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Help To Buy vs Lifetime: Which ISA is best?

 

Set to be introduced in April 2017, the Lifetime ISA essentially offers an alternative to the Help To Buy ISA. With two competing options on the table, it’s important to know which is best for you and your needs, as whilst they have some similarities, there are also key differences between the two.

The Help To Buy ISA allows you to save up to £200 each month to save for a deposit on your first home. The government then boosts your savings further to the tune of 25% up to a total limit of £3,000, as long as you’re a first time buyer purchasing a property priced up to £450,000 in London and up to £250,000 everywhere else in the UK. There is no minimum deposit each month, and you’re also able to pay in £1,000 when the account is opened that doesn’t count towards your monthly savings.

Available up to Autumn 2019, anyone aged sixteen or over is entitled to open a Help To Buy ISA. The accounts are limited to one per person, which means both people in a couple can have an account and benefit from the bonus.

The new Lifetime ISA is based on similar principles but has several important differences, with the most important being that it can be used either to save for purchasing your first home or as money put away as a pension for later in life. There’s no limit on how much you can save each month as long as you don’t go over the yearly cap of £4,000.

Again, the government offers a 25% bonus, but this is paid whether you use the money to purchase your first home up to a price of £450,000 anywhere in the country, or keep it for later in your life. Any money that’s taken out before your 60th birthday and not used for purchasing your first home will forfeit the government bonus plus any growth or interest earned from it, as well as incurring a 5% charge. If you wait until after you’re 60, you can take out everything tax-free.

As you will be allowed to have both a Lifetime ISA and a Help To Buy ISA, you can choose to do this, but you will only be able to use the bonus from one of the two accounts to buy a home. As the Lifetime ISA is essentially replacing the Help To Buy ISA, it makes sense to opt for the newer style of account after they are introduced next April. If you want to set up an ISA for your child, however, you could consider opening a Help To Buy ISA on their 16th birthday then transferring the savings to a Lifetime ISA two years later which will allow you to take full advantage of the government bonuses

As always, seeking professional advice to establish what is right for you and your objectives has to be paramount.  This article is intended to give information only and not advice.

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Sources: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/508117/Lifetime_ISA_explained.pdf, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/414027/FTB_factographic_final.pdf

Retirement plans on hold for many over 50s

A third of people aged over 50 who are employed in the private sector are now planning to retire later than they previously hoped, Aviva’s latest Working Lives report reveals.

The 2016 report – which comprises research among UK private sector employers and employees – has a particular focus on employees aged over 50, following the end of compulsory retirement and with the first anniversary of the ‘pension freedoms’ approaching.

In particular, the Aviva Report survey asked people what age they hoped they would retire at, before they turned 40. Now, aged over 50, more than one in three (36%) admitted they would be retiring later than they thought – by an average of eight years. Among those who will now retire later than hoped, the report found a variety of reasons for people to postpone their retirement plans:

Not saving enough into a pension – 46%
The amount available through the state pension – 32%
I have debts to pay off (including mortgage) – 24%
Feeling that I still have a lot to offer at work – 21%
The level of enjoyment/satisfaction I get from my work – 20%
My employer wants to keep me on – 13%
Position of my partner – 13%
I have children who need financial support – 8%
I have elderly relatives who need financial support – 1%
Other – 10%
None of these – 3%
Don’t know – 2%

The Working Lives report also reveals a gap between employers’ and employees’ views on the impact of the pension freedoms, as the first anniversary of their introduction in April 2015 approaches. Over one in five (22%) employers think the freedoms could result in their employees having to work longer to make up for a shortfall in savings if they use part of their pension before retirement. At the same time, almost one in three (32%) employers are concerned they will lose valuable skills because people will retire earlier due to the freedoms.

However, these fears may be unfounded as the vast majority of employees aged 50 and above do not intend to alter their plans because of the pension reforms. Only 8% highlighted that the freedoms will result in them retiring earlier, contrasting with the concerns employers have around loss of skills. One in ten (11%) employees over the age of 50 now think they will retire at a later date because of pension freedoms, while 9% still remain unsure as to what the eventual impact of the freedoms will be upon their retirement plans. Seven in ten (71%) stated they have no plans to retire or that the pension freedoms have not affected their expected retirement date.

