With the possibility of the annual amount of tax relieved pension contributions reducing yet further, it is becoming more important for clients who save in pensions to maximise the amounts they are likely to contribute before the allowance decreases anymore.

The annual allowance sets the maximum amount of savings any individual can make in a year to their personal or work pension whilst gaining tax relief payments. If a pension holder’s payments exceed the maximum of £50,000 paid in per year then the holder will be taxed on any payments above the maximum threshold.

The annual allowance amounts can roll-over from the previous three years – so as an example, if your payments for the last three years were £30,000, this would mean that you have an extra £20,000 accrued each year which will be added to the maximum allowance. Three years of £20,000 is £60,000 which is then added to the maximum of £50,000 which would result in you being able to contribute up to £110,000 for the current tax year and still benefit from tax relief issued by the government.

However, if the government were to reduce the maximum annual allowance yet further, we would surely see a huge increase in pension payments received by schemes as the pension holder looks to cash in on the maximum amount of tax relief available before it decreases any further. If any individual’s pension payments were to exceed this new figure they would then be taxed on any amount above the maximum annual allowance. This additional cost is called the annual allowance charge.

In order to ensure individuals are receiving the best possible return on their pension payments, it is advisable to check whether they have exceeded the annual allowance for the previous three years and work out what their new annual allowance will be. This way, it could be quite simple to work out the amounts of pension available for any given working week or month, depending on the individual’s income regularity.

The rates of tax payment change according to various factors. Considerations regarding the annual allowance, the total payments of the pension scheme made by the individual and the overall amount which exceeds the annual allowance once combined will calculate a percentage of taxable allowance which will be deducted automatically before the funds are credited into the pension scheme.

Prior to the changes in the annual allowance, the government charged a flat rate of 40% tax on payments made over the annual allowance for pensions. However, since 6th April 2011, the rate has changed to the marginal rate of income tax meaning that should the annual allowance decrease even further in the near future; any excess payment above the annual allowance will be taxed in the same way as any other form of working income. This could potentially see people being moved into a higher tax bracket which would not be well received.

As mentioned earlier, it would definitely be beneficial to speak to professionals who can speak to you in layman’s terms and explain the best way to tackle the threat of any future decreases in the annual contribution allowance for pensions.

Please get in touch with us to see how we can help with your pensions advice.

Tel: 01254 232521 ask for John McGregor or email john@haworthsfs.co.uk.

#1 Ensure you are receiving regular advice and full disclosure

Financial advisors should be able to review your outgoings and give you investment advice and keep you regularly up to date with ongoing plans. They should keep you in the know about trends within the market and industry changes. The disclosure of information should also be echoed with regards to the incentives being received by the advisors as a result of their ongoing work and help. An honest relationship between investor and advisor is the key to profitable gains for both parties.

#2 Take the time to make decisions about things that look too good to be true: they often are

As a rule of thumb, if it looks too good to be true then it often is untrue. Products that look too good to be true can often be found to be hiding commission charges and hefty penalties. Investors should look to find companies that offer transparency with regards to their pricing structure and charges.

#3 Ask potential advisors their backgrounds and what qualifications they possess rather than yours

As of 2012 and beyond, the FSA are insisting that financial advisors have the correct qualifications in place to be able to offer professional advice. Companies are either qualified or are in the process of qualifying. Investors have the right to ask advisors how their professional learnings are advancing.

#4 Free financial advice could be more expensive than paid financial advice

When investing in financial advice, the general rule is that you get what you pay for. ‘Free’ financial advice can come with hidden charges and could ultimately end up costing more in the long-term. We advise that you do your research before choosing a financial advisor to represent you.

#5 Be wary of those who try to rush you into decisions

Genuine financial advice should not be rushed. It pays to be thorough when investing money into a service and the financial advisor on hand should recognise this and take the time to study where your equity would be best served to gain maximum financial gain for your investment. Rushing into decisions is definitely not the way of a trusted financial advisor and should be nipped in the bud if you find yourself on the receiving end of rushed advice and forced decisions.

#6 Beware of changes to portfolios that could incur tax or other liabilities

One reason clients receive financial advice is to legally work around tax around payments and minimise the amounts given to HM Revenue & Customs (HMRC) whilst remaining within the letter of the law. Genuine financial advisors will assist with this process and will point investors along the right tracks with regards to tax litigation etc. Beware of changes to portfolios as these changes can incur capital gains tax (CGT) and other liabilites which would have been avoided using professionally experienced teams.

#7 Beware of complicated jargon

Clients who receive financial advice are often seeking advice because they have very minimal experience within the market themselves. Professional and genuine financial advice should be explained in plain English for the average person and if there is something that the clients struggles to understand, it should be explained further to ensure the investor is 100% knowledgeable about where their money is going and why.

We understand that investing your hard-earned money into a market that you are unfamiliar with can be very daunting indeed which was the reasoning for the creation of this blog post. So the key takeaways from this are that when deciding whether or not to seek financial advice, it is advised you do your research beforehand, look for an established team who only have your interests in mind and find a company who offer excellent communication and updates.

Please get in touch with us to see how we can help with your financial advice.

Tel: 01254 232521 ask for John McGregor or email john@haworthsfs.co.uk.

Is it because the days of door to door insurance companies collecting £2 a week for savings have gone? Or is it because we now have access to competitive savings plans? Or is it simply because people are now living off credit instead of saving up for something?

What is a savings account?

A savings account is a safe haven for our hard earned money. It allows us to safely deposit funds and allows us to earn extra money on our savings by offering interest. Different savings accounts will have different interest rates and benefits, and it will be up to you to find out which account will be best for you in the long-term.

