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one in seven widows are missing out on valuable tax breaks

New data reveals that thousands of widows are missing out on valuable tax breaks on money inherited from their late husbands or wives.

In 2015, the government introduced a new rule that allows spouses to claim an extra ISA allowance. This allowance, known as an Additional Permitted Subscription allowance (APS allowance), is available to the surviving spouse or civil partner of a deceased ISA investor, where the investor died on or after 3 December 2014.

According to the Tax Incentivised Savings Association (an ISA trade body), around 150,000 married ISA savers die each year. However, just 21,000 eligible spouses used their APS allowance in the 2017-18 tax year, meaning they may be paying more tax than they need to pay.

Many bereaved spouses are unaware of the extra protections they can claim on, while others find the process difficult and confusing.

It is thought that many of those who lose out are widows whose husbands pass away without informing them of the exact nature of their financial affairs. In some cases, widows only discover large sums of money long after their husband’s death.

Situations like this have led to many to call for greater transparency between spouses around their financial affairs. A culture of privacy around financial matters is rife among the ‘baby boomer’ generation, where the higher earner often manages the money and investments. This can leave the bereaved in a precarious position, especially if they don’t know what bank accounts, investments and companies their spouse may have managed.

If your partner has left funds held in an ISA to someone else, you’re still entitled to APS. For instance, if your partner left an ISA of £45,000 to their friends and family, you can use your APS allowance to put an extra £45,000 into an ISA of your own.

Think you might be able to claim? You can apply through your late partner’s ISA provider. You will need to fill in a form, similar to when you open an ISA.

Sources
https://www.telegraph.co.uk/personal-banking/savings/one-seven-widows-missing-valuable-tax-breaks/

Saving for retirement: what’s the magic number

The fact is, most of us are simply not saving enough to enjoy a similar lifestyle to our working days in retirement. A ‘retirement reality’ report from insurer Aviva shows that nearly 1 in 4 employees believe that retirement will be a financial struggle.

There are plenty of legitimate reasons why we don’t save enough – more immediate financial concerns will naturally take priority. You can’t save for tomorrow, for example, if it means forgoing your mortgage payments today. A lack of financial education also plays a big role. 85% of young adults, when surveyed, revealed that they wish they had been taught more about finance management through their school and university careers.

The Government’s auto-enrolment workers’ pension initiative has helped and there are around 1 million people saving for their retirement for the first time ever, as a result, but how do the numbers add up? The minimum auto-enrolment contribution rate is 5% of annual income, and despite more than half of workers believing this is the recommended rate of saving, it’s far from it. The generally accepted figure among experts, if you wish to maintain a similar lifestyle in retirement, is a contribution equal to 13% of your annual income. Some of this deficit will be made up by employer’s pension contributions, however, we’re still looking at a wide gulf between actual savings and those that are required.

Investment house, Fidelity, has devised a system it calls the ‘Power of Seven’, consisting of a number of savings goals. Ultimately, it suggests that to comfortably retire at 68, you should have saved the equivalent of 7 times your annual household income. So if you were to retire with a household income of £50,000, you’d want a pension pot saved of £350,000. The exact figures will differ from case to case, so it’s recommended to use an online pension calculator to understand your personal situation and check it regularly to keep yourself updated.

There are steps you can take to bolster your pension pot. It’s down to you to take responsibility for your finances, and even small steps like being a member of the works pension scheme and using tax friendly Savings Accounts can be helpful. If you receive a pay increase, perhaps allocate half of it to your savings or investments and enjoy the other half now. As tempting as it can be, it’s important to foster self control to turn down opportunities for frivolous spending – think about tomorrow and give yourself more options in your golden years.

Sources
https://www.thisismoney.co.uk/money/pensions/article-6449851/How-need-squirrel-away-golden-retirement.html

The long-awaited ban on pensions cold-calling has finally come into force

From January 9 2019, the cold-calling of savers about anything to do with their pensions became illegal. The new law doesn’t just cover phone calls. Any unsolicited emails or text messages about your pension will also be illegal.

As it stands, not every cold-call you receive about your pension is a scam, though many scammers use it as a tactic to get their hands on your retirement savings.

When the ban comes into force, you can be sure that any out-of-the-blue call about your retirement savings is definitely a scam.

The introduction of pensions freedoms in 2015 is widely cited as the reason for the alarming increase in pension fraud over the last few years. Scammers have seized upon these rules, which give savers much more flexible access to their retirement savings, to get unsuspecting individuals to transfer their cash.

