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How much pension to retire at 55?

By | Pensions

For many people, retiring in your 50s is a primary financial goal. It can open up freedom to pursue the things you enjoy – such as sports, travel and voluntary work. Yet many people also underestimate how much they need to save to retire at 55. After all, UK life expectancy is over 81 years and, in one year, over 15,000 people may live to over 100. Retiring from 55, therefore, could mean needing a pension that lasts multiple decades. In this article, our financial planning team at WMM explores how much pension you need to retire at 55 – suggesting ideas to help people achieve their goals.

 

How much pension to retire at 55?

Everyone’s income needs are different in retirement. However, studies suggest that in 2022 a couple needs at least £15,700 to cover their basic needs in retirement (or, £29,100 to have a “comfortable” retirement). A single person could live a moderate lifestyle with about £20,000 per year. Assume, therefore, that you retire at 55 and live until 85. This means multiplying these figures by 30, at a minimum, to start to get an idea of how much pension you need to save.

Suppose you need £20,000 per year in retirement. To make this last over 30 years from age 55, you’d need at least £600,000 saved in your pension(s). However, things get more complicated due to different types of pension, as well as inflation.

First of all, most retired people do not simply live on income from a pension “pot” (e.g. from their workplace). They tend to also rely heavily on the State Pension, which comes from the UK government. In 2022-23, the full new State Pension is £185.15 per week (£9,627.80 per year) and requires 35 “qualifying years” on your National Insurance record. This takes away a lot of the pressure to save everything you need for retirement yourself, into a pension pot.

However, secondly, inflation erodes the value of money over time. £20,000 in 2022, for example, will buy fewer goods/services in 2030. This “downward pressure” on the value of your pension pot(s) typically means saving more than you might think you need, to account for the rising cost of living. Fortunately, the State Pension rises each tax year in line with inflation (at minimum). Many “final salary” pensions and annuities also do this. However, you will likely still need to take account of inflation in your pension investment strategy – both before and during retirement.

 

Ideas to retire at 55

To have a chance of retiring at 55, you first need to understand the pension landscape. Pension “pots” can be accessed from this age (rising to 57 in the future), yet some final salary schemes may not be available until later. Your State Pension, moreover, will not provide an income until you reach State Pension age – i.e. your late 60s. Earlier in your retirement from 55, therefore, it will be wise to consider other tax-efficient investment “vehicles” to provide an income until you can start accessing your pension(s). Here, a stocks & shares ISA can be a good option, since the capital can be accessed at any time.

Also, the less you need to spend in retirement, the less you need to save. For instance, having no mortgage from age 55 would take away a large monthly expense (although this goal may not be a priority or achievable for everyone). 

Finally, consider seeking financial advice if you want to retire from age 55. A financial planner can help you think through issues or opportunities you may not have considered. Bear in mind that the earlier you want to retire, the harder it is to project your cash flow, so you may benefit from the software and expertise our experts can offer.

 

Invitation

Interested in finding out how we can optimise your financial plan and investment strategy? 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 

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 Oxfordshire).

 

Could switching these 5 financial products help grow your savings?

By | Money Tips

It is no secret that costs are rising in 2022. Inflation, at the time of writing, now stands at 6.2%, the highest CPI 12-month inflation rate since 1997, and is very much expected to rise further. Households are understandably seeking greater financial stability. Yet many people do not consider switching key financial products or utility costs, which could help save money. Below, our financial planning team at WMM shares 5 of these to consider in 2022. We hope you find these suggestions helpful.

 

#1 Broadband

Those who want an ultrafast broadband, phone and TV bundle are likely to pay an average of £79.40 per month in 2022. The average UK spending is £56.99. 

Of course, in today’s world of increasing home working, a fast internet connection is important. Yet many people are paying too much, or for more than they need. You may be able to find deals close to £15-20 per month.

 

#2 Mobile phone

According to Which?, 40% of customers have stuck with their mobile phone provider for more than 5 years. This has left many people paying more than they should. 

The average UK mobile phone bill is £439 per year (about £36 per month). Yet you could bring this down to nearly £10 with a SIM-only deal, after you have paid off your handset. This means staying with your device rather than upgrading, however.

