Lloyd O Sullivan https://www.lloydosullivan.co.uk/blog Our Blog Thu, 24 Jan 2019 14:21:29 +0000 en-US hourly 1 Different life events https://www.lloydosullivan.co.uk/blog/different-life-events/ https://www.lloydosullivan.co.uk/blog/different-life-events/#respond Thu, 24 Jan 2019 11:26:49 +0000 https://www.lloydosullivan.co.uk/blog/?p=1181

Solutions that work as your priorities change over the years

The future may seem far away, but you need to start planning early. Regardless of your goals, there are things you can do to increase your chances of success! We look objectively at your plans to provide solutions that work as your priorities change over the years and you go through different life events.

Many of us have got things in mind we’d like to do when we retire, whether it’s travelling the world or simply doing more of what we love. But how can you save enough for a decent retirement without having to give up what makes life good today?

Eagerness to retire

According to new research[1], almost three quarters (73%) of people aged 45 or over are longing for the day when their life is no longer confined by their working routine. Yet despite an eagerness to retire, the research shows that almost half (46%) of over-45s with a pension have no idea how much it is currently worth, and that more women (52%) than men (41%) don’t know the value of their own pension savings.

Shift in lifestyle

A fifth (19%) of those aged 45-plus don’t have a pension in place yet. Two thirds of those aged 45-plus (67%) are hoping for a shift in lifestyle, keen to retire early before the State Pension age kicks in. But only one in ten of them (12%) has proactively increased how much they are investing in their pension when they’ve been able to, in order to help make this happen.

Pension freedoms benefits

Once people reach the age of 55 (age 57 from 2028), they can benefit from pension freedoms which allow them to start withdrawing money from their pension savings if they need to. It’s a point at which some key decisions can be made, and the importance of knowing the value of their pension should come sharply into focus. But even among this group of people aged 55–64, some 45% still have their eyes shut and don’t know what their pension savings are worth.

Life after work

Retirement is changing, and life after work in the future will not look the same as it did for our parents or their parents. But while many of us might dream of what we’re going to do when we retire and when that might be, without a plan in place these dreams are likely to stay just that. To find out more, please contact Lloyd O’Sullivan on 0208 941 9779 or email info@lloydosullivan.co.uk.

Source data

[1] The research was carried out online for Standard Life by Opinium. Sample size was 2,001 adults. The figures have been weighted and are representative of all GB adults (aged 18+). Fieldwork was undertaken in November 2017.

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Emergency cash https://www.lloydosullivan.co.uk/blog/emergency-cash/ https://www.lloydosullivan.co.uk/blog/emergency-cash/#respond Thu, 24 Jan 2019 11:25:45 +0000 https://www.lloydosullivan.co.uk/blog/?p=1179
Boosting women’s pension savings

A million more women in their 20s could be saving adequately for retirement if they were able to access emergency cash from their pension, according to a new report[1].

The latest Women & Retirement report highlights that the current lack of flexibility in pensions is a barrier to saving and that introducing the ability to access funds for unexpected bills could provide a much needed boost to the nation’s savings.

Access to money in emergencies

Four in ten (40%) women aged 22–29 who have a pension say they don’t save as much into it as they would like, because they want ready access to money in case of emergencies. This compares to just under a quarter (24%) of men aged 22–29. Around 357,000 women in this age bracket would start saving into a pension for the first time if they could have the option to access some of their savings should they need it[2].

The report revealed that more than two thirds of women aged 22–29 (67%) are not saving enough for retirement, and 25% aren’t saving anything at all. Men of the same age are better prepared, with 46% saving adequately for retirement and fewer not saving at all (17%). The current minimum employer pension contribution through auto-enrolment is 8%. However, the report suggests a combined 12% employer and employee contribution as an adequate level of saving[3].

Widening of the savings gap

At every age, men’s savings outpace women’s, and this could be for a number of reasons, including the gender pay gap and women taking maternity leave or even choosing to work part-time. The gap widens as savers reach their forties, when women have an average of around £23,000 in savings and investments but men have more than £50,000.

Men’s savings continue to grow well into their seventies, where they reach an average of almost £130,000, yet women have around £48,000. Women in their sixties begin to see their savings dip, which could suggest they are accessing their pensions much sooner than men.

Facing some financial difficulties

While problems with money can affect anyone, the research shows that young women are more likely to face financial difficulties than men of the same age[4]. More than half of women aged 22–29 (56%) say they have been in some financial difficulty, versus 50% of men aged 22–29. More than a quarter (27%) of women aged 22–29 also said their money problems were caused by an unexpected bill.

A fifth of women in this age group (21%) say a drop in their income put them into financial difficulty, and one in seven (13%) has faced financial hardship following the breakdown of a relationship.

