Lloyd O Sullivan https://www.lloydosullivan.co.uk/blog Our Blog Fri, 17 Aug 2018 09:29:10 +0000 en-US hourly 1 Generation still taxed https://www.lloydosullivan.co.uk/blog/generation-still-taxed/ https://www.lloydosullivan.co.uk/blog/generation-still-taxed/#respond Thu, 16 Aug 2018 11:34:30 +0000 https://www.lloydosullivan.co.uk/blog/?p=1044
Numbers nearly double in the last two decades

With so much choice on offer, and with frequent rule changes and distinct tax benefits to consider, finding the right vehicle for your retirement planning is essential.

Add to this the number of taxpaying pensioners nearly doubling over the last two decades, and with talk of also requiring pensioners to pay National Insurance on any earnings or even on pensions, the older population may start thinking of themselves as ‘Generation still taxed’.

Detailed figures

The analysis [1] shows that between the mid-1990s and the mid-2010s, the number of taxpayers over the age of 65 nearly doubled from 3.32 million in 1995/96 to 6.49 million in 2015/16, the last year for which detailed figures are available. It is estimated that the number has broadly stabilised since then and stands at around 6.37 million in 2018/19.

The data covered every local authority in the UK and provided separate information for men and women. The data relates to the 6.87 million taxpayers over State Pension age in 2015/16 and includes around 400,000 women over State Pension age but under the age of 65.

Employment income

Amongst the 6.87 million taxpaying pensioners, the average annual tax bill is £3,522. For the 3.87 million men, the average bill is £4,341; for the 3 million women, the average is £2,467. More than a quarter of taxpaying pensioners are still in paid work – 1.5 million have employment income, and 0.5 million have income from self-employment.

The total amount of Income Tax paid by pensioners in 2015/16 was around £24 billion. Of this, around £21 billion came from England, £1.7 billion from Scotland, £0.8 billion from Wales and £0.4 billion from Northern Ireland.

Local authorities

The five local authorities with the highest total tax bill by pensioners were Surrey (£961 million), Hampshire (£763 million), Essex (£756 million), Greater Manchester (£646 million) and Kent (£645 million). This means that pensioners in Surrey are paying more in Income Tax than pensioners across the whole of Wales.

When planning for retirement, it is vital to remember that the tax office will still want a slice of your income, which reinforces the need to put aside enough to secure a decent standard of living, even after the taxman has had his slice.

One of your largest lifetime expenses

Whatever your plans for the future, we are here to help you take the next step. It is possible that you could spend a third of your life in retirement, and your income needs do not necessarily reduce just because you stop work. This means your retirement is likely to be one of your largest lifetime expenses. Please talk to Lloyd O’Sullivan on 0208 941 9779 or email info@lloydosullivan.co.uk if you want to review your retirement plans.

Source data:

[1] Royal London Freedom of Information Act request – data for 2015/16 for taxpayers over pension age, broken down for each local authority in the UK and for men and women separately. Data gives the number of pensioner taxpayers in each area and how much tax they pay. It also shows how many have income from self-employment, employment, pensions, property and other sources.

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Financial protection https://www.lloydosullivan.co.uk/blog/financial-protection-3/ https://www.lloydosullivan.co.uk/blog/financial-protection-3/#respond Thu, 16 Aug 2018 11:30:54 +0000 https://www.lloydosullivan.co.uk/blog/?p=1042
Families left in a precarious situation if the unforeseen were to happen

We all intend that our plans will come good. But making sure that you and your family can cope if you fall ill or die prematurely is something we can too easily put to one side. In particular, a recent study identified that financial protection is something that millions of fathers in the UK, and their families, could benefit from.

More than half (58%) of men in the UK with dependent children have no life insurance, meaning that just over 4.5 million dads[1] are leaving their families in a precarious situation if the unforeseen were to happen. Worryingly, this has increased by five percentage points compared with 2017, a year-on-year increase of around 542,000 individuals[2].

Financial hardship

Despite a fifth (20%) of dads admitting their household wouldn’t survive financially if they lost their income due to long-term illness, only 18% have a critical illness policy, leaving many more millions at risk of financial hardship if they were to become seriously ill.

Critical illness insurance – this doesn’t usually pay out if you pass away, so it’s not always suitable if you want to make sure your family are provided for after you’ve gone. This is where life insurance comes in.

Life insurance – this insurance usually only pays out if you pass away. It’s designed to help your family maintain their lifestyle after you’ve gone, for example, to pay off a mortgage or other loans and provide for children’s university fees.

Many insurers will offer both types of cover combined.

No savings

If they were unable to work due to serious illness, 16% of fathers say they could only pay their household bills for a minimum of three months. More than two fifths (45%) say they’d have to dip into their savings to manage financially, but 17% admit that their savings would last for a maximum of just three months, and 12% say they have no savings at all.