 

#3 Mortgage provider

For most homeowners, their mortgage will be their highest monthly expense. With interest rates steadily rising in 2022 to help curb inflation, this is driving up the cost of many mortgages on a variable rate. Getting a fixed deal (e.g. 2-5 years) could help provide some stability.

It may also be possible to save by remortgaging with another lender, which offers a better rate. Those coming to the end of their current fixed deal, therefore, should consider shopping around. This could save you £100s each month.

Of course, remortgaging is a big, personal decision and it may not be right for you (e.g. if you are in negative equity). Bear in mind that you can remortgage at any time, but there may be a charge involved if you end your current fixed-deal early.

A financial planner can help you explore the options and come to an informed decision about the right deal, and timing, for remortgaging.

 

#4 Credit cards

Ideally, households should aim for no credit card debt at all. Interest rates are high in 2022 – standing at an average 21.46% APR. 

However, if you have ended up with debt, you may be able to move it to a credit card with a lower rate – e.g. 9.9%. There are even deals offering 0% interest for a limited time (e.g. 36 months), which can make it easier to repay the debt if you are disciplined.

 

#5 Bank accounts

Many people are unhappy with their bank, yet 50% of Britons have never switched providers for their current account. However, doing so could open up opportunities for better overdrafts, more competitive interest rates and higher quality service.

In fact, some banks even offer new customers a “golden handshake” (financial reward) for moving over to them. Switching may seem like a hassle, but it is usually quite easy under the Current Account Switch guarantee.

 

Invitation

Interested in finding out how we can optimise your financial plan and investment strategy? 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 

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 Oxfordshire).

 

3 ways to keep staff during “the Great Resignation”

By | Financial Planning

A third of UK workers are considering a career change in 2022, with the sectors most likely to be affected including Legal, IT & Telecoms and Sales, Media & Marketing. Indeed, many analysts have called 2022 a “job seekers market”, with many sectors offering more vacancies than they seem able to fill. The age groups most affected appear to be 18-24 and those age 65+. Many of the former moved back in with parents since the 2020 pandemic, whilst many of the latter took early retirement (with too many unprepared, financially). 

The reasons cited by workers for leaving employment include a lack of pay rises or bonuses, limited flexibility (e.g. home working options) and feeling disrespected. In 2022, therefore, how can business owners ensure they keep their best staff? What kinds of qualities can employees look for in a good employer? Below, we suggest 3 benefits to keep in mind..

 

Put in a solid employee package

It might sound obvious, but offering a fair salary and decent employee benefits will be strong positive drivers in helping to retain staff. Unfortunately, many business owners do not keep an eye on market rates in their area/industry – leaving them vulnerable to poaching. Be careful not to assume that employees just care about pay, however. You can make a contract much more compelling with tax-efficient ideas such as the following:

  • Matching employee pension contributions (rather than just offering 3%).
  • Offering “death in service” benefits, as a type of life cover.
  • Providing long-term sick pay.
  • Making “salary sacrifice” schemes such as the ‘Cycle to Work scheme’ available.

 

Foster a healthy work environment

Few things are as likely to alienate employees as a toxic workplace. Perhaps discrimination is tolerated to some degree, making people feel unvalued and unwelcome. Maybe there is just a general atmosphere of unfriendliness, gossip or lack of trust between team members. Managers can also be overbearing, or disinterested.

Owners and directors play a key role in setting the tone and culture of the work environment. Part of this means prioritising staff training and team building exercises (e.g. fun days out). It also involves regular check-ins with employees to see how they are doing, encouraging team communication and opportunities to share fears/grievances. 

Finally, showing appreciation – with your words and even with gifts – can go a long way to help people feel appreciated and that their work is recognised.

 

Identify progression opportunities

Not everyone in a job wants to progress up the career ladder. Perhaps they are quite happy in their role, where they are. However, many people do want the opportunity to earn better pay and take on new, interesting responsibilities. If their job feels like a “dead end”, however, then they may start to look outside your organisation to meet these needs.

Small business owners may find this a particular challenge since, by nature, there are fewer job opportunities in the company compared to a larger one. However, if the business is growing and adding more people to the team, then you can paint a vision of where the company could be in, say, 5 years’ time – and the role that your employee could progress into, if they work hard.

