It’s an anxious and upsetting time for everyone as the coronavirus pandemic takes hold, and whilst the primary concern is health, our financial wellbeing is also important.
Since the coronavirus outbreak, global stock markets have fallen considerably and based on the current news flow, it seems that we could experience market uncertainty and volatility for some time to come. You may therefore be wondering what actions or decisions, if any, that you should be taking with regards to pension and investments. Markets move up and down all the time and if you have an investment but don’t need the monies in the short term, then you’re probably going to be ok as in time, it’s likely that markets will recover. The same applies if you are currently paying into a pension and have several years before your planning to retire. If you’re close to or considering retirement, you may want to check what type of funds your pension is invested in. Lower risk funds which invest in Cash, Gilts or Bonds will normally help to protect your capital whereas if your pension is invested mostly in shares, then unfortunately you will have taken a hit and depending on when you are planning to retire, you may now have to consider taking a lower income or retiring later. Psychologists have long recommended managing stress and anxiety by determining what you can control, thinking positively and making a plan. The best advice is not to panic, but to take a deep breath and keep to your long-term investment strategy. However, in order to help people through these unique times, I am happy to offer a free, no obligation 20-minute telephone consultation to anyone who is concerned about their pensions & investments and would like to discuss these with me. Please contact me on 01428 909266 or at info@podiumfinancial.co.uk to arrange a convenient time for me to call you. The end of the tax year is fast approaching, so now is a great time to talk to us about making the most of tax efficient opportunities. The 2019/20 tax year ends on 5 April 2020, with the new tax year beginning on 6 April. These are important dates for financial planning – so it’s important you don’t miss the chance to undertake a financial health check, fine tune your tax planning and ensure that you make the most of your valuable tax allowances.
Here’s my top tips to help you make the most of your money. Invest in an ISA ISA’s are one of the simplest ways to save and invest. Investments in an ISA are free from UK income tax and capital gains tax and since their launch, they have become more and more attractive. Today investors can shelter up to £20,000 from the taxman in an ISA each tax year, meaning that couples can contribute £40,000 between them into ISA’s. Don’t forget, the ISA allowance for a particular tax year is lost if not used – and there’s no way of carrying it over. Make a pension contribution A pension is one of the most tax-efficient ways to save for retirement as pensions can grow free of UK capital gains and UK income tax. Money held in a pension is locked away for retirement. You can normally start making withdrawals from age 55 (57 from 2028), usually up to 25% tax free and the rest taxed as income. Pensions are more attractive than ever as you now have the flexibility to make unlimited withdrawals. Anything you don’t withdraw can be passed on to your family, sometimes without any tax. When an investor under 75 adds money to a pension, they automatically receive a boost from the government, which pays 20%. To have £10,000 in your pension, you only need to pay £8,000. In addition, higher-rate taxpayers can then claim back up to an extra 20% via their tax return. So, £10,000 in a pension could effectively cost as little as £6,000. Top-rate taxpayers can claim back more: up to an extra 25%, reducing the effective cost of the £10,000 contribution to as little as £5,500. Please note that you must pay enough tax at the higher/top rate to be able to claim back the full amount. Even if you're not a taxpayer – eg, you don't earn enough to pay income tax – but are contributing to a pension, you'll still have the tax saving added to your contributions up to a certain amount. You'll be given an extra £20 for every £80 you pay into a pension up until you've contributed £2,880. This means the Government tops up your pension to £3,600. Use your capital gains tax allowance The capital gains tax allowance in 2019-20 is £12,000. This is the amount of profit you can make from an asset this tax year before any tax is payable. If your assets are owned jointly with another person, you can use both of your allowances, which can effectively double the amount you can make before CGT is due. You could also gift assets to a spouse or civil partner without any CGT being charged, which then allows them to make the most of their CGT allowance. As with your ISA allowance, if you don't make full use of your CGT allowance in a given tax year, you aren't allowed to carry it forward to the next. Make use of the marriage allowance The marriage allowance is a government scheme designed to give married couples income tax relief. Essentially, you’re able to transfer some of your tax-free allowance to your spouse if you earn less than the current personal allowance – and as long as they are a basic rate taxpayer. In doing this, they can reduce their tax bill by up to £250 over the year. This can be a great option for people on maternity leave, stay-at-home parents, retired, self-employed and unemployed people. The best way to apply for the marriage allowance is online at https://www.gov.uk/apply-marriage-allowance If you would like to review your finances to ensure that you are making the most of your valuable tax allowances, please do not hesitate to contact us for an initial no obligation consultation at our cost. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Please note though that the levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor. The Financial Conduct Authority does not regulate tax advice. Retirement is a chance to do more of what you enjoy, whether that’s travelling, spending more time with family or taking up exciting new hobbies. You might decide to continue working for a while, possibly part time, or your priority may be to help the next generation, perhaps by contributing to education costs or providing help to get onto the property ladder.
Whatever plans you have for your retirement, the introduction of pension freedoms in April 2015, means that you now have more options than ever over how to access your pension pot. Whilst the range of options and increased flexibility has never been better, it’s become even more important to make the right decision and choose the best option for you. Make the wrong decisions and you could be spending your retirement struggling to make ends meet. You can usually take your pension from age 55 (57 from 2028), although the longer you leave your money invested and continue to pay into it, the higher your income could be when you do eventually choose to take it. Typically, up to 25% of your pension can be paid to you completely tax free, after which withdrawals are subject to income tax. The tax-free amount can be taken as a single lump sum or as smaller regular sums, where 25% per cent of each withdrawal is tax-free. You no longer have to use your pension fund to buy an annuity, although many people still do, as an annuity guarantees a regular income stream for life. The amount of income you receive will depend upon a number of factors including the value of your pension, your health and the options you choose. Once set up, an annuity usually can’t be changed or cancelled, so it’s important to shop around and choose your annuity options carefully. Alternatively, you could consider income drawdown which is one of the most flexible ways to access your pension. With this option, your fund remains invested and you’re in control of how much income you take and when to take it. Many people are attracted to drawdown as the flexibility allows them to draw an income without committing to an annuity. In addition, in the event of death, any remaining fund can be passed on to your loved ones, often tax free. 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. You should also take care when drawing more than your tax-free cash amount, as this will then trigger the money purchase annual allowance. This effectively reduces the amount that can be paid into your pension with the benefit of tax relief from £40,000 to just £4,000 per year and could therefore have serious implications for your retirement plans. Unlike an annuity, income drawdown doesn’t guarantee an income for life, so this option carries more risk that your money might run out before you do. It is also important to note that as your pension fund remains invested, you will need to give thought to an appropriate investment strategy and the level of risk that you are comfortable taking. The value of your pension funds (and any income from them) can go down as well as up. Past performance is not a reliable indicator of future performance. There’s clearly a lot to weigh up when considering your ideal retirement and how best to draw your pension. If you don’t feel confident with all these complex decisions, then please don’t hesitate to contact us. We can help you decide which option or combination of options will be most suitable for you and your retirement journey. |