retirement income you have available and how long it needs to last. We can help demonstrate a number of different scenarios and find one that will balance your desired income with the reality of what is actually achievable, by looking closely at your individual circumstances and discussing all the possible options in detail with you.

    • How can I structure my retirement income?

    Alongside your state pension, there is the option to secure an annuity with part or all of your retirement fund. This would provide you with a guaranteed income for life, providing you with a solid income underpin. An alternative, or something that can work alongside an annuity is the option of accessing your pension flexibly via Flexi Access Drawdown. Funds remain invested, can rise and fall in value, but you have the option to elect how much you draw from your pot each year. However, you have to remain mindful the drawdown pot is exhaustible.

    SUMMARY

    As the above highlights, it is a great idea to look into your pension savings and how you plan to use them in retirement way in advance. This can help you to plan if there are any measures you may need to consider to help you achieve the retirement you desire. It will also help to give you the peace of mind that your retirement is going to be everything you want before getting there and realising it’s too late.

    At PM+M, we can help answer all of the above questions. We do this by creating a personalised cashflow plan which is based upon your current circumstances and an agreed set of assumptions. A cashflow forecast can help you to answer the following:

    • How much do I need to save?
    • How much does my fund need to grow each year?
    • When do I need to retire?
    • How much can I afford to spend during retirement?
    • What is my income underpin requirement?

    GET IN TOUCH

    For further information or advice on your pension savings and how best to plan for your retirement, get in touch with a member of our financial planning team by emailing financialplanning@pmm.co.uk or calling 01254 679131.

    A comment to note that the article does not constitute personalised advice and that advice should be sought before taking any action.  

    Is it better to make a lump sum payment into my pension or increase my regular contributions?

    Posted on by Katie Heaton

    If you are lucky enough to find yourself with some extra funds and are considering putting the money into your pension, this can be a great tax efficient idea to save for your future. There are a number of ways you could look to do this which will bring different benefits depending on your individual circumstances.

    Lump sum payment

    Perhaps you have been given a bonus at work or inherited some money and are looking at how best to use this for your future. Going above your regular pension contributions can help get you closer to achieving your retirement saving goals and paying a lump sum can be a quick and easy way to give your saving plan a boost. Whatever you pay in could benefit from pension tax relief, meaning you can get a top up from the government on payments into your pension plan, effectively costing you less to save more.

    With a workplace pension, some employers match contributions to your pension too, so putting any extra money you have into your pension plan could be a great way to make it work harder for you.

    The sooner you can invest your lump sum, the more time it will have to grow and potentially give you more money in retirement. However, you need to make sure that any sum you are paying in doesn’t take you over your pension annual allowance or you could face a tax charge.

    Increasing regular pension contributions

    Using extra money to increase your regular pension contributions is another way of looking to save towards your retirement. The main reason you may want to consider this over investing a lump sum in one go is because it can reduce the risk of investing a lot of money just before any potential market drops.

    As an example, if you were to invest a lump sum of £12,000 and the market was to drop over the year, your investment could end up down by 10%. However, if you were to spread that investment and invest £1000 each month instead, then you would be buying into the market at a lower price each time, so your overall investment may only drop by 5%. This is known as pound cost averaging.

    It’s important to remember that this could also have the opposite effect and if markets were to rise rather than fall over the same period, you would then make smaller profits than if you had paid in a lump sum.

    Historical data shows that markets usually recover in the long term so although paying in smaller regular payments may not bring you better returns compared to a lump sum, it could make it easier to deal with any significant drops in the market.

    How do I decide which option is best?

    This depends hugely on your individual circumstances and it’s vital to seek expert advice before taking any action, you could even look to do a combination of both a lump sum payment and increasing your regular contributions. Essentially, it will come down to what you are able to afford and the level of risk you are happy to take.

    Plus, it’s important to remember that as the minimum pension age is set to increase to 57/58 over the coming years, why not make the most of your ISA allowances (currently £20,000 per tax year). ISAs benefit from tax free growth. You can either drip feed in to an ISA or make lump sum contributions.

    A member of our financial planning team can run through all your options, discuss the end goal you are looking to achieve from your pension saving plan and the most efficient way to get you there.

    Get in touch today by emailing financialplanning@pmm.co.uk or call 01254 679131.

    The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction.

    The value of investments can fall as well as rise. You may not get back what you invest.

