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philteale

Feb 10
0

Pension essentials: What you need to know

By | Pensions

The UK pension system can seem very confusing. All you want is to know what you need to do to one day retire comfortably. Why does it have to be so complicated?

There are many reasons why it isn’t straightforward. However, the good news is that you do not need to feel trapped and overwhelmed by all the jargon surrounding pensions.

In this short guide, our Oxford-based financial planners here at Weston Murray & Moore will be offering you a short explanation about how pensions work. We’ll then present some ideas about how you can start planning for the retirement you eventually want.

What is a pension?

Simply put, it’s a type of income you get once you finish working. You build up this income throughout your working life, for instance, by putting money each month into a pension pot.

The confusion tends to come in when looking at the different types of pension available.

The State Pension

British citizens should all get a state pension when they retire. This is money which you get from the government, and the amount is determined by how the amount of National Insurance contributions you made during your lifetime.

Other types of pension

One common type of pension occurs in your workplace and is called a “defined contribution” pension. Most people are now put onto one through a process called “auto enrolment”.

Here, both you and your employer put money into your pension pot each month in order to save towards your retirement. In 2018-19 you must put in at last 3% of your salary, and your employer must put in at least 2%.

Another important type of pension is the “final salary” pension (sometimes called a “defined contribution” pension). Here, neither you nor your employer put money into a pension pot each month. Rather, your employer pays you an income when you retire. The amount usually depends on factors such as your salary when you retired, and your total years of service.

One other common pension type is the “personal” pension (sometimes called a “private” pension). In this situation, you set up a pension scheme yourself with the help of a pension provider – rather than through your employer.

Can I just rely on the State Pension?

For most people, the short answer is no. In 2018-19, the new full State Pension will give you a maximum of £164.35 per week. That’s around £657 a month – or £8,554 per year.

Even assuming you have fully paid off your mortgage by the time you retire, the children have left come and you no longer face costly expenses like work commuting costs, this is unlikely to cover most people’s expenditure in retirement.

For instance, Which? estimates that you might need between £26,000 – £39,000 per year in order to live comfortably in retirement. That’s a lot more than the £8,554 offered by the State Pension! To achieve this, most people are going to need to make extra retirement plans.

Can’t I just rely on my workplace pension?

You might be able to, but you need to check the benefits your workplace pension gives you.

Remember, in 2018-19 your employer is only legally-required to contribute 2% of your salary towards your pension pot (assuming you are on a defined contribution scheme).

You will have to put in a minimum of 3% – which makes a total of 5%. You then need to look at what this amounts to, in light of your annual salary.

For instance, for a salary of £25,000 this 5% amounts to £1,250. Imagine for the sake of example that this person stays on this salary and contribution level for the next 30 years, to the point where they are thinking about retirement.

At this point, the total contributions would be £37,000 (i.e. £1,250 x 30). The total amount in the pot might be more, however, if this money has been invested sensibly and produced a healthy level of interest growth.

So again, for the sake of argument let’s assume that the money grows 5% each year over the course of 30 years. In this case, the total in the pot could be closer to £85,000.

That sounds like a lot, right? However, you need to consider how this £85,000 might stretch across your retirement – which could last as long as 10, 20 or even 30+ years.
For many people, simply relying on their State Pension and default workplace pension arrangements might not be enough to cover your lifestyle and expenses in retirement. It is therefore usually a good idea to talk things through with a financial planner.

Where a financial planner can help

Part of the trouble of knowing how much you need in retirement is that you do not know exactly what your costs are going to be.

The other challenge is trying to figure out exactly how to plan your finances over the next 20-30 years, in order to save up enough to cover those costs.

A financial planner can offer lots of help in these areas. First of all, they can help you realistically assess how much you are likely to need in retirement, in light of your desired lifestyle and financial goals.

Secondly, they will be able to show you how to realistically achieve those goals through a tax-efficient financial plan. For instance, it might be that your financial planner recommends that you continue building up your National Insurance contributions to get the full State Pension.

In addition, they might advise that you also increase how much you are contributing to your workplace pension, and help you set up an additional personal pension.

Or, perhaps your financial plan will look completely different from this. It depends entirely on your unique financial situations and goals.

Get in touch today if you are interested in arranging a free, no-commitment pension consultation with one of our Oxford-based financial planners here at WMM.