Key warning signs of pensions scams include offers of free pension reviews and promises of incredibly high rates of return, among others. Citizens Advice report that as many as 10.9 million people were cold-called about their pensions in 2016 alone.

In the wake of this rise in scamming, savers have been turning to financial watchdogs in huge numbers for help. Between August and October last year more than 173,000 people visited the FCA’s ScamSmart website for more information.

Pension fraud victims lost £23 million in the last year alone, up £9.2 million from the year before. The real amount could be even higher as only a minority of victims report being scammed.

From 9th January, when you put the phone down on would-be pension scammers, you can tell them that they have broken the law just by contacting you.

If you suspect you have been victim to a pension scam, you should report the scam or fraud to Action Fraud as soon as you can. They will pass the information to the National Fraud Intelligence Bureau who will analyse the case to find viable lines of enquiry. If they find any, they will send the report to the police for investigation.

Sources
https://www.telegraph.co.uk/pensions-retirement/financial-planning/scourge-pension-cold-calling-finally-banned-january/

Inheritance Tax – Could there be a better alternative?

Inheritance tax is enormously unpopular to say the least. A YouGov poll found that 59% of the public deemed it unfair, making it the least popular of Britain’s 11 major taxes. What’s more, the tax has a limited revenue raising ability, with the ‘well advised’ often using gifts, trusts, business property relief and agricultural relief to avoid paying so much.

As it stands, the tax affects just 4% of British estates and contributes only 77p of every £100 of total taxation. This puts the tax in the awkward position of being both highly unpopular and raising very little revenue. At the moment, the inheritance tax threshold stands at £325,000 per person. If you own your own home and are leaving it to a direct descendant in your will, this lifts the threshold by an additional £125,000 in the 2018-19 tax year (the nil-rate band), to £450,000. Anything above this is subject to a 40% tax.

Inheritance tax is seen as unfair because it is a tax on giving (while normal taxes apply to earnings) and it is a ‘double tax’ on people who have already earned – and been taxed on – their wealth.

However, the Resolution Foundation, a prominent independent think tank, has suggested an alternative.

They propose abolishing inheritance tax and replacing it with a lifetime receipts tax.

This would see individuals given a lump sum they could inherit tax free through their lifetime and would then have to pay tax on any inheritance they receive that exceeds this threshold. The thinktank suggests that by setting a lifetime limit of £125,000 and then applying inheritance tax at 20% up to £500,000 and 30% after that would be both fairer and harder to avoid.

They predict that a lifetime receipts tax would raise an extra £5 billion by 2021, bringing in £11 billion rather than the £6 billion inheritance tax currently raises. In a time of mounting pressure on public services like the NHS, this additional revenue would be welcomed by many.

Moving away from inheritance tax would reduce many of the current ways to manage the amount of assets an individual is taxed on upon death. For instance, people would not be able to reduce the size of their taxable estate by giving away liquid assets seven years prior to their death.

The Resolution Foundation also suggests restricting business property and agricultural relief to small family businesses.

The lifetime receipts tax is, at the moment, just a think tank recommendation and is not being considered by the government.

However, the government are trying to introduce changes to probate fees that would see estates worth £2 million or more pay £6,000 in probate fees, up from the current rate of £215. This proposal has seen little support in the House of Lords and the government may consider scrapping the tax.

Sources
https://www.telegraph.co.uk/tax/inheritance/government-could-back-disguised-death-tax-following-lords-pressure/
https://www.accountancyage.com/2018/05/03/inheritance-tax-is-unfit-for-modern-society-and-should-be-abolished-says-think-tank/

4 cruises around the British Isles

When you think of a cruise, the first things to come to mind are usually European cities of culture, blue Caribbean oceans or Balearic islands.

What many people don’t realise is that there are some incredible options available much closer to home.

The British Isles boast a staggering number of beautiful and unusual destinations, particularly along the coast. Many of these are off-limits to the enormous passenger ships which are normally associated with cruises. ‘Boutique’ cruises are a fantastic holiday option for those wanting to avoid the crowds and experience what our home isles have to offer; here are four exciting examples.

  • London to London

Departing from Tower Bridge, London, there is a cruise by Silversea, which will take you all the way around Britain and Ireland before returning you to where you started. A 12 day cruise enables you to enjoy an array of experiences, from a traditional Cornish pub lunch in Falmouth to Balmoral Castle in Aberdeen or a trip from Belfast to the Giant’s Causeway.