    How the Spring Budget could impact your pension allowances

    Posted on by Katie Heaton

    Following the recent spring budget announcement by Jeremy Hunt, there are a number of key changes you should be aware of in relation to your pension allowances. In summary:

    • The money purchase annual allowance will increase from £4,000 to £10,000
    • The minimum tapered annual allowance will increase to £10,000
    • The pension annual allowance will increase from £40,000 to £60,000
    • The lifetime allowance will be removed and then abolished in April 2024

    Money purchase annual allowance (MPAA)

    You could see your allowance reduced if you access any taxable income from your pension plan, in a flexible way, whether this is through a flexi access drawdown arrangement or from ‘cashing in’ your pension savings. There are certain exceptions which will not trigger the MPAA e.g. taking tax free cash only, capped drawdown or annuity purchase.

    The amount you can save into your plan would usually reduce from £40,000 to £4,000 and this is known as the money purchase annual allowance, however, it was announced in the spring budget that this will go up from £4,000 to £10,000. This would make it easier for you to keep working and saving once you’ve taken money from your pension, if you wanted to.

    Tapered annual allowance

    The tapered annual allowance is something that impacts higher earners where the amount you are able to save into your pension plan gradually reduces each year depending on how much you earn.

    Currently your allowance wouldn’t reduce to any lower than £4,000 but this minimum tapered annual allowance will be increased to £10,000 in the new tax year.

    Pension annual allowance

    This is the total amount you can save into your pension plans each year before effectively paying tax charges, including payments by yourself, your employer or a third party. This was previously set at a maximum of £40,000 or your total earnings (whichever is lower) but it will now be £60,000 from 6 April 2023.

    Lifetime allowance

    The Chancellor announced that the lifetime allowance would be completely removed from April 2023 and then abolished in April 2024, effectively there will be no lifetime allowance tax charge for anyone from 6 April 2023.

    The lifetime allowance is the total you can build up in all your pension savings in your lifetime without facing any tax charges when you take them out, the lifetime allowance is currently set at £1,073,100 but as mentioned, this limit will be completely removed.

    This could be good news if you have already been affected by the allowance or are getting close to the limit as it means you could top up your pensions savings without worrying about paying any extra tax. Also, if you were looking to take out your pension savings soon but this would have taken you over the allowance, you could potentially now avoid up to 55% in tax charges.

    Tax Free Cash

    This is now capped at 25% of £1,073,100 (the old lifetime allowance) or 25% of any fixed or enhanced protection.

    Summary

    Most of the changes announced by the Chancellor have been made to encourage people to stay in work for longer, including senior NHS employees, or to consider coming out of retirement. Therefore, if you’re happy to keep working and building up your pension savings, it could be welcomed news.

    Effectively, the changes mean that it will cost you less to pay more into your pension savings so making the most of this by adapting your plans could give a boost to your pension savings. However, it’s important to take advice before making a contribution.

    If you think the changes could impact your pension savings plan and would like to explore making changes, our expert financial planning team will provide tailored advice to your specific circumstances. Contact a member of our team today by emailing financial.planning@pmm.co.uk or call 01254 679131.

    The information contained within this article is purely for information purposes and does not constitute financial advice.

     

    5 things to consider before the end of the financial tax year

    Posted on by Katie Heaton

    With the end of the tax year fast approaching, have you thought about whether there is anything further you can do to make the most of your tax allowances before time runs out?

    1/ Pension payments

    Are you aware that you can save up to £40,000 into a pension completely tax-free every year? If not, looking to increase your pension payments could be a great way to maximise these tax savings. This equates to 20% tax relief on contributions for a standard-rate taxpayer and 40% for higher-rate taxpayers.

    There is also the possibility to carry forward any unused allowances from the previous three tax years, this could potentially give you a huge boost but is subject to a number of factors so it’s important to seek advice prior to making extra pension contributions.

    Making a pension contribution will also reduce your total taxable income which can be beneficial for the purposes of child benefit. For instance, if you earn between £50,000 and £60,000, you lose 1% of child benefit for every £100 over £50,000 – this means child benefit is lost at £60,000. However, if making a pension contribution brings your total taxable income below £60,000, child benefit would become partially or fully payable once more.

    The same is true for those who lose their personal allowance earning between £100,000 and £125,140, making pension contributions can return part or all your personal allowance, avoiding 60% tax.

