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Lockdown Finances – Unclaimed Pensions Worth £19.4bn!
Lockdown finances unclaimed pension money

During the lockdown many of us have been getting round to the tasks that never get done.  One really important job is to check you have updated all your pension providers with your current address. Unclaimed pensions contribute to a huge amount of savings.

There are 1.6m pension pots worth £19.4bn which are going unclaimed due to savers failing to contact their pension provider when they move house, according to the Association of British insurers (ABI).

Research from the organisation, published on  May 5th, found people rarely contact their pension provider when they move house, causing many to lose significant amounts of pension money they have simply forgotten about.

It is simple to do ,but just one of those tasks that is never top of the list to complete.  All you need is to check the address on your last annual statement or log in to your provider’s website.

The UK Government predicts that there could be as many as 50m dormant and unclaimed pensions by 2050.

A technique you could use is to make a list of every company that you have ever had dealings with, and work through them methodically when notifying them of a change of address.

Moving house is stressful with many things to complete so it is easy to let low priority tasks slip through the net.

Some people have more busy and stressful lockdowns than others, most people have a bank holiday at home on the cards this week, so it could be a great time to track down your old pensions. It could be the most financially rewarding bank holiday you ever have.

How to Build a Long-Term Financial Plan
How to create a financial plan

This a great time to review your financial situation and build a long-term financial plan. Do you want to know how to build a long term financial plan? If you follow the steps in this guide you will be in great shape to achieve your future goals but more than that, you’ll be in great shape to survive the next financial crisis!

 

A successful financial plan will require you to take the following steps:

Set Financial Goals

Sit down and write down your financial goals you want to achieve going forward.  What do you want to do, when do you want to do and how much will it cost?  It’s important to cost this up and £ specific terms.  You can split your goals into short term (next 5 years) medium term (5-15 years) and long term 15 years +.

It’s important to write these down and share this with those close to you such as family and friends so that they become involved and increase the chances your stay on track with the plan.  It’s also important to review them at least yearly so that you can update the cost with inflation and adjust accordingly.

Set Up a Savings Plan to Achieve Your Goals

 It’s important to set up a savings plan to achieve the goals you have set and stick to it in a disciplined structure.  For short term goals setting up a savings account  would be advisable to avoid short term stock market falls.  For your medium- and long-term goals investing in the markets on  monthly basis is a great way to help your savings keep ahead of inflation.  It can be tempting to stop saving during times of stock market falls, but this is the time to keep it going if affordable as your monthly contribution buys cheaper units – it’s a bit like going the sales.

Before you set up your savings plan there are some actions below which are important to put in place so that your financial plan does not come off the rails:

  • Ensure you have adequately protected your income with income protection insurance
  • Pay off any high interest debt such as credit or store card balances – there is no point trying to save and earning a return of 5%-6%pa, if you are paying debt interest of 20%+ at the same time
  • Ensure you have enough life insurance in place to pay off any secured mortgage debt and cover dependents financial needs should the worst happen
  • Have a contingency fund set up with 3 months expenditure sat in an instant access account so that you available funds for emergencies such as a major capital expense with your car or home or funds to see you through loosing your job and finding the next one

Set up an action plan to complete the above steps and take it a step at a time.  You will be able to complete all the tasks above immediately.  But gradually over a period of time you can implement a really successful plan that will make you more at ease with your financial situation.

We specialise in helping clients set up their own financial plan and review it regularly.  If you would like any help or advice on setting up a financial plan, please contact us.

 

Investment values and income from them can go down as well as up, investors may get back less than their original investment.  Companion Financial Planning LLP is authorised and regulated by the Financial Conduct Authority; registration number 705850.

Tax Efficient Saving Options for Children
Father and child putting coin into piggy bank. Education of children in financial literacy

For those in a fortunate position to be able to start saving for their children there a number of options that enable any interest received or investment returns to be received tax free.  Firstly, it is possible to keep things very simple and just open a bank or savings account in the child’s name and then add lump sums or set up a regular monthly savings plan.  Parents should be aware that if interest received from the account goes above £100 per year the parent could be liable to tax at their own rate of tax.  This rule would only apply if the parent’s personal savings allowance is exceeded.  Grandparents, other relatives and friends are not subject to this tax rule.