On top of this, many fathers are leaving themselves and their families unprepared for other aspects of illness or bereavement. 16% of them aren’t sure who would take care of them if they fell ill, and more than two fifths (42%) don’t have the protection of a Will, power of attorney, guardianship or trust arrangement in place for their families.

Risky position

This is an especially risky position for the two thirds (66%) of UK fathers who are the main breadwinner in the family, and it’s clear that many are in lack of a ‘Plan B’.

Many fathers don’t consider having insurance as a necessity, with 16% of those without saying they don’t see critical illness cover as a financial priority, and 20% saying they don’t think they need it. The value of protection, however, is to provide long-term peace of mind about having financial security in place for your dependents.

Seek advice

Life is full of uncertainties – and while we insure cars, houses and even holiday arrangements, when it comes to ourselves and our family, often insurance is overlooked and undervalued. The simple truth is we can get too ill to carry on working or tragically die too soon, either through serious illness or accident. These events are random, and they can potentially affect us all.

Recent changes to bereavement benefits, and their continued unavailability to those in cohabiting relationships, mean that it’s more important than ever for fathers to review their financial protection needs and seek advice to make sure their household is covered.

Unforeseen circumstance

The impact of losing the family breadwinner can be devastating – missed mortgage repayments, savings depleted, your home being sold, your family’s standard of living eroded, with stress and worry all too evident.

Whether it is your family or other loved ones, it’s essential to make sure that the people and things that matter to you are taken care of – whatever life throws at you.

Creating a durable plan for the future

We understand that expert advice on financial matters is invaluable in creating a durable plan for the future. To discuss what’s best for you and your family if the unforeseen were to happen, contact Lloyd O’Sullivan on 0208 941 9779 or email info@lloydosullivan.co.uk so we can find the solution that’s right for you.

Source data:

All figures, unless otherwise stated, are from Opinium Research. The survey was conducted online between 5 and 12 April 2018, with a sample of 5,022 nationally representative UK adults.

[1] Percentage of adult population that are fathers with dependents = 762/5022 = 15.17%; 15.17% of adult population of 51,767,000 = 7,854,730 million; 58% of these don’t have cover so 4,545,848 million

[2] Percentage of adult population that are fathers with dependents = 735/5077 = 14.48%; 14.48% of adult population of 51,767,000 = 7,495,861 million; 53% of these don’t have cover so 4,003,721. Difference of 542,127 compared with 2017

PROTECTION PLANS USUALLY HAVE NO CASH IN VALUE AT ANY TIME AND WILL CEASE AT THE END OF THE TERM. IF PREMIUMS ARE NOT MAINTAINED, THEN COVER WILL LAPSE.

CRITICAL ILLNESS PLANS MAY NOT COVER ALL THE DEFINITIONS OF A CRITICAL ILLNESS. THE DEFINITIONS VARY BETWEEN PROVIDERS AND WILL BE DESCRIBED IN THE KEY FEATURES AND POLICY DOCUMENTS IF YOU GO AHEAD WITH A PLAN.

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Positive outcomes https://www.lloydosullivan.co.uk/blog/positive-outcomes/ https://www.lloydosullivan.co.uk/blog/positive-outcomes/#respond Thu, 16 Aug 2018 11:27:25 +0000 https://www.lloydosullivan.co.uk/blog/?p=1040
Impact investing without sacrificing returns or profits

For those looking to make the world a better place, but not wanting to sacrifice returns or profits, impact investing aims to support a positive social or environmental impact as well as looking to achieve compelling financial returns at the heart of sustainable investing.

The term ‘impact investing’ was first coined in 2007, although the practice developed over years beforehand. It seeks to generate both social change and a return on capital and ends the old dichotomy where business was seen solely as a way to make a profit, while social progress was better achieved only through philanthropy or public policy.

Not a recent phenomenon

Socially responsible investing is not a recent phenomenon – it can actually be traced back several centuries. Early initiatives were all based on the exclusion of controversial sectors such as tobacco or armaments rather than on investing in businesses which have the power to do good. That’s what impact investing is seeking to achieve, and it has begun to gain traction.

The upward swing of impact investing is being led by millennials. This type of investing considers a company’s commitment to corporate social responsibility (CSR), or the sense of duty to positively serve society as a whole, before becoming involved with that company. This societal impact differs depending on the industry and the specific company within that industry, but some common examples include giving back to the community by helping the less fortunate or investing in sustainable energy practices.

Social and environmental themes

Once the preserve of the super-rich, individuals and families would come together to identify promising opportunities to make money and do good at the same time. But, increasingly, investor impact strategies are now covering a broader range of social and environmental themes and, in many cases, harness the latest technology or pioneer delivery systems to gain efficiencies and reach those most in need.

Impact investments can be made in both emerging and developed markets and target a range of returns depending on an investor’s strategic goals. The growing impact investment market provides capital to address the world’s most pressing challenges in sectors such as sustainable agriculture, renewable energy, conservation, micro finance, and affordable and accessible basic services including housing, healthcare and education.

