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On Balance...

By Balance team, Mar 29 2017 09:34AM

Growing older in the 21st Century has seen a vast number of options opening up for pensioners. Whether you’re planning to rest up, sail a yacht or even climb a mountain – they say that 60 is now the new 40 - the world is your oyster. Some people choose to carry on working after retirement age, simply because they enjoy what they do. Whatever situation you’re in, sensible retirement planning is all about creating a vision for your future which is right for you. We’ve looked at what some of our best-known celebrities have to say on the subject.


I don't really want to retire. I intend to go on working as long as I can because I still have a huge amount

of energy.


Dame Judi Dench


Feel like Dame Judy? Perhaps you are fortunate enough to love what you do and have no intention of stopping work? If you enjoy your career, recent pension freedoms have allowed access to funds from the age of 55, so you could continue working for as long as you want, using some of the cash from your pension scheme simply to enhance your life. On a more serious note, none of us know what the future holds. Make sure you have enough funds by creating a sound financial buffer, so if you do have to stop working for health or personal reasons, you are still able to enjoy your future.


We are going as fast as we can as soon as we can. We're in a race against time, until we run out of

money.


Jack Nicholson


Jack hits the nail on the head - this tends to be the case for most people. It’s up to you to step out of the ‘race’ and put some money aside for your future, so you don’t run out of money when you should be enjoying your hard-earned savings at a later stage of life. This could involve consolidating your pensions or seeking advice on what to do with a lump sum to make sure it stays tax-free.


Save your money. You're going to need twice as much money in your old age as you think.


Sir Michael Caine


British screen legend, Michael Caine, has had a celebrated acting career, and you would think that he shouldn’t need to worry about money. However, his advice is spot on. Having an effective savings strategy is the key to a successful retirement. Do you have money saved in different accounts or ISAs? Are you making the most of your savings in terms of interest rates and tax liabilities? Speak to one of our financial planners if you’re unsure about your current savings strategy.


You write your life story by the choices you make.


Dame Helen Mirren


Dame Helen is absolutely right. We all have the chance to paint a picture of how we would like our futures to be. And it starts with the choices you make. Make sure you have enough funds available when you retire, that your estate is protected in terms of wills and possibly trusts, and that you have up-to-date insurance policies to protect you and your family should the worst happen. Choose a secure future for you, your partner and your family by optimising your wealth and protecting your assets.


Everyone is different; therefore, every retirement plan should be tailored to your individual lifestyle. Retirement plans should reflect your goals and aspirations. With careful, thoughtful planning you will be able to do all the things you hope to achieve once you retire, whether it’s taking that cruise, writing that novel or learning Swahili.


To find out more, please read our guide to Retirement or get in touch and speak to one of our financial planners, who will be more than happy to help with your retirement planning.






By Balance team, Mar 10 2017 10:00AM

With only a few weeks to go until the end of the financial year, how are your finances shaping up? Did you manage to put any measures in place after our financial checklist at the start of the year? If you feel like you’re drowning in paperwork and your personal finance to-do list is getting every longer, read on….


1. Get organised

To assess your financial position and accurately review where you are, collect together any relevant paperwork. This includes bank account statements and statements for any savings and investment accounts, e.g. share trading accounts, ISAs and bonds. Next, collate your pension statements including private, state and any final salary pensions.


Do you keep a record of your household bills? If you’re keen to understand where it all goes, take a look at your bank statements over the last three months and add details of your average bills and spending to a spreadsheet so you can see exactly how much is going out.


You might also find it helpful to have a summary of what have coming in, whether that’s from your salary, business income, pension, savings interest or dividends.


2. Get rid of any unwanted bills

Once you have done the calculations, it’s time to look for the things you would rather not spend your money on – this could be forgotten subscriptions for magazines or online services, small duplicate insurance policies, or memberships you don’t use.


Remember that your money is simply a tool to help you feel secure, do more of what you enjoy in life and support the people around you, so there’s nothing wrong with spending money! But you will want to make sure that you are using your money on things that are valuable and important for you.


