Lifetime Allowance

I have said many times that it’s so important to have all your cards on the table for financial planning. Recently, I’ve seen a couple of clients who are making contributions to their pension and do not seem aware that due to the size of their pension pots, they could end up paying a Lifetime Allowance tax charge when they take their benefits.

I’m not necessarily saying that this is an issue, but it is wise to understand the tax charge and plan for it. So what is the Lifetime Allowance tax charge? Currently when you take pension benefits in excess of £1,055,000, and you do not have any form of protection, you have to pay a tax charge of 55% if you take the benefits in the form of a lump sum, or 25% if you take the benefits in the form of an income.

When it was introduced in 2006, the Lifetime Allowance was set at £1.5m, and I know as an adviser I didn’t feel that many clients would be affected. However, having reached its highest level of £1.8m in 2010/11 it was later reduced again to £1m by 2016/17, and it’s slowly increasing again.

Many of you may think that this figure is high but as previously mentioned I have spoken to
individuals who are unaware that they have an issue. When you look at how it is calculated you may understand why. For example, individuals with a defined benefits scheme would multiply their annual pension by 20 and add the lump sum entitlement.

You may think that you could try to avoid this by not taking all the benefits, but any benefits which have not been taken will still be assessed at age 75 and the excess above the Lifetime Allowance will be taxed.

Also, there are other situations where pension benefits are measured against the Lifetime Allowance. So if you want to know more about Lifetime Allowance, the Lifetime Allowance charge, any solutions and whether you could apply for protection please do give us a call.

Disclaimer: Allowances, limits and thresholds correct at the time of writing, but are subject to change in the future. Please confirm the current position before taking any action.

Allowances, limits and thresholds correct at the time of writing, but are subject to change in the future. Please confirm the current position before taking any action

 

Providing advice and personal solutions to your financial challenges

Over the years as an adviser I have seen many changes in our industry and have noted the change in focus from products to outcome, but there still seems be a lot of mystery around what we do.

Here’s a breakdown of some of the things we do:

  • Personal advice A financial adviser will find a solution that’s tailor-made for you. We will ask you questions about yourself to get a full picture of who you are and what you need.
  • Knowledge of the market We are not tied to any particular bank or provider and because of this we are able to research the market place to access products that are suitable for you.
  • Extra benefits For example, with protection policies e.g Critical Illness, the cover does vary from one provider to another and we can help you decipher the most suitable product for your needs.
  • Peace of mind We can look into the policies you already have and report on any shortfalls, taking your employers’ and state benefits into consideration, ensuring that you only have policies you need. We can also make sure they are set up as efficiently as possible, for example in a trust if this is beneficial to do so.
  • The buck stops with us We take away the worry of you getting it wrong. We keep you up to date and take full responsibility for all the advice we provide.
  • Practical help For example, if you need to make a withdrawal or a claim we can hold your hand through the process researching the paperwork that needs completing. Often this is during emotionally challenging times.
  • Proactive Support If you opt for an ongoing service we will go on providing support, making sure the policies you have are still suitable for you.

These are just some of the areas we can help with, if you would like some help please call us on
020 8655 8488.

Allowances, limits and thresholds correct at the time of writing, but are subject to change in the future. Please confirm the current position before taking any action

 

What if something happened to you?

I have often described our service as a sounding board. When we meet a client for the first time, we spend time discovering everything there is to know about their current financial situation. This includes what protection policies they have, if any.

Clients often say they are unlikely to die before the age of 50. But you can’t deny that it does sometimes happen. What would be the financial impact if you died before your time? What would happen to your loved ones if you became ill or injured and unable to generate income?

The evidence below shows the likelihood of making a claim on your protection policies.

Figures from the ABI show that the number of individual protection policies taken out in 2016 had decreased, although the number of group policies had increased. I have heard people say that these policies never pay out. But statistics also show that in 2016, 98% of all Life, Critical Illness and Income Protection insurance claims were paid.*

Legal & General reported that in 2017 the average age of a Critical Illness claimant was 47, and here are the top five conditions where Critical Illness claims were paid:

  • Cancer 63.8%
  • Heart attack 10.1%
  • Stroke 6.4%
  • Multiple sclerosis 5.1%
  • Total permanent disability 3.6%**

The number of claims are also on the increase. AIG paid a total of £69m in claims for life and Critical Illness insurance in 2016 – that’s more than 49% more than the year before.***

Whether you have a financial adviser or not, it is important to audit your affairs every year. Ask yourself this question: “If anything had happened to you yesterday, where would you or your loved ones be today?”