There are other options which are available which can help with this issue:

 

Junior Individual Savings Accounts (JISA’s)

These can be set up for children by parents guardians and grandparents etc. and can save up to £9,000 per tax year into these accounts.  The money can be held in cash accounts to receive interest or can be invested in stocks and shares and potentially receive investment growth.  Interest and investment growth are totally free of savings and capital gains tax.  The accounts are set up by the parent or guardian and are held until the child is 18.  The child can take over control at age 16 and will get full access to the accounts at age 18.  While these seem a great idea for saving for higher education remember the child will get access to the funds legally at age 18 whether the parent or guardian wants this or not!  If the funds are not drawn at 18 the JISA turns into an adult ISA at 18.

 

Child Trust Funds (CTF’s)

These accounts where the predecessors to JISA’s.  They have all the same rules as above in terms of contribution amounts and tax breaks.  They are no longer available to set up now, but many still exist and will continue until the child turns 18.  When these where first introduced in the early 2000’s parents or guardians received a cash boost from the government as an incentive to set up.  These are no longer available, but it is still possible to get money from the government towards a child’s saving in the form of a pension…

 

Pensions

This may seem strange, but you can set up a pension for a child and it makes very good sense to do so taking a long-term approach.  As with the initial CTF’s mentioned above the government gives tax relief as an incentive to pay into a pension for a child.  So, if a parent was to pay £100 into a pension for their child the government would add £25 to the fund in the form of tax relief.  The rules for how much can be contributed are tighter than the JISA and the CTF.  As the child is unlikely to be earning money contributions are limited to £2,880pa.  The government will add £720 to this to make the total gross contribution £3,600.  Again parents, grandparents and other third parties are able to contribute.

But remember the government wants the pension holder to use this for their retirement so access is not allowed until age 55 and in 2028 this is likely to be increased to 58 and will stay within 10 years of state pension age going forward.  So, the money is locked away for a long time!

 

Tax Exempt Savings Plan’s (TESP’s)

 These can also be set up for children and again any interest or investment returns are tax free provided the account are held for at least 10 years.  £25 per month or £270 per year can be saved into these accounts.

 

So there a number of different options available and tax allowances to take advantage of.  It is just important to make sure you understand the rules for each type of account before setting up.  If you would like to talk to us about this area of financial planning please contact us via the website contact option or neilprice@companionfinancial.co.uk / 01937 326013.

 

Investment values and income from them can go down as well as up, investors may get back less than their original investment.  Companion Financial Planning LLP is authorised and regulated by the Financial Conduct Authority; registration number 705850.

 

 

Global Stock Markets – Crash or Correction?
yorkshire financial planning

Last week saw a dramatic drop in value of global stock market values (FTSE world Index fell 11%), but was this a crash or a correction?

• A crash is a sudden and very sharp drop in stock prices, often on a single day or week. Sometimes a market crash foretells a period of economic malaise, such as the 1929 crash when the market lost 46% ( Source: Macrotrends). in less than two months, kicking off the Great Depression. But that’s not always the case. In October 1987 (Black Monday) stocks plunged 22% in a single day(source: Investopedia), the worst decline ever, before recovering back over the next year. Crashes are rare, but they usually occur after a long-term uptrend in the market.

• A correction is often defined as a 10% drop in the market from recent highs. These happen more frequently the last being at the end of 2018 with fears over USA-China trade relations. Recoveries are quick – the FTSE World Index dropped 9% in 2018 but recovered and grew by 27% in 2019 ( source FTSE World Index FTWORLDSR)
Why the stock market value falls…
The market declines because investors are more motivated to sell than to buy. That’s simple supply and demand.