Aviva’s Working Lives report also questioned 500 private sector businesses of different sizes about a number of issues, including how prepared they are to deal with changing retirement patterns following the scrapping of the Default Retirement Age and the introduction of pension freedoms. The findings suggest the majority of businesses do not have plans in place, and that they are less prepared for staff retiring later (just 25% have plans for this) than they are for staff retiring earlier (29% have plans in place).

Even among large companies (250+ employees), less than half (42%) have plans in place should their employees retire later than expected, compared to 14% across both small and medium sized businesses. Likewise, only 48% of large businesses have plans to cope with staff starting to retire sooner than expected, compared to just 17% of medium sized businesses and only 15% of small businesses.

With many over-50s facing a later retirement than they hoped, the Working Lives report nevertheless found encouraging signs that levels of job satisfaction were highest among those aged over 65. A large majority (86%) of private sector workers in that age group said they enjoy their work, compared with just 57% of those aged 18-64. A similar proportion (85%) also said they get a sense of satisfaction from work, while 81% reported being valued by their employer – again, much higher than the younger age groups combined (57%). This backs up the suggestion that there are positive reasons for people wanting to stay on at work.


Sources: www.aviva.co.uk (Published article: 2016/03/22)

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Wealth? Fame? Working hard? New research reveals what really makes us happy

It’s been 75 years in the making and the topic for countless philosophers to muse over, but a US study seems to have finally uncovered the secret to happiness and health.

Speaking during a TED Talk, Harvard professor Robert Waldinger revealed that, though wealth and fame continue to be commonly cited desires amongst millennials (those born sometime from around the early 1980s to around the year 2000), the research he presides over has found only one consistent factor: positive relationships.

During the twelve minute talk, Waldinger says that the data he and his colleagues have gathered indicates that people who are well connected to family, friends and communities are happier, healthier and live longer than those who are less well connected. People who are more isolated than they want to be suffer from shorter lifespans, see their brain function decline faster and generally experience lower health and happiness levels.

Other links between happiness and relationship status have also been uncovered. Whilst positive relationships can have a majorly beneficial impact on us, the reverse is true of negative relationships. The data gathered suggests that an unhappy marriage, for example, can have a more pronounced negative impact on the parties involved than the corresponding divorce would create.

So, maybe it’s time to forget about your cholesterol levels, because Waldinger looked at those as well in the study’s sample group when they were age 50 and found little link between poor results and happiness and satisfaction when they were 80. Those who had positive relationships at age 50, however, were also the happiest and healthiest individuals when they became octogenarians.

The message, of course, applies to us all and in many ways, but is particularly interesting for us to consider when it comes to our financial health and wellbeing. Great finances, well looked after and planned, allow us to focus on the important things in life; on nurturing those great relationships between ourselves, our connections, our partners and children. Keep working towards positive relationships and we’ll keep your money working for you and those close to you. Here’s to a happy, healthy future!


Sources: http://www.ted.com/talks/robert_waldinger_what_makes_a_good_life_lessons_from_the_longest_study_on_happiness#t-504455

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Pension tax changes: Should you pay more before relief rates are curtailed?

Given recent comment from George Osborne, and mentions of the same during the Autumn Statement, it appears as though pension tax is set for a shake-up in 2016. With that in mind, there appears to be a potential opportunity for higher-rate taxpayers to make the most of their savings while the good times last.

Though not confirmed at this current time, it appears that the writing may be on the wall for up to five million pension savers enjoying the higher-rate tax relief. There is a suggestion that the generous reduction is about to be heavily curtailed – and could be scrapped altogether, with the Chancellor already indicating that major reforms to pension taxation will be announced in the March budget. The changes could see higher-rate taxpayers lose the 40% relief currently offered on pension contributions.

Instead all savers, no matter what rate of income tax they pay, may be offered tax relief at a flat rate of 33%. The Government may also create a less generous tax system for savers with valuable final salary pensions. The Government could also choose to eliminate tax relief on pension contributions, making pensions more like ISAs. This could apply to all savers, or just to those who pay higher rates of tax.

