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4 steps to keeping track of your pension

A recent study has revealed the worrying statistic that over a fifth of all people with multiple pensions have lost track of at least one, with some admitting to have forgotten the details of all of them. With around two thirds of UK residents having more than one pension, this amounts to approximately 6.6 million people with no idea how much they’ve put away for their retirement. Double the amount of people admit to not knowing how much their pensions are worth.

It’s an undesirable side effect of the modern working world. Whereas in previous generations someone might stay at a single employer for their entire working life, the typical worker today will hold eleven different jobs throughout their career, which could potentially mean opting into the same number of pensions through as many different providers. The new legal requirement for all employers to offer a pension scheme through auto-enrolment is likely to add further complexities.

As a result, the Pensions Dashboard is set to launch in 2019 in the hope that it will make it easier for savers to keep track of their pensions in one place. Until then, however, there are four relatively simple steps to help you track down information on any pensions you’ve forgotten about:

  1. Find your pension using the DWP Pensions tracing service at www.gov.uk/find-pension-contact-details. Start by entering the name of your former employer to discover the current contact address for them. You’ll then need to write to them providing your name (plus any previous names), your current and previous addresses and your National Insurance number.
  2. In the case of a pension scheme which hasn’t been updated for a while, you’ll be required to fill out an online form to receive contact details. You’ll be required to give your name, email address and any relevant information to help track down your pension details. This could include your National Insurance number and the dates you worked for the company.
  3. You can also receive a forecast of your State pension either online or in paper format by going to www.gov.uk/check-state-pension. After entering a few details to confirm your identity, you’ll be told the date you can access your State pension and how much you’ll receive.
  4. Finally, and most importantly, once you’ve managed to track down all of your pension information, get some advice. Consolidating your pensions might be tempting to make managing your savings easier, but you also want to make sure you don’t lose out on any benefits by doing so. Before you make any decisions regarding your pensions, seek professional independent advice on what to do next.

Sources
http://www.independent.co.uk/money/modern-careers-risk-billions-in-lost-retirement-savings-a7545091.html

Why reading is more ‘taxing’ for some

Books are zero-rated from VAT. Well, traditional printed books are.

If you wanted to read this year’s Booker prize shortlist in hardback, it would cost you approx £90 and there would be no VAT applied.   

A consumer tax of 20%, or VAT as we know it, is levied on all goods sold in the UK. There are some exceptions, however, which are zero-rated, such as children’s clothes, most food and, as mentioned, printed books.      

This is in line with the tradition that knowledge and learning should be accessible.

As Stephen Lotinga, the chief executive of the Publishers Association, explained, “It has been a long-standing principle that governments won’t seek to tax and provide a barrier to books, education and knowledge.” 

But it is not a level literary playing field.   

The zero-rating does not apply to audio books or e-books which can cost up to approx 50% more. Admittedly, while some of the extra cost of audio books is due to the recording costs and the hiring of actors, the levy plays its part in keeping prices high.     

To set this in context, the UK publishing industry generated £3.6bn in total book sales in 2018. Physical book sales accounted for £2.9bn and digital £653m.

The different tax classification discriminates against those who are blind, partially sighted and the elderly. With 2 million people in the UK classed as visually impaired, this is a significant issue. 

For people struggling to read, being able to listen to books or change the size of the font on the screen of their e-reader can have a huge impact.    

But the issue is also affecting the younger generation.The National Literacy Trust has said one in eight children from disadvantaged families do not own books. If books were available in digital formats at lower costs, it’s felt children from low income families would be more likely to access them on their phones or tablets.   

High profile authors and publishers, together with one hundred MP campaign supporters, are putting pressure on the Chancellor, Sajid Javid, to address this anomaly and bring an end to digital VAT in his Autumn Budget.

From a business perspective, the tax is also seen to be a barrier to encouraging innovation in digital formats. 

Let’s hope the story has a happy ending for all those disadvantaged readers and listeners who feel they are being unfairly penalised.

Protecting your home from care home fees

As you grow older, one of the things you might be most concerned about is the entire value of your home disappearing on paying care home fees.

Care from the NHS is free, but if you need social care because you are physically or mentally frail, you will have to pay for it yourself.