The market moves for many reasons, including because the economy is weakening, or based on investors’ perception or emotion, such as the fear of loss.
Investors are looking forward over a medium to long term (5 years plus). Whereas speculators watch for signs, including news, rumours and anything in between, of how the market will move. It moves for many reasons, including because the economy is weakening, or based on investors’ perceptions or emotions, such as the fear of loss, for example.
While the reasons for a one-day drop may vary, a longer-term decline is usually caused by one or several of the following reasons:

• A slowing or shrinking economy: This is a solid, “fundamental” reason for the market to decline. If the economy is slowing or entering a recession, or investors are expecting it to slow, companies will earn less, so investors bid down their stocks.

• Fear: In the stock market, the opposite of greed is fear. (And nothing is quite so good at stoking investors’ fears as a 24-hour news that talks about how much the markets are falling and If investors think the market is going to fall, they’ll stop buying shares, and sellers will have to lower their prices to find buyers.

• Political or Other Events: This miscellaneous category consists of everything else that might spook the market: wars, attacks, oil-supply shocks and other events that aren’t purely economic such as the Coronavirus.

These reasons often work together. For example, as the economy overheats, some investors see a slowdown in the future and want to sell before a stampede of investors flees the market. So, they sell, pushing stocks lower and dampening confidence. If the move down persists long enough, it may make investors fearful, sending stocks still lower.

At times like this it can be great to have someone by your side to steady your nerves, and that’s one thing a financial planner should do.
In the last four corrections since the 2008-09 global financial crisis, the average decline was 15.3% over three and a half months.
Bear markets tend to be longer still. In the three bear markets since 1987, the average decline has been 46.5% over 1.4 years.

In contrast, the last three bull markets have lasted nearly nine years on average. Downturns tend to be short-lived, especially relative to uptrends.
What happens to your portfolio in a market crash?

The FTSE 100 index is the usual benchmark in the UK investors reference when they talk about “the market,” as it comprises the largest publicly traded companies. But unless you’re invested exclusively in a FTSE index fund, your actual returns will differ from the market’s because you don’t own the same shares in the same proportions as the index.

Gauging how you’ll fare in a market crash or correction depends on the composition of your portfolio. The performance of individual shares tends to be more volatile than that of the market. If the FTSE 100 were to drop 10%, individual stocks in your portfolio could decline 5% or 15% or 30%. Some might even go up.
How can you prepare for a crash?

Knowing what’s happening when stocks are dropping is the first step in protecting yourself from the emotion and panic that accompany a financial loss. Now that you know what a market crash and a correction is how can you be prepared?

Well there are some golden rules to investing in the stock market:

• Have a medium to long term strategy – Make sure the goal you are investing for is at least 5 years away – any falls that happen such as the events last week then have time to recover.

• Always have a cash contingency fun – Look to hold at least 3 months expenditure in cash funds so you do not need to access stock market-based investments in the short term.

• Financial goals that require funds in the next 5 years should be financed from funds held in cash-based accounts – these are not then at risk of stock market falls.

• Stock market falls are often an opportunity to invest at a lower price – but remember you still need a 5-year strategy anything less is just speculating.

• Save on a regular basis – by doing this you can actually turn a stock market fall to your advantage – if the value of your pension or ISA fund falls your next contribution buys in at a cheaper rate and then potentially benefits when the fund price rises again.

• Don’t sell your investment when the markets have fallen – this is a sure way to make a loss. If you have followed the points above you should not have to sell.

Investment values and income from them can go down as well as up, investors may get back less than their original investment. Companion Financial Planning LLP is authorised and regulated by the Financial Conduct Authority; registration number 705850.

If you require any more information or help, let us know!

Make a Pension Contribution to Reduce Your Tax Bill
Screen Shot 2020-02-18 at 20.52.16

The UK government has some arguably draconian tax rules for people who earn over £100,000pa. For every £2 pounds of earnings over £100,000 the amount of personal allowance is reduced by £1.

So, for example Jane who earns £110,000 has their 2019/20 personal allowance reduced by £5,000 (£10,000/£2 = £5,000). This has the effect of reducing the personal allowance from £12,500 to £7,500. As the person is already a higher rate taxpayer paying 40% tax on these earning this personal allowance reduction amounts to a 60% tax charge.