The Government spends £35bn of its £50bn annual pension tax relief bill on higher earners. This has grown substantially from £17.6bn in 2001-2002. Many feel the wealthy should not be able to reclaim large amounts of income tax while in work and pay reduced rates in old age. However, commentators believe the Government has to walk a very fine line here. Take away too much of the incentive to save and millions of people could end up woefully underprepared for retirement. The cost of supporting struggling pensioners would inevitably fall on the state – and working taxpayers.

We already know the annual allowance – the amount you can save into your pension every year and receive tax relief on – will fall for higher earners from next April. Anyone whose income exceeds £150,000 will see their annual allowance fall, via a sliding scale, from £40,000 to as little as £10,000. The lifetime allowance, the maximum value your pension is allowed to reach at any stage, is also falling, from £1.25m to £1m in April. So higher-rate taxpayers should potentially consider pouring as much money into their pensions as they can in the next four months before the days of generous tax breaks are gone for good.


Sources: www.telegraph.co.uk (Article: 2016/01/04)

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How to approach later life care

National Insurance contributions go towards things like your State Pension but they don’t count towards the costs of social care. This type of care is managed by your local authority and generally comes at a price. That is why you have to apply directly to them if you need help with paying for long-term care. Your local authority (or Health and Social Care Trust in Northern Ireland) will first carry out a Care Needs Assessment to find out what support you need.

The next step is to work out who is going to pay. Your local authority might pay for all of it, part of it or nothing at all. Your contribution to the cost of your care is decided following a financial assessment. This Means Test looks at:

  • your regular income – such as pensions, benefits or earnings
  • your capital – such as cash savings and investments, land and property (including overseas property) and business assets

If your income and capital are above a certain amount, you will have to pay towards the costs of your care.

If you own your home, the value of it may be counted as capital after 12 weeks if you move permanently into a residential care or nursing home. However, your home won’t be counted as capital if certain people still live there. They include:

  • your husband, wife, partner or civil partner
  • a close relative who is 60 or over, or incapacitated
  • a close relative under the age of 16 who you’re legally liable to support
  • your ex-husband, ex-wife, ex-civil partner or ex-partner if they are a lone parent.

Your local authority or trust might choose not to count your home as capital in other circumstances, for example if your carer lives there.

The maximum amount you have to pay towards your care is different, depending on where you live in the UK. The cost of living in residential care can be split into:

  • your ‘hotel’ costs, including the cost of accommodation and food
  • your personal care costs.

The cost of care differs around the United Kingdom, and this cost is usually higher where employment costs and housing are more expensive. In England and Wales you can find out how your local authority charges for the care services by first visiting the local authority website. In Scotland, the personal care you receive in a care home is free, if you’re over 65. If you’re in Northern Ireland, you can find your local Health and Social Care Trust on the nidirect website.

The one certainty of care is that, should you need it (and many of us will), you will be in a better position to receive exactly the sort of care you would like if you have some of your own funds set aside to cover the cost. Like the relationship between your state pension and your private pension, the former will only support you to one level. We save into additional pensions to ensure we have the retirement that we want. The same rules could really apply to our approach to care funding.


Sources: www.moneyadviceservice.org.uk (Published information)

 

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Car sharing deserves better tax incentives

A recent report, ‘On the Move’, published by Policy Exchange Think-Tank researchers, explores ideas and policy proposals on how to create a more mobile workforce. One of the key policy ideas in the Report is about offering tax benefits to commuters who use ride-sharing schemes and free parking in city centres for care sharing. Drivers who offer fellow commuters a lift should be given a tax break as part of plans to increase workers’ mobility, the think-tank has recommended. The Report identified a ‘strong case’ for the Government to encourage the growth of car-sharing.

The On the Move report, says that in a third of local authorities that make up the eight city regions no major employment sites (defined by having 5,000 or more jobs) are within a twenty minute commute by public transport and 80% of these Local Authorities have an unemployment rate above the national average. The think-tank says making it easier for people to travel an extra 20 minutes to a workplace would dramatically increase the job opportunities available.

Having access to a car for an extra 20 minutes of commuting time would give even more options, and the report said:

“Car-sharing, mediated by an app, is lowering the cost of travel for consumers, giving people on low-incomes access to car travel and reducing congestion on the roads. There is a strong case for the Government to incentivise its growth through commuter tax benefits.”

The report suggested such a policy would have a particular benefit in Birmingham, Leeds, Hull and Blackpool where there was already a higher than average number of car sharers.