Attitudes towards pension savings

For young women in Britain today, an unexpected bill of £270 would be enough to put them into the red, while young men say they could comfortably manage no more than a £315 bill. Beyond this age group, the gender gap persists with women of all ages (18+) expecting a £308 bill being enough to force them into debt, versus £367 for men.

One in five working women (20%) aged 22–29 feel insecure in their job, compared to one in ten (13%) men, which may affect their attitudes towards savings into a pension. Women also feel less confident in their ability to find a new job if they needed to. Nearly three in ten (28%) say they would not be confident finding a new job within three months, versus 24% of men.

How prepared are you for retirement?

Obtaining professional financial advice is vitally important. Planning ahead helps ensure that
you’re on track. We can review your retirement plans and help make your finances more tax-efficient. To discuss your situation, please contact Lloyd O’Sullivan on 0208 941 9779 or email info@lloydosullivan.co.uk.

Source data

[1] There are 3,404,279 women aged 22–29 in Great Britain, according to ONS population estimates to mid-2017. According to data from the Scottish Widows Women and Retirement Report 2018, 75% have a pension, and of these, 40% say they don’t save as much into their pension as they would like to because they feel they need the flexibility to access savings if they need them. This equates to 1,021,284 women aged 22–29.

[2] 25% of women aged 22–29 in the UK don’t have a pension. Of these, 42% say they would be likely to start saving into a pension if they were allowed to make a limited number of withdrawals from it during times of financial difficulty. This equates to 357,449 women aged 22-29.

[3] Scottish Widows suggests a combined 12% employer and employee contribution as an adequate level of saving.

[4] ‘Financial difficulties’ is defined as not being able to pay for your current obligations.

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Who wants to be a millionaire? https://www.lloydosullivan.co.uk/blog/who-wants-to-be-a-millionaire/ https://www.lloydosullivan.co.uk/blog/who-wants-to-be-a-millionaire/#respond Thu, 24 Jan 2019 11:24:31 +0000 https://www.lloydosullivan.co.uk/blog/?p=1177
Getting there could be easier than you think – but you’ll need to start young

Parents could make their baby an adult millionaire by starting a pension pot when they are born. Children born this year could become millionaires by their 43rd birthday if their families contribute to a pension for the first 18 years of their lives[1].

The analysis found that parents or grandparents contributing £2,880 per year (£3,600 after tax relief) until their children turn 18 years old could create a pot of £1,021,837 by 2061. The figure assumes a total contribution of £51,840, a growth rate of 8% per annum, and is net of product charges.

Substantial pot of cash

This assumed growth rate may seem high, but data from Moneyfacts, the comparison website, showed that average returns from pension funds were 10.5% in 2017 and have seen double-digit growth for six consecutive years.

While lower growth rates reduce the return, they would still leave children with a substantial pot of cash to help them retire. Average growth rates of 2% and 5% mean that, by the time the child reaches its 55th birthday (2073), they would have a pot of £171,086 and £668,592 respectively.

Loved one’s pension

On an average 5% growth rate, the child would be a millionaire by the time they retire in 2083 (65 years old), with a pension pot of £1,089,067. By the same milestone, a growth rate of 8% would create a pension pot of £5,555,260.

Previous research found that very few people would consider contributing to a loved one’s pension – only 2% of over-55s said they would support a relative by putting money into a pension fund. By contrast, 68% said they would leave their family an estate when they pass away, compared with 34% who would help their family with ongoing gifts of any kind.

Compounding interest

Despite its obvious advantages, contributing to a family member’s pension is one of the last thoughts to cross the majority of people’s minds. Yet, provided growth rates remain at current levels, it could make a millionaire of a child born today by the time they hit middle age from a relatively modest £51,840 over 18 years. It’s the power of compounding interest in action.

One of the biggest obstacles to passing on wealth tends to be the parents or grandparents worrying that their younger family members will ‘waste’ the money on frivolous purchases. But pension contributions guarantee that their children won’t be able to use the proceeds until they are of pensionable age.

Tax-efficient savings

If they don’t want to exert that amount of control, they can look at other ways too. Junior ISAs offer tax-efficient savings until a child is 18, albeit with no tax relief. However, if they want to be very specific about what their money pays for, discretionary trusts are another option, keeping it vague about who benefits and in what capacity.

For most parents, saving regularly is an integral part of securing their child’s financial future. Making regular contributions to a child’s pension may not seem like the obvious choice. However, given the flexible nature of pensions and the tax relief offered by the Government, they can provide a very simple way of securing children’s financial future in retirement.

Making the most of retirement savings

Saving for a child today is a wonderful gift for their future. There’s no time like the present to take steps towards making the most of retirement savings for your children. To discuss your options, please contact Lloyd O’Sullivan on 0208 941 9779 or email info@lloydosullivan.co.uk.

Source data

[1] Figures taken from Brewin Dolphin’s ‘Mind the generation gap’ research, which included a detailed survey of 11,000 people.