Vision and momentum are really important. If people in your team feel like the organisation is not really “going anywhere”, then they might see limited future opportunities to develop their skills and earning potential. You can help address this by providing regular “strategy” meetings throughout the year about where you want the business to go. From there, make sure you follow through and deliver. If not, your team will likely start to see your “strategies” as not grounded in reality or real promises.

 

Invitation

Interested in finding out how we can optimise your financial plan and investment strategy? 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 

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 Oxfordshire).

 

Watch out, scammers about!

By | Money Tips

Scams have always existed, however through the increased use of social media and online accounts scams have become far more common and, often times, harder to spot. 

We’re happy to report that none of our clients have been affected by any of the scams mentioned, however it’s important to remain vigilant. 

In this article, we offer some advice on how to spot a scam and ways to check if it is a genuine offer.

 

How do the scammers get my information?

Data is widely available for sale, with databases often sold on from all kinds of establishments from phone companies to insurance providers to holiday agents. These databases are available to pretty much anyone who is willing to pay for them. Ticking the “no contact” and “no third parties” options on any forms you complete is a good way of limiting the number of databases you appear on. Also, depending on the scale of the scam, experts are employed to hack into databases and steal the data. And sometimes, it’s just pot luck.

 

How to spot a scam and avoid it

  • You’re likely aware of the scam phone call where someone claims to be from your bank. If you don’t have an account with the quoted bank, then it’s more obvious to spot that it’s likely to be a scam. But eventually they will come across someone who does have that account, and may believe it’s a genuine call from their bank. Here, we would recommend ending the conversation, and ringing your bank directly on the usual customer contact number. Don’t use the number supplied by the caller. If it is a genuine call from your bank, the caller will not mind you ending the conversation
  • We have personally received similar calls from someone pertaining to be from our broadband supplier, stating there has been unusual activity reported via our router. They then direct you to a website, often a legitimate screen-sharing or file transfer site, the end result being that your activity and passwords can be recorded. The interesting thing about this particular attempt, is that broadband providers rarely, if ever, make such calls. Again, our advice here would be to end the call and ring your provider directly on the usual customer advice number if you are in any doubt.
  • Many scams are now sent via email invitations to click a link, which in turn downloads spyware to your computer, which records regular activity and passwords. These can often be harder to spot, as they mask email addresses to look very close to genuine. Here, especially if the email is unexpected, we would recommend closing the email, and logging in directly to your relevant account, without using any links in the email. If the email looks like it’s from a friend, but is only a photo or a link without your usual conversation, try calling them or email them directly in a new email to check. 

We’ve recently been made aware whereby a client of another financial advice company fell foul of an email scam. The client was contacted by email about a new high interest deposit account, suggesting it may be of interest. Of course, in these times, high interest would be very appealing. The ‘senders’ email address had been masked to look very similar to the genuine email address of the client’s actual adviser. This only became clear it was a scam some months later, when the client made a passing comment to their adviser about receiving no paperwork yet. The adviser confirmed not having made such a recommendation or issuing any emails about the account in question. Unfortunately, by this time the client had already ‘deposited’ several large sums into the account, none of which were protected against this type of fraud.

These scams can be harder to spot. We will never contact you about a new investment or account by email, without a prior meeting or phone call with your financial planner. If you’re ever in doubt, or don’t recognise the name of the person calling, then hang up and call us directly on the office number.

 

In summary, we would always recommend:

  • End any unsolicited calls straight away and phone your bank or provider back on their usual customer service number, not a number supplied by the caller.
  • Don’t click on any links or files in emails that you’re not absolutely sure of. Log in to your bank or provider portal directly, using your usual app or web address. Do not use the link in the email.
  • We will never contact you by email to suggest an investment into a new company or account. If you’re ever in doubt, or don’t recognise the name of the person calling, then hang up and call us directly on the office number.

 

You can call us on 01869 331469 if you have any concerns.

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 Oxfordshire).

 

What is happening with the pension triple lock?

By | Pensions

The State Pension is changing, and many people in receipt of it are asking what may lie ahead for their retirement income. The “triple lock” system, in particular, has raised fresh questions as the Government confirmed its suspension in the 2022-23 tax year (started on the 6th April 2022). Below, our financial planning team at WMM explains how the system works, how it has changed and what could lie ahead for the State Pension.

 

How the triple lock works

Income from the State Pension, in recent years, rises every tax year (April-April) in line with the highest of three measures:

  • 2.5% (a flat rise).
  • Inflation (measured in the previous September).
  • Growth in average UK earnings (measured from May to July).