Over recent years, fees for care homes have risen rapidly. Research has found that Britons pay £10.9 bn of their own money into privately funded care a year. According to market intelligence provider, LaingBuisson, the average bill was £844 a week in 2018, compared with £445 a week in 1998.

If you have more than £23,500 in property, savings and investments, you will have to pay the full cost of care yourself during your lifetime and, if necessary, from your estate after you have died. This may not leave much for your family to inherit. Help from the local authority is available but it is strictly means tested, which results in very few people qualifying for financial help. (The value of your home is not considered in your means test if you or your spouse or a dependant is living there).   

To avoid paying for their social care in the future, some people take steps to get rid of all their assets but this may mean they could end up in a less luxurious care home than they had hoped for. 

Is using a trust an option?        

You may have heard of people protecting the value of their assets and property by putting them into a trust. If this is done before they go into care, the home is not part of their capital and they cannot be required to use it to fund their care fees. Great care needs to be taken, however, around the timing of this.The Local Authority can view such a step as ‘deprivation of assets’ if they feel the intention is to avoid paying care fees and refuse funding as a result.

If you are considering using a trust, it is vital to get professional advice from a solicitor and make sure it is suitable for your individual circumstances. In some cases, there might not have been much benefit. Your income might have been enough to pay most or all of your care fees anyway. The level of your other capital may have been enough to meet the shortfall between your income and the fees for the length of your stay in care.

There were plans for the government to bring in a cap of £72,000 for care home costs in 2020, but these have been scrapped. In the recent Spending Review, an additional £1 billion for adult and children’s social care was announced by Sajid Javid, although it is yet to be seen what that will mean in practice.

Sources
https://www.ftadviser.com/pensions/2019/09/03/warning-of-care-fee-discrepancy-for-self-funders/

https://www.thisismoney.co.uk/money/guides/article-7278063/How-protect-wealth-care-fees-black-hole.html#targetText=The%20Dilnot%20Commission%20recommended%20the,abandoned%20the%20plans%20in%202017.

https://www.carehome.co.uk/news/article.cfm/id/1591631/should-care-fees-home-trust

Would more people actually like to retire a little later?

This may seem a surprising suggestion. Surely most people are eagerly looking forward to early retirement, not thinking about postponing it? More time to travel the world, spend on the golf course or help out with the grandchildren sounds an enticing prospect rather than more years at work.

But times have changed significantly since the state old age pension was first introduced in 1909. In those days, it was paid to those aged 70 or more and people weren’t expected to live many years beyond that.           

The UK Government is in the process of raising the state pension age to 66 (from the current 65), with an expected completion deadline of October 2020. These rises in the state pension age roughly correlate with the rise in life expectancy. People live on average at least another fifteen years beyond their ‘three score years and ten’.

Back in 1948, a 65-year-old would expect to take their pension for about 13.5 years, equating to 23% of their adult life. This has risen steadily. Figures in 2017 showed that a 65-year-old would expect to live for another 22.8 years, or 33.6% of their adult life.

A significant number of people even live to 100 these days. So much so that the Queen has had to expand her centenarian letter writing team to cope with the number of people requiring a 100th birthday message from the Palace.       

According to the Office of National Statistics, the number of centenarians in the UK has increased by 85% over the last 15 years.This trend is set to continue so that by 2080 it is anticipated there will be over 21,000.

In recognition of the fact that people are living longer and spending a larger proportion of their adult life in retirement, a government review will consider increasing the state pension age to 68 between 2037 and 2039.  

Currently, if someone retires at 65 and lives to 100 it makes for a long retirement. Not only is it  expensive for the state to maintain, the individual is worried about outliving their finances rather than being able to get on and enjoy their retirement. The state pension was not designed to support a long period of limbo. 

Against such a backdrop, it makes sense for some individuals, if they are fit, healthy and capable, to consider working beyond their pension age. There is no longer any default retirement age at 65, so it is perfectly possible to do this.  

The older generation also have a great deal to contribute to an employer in terms of experience and commitment. In addition, it’s well known that going to work each day gives some people a reason to get up in the morning and also to keep young. There are many unfortunate cases where someone has worked all their life, looking forward to their retirement, only to fall seriously ill or die the moment they stop work.    