    2/ Capital gains allowance

    Capital gains tax is based on the gain you make from the value of your assets and can include things such as a second home, stocks, shares, or jewellery.

    You will be required to pay capital gains tax when you sell an asset for profit. Before the 5 April 2023, you have a tax-free allowance of £12,300, after which the rate is dependent on the level of income tax you pay (10% for basic-rate taxpayers and 20% for higher-rate payers or 18% and 28% if you’re selling a property).

    However, from 6 April 2023, the capital gains allowance will reduce to £6,000 and from 6 April 2024, it will reduce further to £3,000.

    You aren’t able to carry any capital gains allowance over to the following year so it is important that you move quickly if you’re planning on selling any assets as you only have until 5 April to benefit from the larger allowance.

    3/ Gifting Allowance

    You are able to gift up to £3,000 each year completely free of any inheritance tax (IHT) liability, this can be a useful way to reduce a potential inheritance tax bill, as well as helping out your family with a financial gift.

    The tax-free inheritance threshold is £325,000 per person, above which 40% rate of tax is due (subject to other allowances).

    You are able to gift more should you wish but if you died within seven years of the gift, the recipient could be subject to a large IHT bill. You are also able to carry over your allowance to the following tax year so if you haven’t used any of your allowance during a tax year, you could potentially gift up to £6,000 without a tax liability.

    4/ Lifetime ISA

    Perhaps you’re saving a deposit for your first home, but if you aren’t saving that money into a Lifetime ISA, you could be missing out on an annual bonus of £1,000 paid for by the government.

    Although you can only use the money you save to buy a property (below £450,000), if you’re aged 18-39 and haven’t yet bought your first home, you are able to save up to £4,000 a year and you will receive an extra 25% on top! If the money isn’t used to buy your first home, you wouldn’t benefit from the bonus. This could help to get you onto the property ladder sooner.

    5/ ISA top up

    You can top up your ISA up to a maximum of £20,000 per year and you won’t pay any tax on the interest, withdrawals or any profits you make. Therefore, if you haven’t reached your limit for the year, it could be worth considering transferring some of your savings into your ISA to ensure you are making your money work as hard as possible.

    Get in touch

    For further information or advice on how you can ensure you’re doing all you can to maximise your tax allowances, contact a member of our financial planning team today to talk through your personal circumstances by emailing financialplanning@pmm.co.uk or call 01254 679131.

    The information contained within this article is purely for information purposes and does not constitute financial advice.

    Retirement planning at different stages of life

    Posted on by Katie Heaton

    It is often a misconception that retirement planning is only something that you need to think about later in life. However, the sooner you start to plan for your retirement and consider your pension options, the better, and the more chance you will have of building up the finances you require to live your desired lifestyle when you reach retirement age.

    We take a look at some of the key things to consider during different stages of your life to ensure you get the most out of your retirement.

    Age 20-35

    This is roughly the likely age you will start your first full time job and probably a stage of your life where the last thing you are thinking about is your pension. However, this is without a doubt the best time to start saving into your pension as the earlier you begin, the more time your money has to grow and it is highly likely to be something you will thank your younger self for in years to come.

    At this age you may have other financial commitments which you consider a higher priority, such as saving to buy your first house, clearing any student debt you may have, or simply having as much disposable income as possible to lead a fun and carefree lifestyle.

    You will also be earning less at this stage of life, therefore you might not have the flexibility to increase your payments into a pension as much as you may ideally like to.

    By law your employer must automatically enrol you into a pension scheme (providing you are eligible for automatic enrolment) and make contributions on your behalf. Increasing that by paying in even a small amount yourself can make a huge difference in the long term.

    Age 35-50

    By this age, you may have increasing responsibilities and be handling the demands of a mortgage and the extra costs that having children may bring. However, you may be earning more than when you began your career and may be able to consider paying more into your pension as a result. In fact, if you are earning more than £50,270 a year, you would qualify for 40% income tax relief on your pension contributions, so it is certainly something worth exploring.

    It may also be a good idea during this stage of life to look further ahead and begin thinking about the realistic sort of lifestyle you are hoping to live when you reach retirement, and maybe more importantly, when you would like to retire and what you would need to do to achieve that.

    Age 50-65

    Once you reach this stage of life, you are probably much more focused on your retirement plans.

    Although you will now be getting closer to retirement age, if you are worried that your saving pot is not going to be what you were hoping for, it’s important not to panic and there can still be plenty of time to make a difference.