Challenging previous long-held views

Impact investing challenges the previous long-held views that social and environmental issues should be addressed only by philanthropic donations, and that market investments should focus exclusively on achieving financial returns.

The impact investing market directs capital to enterprises that generate social or environmental benefits, and offers diverse and viable opportunities for investors to advance social and environmental solutions through investments that also produce financial returns.

Looking for the potential to generate positive outcomes?

Impact investing provides the opportunity to make investments that not only deliver financial returns, but also have the potential to generate positive outcomes that address some of the most imperative challenges that we face as a society, such as climate change and poverty. To find out more, call Lloyd O’Sullivan on 0208 941 9779 or email info@lloydosullivan.co.uk to arrange a meeting or simply ask a question. We look forward to hearing from you.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

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Cash may not be king https://www.lloydosullivan.co.uk/blog/cash-may-not-be-king/ https://www.lloydosullivan.co.uk/blog/cash-may-not-be-king/#respond Thu, 16 Aug 2018 11:24:54 +0000 https://www.lloydosullivan.co.uk/blog/?p=1038
Pension savers risk a significant tax bill

For most people over the age of 55, it is now possible to cash in or unlock all of your pension. How you take these benefits will depend on the type of scheme you have and how you want to take benefits. But concerns have been raised that some savers may risk running out of cash if they siphon too much out of their pension pots.

There are a number of downsides to taking too much cash from your pension, especially if you are doing it earlier than expected. However, around one in ten (10%) planning to retire this year expect to withdraw their entire pension savings as one lump sum, risking a significant tax bill and an impact on their future retirement income.

The findings[1] are part of unique annual research – now in its 11th year – into the financial plans and aspirations of people planning to retire in the year ahead and shows that, in total, one in five (20%) retiring this year will risk avoidable tax bills by taking out more than the tax-free 25% limit on withdrawals.

Two thirds planning on retiring early

However, they are not necessarily spending all the cash – the main reason given by those taking all their fund in one go was to invest in other areas such as property, a saving account or an investment fund (71%). Interestingly, around two thirds (66%) of people are planning on retiring early.

Since the launch of pension freedom reforms in April 2015, more than 1.1 million people aged 55-plus have withdrawn around £15,744 billion[2] in flexible payments.

Taking advantage of pension freedoms

Government estimates[3] show that around £2.6 billion was paid in tax by people taking advantage of pension freedoms in the 2015/16 and 2016/17 tax years, with another £1.1 billion raised in the 2017/18 tax year.

The most popular use of the cash is for holidays, with 34% planning to spend the money on trips. Around (25%) will spend the money on home improvements, while one in five (20%) will gift the money to their children or grandchildren. Other popular uses include buying cars or paying off mortgages.

What you need to ask yourself before cashing in your pension pot

Q: Have you considered what the tax implications are?

At the heart of any pension transaction you undertake, tax planning is a major consideration. Only the first 25% of the amount that you drawdown from your pension pot is tax-free, and the remaining 75% is taxed as earned income.

Q: Will your money last the duration of your retirement years?

Before taking the cash, it is crucial to think about whether you will have enough money to last the duration of your retirement. It’s not a one-off decision: you should regularly review your choices throughout your retirement, as your needs evolve and income needs may change.

Q: Will your pension scheme allow you to cash in your pension pot?

If you’re convinced that cashing in your pension pot is the right move for you, you need to ensure that your pension scheme allows you to do so. If not, it means that you’ll need to transfer your savings into a suitable pension scheme to be able to access your cash.

Q: Are you aware of the companies running pension scams?

Pension savers getting scammed out of their retirement savings is a real issue. The problem is that many of these scams look perfectly legitimate so are not easy to spot. Others offer investment returns which are too good to be true. You can visit the FCA’s ScamSmart website, which includes a warning list of companies operating without authorisation or running scams – www.fca.org.uk/scamsmart.

Q: Have you sought professional financial advice about your plans?

Not seeking professional financial advice can be very risky, especially when it comes to deciding how to eventually take your pension. If you get it wrong, it could be very costly and have a considerable impact on your retirement lifestyle and standard of living. We’ll make sure that the action you take is the right one for you, your family and your needs.

Don’t get penalised by the tax system

Pensions freedom allows you to have the flexibility on how and when you spend your money without being penalised by the tax system, but it is worrying that some retirees may withdraw more than the tax-free lump sum limit. The risk is even greater if you’re taking all of your pension fund in cash. To review your own situation, please speak to Lloyd O’Sullivan on 0208 941 9779 or email info@lloydosullivan.co.uk. You can call us to arrange an appointment or ask a question – we look forward to hearing from you.

Source data:

[1] Research Plus conducted an independent online survey for Prudential between 29 November and 11 December 2017 among 9,896 non-retired UK adults aged 45+, including 1,000 planning to retire in 2018.

