How to plan your finances ahead of retirement.

For many savers, retirement can seem like a far-off or even unattainable goal. But to maximise your chances of retiring comfortably, early planning is essential.

Recent research from Canada Life shows that a worrying number of UK adults are not planning for this key milestone, with 45% of over-55s saying their retirement plans are not detailed, and 19% saying they have no plans in place at all.

One in ten respondents said they’d never thought about planning for retirement – and didn’t intend to do so. But more than a third (35%) of retirees wished they’d planned for their retirement more thoroughly in advance.

As the cost-of-living crisis puts pressure on day-to-day finances, it’s a difficult time to think about saving for the future. But these challenges make it all the more important to carefully consider your finances and plan for the long term.

Here are some tips on how to plan for retirement.

Assess your saving goals

At its most basic, retirement planning from a financial perspective comes down to two key questions: how much do you need to save, and how will you save it? The answers to these can be down to various factors.

What kind of lifestyle do you want?

To start working out how much money you’ll need in retirement, you’ll need to consider your various expenses and the lifestyle you’d like to achieve.

Give careful consideration to factors like holidays and leisure, transport, home maintenance, food and drink, shopping and gifts.

The Pensions and Lifetime Savings Association estimates that a single person would need at least £12,800 a year to afford at least a minimum level across these expenses in retirement.

For a ‘moderate’ lifestyle that offers more financial security and flexibility, you’d need at least £23,300, while a more comfortable lifestyle with some luxuries would require £37,300 a year.

These estimates could vary for couples and different locations in the UK, and you’ll also need to factor in additional costs like medical and social care.

They also assume that you own a home and are no longer renting or paying a mortgage. But with these points in mind, they can provide a useful starting point for your calculations.

When did you start saving?

Another major factor in your retirement plans is how early you start. The sooner you start, the more you can save over time – plus, compounding interest means the money you put in earlier can go further.

For instance, let’s say your investments see returns at 3% above inflation each year. If you put £10,000 into your pension at the age of 21, your investment would be worth £35,000 by the time you turn 65. If you made the same investment at 40, it would be worth around £20,000 instead.

One rule of thumb suggested by some experts is to halve your age, and use that number as a percentage of your annual salary you should save.

So if you start saving into a pension at 20, you might aim to save 10% of your income. If you start at age 30, you’d need to save 15%.

How long will your retirement be?

Generally speaking, the length of your retirement depends on how soon you retire and how long you expect to live.

Remember, life expectancy has increased drastically in the last 50 years, and according to the Office for National Statistics, it’s expected to increase again in the next 50, by approximately 6.6 years for males and 5.5 years for females in England and Wales.

People potentially living longer than before is great news, but it does make it more important to check that your finances will cover that period of time.

Understand your pension

Most people in the UK are entitled to income from the state pension, as well as any workplace or personal pension savings they’ve built up over time.

State pension

The new state pension, which applies to people reaching retirement age (currently 66) on or after 6 April 2016, offers a full amount of £203.85 per week (£10,600.20 per year). But the amount you receive will depend on your National Insurance record.

You can check how much state pension you’re entitled to, when you should get it, and how you might be able to increase it using the Government’s ‘Check your state pension forecast’ tool.

Workplace pension

In the last few years, more people have been saving into a workplace pension scheme following the introduction of auto-enrolment laws.

These require employers to automatically enrol qualifying employees into a workplace pension scheme and make contributions as a percentage of the employee’s salary.

Currently, the minimum total contribution for auto-enrolment pensions is 8% of pensionable earnings.

Employers must pay a minimum of 3%, with employees covering the remaining 5% – although employers can choose to contribute a higher amount.

As an employee, it’s possible to opt out of an auto-enrolment pension scheme, but because you receive a contribution from your employer and benefit from tax relief on those contributions, it’s often a good idea to remain enrolled.

Personal pension

You also have the option to arrange a pension yourself. This can be particularly useful if you’re self-employed and therefore unable to benefit from an employer’s pension scheme.

There are a few different types of pension you could choose from, including stakeholder pensions, which must meet specific Government requirements, or self-invested personal pensions (SIPPs), which allow you to choose your investments.

Whichever you choose, check that your provider is registered with the Financial Conduct Authority, or the Pensions Regulator for stakeholder pensions.

