An update on pension changes

The pension market is ever changing, and this year has seen more changes than most as the Covid-19 pandemic affects the financial services industry. Here is an update on some key changes to help you plan your pension arrangements.

Has my pension changed in value?

At the start of lockdown, stock markets fell considerably and while they have regained much of their value pre-March, they are likely to remain volatile for a while. Pension funds are often mainly invested in stock markets, so these fluctuations can impact directly on the value of pension funds. If you track the value of your pension closely, you may have seen sharp changes in your fund this year, and you may be concerned about its value.

Do I need to change my pension?

As a general guide, if you have many years to go before you retire, we would advise that you don’t need to take specific action. Pensions are a long-term investment and over the life time of your investment, this is a short-term fluctuation. Markets should hopefully recover any short-term losses over time, and markets have already risen strongly since the falls in March.

Do you have a plan?

We always discuss with clients their long-term plan aims. This should not just be ‘I want as much money as possible’, a proper plan should have a proper aim to be meaningful. You may want to retire early, but why? This could be to spend more time with your grandchildren, or to go travelling, for example. Having a deliberate aim in mind should help you to plan more effectively in the meantime. Don’t let short term fluctuations or changes derail your plan, but let us help you achieve it with you.

If your pension isn’t being managed speak to us and we will be able to make specific recommendations based on:
– Your aims
– The length of time you have before you retire
– The amount you have in your pension pot
– Whether your funds are invested appropriately for you personally
– How much you need to save

(The state pension is unaffected by fluctuations to the stock market.)

Minimum age for drawing a personal pension

The government recently confirmed again that the minimum age for drawing a personal pension in the UK is to rise to 57. Currently savers who pay into a personal pension can access their money at 55. This comes as no surprise as the minimum pension age was set to be 10 years below state retirement age – currently 67.
We have no timetable for this legislation yet, but if you would like to understand the potential impact, please give us a call.

Changes to pension tax relief

We mentioned in February that we were anticipating changes in pension tax relief for higher rate tax payers. This change didn’t take place in the Spring budget. However after the financial impact of Covid-19 the government will be looking to ways to balance the books. One way or another they will have to raise a large amount of money in the future.

Many industry commentators are once again speculating that this change will be announced. If you are a higher rate tax payer, talk to us about the most efficient way to save for your future. Please get in touch and arrange a meeting with one of our independent financial advisers.

 

Pensions are a very personal investment and any articles we write can only ever give an overview. To talk in detail about your personal circumstances, your pension pot and the right course of action for you, please call us on 01543 410512 for an appointment with one of our Pensions Advisers.

Case study: Drawing funds from an occupational pension

The client

Our client approached us as she had received a pre-retirement pack from an old company occupational pension scheme, from a well known high street name.

This was for a relatively small plan value, and the pension offered was only £70 a year. Our client asked if we could arrange for her to draw the whole fund as cash. Alternatively she wondered if we could transfer the fund to add to her existing sizeable pension benefits that we manage.

Our solution: drawing funds from an occupational pension

We examined the data and advised that it was in her best interests to draw the fund. There was quite a sizeable penalty on making a transfer, but not on drawing the funds directly from the scheme. The latter option was clearly preferable. The transfer would only be a last resort.

The retirement paperwork gave options for drawing the fund as a one-off payment under the triviality rules. However our client did not qualify to use these as her overall pension savings were too high.

We therefore considered drawing the benefits under the small pot rules, where you can draw plans of up to £10,000 as one off payments. There are various versions of these rules depending on the type of scheme, but they are quite straightforward for occupational schemes.

The challenge: changing the rules

There was no option for this in the paperwork, so we contacted the scheme administrators to ask for this.

The administrators confirmed our understanding that we could use these rules, but they then advised that the scheme have chosen not to adopt the rules that actually allow this. They also advised that they thought the scheme had a lot of members in a similar situation, with small pots, who would probably prefer, or have preferred, to draw the funds as cash.