[2] https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/675350/Pensions_Flexibility_Jan_ 2018.pdf

[3] http://obr.uk/overview-of-the-november-2017-economic-and-fiscal-outlook/

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

ACCESSING PENSION BENEFITS EARLY MAY IMPACT ON LEVELS OF RETIREMENT INCOME AND IS NOT SUITABLE FOR EVERYONE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

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Later retirement https://www.lloydosullivan.co.uk/blog/later-retirement/ https://www.lloydosullivan.co.uk/blog/later-retirement/#respond Thu, 16 Aug 2018 11:18:28 +0000 https://www.lloydosullivan.co.uk/blog/?p=1036
Workers extend their careers for a multitude of reasons

When do you plan to retire? Saving for your retirement is a lifelong undertaking – and if you want to enjoy a comfortable retirement, you can’t start planning soon enough. The more you contribute to a pension now, the better chance you’ll have of that money growing and funding your retirement in later life.

But the proportion of UK employees who say they will work beyond the age of 65 has remained at three quarters (72%) for the second year running, significantly higher than in 2016 (67%) and 2015 (61%), according to latest research[1].
 
Nearly half (47%) of those who say they expect to work beyond 65 will be older than 70 before they retire, up from 37% in 2017, while almost a fifth (17%) expect to be older than 75. Workers aged 35–44 are most likely to say they expect to retire after their 75th birthday (27%).
 
Employees working for longer

A series of economic factors are driving employees to work for longer. The rising cost of living is forcing over 20 million into later retirement[2]. In fact, nine in ten (90%) UK employees say that the rising cost of living is the main reason why they expect to work beyond 65, with 87% saying the same of poor returns on savings due to low interest rates.
 
Diverse set of workforce skills

Opinions remain divided about the UK’s ageing workforce as it brings a new set of challenges for workers to contend with. Over a third (36%) believe that an ageing workforce might mean that older workers will have to re-train or learn new skills to stay in work, while three in ten (30%) think it could make it harder for young people to move up the career ladder. But more than two fifths (41%) are positive that a mix of older and younger employees creates a workforce with a wider range of skills, which is beneficial for employees and employers alike.
 
Promoting older workplace employees

This comes as just 6% think the Government is helping to promote older workers, down from one in ten (11%) following last year’s announcement of an increase in the state pension age[3]. So far, only 13% think that employers are encouraging older employees to stay in the workplace, and little more than a sixth (15%) believe that older people are appreciated and respected in the working environment.
 
Support for older workers in the workplace can come in many different forms, but often the simplest are the most effective. Nearly half of employees (45%) think flexible working or part-time opportunities are most important when it comes to supporting an ageing workforce. Out of those planning to work beyond State Pension age, 60% say that they would be more likely to work for an employer that offered health and well-being benefits. 
 
Stigma surrounding older workers

The combination of an increase in the cost of living, poor returns on savings and inflation continues to impact the UK’s retirement plans. This is the second year in a row that the findings indicate that more than 70% of the country’s workforce expect to work beyond the age of 65, and there is no sign that this trend will slow down any time soon.
 
But even as an older workforce becomes more common, the stigma surrounding older workers is proving hard to shake. Employers now have the opportunity to capitalise on the skills of two or even three generations, but only if they address potential generational divides and the changing needs of their employees.

Preparation for your future

There are important decisions to make in preparation for your future and at retirement. Even if this seems a long way off, having a plan in place is vital to ensuring the lifestyle you want is achievable. We can help you at every step. To discuss your plans, please contact Lloyd O’Sullivan on 0208 941 9779 or email info@lloydosullivan.co.uk.

Source data:

[1] Research conducted by Canada Life using ONS Employment Figures, May 2018

[2] Research conducted by Canada Life using ONS Employment Figures, May 2018

[3] Proposed new timetable for State Pension age increases, 19 July 2017

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Seize the day – today https://www.lloydosullivan.co.uk/blog/seize-the-day-today/ https://www.lloydosullivan.co.uk/blog/seize-the-day-today/#respond Mon, 13 Aug 2018 07:00:39 +0000 https://www.lloydosullivan.co.uk/blog/?p=1034
Make your vision a reality

Exactly how much you’ll need for a comfortable retirement will depend largely on your cost of living and lifestyle choices. For many people, retirement is about sun-soaked holidays, leisurely rounds of golf and that boat they’ve always coveted.

But retirement is not what it used to be, with more of us working longer to build up our decided retirement income. So it’s essential to reassess how much you’re saving into your pension if you want to make your own vision a reality. For many people, retirement may seem a long way off, and saving into a pension isn’t always a top priority.

But the simple truth is the earlier you start, the easier it will be. If you have less time to invest, then the amount of money that you have to save is likely to be higher to make sure your retirement planning is on track. We’ve provided some ideas to help improve and boost your savings for a more comfortable retirement.

