During last year's Budget announcement, the Chancellor introduced the prospect of pension changes. These changes were confirmed in the Taxation of Pensions Act 2014 and have now taken effect. The freedom granted by these changes is good news for all pension savers but could lead to many people making bad decisions and paying unnecessary tax. That’s why it’s important to understand what the changes mean to you and why professional financial advice can help you make the right decisions with your pension. Greater freedom over how you take tax free cash Most people can now take up to 25% tax-free cash from their pension, either by: • Taking your Pension Commencement Lump Sum in full, with subsequent withdrawals taxed as income; or • Making a series of withdrawals over time, receiving 25% of each withdrawal tax free. Flexible access from age 55 People over the age of 55 will have greater power over how they invest their retirement savings and more choice in terms of the options available. You can now: • Take the whole fund as cash in one go • Take smaller lump sums as and when needed • Take a regular income – via income drawdown, or an annuity Choosing to take your pension in stages, rather than in one go, could help you manage your tax liability. Restrictions on how much you can contribute to pensions Pension contributions are subject to a £40,000 annual allowance and specific contribution rules. This remains true under the new rules. However, if after 6 April 2015 you make any withdrawals from your pension in addition to any tax-free cash, contributions to defined contribution plans will be restricted to £10,000. 55% pension “death tax” to be abolished Up until April 2015, it was normally only possible to pass a pension on as a tax-free lump sum if you died before age 75 and you had not taken any tax-free cash or income. Otherwise, any lump sum paid from the fund was subject to a 55% tax charge. From April 2015 this tax charge was abolished and the tax treatment of any pension you pass on will depend on your age when you die: • If you die before age 75, your beneficiaries can take the whole pension fund as a lump sum or draw an income from it tax free, when using income drawdown. • If you die after age 75, your beneficiaries can: 1. Take the whole fund as cash in one go: the pension fund will be subject to 45% tax. (From April 2016, lump sums will be taxed at the beneficiary's marginal rate). 2. Take a regular income through income drawdown or an annuity (option only available to dependants): the income will be subject to income tax at your beneficiary’s marginal rate. 3. Take periodical lump sums through income drawdown: the lump sum payments will be treated as income, and subject to income tax at your beneficiary’s marginal rate. Pension Freedom: Making the right decision 1 2 3 4 Income drawdown carries significant investment risk as your future income remains totally dependent on your pension fund performance. HM Revenue & Customs practice and the law relating to taxation are complex and subject to individual circumstances & charges which cannot be foreseen. If you’re looking to access your pension in 2015, or you’d like advice on your new pension choices, please get in touch. Paul D Clarke FPC [email protected]01829 742592 COPEN962 Exp. 31/12/2015 Financial Viewpoint Issue 12 Summer 2015 Guiding you safely through your financial journey. Paul D Clarke DipPFS 01829 742592 [email protected]Your latest newsletter from Paul D Clarke FPC
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During last year's Budget announcement, the Chancellor introduced the prospect of pension changes. These changes were confirmed in the Taxation of Pensions Act 2014 and have now taken effect.The freedom granted by these changes is good news for all pension savers but could lead to many people making bad decisions and paying unnecessary tax. That’s why it’s important to understand what the changes mean to you and why professional financial advice can help you make the right decisions with your pension.
Greater freedom over how you take tax free cashMost people can now take up to 25% tax-free cash from their pension, either by:
• Taking your Pension Commencement Lump Sum in full, with subsequent withdrawals taxed as income; or
• Making a series of withdrawals over time, receiving 25% of each withdrawal tax free.
Flexible access from age 55People over the age of 55 will have greater power over how they invest their retirement savings and more choice in terms of the options available. You can now:
• Take the whole fund as cash in one go
• Take smaller lump sums as and when needed
• Take a regular income – via income drawdown, or an annuity
Choosing to take your pension in stages, rather than in one go, could help you manage your tax liability.
Restrictions on how much you can contribute to pensionsPension contributions are subject to a £40,000 annual allowance and specific contribution rules. This remains true under the new rules.
However, if after 6 April 2015 you make any withdrawals from your pension in addition to any tax-free cash, contributions to defined contribution plans will be restricted to £10,000.
55% pension “death tax” to be abolishedUp until April 2015, it was normally only possible to pass a pension on as a tax-free lump sum if you died before age 75 and you had not taken any tax-free cash or income. Otherwise, any lump sum paid from the fund was subject to a 55% tax charge.
From April 2015 this tax charge was abolished and the tax treatment of any pension you pass on will depend on your age when you die:
• If you die before age 75, your beneficiaries can take the whole pension fund as a lump sum or draw an income from it tax free, when using income drawdown.
• If you die after age 75, your beneficiaries can:
1. Take the whole fund as cash in one go: the pension fund will be subject to 45% tax. (From April 2016, lump sums will be taxed at the beneficiary's marginal rate).
2. Take a regular income through income drawdown or an annuity (option only available to dependants): the income will be subject to income tax at your beneficiary’s marginal rate.
3. Take periodical lump sums through income drawdown: the lump sum payments will be treated as income, and subject to income tax at your beneficiary’s marginal rate.
Pension Freedom: Making the right decision
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Income drawdown carries significant investment risk as your future income remains totally dependent on your pension fund performance.HM Revenue & Customs practice and the law relating to taxation are complex and subject to individual circumstances & charges which cannot be foreseen.
If you’re looking to access your pension in 2015, or you’d like advice on your new pension choices, please get in touch.
Time for an upgrade?Have you upgraded your mobile phone in the past two years?