We thought this was worth challenging, as it would actually cost our client quite a sum of money if she transferred her benefits instead. We drafted a letter for her to send to the scheme trustees to ask them to change their stance.

The occupational pension administrators then advised us that they had reviewed our data. As a result they chose to adopt the rules which would benefit our client.

This decision meant our client was better off. But crucially it also opened up this option for other members of the scheme.

Please note though, drawing a cash payment rather than a pension is often not the right choice. Advice is important, as shown by this case, where we were able to provide an option our client would have not known was even available.

 

If you would like advice on your occupational pension please contact us on 01543 410 512 or email us on enquiries@acuityfinancial.co.uk

3 financial steps to take to protect the important things in life

In the last few months have you stepped back to consider what is important? Have you been reviewing your future plans and finances? Have you realised the importance of ensuring your family and future are protected? After three months of lockdown, we are starting to see shops and businesses opening up. We are all getting used to a new way of working. Now is the perfect time to take some simple steps to ensure your finances are arranged in the best way to support your family. Here are our 3 steps to financial planning.

Step 1: Getting your finances in order

For most of us our mortgage payment is the biggest item of monthly household expenditure. You may have applied for a mortgage holiday in recent weeks. If you haven’t, the option is still available. However, if you can avoid this, we would suggest you do so. Some lenders are saying they think this should affect your ability to borrow in the future.

Aside from this, it can be a good idea to check if you are on the best mortgage deal. We may be able to find a better rate or a better option to help you reduce that monthly payment. There has been a change in the mortgage market, with lenders trying to keep their borrowers more actively, rather than borrowers having to change lender every time their mortgage product ends. However, your existing lender won’t do a thorough review of the market for you! We will review what they have to offer and advise you on the alternatives, for example whether a 2 year or a 5-year fixed rate might suit you best. When we find the right product – whether this is with your current lender or a different lender – we can arrange a transfer for you on your behalf, often at no charge to you.

Step 2: Planning for your future

Are your pension arrangements well planned? If you have been working for any length of time, it is likely you have a number of different company pension schemes and maybe a personal pension which needs reviewing. Now is a good time to ask, are you in the right plan, are you investing in the right funds and are you paying too much in fees?

We can help you identify what plans you have, and check that they are still suitable to support you in retirement. A quick check can also reveal who stands to gain any death in service benefits, which you can change.

For our small business owner clients, we can help you plan a personal pension scheme to support you in the future. Even if your business finances are under pressure right now, starting a pension is an essential step.

Step 3: Supporting your family

Whenever we see a client, we always check to see if they have made a will. So many financial arrangements are set up to benefit you in your lifetime. But did you know they can also be structured to support your family after your death? If you would like us to recommend a solicitor to help you with this, or if you need us to work with your solicitor, please let us know.

We can also ensure that you have arrangements in place to support your family after your death or if you can’t work because you are ill. If we have learnt anything in 2020 it is that life can take some very unexpected turns. We can find the right type of plan at the right monthly costs with cover levels that are right for your needs. We can check any existing plans you have to make sure they are still suitable for you.

Hopefully our 3 steps to financial planning were helpful. If you would like to speak to us about any aspects of your financial planning, get in touch. We are booking appointments either in the office in Lichfield or via video call. Call us to make an appointment 01543 410 512

Changes on pension tax relief for higher rate tax payers

What is pension tax relief?

When we are advising clients on their pension options, we often need to explain pension tax relief. Tax relief is the biggest advantage that pensions have over ordinary investments. This is an incentive set by the government to encourage you to pay into your pension pot. When you pay money into a pension, the government refunds the tax that you paid on this this part of your income meaning the amount is immediately boosted by tax relief. Usually you don’t need to worry about this. Your pension provider will claim it as tax relief on your behalf and add it to your pension pot. You get relief at source in all personal and stakeholder pensions, and some workplace pensions.

What are the current rates?