Starting point for your retirement plan

Working out what pensions you already have should be a starting point for your retirement plan. Locate the latest statements you have for all your pensions, including from previous employers and personal pensions. You can also get a forecast of your state pension via www.gov.uk/check-state-pension.

You should be sent an annual statement for each of your pension schemes, including any employer-based arrangements and personal pension plans, even if you are no longer contributing to them. If you don’t have up-to-date statements, you can ask for these to be sent to you. You may also be able to access pension values online via your pension company/scheme website.

Valuing your pension

As well as telling you what your pension is worth now, annual statements will also detail what your pension might be worth at retirement.

These forecasts (don’t think of them as anything more than rough estimates) will be based on a range of assumptions including investment growth and inflation between now and retirement.
It is important to consider the effect of inflation because over time, this can significantly reduce the spending power of your pension.

Cost of your lifestyle

Whether your pension will be enough to pay for the retirement you want will depend on the savings pot you amass, as well as the cost of your lifestyle when you retire.

Working out what income you will need in retirement may not be straightforward, however. Your life in retirement will be different from your working life; some costs may go up, while others will reduce.

You may spend more on holidays and leisure (especially in the earlier years of retirement), but your housing costs may be lower. While you may no longer have the costs of bringing up children, you may still want to help them financially, and there could be grandchildren to think of. In your later retirement years, you could have care costs. The traditional rule of thumb has been a target pension income of two thirds of your salary.

Know your magic number

Having accounted for the State Pension and any defined benefit scheme pension, you need to calculate how much money you will need to save to produce the remainder of your target income. This can depend on factors such as the age you want to retire, income yields available on investments, how much prices rise during your retirement and how long you live for – and how much you have put aside already.

If you contribute through a workplace pension, your employer will also contribute on your behalf, and you could qualify for National Insurance savings using a so-called ‘salary sacrifice’ arrangement. Employer top-ups in particular can significantly increase the value of your pension contributions, so it is worth checking that you are making the most of any workplace generosity offered.

It’s also important to be aware that there is a limit on the size of overall pension savings you can accumulate – currently £1.03 million (for 2018/19, and rising annually in line with inflation) – without facing a hefty tax charge of up to 55% on the excess.

This Lifetime Allowance (LTA) for pensions could also be a challenge for people whose retirement savings are currently less than £1 million, as well as individuals with sizeable final salary pension entitlements. Investment growth and ongoing contributions could lead to your breaching the LTA in future.

Alternative wealth opportunities

Pensions are not the only way to save for retirement. Tax-efficient Individual Savings Accounts (ISAs) are a popular savings option, while many people see property – particularly in the form of buy-to-let – as their retirement nest egg.

Timing is everything

Pension freedoms have now given retirees considerable flexibility over how they draw an income or withdraw lump sums from their accumulated retirement savings. Pension savings can be accessed from age 55. You no longer have to purchase an annuity – an income stream for life – and you can choose how much income you take and when to take it.

You could take your whole pension fund as cash in one go – with 25% being tax-free and the rest taxable. Other options include taking a lump sum now, with further withdrawals when you want, or an ongoing regular income (via so-called drawdown or an annuity). However, the danger of these pension freedoms is that people withdraw too much money too quickly and risk running out of money before they die.

It is also possible to pass on your pension savings completely free of tax. So, as well as being a tax-efficient way to invest, pensions can be a very useful way to reduce Inheritance Tax bills.

Seize the day – today

Too many people fail to seriously consider how they are going to manage financially in retirement until they are about to retire. It is only then that they discover that their pension is not on target to meet their retirement aspirations.

When you are living a busy life, it can be difficult to find time to consider your long-term plans. Your mortgage or your children’s education might be more immediate financial priorities; your career or running your business can make more pressing demands on your time. However, getting your pension on track as soon as possible could save you and your family a financial headache later on.

Another reason to take advantage of existing pension tax breaks is that there is no guarantee they will be there in the future. The Government has already cut the annual allowance to £40,000 – and as little as £10,000 for very high earners – while reducing the lifetime allowance from its £1.8 million peak in 2011/12. Higher-rate Income Tax relief on contributions could be next, so it makes sense to make the most of what’s on offer now.

Reaching your wealth goals

Saving for retirement is essential if you want fully to enjoy your later years, but how do you assess how much income you will need? Plus, how much do you need to save to reach your goals? If you would like to review where you are financially, please contact Lloyd O’Sullivan on 0208 941 9779 or email info@lloydosullivan.co.uk – we look forward to hearing from you.