The number of 70 year olds in full or part-time employment has been steadily increasing year on year for the past decade, according to data from the Office for National Statistics. This hit a peak of 497,946 in the first quarter of 2019, an increase of 135% since 2009. 

So rather than just worry about whether you will have enough for your retirement, maybe it makes sense to keep working a little bit longer.

Sources
https://www.telegraph.co.uk/news/2019/08/19/not-raise-pension-age-people-would-rather-retire-little-later/

https://www.gov.uk/government/news/proposed-new-timetable-for-state-pension-age-increases

https://www.theguardian.com/money/2019/may/27/number-of-over-70s-still-in-work-more-than-doubles-in-a-decade

https://www.ons.gov.uk

Own a second property? Here’s some changes you need to be aware of

There have been several changes relating to Capital Gains Tax (CGT) over the past few years. The coming years are set to bring more. Here’s our summary of some of the more important changes coming that might be coming into effect from April 2020. 

If you are thinking about selling a residential property in the next year or two, you need to know about proposed changes to the capital gains tax rules for disposals from April 6th 2020. 

If you only own one property and have always lived there, you should not be affected. However, if you own more than one property or you moved out of your only property for a period of time, you might face a capital gains tax bill. 

The two main changes you should be aware of are: 

Final period exemption 

The last period of ownership counting towards private residence relief will be reduced from 18 months to just nine. Currently, the final period exemption allows individuals a period of grace to sell their home after they have moved out. However, the government feels that individuals with multiple residences have been taking advantage, hence the reduction.   

Lettings relief

Lettings relief is set to be removed, unless you live in the property with the tenant. For UK property, HMRC must be notified and tax paid 30 days after completion rather than the January following the end of the tax year in which the disposal took place. Failure to pay on time will result in HMRC imposing interest and potential penalties. 

With no transitional measures in place, this means that higher-rate taxpayers previously expecting to benefit from the maximum potential relief of £40,000 could be lumped with £11,200 extra tax overnight. 

Here’s an example of how the new taxes could influence a sale:

Steve, a higher rate taxpayer, bought a flat in April 2009 for £100,000. He lived there for 6 years until April 2015 before moving out to live with his partner. He let the flat until 2020 when he sold it for £300,000. The sale was completed on 4th June 2020. 

If the contracts were to be exchanged before the April 2020 changes, a CGT of £6,618 would be due. However, after the deadline a CGT of £21,636 would be due, payable seven months earlier – this is due to there being a lower period of private residence relief and a lack of lettings relief. 

The next steps

The two above changes are set to be enacted as part of the 2020 Finance Act and at the moment are not definite. The consultation to these steps closed on 5th September 2019. Assuming that draft provisions reach the Finance Bill 2019-20, we will have to see if any changes are made to either after it is debated in Parliament. 

Sources

https://www.accountancyage.com/2019/09/16/prr-how-will-your-clients-be-affected/https://www.bdo.co.uk/en-gb/insights/tax/private-client/further-tax-changes-for-non-residents-holding-uk-propertyhttps://www.killik.com/the-edit/how-capital-gains-tax-on-property-will-change-from-april-2020/

The retirement mistruth

If you pay much attention to the media and advertisers, you may think that retirement is all about riding jet skis, sipping sherry on the French riviera or cuddling grandchildren. No doubt you’ve seen one, if not all, of the images on many of the retirement articles out there. Though those sorts of activities are an important part of retirement, a recent study has revealed retirement to be more of a double-edged sword. For many, the first few months can involve a lack of purpose leading to something somewhat akin to a later life crisis, according to Harvard Business School professor Teresa Amabile. 

It’s certainly hard not to lie about retirement because of the social norms associated with it. It’s meant to be the best time of a person’s life, that they’ve been working hard for. But it causes people to say one thing, and feel another. Professor Amabile interviewed 120 professionals about their views of retirement, at different stages of their careers. 

“People think of planning for retirement as a financial exercise, and that’s all. It also needs to be a psychological and relationship exercise as well.

“We need to think about who we will be – who we want to be when our formal career ends. The people in our study who do that, tend to have a smoother transition.” 