3. Start saving sensibly

If you haven’t already done so, it is time to review your current savings accounts. How much interest are you receiving? These days, most savings accounts offered by high street banks have very low interest rates, so you may choose to switch to a Fixed-Rate Savings Account or a Regular Savings Account – see our previous blog on this, Preparing for Your Tax Return, which goes into more detail.


Have you been using your ISA allowance for your savings? For the tax year 2017/2018, the ISA limit will increase to £20,000 but for now the limit is £15,240.


4. Refocus your investment strategy

Did you find any details relating to stagnating investments in your paperwork? Old investments set up years ago, collections of shares you inherited or bought through your employer? Perhaps you are someone who has a portfolio of shares you look at from time-to-time, without a solid investing strategy? Whatever the case, you probably already know you might not be making the most of your money. Having your money managed professionally can make a big difference.


It’s also useful to remember that investments which are very focussed in just a few areas (lots of shares just with one company for example) can be very high risk. Ask anyone who worked for a bank where they were encouraged to own shares. They felt like a safe bet at the time, but for many people they’re now worth a fraction of what they paid for them, with little hope of recovery in the short term. One key strategy to protect yourself from the risks of having all your eggs in your basket like that is to diversify – as widely as possible.


Taking good care of your money and having a sound investment strategy should lead to feeling more comfortable and enjoying better returns – talk to one of our financial planners for investing advice.


5. Pension check – ready for retirement?

You’ve found your pension paperwork, so check the figure which gives a forecast of the likely income you will receive when you retire. How does it look? Consider your future plans: will this level of income match the lifestyle you want to lead post-retirement? Due to recent pension freedoms, you can now access your pension at the age of 55 more flexibly than ever before. The advantage here is that you can start to draw from your pension gradually as you head into retirement. However, the obvious risk being that, without careful, thoughtful planning, you could run out of money!


You might also want to look at consolidating your pensions to improve on costs, options or just to make things easier to manage. If you’re unsure whether you have got details of all your pensions, then contact the Pension Tracing Service, where you can ask them to track down pensions from old employers. If you have any pensions you’re not sure what to do with, then talk to one of our financial planners who can review these for you.


In need of a financial Spring Clean? If so, get in touch to speak with one of our financial planners who will be more than happy to carry out a review for you.



By Balance team, Mar 7 2017 10:24AM

On Wednesday 8 March, the Chancellor Phillip Hammond will be announcing details of the Spring Budget. So, what can we expect this time round? With a lot of talk around the self-employed, making tax digital and the costs of social care, we have pulled together an outline summary of what’s expected below.


Economic growth

Economists at Deloitte are predicting good economic growth and strong tax receipts, with “better-than-expected tax revenues”, although public spending will still feel the squeeze, as continuing austerity measures are expected. The Institute for Fiscal Studies (IFS) warns of “sharp public sector cuts and taxes reaching their highest level in 30 years”, which may lead to a 4% reduction in public spending over the next three years. The Resolution Foundation think tank believes the Chancellor will announce lower borrowing - the first time a Chancellor has announced this since 2014 – and suggests Phillip Hammond should be looking for ways to reduce “the UK’s reliance on debt-fuelled household spending”. The UK has a long way to go to achieve a balancing of the books when it comes to public finances, with annual borrowing still at 3.5% of UK GDP. What’s more, average household finances are expected to take a further hit while the economic outlook remains uncertain.


Corporate Tax and Employment Tax

No big changes are expected for corporation tax other than the limit on tax relief and how tax losses are used, which was announced in last year’s Budget. Losses arising before 1 April 2017 will be restricted to 50% of profits and the amount of profit that banks can off-set with pre-2015 losses will reduce from 50% to 25%. It is hoped this measure could bring an additional £1.8 billion into the economy. On the other hand, there could be complex changes ahead for employment tax, which may impact the public sector. Assessments may be introduced for personal service companies, and any salary sacrifice arrangements that may cease to offer tax and NIC savings. It is thought the forthcoming Budget may start the ball rolling for a high-level consultation, with a view that eventually private sector companies will follow suit.