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.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

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Wealth sharing between generations https://www.lloydosullivan.co.uk/blog/wealth-sharing-between-generations/ https://www.lloydosullivan.co.uk/blog/wealth-sharing-between-generations/#respond Thu, 24 Jan 2019 11:23:20 +0000 https://www.lloydosullivan.co.uk/blog/?p=1175
Redefining how millennials become more financially secure

Millennials are set to redefine how wealth is shared between generations, according to new research[1]. Contrary to expectation, it is not millennials (aged 18–34) who appear to be under the greatest financial strain, with 44% saying they are ‘comfortable’ financially. In fact, the research shows they are trying to do the right thing.

Three quarters (73%) are putting money into savings, and as a generation they are saving the highest proportion of their income (14%). But while many millennials save hard, the cost of assets – especially property – means that no matter how hard they save, many won’t be able to establish the lives they want without assistance.

Uninformed about money

Some have given up on saving – 19% of 18 to 34-year-olds feel that major life goals, such as home ownership, seem so unachievable that it has discouraged them from saving (compared with 7% overall in the survey). Over one in ten (14%) also feel uninformed about the amount of money they should be putting away.

While two fifths (44%) of UK adults consider themselves financially ‘comfortable’, the squeezed middle are at their peak earnings and at their peak outgoings, with some supporting both children and their own parents. This has resulted in over a third (37%) of Gen X (aged 35–54) ‘making ends meet’ and a fifth (19%) admitting to ‘struggling’. Out of those aged 35–54 who are struggling, 70% of them worry about money all the time and a third (33%) sometimes go without to provide for the rest of the family.

Supporting other generations

Millennials are stepping in to provide financial support to other generations. Over a third have already supported their parents financially (36%), double the average and up from 23% in 2016. Two fifths (39%) of them say they would also financially support their parents in later life – significantly higher than both Gen X and Baby Boomers (aged 55+) at 15% and 2% respectively.

Looking further to the future, only a very small number of millennials (9%) believe that their children should have to support themselves financially when they leave home. Over three quarters (78%) of millennials plan to financially support their children in the future when they leave home.

Comfortable living standard

More than two fifths (41%) say that in addition to helping with university costs for their children, they intend to also support with day-to-day living costs such as food (33%), clothing (26%) and phone bills (20%). To compare, less than a third (32%) of Gen X would help with university fees for their children, and even fewer would with food shopping (22%), clothing (12%) or phone bills (12%).

Aware that providing this level of financial support to both their parents and their children will have consequences, more than a fifth (21%) of those aged 18–34 are already worried they will need to work longer and that they won’t have enough money for their own retirement (also 21%). Especially considering that nearly two thirds (63%) of them already admit they are saving too little to have a comfortable standard of living in the future. Millennials therefore expect help in return, with three quarters (75%) saying that they intend to rely on their own children for financial support in the future.

Emotionally tied generations

Dr Eliza Filby, Generations expert and historian of contemporary values adds: ‘Millennials have been more financially dependent on their parents than any other previous generation, and they recognise that they will have to reciprocate this as their parents age and they themselves become more financially secure.

‘They too want to offer the same opportunities and support to their children that their parents gave to them. This attitude towards financial intergenerational dependence is very different to behaviour we have seen from previous generations for two very important reasons: children are dependants for much longer, and the elderly are living much longer. The family unit are more financially interdependent and emotionally tied than at any other time since before the Second World War.’

What are your financial priorities?

Whether you are clear on your financial priorities or feel you need pointing in the right direction, we can help you plan and structure your finances. If you’re ready to have a conversation, please contact Lloyd O’Sullivan on 0208 941 9779 or email info@lloydosullivan.co.uk.

Source data

[1] Family Wealth Report research conducted by Opinium Research for Brewin Dolphin among 5,000 UK adults between 30 August and 5 September 2018.

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Income seekers https://www.lloydosullivan.co.uk/blog/income-seekers/ https://www.lloydosullivan.co.uk/blog/income-seekers/#respond Thu, 24 Jan 2019 11:22:14 +0000 https://www.lloydosullivan.co.uk/blog/?p=1173
Not putting all your eggs in one basket

Everybody has investment goals in their life, from the old adage of saving for a rainy day to planning a comfortable retirement. There are many reasons why investors might seek an income stream from their investments, for example, to pay for a dependant’s education, supplement a pension or fund the cost of care, yet achieving it can be hard.

A ‘do-it-yourself’ approach may often seem attractive to some investors who buy a handful of dividend-paying stocks and receive the income from these. There are many companies that have long track records of consistent dividend payments, and these are often household name firms. However, it’s important to diversify – it’s the age-old cliché of not putting all your eggs in one basket.

Consistent dividend payer

Just because a company has been a consistent dividend payer in the past does not mean it always will be in the future. Investors need to be sure that they have properly assessed the risks around a company (and its industry) in order to be confident that dividend payments can continue.

