Plain Savings

14/11/2024

How do you plan on retiring?

13/11/2024

Significant Tax Change for Pensions from 2027

In a substantial shift in estate planning policy, the recent Autumn Budget announcement revealed that from April 2027, inheritance tax (IHT) will be applied to pension assets. Chancellor Rachel Reeves stated this change will impact approximately 8% of estates annually, altering how pensions can be used in financial plans. For advisers, this calls for a strategic pivot: pensions will likely serve primarily as retirement income vehicles rather than inheritance tools.

Understanding the New IHT Policy on Pensions

The Treasury has released a consultation document outlining how this policy will be implemented. One key point is that dependents’ pensions will remain outside the scope of this tax. A spouse or civil partner can still receive pension benefits tax-free, while pensions passed to other beneficiaries may face both income tax at the recipient’s marginal rate and the new IHT levy, effectively subjecting these assets to double taxation.

For some pensions, the changes could lead to extreme tax rates, potentially reaching 90%. As an example provided by RSM, an accountancy firm, if an estate is above £2 million, losing the residence nil rate band could mean a Scottish beneficiary might only see £29,906 from a £350,000 pension pot, after an effective tax rate of over 90%.

New Challenges for Bereaved Families and Administrators

Applying IHT to pensions could create additional complexities in the probate process. Steve Webb, a former pensions minister, warns that these changes may delay access to pension assets for bereaved families. Identifying and notifying all pension schemes of a death will be required, and families must compile necessary details before using an HMRC calculator to determine the IHT amount due.

With pensions now part of the taxable estate, beneficiaries may need to navigate a more complex, time-consuming process. Even lump sums, such as death-in-service benefits, could face tax rates of up to 40%, further complicating inheritance timelines and reducing expected payouts.

Market Implications and Strategic Shifts for Advisers

With marriage offering tax protection, the new rules may most affect single or cohabiting individuals who lack the spousal exemption. Life insurance policies might see a resurgence in popularity as an alternative estate planning tool, according to Clare Moffat, head of technical at Royal London. Advisers may also consider strategies like using surplus income to fund younger family members’ pensions or ISAs as part of a long-term planning approach.

Tom McPhail, director of policy at The Lang Cat consultancy, highlighted that from 2027, savers will likely reconsider how they manage their retirement funds, with less incentive to build larger pension pots. For higher earners, this change could prompt earlier withdrawals from pension accounts and increased demand for annuities. Additionally, pension providers who rely on assets under management may feel the effects as savers withdraw pension funds sooner to avoid punitive taxes.

Practical Impacts on Financial Advisers and Client Planning

Financial advisers have long anticipated that pension taxation would eventually be reformed, and many see the new rules as aligning pensions more closely with other types of assets in estate planning. Jo French, CEO of Attivo, believes that the generous tax treatment of pensions in inheritance planning was never intended to be permanent.

As she put it, “Pensions offer great tax benefits, but they aren’t meant as inheritance vehicles. Advisers now have an opportunity to help clients consider a broader array of estate planning strategies.” Greg Moss, director at Eleven.2 Financial Planning, agrees, observing that the changes bring pensions more in line with non-pension investments, which may simplify client understanding of inheritance planning.

Preparing for the Shift

The upcoming changes present advisers with a chance to guide clients through new, tax-efficient ways to pass on wealth. With pensions now less attractive for inheritance purposes, advisers can discuss life insurance and other legacy strategies with clients to meet their estate planning goals while considering the impact of the new tax rules.

While the changes are complex, they are also an opportunity for advisers to reinforce the role of pensions as a secure income source for retirement. Early planning and informed advice will be essential in adapting to this evolving tax landscape, ensuring that clients’ financial and inheritance goals are aligned under the new regulations.

22/10/2024

FCA Takes Action Against Illegal ‘Finfluencers’

The Financial Conduct Authority (FCA) has launched a crackdown on illegal financial influencers, or ‘finfluencers,’ as part of its efforts to protect consumers from unlawful promotions.

As of today, the FCA is interviewing twenty finfluencers under caution, investigating whether they have promoted financial services products without proper authorisation. Additionally, 38 alerts have been issued against social media accounts suspected of offering unlawful financial promotions.

