![Asia Pacific highest performing
Country Specialists sector over
a ten-year period.
Highest performing
sector over a ten-year
period – Sector Specialist:
Biotechnology
Healthcare.
06 INVESTMENT
Now that we’ve entered a new tax year,
if you are already planning how you are going
to fully utilise your current Individual Savings
Account (ISA) tax-efficient allowance, it’s not
just about picking investments wisely – it’s also
important to make sure you hold them in the
most suitable place.
With this in mind, the Association of
Investment Companies (AIC) has taken a look at
investment company performance data when
the full ISA limit is invested. If you had invested
a lump sum of £15,000[1] into the average
investment company ten years ago, you would
now have £38,323.50. This is £6,433.90 more
than the same investment in the FTSE All-Share,
which would generate £31,889.60.
If you had invested £15,000 per year for
the past ten years into the average investment
company, you would now have £272,811. This
is £17,927 higher than the £254,884 you would
now have if you had invested the same in the
FTSE All-Share.
Sector performance
In share price total return terms, the highest
performing sector over a ten-year period was
Sector Specialist: Biotechnology Healthcare.
If you had invested last year’s ISA allowance
of £15,000 into the average Sector Specialist:
Biotechnology Healthcare company ten
years ago, you would now have an impressive
£76,363.50. The same investment into the
average Country Specialists: Asia Pacific
company would now be worth £52,611, and
into the average Global Emerging Markets
company would be worth £48,982.50.
Enhanced returns
Investment companies have a strong long-
term performance record and their closed-
ended structure allows managers to take a
long-term view. With other features such as
the independent board, the ability to gear to
enhance returns and their income advantages,
investment companies (if appropriate to your
particular situation) should be considered when
it comes to making the most of your £15,240
2015/16 ISA allowance. n
Source data:
[1] Calculated using the ISA allowance for tax
year 2014/2015
[2] Performance data is share price total return
to 28 February 2015 and is mid-market share price
with net income reinvested. No buying and selling
costs into account. Source: AIC using Morningstar.
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.
PAST PERFORMANCE IS NOT A RELIABLE
INDICATOR OF FUTURE PERFORMANCE.
It’s not just about picking investments wisely, it’s holding them in the most suitable place
MeetING your
individual needs
To find out more about how our investment
services can meet your individual needs, please
contact Fairstone on 0845 6050689 or
email info@fairstone.co.uk for further information.
Tradingplaces
Ten highest performing sectors
(£15,000 lump sum, ten years to 28/02/2015)[2]
Investment company 10 years
Overall investment company average £38,323.50
Sector Specialist: Biotechnology Healthcare £76,363.50
Country Specialists: Asia Pacific £52,611.00
Global Emerging Markets £48,982.50
Asia Pacific – Excluding Japan £48,285.00
UK Smaller Companies £45,727.50
European Smaller Companies £43,395.00
Europe £41,094.00
UK All Companies £40,584.00
Global £39,898.50
North American Smaller Companies £38,865.00
Past performance is not a reliable indicator of future performance](https://image.slidesharecdn.com/b659bf78-e14d-4f35-85f8-ccab4e123eb0-150501101509-conversion-gate01/85/Clearmoney-May-June-2015-6-320.jpg)
![08 RETIREMENT
Anewreporthasrevealedahugegender
disparitywhenitcomestopensionsavingsand
income,indicatingthatfundingretirementislikely
tobeasignificantchallengeformanywomen.
According to the annual ‘State of
Retirement’ report by LV=, women who
have occupational or private pensions reach
retirement with pots worth on average
£107,000. This is almost half that of men who,
on average, retire with a fund worth £201,000.
Potential difficulty
The potential difficulty facing women is
highlighted by the fact that one in four
(23%) women approaching retirement have
only the State Pension to rely on, compared
to just 9% of men. As fewer women have
pension savings, the income gap is even
wider if we look across the genders at all
those approaching retirement. This sees
the average woman’s private pension at
retirement fall to just under £10,000, which
is less than a tenth of the equivalent average
male pension pot (£131,000).
Income gap
However,that’snottosayitisallplainsailing
formen.Thereportrevealsthat,regardlessof
gender,fundingapost-worklifewillbedifficult.
Thefindingsuncoveragapbetweenthelevelof
incomethoseapproachingretirementsaythey
needandwhattheycanexpect.Indeed,although
thosenearingretirementsay,onaverage,thatthey
willneedatleast£14,352ayeartomeetessential
expenses,theycanactuallyexpectjust£10,590
ayearfromtheirprivateandStatePension
combined–ashortfallof£3,744ayear[1].
Burden of debt
For many, this problem is heightened by the
burden of debt and family dependencies now
following them into retirement. Currently,
4.3 million retirees have some form of debt
in the form of a mortgage (1 million) or
outstanding credit card debt (2.5 million).