Revelations also arose when it came to how respondents described themselves. People often used their previous job title as a suffix to their retired status, usually saying that they were a ‘retired librarian’ or a retired ‘research chemist’ and the like. Though it’s important to be proud of what you’ve achieved during your career, it’s still important to prepare yourself for retirement as making sure you’re of sound mind as well as sound wallet will lead to better wellbeing after you draw the curtains on your career. 

However, this doesn’t mean that work has to come to an end. There are plenty of retirees out there who still consult in their previous profession – some even take the opportunity to pursue other avenues of employment that they’ve always been interested in. There are plenty of remedies to the retirement riddle that don’t need to resort to a kind of ‘forced leisure’ that is often associated with retirement. The truth is, you don’t have to relax or slow down if you don’t want to – as long as you remain realistic. 

It’s something that a retirement plan can help with tremendously as, more often than not, you’ll have to think about what you’re going to do when the time comes. It’s not all just financial saving strategies and tax mitigation, it’s about getting yourself into the mindset that retirement is on the horizon, and when it comes to the day that you draw your pension, you’ll be all the more prepared to make the most of it in a way that’s true to yourself and who you are. 

Sources
https://www.bbc.co.uk/news/business-48882195
https://www.forbes.com/sites/robertlaura/2019/06/13/will-retirement-turn-you-into-a-liar/#67e84b6b73de

Marshmallows and financial planning

The Stanford marshmallow experiment is one of the most famous pieces of social science research out there. It has arguably influenced the way that many people live their lives, in addition to providing plenty of fun and interest for those with young children who are in the ‘I’ll try this at home’ camp.

So what is the marshmallow test? 

A marshmallow is placed in front of a child, they are told that they can have a second one if they can go 15 minutes without eating the first one – then they are left alone with the marshmallow.

As you can imagine, many children ate the marshmallow as soon as the door closed, others fidgeted and wiggled as they tried to restrain themselves, eventually giving in. A handful of children managed to wait the entire time. 

Following the experiment, the children were monitored as they grew up and it was found that those who waited for the second marshmallow performed better in exams, had a lower likelihood of obesity, lower levels of substance abuse and their parents reported that they had more impressive social skills. 

In other words, it could be said that the ability to delay gratification is a trait that leads to valuable rewards in the future. 

So how does this relate to financial planning?

The results from the experiment can easily be applied to the way you save and invest money. Simply put, if you save rather than spend now, you’ll gain greater rewards in the future. 

How do you delay gratification?

Cutting out frivolous and impulsive purchases are a good start. Think to yourself: ‘do I really need this?’ Do you have to buy a coffee from the coffee shop near work? Do you have to eat out twice a week? Small acts of restraint can lead to a big pay off in the future. 

When it comes to building a financial plan, it’s important to identify the levels of savings required for achieving goals in the future. Are you aiming for an early retirement or buying a holiday home? Setting out these goals early and developing a plan will help you to streamline your saving strategies so that you remain on track. Just remember, one marshmallow now or many marshmallows later.   

Whatever you want to purchase: a boat, a house or a car, delayed gratification is an extremely valuable skill to learn when it comes to achieving your financial milestones. The more you see your savings grow, the more motivated you will be to keep going. It’s good to see your hard work pay off and over the span of a few years, you could see dramatic increases in your wealth and financial security.

Sources
https://www.huffpost.com/entry/40-years-of-stanford-rese_b_7707444 guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAJdHRHqhlsVcLeV6Yi_w61XPEFBayOqdTK89gxGCEdCpDt8CZVAn9Nrzg_branVU7Z0eWhyD4CjX0ii8uQzgVRE2OrG17sknh-B4t_HwD35qNwzcMVc6QLH9ijLjmwCnjIQmyUvHDPtR5bme9Zu4p977cA_h2r1GWY6VIKl6hnAx&guccounter=2
https://www.theatlantic.com/family/archive/2018/06/marshmallow-test/561779/
https://www.businessinsider.com/delayed-gratification-helped-me-save-money-2019-3?r=US&IR=T

The generation gap in savings might be wider than you think…….

A new report by Scottish Widows (SW) has found that savings habits among younger people are rather lacking when compared with older generations. 

14% of people aged 20-29 are not saving any money, whereas 20% are saving between 0-6% of their wages and 26% are saving between 6-12%. That leaves only 40% of people between the ages of 20 and 29 making what SW deems to be ‘adequate’ savings (12% and upwards). 