The think-tank suggested either allowing employers to give workers travel vouchers to pay for ride-sharing which could be issued before tax, or allowing drivers to keep a portion of their earnings tax-free if they offer people a lift.


Sources: www.policyexchange.org.uk (Report published: 2015/08/17

Why the Greek crisis matters to us

Why should you care about the Greek financial crisis? Does it really matter what happens to Greece? Wouldn’t it really be a good thing if it went back to the drachma, the currency collapsed and holidays became dirt-cheap again?

Questions that you will likely have heard, perhaps even asked, over the last few months and weeks, and probably quite rightly so.

After all, Greece is relatively economically insignificant. The economy accounts for less than 2% of the EU as a whole, and 0.4% of world trade. Greek GDP (the measure of national income and economic output) is around $241bn, smaller than some cities in the USA.

Unfortunately, as with most things in economics, it’s not quite as simple as that and the Greek crisis is likely to have implications that will affect Europe as a whole and the UK individually.

Greece isn’t the only country drowning in debt. Yes, Greece’s debt (expressed as a percentage of national economic output) is the highest in Europe, but countries like Italy and Portugal are not far behind. The worry is that if Greece decides to pull out of the euro, or is forced out, then investors and savers will start to withdraw money from other fragile economies.

On the other hand, if concessions are made to Greece then it will encourage other far-left parties, such as Podemos in Spain, to make similar, anti-austerity demands.

The situation is also worrying politically, as well as economically. Along with Italy, Greece has discussed its treatment of migrants recently, which could have knock on effects throughout the Eurozone. Prime Minister Alexis Tsipras has also made well publicised trips to Russia, and called for the end to EU sanctions against Russia over the Ukraine.

As above, Greece is only a very small economy: one calculation suggests that China creates an economy the size of Greece every three months. But Greece and the uncertainty surrounding its fate, still has the power to affect world stock markets. It’s not so much what happens to Greece, as the significance of the EU being unable to resolve the problem.

Britain’s direct exposure to Greece is limited, although quite clearly a ‘Grexit’ could disrupt economies in the Eurozone, the UK’s biggest trading partner. No wonder then, that George Osborne has called the Greek crisis, ‘one of the biggest external threats to the British economy.’


Sources: http://www.tradingeconomics.com/greece/gdp, http://www.bbc.co.uk/news/world-europe-33225461, http://www.theguardian.com/world/2015/apr/08/alexis-tsipras-in-moscow-asks-europe-to-end-sanctions-against-Russia

 

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Second 2015 Budget Announced for 8th July

Chancellor George Osborne has surprised voters, political and business leaders alike by announcing that he will take the unusual step of delivering a second 2015 Budget on 8th July, just one hundred and twelve days after the Budget of 18th March. With an Autumn Statement also due later in the year, the second Budget will mean the Chancellor will deliver three important economic summaries and policy plans in the space of just nine months.

Speaking to the BBC, Mr Osborne described this second Budget as a ‘stability Budget’, explaining that his aim was to clarify policies announced in the Conservative’s pre-election manifesto and to announce further measures to keep Britain’s economy on the right track.

Mr Osborne said:

“I don’t want to wait to deliver on the commitments we have made to working people. [The July 8th Budget] will continue with the balanced plan we have to deal with our debts, invest in our health service and reform welfare to make work pay. But there will also be a laser-like focus on making our economy more productive so we raise living standards across our country.”

Individual details on what the July 8th budget is likely to include are currently fairly sparse, but the Chancellor has already announced that specific details will be provided on the £12 billion of welfare cuts already proposed. Business productivity has also been mentioned several times, with Mr Osborne pointing out that the UK still produces a quarter less for every working hour than America and Germany.

More funding for apprenticeship schemes are likely to be announced, with the Chancellor intimating that he would like to see three million more individuals find places. Details on funding for the NHS and a further crackdown on tax avoidance are also expected. The second Budget may come too soon for details on the already-announced ‘second hand’ annuity market, but there is still a possibility that Mr Osborne will release further plans, when he stands again in the House of Commons on 8th July.


Sources: http://www.bbc.co.uk/news/uk-politics-32761566

 

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60 is the new 40!