There is a way to reduce your tax bill. By making a pension contribution.

With the example of Jane if she wrote a cheque for £8,000 to her pension, the pension company would then gross this up to £10,000 by claiming £2,000 tax relief from HMRC. This has the effect of reducing Jane’s annual net income by £10,000 to £100,000. If Jane did this, it would restore her full personal allowance of £12,500. This is in effect a £4,000 tax saving. She pays 20% less tax on the £10,000 she has earned over £100,000 and also gains £2,000 tax relief from HMRC to her pension fund.

And it gets better as Jane is a higher rate taxpayer, she can claim higher rate tax relief on her pension contribution. If Jane declares her £10,000 gross pension payment on her tax return, she gets a further £2,000 relief from HMRC and this is paid back by an adjustment to her tax code. So, in effect she has only had to pay out £6,000.

The added bonus is that this helps to fund Jane’s retirement. The pension payment is invested in a tax-free fund until Jane wants to draw the funds at retirement.

If you have any questions on how to start a pension please, don’t hesitate to get in touch!

** Investment values and income from them can go down as well as up, investors may get back less than their original investment. Companion Financial Planning LLP is authorised and regulated by the Financial Conduct Authority; registration number 705850. **

How to Save Tax by Making Pension Contributions
Pension Contributions

Do you want to save money on tax? Then think about making a pension contribution. The government wants you to save for older age and encourages you to do this with significant tax breaks. It does not matter if you are employed or self-employed a business owner or a non-earner you can benefit from significant tax relief when it comes to pension planning.

The one thing you need to think about is affordability – because the government gives you these tax breaks to save for retirement, you cannot access the contributions in normal circumstances until you are at least age 55. So, you need to be able to do without the money until this age. Let’s look at how it works depending on your status:

Business Owner Ltd Company
The government allows you to pay a pension contribution directly from the company as an employer contribution. The contribution is paid as a business expense and is an allowable expense against corporation tax. This makes it a very tax efficient way to extract money from the company before corporation tax is applied. By making a pension contribution in the manner you are effectively withdrawing deferred tax-free earnings – remember it is deferred as you cannot access the funds in normal circumstances until you are at least age 55.

Self Employed or Partner in a business
You can still make a pension contribution, but it works in a slightly different way. Rather than paying the contribution before you get taxed on it you pay the contribution out of taxed money. The government still gives you tax relief initially via the pension scheme. Let’s look at an example. If you decided it was affordable to pay in £1,000 the government gives you basic rate tax relief (20%) by grossing this up to £1,250. So, you pay the £1,000 to the pension company and then the pension company applies to HMRC for the £250 tax relief to be added to your pension fund. If you are a higher rate taxpayer, it gets better. When you complete your self-assessment tax form you can claim a further 20% relief which you receive back through your tax code. This effectively means you have paid £750 for the £1,250 contribution to your pension. As an addition rate taxpayer, the relief is 45%. Higher earners who earn over £150,000pa potentially can have a reduced allowance.

Employee
As an employee there are 3 methods of paying pension contributions:

1) Relief at Source
This is where an employee pays their pension contribution after tax has been deducted. The employee pays the net payment and then gets tax relief added to their pension fund. So, for an example the employee pays £100 to a pension, the pension company then applies to HMRC for the tax relief of £25 and this is then added to the pension scheme. This method is very good for non-taxpayers as tax relief is still claimed regardless. As above higher and additional rate taxpayers can apply for an additional 20% or 25% via self-assessment which is given back by an adjustment to the tax code.

2) Net Pay Method
Here the pension contribution is deducted before income tax is deducted from the payslip. So, tax relief is gained immediately. So, in this example if the employee pays £100 this is before income tax is deducted and whether the employee is a basic, higher, or additional rate taxpayer all the tax relief is gained immediately. However, for non-taxpayers this is not such a good method as no tax relief is gained.