Over a third (4.4 million) of retirees have
given financial help and support to
family members, mainly children, in the last
12 months. The figures also reveal that 1 in
50 over-50s plan to take their pension as a
lump sum to pay off debts.
Retiring later
These financial concerns, coupled with
the fact that people are spending longer in
retirement, have caused many to reconsider
their retirement plans. Nearly a quarter (22%)
of over-50s say that they now plan to retire
later than previously considered, while
1.6 million over-50s don’t think they’ll ever
stop working. The findings also show that one
in five (18%) over-50s who had retired have
since re-entered the workplace.
Alive and well
It is clear that some people have returned
to work because they need to. However, for
others, the adage that ‘60 is the new 40’ is
alive and well, with one in four (23%) retirees
re-entering the workplace because they wish
to keep working. One of the main reasons for
this is a desire to keep active and make use of
the skills they have spent a lifetime honing;
the other is the social aspect of being at work.
Pensions freedom
The recent pensions freedom changes that
commenced on 6 April now offer retirees
the chance to make more of their pension
pot by selecting alternatives to standard
annuities and potentially combining
annuities with income drawdown. However,
there is confusion among over-50s around
what the new rules mean. Only a fifth (23%)
claim to have a good understanding of the
reforms, while a further third (33%) have
little or no understanding at all. One in ten
(12%) over-50s are completely unaware
of any pension freedom changes,
resulting in the fact that many could miss
out on the chance to improve their income
in retirement. n
Source data:
TheStateofRetirementresearchwascarriedoutby
OpiniumResearchfrom27-30January2015.Thetotal
samplesizewas1,518Britishadultsover50andwas
conductedonline.Resultsareweightedtoanationally
representativecriteria.
[1] According to the research by Opinium, 879
over 50s (those not retired) people were questioning
how much money they thought they would need in
retirement per week, as a bare minimum. The mean
answer was £276 (equivalent to £14,352 per year).
According to research by the Centre for Economics
and Business Research (CEBR) carried out for the
report, the average retiree has £73,100 in private
pension wealth upon retirement. An average annuity
for a male or female smoker retiring with this sum
would pay £4,709 a year. With the State Pension
(£5,881), this brings the total income to £10,590 a
year or £204 a week, i.e. £3,744 less per year or £72
less per week than the minimum standard.
INFORMATIONISBASEDONOURCURRENT
UNDERSTANDINGOFTAXATIONLEGISLATIONAND
REGULATIONS.ANYLEVELSANDBASESOF,AND
RELIEFSFROM,TAXATIONARESUBJECTTOCHANGE.
A PENSION IS A LONG-TERM INVESTMENT.
THE FUND VALUE MAY FLUCTUATE AND CAN
GO DOWN. YOUR EVENTUAL INCOME MAY
DEPEND UPON THE SIZE OF THE FUND AT
RETIREMENT, FUTURE INTEREST RATES AND
TAX LEGISLATION.
Gender disparity
Funding a post-work life will be difficult without sufficient planning
Time to significantly
boost your income?
Wearenowspendinglongerinretirementandhavegreater
choicesastohowweuseourpensionfund,withthepensions
freedomchangeshelpingmanysaverstosignificantlyboosttheir
income.Thenewgovernmentcampaign,PensionWise,willgo
somewaytoinformingpeopleaboutthenewpensionslandscape
andthewaysinwhichtheycouldfundtheirretirement;however,
werecommendthatifyouareconsideringaccessingsomeor
allofyourpensionpot,obtainingprofessionalfinancialadvice
isessentialtoensureyoumakethemostofyoursavingstax-
efficiently.PleasecontactFairstoneon08456050689
oremailinfo@fairstone.co.uktoreviewyoursituation.](https://image.slidesharecdn.com/b659bf78-e14d-4f35-85f8-ccab4e123eb0-150501101509-conversion-gate01/85/Clearmoney-May-June-2015-8-320.jpg)
Clearmoney - May & June 2015
- 1. Issue 14 n MAY/JUNE 2015 The financial magazine from Fairstone Financial Management Ltd. Tenkey announcements fromBudget2015 Trading places Unlockingthe Newpension landscape Plus Pensions Freedom It’s not just about picking investments wisely, it’s holding them in the most suitable place Are you ready for the responsibilities of being in complete control over all of your money? Which of these could impact on your financial plans, both positively and negatively? Your questions answered Nation of savers Year-on-year rise in the number of long-term savers
- 2. 1 The Bulrushes, Woodstock Way, Boldon Business Park, Tyne & Wear NE35 9PF Telephone: 0845 6050689 Email: [email protected] Call Fairstone Financial Management Ltd. on 0845 605 0689or email [email protected] Levels and bases of and reliefs from taxation are subject to legislative change and their value depends on the individual circumstances of the investor. The value of your investments and income can go down as well as up and you may get back less than you invested. Fairstone Financial Management Limited is authorised and regulated by the Financial Conduct Authority (FRN 475973) Specialist Areas Plus, we offer a number of specialist services such as Wealth Management, Wills and Trusts, Retirement Planning, and Corporate Services. We also offer our unique, bespoke, financial management service, ActivePlan, which is the only one of its type currently available in the UK. Making the most of your finances At Fairstone we will pro-actively manage your mortgage, insurances, investments, savings, pensions, and loans as a whole to see where any improvement can be made – that’s what this unique plan delivers. This means you can feel confident in the knowledge that you