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    Tag: Savings

    Are you making the most of your tax allowances?

    Posted on by Laura Bannan

    Making use of tax allowances is at the cornerstone of all financial planning matters. In the high interest environment, which we currently live in, it has never been more important to ensure that you are maximising all available allowances.

    Personal savings allowance

    At the beginning of the new year the Bank of England base rate remains at a 15 year high of 5.25%. Whilst these high rates are to the delight of savers, many individuals are now being hit with income tax liabilities on interest payments. Depending on your tax status individuals have a personal savings allowance of:

    Basic Rate – £1,000

    Higher Rate – £500

    Additional Rate – £0

    If the interest which you receive exceeds your personal savings allowance the distribution will be taxed at your highest marginal rate of income tax. There are many allowances available to individuals and these are summarised below:

    Personal allowance – Income Tax

    If you are retired and pre-state retirement age, you may be earning less than the personal allowance (currently £12,570). This is your personal income allowance before you start paying income tax. There is the opportunity to draw additional income to utilise that allowance, potentially from your own pension, releasing income without paying income tax.

    ISA Allowance

    Individuals have the option of investing £20,000 per person into an ISA. Savers have the option to deposit funds into a cash ISA, however if you are taking a longer term view you may wish to consider investing into a Stocks and Shares ISA.

    Another consideration could be a 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!

    Pension annual allowance

    Following on from the spring budget, pension savers can now contribute up to £60,000 per annum into a pension. However, advice should be taken as an individual’s allowance may be restricted to an amount less than £60,000 due to complexities with the rules. Similar to the ISAs, pensions are tax efficient savings vehicles which can be accessed from the minimum pension age. Your pension can be used to invest in various different investments including cash savings, investment portfolios and commercial property.

    Capital gains tax allowance.

    During the tax year 2023/24 the capital gains tax allowance is £6,000 per person. If you have used both your pension and ISA allowance, you could consider investing into a General Investment Account and crystallise your gains on an annual basis. Please note that the capital gains tax allowance is reducing to £3,000 from 6th April 2024.

    Dividend allowance

    Rather than investing in growth assets there is the option to invest into income distributing funds. Any dividend received on unwrapped investments can be claimed tax free if it falls within your £1,000 Dividend Allowance. Please note that the Dividend Allowance will fall to £500 from 6th April 2024.

    GET IN TOUCH

    For further information or advice on how to best utilise your allowances, please contact a member of our financial planning team by emailing financialplanning@pmm.co.uk or call 01254 679131.

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

    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.  

    What does rising inflation mean for your savings?

    Posted on by Laura Boyd

    It is a well-known fact that inflation is on the rise and will likely be around for some time to come. Households across the UK are feeling the effects of higher prices, with food, energy and fuel costs increasing dramatically. On 16 June 2022, the Bank of England’s Monetary Policy Committee (MPC) raised interest rates to 1.25% to help counteract rising inflation – however, this is still much lower than the rate of inflation which stands at around 9%, the highest rate for 40 years (with predictions that this will rise further). Due to this, there is a growing concern for those who have put money into savings. in our latest blog, we discuss what inflation could mean for the cash you’ve set aside and what you could do to reduce the impact.

    The impact of inflation on your savings

    The rate of inflation can impact your savings in many ways. In most cases, high inflation is a cause for concern as it could mean:

    1. Inflation affects the purchasing power of your money

    If inflation grows at a higher rate than your savings, your money will lessen in value (you won’t be able to purchase as much as before).

    For example:

    If you have put aside £10,000 and the rate of inflation increases at a rate of 2.5% per year, in ten years’ time, the purchasing power of the money you have saved could drop to the equivalence of £7,812.

    1. Inflation may mean you are saving less in the short term

    The cost of living has rapidly risen due to increasing prices – more and more people find themselves borrowing money and saving less to try and maintain their current lifestyle.

     

    How to reduce the impact of rising inflation on your savings

    There are a variety of things you can do to keep up with the rising rate of inflation – in some cases, you may even be able to help your money grow past the rate of inflation.

    1. Consider other investment options

    If you want to beat inflation, 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.

    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.

    1. Take advantage of tax breaks

    Investments aren’t the only way you can protect your savings from losing value. Make use of any tax breaks that are available to 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

    You can invest in more than one type of ISA, but your maximum allowance will remain at £20,000 between all of your accounts.

    Pension schemes are also a great tax-efficient way of making the most of your savings. Currently, you can obtain tax relief on a maximum of £40,000 (the annual allowance). However, your personal annual allowance could be less than this dependent upon earnings. The tax relief you receive is based on your taxable income and can vary – read more here.

    Get in touch

    The volatility of inflation means it can be more difficult to ensure the money you put aside is working as hard as it can for you and your future. If you would like to discuss your options, get in touch with our financial planning team (financialplanning@pmm.co.uk).

     

    The value of investments can fall as well as rise. You may not get back what you invest. Past performance is not a reliable indicator of future performance.