Conducting all the necessary research is a complex and time-consuming undertaking, so it’s no surprise that many income investors prefer to leave the heavy lifting to a professional fund manager. Funds focused on equity income will invest in a range of stocks and will have a target income yield that they aim to deliver each year.

Different types of fund choice

The theory is that holding a range of stocks leaves the overall portfolio less reliant on each individual company. If a few firms cut their dividends or see their share prices fall, hopefully others in the portfolio will offset this by raising their dividends or otherwise performing better than expected.

While there are many different types of fund to choose from, investors need to be wary of the limitations of focusing on a single region. A second reason in favour of diversification is that some regions have higher dividends than others.

Greater depth of sector opportunities

Some investors may prefer funds that invest in their home market. This has the advantage of eliminating currency volatility. But, it can mean missing out on the higher income or more diverse range of opportunities offered by other regions.

It’s not just a wider group of individual companies that is available to global investors, but a greater depth of sector opportunities too. Therefore, by diversifying, you can hold a global equity income portfolio that avoids the sector skews of any one particular region. It can also help to mitigate potential currency volatility, as the various different currencies will rise and fall against each other at different times in the economic cycle.

Maintaining a balanced approach

Investment strategies should often include a combination of various fund types in order to obtain a balanced approach to risk and reward. Maintaining a balanced approach is usually key to the chances of achieving your investment goals, while bearing in mind that at some point you will want access to your money. This makes it important to allow for flexibility in your planning.

Whatever your personal investment goals may be, it is important to consider the time horizon at the outset, as this will impact the type of investments you should consider to help achieve your goals.

Expert professional advice

For investors seeking to build a diverse portfolio, it’s essential to receive expert professional advice on the best plans and funds to choose. To assess your investment goals, please contact Lloyd O’Sullivan on 0208 941 9779 or email info@lloydosullivan.co.uk.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS.

ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

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

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Keeping it in the family https://www.lloydosullivan.co.uk/blog/keeping-it-in-the-family-2/ https://www.lloydosullivan.co.uk/blog/keeping-it-in-the-family-2/#respond Thu, 24 Jan 2019 11:21:06 +0000 https://www.lloydosullivan.co.uk/blog/?p=1171
Careful planning can reduce or even eliminate the Inheritance Tax payable

Intergenerational planning helps you put financial measures in place to benefit your children later in life, and possibly even your future grandchildren, so it’s important to start planning early.

You may want to keep an element of control when passing on your assets. You may want your money to be used for a particular reason, such as paying for school or university fees or for a first property deposit. Or you may just want to make sure your money stays within the family.

Without appropriate provision, Inheritance Tax could become payable on your taxable estate that you leave behind when you pass away. Your taxable estate is made up of all the assets that you owned, the share of any assets that are jointly owned, and the share of any assets that pass automatically by survivorship. Careful planning can reduce or even eliminate the Inheritance Tax payable.

Inheritance Tax is not payable on the first part of the value of your estate – the ‘nil-rate band’. The nil-rate band is currently £325,000. If the total value of your estate does not exceed the nil-rate band, no Inheritance Tax is payable. Outstanding debts and funeral expenses can be deducted from the value of your estate.

Leave your interest in the family home

Commencing 6 April 2017, an additional ‘residence nil-rate band’ (RNRB) allowance was introduced if you leave your interest in the family home to direct descendants (such as children, step-children and/or grandchildren). This only applies to your main home but can be available even if that home had been sold after July 2016.

The RNRB is being phased in gradually. For the 2018/19 tax year, the maximum additional allowance is £125,000, increasing your total Inheritance Tax allowance to £450,000 (£900,000 for a married couple). The maximum allowance will rise by £25,000 each tax year until it reaches £175,000 in 2020. This will give you a potential total Inheritance Tax allowance of £500,000 or £1 million for a married couple. For estates worth more than £2 million, the tax relief is tapered away.

There are legitimate ways to plan to reduce the amount of Inheritance Tax you may have to pay. We can advise you on the ways that you may mitigate any exposure, including these:

Make a Will

Dying intestate, or dying without a Will, means that you may not be making the most of the Inheritance Tax exemption that exists if you wish your estate to pass to your spouse or registered civil partner. For example, if you don’t make a Will, then relatives other than your spouse or registered civil partner may be entitled to a share of your estate, and this might trigger an Inheritance Tax liability.

Make lifetime gifts

Gifts made more than seven years before the donor dies, to an individual or to a bare trust, are free of Inheritance Tax. So, it might be appropriate to pass on some of your wealth while you are still alive. This will reduce the value of your estate when it is assessed for Inheritance Tax purposes, and there is no limit on the sums you can pass on.