have a team of experienced financial advisers looking after your interests at all times. ActivePlan is the only active financial management service available in the UK and that is why over 77 per cent of customers use it. Benefits include: n a six-monthly financial health check and a full annual financial review n unlimited and direct access to a financial adviser during working hours. Advice Areas At Fairstone we can advise on all aspects of your finances, taking you and your family from cradle to grave with the most suitable financial solutions that will help you make the most of your money. We pride ourselves on offering the most appropriate advice on your finances - whatever your circumstances - for now and for the future, so that your financial goals and aspirations are met. Because we are completely independent, this means we can access the whole of the market and find you the most viable financial solution, whatever your needs. This means you save time and money. We can advise on all your financial needs, including: Bespoke financial management with ActivePlan ActivePlan provides the ongoing and consistent review of your entire financial portfolio to ensure that your products are actively managed to be cost effective, well performing and appropriate to your needs. With financial products constantly evolving and with lower cost options being continually launched, we want to ensure that you feel the benefit of these wherever possible. And with your personal circumstances and objectives differing from time to time, you need your finances to fully reflect any such change. Pensions Ensuring your financial future is taken care of is as important to us as it is to you. We can help by providing advice on personal pensions, SIPPs and SSAS, Stakeholder Pensions, Group Personal Pensions, Annuities and Long Term Care Plans. Savings and investments Our highly qualified professionals can really help you make your money go further by providing advice on savings and investments vehicles such as ISAs and Authorised Unit Trusts, Open Ended Investment Companies (OEICs), Bonds, Deposit Accounts and Fixed Interest Securities. Insurances Whether you are looking for Life Insurance, Critical Illness, Private Medical Insurance (PMI), insurance for your home and business, or to protect your income, then we can help. EQUITY RELEASE If you’re a UK homeowner aged 55 or over, equity release could offer you a way to release tax-free cash from your home to spend on whatever you choose. We can help you find out more and allow you to establish whether equity release could be right for you. Mortgages At Fairstone we can advise on all of your mortgage options, whether you are a first time buyer, a property investor, or you want to remortgage your home.
- 3. 04 Pensions freedom Your questions answered 06 Trading places It’s not just about picking investments wisely, it’s holding them in the most suitable place 07With great freedom comes great responsibility Savers positive about pension reforms but concerned about scams 08 Gender disparity Funding a post-work life will be difficult without sufficient planning 09 Nation of savers Year-on-year rise in the number of long-term savers 10Ten key announcements from Budget 2015 Which of these could impact on your financial plans, both positively and negatively? 12 Unlocking the New pension landscape Are you ready for the responsibilities of being in complete control over all of your money? Contents WELCOME 03 1 The Bulrushes, Woodstock Way, Boldon Business Park, Tyne Wear NE35 9PF Telephone: 0845 6050689 Email: [email protected] Your home may be repossessed if you do not keep up repayments on your mortgage The value of investments (including property) and the income derived from them may go down as well as up. Fairstone Financial Management Ltd is authorised and regulated by the Financial Conduct Authority. We hope you enjoy reading our magazine. To discuss your financial planning requirements or to obtain further Information, please CONTACT Fairstone on 0845 6050689 or email [email protected]. 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. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE. Editorial As the days are staying lighter for longer and the weather begins to warm up, we are also experiencing some major changes on the financial landscape post-Budget 2015: the start of a new financial year, ‘pensions freedom day’ and a General Election. This publication was produced prior to the General Election outcome, so we’ll look at how the results could impact on your financial plans in the next issue. Most people now have more options when it comes to their retirement choices. But generally they’ll still want their pension income to last their lifetime – so careful planning is a must. Since 6 April, when Britain’s pension system underwent a seismic change (known as ‘pensions freedom day’), we’ve been asked many different questions by our clients about the breadth of the reforms and how they may affect them. On page 04, we provide answers to our top ten most frequently asked questions. In his final Budget speech to parliament on 18 March, the Chancellor of the Exchequer, George Osborne, announced that Britain was ‘walking tall again’ after five years of austerity. We’ve provided our summary of the ten key announcements that could impact on your personal financial plans, both positively and negatively. Turn to page 10 to find out more. Now that we’ve entered a new tax year, if you are already planning how you are going to fully utilise your current Individual Savings Account (ISA) tax-efficient allowance, it’s not just about picking investments wisely – it’s also important to make sure you hold them in the most suitable place. On page 06, we look at the top ten highest performing sectors over the previous decade. In a survey by the National Association of Pension Funds (NAPF) of people aged 55-70 with private pensions, 47% who had a private pension were worried people would be mis-sold unsuitable products due to the new pension rules, 44% felt people might make bad financial decisions and two thirds (36%) were worried about pension scams. Read the full article on page 07. The full list of the articles featured in this issue appears opposite. 04PENSIONS FREEDOM Your questions answered