Making Tax Digital

Currently planned for April 2018, all self-employed persons with a turnover of over £10,000 per year will need to submit their tax return on a quarterly basis, rather than at year end using a digital method, e.g. a cloud-based accounting system. This measure is aimed at reducing tax avoidance by cash-based businesses. Some tax professionals have suggested the VAT threshold would be a more appropriate level to begin digital tax reporting, but this will become clearer after next week’s announcements.


Social Care and Council Tax

With increased pressure on the NHS, social care budgets are currently being stretched to exhaustion. It is hoped that the Budget will include a cash injection to invest into technologies and systems to aid people before they require hospital or social care. Others are hoping that controversial cuts to Universal Credits will be reviewed due to serious concerns over living standards. Recent research by the House of Commons library revealed the need to increase Council Tax by £6 billion a year by 2020 to off-set rising social care costs. Many experts estimate this could see some household council tax bills rise by 4.99%, which would be considered a very unpopular measure by many.


The Spring Budget will be announced on Wednesday 8 March - if you need any advice, then please get in touch to speak to one of our financial planners.



By Balance team, Feb 24 2017 09:29AM

This week, the Government proposed changes to the way defined benefit pensions are calculated. In short, it means if you have benefits in a defined benefit scheme, you could find your pension income on retirement is lower than you expected. The reason behind the move is to make sure that defined benefit pensions are still sustainable, once people retire and start receiving their pension payments. We can’t grumble about that approach – it is a sensible course of action to take in the long-term, but it does mean that some people are likely to lose out and get less in retirement than they expected.


What is a defined benefit pension?

A ‘defined benefit pension’ (also known as a final salary pension scheme) is a type of pension where an employer provides a lump-sum and an income on retirement which generally goes up with inflation and is guaranteed for life. Usually, the pension income will continue being paid to a spouse when you die. The amount you get paid depends on your earnings, age and length of time working there. Many big employers like Boots, Next and Rolls Royce as well as government departments have traditionally provided defined benefit pension plans and most in the private sector have now closed to new members. That’s partly because they are just too costly to provide, and also because it means companies have enormous, and ever-changing responsibilities to pay pension incomes for years into the future which they would rather not have. These pension liabilities can threaten the existence of entire companies, as we saw with BHS recently.


Pensions for modern times

When many defined benefit pension schemes were originally set up, the average person’s lifespan was a lot shorter and they might only live for a few years after retiring. That’s far from the picture now and most of us will enjoy 20+ years of retirement. That means defined benefit pension schemes are having to pay out for much longer. And the current economic landscape means that’s incredibly costly on the businesses behind them. If a business can’t maintain its pension responsibilities, it will go bust – meaning that you might not get anything like the pension you expected, and jobs are lost.


The proposals in this week’s green paper are designed to relax the rules a little, so pension schemes can cut their likely costs in the future. Specifically, it proposes that pension scheme trustees would have the freedom to change the measure of inflation it uses from the (usually higher) retail prices index to the (usually lower) consumer prices index. What does that actually mean? It means pensions could be less than you originally thought when you come to retire – if this proposal is agreed.


Should I transfer my defined benefit pension?

If it’s right for you to transfer your defined benefit pension, these proposed changes probably aren’t going to make any significant impact on the decision. The reasons why transferring might be a good idea are more complex than that. Equally, if you have a defined benefit pension and you’ve already been recommended to keep it, these changes probably won’t change that advice. But it might change your expectations of what your income will eventually be.


How do I assess the value of my pension?

We always encourage our clients to regularly review their pensions, whether you’re in a defined benefit/final salary pension scheme or a personal pension plan. Understanding the true value of your pension is vital, if you want to look forward to a comfortable retirement.


Find out how much your defined benefit/final salary pension is worth by asking the scheme administrator for a Cash Equivalent Transfer Value. Then speak to a pension specialist, like us, for further advice about whether you should keep it or not.