With a growing number of young people falling victim to financial scams, the FCA is concerned about the role finfluencers play in misleading consumers. Research shows that nearly two-thirds (62%) of 18 to 29-year-olds follow social media influencers, and of those, 74% trust their advice. Alarmingly, 9 in 10 young followers have changed their financial behaviour based on what they see on social media, which could put their financial wellbeing at risk.

Steve Smart, Joint Executive Director of Enforcement and Market Oversight at the FCA, commented:

“Finfluencers are trusted by the people who follow them, often young and potentially vulnerable individuals attracted to the lifestyle they portray. Finfluencers need to ensure that the products they promote comply with the law, as failing to do so could jeopardise the livelihoods and life savings of their followers.”

If you are seeking financial advice, always ensure your adviser is authorised and regulated by the FCA.

“It is illegal for individuals or companies to promote financial products without FCA authorisation. We take action to protect consumers from unauthorised promotions that put them at risk of financial harm.”

For more information, visit the official FCA website:

The Financial Conduct Authority is the conduct regulator for around 50,000 financial services firms and financial markets in the UK and the prudential supervisor for 48,000 firms

09/10/2024

What Could Be Announced in the Upcoming UK Budget?

The government has already ruled out increases in VAT, income tax, and National Insurance. However, following recent hints of “difficult decisions,” there is growing speculation that other tax changes could be introduced. Here’s a look at some areas that may be affected:

Capital Gains Tax (CGT)
Capital Gains Tax is charged on the profit made from selling assets that have appreciated, such as second homes or investments. It applies to individuals and some business owners, with the rate depending on the taxpayer’s income tax band. The Budget could see changes to CGT rates or thresholds, which would affect those selling high-value assets.

Inheritance Tax (IHT)
Inheritance Tax is currently set at 40% and applies to estates valued above £325,000. There has been speculation that this threshold could be adjusted or that rates might increase. Any changes could have a significant impact on estate planning for families.

Fuel Duty
Fuel duty has been frozen since 2012 and was temporarily cut by 5p in 2022 to offset rising fuel prices. However, there’s talk that this cut could be reversed, raising the cost at the pump for motorists. Some industry experts argue that the initial cut was not fully passed on to drivers, making this a contentious issue.

Pension Tax Relief
At present, pension contributions receive tax relief at the contributor’s income tax rate. This means basic-rate taxpayers get 20% relief, while higher-rate taxpayers get 40% or 45%. There have been discussions about introducing a flat rate of tax relief, which could reduce the benefits for higher earners. While this specific change seems unlikely, other aspects of pension tax relief might be modified.

Non-Domicile Tax Status (“Non-Dom”)
Non-dom tax status allows UK residents whose permanent home is abroad to avoid paying UK tax on income earned outside the country. Labour has been pushing for stricter rules or even the abolition of non-dom status, although concerns have been raised that such changes might not generate the expected revenue.

As we await the Budget announcement, these potential changes could have a wide-ranging impact on taxpayers, investors, and pension savers alike. Keep an eye on these developments to understand how they may affect your financial planning.

If you need advice on how these changes could impact your financial situation, please don’t hesitate to contact us for a personalised review.

Source: BBC News

03/10/2024

House prices in the UK rose by 3.2% in September compared with a year ago, the fastest rate of growth in nearly two years, according to Nationwide.

The building society reported that annual growth was the highest since November 2022, with terraced houses driving the increase. Nationwide credited rising incomes and reductions in mortgage rates for improving affordability. Separate figures from the Bank of England also showed mortgage approvals at their highest level in two years.

The average UK house price in September stood at £266,094, Nationwide said.

Based on its mortgage lending data, the building society revealed that prices increased by 0.7% in September compared to August, which had recorded a slight decline.

“Income growth has outpaced house price growth in recent months, while borrowing costs have edged lower amid expectations that the Bank of England will continue reducing interest rates in the coming quarters,” said Robert Gardner, Nationwide’s chief economist.

“These trends have helped improve affordability for potential buyers,” he added. However, he noted that while the housing market and prices had picked up, they remained subdued compared to historical standards.

Amy Reynolds, head of sales at estate agency Antony Roberts, commented: “While sellers may feel encouraged by these price rises, if a property is priced too high, buyers are unlikely to view it. The best advice we can give is to adjust the price to match the market.”