You can gift as much as you wish, and this is known as a ‘Potentially Exempt Transfer’ (PET). If you live for seven years after making such a gift, then it will be exempt from Inheritance Tax, but should you be unfortunate enough to die within seven years, then it will still be counted as part of your estate if it is above the annual gift allowance. However, the longer you survive after making the gift (subject to surviving at least three years), the lower the Inheritance Tax charge:

• If you survive between three to four years from the date of the gift, the Inheritance Tax charge on the gift is reduced by 20%

• If you survive between four to five years from the date of the gift, the Inheritance Tax charge on the gift is reduced by 40%

• If you survive between five to six years from the date of the gift, the Inheritance Tax charge on the gift is reduced by 60%

• If you survive between six to seven years from the date of the gift, the Inheritance Tax charge on the gift is reduced by 80%

You need to be careful if you are giving away your home to your children with conditions attached to it, or if you give it away but continue to benefit from it. This is known as a ‘Gift with Reservation of Benefit’.

Leave a proportion to charity

Being generous to your favourite charity can reduce your tax bill. If you leave at least 10% of your estate to a charity or number of charities, then your IHT liability on the taxable portion of the estate is reduced to 36% rather than 40%.

Set up a trust

As part of your Inheritance Tax planning, you may want to consider putting assets in trust – either during your lifetime or under the terms of your Will. Putting assets in trust – rather than making a direct gift to a beneficiary – can be a more flexible way of achieving your objectives.

Family trusts can be useful as a way of reducing Inheritance Tax, making provision for your children and spouse, and potentially protecting family businesses. Trusts enable the donor to control who benefits (the beneficiaries) and under what circumstances, sometimes long after the donor’s death.

Compare this with making a direct gift (for example, to a child), which offers no control to the donor once given. When you set up a trust, it is a legal arrangement and you will need to appoint ‘trustees’ who are responsible for holding and managing the assets. Trustees have a responsibility to manage the trust on behalf of and in the best interest of the beneficiaries, in accordance with the trust terms. The terms will be set out in a legal document called ‘the trust deed’.

Passing on our assets to our loved ones

Being wealthy can have its benefits, and its challenges too. When we die, we like to imagine that we can pass on our assets to our loved ones so that they can benefit from them. In order for them to benefit fully from our assets, it is important to consider the impact of Inheritance Tax. If you would like to review the potential impact on your estate, please contact Lloyd O’Sullivan on 0208 941 9779 or email info@lloydosullivan.co.uk.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS.

ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

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Looking at the big retirement picture https://www.lloydosullivan.co.uk/blog/looking-at-the-big-retirement-picture/ https://www.lloydosullivan.co.uk/blog/looking-at-the-big-retirement-picture/#respond Tue, 18 Dec 2018 10:19:04 +0000 https://www.lloydosullivan.co.uk/blog/?p=1153
Considering making contributions ahead of the tax year end?

Investing for the future is vital if you want to enjoy a financially secure retirement, and it requires you to look at the big picture. Although pensions can be complicated, we will help you get to grips with the rules if you are considering making contributions ahead of the tax year end. Here are our top pension tax tips.

Annual and lifetime limits

Getting tax relief on pensions means some of your money that would have gone to the Government as tax goes into your pension instead. You can put as much as you want into your pension, but there are annual and lifetime limits on how much tax relief you receive on your pension contributions. Please note that if you are a Scottish taxpayer, the tax relief you will be entitled to will be at the Scottish Rate of Income Tax, which may differ from the rest of the UK.

Provided that you stay within your pension allowances, all pensions give you tax relief at the rate that you have paid on your contributions. For personal pensions, you receive tax relief at the basic rate of 20% inside the pension. That means for every £800 you pay in, HM Revenue & Customs (HMRC) will top it up to £1,000. If you’re a higher or additional rate taxpayer, you can claim back up to an additional 20% or 25% on top of the 20% basic rate tax relief through your self-assessment tax return.

Benefit from tax relief

For workplace pensions, your employer normally takes your pension contribution directly from your salary before Income Tax so that the contribution is not taxed at source like the rest of your employment income, and therefore the full benefit is received inside your pension immediately. If your employer does not handle your contributions before tax, then these would benefit from tax relief in the same way as for a personal pension contribution.

You’re still entitled to receive basic rate tax relief on pension contributions even if you don’t pay tax. The maximum you can pay into your pension as a non-taxpayer is £2,880 a year, which is equivalent to a £3,600 contribution once you factor in tax relief.

Total amount of contributions

The Annual Allowance is a limit to the total amount of contributions that can be paid in to defined contribution pension schemes and the total amount of benefits that you can build up in a defined benefit pension scheme each year for tax relief purposes.

Taxpayers can pay in up to 100% of their income, up to an Annual Allowance of £40,000. Any contributions you make over this limit won’t attract tax relief and will be added to your other income, being subject to Income Tax at the rate(s) that applies to you.