Why not have a look at your cover today? Have a quick tally up of your assets and liabilities and the term of these, and work out if they would be cleared if something happened to you. Then consider any dependents who are financially dependent on you.

Or why not book an appointment? It’s the equivalent of a financial MOT. There are many different products on the market and we can go through the advantages and disadvantages of each with you.

At Monetary Solutions Ltd, you can book a free initial consultation about any financial matters, so please call us on 020 8655 8488.

*Association of British Insurers
**LegalAndGeneral.com
***FT adviser 28 March 2017

Allowances, limits and thresholds correct at the time of writing, but are subject to change in the future. Please confirm the current position before taking any action

 

Are annuities a thing of the past?

Last week, I used the word “annuity”. When I saw the look on my client’s face, I realised that it had become a dirty word!

As you may know, the Government announced new pension freedoms in the 2014 Budget, that started in the 2015/16 tax year. This means anyone aged 55 and over can now take the whole of their pension as a lump sum. There is no tax to pay on the first 25% and the rest will be taxed at their income tax rate, as if it were a salary payment.

The announcement was a surprise to many. As a child, my mum told me she could remember exactly where she was when she heard about the assassination of J F Kennedy. The impact on me and my financial adviser colleagues was similar when we first heard about pension freedom!

One of the reasons the Government introduced pension freedom was due to the drop in annuity rates. To put it simply, in 2000 the income from a £100,000 joint life annuity at age 65 was about £7,000, But by 2016, the same annuity would pay only about £4,200.*

Because of the new pension freedoms, many of my clients seem to think annuities are now a thing of the past – but they could still be a valuable part of their pension planning.

An article in March 2017 in FT Adviser quotes figures from the Association of British Insurers (ABI) that show annuity sales have declined by around 80% since the announcement of pension freedom in 2014, and have remained around that level since then.

However, annuities are not something that should just be ruled out.

Today, a joint life annuity of £100,000 paying 50% to the spouse on first death and guaranteed for 10 years would give an income of around £5,000 where the applicant and spouse are 65. On the other hand, a drawdown pension would need to grow at 5% to maintain its capital value and give this level of income after charges.

I still think it is important to consider annuities – it doesn’t need to be all or nothing, and it doesn’t have to die with you.

Annuities come in many forms today. Most of us think that an annuity is for life, but you can get fixed-term annuities. There are also enhanced annuities, which is when annuity companies offer an enhancement due to an individual’s medical history. It could just be because someone is overweight, so it’s important to look into this.

Obviously there are advantages and disadvantages of both annuities and pension drawdowns, and retirement planning has become even more complex. It’s therefore more important than ever to seek advice and look at all your options.

At Monetary Solutions Ltd, you can book a free initial consultation about any financial matters, so please call us on 020 8655 8488.

* Money Marketing 29 Nov 2016
Pension income can also be affected by interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

Photo by Andre Guerra on Unsplash

Allowances, limits and thresholds correct at the time of writing, but are subject to change in the future. Please confirm the current position before taking any action

 

Coming up to retirement?

At this time of year, many of us are returning from our summer holidays. I have heard retirement being referred to as “one long holiday”. Of course, one day, you’ll retire from full-time work. But have you ever wondered what type of holidays you will be able to afford when you eventually retire?

The type of holidays you’ll be able to take during retirement will depend on your financial situation at the time. It is not just about the Pensions you have built up; it’s your complete financial situation – for example, whether you have paid off your mortgage and other debts.

Planning for this time of life is essential. It’s not just about making sure you have built up enough funds, it is also about making sure that the savings you have accumulated are taking the right amount of risk.

Can you remember back to 2008? People coming up to retirement age were on the news saying that they had to delay their retirement due to the sudden drop in the value of their Pension. Whether you would be affected or not depended on what your Pension funds were invested in at the time.

We often see new clients who have very little idea about how their Pension funds are invested. Do you know what your funds are invested in? If the market were to suddenly drop, do you know how this would affect your Pension and investments?

Over the last few years the options for taking your Pension benefits have changed considerably. Do you know how you intend to take yours? Your answer will affect the risk profile your Pension should be invested in during the time leading up to you taking the benefits.