The figures differ for those over 30 where 59% of savers are saving adequately. 

Scottish Widows outlines that the central problem with savings in the UK is that people simply aren’t saving enough. This could be attributed to the decline in defined benefit pension schemes and wider economic challenges. Though progress has been made, with record highs in the adequate savings category, according to SW, this is still not enough. 

The lower level of savings among younger people is likely to be a reflection of differences in priorities. SW’s study found that 45% of younger savers (under 30s), the highest of any age group, are saving towards medium-term goals such as buying a house. 27% were found to be saving for the long term and 28% were saving for rainy days. 

SW notes that the savings gap for young people “is perhaps unsurprising but nonetheless worrying.” Those under 30 are at a time where long-term saving can be hardest, yet investment growth can be advantageous. SW outlines how younger people are missing out on “the power of compound growth.“ 

They later go on to present four interlocking issues that have led to this general lack of savings made by younger generations:

  • Most people remain disengaged with long-term savings – 38% of people are not aware how much they are saving 
  • Financial pressures – 28% of individuals earning between £10,000 – £20,000 say they’re not saving at all
  • Self-employed individuals are being left behind – 41% of the self-employed aren’t saving at all
  • Home ownership is a struggle for young people – 56% of 20-29 year olds say they have not saved for a deposit

Scottish Widows then set out a number of reforms that would benefit savers: 

  1. Raise pension contribution rates – a new level of 15% to give people a chance to maintain their quality of life during retirement
  2. More flexibility between pensions and property – including the ability to use some retirement savings to help with the purchase of their first property
  3. Create better education and guidance – which includes information on the role of property and pensions in retirement
  4. Provide a hardship facility – allowing some savings to be used to avoid problem debt
  5. Ensure the self-employed have access to similar benefits as those in employment

Though there are marked improvements from last year’s report, it seems there is still a long way to go in terms of saving habits in younger individuals. As suggested above, there may even be a requirement for governmental reform in order to achieve the goals that Scottish Widows have set out.

Sources
https://adviser.scottishwidows.co.uk/assets/literature/docs/56868.pdf?utm_source=1034930&utm_medium=paid+social&utm_campaign=22953005&utm_content=250845013&utm_creative=118592721

8 places to visit this Autumn in the UK

With autumn pushing the heat of summer south across the equator, it’s time to strap on your wellies and get ready to kick through piles of fiery leaves. So to celebrate the change of season, here’s our list of places you should visit to make the most of the stunning autumn colours. 

Isle of Lewis, Hebrides

Autumn arrives early in the Outer Hebrides. The trees and fauna on the Isle of Lewis take on a fiery glow into September and October. The 270 acres of woods surrounding Lews Castle becomes something to behold. There are a whole host of walks for an intrepid hiker to choose from. 

Loch Lomond, West Dunbartonshire

The largest inland stretch of water in the UK by surface area, Loch Lomond is the centrepiece of Loch Lomond & The Trossachs National Park. The second bonus from journeying to the area comes from the vast wooded glens that make up Great Trossachs National Nature Reserve. The Millennium Forest Trail is not a walk that should be missed, providing brilliant views of the loch and the surrounding woodland.    

Forest of Dean, Gloucestershire 

Ancient woodlands steeped in history and cultural heritage stemming back to the Iron Ages. The forest was then used by Anglo-Saxon kings as a royal hunting ground. There’s a huge range of activities to take part in during the autumn months, ranging from exhilarating zip wires to biking and sculpture trails. You can find out more here

New Forest, Hampshire

The treescapes of Wiltshire and Hampshire have been a place of autumnal brilliance for centuries. There are over 219 square miles of protected space, hosting oaks up to 800 years old and elderly beeches of 400 years or more. The New Forest Walking Festival takes place from the 13th of October until the 28th and is just one of the many outdoor pursuits you can get involved with during a visit. 

Rydal, Cumbria

Rydal is an area full of nostalgic ambience echoed in its literary history. The area has been the subject of many poems and stories and for almost 40 years Rydal Mount was home to the famous poet, William Wordsworth. Dora’s field is one of the bittersweet sights of the area, a field filled with hundred of daffodils between Rydal Mount and the main road, planted by Wordsworth following the death of his daughter. 