Your Annual Allowance will reduce from £40,000 if your income plus your pension contributions totals £150,000 or more. For every £2 in excess of £150,000, your allowance will reduce by £1, until it reaches a minimum allowance of £10,000.

You can also carry forward unused allowances from the previous three years, as long as you were a member of a registered pension scheme during this period to carry forward unused allowances. You cannot make withdrawals from a pension before you’re 55, moving to 56 in 2019 and 57 by 2028.

Carry forward unused allowances

You can also carry forward unused allowances from the previous three years, as long as you were a member of a registered pension scheme during this period to carry forward unused allowances.

If you choose to take a taxable income from a personal pension other than via an annuity, your Annual Allowance will be reduced to £4,000 or 100% of earnings, whichever is lower, and you won’t be able to carry forward previous unused allowances.

Paying tax on the excess

As well as the Annual Allowance, there’s also a maximum total amount you can hold within all your pension funds without having to pay extra tax when you withdraw money from them, known as the ‘lifetime allowance’. The standard lifetime allowance is £1,030,000 (2018/19), but some people have a higher allowance. The standard lifetime allowance is inflation linked, so it’s likely to increase each year.

If the value of your pension savings is higher than this, and you have not secured protection from HMRC against the changes in the lifetime allowance at the point that they reduced, you will pay tax on the excess. So, if you’re approaching this limit, be careful about contributing too much.

There’s no immediate tax charge once your pension fund grows beyond your lifetime allowance. It’s only when you choose to take your pension benefits over your lifetime allowance that you pay a tax charge, and the charge only applies to the benefits taken over your allowance.

Freedoms give greater flexibility

Commencing 6 April 2015, under the new ‘pension freedoms’ rules, you can now access your savings from your defined contributions pension scheme once you reach age 55. If you’re due to reach retirement this year, you could take up to 25% of your pension fund as a tax-free lump sum if you want to, but the remaining 75% will be liable to Income Tax.

Previously, most pensioners purchased an annuity with their pot, which paid a guaranteed income for life. The pension freedoms give greater flexibility over retirement funding. But you’ll need to plan any withdrawals you make carefully, as taking large sums from your pension can boost your income in a particular tax year, pushing you into a higher rate of tax so that you pay more tax than you need to.

What lifestyle are you aiming for?

There never seems to be a right time or enough time to plan for your retirement. But when you do, you can enjoy the present even more. It’s never too early to begin, or too late. To find out more, contact Lloyd O’Sullivan on 0208 941 9779 or email info@lloydosullivan.co.uk for more information.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

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

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

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Plan for the life you want https://www.lloydosullivan.co.uk/blog/plan-for-the-life-you-want/ https://www.lloydosullivan.co.uk/blog/plan-for-the-life-you-want/#respond Tue, 18 Dec 2018 10:17:34 +0000 https://www.lloydosullivan.co.uk/blog/?p=1151
Building up your nest egg is more discipline than difficult

For today’s retirees, retirement has changed almost beyond recognition since their parents’ day. Building a retirement fund requires saving enough money to pay your bills and continue living comfortably when you are no longer drawing an income.

The thought of it may be daunting; it can feel like an impossible mission. But with early planning, building up your nest egg is more discipline than difficult. The process of building a retirement fund typically involves a combination of consistent saving and long-term investments. But first, you have to figure out how much you need in order to set a goal.

Funds to live life to the full in retirement

Retirement is an exciting period in life. You might be looking forward to taking a trip to somewhere you’ve always wanted to go, dedicating more time to a favourite hobby or spending more time with family and friends. However, many people feel concerned about not having the funds to live life to the full in retirement.

Making sure you have enough money to enjoy your retirement is a matter of sensible planning and being proactive. Ask yourself, what decisions can I make today to start preparing for retirement? Investing even small amounts of money on a regular basis in preparation for retirement could leave you with a larger nest egg.

Head start on a retirement nest egg

Investing for growth is suited to those who want to get a head start on a retirement nest egg but won’t be retiring until further into the future. If your goal is to invest for growth, this means that you are more focused on growing your initial investment over a medium-to-long period of time (five years plus) and do not intend to use the investment to boost your current monthly income. For those investing for growth, investing as far in advance as possible from when they plan to start withdrawing the investment should give their funds the best chance of maximum growth.

Investing for income

This investment goal is designed to generate a bit of extra money now and in the future by providing a boost to your monthly income. This goal could be suitable for those closer to retirement who are looking for their investment to help with paying regular bills and outgoings in retirement. When investing for income, selecting investment trusts focused on asset classes including equities and commercial property can provide a reliable and attractive income boost.

A time when you have stopped working

Setting up a retirement goal requires you to find out how much income you’ll need when you have stopped working. As part of the planning process, you’ll need to consider answers to questions such as: ‘At what age do you plan to retire?’, ‘How many years should you plan to be in retirement?’ and ‘What is your desired monthly income during retirement?’