If you are coming up to retirement and planning to take your Pension, here are some more questions to ask yourself:

  • How much income would you like to have coming in at retirement?
  • Is your Pension on target to produce this?
  • Where are your funds currently invested?
  • How are the funds performing?
  • What is your personal risk profile?
  • Do your current investments match your risk profile?
  • Is that profile appropriate for the way you envisage taking your Pension benefits?

If you are coming up to retirement, give us a call on 020 8655 8488 and we’ll help you find the right answers.

A Pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of Pension benefits available.

Pension income can also be affected by interest rates at the time you take your benefits. The tax implications of Pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

Allowances, limits and thresholds correct at the time of writing, but are subject to change in the future. Please confirm the current position before taking any action

 

Communicating across the generations

Of course there are always exceptions, but it seems that the internet has made the generation gap even wider.

You might be interested in this breakdown of ‘recent internet usage’ by age.

As you might expect, younger people seem to use the internet more often.

  • 99% of people aged 16 to 34 years old reportedly used the internet recently1

By contrast, over 75s use the internet far less, although this is changing.

  • In 2016, 38.70% of people aged 75 years and over were recent internet users (for women aged over 75 it was even less, at 32.60%)1
  • In 2018, the percentage of people aged 75 years and over who were recent internet users rose to 44%1

What this means to us

One of the biggest questions we face as a firm is the best way to communicate with our clients.

For example, the data above shows that our web presence and online communications aren’t reaching most over 75s. That’s important information for us to be aware of.

At the other end of the spectrum, people reaching adulthood in the early 21st century are termed ‘millennials’. It has been reported that:

  • Millennials are twice as likely to use mobile phones compared with the older generation2
  • Almost half of UK millennials want to do their financial planning on a smart phone2
    We have traditionally given financial advice face- to-face, so this trend poses a new challenge to us.

What this means to you
Hopefully, this article shows that we make every effort to keep up to date with trends so we can adapt our service offering to suit individual needs.

You can be assured that we aim to look after your best interests, not just financially, but also in how we deliver the service. As financial advisers, we want to communicate with you in your preferred way, on your preferred platform.

We’d be interested in hearing what you think. You can communicate with us however you want – via email or phone, sending a traditional letter, or even by carrier pigeon!

At Monetary Solutions Ltd, you can book a free initial consultation about any financial matters, so please call us on 020 8655 8488.

1 Office for National Statistics
(20 May 2016 and 31 May 2018)

2 Independent (5 June 2017)

Allowances, limits and thresholds correct at the time of writing, but are subject to change in the future. Please confirm the current position before taking any action

 

Understand the Nil Rate Band

With the average house price in Purley being over £600,000, it is very common for residents to have an inheritance tax (IHT) liability on their death. But can anything be done to mitigate this?

As with all financial planning, it is important to know your potential tax liability so you can decide what to do.

To find out what your IHT liability might be, the first thing is to work out your Nil Rate Band threshold. Anything above the Nil Rate Band is taxed at 40%.

Everyone who dies this year has an individual Nil Rate Band threshold of £325,000.

As you may know, the Government has also introduced an additional Main Residence Nil Rate Band, which amounts to £125,000 for the year 2018/19. This applies where the deceased had an interest in a property that has been their residence at some point, and is part of the estate they have left to one or more direct descendents.

This means that a person’s total Nil Rate Band could be up to £450,000. If it is not used on first death, this amount could be transferred to the spouse.

Of course it’s not as simple as that, so care is needed.

For example, if the net value of the deceased’s estate is above £2 million (after deducting any liabilities but before reliefs and exemptions), the Main Residence Nil Rate Band is reduced by £1 for every £2 that the net value exceeds this amount.

What this means to you

There are many ways that potential IHT liabilities can be reduced. Just give us a call if you’d like some help with that.

At Monetary Solutions Ltd, you can book a free initial consultation about any financial matters, so please call us on 020 8655 8488.

Disclaimer: Allowances, limits and thresholds correct at the time of writing, but are subject to change in the future. Please confirm the current position before taking any action.

Allowances, limits and thresholds correct at the time of writing, but are subject to change in the future. Please confirm the current position before taking any action

 

GDPR: What’s it all about?

If your inbox is anything like mine, you have probably been receiving loads of emails recently from companies asking you to “opt back in” to receiving their emails. You might be wondering why this is.

On 25 May 2018, the General Data Protection Regulation (GDPR) is coming into effect. This is a new EU regulation covering data protection and privacy for all individuals within the European Union.

The legislation aims to give control to EU citizens and residents over their personal data, and to simplify the regulatory environment for international business by unifying the regulations within the EU.