This “triple lock” system is designed to help ensure that the State Pension rises each year at least in line with the cost of living.

 

Recent changes

When COVID-19 brought an unprecedented shutdown to the UK economy from March 2020, the government introduced a range of measures to help support businesses and the wider population (e.g. furlough). These required huge amounts of borrowing – e.g. £297.7bn in the 12 months prior to March 2021 – which the government now faces increasing pressure to repay.

Moreover, one of the knock-on effects of furlough was that this distorted average earnings growth (point 2 3 above) as lockdown measures lifted, employers brought more workers back into the office and reinstated their normal wages. This pushed the growth figure to over 7.3%.

As such, this would have required the State Pension to rise by at least 7.3% in April 2022 – putting huge pressure on the public finances. To counter this, the government announced that the triple lock system would be suspended in 2022-23.

Instead, the State Pension has risen by 3.1%

 

Possible roads ahead

This 3.1% rise feels like a blow to many retired people. Not only is it less than half of what they would have received under the triple lock system, but it mirrors the inflation rate in September 2021. In 2022, however, inflation has risen considerably higher. 

In the 12 months to February 2022, the Consumer Prices Index (CPI) has gone up by 5.5%. The Bank of England (BoE), moreover, anticipates that this could go as high as 8% later in the year. This, naturally, raises a lot of questions. Will inflation be brought under control before the next tax year? If not, could the triple lock be suspended again?

A precedent has been set by the government, so these are legitimate questions. The current administration has clearly stated that they do not think the triple lock system should be around indefinitely. Rather, the commitment has been for the existing parliamentary term (i.e. up until 2024). Other major UK parties support keeping it, so the issue is likely to be debated fiercely in the coming general election.

It is a good idea to regularly review your income sources for your retirement. Your State Pension will likely be important, of course, but it will also help to have other pension schemes (e.g. a workplace and/or private pension) to help support your lifestyle. There are also other assets you can use, too, such as dividends and income from your ISA(s), rental income etc. 

With a diversified retirement portfolio, you can help mitigate the risks associated with specific assets or income streams (e.g. your State Pension).

 

Invitation

Interested in finding out how we can optimise your financial plan and investment strategy? 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 

 

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 Oxfordshire).

 

How unemployment can affect your returns

By | Investment Planning

Most of us intuitively know that the wider UK economy affects investment returns. Interest rates, for instance, are set by the Bank of England (BoE) and can affect the stock market – providing downward pressure if rates go up (as ‘less- risk’ is perceived for higher short-term returns) and providing buoyancy when rates are lowered. One interesting relationship between investment returns and the economy concerns unemployment. For instance, does it help – or hinder – the stock market if more people are in stable, paid work? Below, our financial planning team at WMM offers some reflections.

 

How unemployment affects the economy

It is, firstly, important to define what unemployment is and how it is measured. Broadly speaking, unemployment refers to the percentage of a workforce that is actively looking for paid work – but unable to find it. Already, this raises questions. In particular, how do you determine whether someone without a job is looking for one? After all, many people are highly employable but might want a “career break” (e.g. 1-2 years) before trying something new.

The UK government defines unemployment as “The number of unemployed people divided by the economically active population”. This is based on the Labour Force Survey which asks 40,000 households every month about their employment status. To count as an “unemployed” person, a jobless interviewee must state that either:

  • They have found a new job which they plan to start within the next 2 weeks. Or;
  • They have looked for work in the last 4 weeks and can start work in the next 2 weeks.

Generally, the UK government seeks to keep unemployment as low as possible. This is partly for political reasons, so they can boast about their record (particularly in the run-up to elections). However, it is also for economic reasons. For instance, more people in paid work means more wages that can be taxed – providing more revenue for the treasury.

 

Unemployment and investments

Fewer people in work means less money coming to the government, and perhaps more going out (in the form of state benefits). Yet unemployment also means less money for people to go out and spend on products/services offered by businesses. This means less sales and lower profits, which applies downward pressure to growth and, by extension, company valuations (unwelcome news for shareholders).