Assess your savings options

Many people choose other methods to save for retirement,  such as individual savings accounts (ISAs). You can make contributions to an ISA up to an annual limit without incurring tax on the growth of your savings – for 2023/24, the limit stands at £20,000.

You can also invest, either in stocks and shares or assets like property. The seed enterprise investment scheme (SEIS) and enterprise investment scheme (EIS) are two very tax-efficient ways to invest, for example – talk to us for more information on these.

Holding investments over a longer period generally gives you a better chance of returns, but as ever, the value of investments can go down as well as up. Before making investment decisions, it’s best to seek out expert advice.

Withdrawing from your pension

When the time comes to access your savings, it’s important to be aware of the tax implications.

From the age of 55, you can usually take up to 25% of your total pension pot as a tax-free lump sum. Withdrawals after this are subject to income tax. You’ll still receive your tax-free personal allowance in retirement, which currently stands at £12,570.

Tax on pension income can be very complicated, and while you have various flexible options for withdrawing your funds, it’s essential to get professional advice to avoid unexpected tax charges.

We can help you to understand the tax implications of retirement and create an effective plan to achieve your savings goals.

Get in touch to talk about retirement planning.

 

 

 

Britain’s economy partially recovered in August, with a marginal growth of 0.2% following a sharp fall in July.

This slow growth has fuelled expectations that the Bank of England’s (BoE) Monetary Policy Committee will vote to maintain its base interest rate at 5.25% next month.

The BoE halted its run of interest rate increases in September following signs of a slowdown.

Earlier this week, the International Monetary Fund predicted that Britain would be the slowest-growing G7 nation in 2024.

While the UK is not currently in recession, weak growth has been a concern, and the economy is likely to be a key issue in next year’s election.

The Office for National Statistics said the economy needed to grow 0.2% in September to avoid reducing in the third quarter of 2023.

Commenting on August’s GDP figures, David Bharier, head of research at the British Chambers of Commerce, said:

“The UK economy is holding up but remains in a precarious state.

“Our research is clear about the issues UK firms are facing — three years of economic shocks, high inflation and interest rates, skills shortages, and trade barriers with the European Union.”

Get in touch about your finances

The number of company insolvencies in September 2023 was 16.5% higher than the same month last year, according to official data published in October by the Insolvency Service.

Corporate insolvencies decreased to a total of 1,967 compared to August’s total of 2,319, but compared to September 2022’s figure of 1,688, they increased by 16.5%.

Nicky Fisher, president of R3, the UK’s insolvency and restructuring trade body, commented on the corporate insolvency statistics:

“September 2023’s corporate insolvency figures are the highest we’ve seen for this month in four years as a combination of economic issues, director fatigue, and the post-COVID insolvency lag which has seen more firms turn to corporate insolvency processes to resolve their financial issues.

“It’s clear that the challenging trading climate is taking its toll on businesses. Firms are operating in a climate where people are cutting back their spending on non-essential items, while at the same time the costs of operating a business remain high – and will only increase as the weather gets colder and the cost of borrowing and servicing existing debts get more expensive.

“Our message to company directors is simple: if you’re worried about your business, seek advice.”

Talk to us about your business.

 

Leading business organisations have criticised the Government’s decision to scrap the northern leg of HS2, despite its promises to divert £36 billion into new transport in the Midlands and north of England.

High-Speed Rail Group, which represents rail and engineering firms, described the move as the “biggest and most damaging U-turn in the history of UK infrastructure”.

The replacement scheme, “Network North”, includes schemes already in progress or where funding was expected, alongside previously paused or cancelled projects.

Prime Minister Rishi Sunak said the “facts have changed”, and it was time to ditch the high-speed rail project between Birmingham and Manchester in the face of increasing costs.

He confirmed that, contrary to some ongoing fears, the HS2 line would still continue into central London, ending at a scaled-down Euston station.

As part of the plan, £9.6bn would be reinvested into the Midlands, including a rail hub for the region, and an additional £1bn for the West Midlands city region, whose Conservative mayor Andy Street had earlier indicated he was considering leaving the party if HS2 was scrapped.

The £19.8bn from scrapping HS2’s second phase would be spent on electrifying rail lines, with £2bn going to Bradford and £2.5bn for West Yorkshire, including the tram in Leeds.

Commenting on the decision, Chris Fletcher, greater Manchester chamber director of policy at the British Chambers of Commerce, said:

“Whilst this may sound like a better use of the money with new lines promised, we are still no nearer getting the transport network that we actually needed years ago to unlock the north’s potential.