How does GDPR affect individuals?

GDPR includes the following rights for individuals:

  • to be informed about what data companies hold about you
  • to access your data
  • to rectify your data
  • to have your data erased
  • to restrict processing of your data
  • to move, copy and transfer your data
  • to object to automated decision-making and profiling

You may have also seen the term “Personal Data” being used a lot lately. This means data which can identify an individual, such as their name, address, telephone number etc.

There is also the term “Sensitive Personal Data”. This is personal data which consists of, for example, health records, religious beliefs and political opinions.

There has already been a two-year transition period and the Act becomes enforceable on 25th May. In summary, GDPR may seem as though it’s a nuisance, but we think it’s a good thing to protect people’s privacy.

Obviously, as financial advisers, we have access to a lot of information about our clients. As a responsible business, we will of course ensure we comply with GDPR and all other relevant legislation.

At Monetary Solutions Ltd, you can book a free initial consultation about any financial matters, so please call us on 020 8655 8488.

Allowances, limits and thresholds correct at the time of writing, but are subject to change in the future. Please confirm the current position before taking any action

 

Pension contributions

With the end of the tax year looming, you might be wondering whether you should top up your Pension(s) before the 5 April deadline. ‘Pension Freedoms’ have added to the attractiveness of Pensions as an investment. However, I meet many people who don’t understand all the benefits. This article briefly explains them.

Tax relief
While interest rates on savings are still very low, the tax relief a Pension can attract adds to its growth, making it an interesting investment to consider.

At the time of writing, higher rate tax relief is still available.

Example

If you earn £55,000 and want to make a £10,000 contribution to your Pension, you would only need to pay £8,000 yourself, with the other £2,000 being added to your contribution in the form of tax relief. (This example assumes you are making no other Pension contributions.) You could then also claim a further £2,000 tax relief via your tax assessment, meaning it has really cost you only £6,000 to put £10,000 into your Pension.

The benefits are not just for individuals. Pensions are also attractive to businesses, as they can be treated as an allowable business expense and offset against your company’s corporation tax bill.

Pensions can be valuable for inheritance tax planning too, and we find they are a vehicle that is often overlooked.

However, Pensions can also be quite complex – there are restrictions on how much you can pay in each year as well as on the total you can accumulate over the lifetime of a Pension. There are penalties if you exceed these limits so, as always, we recommend you seek professional advice…

At Monetary Solutions Ltd, you can book a free initial consultation about any financial matters, so please call us on 020 8655 8488.

A Pension is a long term investment. The fund value may fluctuate and can go down which would have an impact on the level of Pension benefits available.

Levels, bases and relief from taxation may be subject to change and the value depends on the individual circumstances of the investor.

Allowances, limits and thresholds correct at the time of writing, but are subject to change in the future. Please confirm the current position before taking any action

 

Women in financial services

This year is the 100th anniversary since UK women won the right to vote. But, since then, we have not moved as fast as some other countries to address the differences in how men and women are treated.

It was 1963 when John F Kennedy signed the United States Equal Pay Act, making it illegal to pay men and women different salaries for similar work in the same place.

However, recent research shows that UK women working full-time are still paid less than men in 90% of sectors, with those working in financial and insurance sectors among the worst affected. (Source: UK Commission for Employment and Skills 17 November 2015.)

Theresa May has tried to redress the balance in her last cabinet reshuffle. Of the 13 new politicians on the Government payroll, eight were women and four were black or minority ethnic (BME). She hailed a Government that “looks more like the country it serves”. Surely all industries and boards should look more like the country they help?

Impact on financial services
Financial services is a sector that is traditionally male-dominated, and many people feel that more females are needed.

In financial services, women comprise just 14% of executive committees, even though 66% of new recruits are female. (Source: Daily Telegraph 22 March 2016.)

The Government is trying to support women working in the finance sector by introducing the financial charter that asks companies to pledge to set internal targets for women in senior management, and to publish progress reports.

This is a subject very close to my heart since I run an advice company with all female advisers – although two of our administrators are male.

Studies have shown that women are the main breadwinners in 56% of households across the country. (Source: Real business 7 Jan 2016.)

Surely, women should have the option to have someone of the same gender to advise them?

At Monetary Solutions Ltd, you can book a free initial consultation about any financial matters, so please call us on 020 8655 8488.

Allowances, limits and thresholds correct at the time of writing, but are subject to change in the future. Please confirm the current position before taking any action

 

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