Good news for all of us who have accepted that we are getting older: Saga reports that new European research shows that 60 is the new 40! The research reveals that people are now reaching middle age at the tender age of 60, instead of the previously expected figure of 40 years old.

Saga’s Head of Communications, Lisa Harris, commented:

“Middle age is most certainly a state of mind. In today’s society we are living longer, healthier lives and the face of later life is changing beyond all recognition. Retirement is no longer a cliff edge decision where we stop working purely because we’ve celebrated a birthday. Instead we change the way we work – often with the goal of achieving a more rewarding work life balance that allows us to feel both valued in the workforce for the skills and experience we have to offer and also gives us the opportunity to travel, take part in hobbies, volunteer and generally have a bit of fun too. It’s not just about living longer – it’s about ageing well!”

One is tempted to ask, what now happens at 40 then? If no longer the threshold of ‘middle-age’, what significance does passing one’s birthday at 40 now have? It used to be an important marker of ageing – passing into middle-age with a feeling of old age creeping up on us, just around the corner. It used to feel like the beginning of the end – time to stop playing sport, stop thinking we are young and let ‘middle-age spread’ take over. Perhaps today’s perception of our life at 40, and for those that will follow us into this new idea of age, will now be marked by similar previously unrecognisable thoughts. Will 40 become the age we finally manage to buy our first house, or see us looking sceptically forward at another thirty years of employment, before we can afford to retire?

To balance this, at 60 we are now constantly reminded to develop a healthy lifestyle and exercise to keep fit – we have a new lifetime ahead of us – time to start playing sport again. So old-age is off the agenda, until we are at least 85, when we might have to finally consider giving up running marathons!


Sources: www.saga.co.uk (Published article: 2015/04 16)

 

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The New Pension Freedoms Checklist: Four Things You Must Do Before Making Any Decision About Your Savings

The new pension freedoms are great news for savers, with more flexibility and options for retirement now available. However, the freedoms also come with a level of risk, particularly for that first wave of savers looking to exercise their new rights in the next twelve months or so.

The main recommendation for savers is to seek independent financial advice. An adviser will be able to talk you through your options and ensure you get value for money. Whilst you weigh up your decision though, here are four more things to add to your checklist and consider carefully alongside any decision you make about how you’ll receive your pension income.

Make sure you factor in, but don’t overestimate, your state pension

It is important to remember that, alongside your private pension savings, you will also probably benefit from a state pension in your retirement. Where once it might have been tempting to rely on the state pension, now it is more readily expected that your personal savings will be your main source of income in retirement and the state pension a nice ‘bonus’.

With this as your model, it’s important to remember the income the state pension will give you when planning for your retirement, but at least equally important to not overestimate the contribution the state will make. Factor a realistic figure into your plans, alongside the income your personal pension will generate.

Don’t underestimate your lifespan

It is very common for retirees to underestimate their own lifespan and, by extension, the amount of money they will need throughout their entire retirement. Whilst it is, of course, a difficult factor to put any sort of prediction on, it is vital that you plan for a long and happy retirement, rather than risk trying to ‘get away’ with having less capital available to you. When planning your retirement income, make sure you’re planning for the long term!

Consider tax carefully

If you are looking at the new pension freedoms with some eagerness then don’t forget: whilst the taxation implications have been reduced, they have not been eradicated entirely.

After the first 25% tax free lump sum, withdrawals from your pension will be charged at your normal rate of income tax. If you are still earning an income, or if you make sizeable withdrawals in a tax year, then this could mean you enter the upper tax bracket.  Be very careful on how the provider tax the pension, you could be waiting some time to get back any over paid tax.

Of course, if what you are planning for your pension income requires this level of withdrawal, then it may well be worth that level of taxation, but take care and make sure you have planned for, and are aware of, the taxation implications that your actions will create.

Work out what you want to do with your money, rather than just trying to get the highest amount

Perhaps the most important point of all! Whilst money is important to each of us, ultimately it is merely an enabler. There is no better aid to a happy retirement than clearly planning how you want to spend your money: the things you want to buy, the experiences you want to have, the family you want to help.

Once you have planned what you want to do with your retirement, money decisions become much easier. Will accessing your pension through the new pension freedom arrangements help you get to where you want to go in your retirement? More so than any monetary factors, this is arguably the most important question for retirees to attempt to answer !

 

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