Posts Tagged ‘pension’

What Does The 2016 Budget Mean for Pensions?

Tuesday, March 8th, 2016

What Does The 2016 Budget Mean for Pensions-On 16th March 2016, Chancellor George Osbourne announces the 2016 Budget.

Speculation on what will be changed has been on-going for months with recent reports (BBC, 2nd March) suggesting that the government was considering:

  • Abolishing the 25% lump sum which pensioners are allowed to withdraw tax free when their pensions mature
  • Cutting the maximum annual contribution
  • And perhaps even abolishing the entire tax relief system.

Rumoured Changes to Pensions

Tax relief on pension contributions is a growing issue for the economy. Employees benefit from tax relief because the portion of their income that goes into their pension is not taxed. Currently, the more income tax you pay, the more tax relief you receive on your pension contributions. Changes to this system could save the country a lot of money, and benefit some pension savers too.

HMRC data shows that total tax relief on registered pension schemes doubled between 2001-2 and 2013-14. At the moment, pension contributions are not taxed, but money taken out is taxed. Top rate taxpayers get 45% tax relief on their pension, higher rate taxpayers get 40%, and basic rate taxpayers get 20%. Higher rate and additional rate taxpayers receive two thirds of tax relief. Life expectancy continues to rise, meaning that tax relief on pensions is costing the country more as time goes on.

Flat Rate of Tax Relief on Contributions

One option that was considered was bringing in a flat rate of tax relief on contributions. Changing the system so that everyone gets the same level of tax relief would save the government a huge amount of money and benefit most ordinary people. However, this would be unpopular with wealthier people and, according to some, more difficult to administer.

The second option was to change pensions to resemble Individual Savings Accounts (ISAs). With an ISA or the possible new style of pension, contributions would be taxed beforehand via income tax, but withdrawals from the pension pot would not be taxed.

A less drastic option is for Osbourne to reduce the maximum pension contributions that individuals can make in a single tax year. Currently, everyone can save up to £40,000 per year into a pension. According to the BBC, it is “highly likely” that this will reduce, perhaps to as low as £25,000.

This option is less radical than overhauling tax relief, but it could be significant for people who have fallen behind on pension contributions and want to catch up as they approach retirement. The annual allowance has been reduced previously, being cut from £50,000 to £40,000 in 2014. Savers who want to contribute more than these amounts may want to consider getting pension advice soon, as future budgets may see further cuts to this allowance.

Latest News on Pensions in the 2016 Budget

On the 5th March it was reported that the Chancellor had ditched the proposed changes to tax relief on pensions. This means that upfront tax relief will remain, and there will be no flat rate of tax relief after all. However, these changes may still happen in future. An anonymous source at the Treasury told the BBC that this was “not to right time” to make these changes. The proposed changes would have cost the wealthy but encouraged lower earners to save more for retirement.

The announcement was disappointing for some, including the National Pensioners Convention, but ex-pensions minister Steve Webb said it was the right decision. Eleanor Garnier, the BBC’s political correspondent, speculated that the decision not to reform pension tax relief at this time may be related to the upcoming EU referendum, with George Osborne steering away from upsetting voters.

What Can You Do?

Although tax relief is not being addressed in this Budget, Osbourne still has the option of reducing allowances and making other changes to the system. Pension savers of all ages would do well to monitor their own arrangements, get pension advice from qualified pension advisers, and ensure they are contributing enough to see them through in light of changes that may or may happen next week.

If you are looking for advice on pensions, you can contact the advisers at Maxim Wealth Management for a free consultation: 0141 764 0040 (Glasgow office) 0207 112 8654 (London office)

Winners and Losers from the 2016 New State Pension

Friday, February 26th, 2016

Winners and Losers from the 2016 New State PensionThe New State Pension comes into force from 6 April 2016 and new UK pensioners will find a number of differences, with some pensioners gaining from the changes, while others will lose out.

What is the New State Pension 2016?

The new pension applies to everybody reaching pensionable age on or after 6 April and amounts to a maximum total benefit of £155.65 each week. Amounts of pension due are based on National Insurance records and pensioners will need a minimum of ten years payments in order to qualify for the minimum payments.

The new maximum pension is higher than the existing maximum rate of £115.95 weekly, however, you need at least 35 years of qualifying National Insurance contributions to achieve payments at this level. You could still qualify for the maximum pension if National Insurance credits were allocated at times during your life, for example if you were a carer, unemployed or parent with childcare responsibilities.

Does Everyone Qualify for the New State Pension?

The UK Government has failed to highlight just how many changes have been put in place and how they will affect new retirees and people who are approaching retirement age. An MPs enquiry is currently underway to investigate reasons the government failed to communicate all the forthcoming changes in a comprehensive manner to the public.