Jan 26
0

8 Tips to Boost Your Income & Save on Tax

By | Financial Planning

Life isn’t all about money, but knowing how to manage it properly can really contribute to a life well lived. As we launch into the new year for 2019, we wanted to share some ideas with you about how to potentially increase your spending power and save on unnecessary tax.

We hope you find the following helpful. Please note this is for information purposes only, and should not be taken as financial advice. If you would like to discuss starting a tailored financial plan, then we invite you to get in touch with us for a free consultation.

#1 Prioritise debts

Many people think they should prioritise building savings before clearing debts, but this is actually the wrong way around.

Consider for a moment what £3,000 in savings would bring you in the form of interest. You’d do well to get an interest rate of 1.5% these days on a savings account, which would produce £45 interest. However, £3,000 outstanding on your credit card would cost you £567 a year on 18.9% APR. Really, you should, therefore, consider focusing on clearing this debt first in order to free up that £567.

#2 Check your tax code

It is estimated that millions of people are currently on the wrong tax code. It is very quick and easy to check whether you are on the right code, and correcting any mistakes here could put hundreds – even thousands – back into your pocket.

Find your tax code by looking at your latest payslip, P45 or P60. Alternatively, you can contact HMRC directly with your national insurance number in hand. It might be, for instance, that you are entitled to a Personal Allowance (which allows you to earn £11,850 tax-free in 2018-19) but you are on the wrong tax code.

#3 Use your home, space or driveway

Do you live in a part of town where it is expensive to park? Do you own a car parking space, but never use it? You might want to look into websites such as JustPark or YourParkingSpace in order to rent it out to commuters and travellers.

Alternatively, you might want to rent out some empty storage space, rent out your home to film sets during times when you are away, or offer a room through Airbnb, Easyroommate or Spareroom.

#4 Cut your mobile phone bill

The arrival of the latest iPhone X ushered in a new era – one where people are willing to spend over £1,000 on a mobile phone. Naturally, we aren’t going to tell you that you can’t have one if you really want it!

With that said, mobile phones are an excellent area to look at if you are looking to free up spending money. If you are not too fussed about having the latest hot gadget, then there are lots of alternatives, second-hand devices which still offer top functionality (e.g. a high res camera).

Check your current monthly bill. If you are paying more than £20 per month, there’s a good chance that you can find a better deal by haggling with your current provider, or by shopping around elsewhere. Check your usage for minutes and data, and ask whether you are paying for more than what you really need.

#5 Check your tax plan

The income tax brackets are set to change from 6th April 2019. For UK residents outside of Scotland, the Personal Allowance will be going up to £12,500, and the higher rate threshold will go up from £46,350 to £50,000.

For those earning between £46,350 and £50,000, this would, therefore, mean that the tax you pay on your income within this bracket will be halved.

Effectively that amounts to about £60 a month. However, National insurance contributions within this bracket will be going up from 2% to 12%. This means that whilst your income tax here is reduced from 40% to 20, your NI contributions here will increase by 10%. The net increase to your earnings within this bracket is therefore only 10%.

At the same time, changes to auto enrolment mean that employees will be required to contribute a minimum of 5% towards their workplace pension (instead of the current 3%).

These developments likely have important implications for how you organise your financial affairs. Their precise arrangement might affect the amount of tax you pay, so speak with an independent financial adviser to check whether any improvements can be made.

#6 Check your spousal benefits

If you are a business owner and have a spouse, civil partner or long-term partner who does not work, then you might be some opportunities to save on tax.

For instance, if they are not already a shareholder in your business then you might consider making them into one. That way, you can each take advantage of your £2,000 tax-free dividend allowance when the company profits are distributed.

This rearrangement would mean more money ultimately makes its way to your household.

#7 Save on travel

Commuting costs are often a huge area where earnings are sucked up. This is especially the case with railway fares, which have increased by 3.1% from January 2019.

Check to see if there are ways you can cut costs here, as they can add up to big savings across the year. The 16-25 Railcard is an obvious consideration, which gives a third off qualifying rail fares. For those who are older, you might want to check out alternatives such as the Two Together Railcard – which offers discounts for couples travelling together.

For those who commute by car, you might want to consider sharing petrol with a fellow traveller. This might a colleague from work who shares your route. Or you could try a car-sharing website like Liftshare.