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

ACCESSING PENSION BENEFITS EARLY MAY IMPACT ON LEVELS OF RETIREMENT INCOME AND IS NOT SUITABLE FOR EVERYONE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

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To transfer, or not to transfer? https://www.lloydosullivan.co.uk/blog/to-transfer-or-not-to-transfer/ https://www.lloydosullivan.co.uk/blog/to-transfer-or-not-to-transfer/#respond Fri, 27 Jul 2018 13:06:14 +0000 https://www.lloydosullivan.co.uk/blog/?p=1019
What to consider before making this big decision

More than 100,000 people transferred out of Defined Benefit (DB) pensions in 2017/18[1]. A DB pension scheme is one where the amount you’re paid is based on how many years you’ve worked for your employer and the salary you’ve earned. The figures show that a large number of people are still transferring out of traditional salary-related pensions, but whether this is a good idea or not depends crucially on your individual circumstances.

For many people, a guaranteed salary-related pension that lasts as long as you do, and is unaffected by the ups and downs of markets, is likely to be the best answer. But there will be some who want extra flexibility or who are focused on passing on some of their pension wealth for whom a transfer might be the right answer. It is vital to take, and listen to, professional financial advice before making a big decision of this sort.

Five reasons why a pension transfer might be suitable

1. Flexibility – instead of taking a set pension on a set date, you have much more choice about how and when you take your pension. Many people are choosing to ‘front load’ their pensions, so that they have more money when they are more fit and able to travel, or to act as a bridge until their State Pension or other pension becomes payable.

2. Tax-free cash – some DB pension schemes may offer a poor deal if you want to convert part of your DB pension into a tax-free lump sum. Although the tax-free cash is in theory 25% of the value of the pension, you often lose more than 25% of your annual pension if you go for tax-free cash; with a Defined Contribution (DC) plan, you get exactly 25% of the pot as tax-free cash.

3. Inheritance – generous tax rules mean that if you leave behind money in a DC pension pot, it can be passed on with a favourable tax treatment, especially if you die before the age of 75. In a DB pension, while there may be a regular pension for a widow or widower, there is unlikely to be a lump sum inheritance to children.

4. Health – those who live the longest get the most out of a DB pension, but those who expect to have a shorter life expectancy might do better to transfer if this means there is a balance left in their pension fund when they die, which can be passed on. Please note that HM Revenue & Customs may challenge this for those who die within two years of a transfer.

5. Employer solvency – while most pensions will be paid in full, every year some sponsoring employers go bankrupt. If the DB pension scheme goes into the Pension Protection Fund (PPF), you could lose 10% if you are under pension age, and may get lower annual increases; if you have transferred out, you are not affected.

Five reasons why a pension transfer might not be suitable

1. Certainty – with a DB pension, you get a regular payment that lasts as long as you do; with a DC pot, you have to face ‘longevity risk’ (not knowing how long you will live).

2. Inflation – a DB pension has a measure of built-in protection against inflation, but with a DC pot you have to manage this risk yourself, which can be expensive.

3. Investment risk – with a DC pension, you have to handle the ups and downs of the stock market and other investments; with a DB scheme, you don’t need to worry – it’s the scheme’s problem.

4. Provision for survivors – by law, DB pensions have to offer minimum level of pensions for widows/widowers etc., whereas if you use a DC pension pot to buy an annuity, it dies with you unless you pay extra for a ‘joint life’ policy.

5. Tax – DB pensions are treated relatively favourably from the point of view of pension tax relief. Those with larger pensions could be under the lifetime limit (currently £1.03 milion) inside a DB scheme, but the same benefit could be above the limit if transferred into a DC arrangement.

Time for a pension review?

Before considering transferring your pensions, it’s essential you receive impartial professional financial advice about your particular situation. We can help you do this. For a pension review, please contact Lloyd O’Sullivan on 0208 941 9779 or email info@lloydosullivan.co.uk – don’t leave it to chance.

Source data: 

[1] An FOI request to the Pensions Regulator from Royal London showed that there were an estimated 100,000 transfers out of DB pensions in 2017/18, up from 80,000 in 2016/17. The average transfer was around £200,000, suggesting around £20 billion in total was transferred out in 2017/18.

PENSIONS ARE A LONG-TERM INVESTMENT.

THE RETIREMENT BENEFITS YOU RECEIVE FROM YOUR PENSION PLAN WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE VALUE OF YOUR PLAN WHEN YOU DECIDE TO TAKE YOUR BENEFITS, WHICH ISN’T GUARANTEEDß AND CAN GO DOWN AS WELL AS UP.

THE VALUE OF YOUR PLAN COULD FALL BELOW THE AMOUNT(S) PAID IN.

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Averting a later-life financial crisis https://www.lloydosullivan.co.uk/blog/averting-a-later-life-financial-crisis/ https://www.lloydosullivan.co.uk/blog/averting-a-later-life-financial-crisis/#respond Fri, 27 Jul 2018 12:58:45 +0000 https://www.lloydosullivan.co.uk/blog/?p=1017
More retirees drawing pensions without LPAs

People are generally living longer these days. Increasingly, more people are living well into their 80s and 90s – and some even longer. This may mean you have a long time to budget for. That’s why it is very important to consider all of your options carefully and think about what will matter to you in retirement.