    Hopefully as you reach this age some of your financial commitments may begin to ease. You may be getting close to paying off your mortgage, your children could be relying on you far less financially and you potentially may also be earning the most you have earned as you climb to the top of the ladder in your career. All these factors may mean that you are in a position to consider ploughing more money into your pension, especially if you’re worried that previous contributions may have left you short of your ideal.

    If you are fortunate enough to have built up any savings and are happy to forgo the access to the funds, you could look to make a lump sum transfer to your pension which could give you a great boost. The most you are able to pay into a pension in any year and receive the upfront tax relief is 100% of your earnings (normally up to £40,000) or £4,000, whichever is lower. However, dependant on earnings, your pension contribution allowance could be capped at a lower level and therefore seeking advice is important.

    Potentially you could pay in more if you are eligible for ‘carry forward’, this is where you can carry over any unused allowance from the last three tax years.

    Having a much clearer idea of what you are looking to achieve in retirement can make it far easier to decide which of the above steps are going to be right for you. The more precise you can be with what you are looking for, the easier it is to implement a specific plan to get you there.

    Age 65 plus

    By this age, your main focus is going to be how you use the wealth you have worked so hard to build up throughout your lifetime to provide you with the income you need to live your desired lifestyle.

    Obviously, this will be different for everyone but when looking specifically at your pension you will have two options to consider. The first is buying an annuity and securing a guaranteed lifelong income from this. The second is taking payments flexibly from your pension using what is referred to as Flexi Access Drawdown.

    Each option has different benefits and downsides so it’s something that needs careful thought and expert advice.

    The drawdown option is good because you are able to draw money out as and when you please but the main downside of this is that you do run the risk of potentially running out of money further down the line, particularly if your investments don’t perform as well as you were expecting them to. However, you do continue to benefit from investment market growth over your retirement journey.

    The annuity route provides you with the reassurance that you will get a fixed and guaranteed income for the rest of your life, but this decision cannot be reversed once chosen and you would no longer have access to the capital, which means there would be no inheritance to leave to your offspring from your pension.

    However, the great thing is that you are able to use a combination of the two, giving you the best of both worlds and enabling you to tailor your options specifically to your individual circumstances and what you are looking to achieve.

    Finally, if you have paid the qualifying national insurance contributions throughout your working life, you will also be entitled to a full state pension once you reach 66 (67 from 2028). That could give you a further £185.15 a week which could make a huge difference.

    Summary

    Hopefully you are now a little clearer about the sorts of things you should be thinking about during the different stages of your life in relation to your retirement, although these tips can be useful, tailored advice to your specific circumstances is always the best way to ensure you’re planning for the future you want to achieve and getting the most from your investments.

    For further information or advice, contact a member or our financial planning team by emailing enquiries@pmm.co.uk or call 01254 679131.

    The information contained within this article is purely for information purposes and does not constitute financial advice. 

    Should I consider switching my pension elsewhere?

    Posted on by Katie Heaton

    Many clients ask us this question and if this is something that has been on your mind, it’s important to look at all the information carefully before deciding if it’s in your best interest to do so. There are many factors that mean if you aren’t careful, you could potentially lose out.

    Why are you looking to transfer?

    Perhaps you are looking to increase the control you have over your pension, hoping for a better return, starting a new job or your existing pension is closing. Whatever the reason, your key considerations should be the same.

    Many providers offer great benefits to keep your pension on their scheme, such as a financial bonus like a guaranteed annuity rate, life assurance cover, guaranteed growth rates or a preferential rate of tax free cash. This alone could be enough of a financial incentive to mean it wouldn’t make sense to transfer to a new provider.

    You may have been tempted by an attractive offer from a different provider but always consider if the headline offer is as good as it may first seem when you take everything into account. Pension rewards can rarely be carried between providers, and you may be faced with costs for making the transfer. Your financial adviser can help you look after your pension either with the current provider or with a new provider.

    What would the cost be?

    There may be exit costs involved if you decide to leave or transfer your current pension plan and this amount tends to vary between providers. Very rarely there may be no exit fees to pay, so it’s certainly something worth looking into. Your adviser would also likely charge you for their time, work and advice.

    Will I lose out on my bonuses?