In an economy with high unemployment, even those with jobs are often less likely to spend money. After all, job security seems less certain in such an environment – so people tend to save more in case they come upon hard times. This is partly the reason why the UK national savings rate rose so much higher after COVID-19 hit the UK, since many people feared that their job might not be there when lockdown was lifted (although lockdown, itself, prevented spending in the wider economy – e.g. on the high street).

At this point, investors may rightly ask: “What is the state of UK employment right now, and where could things go in the near future?” Currently, employment is standing very high (in historical terms) at 75.6%. This is not quite the high of March 2020 (when it was 76.6%), but figures are not far off. This is good news for the stock market, although other forces – such as rising UK inflation – are pulling equities in other directions. 

The future, of course, is uncertain. Whilst the UK appears to be on a journey of economic recovery from COVID-19, events could undermine efforts to build on this. A new variant may arrive – bringing a return to lockdown. Wars can also disrupt the global economy and unsettle markets. Here at WMM, we are here to help guide your financial decisions and build in greater security when events – such as a job loss or damage in the wider economy – might affect your financial plan. 

 

Invitation

Interested in finding out how we can optimise your financial plan and investment strategy? 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 

 

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 Oxfordshire).

 

What is the role of bonds within a portfolio?

By | Investment Planning

Have you wondered what it might be like to “be the bank”, when lending money? With bonds, you can do just that. In effect, when you buy a bond, you lend to a Government (or business) on the understanding that they will repay you at the maturity date (e.g. in 10 years’ time). In the meantime, you receive interest payments (“coupons”) periodically – say, once every 6 months. 

For many investors, this asset class is an attractive option when building a portfolio. Yet what are the different types of bonds, and how do they work? How can bonds feature within a wider investment strategy? Let’s turn to these questions below.

 

Types of bonds

Bonds can be divided into various different categories. First of all, there is, of course, a lending risk for the investor which may be lower/greater depending on who is asking for the money. This is where credit agencies come in – such as Standard & Poor’s (S&P), Moody’s Investor Services (Moody’s), and Fitch IBCA (Fitch). These companies “rate” different bond issuers to indicate the level of risk involved for investors. For instance, a “AAA” rating is considered the best, whilst “C” rated bonds are regarded as higher risk (and so are often called “junk” bonds”).

Secondly, bond issuers can be divided into corporate and governmental. The former are issued by companies and the latter by national governments. Neither is inherently more risky than the other. Indeed, certain companies may have a better bond repayment track record than many governments! The major difference is that Governments can print money or raise taxes to repay debt, whereas Corporates cannot. Bonds can be bought individually by investors or collectively, via bond funds. Most retail investors will purchase the latter when including bonds in a portfolio.

Finally, bonds can be classed either as “normal” or “inflation-linked”. An illustrative example can help show the differences, here. With the former, suppose you bought a 30-year bond in 1998 for £100, with a 5% coupon (paid twice per year). In 2028, when the bond matures, you will get your £100 back and, twice per year in the interim, you get a fixed £5 coupon. However, with an inflation-linked bond, differences would include the coupon rate (i.e. it would be lower) and the semi-annual coupons would rise/fall with the rate of inflation. When you get the principal back in 2028, moreover, this will also rise with inflation so you get your £100 back, in “real value”).

 

Bonds & investment strategy

These features raise a number of additional questions for investors. What percentage of your portfolio should comprise bonds (versus, say, equities)? Which types of bonds should you put inside? Here, two crucial factors are your risk tolerance and your investment horizon.

Concerning the former, if you feel highly averse to the idea of your investments going up and down a lot in a short period of time, then bonds can hold a lot of appeal. Whilst stock market investments tend to offer better (i.e. higher) long-term returns, they are often volatile in the short term. Bonds tend to be much more stable in the short-term. 

On the latter, you need to consider how long you plan to invest (and how this relates to your goals). For instance, if you are nearing retirement then you likely want to focus more on wealth preservation rather than growth. Moreover, you may also want some of your portfolio to produce a regular income. In which case, bonds can be an attractive option. However, if you are early in your career and want to build wealth over, say, 30+ years then holding lots of your portfolio in bonds may not be a “bold” enough investment strategy. Instead, high-growth-potential equities may be a better route to reach your goals (assuming you are happy with the risk involved).

 

Invitation

Interested in finding out how we can optimise your financial plan and investment strategy? 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 

 

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 Oxfordshire).