In the autumn, expect stunning misty mornings across the water that will make you feel like you’ve stepped into a poem. Rydal acts as a great jumping off point for exploring the rest of the Lake District and is worth a visit any time of year, let alone in the autumn. 

Blenheim Palace, Oxfordshire

The 2000 acre park that surrounds the Baroque palace holds some of the most beautiful landscaped gardens in the country. In autumn, Blenheim hosts a series of seasonal events that you can find out more about here. There is a fantastic maze on site, buggy rides, fishing and even outdoor film screenings and concerts. The palace also plays host to art exhibitions and has hosted works by Andy Warhol alongside its own collection of historic British art. 

Guernsey, Channel Islands

The second largest Channel Island is a naturist’s wonderland. Covered in leafy enclaves and coastal rock faces to die for, there’s something for every nature lover out there. The Candie Gardens in St Peter Port is a must visit if you visit the island. There’s also a walking festival from the 15th until the 30th of September for those of you who love a good wander through beautiful coastal scenery. 

Stourhead, Wiltshire

Stourhead is a National Trust site, known for its stunning display of autumn colours. The house itself is a splendid visit, with its majestic stately rooms full of exquisite furnishings and historic art. The range of exotic trees will surely delight any visitors, especially when the North American maples turn scarlet red over the course of the season. 

There’s even a small cottage nestled amongst the trees in the garden where you can warm yourself by the fire with a nice cup of tea.

Blockchain: What is it?

If you’ve been following the advance of technology in the financial sector over the past decade, you’ve no doubt heard of blockchain, the record keeping technology which had its first real world application with Bitcoin. It is often described as a “distributed, decentralised, public ledger.” Though there are simpler definitions out there.

Importantly, blockchain has been cited as having the potential to significantly change the way we carry out financial transactions online. So what does it all mean?

At blockchain’s most basic level, it’s just that – a chain of blocks. The block is a piece of digital information which is stored in a public database, the chain. Rather than having one entity looking after the books, you have many computers working together. 

What is a block? 

Blocks are made up of three chunks of information:

  1. Date, time and amount.
  2. The transaction participants. Though instead of using your name, your purchase is recorded without any identifying information – you have a unique digital signature, kind of like a username. 
  3. Each block stores information that distinguishes from other blocks and is referred to as a “hash”. Think of it as a unique code to record the transaction. 

How does it all work?

When a block stores new data it is added to the blockchain. However, four things must happen for it to do so:

  1. A transaction has to occur.
  2. The transaction must be verified. This is usually done by a large network of computers across the globe. 
  3. The transaction must be stored in a block. Often with many other transactions. 
  4. The block must have its own unique hash. 

When that new block is added to the blockchain, it becomes publicly available to view. That’s right, anyone can see it. Looking at Bitcoin’s blockchain, you can see that each block has a time, a location and who it is relayed by. 

Is it private?

Anyone can view the contents of a blockchain. Users can also opt to connect their computers to the blockchain network. Their computer then receives a copy of the blockchain which is updated automatically when a new block is added. This might mean that a blockchain has thousands (sometimes millions) of copies. With such information being spread across such a wide network, it makes it very difficult to manipulate. Think of it as a massive verification network. 

The only information about users is limited to their digital signature or username. 

Is it secure?

Blockchain is, for the most part, secure. After a block is added to the end of a blockchain, it’s difficult to go back and edit the contents. Say a hacker wants to edit a purchase you’ve made on Amazon so that you made two purchases instead of one. When they edit the purchase it’ll change the hash (the unique code). A block contains both the hash of the current block and the hash of the previous block. 

In order for a hacker to change a single block, they would need to change every single block after it on the blockchain. Recalculating all those hashes would need an immense amount of computing power. The cost of organising an attack would vastly outweigh the benefits. 

So there you have it…

A quick summary of blockchain and how it works. If you want to get into the nitty gritty and find out more, the web is full of information on how it works and how it may change the way we do things in the future.

Sources
https://www.investopedia.com/terms/b/blockchain.asp

https://www.blockchain.com/btc/blocks/1566913438346

https://bitcoin.org/en