#8 Save on childcare

For parents with young families, the cost of childcare can be crippling – often wiping out the equivalent of one parent’s earnings. Therefore, make sure you take hold of any benefits held out to you by your work, our family and friends or the government.

For instance, if your employer offers childcare vouchers and you are not already taking advantage of this, then consider doing so. This can offer up to £55-worth of childcare a week (i.e. £243 a month), which is free of tax and National Insurance.

Jan 19
0

Jargon Busting: A Guide to Pension Terms

By | Pensions

The thought of sorting out your finances can be intimidating – even more so when faced with some of the pension jargon you need to wrap your head around. Pension transfers, defined contribution and defined benefit… it’s enough to intimidate anyone.

In light of this, our financial planners at Weston Murray & Moore thought it would be helpful to collect a list of simple definitions surrounding pensions. Hopefully, this will help you as you approach your retirement planning.

Please do get in touch if you need more information and advice.

Pension

Think of this as your income or savings after you retire from work. There are different types of pension, which we will cover below. In simple terms, you can either draw a monthly income from your pension, or you can take out one or more lump sums.

 

Defined contribution pension

This is a type of pension which involves building up a pot of retirement money throughout the course of your career.

Your workplace pension is quite likely to be a defined contribution pension, where both you and your employer put in a set amount of money into your retirement pot each month.

 

Defined benefit pension

Sometimes this is called a “final salary pension”, and it is a different type of workplace pension (now less common). Here, instead of building up a pot of money over time with your employer, the latter pays you an income after you retire.

The amount you get will depend on a few factors, for instance, how many years you worked at the company, what your salary was and your “accrual rate”.

 

Private pension

A private pension is sometimes also referred to as a “personal pension”, and is usually a type of defined contribution pension (see above). However, in this case, you usually set up the pension yourself rather than through your employer.

 

State pension

Your state pension is the money that the UK government gives you as an income after you retire. The amount you get each week depends on how many years’ National Insurance you have paid into the system. If you have 35 full qualifying years, you should get the full amount.

 

State pension age

This is the minimum age you have to reach in order to start receiving your state pension (assuming you qualify to receive it). The age you must attain will depend on your date of birth. At the moment, it is 65 for men and women. However, this will go up to 67 between 2026 and 2028.

 

Auto enrolment

Under UK law, your employer is required to put you onto a pension scheme. This is known as auto enrolment. Under this scheme, both you and your employer must contribute into your pension pot.

In 2018-19 you must contribute at least 3% of your salary, and your employer a minimum of 2%. Please note that these are set to rise in the next tax year to 5% and 3% respectively.

 

Annuity

When you approach retirement, you have a number of options when it comes to deciding what to do with your pension money. One option might be to buy a financial product called an “annuity”, which basically gives you a guaranteed lifetime income during retirement.

 

Income drawdown

Another option for deciding what to do with your retirement money is income drawdown. This is where you take bits of money out of your pension pot gradually, over time, as and when you need it. The rest of the pot stays invested, which means it can continue to grow over time.

 

Annual allowance

This refers to the maximum amount you can put into your pension each year, without attracting a tax charge. In 2018-19 this is currently £40,000, and it applies across all of your pensions.

 

Lifetime allowance

This is the maximum total amount you can have saved into your pension(s) without incurring taxes when you start drawing from it/them. For 2018-19 the lifetime allowance is £1,030,000, but it will go up to £1,055,000 in 2019-20 in line with the Consumer Prices Index.

 

Inflation

Prices of goods and services across the UK market do not remain static. They tend to go up each year, which is known as inflation.

To help ensure that people’s retirement money retains the same spending power over time, the government uses policies like the “triple lock”. This ensures that the basic state pension rises by either 2.5%, the rate of inflation or average earnings growth (whichever is highest).

 

Lump sum / tax-free lump sum

After you reach age 55, UK law currently says that you can take up to 25% out of your pension pot without attracting tax. This is your “tax-free lump sum”.

 

Investment

You can do many things with your money intended for retirement. You could put it into a simple savings account, for instance, which might earn you a little bit of extra money through interest.

Or, you could use it to buy “investment products” which usually have a better chance of getting you higher interest rate over time. Examples of these products include “bonds”, “stocks and shares” or “commercial property.”

A financial adviser will be able to help you sift through the different types of investment products available, and discern the best set of investments to put your money into.