 

“Stealth taxes” to watch in 2022

By | Financial Planning

In 2022, many households face greater financial pressure as living costs rise. However, less well known is a set of “stealth taxes” that could erode your wealth without careful planning. Below, our team at WMM shares six of these to be aware of in the coming months – together with ideas to address them with your financial planner. 

 

Five-year income tax freeze

Chancellor Rishi Sunak announced in the 2021 Spring Budget that income tax (together with others like capital gains tax and inheritance tax) will be frozen for four years from 2022/23 to 2025/26. Some projections suggest that this could, eventually, push 1.2m people into the 40% higher rate threshold as average UK wages steadily rise.

A range of options can be used to mitigate the impact on your finances. One idea might be to increase your pension contributions, as these receive tax relief at your highest income tax rate.

 

State Pension rise cap

In normal times (under the “triple lock” system), the State Pension rises each financial year in line with inflation, 2.5% or in line with the National Average Earnings Index (NAEI) – whichever is highest. However, after an 8.8% increase in earnings last year, this formula was suspended. Instead, the State Pension is set to rise by 3.1% in April. This is below the current 5.5% rate recorded by the Bank of England (BoE), and lower than the 7.25% rate projected in the spring.

Here, you may need to discuss your strategy with a financial planner. It might be that you need to lean more heavily on other income sources to fund your retirement in the short term (e.g. ISA savings). Alternatively, you may need to revisit your budget.

 

Child benefit loss

For parents with two children child benefit can be worth up to £2,000 per year. Once you or your partner starts earning over £50,000 per year, however, you may need to start paying some of this back (via a levy called the “High Income Child Benefit Tax Charge”).

This threshold has been frozen since 2013 and is set to continue as frozen in April 2022. This means about 1.6m families could lose their child benefit – including 120,000 families on the basic rate – as higher inflation and wage growth occurs across the country.

Again, this might mean revisiting your financial plan as a family, to prepare. For some, it might form another reason for a child-caring partner to return to full-time work (now that the children are older). Others may need to re-examine their budget.

Whatever you do, be careful not to simply avoid claiming child benefit (to avoid the hassle of repaying). Claiming can help you build up your State Pension via National Insurance credits.

 

Pensions lifetime allowance freeze

The lifetime allowance (LTA) is the maximum you can hold in your pension(s) before facing extra tax charges, and this has been frozen at £1,073,100 until April 2026. The annual allowance – which caps yearly pension contributions at £40,000 – will also remain frozen.

With inflation going up, many expected the LTA to rise to account for the rising cost of living. Yet the Chancellor has said he is pursuing this route as an alternative to raising income tax, VAT or National Insurance. This means that retirement savers need to be extra careful, planning so that they do not inadvertently breach the threshold.

Doctors and high-earning public sector workers, for instance, may be particularly at risk. Here, you can explore options such as “de-risking” your retirement portfolio strategy, if you still have some years ahead of you until retirement and you are nearing the LTA. Another idea is to make use of other tax-efficient investment vehicles, such as a Stocks & Shares ISA or a VCT.

 

Invitation

Interested in finding out how we can optimise your financial plan and investment strategy? 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 

 

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 Oxfordshire).

 

Keep your pension growing through career changes

By | Retirement Planning

Did you know that UK workers change jobs every 5 years, on average, according to research by LV? A career change is often a great decision, but it can cost you in retirement if you are not careful. It can take as long as three months to get enrolled on the company pension scheme when you start a new role. In that time, many people do not make pension contributions – which can add up to £1,000s lost once you reach your late 60s. At WMM, we offer this short guide to help you navigate job changes without compromising your retirement goals.

 

Keep track of National Insurance

Your State Pension is based on your National Insurance (NI) record. At least 35 “qualifying years” are needed to get the full new State Pension once you reach your State Pension age. In 2021-22, this amounts to £179.60 per week – or £9,339.20 per year – so it is worth building the best record you can.

Most people will automatically pay NI contributions via their employer, deducted from your wages via the PAYE system. When you change jobs, therefore, your new payslip should reflect this. Yet it is not unheard of for administrative mistakes to be made. Always check payslips – especially if you start a new role – and cross-check the deductions against your NI record

If you have just started out on your own as self-employed, make sure you pay your NI correctly via your Self Assessment tax return ahead of the deadline.