- 4. Most people now have more options when it comes to their retirement choices. But generally they’ll still want their pension income to last their lifetime – so careful planning is a must. Since 6 April, when Britain’s pension system underwent a seismic change (known as ‘pensions freedom day’), we’ve been asked many different questions by our clients about the breadth of the reforms and how they may affect them. Everyone needs some knowledge of pensions and how they are changing, so we’ve provided answers to our top ten most frequently asked questions. Q. What has changed? A. The changes are designed to give extra flexibility with how you use your pension savings from age 55 onwards. For many people, taking a tax-free cash sum and/or buying an annuity (a guaranteed income) was previously the only option. But this is no longer the case. Q. When did the changes take effect? A. The changes took effect on 6 April 2015, with some smaller changes to the rules having been in place since March 2014. Q. Who will be affected by the changes? A. The changes give extra flexibility to anyone aged 55 or over with a ‘defined contribution’ pension. Pensions FREEDOM Your questions answered 04 RETIREMENT
- 5. Q. What if my pension is ‘defined benefit’ (‘final salary’ scheme)? A. Some defined benefit pensions may be eligible for the new freedoms, but you would need to transfer the money to a suitable scheme first. Under plans put forward by the Financial Conduct Authority (FCA), you must ensure that you have been advised by someone with a specific ‘pension transfer specialist’ qualification before you transfer your savings to a defined contribution scheme (unless the transfer value is less than £30,000). Q. Will I still have to buy an annuity? A.No.However,annuitiesmaystillremainanimportant option.Younowalsohavetheoptionofa flexible access pensionor withdrawingcash directfromyour pensionfund.Beforemakingadecision,it’simportant toconsidereachoftheoptions,takingintoaccountthe benefits,risksandtaximplicationsofeach. Q. Has pension freedom been extended to people who have already purchased an annuity? A. Yes, an announcement was made during Budget 2015 to extend pensions freedom to about 5 million people who have already bought an annuity. A consultation published on the day of the Budget on how a secondary annuities market could work suggests mirroring the £30,000 mandatory advice threshold for defined benefit pension transfers. Q. Can I withdraw my entire pension pot? A. Yes you can, as long as your pension scheme’s rules allow it. Any amount above your initial 25% tax-free cash sum entitlement would be taxable at your marginal income tax rate as earned income (i.e. before savings or investment income). Depending on the size of the payment (and your other income), this could mean you might be taxed at a higher rate than you normally would. You should also ensure that your overall savings will give you sufficient income in retirement. Q. Am I able to leave my pension pot to my loved ones? A. Yes, if some or all of your money remains invested in a pension fund, then you can pass it on to your loved ones when you die. This would be tax-free should you die before you reach age 75 but taxable after that. Q. What are the tax implications? A. Other than your initial 25% tax-free cash sum entitlement, pension income and cash withdrawals remain taxable. You should take care if you are considering withdrawing amounts of money that could put you into a higher income tax band. You can still pay into a defined contribution pension after you access your pension fund. But if you take flexible access income or cash withdrawals from your fund, the maximum amount you can pay in each year without incurring a tax charge is £10,000. Q. How will I be affected by having only a few small pension pots? A. Generally, your options remain as before. They include taking the money from any of your small pension pots as a taxed cash sum (the first 25% of which would be tax-free if you haven’t already started taking benefits from them), and you can now do this from age 55. Another is ‘consolidating’ all or some of your pensions into another pension (or pensions). The implications of this would, however, depend on your personal circumstances. n 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. A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION. The most important decision you’ll ever need to make? Making the right retirement choices is likely to be one of the most important decisions you’ll ever need to make. If you have any questions regarding the pensions freedom changes, then it’s essential that you receive guidance and advice to help you decide what to do with your pension savings. For further information or to discuss your requirements, please contact Fairstone on 0845 6050689 or email [email protected]. Since 6 April, when Britain’s pension system underwent a seismic change (known as ‘pensions freedom day’), we’ve been asked many different questions by our clients about the breadth of the reforms and how they may affect them. RETIREMENT 05