    As briefly mentioned above, there are often certain bonuses included in pension schemes to encourage long-term savings, which is essentially what pensions are all about. You need to be very careful that transferring your pension won’t mean you are going to lose out on any attractive financial benefits. For example, if you were to lose a life assurance policy by transferring, potentially it could actually cost you more to replace the life assurance than you stand to save.

    It’s vital to weigh up the pros and cons thoroughly as once you have made the decision to transfer, there will be no going back if you later decide it may not have been the best decision after all.

    Other things to consider

    Although more common with older pension schemes, guaranteed annuity rates mean that at a certain age, part or all of your pension pot will be transferred into a guaranteed lifetime income. If this applies to your pension, you will normally get a much better rate with an existing scheme than you would buying an annuity from a completely new one.

    If you are thinking about transferring to increase the control you have over your pension or to bring them together in to one pot, it is important to ensure that this represents good value for money and that the underlying investments are appropriate. A financial adviser can help you understand your options and provide their advice.

    If your pension benefits from guaranteed growth rates, a financial adviser could help you understand the growth rate required to meet your requirements during requirement via a cashflow forecast. You could work with your financial adviser to understand whether losing such a guarantee is needed. You may be able to meet your objectives just fine as things stand.

    One reason that individuals often switch their pensions to a new provider is due to the death benefits. Some legacy pension providers would provide a full fund pay out upon death. Pensions do not normally form part of your estate and therefore this scenario may be of consequence to your family.

    If your pension has protected tax free cash, your pension provider will ask you to complete a questionnaire which will enable them to determine the level of protected tax free that is available. This could range considerably.

    You should also remember that it can often take time to transfer a pension and whilst the transfer is taking place, your pension isn’t invested so you could potentially be losing out on any fund rises taking place during this time.

    Summary

    Sometimes it can make perfect financial sense to transfer your pension but only if the positives outweigh the negatives when you take every factor into account. Sometimes it may make perfect sense to leave your pension where it is and simply review the underlying investments held within your current contract. The best way to ensure everything has been covered is to seek expert financial advice at the outset.

    Our specialist financial planning team can look at your current pension and advise on whether looking to transfer would be a sensible option based on your personal circumstances. For further information or advice, contact a member of our financial planning team today by emailing enquiries@pmm.co.uk or call 01254 679131.

    The information contained within this article is purely for information purposes and does not constitute financial advice.  

    Managing your pension during uncertain times

    Posted on by Katie Heaton

    We are all living in uncertain times and facing constant changes in relation to our finances, but it is important to not only focus on your short-term financial stability but also longer-term matters such as your pension. This may not seem like a priority when the cost of living crisis means you are focusing on the days or weeks ahead in order to get by, rather than thinking about how much money you may have when you retire. However, thinking about your pension now could have a huge impact on the quality of life you are able to lead in years to come. In fact, it’s essential to ensure that you have a reasonable quality of life during retirement.

    What is the current situation?

    Markets are currently reacting to a number of huge economic challenges which are happening all at once. These market changes in response to economic and global events are normal and it isn’t always bad news. With some investments selling for less than they’re worth, if you are regularly paying into your pension, you could effectively be getting more for your money. Pensions are always designed with the long term in mind and reacting to the short term could lead to unnecessary losses.

    Should I be worried?

    Your pension is designed to help you build up your retirement pot over a long period of time and previous history shows that over the long term (typically more than 10 years) markets have weathered numerous financial storms and risen in value.

    Obviously, it is impossible to predict the future, and nothing is guaranteed but you can look at how investment markets have typically reacted over a number of years and consider how your pension has performed in relation to this.

    What action should I take?

    Although it can be very tempting to make changes as to where your pension is invested or consider cashing in your investments, there is one key factor to think about – it is likely that you are selling after the markets have already fallen and more importantly, before they rise again! If you do this, not only are you locking in your losses but you’re also missing out on the likely eventual recovery. You should focus upon “time in the markets” rather than “timing the markets,” the latter being an impossibility.

    Further volatility is expected in the months ahead and this is normal. Regardless of where you are at in terms of when you’re likely to be accessing your pension pot, it is vital that you don’t make any rash decisions and discuss your personal circumstances in detail with your financial planner to make sure you are protecting your long-term finances.

    Get in touch

    For further information or advice, contact a member of our financial planning team today to talk through your individual situation, email enquiries@pmm.co.uk or call 01254 679131.

    The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction.

    The value of investments can fall as well as rise. You may not get back what you invest.