 

Start a personal pension

A personal (or “private”) pension can be a great way to “take your pension with you” when you change jobs, as it is not tied to any employer. The disadvantages are that you need to manage the pension yourself, and you may not receive any employer contributions to it. 

However, it does mean that, in the first 2-3 months of a new role (when you may be waiting to enrol on your workplace scheme), you still have a pension to contribute to. It could also be a useful place to transfer funds from old workplace schemes into. This can help you avoid trying to manage too many old workplace pension pots leading up to retirement.

Be careful not to assume that any loss in pension contributions will be compensated for with a higher salary, when you move jobs. This may not be the case, and it would also be a shame to miss out on the compound interest growth you may have achieved with those extra months of pension contributions. If you have not yet started a private pension, then our team here at WMM would be happy to speak with you about your retirement plans. This can be a great opportunity to not only make your retirement more robust to career change, but could also help you reduce investment fees and increase your real returns through better strategy.

 

Invitation

Interested in finding out how we can optimise your financial plan and investment strategy? 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 

 

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 Oxfordshire).

 

Should I overpay my mortgage, or invest?

By | Investment Planning

We have all been through unusual times lately, with COVID-19 since 2020, rising inflation and now conflict in Ukraine. These – and other – events are having knock-on effects onto the wider economy and markets. Under “normal” times, the “invest vs overpay mortgage” debate is an interesting one – but has this new landscape changed things? Below, we address this question in light of recent trends and developments.

 

Putting excess cash to work

Interest rates on cash savings accounts have been at historic lows for some time now. It is hard to beat 1% on easy-access, for instance. Those with spare cash, therefore, typically have two other options: repay debts or invest. The first is almost always worth prioritising if the debt has a high interest rate, such as personal loans and credit cards. However, with a mortgage, it is not always clear whether the savings you’d make from overpaying would beat the returns you could get from investing. Here, you need to factor in the prevailing economic environment.

 

Overpaying vs. investing in 2022

The main incentive to overpaying your mortgage is that you repay the debt faster, meaning that you can own your home outright, faster. If this is your primary goal (rather than building wealth), then this is understandable. For those whose main objective is to grow their wealth, however, the question of overpaying vs investing relies heavily on interest rates and inflation.

In recent years, mortgage rates have been historically very low. In fact, in 2021 some lenders were even offering sub-1% deals to certain customers. This means less interest for borrowers to repay over the mortgage lifetime. Overpaying on such a deal would likely be far less optimal compared to investing, where annual average real returns of 5% – or more – should be realistic.

Lately however, mortgage deals have been getting more expensive. This is mainly due to the Bank of England (BoE) raising its base rate, twice (from 0.10% to 0.25% in late 2021, then up to 0.5% in early 2022 and more recently up to 0.75%). Since lenders set their rates above the base rate, this has already led to several deals getting pulled from the market. 

The average 2-year fixed loan now sits at 2.65%. For a 5-year deal, the interest sits closer to 2.88%. For many investors, it may now be more of a toss-up between overpaying the mortgage and investing – especially for those with a more cautious risk appetite (leading to a preference for assets with a relatively safe, but low, level of return – like bonds).

 

Wider questions to consider

Here, it is important to remember that you do not necessarily have to choose between investing and overpaying a mortgage. It is often possible to do both. Yet it helps to ask yourself: “Why do I want to invest?”, and “Why should I overpay my mortgage?” This can help you shed light on the right course for your financial plan.

First of all, check whether you can overpay your mortgage. Some lenders may not let you, and most put a cap (e.g. 10%) on how much you can overpay. Those on a standard variable rate (SVR) can usually overpay as much as they like, but SVRs are usually more costly than fixed rate deals. Secondly, consider the horizon in front of you. How long do you have to invest until you might need the money (e.g. during retirement)? How many years until your mortgage is paid without making extra payments?

For instance, if you are near your mortgage end, then the advantages of overpaying usually go down. This is because interest forms a lower proportion of your monthly repayments. As a rule, therefore, it is usually better to overpay a mortgage earlier in its lifetime. Moreover, if you only have, say, 5 years to invest, then you may need to focus on lower-risk assets which offer lower potential returns. 

 

Invitation

Interested in finding out how we can optimise your financial plan and investment strategy? 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 

 

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 Oxfordshire).