- 6. Asia Pacific highest performing Country Specialists sector over a ten-year period. Highest performing sector over a ten-year period – Sector Specialist: Biotechnology Healthcare. 06 INVESTMENT Now that we’ve entered a new tax year, if you are already planning how you are going to fully utilise your current Individual Savings Account (ISA) tax-efficient allowance, it’s not just about picking investments wisely – it’s also important to make sure you hold them in the most suitable place. With this in mind, the Association of Investment Companies (AIC) has taken a look at investment company performance data when the full ISA limit is invested. If you had invested a lump sum of £15,000[1] into the average investment company ten years ago, you would now have £38,323.50. This is £6,433.90 more than the same investment in the FTSE All-Share, which would generate £31,889.60. If you had invested £15,000 per year for the past ten years into the average investment company, you would now have £272,811. This is £17,927 higher than the £254,884 you would now have if you had invested the same in the FTSE All-Share. Sector performance In share price total return terms, the highest performing sector over a ten-year period was Sector Specialist: Biotechnology Healthcare. If you had invested last year’s ISA allowance of £15,000 into the average Sector Specialist: Biotechnology Healthcare company ten years ago, you would now have an impressive £76,363.50. The same investment into the average Country Specialists: Asia Pacific company would now be worth £52,611, and into the average Global Emerging Markets company would be worth £48,982.50. Enhanced returns Investment companies have a strong long- term performance record and their closed- ended structure allows managers to take a long-term view. With other features such as the independent board, the ability to gear to enhance returns and their income advantages, investment companies (if appropriate to your particular situation) should be considered when it comes to making the most of your £15,240 2015/16 ISA allowance. n Source data: [1] Calculated using the ISA allowance for tax year 2014/2015 [2] Performance data is share price total return to 28 February 2015 and is mid-market share price with net income reinvested. No buying and selling costs into account. Source: AIC using Morningstar. 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. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE. It’s not just about picking investments wisely, it’s holding them in the most suitable place MeetING your individual needs To find out more about how our investment services can meet your individual needs, please contact Fairstone on 0845 6050689 or email [email protected] for further information. Tradingplaces Ten highest performing sectors (£15,000 lump sum, ten years to 28/02/2015)[2] Investment company 10 years Overall investment company average £38,323.50 Sector Specialist: Biotechnology Healthcare £76,363.50 Country Specialists: Asia Pacific £52,611.00 Global Emerging Markets £48,982.50 Asia Pacific – Excluding Japan £48,285.00 UK Smaller Companies £45,727.50 European Smaller Companies £43,395.00 Europe £41,094.00 UK All Companies £40,584.00 Global £39,898.50 North American Smaller Companies £38,865.00 Past performance is not a reliable indicator of future performance
- 7. The new pensions freedom rules giving far greater flexibility over what you can do with your pension pot came into force on 6 April 2015. In a survey by the National Association of Pension Funds (NAPF) of 850 people aged 55-70 with private pensions, 47% who had a private pension were worried people would be mis-sold unsuitable products, 44% felt people might make bad financial decisions and two thirds (36%) were worried about pension scams. Ofthe850peoplesurveyed,49%ofthosewith adefinedcontributionpensionschemesaidthey would‘waittoseehowthingsworkoutnearer retirement’orwereunsurewhattheywoulddo aboutthechanges.Aminority(5%)plannedto buyanannuityandafurther4%wantedtotake acashlumpsum.Nearlyafifth(18%)saidthey wouldleavetheirpensionpotsinvestedanddraw aregularincome,while24%saidtheywouldusea combinationoftheseoptions. But the NAPF warned that those who were interested in investments and drawdown might not have a complete picture of what it will or will not offer them. More than half (52%) said drawdown would provide them with a guaranteed income, and 45% thought that if they took no more income than they would through an annuity, their money would last until they died. In addition, 23% felt there were no risks with drawing a regular income from their pension pot. A total of 77% of those polled were aware of the government retirement guidance service, Pension Wise, but nearly half (55%) were unclear about the services it offered. Of those with a defined benefit pension scheme, the survey found that 75% would like their savings to remain in their current scheme, while 3% planned to switch to a defined contribution scheme. A fifth did not know what they planned to do. n Source data: Survey conducted by the National Association of Pension Funds (NAPF) of 850 people aged 55-70 with private pensions and carried out as part of NAPF’s wider research to examine the nature of retirement for those who’ve recently finished work and those approaching it in the next 15-20 years. 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. A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION. Withgreat freedomcomes greatresponsibility Savers positive about pension reforms but concerned about scams Making informed decisions is vital It is vital to make informed decisions about how to best use your savings and manage your income in retirement. If you would like to review your current situation or plans, please contact us – we look forward to hearing from you. Retirement 07
