Cash in the bank feels great – especially after a year like 2020, which has shown the importance of having a strong emergency buffer. However, is your cash really working for you? Inflation (i.e. the “cost of living”) stood at around 0.7% in 2020, yet interest rates on easy-access UK savings accounts are currently barely breaking even with this. Therefore, those with large cash savings are likely missing out higher returns offered elsewhere – and may even lose money in real terms later this year if inflation rises, as it might indeed do. As such, what are some other options?
Did you know that there’s a limit to how much you save into a pension? In 2020-21, this “lifetime allowance” is set at £1.0731 million – with 55% tax levied on any withdrawals which exceed this amount (or 25% when taken as income). Unfortunately, many people in the UK are unaware of this limit throughout their careers, only to face difficult and costly decisions as retirement nears and the realisation dawns. Here at WMM, our aim is to help people avoid these kinds of errors and enjoy their hard-earned wealth once their careers wind down. Below, you’ll find some ideas about how to avoid breaching the lifetime allowance – as the rules currently stand.
The UK’s four-year wrangling with the EU for a Brexit “trade deal” has finally ended. At 11pm on the 31st of December 2020, the “transition period” – during which the EU’s rules for trade, travel and business temporarily still applied to the UK – ended. From the 1st of January 2021 the relationship between the UK and EU will be governed primarily by the formal Brexit deal that has been agreed.
Many people think that a will’s main purpose is to ensure that your possessions go to the right people upon your death. This is partly right, but a will also holds immense power to help reduce a future inheritance tax (IHT) bill if you plan it carefully. In 2019-20, the UK government collected £5.13bn in IHT receipts – much of which was needlessly paid. How, then, can you ensure that you keep as much as your hard-earned wealth as possible within the family?
To help deal with the financial pressures brought on by the pandemic in 2020, many companies across sectors have cut their dividends – choosing instead to hold more profits as cash reserves to weather harsher global economic conditions. This, of course, has had a big impact on income investors – i.e. those who draw a significant monthly income from dividends and/or other income generating assets (e.g. bonds). In this article, we explore what impact this has already created on income investors and what the outlook might be as we enter 2021.
Many people in the UK have a tendency to deal with isolated areas of their financial plan, in a reactive way. For instance, suppose a couple in their mid-30s suddenly has their first child. At this point, they may quickly realise that they need a life insurance policy (e.g. to pay off the mortgage). Yet this reactive approach may not come at the best timing. In 2020, for instance, the COVID-19 pandemic has led many insurers to restrict their products and even raise prices.
NS&I Premium Bonds are an interesting alternative to saving into a regular savings account. Yet they have come into the public spotlight in December 2020 due to a recently-announced cut in the rate they offer, from 1.4% to 1%. As a result, many people are now questioning whether they are still worthwhile or if your cash savings are better off in a Cash ISA or similar account at your local high street bank. Below, our financial planning team here at WMM offers some thoughts on this important subject for you to factor into your own case.
Regardless of one’s politics, Joe Biden’s victory in the 2020 U.S. Presidential election marks an important event for investors’ portfolios – not only those residing in America, but also globally. In this article, our financial planning team here at WMM offers some thoughts on how the election result has impacted stock markets in the short term, as well as reflections on how investments may be affected in 2021 and beyond.
There is a perception that bonds are for “cautious” investors and that equities are for more “aggressive” investors, and that’s partly true. Yet 2020 has cast a spotlight on bonds in light of COVID-19 and other events in the economy (e.g. Governments around the world buying bonds). In this article, our financial planning team at WMM in Oxford wanted to share this round-up of the key developments and trends regarding bonds within the last 12 months. We hope you find this helpful and invite you to get in touch if you have any questions.
This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxford).
Coronavirus has been a particularly stressful time for those looking to retire in the next 10-12 years. Many pensions have lost value since December 2019 as stock markets (which pensions tend to be heavily invested in) have taken a hit from the pandemic, lockdown and the resulting change in consumer behaviour and levels of concern.
Fortunately, equities have been steadily rising again across the developed world since the first quarter of 2020. The other good news is that there is still plenty of time to prepare for retirement for those who may be looking to finish work within 12 years. Below, our Oxford-based financial planning team here at WMM offers a handful of pension options for over-55s. Make sure you seek professional advice before acting on any of the below.
Leave your pension(s) invested
In 2020-21 the UK’s pension rules allow you to start taking money from a defined contribution pension once you reach age 55. You can withdraw up to 25% tax-free, for instance. However, just because you have this choice does not mean you should take it. You could leave the fund invested, allowing it to grow further so that you can enjoy a more comfortable lifestyle when you do eventually retire. However, it may be worth speaking to your financial planner about whether you could invest in lower-cost, better-performing funds to increase your real returns. It can also be wise to re-evaluate your contributions. Increasing them, for instance, could result in more money saved in retirement – allowing your pension(s) to stretch further.
Buy an annuity
In light of the pandemic, many people are attracted to an annuity. This is because it can provide a guaranteed, inflation-linked income throughout retirement. Some will be attracted to the financial stability and predictability this offers. Yet it’s important to consider that you may not get as much future monthly income from an annuity compared to income drawdown. In 2020, moreover, annuity companies have been affected by the pandemic. It may be wise, therefore, to consider ways to spread out your pension risk.
Take everything out at once
Of course, you may be tempted to empty your pension from the age of 55. Yet most financial planners would caution against this, since it’s likely to result in you not having enough money later in retirement. There are only specific circumstances in which this may be wise – e.g. if you have been diagnosed with an illness certain to result in death within the next 12 months.
Transfer your pension(s)
Pensions come in different shapes, types and sizes. Some involve building a pension pot over time with your employer, for instance (i.e. a workplace defined contribution pension). Others, such as final salary pensions, grant you an income in retirement from your employer based on criteria such as your years of service and salary in employment. There are advantages and also disadvantages to each of these pensions, so it may make sense to transfer from the latter to the former in certain cases (e.g. if you want to leave your pension as an inheritance one day). Bear in mind, however, that this is a big decision that cannot be reversed once made. You can also only move from a final salary pension to a defined contribution scheme – not vice versa.
There are many other options available for over-55s who are thinking about retiring within the next 12 years or so. Above, we’ve outlined an overview of just some of the possible options. The important thing to remember is that your decision(s) regarding your pension is likely to have significant repercussions on when you retire, and what that retirement will look like. As such, it’s always worth considering professional advice to make sure you make the best decision.
Interested in finding out how we can optimise your financial plan and future income prospects? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM.
You can call us on 01869 331469