If you have, your choice of upgrade may have been driven by a change in your needs.
Perhaps you opted for a better deal, a different contract, or a handset with new features that weren’t available with your previous model.
When it comes to updating your phone, or other ‘tangible’ goods, this behaviour may feel natural. We all want to feel like we’re getting a good deal.
The question is: why don’t more of us do this with intangible items, like the financial products we pay for every month?
Are you paying for an outdated product?Take critical illness insurance as an example. If you have a critical illness policy:
• When did you last update it?
• Does it still provide the cover you need?
• Are you missing out on product features that were once considered ‘innovative’, but are now considered ‘standard’?
When your needs change, it makes sense to update thingsLife may have changed since you last bought or reviewed your critical illness insurance cover. You may have had children, moved house, or your income may have changed.
This means that even though you have a critical illness policy in place, it might not offer you the level of cover you’d need if the unexpected happened.
Insurance innovationIt’s not just mobile phone companies that compete to offer the most innovative products - insurance companies are constantly updating their products to reflect customers’ changing needs too.
Given that more of us are surviving serious illnesses like cancer1, and living longer2, it’s perhaps unsurprising that products like critical illness insurance have changed in recent years.
For instance, many insurers offer greater flexibility or cover a wider range of illnesses. Some have introduced completely new products to allow you to claim for non-critical illnesses and injuries, or even make a partial claim.
Changing your current critical illness cover may mean you are not covered for certain conditions or may lose the benefits from your current policy.
Protect yourself with an up-to-date policyCritical illness insurance can help you cover mortgage or rent payments, treatment, or any home alterations you may need to make as a result of an unexpected critical illness – so it’s important your cover remains up-to-date.
1 Office for National Statistics: Cancer Survival in England: Patients Diagnosed, 2006–2010 and Followed up to 2011
2 Office for National Statistics: National Life Tables, United Kingdom, 2010-2012
We can review your needs and make sure you have the right cover in place. To arrange your review, please get in touch.
The Bank of England Base Rate remains at 0.5% – its lowest level since the Bank was established in 1694.1
With commentators adjusting their predictions of a Bank of England Base Rate rise on an almost monthly basis, you may feel unable to make a confident decision about your mortgage. But there are measures you can take to prepare for an interest rate increase.
Take control of your financesThe first step is the most important: consider how an increase could affect you. You may be in a fortunate position, where even an increase of several per cent would not impact your standard of living. However, this is unlikely to be the case for most people.
Research from the Money Advice Service suggests more than half of UK homeowners are not prepared for a rise.2
The research also reveals that three out of four homeowners haven’t considered how a 3% interest rate increase would affect their mortgage repayments. This is despite the Bank of England Governor Mark Carney estimating interest rates will rise by 2–3% over the next three years.
Review your mortgageIf you think an increase in your mortgage repayments could have a negative impact on your financial wellbeing, you should consider reviewing your mortgage arrangements. We can help you choose a deal that’s right for your needs.
If you want to protect yourself against future interest rate rises, you may want to consider a fixed-rate mortgage. This means your payments are set at a certain level for an agreed period, regardless of whether your lender changes its Standard Variable Rate (SVR). Such an increase typically occurs when the Bank of England Base Rate starts to climb.
A fixed-rate mortgage makes budgeting easier because your payments will stay the same, although it also means you won’t benefit if the SVR then goes back down.
Check your bank statementYou may find it useful to take a closer look at your overall finances, and consider if and where you can make savings to prepare for higher repayments, should they materialise.
Looking at your bank statement in detail can help you decide if you need to make cutbacks on your spending. You may be able to easily identify areas where you could make significant monthly savings.
Don’t leave it too lateDon’t be tempted to wait until rates start increasing. Considering your options now. Acting decisively could pay dividends in the future – even if rates remain static.
1 Bank of England Base rate of 0.5% correct on 30 November 20142 The Money Advice Service: More than half of UK homeowners not prepared for interest rate rises: 8 October 2014 https://www.moneyadviceservice.org.uk/en/news/morethanhalfofuk homeownersnotpreparedforinterestraterises
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If you want help assessing the mortgage deals available to you, please get in touch.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
For this service a fee of £150 is payable on completion.
Business survival planningIf something happened to you,your co-owners or employees,could your business survive?
A study by Legal and General1 shows:
● 40% of businesses would fold within 12 months after the death or critical illness of a key person
● 46% of new SMEs would fold immediately after the death or critical illness of a key person
The loss of a key person within a small or medium-sized business can cause unexpected costs at what would be a difficult time. Not only would the business have to fund the cost of recruiting and training a replacement, but it would also risk suffering:
● Loss of profits
● Loss of important business contacts
● Loss of knowledge/expertise
The role of business protectionBusiness protection insurance can help mitigate or prevent these risks altogether. As a business owner, you should know there are three main types of business protection:
● Key Person Insurance – provides a lump sum on the death of an important member of the business
● Shareholder Protection Insurance – provides a lump sum that will allow remaining shareholders to buy the shares of a deceased shareholder
● Business Loan Protection – provides a lump sum to help a business pay any outstanding business loans
There is also the option of relevant life insurance, placed in trust. Although this is not technically business protection, an agreement can be made which specifies the terms on which proceeds can be used.
Critical illness cover should also be a consideration. Research from MetLife in 20122 showed 21% of people have suffered long-term ill health for more than four weeks at some point in their working life.
Protect your biggest assetPeople are the biggest asset to any business. Business Protection Insurance can help to keep your business trading should the worst happen.