- 8. 08 RETIREMENT Anewreporthasrevealedahugegender disparitywhenitcomestopensionsavingsand income,indicatingthatfundingretirementislikely tobeasignificantchallengeformanywomen. According to the annual ‘State of Retirement’ report by LV=, women who have occupational or private pensions reach retirement with pots worth on average £107,000. This is almost half that of men who, on average, retire with a fund worth £201,000. Potential difficulty The potential difficulty facing women is highlighted by the fact that one in four (23%) women approaching retirement have only the State Pension to rely on, compared to just 9% of men. As fewer women have pension savings, the income gap is even wider if we look across the genders at all those approaching retirement. This sees the average woman’s private pension at retirement fall to just under £10,000, which is less than a tenth of the equivalent average male pension pot (£131,000). Income gap However,that’snottosayitisallplainsailing formen.Thereportrevealsthat,regardlessof gender,fundingapost-worklifewillbedifficult. Thefindingsuncoveragapbetweenthelevelof incomethoseapproachingretirementsaythey needandwhattheycanexpect.Indeed,although thosenearingretirementsay,onaverage,thatthey willneedatleast£14,352ayeartomeetessential expenses,theycanactuallyexpectjust£10,590 ayearfromtheirprivateandStatePension combined–ashortfallof£3,744ayear[1]. Burden of debt For many, this problem is heightened by the burden of debt and family dependencies now following them into retirement. Currently, 4.3 million retirees have some form of debt in the form of a mortgage (1 million) or outstanding credit card debt (2.5 million). Over a third (4.4 million) of retirees have given financial help and support to family members, mainly children, in the last 12 months. The figures also reveal that 1 in 50 over-50s plan to take their pension as a lump sum to pay off debts. Retiring later These financial concerns, coupled with the fact that people are spending longer in retirement, have caused many to reconsider their retirement plans. Nearly a quarter (22%) of over-50s say that they now plan to retire later than previously considered, while 1.6 million over-50s don’t think they’ll ever stop working. The findings also show that one in five (18%) over-50s who had retired have since re-entered the workplace. Alive and well It is clear that some people have returned to work because they need to. However, for others, the adage that ‘60 is the new 40’ is alive and well, with one in four (23%) retirees re-entering the workplace because they wish to keep working. One of the main reasons for this is a desire to keep active and make use of the skills they have spent a lifetime honing; the other is the social aspect of being at work. Pensions freedom The recent pensions freedom changes that commenced on 6 April now offer retirees the chance to make more of their pension pot by selecting alternatives to standard annuities and potentially combining annuities with income drawdown. However, there is confusion among over-50s around what the new rules mean. Only a fifth (23%) claim to have a good understanding of the reforms, while a further third (33%) have little or no understanding at all. One in ten (12%) over-50s are completely unaware of any pension freedom changes, resulting in the fact that many could miss out on the chance to improve their income in retirement. n Source data: TheStateofRetirementresearchwascarriedoutby OpiniumResearchfrom27-30January2015.Thetotal samplesizewas1,518Britishadultsover50andwas conductedonline.Resultsareweightedtoanationally representativecriteria. [1] According to the research by Opinium, 879 over 50s (those not retired) people were questioning how much money they thought they would need in retirement per week, as a bare minimum. The mean answer was £276 (equivalent to £14,352 per year). According to research by the Centre for Economics and Business Research (CEBR) carried out for the report, the average retiree has £73,100 in private pension wealth upon retirement. An average annuity for a male or female smoker retiring with this sum would pay £4,709 a year. With the State Pension (£5,881), this brings the total income to £10,590 a year or £204 a week, i.e. £3,744 less per year or £72 less per week than the minimum standard. INFORMATIONISBASEDONOURCURRENT UNDERSTANDINGOFTAXATIONLEGISLATIONAND REGULATIONS.ANYLEVELSANDBASESOF,AND RELIEFSFROM,TAXATIONARESUBJECTTOCHANGE. A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION. Gender disparity Funding a post-work life will be difficult without sufficient planning Time to significantly boost your income? Wearenowspendinglongerinretirementandhavegreater choicesastohowweuseourpensionfund,withthepensions freedomchangeshelpingmanysaverstosignificantlyboosttheir income.Thenewgovernmentcampaign,PensionWise,willgo somewaytoinformingpeopleaboutthenewpensionslandscape andthewaysinwhichtheycouldfundtheirretirement;however, werecommendthatifyouareconsideringaccessingsomeor allofyourpensionpot,obtainingprofessionalfinancialadvice isessentialtoensureyoumakethemostofyoursavingstax- efficiently.PleasecontactFairstoneon08456050689 [email protected].