  • Birds and Blooms of Britain

If you’re somebody with an appreciation for nature, you could take a springtime voyage with Noble Caledonia from Plymouth to the Isles of Scilly, Lundy, Skomer, Llandudno, Peel, Holy Loch and Fairlie. With excursions into the Abbey Gardens of the Island of Tresco and the Botanical Gardens of the Cowal Peninsula, any green-fingered passengers will be happy. Not to mention the puffins, guillemots and razorbills around Lundy and Skomer for the birdwatchers on board.

  • The Scenic Route

If you’re heading to Dublin but don’t fancy taking a flight, Le Boreal is a 264 passenger mega-yacht which boasts interiors designed by Jean-Philippe Nuel, as well as serving the finest French cuisine. Departing from London and stopping off in Dover, it takes in the glorious views of Dorset’s Jurassic Coast and the historic coves of the Scilly Isles. Before it arrives in Dublin, you’ll have the opportunity to visit Glengarriff and Kinsale over the course of a seven night journey.

  • A Royal Voyage

If opulence and exclusivity appeal, you could get on board the Hebridean Princess.The ship holds only 50 passengers, and the Queen herself chartered the vessel in 2006 for a holiday to celebrate her 80th birthday. Departing from Oban, the cruise explores the Outer Isles and visits lochs, islands and remote mainland sites and allows you to be surrounded by luxury.

Sources
https://www.telegraph.co.uk/travel/cruises/articles/small-ship-cruises-to-explore-the-british-isles-and-beyond/

New year, new you for your finances

With the new year comes new possibilities, and most of us like to put a resolution in place. While you might not stick to your January gym membership or finally get that novel written, committing yourself to a financial resolution is an excellent way to start 2019.

Improving a financial situation has proven to be a high priority for the British public as we turn the first page on a new calendar. In fact, the average adult will commit £4,600 on financial resolutions; this includes goals like paying off a debt or moving house. For those under the age of 25, 11% of people aim to clear their debts in the new year, and for the over 55s that figure increases to 15%.

Even with the best intentions, however, it can be tough to see resolutions bear fruit. Luckily, there are a few steps you can take to give yourself the best chance.

1. Look before you leap!

It can be tempting to jump into the new year with big plans for the future, but if you’re not looking at where you’re coming from, you may not be giving those plans the preparation they need to flourish. Review your spending for 2018, collect your bank statements, bills and receipts and look out for areas of excessive or unnecessary expenditure. Once you’ve identified any pitfalls, they’ll be much easier to avoid in the year ahead.

2. Find your feet

Once you’ve got a good grasp of how the past year has been for your finances, you’ll have an understanding of where you are currently. There may be actions you can take immediately to better your situation. For example, review any subscriptions or direct debits that you now deem unnecessary. Sell any unnecessary items to create an income without any serious lifestyle changes. Consolidate debts with balance transfer cards, to make payments more manageable and to potentially lower your interest rate. Simplifying and strengthening your financial situation at the start of the year will give you greater control over the coming months.

3. Set goals and be reasonable!

There’s no point in setting a goal that is unachievable, only to disappoint yourself when you inevitably fail to meet it. With a solid understanding of your recent financial habits and your current position, set yourself an achievable plan for the year ahead. Be specific and make it measurable! Rather than pledging to eradicate all of your debt, identify a portion that you’re confident you can clear, and set yourself benchmarks to help track your progress.

4. Draw up a budget

It’s all well and good having a plan but you’ve got to stick to it. A well constructed budget can be just the thing to keep you on the straight and narrow. Gather information about your income and outgoings and regulate your spending. For example, it can be very tempting to treat yourself when you receive some unexpected income but don’t ignore the opportunity to bump up your savings. Perhaps consider splitting that extra money between debt repayments and future savings, and if there’s any left over then go for that posh meal. The key is to keep up to date, and revise your savings goals and budget plans as you go so that you’re prepared for whatever the year may bring!

With the right preparation and planning, 2019 can be a great step forward for your finances – take on the challenge and have a happy new year!

Sources
https://www.equifax.co.uk/resources/money_management/new-year-new-start-to-your-finances.html

How can millennials get on the property ladder?

There’s been a lot of talk in the press recently about generational inequality, which has mostly been with good reason. Those currently in their twenties and thirties are earning far less than people the same age did 10 to 15 years ago.

The 2008 recession has put the millennial cohort far behind in terms of earnings and wages. Wages have never fully recovered since the recession and are still behind their pre-financial crisis peak. Many may be unable to ever afford to get on the property ladder, meaning they will have a lifetime of rent payments to fund.