25/09/2024

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24/09/2024

Half of UK Retirees Lack a Financial Plan

A recent report has revealed that nearly half (49%) of retirees in the UK entered retirement without a clear financial plan for their post-work years. The study, conducted by Just Group, highlights the lack of financial preparedness among retirees.

More than one-third (35%) of retirees aged over 55 admitted they retired without assessing their financial ability to support themselves during retirement. Additionally, 14% of respondents were forced into retirement earlier than expected, leaving them without sufficient time to plan.

Surprisingly, fewer than one in ten retirees (8%) sought help from an independent financial adviser (IFA) to guide them through this significant life transition.

Stephen Lowe, group communications director at Just Group, stressed the importance of financial advice in retirement planning. He commented, “Receiving financial advice remains the gold standard for preparing financial plans ahead of retirement. If possible, we’d encourage people to explore this option. Your employer may offer assistance, perhaps by recommending an IFA or even contributing financially towards the cost. The rise of the digital world also means there are lower-cost online and hybrid solutions available for guidance or advice.”

Lowe also urged retirees to utilise free resources such as Pension Wise, the UK government’s impartial pension guidance service. “At the very least, people should ensure they take advantage of their entitlement to Pension Wise,” he added.

However, the report found that only 6% of those surveyed had used Pension Wise to assist with their retirement planning.

Some individuals chose a do-it-yourself approach, with 34% conducting their own review of savings to estimate future income and expenditure. Others relied on informal support, with 10% seeking advice from friends and family, and 6% using other sources.

The Just Group survey was conducted between 17 and 27 August 2023, polling 1,050 UK adults aged 55 and over.

13/09/2024

How Much Should You Save for Retirement?

Planning for retirement can feel overwhelming, especially when trying to figure out how much to save. One of the most important steps is calculating how much you need to comfortably retire and sustain your desired lifestyle. This is where our Retirement Savings Calculator comes in, offering an intuitive way to estimate your savings goals based on key factors such as initial savings, monthly contributions, years until retirement, and anticipated withdrawals during retirement.

Try our tool here
https://www.plainsavings.co.uk/retirement-calculator/

13/09/2022

With so many financial priorities to juggle, it can be hard to put your pension first, especially with spiralling household costs. Starting or maintaining your pension contributions is important.

Whatever type of pension plan you have, you get tax relief at the highest rate of Income Tax you pay on all contributions you make, subject to annual and lifetime allowances. This effectively means that some of your earnings which would have gone to the government as tax are diverted to boost your pension pot instead.

Make the most of your allowances

The Annual Allowance for pensions is £40,000. For those with an income above £240,000 (£200,000 threshold income plus the £40,000 you can save into a pension) the Annual Allowance begins to taper; for every £2 of adjusted income above £240,000, the Annual Allowance for that year reduces by £1. The minimum Annual Allowance is £4,000.

The Lifetime Allowance – the maximum amount you can have in a pension over a lifetime without incurring an extra tax charge is £1,073,100.

Don’t forget your State Pension

From 6 April, the new single-tier State Pension increased to £185.15 per week and the older basic State Pension rose to £141.85 per week.
You can get a projection and find out your retirement age here www.gov.uk/check-state-pension

Treating you as an individual
We offer advice and help with all aspects of pensions and retirement planning, whether you’re just starting out and want help choosing the most appropriate pension products.

22/06/2022

The Financial Conduct Authority (FCA) has launched a new strategy to give consumers the confidence to invest, safe in the knowledge they are supported by a high-quality advice market; and to help them do so safely, which should lead to fewer people being scammed or investing in products that are too risky for their needs.

As part of the strategy the FCA is launching an awareness campaign to target people who may have invested for the first time during the pandemic, often into cryptocurrencies, mainly for the thrill of investing rather than for long-term savings goals or alignment to their needs.

The FCA is also concerned about the high numbers of people who could benefit from investment earnings but are missing out by keeping money in cash. Nearly 8.6 million people currently hold more than £10,000 of investible assets in cash. By 2025 the FCA intends to reduce by 20% the number of consumers who could benefit from investment earnings but are currently missing out. In addition, it intends to reduce the money consumers lose to investment scams (£570m in 2020-21, tripled since 2018).

Sarah Pritchard, FCA Director of Markets said, “We want to give consumers greater confidence to invest and to help them do so safely, understanding the level of risk. The package of measures we have announced today are intended to support that – we want people to have greater confidence to invest.”

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.