    Pension myth versus pension fact: breaking down common pension misconceptions

    Posted on by Katie Heaton

    Myth 1: It’s too early to start thinking about my pension

    This is a complete myth, it is never too early to start saving into your pension and in fact, the earlier the better. The sooner you start to invest in your pension, the more time it has to grow. The larger the pot, the more you are able to earn and over the long term, this can have a huge impact on your final pension amount.

    It is often helpful to consider the “rule of 72”. Using this rule, you simply divide 72 by the annual growth rate or interest rate. For example, if you had retirement savings that were returning a hypothetical 5% a year, it would take around 14 to 15 years to double in value.

    Although this is purely an example, it demonstrates the huge benefit that can be gained from starting to save into your pension early.

    Furthermore, regular contributions continue to grow your pot. During a volatile market, if markets fall in value, each contribution buys more units for your money. This helps build up your pot over the long term.

    Myth 2: I’ve left it too late to start saving into my pension

    Although starting to save earlier is always going to be better in terms of investment growth, this doesn’t mean that it is never worthwhile doing a last-minute payment push towards your pension later on in life.

    As your pension contributions will benefit from tax relief, it can always still be worthwhile. If you pay basic rate income tax, it will only cost you £80 to put £100 into your pension pot. Plus, higher rate taxpayers benefit from further tax relief by way of their tax return. Although you would still have to pay income tax on the money when you take it out of your pension, you could be on a lower tax rate by that point. Also, pensions offer a 25% tax free pension commencement lump sum too.

    There is another tax benefit, pensions don’t form part of your estate for Inheritance Tax Purposes. Plus, in the event of death prior to age 75, your nominated beneficiaries have the potential opportunity to draw all funds out of your pot, with no income tax to pay.

    You could potentially make contributions of £40,000 in each tax year. This is subject to some other rules, therefore tailored advice is always key. For example, the tampered annual allowance for a high earner, could mean that allowance is lower. Also, if you are making an employee contribution i.e. a net personal contribution, tax relief is only available on your relevant earnings. It’s vital to take advice prior to making a pension contribution.

    There is also the possibility to carry forward any unused allowances from the previous three tax years, this could give you a huge boost even if looking at retiring imminently. Again, this is subject to a number of factors and it is important to seek advice prior to making pension contributions.

    Myth 3: The State Pension will be enough for my retirement

    Depending on what you want to achieve from your retirement, you may find that relying on the state pension could leave you drastically short of achieving what you have in mind. The full State Pension is £185.15 per week for the 2022/23 tax year, providing you have paid the necessary 35 years National Insurance. This equates to around £9,600 a year which works out much less than you would earn if you were working a full-time job on minimum wage, this comparison helps put the figures into perspective.

    With the ever-rising costs of living, it is certainly worth doing your sums carefully and if you are planning on relying solely on your state pension, that it will enable you to live a lifestyle you are comfortable with in retirement.

    However, it does provide an invaluable income underpin.

    Myth 4: I don’t need to worry about my pension as I have property

    Lots of people have invested heavily in property over recent years, particularly given the impressive rate at which property prices seem to have grown but this isn’t always the best route to go down and there are a few factors which mean this is a route you should be cautious of as a method of saving for retirement.

    The main issue tends to be the lack of flexibility in relying heavily on property to fund a retirement. The capital value in property itself isn’t liquid, meaning it cannot easily be converted into cash in a short amount of time. Along with this, there is often a large amount of time and work required in renting out property to bring in a regular income.

    If you do own property and decide to sell to raise funds for retirement, there are no guarantees as to how long that could take, and property also won’t allow you to spread your money across a range of different assets like a pension plan does. Should you choose to invest in property outside a pension fund, you may have to pay income tax, capital gains tax and inheritance tax on your investment.

    It is worth noting that commercial property can actually be held within a pension fund and is certainly an option worth looking into if relevant to your circumstances.

    With pension plans, you will also have some generous tax advantages: a pension can benefit from a tax relief on contributions made, tax free growth within the pension, a potential 25% tax-free pension commencement lump sum when you draw retirement benefits and a pension wouldn’t normally form part of your estate for inheritance tax purposes.

    Get in touch

    For further information or advice, contact a member of our financial planning team today to talk through your personal circumstances, email enquiries@pmm.co.uk or call 01254 679131.

    The information contained within this article is purely for information purposes and does not constitute financial advice.