- 9. IN THE NEWS 09 Nation of savers Year-on-yearriseinthenumberoflong-termsavers The UK is becoming a nation of savers, with three quarters (74%) of people saying they are currently saving, research from Scottish Widows has revealed. The savings study – which polled 5,000 Britons – found that the number of savers is up to 74% from 63% in 2010, with a steady year-on-year rise in the number of long-term savers. The average amount people have in short- and long-term savings now stands at £32,407, compared to £30,175 last year, marking a 7% rise. Saving impetus A ‘more secure future’ was the main reason 40% of those saving for the long term were putting money away, while emergencies or a ‘rainy day’ is the main saving impetus for more than a third of short-term savers (38%). The proportion of people not saving at all has been steadily declining since 2010, as more and more people begin to wake up to the importance of having a financial buffer. A growing awareness around the importance of preparing for the long term was particularly marked, with the proportion of people choosing to focus just on this type of saving jumping from 14% to 17% over a four-year period. Financial buffer Despite this year-on-year improvement, the study highlighted that a significant proportion of the nation is still failing to build up a financial buffer, with one in four (26%) not saving anything at the moment and 18% having no savings at all. A third of respondents (33%) were aware that they were definitely not saving enough to meet their long-term needs, and 32% admitted they hadn’t saved anything at all over the past 12 months. The study revealed that failing to save was most common among those aged 45-54, with 33% currently not putting any cash aside for the future. Savings barrier The research also highlighted that almost half (42%) said not knowing how to go about saving or investing was a barrier to saving, while 23% said they would be inclined to save more if savings options were generally easy to understand. n Source data: ThesurveywascarriedoutonlinebyYouGov,who interviewedatotalof5,144adultsbetween31Octoberand 5November2014.Thefigureshavebeenweightedandare representativeofallUKadults(aged18+). Make sure you review your plans regularly Whether you’re saving for your retirement or another goal, it’s essential to review your plans regularly and stay on track. To review your situation, please contact Fairstone on 0845 6050689 or email [email protected] for further information. We look forward to hearing from you. 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. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.
- 10. Tomakesurethefullbenefitsofthepersonal allowanceincreasearepassedontohigher-rate taxpayers,theGovernmentisalsoincreasingabove inflationthepointatwhichhigherearnersstartpaying 40%tax.Itwillincreaseby£315in2016/17andby £600in2017/18–takingitto£43,300in2017/18. 2. New Personal Savings Allowance will take 95% of taxpayers out of savings tax altogether From April 2016, a tax-free allowance of £1,000 (or £500 for higher-rate taxpayers) will be introduced for the interest that people earn on savings. In his final Budget speech to parliament on 18 March, the Chancellor of the Exchequer, George Osborne, announced that Britain was ‘walking tall again’ after five years of austerity. We’ve provided our summary of the ten key announcements that could impact on your personal financial plans, both positively and negatively. 1. The tax-free personal allowance set to increase in April 2017 to £11,000 The tax-free personal allowance – the amount of income people can receive before they have to start paying tax – will rise to £10,800 in 2016/17 and £11,000 the year after. The increases to the personal allowance from £6,475 in 2010 to £11,000 in 2017/18 will save a typical taxpayer £905. If you are a basic-rate taxpayer and have a total income of up to £42,700 a year, you will be eligible for the £1,000 tax-free savings allowance. If you are a higher-rate taxpayer and earn from £42,701 to £150,000, you’ll be eligible for a £500 tax-free savings allowance. 3. Introducing the Help to Buy ISA – for every £200 that people save towards their first home, the Government will put in an extra £50, up to a maximum bonus of £3,000 Following the introduction of Help to Buy, which allows people to purchase a home with just a 5% deposit, the Government will help first-time buyers save for a deposit with the introduction of the Help to Buy Individual Savings Account (ISA). PeoplewillbeabletoopenanISAandsaveupto£200 amonthtowardstheirfirsthome,andtheGovernment willaddafurther25%.Thatequatestoa£50bonusfor every£200peoplesave,uptoamaximumof£3,000. Help to Buy ISAs will only be available to individuals who are 16 and over and will be limited to one per person. If appropriate, consider buying together to receive a bonus each. 4. People will have comPlete freedom to take money out of a Cash ISA and put it back in later in the year Savers will have the flexibility to be able to take Which of these could impact on your financial plans, both positively and negatively? TenkeyANNOUNCEMENTS FROM BUDGET2015 10 BUDGET 2015