 

Investment / risk profile

As mentioned immediately above, there are lots of different types of investment product you can buy. Some (e.g. “stocks and shares”) have the potential to bring you are higher return but tend to carry a higher risk of going down in value. Others (e.g. “government bonds”) have a lower chance of going down in value, but correspondingly carry less potential for a high return.

Your investment profile refers to your investment “style”, and it plays an important role in determining which mixture of investment products you should buy. Please note that there is no “right” or “wrong” investment profile – there are just different types of people.

For instance, if you have a more “conservative” profile then this usually means you do not want to expose yourself to too much investment risk. As a result, you might buy a higher number of bonds compared to someone with a “growth” investment profile, who might buy more stocks and shares due to their willingness to take on more investment risk.

Jan 12
0

Can I cut inheritance tax with a pension?

By | Pensions

Most people recognise that we have a responsibility to pay our fair share towards society. With that being said, most of us instinctively want to look after our family, first and foremost.

Sadly, many people are overpaying the taxman when they could legitimately pass on more to their loved ones. One powerful, but little-known way to do this is through a pension.

In a moment, we will show you how this is possible. First, however, let’s recap some essentials.

How inheritance tax works

Inheritance tax (IHT) is levied at 40% on the value of your estate over £325,000 (2018-19).

If you are married or in a civil partnership, then you can combine your IHT thresholds to allow to pass on £650,000 tax-free to your beneficiaries.

Unmarried couples do not get this benefit, unfortunately.

From April 2017, moreover, a further tax-break was introduced for the family home. In 2018-19, this allows each of you to pass on an extra £125,000 to your direct descendants in the form of the value of your residential property. In 2019-20, this will go up to £150,000 each.

This means that, theoretically, a married couple could pass on up to £900,000 of their “estate” to their children without attracting IHT.

The types of assets which comprise your estate include:

  • Cars and other vehicles
  • Property
  • Investments
  • Insurance policy payouts
  • Jewellery and other personal items
  • Business assets which you own

Notice, however, that one important item is missing from the list: your pension.

That is entirely deliberate. Under UK tax rules, pensions are awarded special status which means they are not considered as part of your estate for inheritance tax purposes.

What this means is, with some forward planning, you could potentially pass more money on to your children and grandchildren one day via your pension.

An outline of the opportunity

If you have a final salary pension (or a “defined benefit pension”), then, unfortunately, this route will not be open to you unless you transfer it to a defined contribution pension.

Doing this, however, is a huge decision and not one to be taken lightly. You should consult with an independent financial adviser who specialises in pension transfer before doing so.

If, however, you a have a defined contribution pension and you are concerned that a good portion of your estate might end up facing IHT, then this could be an option open to you.

In 2015, the “death tax” was abolished – which used to levy a tax of up to 55% on unspent pensions. In 2018-19, however, your pension will pass on to your beneficiaries completely free of tax if you die before the age of 75.

If you die after the age of 75, your pension is still passed on to your family members. However, the amount each person receives is added to their income for the tax year. This means that it will be taxed at the relevant rate of income tax.

The recipient of your pension might want to take all of the money at once, as a lump sum. In which case, the amount will likely be taxed. With careful planning, however, using gradual withdrawal of the pension it might be possible for it to avoid income tax completely.

Implications

Assuming you are keen to pass on more wealth to your loved ones instead of the taxman, it often makes sense to first spend from your other assets which might be liable to IHT (e.g. ISAs, savings accounts etc.) ahead of your pension(s).

You do need to be careful, however, when thinking about passing on your defined contribution pension to children and grandchildren. Since it will effectively be added to their income for the tax year, the amount they receive could end up pushing them into the higher tax brackets.

For instance, if your son is currently earning just below the higher rate of tax (just shy of £46,350 in 2018-19), then most if not all of the amount of your pension he receives as an inheritance would be taxed at 40%.

If he earns near the additional rate (£150,000) then the amount could take him into this tax bracket, which would mean your pension would be taxed at 45%. That’s more than the IHT tax of 40%! Remember as well that for every £2 he earns over £100,000, he loses £1 from his tax-free personal allowance. So the pension would effectively end up being taxed even more.

Usually, the best thing to do is to plan your estate with an experienced financial adviser who is familiar with the legislation, as well as the common pitfalls people fall into. That way, you ensure you leave no stone unturned and set yourself up to make the best decisions available to you.