Reviews of the new regulations have already highlighted that only about 37 percent of retirees in 2016/17 are likely to qualify for the full rate of payment, as anybody who contracted out of the State Pension Scheme to join employment schemes will be unable to receive full payments. If you don’t qualify for the maximum payment, payments made into vocational schemes should ensure you won’t lose out financially.

Who Are the Winners and Losers Under the New Pension Scheme?

The major losers under the new scheme will be higher earners who won’t qualify for such generous state pension. It is felt likely that these pensioners would usually have built up substantial vocational pension and/or savings to mitigate any losses, however.

Winners under the new scheme are likely to be women who may only have partial National Insurance contribution records, alongside substantial credits due to carer responsibilities. Additionally, self employed people who have run their own businesses are likely to have access to higher payments. The total benefit to women and the self employed under the new regulations is likely to amount to around £40 per week, so it’s a genuine increase for some people retiring from April 2016 onwards.

What Can You Do to Improve Your Life At Retirement?

Increased likelihood of living longer has also meant reforms to the retirement age. From the year 2020 pensionable age goes up to 66 for men and women, and increases to 68 by the year 2046.

If you’re nearing retirement age now, it may be disappointing to consider you could have to work until the age of 66 and it’s important to find out what your state pension is likely to amount to. It’s possible to receive an accurate state pension forecast if you’re over the age of 55, and this will give you indicators of any additional savings or investments you need to put in place.

There are a number of resource available to help you understand all the potential pension and saving options. However this information is often generic and should not be taken as advice. In order to make the best decision about your financial future it is recommended that you seek professional pension advice from an experienced adviser. They will be able to help you put together a savings plan that fits your needs.

Maxim Wealth Management have been helping clients across the UK find their perfect saving vehicle since 2001. If you are interested in financial advice please contact us today for a free consultation: Glasgow 0141 764 0040 or London 0207 112 8654.

5 Pension Mistakes You Should Avoid

Wednesday, February 10th, 2016

5 Pension Mistakes You Should AvoidMany young people don’t think about their retirement. Even people reaching that inevitable age can bury their heads in the sand about building a pension pot; not wanting to face the truth that they are growing older.

This way of viewing retirement is understandable however the sooner you begin saving, the bigger the pot you will be able to build – something your future self will thank you for.

If you are unsure where to begin here are five pension mistakes you should avoid if you wish to maintain a similar standard of living in retirement to the one you have currently enjoy.

1. Not Having a Pension

The basic state pension will change to a flat rate of £155.65 per week from April this year (for people who have paid 35 years of NI). This equates to below £10,000 per annum. For many people this is a huge cut in their salary and not enough to maintain a reasonable standard of living.

You should also consider the fact that the pension age is rising over the next few years, so those wishing to retire in their early 60s will need to have other resources to live on until their state pension kicks in.

2. Delaying Saving

The value of your pension pot at retirement is based on the amount you put in and the length of time it is invested.

Whilst diverting your money into savings early on in your career may seem unfavorable when you are young, your older self will greatly appreciate it.

3. Not Understanding Your Options

There are a number of ways to save for retirement. You might be best suited to an ISA, whilst others may benefit more from a SIPP. What is best for you may not be the same as what is best for your friends or other members of your family. Understanding the difference and finding the option that suits you best is crucial for your pension pot to grow the way you want it to.

4. Failing to Review Your Pension Regularly

Do you know how much your pension pot is worth? Or which funds you have and their associated risk? If you currently have a financial or pension adviser, you may benefit from switching.

5. Not Seeking Pension Advice

The government launched a free service, Pension Wise, to help you understand what you can do with your pension pot money which people had found the website helpful to various degrees. It is important to note that the service offers guidance on what individuals can do, but not necessarily what they should do.

For detailed, individual advice on pensions it is worthwhile researching financial advisers who will be able to provide you with more specific advice on what you should do given your circumstances and attitude to risk.

Maxim Wealth Management offer financial advice from our offices in Glasgow and London. To request a FREE consultation please call us on 0203 841 9941  (London) or 0141 764 0040 (Glasgow). Alternatively you can fill in our contact form and we will get back to you.

Investment Portfolio Health Check

Thursday, October 4th, 2012

Investments

Time for a portfolio health-check.  Once a financial plan has been put in place, it is tempting to believe the paperwork can simply be tucked away in a drawer and forgotten.  However, like a well-kept garden, a financial plan needs regular tending to ensure it is still on track. ‘Weeds’ can spring up or you may just like to grow something new.  What should a financial health-check comprise?

check it is still fit for purpose.  The original financial plan will have been matched to an investor’s goals – to retire at 60, say, to fund education for children or whatever.  A review will first look at whether these goals have changed, perhaps with the birth of another child, or a change of job or a surprise inheritance.  It should consider whether investors need to save more or switch to different types of investments to achieve their goals.