- 11. Are your financial plans still on track after Budget 2015? There may have been a number of key announcements in Budget 2015 that will impact on your financial plans, especially around pensions freedom. If you would like to review your current situation to ensure that your plans are still on track, please contact Fairstone on 0845 6050689 or email [email protected]. money out of their Cash ISA and put it back in the same financial year without it counting towards the annual tax-efficient ISA allowance. Currently, the ISA allowance is £15,240 (2015/16), and once you’ve deposited that amount, you can’t put any more in during the same tax year, even if you make a withdrawal. The changes, which will come into effect from autumn 2015, will mean that savers who need access to their ISA savings are not penalised if they then want to save more later on that tax year. The only limit is that you need to top up your Cash ISA during the same financial year the withdrawal was made – if you don’t, it will count towards your new tax- efficient ISA allowance. 5. Additional funding to support the new pension freedoms and the new pensions guidance service TheBudgetdocumentstated:‘Additionalfunding of£19.5min2015/16willbeprovidedtosupport thenewpensionsfreedomandthenewpensions guidanceservice,PensionWise.Thisfundingwill extendtheavailabilityofStatePensionstatement andpensiontracingservices.’ 6. Pensioners will be given the freedom to sell their annuity for a cash lump sum Under proposals from April 2016, pensioners who already have an annuity will now be able to effectively sell it on, so that they too can benefit from the pensions freedom announced in Budget 2014. Currently, people who bought an annuity are unable to sell it without having to pay at least 55% tax on it. From April 2016, it is proposed that the tax rules will change so that people who already have income from an annuity can sell that when they choose and will pay their usual rate of tax they pay on income, instead of 55%. 7. Pensions lifetime allowance reduction The lifetime pensions allowance, the maximum amount a person can hold within all of their pensions without suffering a tax charge, will be reduced in April 2016 from £1.25m to £1m – this is estimated to affect less than 4% of people. Pensioners pay a 55% or 25% tax charge on any amount over the lifetime allowance when they withdraw money or buy an annuity, rather than their usual tax rate. 8. Review into the avoidance of inheritance tax The Government is to review the ways in which inheritance tax (IHT) is avoided through deeds of variation. A deed of variation is used to rearrange Wills, and the most common rearrangements are disclaimers and written variations. The report resulting from the IHT review will be published in the autumn. 9. Further changes to Venture Capital Trusts and Enterprise Investment Schemes Plans were announced to further alter the rules around Venture Capital Trusts (VCT) and Enterprise Investment Schemes (EIS). Mr Osborne said he was making the changes on the plans, which invest in small, private up-and-coming companies, to ‘ensure they are compliant with the latest state aid rules and increasing support to high-growth companies.’ 10. Annual tax return abolished Millions of individuals will have the information HM Revenue Customs requires automatically uploaded into a new online digital tax account by 2020. n BUDGET 2015 11
- 12. Unlockingthe Newpension landscape Are you ready for the responsibilities of being in complete control over all of your money? On 6 April this year, ‘pensions freedom day’, the pension landscape changed forever. From this date for the first time ever, individuals were given complete control over all the money in their ‘defined contribution’ retirement savings plans, whether large or small. New freedoms What is crucial is that you approach withdrawing your money in an informed and tax-efficient way. Research from MGM Advantage finds that just 1 in 8 (13%) of those aged over 55 intends to make use of the new freedoms by withdrawing cash from their pension pots above the 25% tax- free allowance. The research, carried out by ComRes, reveals that 60% of respondents do not plan to take advantage of the new freedoms and cash in their pension pots, with a further 27% undecided. Those over-55s who were not intending to make use of the freedoms said they either did not need the money now (40%) or wanted to keep their pension invested and draw from it when needed (29%). More options The new freedoms have opened up many more options for those approaching retirement, but just because those options are available, it doesn’t mean taking them up is necessarily an attractive proposition or the right thing to do. Taxissuesareaconcernforsomeretirees,with 16%ofthosenottakingcashabovethetax-free limitcitingthedesirenottopayextrataxwhen drawingmoney.1in5(19%)ofpeoplenottaking thecashabovethetax-freelimitstatedthat, insteadoftakingalltheirmoneyincash,they wouldlooktosecurealifetimeincomewiththeir pensionsavings. Measured approach Although the majority of people appear to be taking a measured approach, just over 1 in 8 will potentially take their money. Given the number of people in the UK retiring each year, that could equate to over 50,000 people. Depending on their circumstances, those opting to take the cash could easily find themselves paying significant amounts of tax. n Making the best decision for you More freedom and choice represents an excellent opportunity for people, but it also means more complexity and responsibility. If applicable to your situation, it’s vital that you obtain the information you need to make the best decision for you. The Government’s Pension Wise service is a good start, but professional financial advice is also the key to helping you find the right approach for your individual circumstances. If you would like to review your current options or have any further questions, please do not hesitate to contact Fairstone on 0845 6050689 or email [email protected]. Source data: Research conducted by ComRes with 1,000 UK residents aged 55 and over who are not retired. Data was weighted to be representative of the known profile of UK adults aged 55+ who are not retired. The fieldwork was carried out online between 27 February and 5 March 2015. 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. A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION. RETIREMENT 12 Your home may be repossessed if you do not keep up repayments on your mortgage. The value of investments (including property) and the income derived from them may go down as well as up. Fairstone Financial Management Ltd is authorised and regulated by the Financial Conduct Authority. Magazine designed and published by Goldmine Media ©2015. www.goldminemedia.co.uk No part of this publication may be reproduced without the permission of the publishers.