As it stands, when you pay into a pension, you receive tax relief at the highest rate you pay income tax. Basic rate taxpayers receive 20% pension tax relief and higher rate taxpayers 40%. So if you are a basic rate tax payer you only need to pay £80 to save £100. Higher rate tax payers only need to pay £60 to save £100.

What are the potential changes to pension tax relief?

However, many people within the financial services industry  are speculating that the budget on 11 March may see reforms in this area. There is a suggestion that we may see changes for higher rate tax payers, with a reduction in the tax relief rate from 40% to 20% tax relief. If this is the case, higher rate tax payers would do well to make any pension deposits before the budget. There is unlikely to be any change for basic rate tax payers.
Of course, this is likely to be a highly unpopular move. The Chancellor may decide not to make this change at this time. However, it is a significant change that has been discussed for several years. If it does not happen in this budget, it is still likely to happen in the foreseeable future.
If you are a higher rate tax payer and would like to talk to us about the most efficient way to save for your future, please get in touch and arrange a meeting with one of our independent financial advisers.

What other pension changes may be announced?

We might also see an announcement in the budget about pensions dashboards. This would help people keep track of their retirement savings by displaying all of their pension pots, including the state pension, in one place online. This has been promised in previous budgets, but the December Queen’s Speech announced the Pensions Schemes Bill which should include this change.

How much should I save in my pension?

This is a question that our clients always ask us when we are discussing their private pension arrangements. Putting money away every month or year to benefit us at some point in the future is a major decision to make, and can feel very unreal, when you are more concerned about covering your day to day costs. Of course as advisers, we don’t actually tell you the answer! It is very much your decision. But we can tell you the things we discuss with clients when we are looking at their pension options.

How long until you retire?

The conversation about how much you should invest will very much depend on how long you have until you retire. Put simply, if you are in your thirties or forties your pension pot has longer to grow than if you have reached your mid fifties. You may also have a view about what age you want to be when you retire. Don’t forget you can currently claim the state pension on reaching 66, but this is set to increase, meaning many of us won’t be able to claim that until you are 68.

What other pension arrangements do you have in place?

Very often when we speak to clients they have had a number of previous jobs. This is likely to mean that they have a number of other pension pots in place, some of which they may have forgotten about. If you can find the details of those other pensions before you come and talk to us, this will help us advise you as to the best course of action. You may be able to transfer some of those pots into a new personal product which you then pay into regularly.

How much risk are you comfortable with?

This is a very personal decision and one we can support you with. Some of our clients want a very secure investment and others are happy to take a little more risk. Some pensions will include a combination of funds, so you can benefit from both approaches.

What are your retirement plans?

This can be the most enjoyable part of pension planning! Some people’s retirement plans include travelling the world and supporting their grandchildren. Others have ambitions simply to remain active and enjoy their garden. Whatever your plans are it is worth remembering that the basic state pension is just £129.20 a week in 2019/20. However modest your plans, we suspect you are going to want a little more than that to live on.

What pension contributions can you afford?

This is an essential question, and it would be worth considering before you come to talk to us. Ideally you would be able to put aside a sum every month to invest, so do think about a sum that is affordable for you.
Don’t forget that whatever you put into your pension, you automatically get 20% tax back from the Government as an additional deposit. So for example £200 a month from your bank account means £250 a month goes into your pension.

What if things change?

Don’t forget, we offer all of our pension clients an annual review, so if your circumstances change, you can adjust the amount you put into your pension.

If you would like to review your existing pension arrangements, contact us on 01543 410512 and make an appointment to see one of our advisers.

Old Pensions and Coffee

Our client asked us to review a number of pension schemes from old employers, with one of the schemes run by a well-known Scottish insurer dating back to the 1980’s.

As part of our review of any pension scheme we write for detailed information on the scheme, and we look at the charges on the contract. In this case alarm bells immediately began to ring, as the fund only had a small value which was surprising given it had been invested for over 30 years. On checking the charges we discovered that there were a number of ‘set’ fees, rather than percentage charges. There were a number of these, such as a set monthly plan charge and also a fee as contributions were no longer being paid. Fortunately such charges are extremely rare nowadays.