Also, rising house prices have meant that the average deposit has risen from around £10,000 in the Eighties and Nineties to between £50,000-60,000 today, according to analysis by accounting firm PwC. Even when adjusted for inflation, the rise is dramatic.

Auto-enrolment in pension schemes has begun to address some of the long term issues around retirement funding but even still, these do not compare to the security offered by ‘gold-plated’ direct contribution schemes.

The younger generation are already aware that they will have to work far longer. Early retirement will likely be the premise of the rich, lucky or extremely frugal. Fortunately, millennials look set to be able to cope with the demands of a longer working life. The younger generation are fitter and healthier compared to previous generations with far fewer smokers and better diets.

Although a longer working life might be a path towards an eventual retirement, it does little to help young people get on the housing ladder. The fact of the matter is that many young people will need some kind of ‘leg up’ if they are to achieve the financial stability that many of the ‘baby-boomer’ generation managed.

The income gap between older and younger generations means that many young workers will have to rely on the wealth accumulated by their parents and grandparents if they are to sustain the same quality of life.

Family loans have become increasingly important for the financial wellbeing of young people. Many are giving younger generations so-called ‘early inheritances’ in the hope that such loans will enable them to get a foot on the property ladder. This is already so widespread that nearly eight out of 10 first-time buyers in London are receiving some sort of financial help from their parents.

Parents and grandparents are funding help through a variety of means. Almost three quarters of parents used their life savings to help out with the cash, while a third downsized or released equity from their homes. Another third accessed pensions cash; either cashing in lump sums through income drawdown or annual annuities. 7% remortgaged and 6% took out a loan themselves.

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Sources
Sunniva Kolostyak “Fireworks for millennials” in Pensions Age, November 2018
https://www.telegraph.co.uk/personal-banking/mortgages/baby-boomer-vs-gen-y-homebuying-in-1982-compared-to-2016/

Pension drawdown in an era of long life expectancies

Pension drawdown in an era of long life expectancies

Retirement planning means taking into account a whole host of factors. You have to navigate tough questions like, ‘What will the impact of inflation be?’ or ‘When will interest rates start to creep up?’

As well as these, there is another question that must be considered: ‘How long will you live?’

This question is unanswerable but figures suggest that some pensioners might be getting this figure very wrong when it comes to drawdown. Many are running the risk that their retirement pot kicks the bucket before they do.

Research by AJ Bell indicates that 50% of people aged 55-59 who’ve entered income drawdown say they have only enough savings to tide them over for 20 years. This might sound like a long time but when you consider that average life expectancy for this cohort of savers is 82 for men and 85 for women, many risk running out of money.

The reality is that none of us know how long we will live. When you factor in that there’s a fair chance that a few of AJ Bell’s respondents might live to 90 or even 100, it’s clear that many pensioners could be drawing from their savings at an unsustainable rate.

Withdrawal rates

AJ Bell also asked their respondents about their withdrawal rates. They discovered that 57% of people in the 55 to 59 age bracket are withdrawing more than 10% of their fund each year. This reduces to 43% of people in the 60 to 64 age bracket and 34% of people in the 65 to 69 age bracket.

While many use their early retirement to travel and embark on their larger plans, over-withdrawing early on could mean that they end up without the money to cover costs that arise in later life, such as care costs.

The average size of the fund in AJ Bell’s questionnaire was £118,000. Based on this, a 10% annual withdrawal of £11,800 would result in the income lasting just 12 years. However, if the withdrawal is reduced to 6% of starting value, the same fund might last for 29 years. These estimations don’t take into account the detrimental impact of inflation, which currently runs at 2.7%.

Working out a sustainable drawdown rate is difficult and depends on a whole range of factors. Your regulated financial adviser or planner should be able to give you your best chance of a good retirement outcome.

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Sources
https://www.retirement-planner.co.uk/232530/tom-selby-life-expectancy-guessing-game

4 ways to live a happy retirement



Retirement should be the time of your life. No more early alarm calls, no more commuting and no more carefully counting your holiday allocation. Instead, you have the freedom to do exactly as you please. Yet retirement might not always work out as the idyllic move to a cottage by the sea it’s billed to be. Some people, in fact, dread retirement and feel they’re being put out to grass. They fear they’ll miss the structure and companionship that work gives. Think of it more as ‘change’ not ‘old age’

Think of it more as ‘change’ not ‘old age’

Retirement is automatically associated with old age in people’s minds. The very word conjures up images of people sitting around in retirement homes in their slippers, watching daytime T.V. But this is far from the truth. Old age, today, encompasses a vast span of years, from 65 to 100. There are many active retirees living life to the full. And if you think how much the average person’s life changes between 25 and 60, just think how many possibilities could lie ahead in the same timeframe. Going from work to retirement is a huge transition – yet people cope with many other major transitions during the course of their lives; having a baby, changing jobs, going through a divorce, moving house. The key is to use your resilience and strength from previous times of change to help as you move into retirement. Don’t see it as entering old age, see it more as a time of embracing life’s opportunities.