“HS2 was a major investment opportunity for the UK that would unburden a worn-out network already at over capacity; boost the country’s net zero ambitions and open up labour markets and job opportunities on a scale like never before.

Plus, it was also a cornerstone of Northern Powerhouse Rail. Network North has to deliver all this, and more and in a shorter timescale.”

Talk to us about these changes

A Treasury task force explained on the 9 October how listed companies and financial firms will have to outline plans to cut carbon emissions in the transition to a 2050 net-zero economy.

 

The plans dovetail with pre-existing mandatory climate standards, which are set to be replaced by new measures from the International Sustainability Standards Board (ISSB).

The blueprint by the Transition Plan Taskforce (TPT) builds on the ISSB’s plans and draws on work by the Glasgow Financial Alliance for Net Zero.

Listed companies and financial institutions will be expected to use the framework to disclose their transition plans for 2025 and onwards, which means the first reporting deadline will be in 2026.

Joanna Penn, a junior Treasury minister in Parliament’s upper house, said making transition plans mandatory is an essential part of Britain’s plans to become the world’s first net zero financial centre:

“The transparency and accountability offered by transition plans are vital to the fundamental shift in business and finance required for the economy-wide transition to net zero and a climate-resilient future.”

Michael Izza, chief executive of the Institute of Chartered Accountants in England and Wales (ICAEW), also praised the framework, saying:

“For the first time there is a definitive guide and insight into the risks and opportunities that surround the development and implementation of a climate transition plan.”

Amanda Blanc, group CEO of insurer Aviva and co-chair of the taskforce, said in a statement: “Backing up net zero ambitions with high quality and clear transition plans is crucial if we are to collectively deliver net zero.”

The net zero strategy builds on the Government’s ’ten-point plan for a green industrial revolution’ published 18 November 2020. It set out policies and proposals for decarbonising all sectors of the UK economy to meet the Government’s net zero target by 2050.

The Government stated net zero means “any emissions would be balanced by schemes to offset an equivalent amount of greenhouse gases from the atmosphere, such as planting trees or using technology like carbon capture and storage.”

Contact us to learn more.

HMRC has reopened the self-assessment tax helpline from 4 September after it was closed for three months over the summer.

Between 12 June and 3 September, callers were redirected to digital services to give HMRC staff time to deal with other phone enquiries and handle the postal backlog.

This was not the first time HMRC has limited access to helplines to reallocate staff elsewhere, but it was the first time the tax authority completely shut down a service for a significant period.

Adam Harper, director of professional standards and policy at the Association of Accounting Technicians, said:

“The need for such a pilot, in order to redirect staff elsewhere, highlights the much bigger challenge that HMRC faces in balancing competing priorities with a constrained budget. Ultimately, the Government must address the root problem that more investment is needed.”

In June, Victoria Atkins, financial secretary to the Treasury, suggested that the closure of the self-assessment helpline would not be the last, saying:

“We will be watching this very, very carefully. If it is helping with some of the customer service problems we have, then we will look to see if we can surge people at other times of the year when there are peaks and troughs into the higher activity areas.

“It is about using our people as effectively as possible when customers are trying to contact HMRC.”

 

Talk to us about your self-assessment tax return.

The Chancellor of the Exchequer, Jeremy Hunt, has announced that he will present the Autumn Statement to Parliament on 22 November.

Hunt will use the Statement to set out future tax plans and departmental spending plans, although he may hold back on serious plans amid inflationary pressures.

The Chancellor may also decide against favourable announcements until the Spring Budget as part of the general election, which must be held in January 2025 at the latest.

Hunt also confirmed he has commissioned an Office for Budget Responsibility forecast that will be presented alongside the statement.

The announcement will be Hunt’s third fiscal statement following his first in November 2022, which came as a hurried remedy to his predecessor Kwasi Kwarteng’s divisive mini-budget in September 2022.

Since then, he and Prime Minister Rishi Sunak have repeatedly promised to halve inflation amid a series of Bank of England interest rate rises.

Confirming the new budget date, he said: “On Friday, the Office for National Statistics published an update to the UK’s GDP growth figures which shows the UK economy was 0.6% larger than pre-pandemic levels by the fourth quarter of 2021.

“It means our economy had the fastest recovery from the pandemic of any large European economy, thanks to decisions such as furlough that protected millions of jobs.