This will also help you avoid running to trouble with HMRC. For instance, if you have been putting £2,000 a year into your pension for years, but suddenly put £50,000 into a pension after being diagnosed with a terminal illness, then you could be setting yourself up for trouble.

Consult with a specialist for peace of mind, and to make sure you are keeping everything above board as you plan your legacy. If using a pension to minimise your IHT exposure is not really a viable option for you, then there are plenty of other avenues you can explore in order to leave more of your wealth to your loved ones.

Get in touch today for a free consultation to explore your options for your family’s future.

Jan 05
0

Delayed flight – can I get my money back?

By | Money Tips

It’s no secret that flights can feel very expensive. So it can be quite distressing when your flight is cancelled or delayed, and you worry that you might need to fork out for a replacement.

For UK travellers, when this occurs outside of the EU you are typically in the hands of your respective airline regarding whether or not you will get your money back. However, there are options open to you which we will come to shortly.

If it happens within the EU’s jurisdiction, however, then you could get up to £530 of your money back under Rule 261/2004. Certain conditions must be met in order to claim this compensation, and you are not guaranteed to win it. Yet there is a good chance you can produce this outcome.

Stuck right now at an EU airport…?

If you are at the airport this very moment and your flight has just been cancelled or delayed, then here is some important information you should know. The following applies if you are leaving an airport in the EU, or if you are on an airline from the EU heading to an airport there.

  • You have the right to regular, up-to-date information about what is going on. Speak to the check-in desk and also check any news from the airline on its website or social media.
  • If you are delayed overnight, then you have the right to ask the airline to provide you with accommodation for the evening – and well as transport to and from it.
  • If you are delayed for more than two hours, the airline needs to provide you with food and drink (or vouchers to cover the costs).
  • Your airline must reimburse you for calls you make during the delay period.
  • If your flight gets cancelled then you have the right to a refund or a new flight. You might also be entitled to compensation.

Remember to keep hold of any evidence, in order to back up any possible compensation claim you might make later.

Also, bear in mind that the above only applies for EU regulated flights. For instance, if your flight is from London to New York then your flight comes under the regulations. If you then come back, your airline is under the rules if it is Virgin, for example – but not if it is American Airlines.

 

Qualifying conditions

If you had an EU flight which was delayed or cancelled in the past thirteen years, then you can technically claim for it now. However, in practice, you are unlikely to make this work unless it happened less than six years ago due to the UK’s statute of limitations.

Bear in mind that if you experienced a delay or cancellation and it was not the airline’s fault, then you are unlikely to make your claim fly (excuse the pun). Reasons such as bad weather, industrial strikes or a political coup are unlikely to get the results you want.

However, an airline’s bad planning or under-staffing levels do come under the EU rules.

The flight must also be at least three hours late when it arrives in order to claim, not when it leaves. So, if you take off four hours later than planned, but arrive two hours and fifty minutes late then you cannot claim compensation.

If the airline turns your claim down after you bring it to them, you still have options open to you if you have a legitimate claim. You could try the CAA, the UK’s airline regulator. Or, the airline should provide you with the details of an ADR scheme (alternative dispute resolution).

Be mindful that some airlines will levy a small charge if you escalate your claim in this way.

If the regulator comes down on your side but the airline still says no to paying out, then you can take the matter to a small claims court. However, you will have to decide whether it’s worth it.

 

For non-EU flights

If your flight wasn’t regulated under EU rules, then, unfortunately, you will not be able to claim in the manner outlined above.

However, you should know that most airlines across the world ground their business terms and conditions on the guidance provided by the International Air Transport Association.

This typically means that most airlines will contain clauses within their contracts which provide their passengers with a different means of transport in the event of delay or cancellation. Either that, or there are usually provisions for a replacement flight or money back.

You might be able to claim compensation in certain cases. Have a look at the country in question where the airline is regulated, and check to see if they have similar compensation rules to the EU scheme.

If the airline has lost your luggage, then check to see if their country is signed up to the Montreal Convention. If so, you might be able to put in a successful reclamation of the loss. Always keep evidence to back up your case, such as receipts.

If this does not work, you can always try complaining directly to the airline. This isn’t always successful, but in today’s social media age many airlines are keen to uphold a positive brand image and customer experience.

Finally, you might want to take a look at the travel insurance you took out when you flew. Some will cover various costs for delays, although not all will do this.