You can now access your pension in more ways than ever before, after the Government introduced wide-ranging changes in April 2015. These changes give you more options, so it’s important that you take time to think carefully before you decide what to do with your money.

Later-life financial crisis

Nearly 80% of retirees using the UK’s pension freedoms to manage their retirement savings face a potential ‘later-life financial crisis’ as they have not set up a Lasting Power of Attorney (LPA), a recently published report[1] has warned. There are two types of LPA. These are the Health and Welfare Lasting Power of Attorney, and the Property and Financial Affairs Lasting Power of Attorney.

The research found that 345,265 pensioners accessing their pension pots in this way have not yet given a family member or friend the legal authority to make decisions on their behalf if they were no longer able to do so.

Responsibility of managing income

The analysis underscores the scale of an issue that has emerged since the British government abandoned the requirement to buy an annuity at retirement. It has come to light that twice as many people are now opting for drawdown over annuities. In effect, this puts the responsibility of managing income in retirement on the individual.

Registering an LPA has become even more important since the pension reforms. Thousands of people are now making complex decisions on their pension into old age, when the risk of developing a sudden illness or condition such as dementia increases. Despite this, many are unprepared for a sudden health shock or a decline in their mental abilities. The time to set up an LPA is well before you need it.

Potentially creating problems

With more and more people moving into drawdown, this is potentially creating problems that could leave thousands of people facing a possible later-life financial crisis. It is vital to plan for a time when managing your pension might become hard, or even impossible, and obtaining professional financial advice is one of the best ways to do this.

The Alzheimer’s Society has discovered that there are currently 850,000 people in the UK living with dementia, which could increase to over 1 million by 2025. Yet the report revealed that only 21% of retirees who have accessed funds under the new freedoms have registered an LPA.

Discussions with your family or others

An LPA can be a very important part of advance planning for a time when a person will not be able to make certain decisions for themselves. It allows you to choose someone you trust to make those decisions in your best interests. This can be reassuring, and making an LPA can start discussions with your family or others about what you want to happen in the future.

The stigma around the LPA, as with dementia, is compounded by its links to mental capacity. Some people are reluctant to consider a future where they may not be able to make their own decisions due to the connotations they associate with this. In cases where LPAs are not in place, assets and equity may be lost, or those in a vulnerable position may be forced to make decisions they are no longer able to make.

Do you need help? Give us a call

Whatever your plans for the future, we are here to help you take the next step. Please contact Lloyd O’Sullivan on 0208 941 9779 or email info@lloydosullivan.co.uk to discuss your requirements or to answer any questions you may have.

Source data:

[1] The study for Zurich UK is based on a YouGov survey of a UK sample of 742 people who have moved into drawdown since the pension freedoms were introduced in April 2015. The survey was carried out between 14 December 2017 and 24 January 2018.

FCA Data Bulletin (issue 12) shows 345,265 pots moved into income drawdown between October 2015 and October 2017. Assuming the number of people moving into drawdown continued at a similar rate from November 2017 to April 2018, this would equate to a further 86,316 people in drawdown. 345,265 + 86,316 = 431,581 people.

345,265 / 2 years of drawdown data = 172,632 x 10 years = 1,726,325 people.

PENSIONS ARE A LONG-TERM INVESTMENT.

THE RETIREMENT BENEFITS YOU RECEIVE FROM YOUR PENSION PLAN WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE VALUE OF YOUR PLAN WHEN YOU DECIDE TO TAKE YOUR BENEFITS, WHICH ISN’T GUARANTEED AND CAN GO DOWN AS WELL AS UP.

THE VALUE OF YOUR PLAN COULD FALL BELOW THE AMOUNT(S) PAID IN.

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Protecting you and your family’s finances https://www.lloydosullivan.co.uk/blog/protecting-you-and-your-familys-finances/ https://www.lloydosullivan.co.uk/blog/protecting-you-and-your-familys-finances/#respond Fri, 27 Jul 2018 08:18:22 +0000 https://www.lloydosullivan.co.uk/blog/?p=1015
Top reasons people gave for not taking out protection

There are many things to consider when looking to protect you and your family. It may not be the most exciting of subjects, but it answers one of our most basic desires – to keep safe all that we hold dear.

The State of the Protection Nation report[1] reveals that the top reason people gave for not taking out protection was that they think premiums are too expensive (69%). They also believe they won’t get ill and they don’t need insurance. Despite this, many people want to protect their lifestyle and loved ones from the financial impact of dying or becoming seriously ill.

Serious health condition or illness

Nearly half of the people surveyed (46%) felt they were unlikely to go on sick leave for three months or more, 44% thought they were unlikely to have an accident that meant they were unable to work, and a third (34%) felt it was unlikely they would contract a serious health condition or illness. Research[2] shows that the chance of being off work for two months or more before age 65 is 26% for males and 37% for females. 