Savings accounts are an easy way to save up for lifetime goals, luxuries or ambitions. More expensive things such as deposits for mortgages, cars, holidays and/or retirement are common reasons for investing money into savings accounts.

The interest available is usually decided dependent upon income tax, however by choosing to invest in an ISA there is the possibility of saving up tax-free.

5 Benefits of a Savings Account

• They offer better interest rates than say a current account
• Banks and building societies compete ensuring better rates for savers
• Some savings accounts offer bonuses on regular/large deposits
• Agreeing not to make any withdrawals can result in further bonuses
• Online savings accounts offer better rates than in-branch accounts (less overheads)

5 Disadvantages of Savings Accounts

• Sustained periods without access to your money
• Interest rates can weaken over time unless set at a fixed rate
• Fixed interest rates could limit the amount earned if the basic interest rates rose
• If the account is stocks and shares based they could diminish with the fall in stock value
• Large penalties sustained for obtaining money before specified amount/time

So here are just a few basic pro’s and con’s that should be considered before investing any money into savings accounts.

A good savings account should be of minimal risk with maximum financial gain. They are more difficult to find than you might think however speaking to a financial specialist would definitely be advantageous and recommended.

Failure to create one could result in delayed payments to family members who may need finances for things such as funeral costs etc. Wills can be amended by the owner whenever they please but will only come into effect upon death of the individual, and the most recent draft of the Will that has been approved will be the official, legally binding document.

Making a Will at an Early Stage

In order to make a Will you need to be above the age of 18 and be ‘of sound mind’. It is good practice to begin creating your Will at an early age to cover all boundaries for your family as there can be unexpected results involved with death without the creation of a Will.

Estates can be issued to distant relatives of whom you may not have had any contact with and can be issued to the Government if you fail to create your will. We’re sure you’ll agree that ensuring your finances go to your most loved relatives is of paramount importance to you upon your death.

Keeping a Will Updated

It is important when events happen to keep your Will up-to-date. By keeping it up to date you are ensuring that your estate goes to the people you wish for them to go to and you can keep your power of attorney as the person who is most capable of dealing with your assets should anything happen to you.

Powers of Attorney

Should anything unexpectedly happen to you during your life i.e. disability or dementia, you need to know that you have somebody (a donee) there who can take care of your affairs on your behalf. This written document is known as a Power of Attorney.

A Power of Attorney can give the rights of the Will to the donee and he/she can carry out the necessary procedures to ensure that the assets are distributed fairly as how the incapacitated individual would have liked them to be distributed.

As you can see, creating a Will is very complex and can be very frustrating for spouses and families if done incorrectly. It is strongly advised that you seek professional help when deciding about creating a Will as ensuring your assets go to where you want them to is vitally important to everybody involved.

Wills and Power of Attorney’s are not regulated by the Financial Services Authority.

Contrary to popular belief; the government may not be able to single-handedly support you throughout the longevity of your post-work life within the lifestyle you are currently enjoying.

As the average life expectancy continues to increase, it has become even more critical to plan how you are going to create enough funds to last you through this extended life period. You will need to consider the costs involved with the rise of inflation and assess the income you’re likely to need.

There are 3 main types of pension for your retirement:

Individual pensions
Company pensions
State Pensions

Individual Pensions
Individual pensions are flexible in that they are taken out by the individual with their own decision as to how much is paid into it every month. This type of pension will suit people who prefer to only pay their pension in smaller sums. They are popular for the self-employed, however can be easily taken and re-set-up when changing jobs for employees.

Company Pensions
Some employers will offer a company pension where that they match your contributions or may pay a percentage of what you pay. This type of pension is an excellent way of increasing the amount accrued in you pot. If your company offers this type of contribution scheme you should seriously consider the benefits that can be gained by joining.

State Pensions
State pensions are usually based around how many ’qualifying years’ a person has amassed throughout their working career. The earlier the pension is started, the more benefits are received upon retirement from the state. It could be beneficial to set up a pension sooner rather than later as in the future the government may be unable to fund a state pension like they do at the moment.

Many people dismiss the fact that they need to provide their own income upon retirement towards their pension, believe that they can retire at whatever age they like and are blissfully unaware of the true cost of things upon retirement.

All Pensions Are Not the Same

Many people view all pensions as the same. A pension plan is merely the vehicle that surrounds the investment. It’s what’s under the bonnet that matters. It’s pointless having a Porsche car with a mowing machine engine. Pensions can hold many types of investments within them, ranging from Cash Deposits, Government Gilts, Fixed Interest holdings, Corporate Bond funds, Unit Trust, Stocks and Shares, Property Investment and many more. You can even hold your own Commercial Property within a Self Invested Personal Pension (SIPP). The range is so vast that financial advice is needed to help choose the right plan for you.

A Pension Plan May Not be the Only Plan You Need

A retirement fund can come from a combination of options; personal pension, company pension, state pension, property investments and all other savings and investments that you may have accumulated over the years.

In order to be comfortable in the knowledge of a happy retirement all savings, investment opportunities need to be taken into account. That’s where we come in at Haworths, we can advise and recommend the best solution based on your individual circumstances.

After all, upon retirement, you need to be able to fund yourself for potentially the next thirty years or so… a long period of time to sustain a level of living that you are used to.

Whatever stage of your life you are at it is important you seek independent financial advice to help with these decisions.

Some aspects of employer pension schemes are regulated by the Pensions Regulator.