The Portfolio Review

A review will also look at an investor’s progress towards their goals.  It may be a portfolio has performed particularly well and it is no longer necessary to take as much risk – or the opposite might be true and an investor needs to take on more risk.  A financial health check will also examine whether the underlying investments are performing in line with expectations.  Fund managers will have good and bad periods.  A run of bad performance may mean their style is out of favour – for example, they may target larger, dividend-paying stocks while the market currently prefers small companies – but your financial adviser will be able to judge whether this is expected or whether it is a sign of a deeper problem.  It may be a manager is losing their touch, has left their employer or there are problems within the investment house.  In this case, it may be worth switching to another manager.

Investment Changes

A portfolio will also need to be tweaked according to the wider economic environment.  The 2008 financial crisis changed the investment landscape – for example, the low interest rates that have followed mean income-seekers have had to work harder to generate the same level of yield.  While an event of this magnitude will hopefully not repeat itself in the short term, it highlights the importance of regular reviews and ensuring your financial plan continues to be appropriate.  Financial health checks can ensure your garden grows abundantly in all weathers.  A little tending can go a long way.  To arrange a financial review contact Maxim Wealth Management or call 0141 764 0040.

Can you afford to spend 1/3 of your life in retirement?

Thursday, September 15th, 2011

Life expectancy in the UK is rising

It has long been accepted that improvements in medicine, lifestyle and an understanding of the effects which habits such as smoking can have on our health means life expectancy is increasing. Future generations will enjoy much longer and healthier lives on average than their predecessors.

Figures released in April 2011 by the Department of Work & Pensions help illustrate rather exactly what this means. These figures suggest, of the under 16s already alive today, over a quarter are going to reach the age of 100 – and already, the average new-born female is going to live to over 90.

As Steve Webb, Minister for Pensions, commented at the time, this means that millions of people will spend over a third of their life in retirement.  But, as the DWP were quick to point out, this news also coincides with a period during which pension savings are in serious decline.

A population with increasing life expectancy is putting our welfare system under significant pressure as more people need not only pension income but also healthcare, incapacity support and help within the home.   When the time comes for you to retire you can expect that your State Pension will provide little more than a safety cushion. If your retirement plans include holidays, visiting relatives and treating yourself on occasion, then its time to take control of your savings and start building up a retirement fund of your own.

Call us today on 0141 764 0040 and our professionally trained financial advisers can talk you through your retirement planning options.

Pension sharing on divorce Scotland

Thursday, September 15th, 2011

Pension Sharing on Divorce Scotland

To achieve your fair share of pension rights and a clean break you will need expert legal and financial advice, especially where divorce is taking place between older couples and a considerable pension fund built up over the life of the marriage.

The allocation of pension rights on divorce is a particularly sensitive issue mainly because women are likely to have much smaller pension pots than men.  This is usually for two main reasons – women on average earn less than men and they are more likely to have spent time out of the workplace raising children.  In the event of a divorce, it is as important to consider the fair split of pension provision as it is the division of any other assets.  If one spouse has no pension savings because they have stayed off work to support either house or family, while the other has worked and built a substantial fund, this should be taken into account when determining the settlement.

Pension Sharing

When pensions are to be shared, you may not actually split the pension fund itself but instead, offset your rights to it against the value of something else – perhaps some investments, business assets or even the marital home.  Where young children are involved, for example, the marital home may be a precious asset which will reduce upheaval in the short term.  However, the benefits of this need to be weighted against those more formally related to retirement.

If a longer term solution for pension assets is required, there are a number of available options. The first might be to earmark a portion of your ex-spouse’s pension fund, and defer receipt of that benefit until they retire.  However, such earmarking leaves one partner dependent on the other, reducing the chances of a clean break.  They may also have to wait years before benefiting – and, if your ex-spouse dies before retirement, it is possible you could end up with no formal pension provision at all.

To protect against such eventualities, it is now possible to split a pension at the time of divorce.  A dependent ex-spouse gains access to a specific portion of the main breadwinner’s pension fund which then allows them to move their share away and make a much “cleaner” break. Both parties can then move on and take full control over their own share. In addition, if the main pension holder dies or remarries, all pension rights for the ex-partner remain protected.

The allocation of pensions on divorce requires expert legal and financial advice to achieve a fair split for both parties.  If you could benefit from talking to our financial advisers on this matter please call 0141 764 0040 in complete confidence.  Contact Us.

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