Even if illness struck, nearly half (43%) felt they could manage for a year if they were unable to work due to serious illness or injury, 55% said they would manage for six months, and 71% would manage for three months.  Yet the reality is that only two in five could survive financially for more than six months if they were unable to work.

Inertia plays a part in people’s decision

Despite only a small percentage of consumers saying they had life insurance (3%), critical illness cover (3%) and income protection (5%) through their employer, the majority of people felt they didn’t need income protection (58%), critical illness cover (47%) and life insurance (34%). 

The results revealed inertia plays a part in people’s decision not to buy, as 20% of full-time working people recognise they need income protection but don’t have a policy. Over a third (38%) of people working full-time feel they don’t need income protection, but just 8% said they didn’t need it because they had cover with their employer. 

Lack of cover in line with people’s needs

The figures show that 58% of people with a mortgage have life cover in place if the home owner dies, leaving 42% unprotected. But worryingly, 71% of people with a mortgage would have no protection in place if they were diagnosed with a critical illness, and 81% of mortgage owners have no income protection in place.  The reason this is concerning is that people are far more likely to be diagnosed with a critical illness or have an injury that stops them working than to die before retirement age, so more people should consider critical illness or income protection.

A quarter (25%) of people who don’t own any life insurance, critical illness cover or income protection said they were confident that this lack of cover was in line with their needs. This figure doesn’t get much better when we look at those in full-time employment (30 hours a week or more), with 27% saying they were confident.

Life happens – let’s take care of it

We believe that receiving professional financial advice is vitally important. Life turns out a little differently for everyone, so the amount and type of protection cover you may need depends on your personal circumstances. Please contact Lloyd O’Sullivan on 0208 941 9779 or email info@lloydosullivan.co.uk to review your situation.

Source data: 

[1] Royal London’s ‘State of the Protection Nation’ report conducted by Opinium. 2,005 UK adults aged 18+ were surveyed from 9–12 January 2018. Results have been weighted to nationally representative criteria.

[2] Source: Pacific Life Re, March 2018. These figures have been produced based on their interpretation of the Institute and Faculty of Actuaries’ Continuous Mortality Investigation insured lives incidence rates together with their estimate view of future trends. Incidence rates for the entire population may be different to those lives that take out insurance products. 

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ISA rules and Inheritance Tax https://www.lloydosullivan.co.uk/blog/isa-rules-and-inheritance-tax/ https://www.lloydosullivan.co.uk/blog/isa-rules-and-inheritance-tax/#respond Mon, 23 Jul 2018 07:00:40 +0000 https://www.lloydosullivan.co.uk/blog/?p=1012
Families set to pay millions in unnecessary tax

There’s a fundamental lack of awareness and understanding around Inheritance Tax, especially when it comes to how Individual Savings Accounts (ISAs) are treated after death. Given that some people have been able to amass over a million pounds in their ISAs, it’s an area where lack of knowledge could prove costly.

Over half (51%) of over-45s do not know that ISAs are liable for Inheritance Tax, leaving families across the UK set to pay millions in unnecessary taxes according to findings from an annual Inheritance Tax monitor survey[1].

Gifted to a partner

As ISAs can only be gifted to a partner and not children without incurring tax, the Government will ultimately be a major beneficiary of money currently residing in Cash ISAs and Stocks & Shares ISAs. In the last Budget, HM Treasury predicted it would raise £5.3 billion in the 2017/18 tax year in Inheritance Tax, which will eventually increase to £6.5 billion by 2022 to 2023.

The research also revealed over three quarters (77%) think the UK’s Inheritance Tax rules are too complicated. Yet despite this, only a third (33%) have sought professional financial advice on Inheritance Tax planning. Of those who did seek advice, over two fifths (42%) spoke to a professional financial adviser.

Rules regarding inheritance

Some people could inherit less than they expected because they aren’t aware or make assumptions about the rules regarding inheritance. In particular, the rules governing the gifting of ISAs and valuable estates mean that many may be faced with a higher than expected Inheritance Tax bill.

ISAs remain the ‘go to’ financial product for many people as they look to build up a nest egg in a tax-efficient way during their lifetime. But with such a large number of older people investing into them, there is a worrying lack of awareness that ISAs are subject to a 40% Inheritance Tax charge. ISAs are a great tax-efficient investment in your lifetime, but more people need to be thinking about how to pass on their hard earned money to their loved ones when they die. 

Securing and protecting your wealth

Early preparation is the key to success here. Taking advantage of methods to secure and protect your wealth will ensure that more wealth can be passed onto the next generation – to find out more, please contact Lloyd O’Sullivan on 0208 941 9779 or email info@lloydosullivan.co.uk.

Source data:

[1] Survey of 1,001 UK consumers aged 45 or over with total assets exceeding the individual Inheritance Tax threshold (nil-rate band) of £325,000. Carried out in October 2017. 

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