Don’t just be concerned about the money side of things

That may sound a curious thing to read in a financial newsletter. And pensions will form a key part of any more retirement planning. There’s also no denying that pensions can be complex so it’s important to find the right solution for your situation whether it’s taking an income or accessing a lump sum. But the financial side of things is much wider than just your pension. So take time to think about what your ideal lifestyle would look like. Think about some proper financial planning. What are your goals and ambitions for retirement? Are your current finances on track to help you reach them? The money is just an ends to enable you to live a happy retirement and find a new purpose.

Be clear in your mind what you really want to do

In today’s world, where such value is placed on career status, retirement can be seen as an end rather than a new beginning. But you don’t have to be in paid employment to be happy and fulfilled. You may, in fact, find you achieve far more satisfaction in life after work. Why not do something you’ve always wanted to but never had time to? Learn to play a musical instrument, take up a sport, sign up for some volunteering, enrol on a course, get involved in a conservation project, travel the world… This is your time to do as you please. Remember, you don’t have to be constantly busy – sit back and reflect on your true values.

Adopt a proactive mindset

You often hear stories of people becoming ill, or even dying, within months of stopping work – a cruel twist of fate after they’ve laboured hard for years, looking forward to their retirement. According to the Office for National Statistics, though, health and wellbeing do actually increase in retirement while depression and anxiety often fall. This is as people have more time to adopt a healthy lifestyle and find new sources of fulfilment and exercise. The key seems to be to make a determined effort to stay sharp, be proactive and keep stretching your boundaries. It may sound surprising but workaholics often love retirement as much as they loved their careers.

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Sources

Sources
https://www.theguardian.com/lifeandstyle/2018/oct/06/life-keeps-evolving-six-ways-to-have-a-happy-retirement

3 pension changes you may have missed in the Budget

There was scarcely a mention of the ‘P’ word in October’s Budget speech (believe us, we were listening closely for it!). Instead, Hammond used the Budget speech as an opportunity to unveil his ‘rabbit in the hat’ changes to income tax thresholds, an increase in NHS mental health funding and a ban on future PFI contracts.

However, we had a good read of the accompanying ‘Red Book’ for any mention of pensions. At 106 pages, this was no mean feat. Fortunately, though, it was time well spent as we found some changes to pensions you may otherwise have missed:

The pension dashboard

HM Treasury confirmed that the Department for Work and Pensions (DWP) would look at designing a pension dashboard which would include your state pension. The pensions dashboard will be an online platform that will let you see all of your pension schemes in a single view. The average worker is nowadays expected to work eleven jobs during their career and keeping track of so many pension pots could prove confusing to say the least.

There was an extra £5 million of funding for the DWP to help make the pension dashboard a reality. Commentators see the dashboard as a welcome sign that the government is committed to helping savers keep track of their funds.

Patient capital funding

The government announced a pensions investment package which should make it easier for direct contribution pension schemes to invest in patient capital. Patient capital refers to investments that forgo immediate returns in anticipation of more substantial returns further down the line.

The government may review the 0.75% charge cap and there is widespread speculation that it will be increased to allow more investment in high growth companies.

Cold calling ban

The government has promised to ban pensions cold calling as part of a drive against pension scammers. Almost two years since the government’s initial proposals to combat pension scams were announced, pensions cold calling will finally be made illegal.

Research by Prudential indicates that one in 10 over 55s fear they have been targetted by pensions scammers since the introduction of pension freedoms in 2015. Cold calls, with offers to unlock or transfer funds, are a frequently used tactic to defraud people of their retirement savings.

As much as these measures go a long way to making people’s pensions more secure, the government will be powerless to enforce cold calls made from abroad and not on behalf of a UK company. It is unclear how and if the government will work with international regulators to mitigate the dangers of such calls.

Sources
https://www.moneyobserver.com/news/budget-2018-three-pensions-changes-you-may-have-missed