When the charges over the year were added up they came to over 10% of the plan value a year, so it is not surprising the value was not great, as it will have been falling year upon year for many years. The projected final values at retirement were nil for every projection, excepting if the higher rate of return were achieved in which case the whole fund could be used to buy about 4 cups of coffee – not a great outcome.

Fortunately having identified this we were able to move the plan to a new contract with a much more attractive charging structure, and whilst the final value of this plan is still not projected to be massive, at least you wouldn’t be able to spend it with 3 friends in one afternoon trip for a coffee.

This shows the benefit of checking pensions, as you don’t know what might be in the background if you don’t know what to look for, or the questions to ask. If you would like us to check out your pension for you please contact us on 01543 410 512 or email enquiries@acuityfinancial.co.uk and we will get back to you, we will even let you have a coffee for free!

 

 

 

Paying the price of the “University Experience”

It’s no secret that the cost of the “University Experience” is now higher than it has ever been. According to The Guardian, the average cost of a degree per child is now around the £85,000 mark, and it is Parents and Grandparents who are playing an increasingly significant role in funding this. The estimated cost of studying in England is £22,189 over a 39-week year, and typical students (whose parents have an average household income) only receive £14,370 in loans and grants, meaning they (or you) need to make up a surplus of £7,819 on average, or £651 a month!

A lot of the older generation have money available to help, but it is locked away in pensions which cannot be accessed. Pension regulations now allow for income to be taken flexibly, on an as and when basis if needed, and this gives Parents and Grandparents the ability to help out the younger generation in paying for their university life, as well as have flexibility on how they take their own income. Let’s not forget that it is not only tuition fees that need to be paid, but books need buying, bills need paying and of course, social lives need funding.

If, on the other hand, you are a younger parent and are now worrying about how you will fund your child’s future education, that is also something we can help you with. Savings Plans and Investment ISA’s are now more important than ever, and they are something which we can look at setting up for you. With the limit on how much you can pay into an ISA now £20,000 per tax year, we can help you to maximise your saving potential for your children’s futures.

If you are in a position where you think that you can help out your Grandchildren or Children, and want to talk to someone about how you can do this, get in touch with us on 01543 440 300, or drop us an email at enquiries@acuityfinancial.co.uk.

An Extra £700 Income Per Year? Yes Please!

Our client had several older style pension plans with guaranteed annuity rates and asked us to look at these, to obtain the best income available for him.

We obtained quotations from the provider, and these showed an annuity rate of only 7.07%. This was less than we expected from our knowledge of this type of scheme.

We therefore queried this with the provider, who confirmed there has been an error, and we finally managed to secure him a rate of 12.75%, which the original should have been.

Our client would not have been aware that the initial rate was incorrect, and if he had not come to us for advice he may have accepted the original quotations.

This error is unlikely to have been picked up by the provider, as data provided by them was incorrect on two occasions when we queried it, and only after a number of telephone conversations and persistence by us that they had made a mistake did we manage to obtain the correct rates.

Finally our client has ended up £700 per year better off, as a result of taking advice.

Our client was very happy and said “Thank you very much for your detailed letter and for all that you have done to secure the best possible rates for me. It was certainly worth my while consulting you!”

If you have any pension plans which you do not know a lot about (or even some that you do!) that you would like us to take a look at, give us a call on 01543 440 300 or email us at enquiries@acuityfinancial.co.uk.

The Value of Financial Advice

New research sponsored by Royal London shows those customers who receive financial advice can be better off on average by £40,000.

Read the full article here.

For more information on how we can help why not contact us on 01543 440300 or enquiries@acuityfinancial.co.uk

Today is the right time

We advised our client to delay taking his pension a few years ago, as it had special benefits. We’ve today set up an annuity for him, which is 159% higher than he could buy on the open market.

Why not make an appointment with us TODAY on 01543 440300 to review your finances, and see what we can do to help you?

Call us now