Your retirement fund needs certainty – you can’t risk losing your savings because you need it as a stable income. So how can one balance the need for growth with certainty of returns when building a retirement fund?

The key lies in considering a number of different factors:

Risk appetite

Are you a ‘conservative’ investor who cannot afford to lose the initial capital you put up? Can you sacrifice the certainty of having your investment protected in order to gain higher potential earnings?

If you do not already have a large sum of retirement savings, you probably shouldn’t take too much risk when you invest since you may not have the luxury of time to recoup the losses should your investment turn awry.

Time horizon

Generally, a bigger portion of your retirement portfolio can be apportioned to higher-risk investments if you start in your twenties. As you progress nearer towards the retirement years, your portfolio should increasingly focus on investments that are a lower risk and provide more stable returns.

You can consider allocating your investments into products suitable for different investment horizons (short, medium and longer term) depending on your risk appetite. For example, a short-term investment can include some risker assets such as single equities or investing in a fast-growing speciality fund. You should always be reminded that with higher expected returns come higher risks.

Inflation

If you choose to save your way to retirement by putting cash in a savings account, the value of your money may be eroded due to inflation. In order to ensure that the money you have now preserves its purchasing power during your retirement years, you need to choose savings or investments that give you higher returns above inflation.

Diversification

The key to growing your retirement fund includes having different asset classes in your portfolio, which is otherwise known as ‘diversification’. Diversification not only helps you manage the risk of your investments, but it also involves re-balancing your portfolio to maintain the risk levels over time.

Build your retirement funds

Planning for your retirement can seem like a daunting process. Keep in mind that there are no hard and fast formulas to how you build your retirement funds, but keeping the above factors in mind will definitely help you work towards achieving your retirement goals. Want to review how to enhance your retirement plans? Please contact Lloyd O’Sullivan on 0208 941 9779 or email info@lloydosullivan.co.uk.

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.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

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Pension unlocking https://www.lloydosullivan.co.uk/blog/pension-unlocking/ https://www.lloydosullivan.co.uk/blog/pension-unlocking/#respond Tue, 18 Dec 2018 10:15:53 +0000 https://www.lloydosullivan.co.uk/blog/?p=1149
Treasury enjoying a tax bonanza from pension withdrawals

Following changes introduced in April 2015, you now have more choice and flexibility than ever before over how and when you can take money from your pension pot.

You can use your pension pot(s) if you’re 55 or over and have a pension based on how much has been paid into your pot (a ‘defined contribution scheme’). Whether you plan to retire fully, to cut back your hours gradually or to carry on working for longer, you can now decide when and how you use your pension and when you stop saving into it to fit with your particular retirement journey.

Flexible payments

HM Revenue & Customs (HMRC) has published its update on flexible payments from pensions. This confirms that 585,000 withdrawals were made by 258,000 people in quarter 3 2018, with total withdrawals in this quarter of nearly £2 billion. In the three and a half years of pension freedoms, nearly 5 million withdrawals have been made by over 1.3 million people, totalling £21.6 billion (April 2015–October 2018).

You can use your existing pension pot to take cash as and when you need it and leave the rest untouched where it can continue to grow tax-free. For each cash withdrawal, normally the first 25% (quarter) is tax-free, and the rest counts as taxable income. There might be charges each time you make a cash withdrawal and/or limits on how many withdrawals you can make each year.

Secure retirement

Withdrawing money from pensions following the introduction of the freedoms shows no signs of abating. Quite the opposite, in fact, as the latest official figures show that the Treasury expects to receive an additional £400 million[1] in tax receipts from flexible pension withdrawals this year. Cashing in your pension pot will not give you a secure retirement income, and you should obtain professional advice if you are considering this option.

The findings show that typically smaller pensions are being fully withdrawn, while people with larger pensions are making multiple withdrawals in a tax year, suggesting they are treating their pension more like a bank account. These pensions are also being accessed for the first time before State Pension age. People accessing their cash also need to ensure they are not paying more tax than they need to.

Tax bonanza

This combination of taking multiple withdrawals in a tax year at earlier ages, when people are still likely to be earning income from work, means many people are likely to be paying more tax than if they took withdrawals more gradually. The Treasury is enjoying a tax bonanza, as predictions that paying Income Tax will be a natural brake on withdrawals hasn’t stopped people simply taking the money.

HMRC also confirmed that around £38 million has been refunded in overpaid tax following the application of emergency tax rules on pension withdrawals in the last quarter (1 July–30 September), as many people continue to overpay at the point of withdrawal.

Taking control of your financial future

Retirement is very much in the control of the individual. The money saved now will be in your hands in the future, so now is the time to start making active choices which will help to achieve your retirement dreams. To review your situation, please contact Lloyd O’Sullivan on 0208 941 9779 or email info@lloydosullivan.co.uk.