Comparing final salary pension schemes with personal pensions


A final salary pension scheme (defined benefit pension) will guarantee a secure pension income for the rest of your life, which will rise with inflation. Plus, it will pay an income to your spouse and children/dependents after your death. However, if you do not have a spouse, then the pension would simply stop when you die. Moreover, the income is not very flexible, meaning you cannot take more earlier on, especially if you want to begin gradually drawing from your pension as you move from work to retirement. The tax-free sum at the end can be lower than a personal pension plan, with no ability to control investments within the scheme. What’s more, you are relying solely on your employer to keep the pension plan well-funded – in recent times, this is becoming an increasing worry, e.g. the BHS pension.


On the other hand, a personal pension plan gives you much more flexibility. You can take income from the pension when you need it, e.g. you could take more early on in your retirement to use for a cruise or a luxury holiday, and then take less later on in life. The flexible way you can take out your income allows for more tax savings, as you can choose the way it is invested. Plus, on your death, the money won’t be lost even if you do not have a surviving spouse or child. However, the flexible nature of a personal pension plan could mean you risk running out of money early on in your retirement – there are no guarantees.


Please download our one page final salary v personal pension comparison guide for more information.


If you need pension advice, then please get in touch and speak to one of our financial planners. We will be more than happy to explain how the Government proposal could affect you.





By Balance team, Feb 21 2017 09:46AM

When your business starts to flourish financially, many directors and partners are faced with a fresh set of challenges. What are some of the financial planning considerations that apply to business owners? We’ve outlined a few ‘best practices’ for business owners to consider when it comes to taking money out of their business and minimising taxes.


Changes in rules for dividends

If you draw dividends from your business, you may have already felt the impact of a change in rules last year. In April 2016, the 10% tax credit on dividends was abolished and a £5,000 tax-free dividend allowance was put in place. Therefore, any dividends above this level are taxed at 32.5% (higher-rate), 38.1% (additional-rate) and 7.5% (basic-rate).


Any dividends received on shares held in ISAs or pensions remain unaffected by this change. But dividends on shares in any personal investment portfolios will go towards this limit. So if you are in discussion with your accountant about the dividends you draw, make sure they know if you receive dividends from other sources too, because this could affect their advice to you (and the tax you would pay). Speak to one of our financial planners for more details about this.


How do I make my business more tax-efficient?

Putting some of your profits into your own pension plans can reduce your corporation tax bill. Another nice idea is to think about how your pension plan can actually be used to benefit your business. Some specialist Self Invested Personal Pensions (SIPPs) can be used to buy commercial property or land, which can then be let to your business – making you the landlord and tenant. This is a really tax efficient way of owning a property and extracting money out of the business for you to benefit from later in life.

SIPPs can also borrow money commercially, which can boost the funds available to buy your new office, factory or shop (for example).


As well as it being tax-efficient business financial planning, it also helps safeguard some of your profits. Money held in your pension fund is ring-fenced from business creditors. So if the business struggles in the future, and your factory is in your pension fund, it’s protected.


If this is something you would like to know more about, please get in touch with one of our financial planners.


Protecting your people and assets

Another key thing to think about with your business planning is what would happen if any of the shareholders of key people passed away or were unable to work long-term. Who would run the business? Would there be enough money to recruit a replacement? What would happen to the business shares? If you don’t have a shareholder’s agreement these shares could well pass to a spouse on death and out of the other shareholders’ control. If they want to buy those shares from the spouse, they will need to have the money available to do so and, ideally, an agreement in place which states the shares must first be offered to them before any third party.


There are two vital points to put on your next management meeting agenda: shareholders’ agreement and insurances. Most business owners need a shareholders’ agreement which is set up through a lawyer, setting out what would happen to the shares on death, serious illness and also if the shareholder wants to sell up in good health.


Most businesses also need insurance policies in place that would pay out a lump sum sufficient to buy the shares back on a shareholder’s death. These insurance policies are usually called Shareholder Protection or Key Person / Key Man Protection. It doesn’t take long to get these insurances in place, and it could be the difference between a tragic business failure and a business success .

If you’re a business owner and you would like a financial review to help you manage your wealth, then please get in touch and speak to one of our financial planners.



Regular news and views from the Balance team. You'll find our thoughts about pensions, investments, ways to save tax, facts about finances and plenty more.

 

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