“For that growth to continue we now need to halve inflation, which I am pleased to report is now nearly 40% below its 11% peak. I can also tell the House I will deliver the Autumn Statement on November 22.”

Tom Selby, head of retirement policy at AJ Bell, said:

“Rishi Sunak has placed tackling the cost-of-living crisis front-and-centre of his premiership after pledging to halve inflation by the end of 2023.

“By the time the Autumn Statement arrives in late November, we should have a pretty clear idea of whether that target – a target the government has very limited control over – will be hit.”

Talk to us about how the Autumn Statement affects you.

Employers are turning to generous counter-offers in a bid to retain staff as skills shortages persist, new research suggests.

 

According to the Chartered Institute of Personnel and Development (CIPD), 51% of employers who make counter-offers to keep employees have offered a higher number over the last 12 months.

A quarter of employers who have made competing offers think they will need to offer more in the next year, with only 8% to offer less.

The CIPD survey of 2,000 UK employers, taken between 9 June and 5 July 2023, also found that 38% of counter-offers matched the salary of the new job offer, and 40% offered even higher sums.

However, 29% of employers believe counter-offers are ineffective at retaining staff. According to the CIPD, this suggests it “may only be valuable as a short-term option and employees will move if the wider package does not meet their expectations”.

Jon Boys, senior labour market economist at the CIPD, said:

“While pay is often the most typical focus of a counteroffer, there are other things employers should consider in making roles more attractive, such as flexible working, additional paid holiday, opportunities for career development, or better pension contributions.”

Talk to us about your business.

What you need to know about trusts, including how they are taxed.

 

Trusts are legal arrangements where assets are placed into the care of an individual or organisation that manages them for the benefit of someone else.

For the person setting up the trust, this arrangement means they know their assets will be properly looked after until they come under the legal control of the beneficiaries.

Crucially, there are also tax advantages to setting aside assets in a trust, especially in the context of estate planning. That’s why we want to go over them with you.

 

What are trusts?

A trust is a relationship between three parties:

• the settlor is the person who places the assets in the trust
• the beneficiary is the person who benefits from the assets in the trust
• the trustee is the person or organisation appointed to manage the trust on behalf of the settlor and beneficiary.

So, in a trust, the settlor gives over the financial management of selected assets and capital to the trustee(s). Depending on the terms of the arrangement, generated income from the assets or the assets themselves will go to the beneficiary — often a younger person or someone who is unable to care for their own finances at present.

As a general rule, anyone over the age of 18 can be a trustee, but some solicitors and accountants also have trustee services.

It’s also worth noting that these three parties aren’t always different people: it’s fairly common for the trustee and settlor to be the same person. In some cases, settlors can even be their own beneficiaries.

 

Types of trusts

There are many different types of trusts, which all work in their own way. They include:

• Bare trusts — assets placed in a trust are held in the name of a trustee, yet the beneficiary has the right to all trust capital and income when they turn 18 (or 16 in Scotland).
• Interest in possession trusts — the beneficiary receives income generated by the trust but is not entitled to the underlying assets.
• Discretionary trusts — the trustees have absolute power over how the trust assets are used and distributed. Very popular with grandparents, who often name their grandchildren as the beneficiaries and their children as the trustees.

Knowing which type of trust is right for you can be difficult. Talk to us, and we’ll help you decide the route to take.

 

Income tax

Trustees or beneficiaries may be responsible for paying tax on the income from trusts; the amount due depends on the type of trust.

For accumulation or discretionary trusts, the first £1,000 of dividend-type income is taxed at 8.75%, while the first £1,000 of all other income is taxed at 20%. Above that amount, dividend income is taxed at 39.35%, while all other income is taxed at 45%.

When it comes to the tax treatment of interest in possession trusts, dividend-type income is usually taxed at 8.75%, with all other income taxed at 20%. Sometimes, though, the trustees ‘mandate’ the income to the beneficiaries, meaning it goes to them directly. In this case, the beneficiary would need to include the income on their self-assessment tax return.

Beneficiaries of bare trusts are responsible for filing a self-assessment tax return and paying tax on income.

If you’re a beneficiary of income from a discretionary trust, you are deemed to have received it net of 45% tax – but you can reclaim the difference if you fall into a lower tax bracket.