Source data

[1] HMRC Pension schemes newsletter 104 for October 2018.

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.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

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

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Exploring your ISA options https://www.lloydosullivan.co.uk/blog/exploring-your-isa-options/ https://www.lloydosullivan.co.uk/blog/exploring-your-isa-options/#respond Tue, 18 Dec 2018 10:14:13 +0000 https://www.lloydosullivan.co.uk/blog/?p=1147
Time to give your financial future a boost?

The end of the tax year on 5 April is fast approaching, so make sure you’ve made the most of your annual allowances before it’s too late. No matter what, why or how you want to save and invest, an Individual Savings Account (ISA) could help make your money work harder for you.

ISAs are tax-efficient wrappers. Every tax year, we each have an annual ISA allowance. If you don’t take full advantage of using all or part of it in one tax year, you cannot carry it over to the next.

There are various tax advantages to saving or investing through an ISA: you don’t pay Capital Gains Tax on any capital growth nor Income Tax on any income received, either as interest or dividends, from the investment or cash savings. Another advantage is that you don’t have to declare ISAs on your tax return.

Types of ISAs and their allowances

There are currently six different types of ISA.

Cash ISA

Anyone over the age of 16 can put their cash savings into a Cash ISA. Accounts can be either instant access, have notice periods or have fixed terms.

The annual allowance for a Cash ISA is £20,000 (tax year 2018/19). You can invest up to this full amount in your Cash ISA, or you can share this allowance between the different types of ISA, with the exception of the Help to Buy ISA.

Stocks & Shares ISA

A Stocks & Shares ISA is a medium-to-long-term investment (five years or more). Anyone over the age of 18 can put individual shares or managed funds into a Stocks & Shares ISA. It enables you to decide how much risk you are prepared to take when investing, offering access to a range of funds and the potential for better returns than a Cash ISA over the long term.

The annual allowance for a Stocks & Shares ISA is £20,000 (tax year 2018/19). Again, you can invest up to this full amount in your Stocks & Shares ISA, or you can share it between the other types of ISA.

Innovative Finance ISA

This ISA is for investments in peer-to-peer lending platforms. You must be over the age of 18 to invest.

The annual allowance for an Innovative Finance ISA is £20,000 (tax year 2018/19). Once again, you can invest up to this full amount in your Innovative Finance ISA, or you can spread it out between various types of ISA.

Help to Buy ISA

Help to Buy ISAs are available to each first-time buyer, not each home. This ISA has been introduced to help first-time buyers over the age of 18 get on the property ladder. You have to choose between either a Cash ISA or a Help to Buy ISA, but you can have a Help to Buy and a Stocks & Shares ISA in the same tax year.

The Government will top up any contributions you make by 25%, up to the contribution limit of £12,000. So, for every £200 you save, the Government will contribute £50. This means you can earn a maximum of £3,000 from the Government. So, if you’re buying a property with your partner, for example, you’ll be able to get up to £6,000 towards your deposit.

The minimum amount you need to save to qualify for a government bonus is £1,600 (which gives you a £400 bonus). You can start off your ISA with an initial deposit of up to £1,000, which also qualifies for the 25% boost from the Government.

Another important factor is that the proceeds can only be used to buy a property worth up to £250,000 outside of London, and up to £450,000 within London.

Lifetime ISA

The Lifetime ISA is similar to the Help to Buy ISA. It is designed to help investors between the ages of 18 and 39 save for either a first house purchase or their retirement. Once you have a Lifetime ISA, you can continue to contribute until the age of 50.

You can put a maximum of £4,000 into a Lifetime ISA each tax year and are paid a 25% bonus from the Government. The bonus is paid in monthly instalments, and the maximum bonus you can earn in a tax year is £1,000.

The amount you pay in is linked to your annual ISA allowance (£20,000 for 2018/19). For example, if you pay £1,000 into your Lifetime ISA, you can still pay £19,000 into other ISA products. It is possible to hold both a Help to Buy ISA and a Lifetime ISA, but you will not be able to use both bonuses for a first-time house purchase.

Another differentiator between this type of ISA and the Help to Buy ISA is that the proceeds can be used to purchase a property worth up to £450,000 regardless of its location.

Junior ISA

Cash or investments can be wrapped in this ISA on behalf of children under the age of 18. Anyone can invest in the Junior ISA – parents, grandparents or friends. The money belongs to the child, and they can access it when they reach 18 years of age. The Junior ISA has an annual allowance of £4,260 (tax year 2018/19). You must be a UK resident or crown employee to invest in any type of ISA.

What are your savings and investment goals?

Saving and investing is not just about what you know but also who you are. Whether you consider yourself a savvy investor or a financial novice, if you would like to discuss the options available to you, please contact Lloyd O’Sullivan on 0208 941 9779 or email info@lloydosullivan.co.uk.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

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

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