Similarly, for an interest in possession trust, there may be additional tax reclaimable or payable by the recipient. The trust will have paid income tax at 8.75% or 20% but if the taxpayer’s effective tax rate is different to this, they will pay or reclaim the difference.

 

Capital gains tax

Capital gains tax (CGT) is usually paid on the profit that is created by selling an asset for more than you bought it for. It can also apply when you give an asset away or transfer it to someone else.

CGT may need to be paid when:

• assets are put into or taken out of a trust
• a beneficiary gains access to the assets in the trust
• the trustee is no longer a resident in the UK.

There are, however, some instances when an asset can be moved but CGT is not liable. Firstly, if a person dies and they leave their assets to the beneficiary, there is no CGT liability. Likewise, there is no charge if a beneficiary of an interest in possession trust dies and the assets are passed to someone else.

There are some allowable costs that can be deducted when working out a trust’s CGT liability, as well as specific reliefs. Be sure to get professional advice to find out which of these apply to you.

 

Inheritance tax

Trusts can be great for estate planning because of how inheritance tax is applied to the value of assets and capital held in trusts. For the majority of trusts, inheritance tax will be due if transfers into them exceed the threshold of £325,000 at 20% — in contrast to the regular 40%.

If you die within seven years of making a transfer into a trust, your estate will have to pay inheritance tax at the full amount of 40%. If no tax is due, the value of the transfer is added to your estate.

If you make a gift into any type of trust but continue to benefit from it (for example, you give away your house but continue to live in it), you’ll have to pay 20% on the transfer and the gift will count as part of your estate. There are potential ways to negate this, such as having the settlor pay rent on the property while they live there, but be sure to seek advice if you’re considering this.

An inheritance tax exit charge also applies to most transfers of capital out of a trust, up to a maximum of 6%. A transfer out of a trust can occur when:

• the trust comes to an end
• some of the assets within the trust are distributed to beneficiaries
• a beneficiary becomes ‘absolutely entitled’ to enjoy an asset
• an asset becomes part of a ‘special trust’ (for example, a charitable trust or trust for a disabled person) and it ceases to be ‘relevant property’
• the trustees enter into a non-commercial transaction that reduces the value of the trust fund.

10-year anniversary

On the day before each ten year anniversary of the trust, inheritance tax is charged on the net value of the relevant property in the trust. The way this charge is calculated is complex, so get in touch with us for more technical information.

 

If the beneficiary dies

A trust’s assets or income will be distributed if a beneficiary dies, depending on the type of trust.

For example, because beneficiaries are entitled to both the income and assets of a bare trust, this becomes part of their estate when they die.

This is not usually the case with interest in possession trusts, as beneficiaries are only entitled to the income generated by the trust. There are certain circumstances where the value of this type of trust is added to the deceased beneficiary’s estate.

 

Get in touch for advice on trusts and inheritance tax.

 

 

The UK is no longer a global economic outlier after a huge revision to its post-pandemic economic performance by the Office for National Statistics (ONS).

 

GDP, the size of the country’s economy, climbed back above pre-pandemic levels by the end of 2021, the ONS said last week — much higher than previously thought.

The ONS originally said the economy was still 1.2% smaller than its pre-lockdown size in the final three months of 2021, but now says GDP was 0.6% higher than before the pandemic.

The ONS said that “the unprecedented shock of the coronavirus pandemic” led to large recisions as “the substantial changes in the rate of economic growth are more difficult to measure with the same level of precision as smaller changes during more ‘normal’ times”.

Companies had also continued adding to piles of unsold stock instead of selling them down as had been thought, while wholesalers and the health sector had produced much more in 2021 than ONS data had previously suggested.

Former Tory leader Sir Iain Duncan Smith said:

“It is time for the ONS and other forecasters to accept that their forecasts are almost always wrong.”

“Instead of using their dire forecasts to beat the UK up, they should talk up the remarkable record of British business in defying the forecasters and succeeding.”

Chancellor Jeremy Hunt said the revisions show that the UK economy “had the fastest recovery from the pandemic of any large European economy, thanks to decisions such as furlough that protected millions of jobs.”

“For that growth to continue, we now need to halve inflation”, he added.

However, the revision came as separate figures suggested that the manufacturing sector shrank last month at its fastest rate since the pandemic.

The latest statistical release also showed that the average UK house price fell in August at the sharpest annual rate seen in 14 years, £14,600 below their August 2022 peak.

Contact us for business planning advice.