3) Salary Sacrifice
Very similar to an employer contribution in that the employee gains full tax and national insurance relief. With this method the employee agrees to give up salary in exchange for the amount given up being paid into the pension. This is a formal arrangement and must be documented by an exchange of letters between the company and the employee. This is also the most tax efficient route for an employee to make pension contributions because the payments are made before income tax and national insurance are deducted. There are downsides to this route with the reduction in salary affecting take home pay, future mortgage applications and some state benefits.

Non-Earner
Even non-earners can benefit from making a pension contribution. The government allows up to £3,600 to be paid into a pension if you do not have any earnings. Tax relief is claimed via the relief at source method above. So, you pay £2,880 into the pension and this is topped up by HMRC with £720 in tax relief. This is great for non-working adults, but also children can start a pension with parents or generous relatives making the contribution on their behalf.

If you have any questions on how to start a pension please contact us.

Huge changes to Pensions

Please find enclosed an overview of the proposed changes to pensions following the recent statement by the chancellorTHE PENSIONS REVOLUTION.doc2

Cautious Optimism From Chancellor’s Fifth Budget

For the first time since he entered No11 Downing Street, the Chancellor of the Exchequer has been able to give a budget speech that contained some welcome news.
After four years of bleak economic forecasts and a stagnant economy, George Osborne yesterday announced that in the next 12 months Britain’s GDP will grow by 2.7 per cent, faster than originally forecast.
In addition to this there has been some slight improvement in Britain’s deficit, now predicted to be 6.6 per cent of GDP, as opposed to the previous prediction of 6.8 per cent.
Inflation, currently at 1.7 per cent, is well below the official Bank of England target of 2 per cent, meaning that the British public will have more spending power in the next 12 months as the economy improves.

Borrowing and the Budget
The government was elected on a pledge of debt reduction but the national debt will actually increase for a further two years, according to the government’s own predictions, peaking in 2016 at 78.7 per cent of GDP.
The interest rates that the government pays on this debt will be lower in the coming 12 months, enabling the government to save the equivalent of £2,000 per household in the UK.
Whilst these big economic statistics are important to understand, what does this budget have in store for families, savers and employers across the UK?

Gifts and Giveaways
Every budget twelve months before an election contains enough incentives and inducements to keep swinging voters thinking favourably about the incumbent party.
This budget has not seen huge financial gifts to the public, rather small giveaways in terms of tax breaks and thresholds.
The personal tax allowance has risen by £500 to £10,500, meaning that more lower-income earners will be exempt from taxation altogether, and others will have a reduced overall tax burden.
In addition to this the threshold for those paying the top rate of tax has risen by £415 to £41,865, with the changes commencing in April this year.

Taxing Guilty Pleasures
As ever it has turned out to be a bad budget for smokers, with duty on cigarettes increasing by two per cent above the rate of inflation. Duty on alcohol will remain at the rate of inflation with the exception of whisky and ordinary cider, where duty has been frozen.
Gamblers have faced a mixed budget, with a ten per cent cut in duty levied on bingo and a huge twenty five per cent increase in tax on the controversial fixed odds betting machines. Clearly this taxation strategy has been designed to encourage more responsible betting and gaming.

A Saver’s Budget?
Supporters of the government have been quick to hail today’s announcements as a saver’s budget, one which is long overdue after years of low interest rates and poor returns on investments for many families.
Three measures have been introduced to make saving more worthwhile and to reward prudence, the first of which is an increase in the tax free limit on cash savings in ISAs from £5,760 to £15,000 on 1st July 2014.
This threshold also applies to stocks and shares ISAs as well as their cash equivalents and savers will be able to move funds between both types of ISA freely.
Pensioners will be better off as they will no longer be required to purchase annuities and they will be able to draw down on their pension without risking incurring charges. Tax restrictions on access to pensions will be completely removed in April and taxed at normal marginal tax rates.
The ten pence tax rate on interest earned on pensions will also be axed. This has been a particularly unpopular measure for several years and its abolition will do much to endear the government to savers nationwide.

Help for Homeowners
The government has put a renewed housing boom at the heart of their strategy for recovery and the Chancellor indicated today that he continues to see housing as a vital tool in the recovery and a vote winner.
He has extended the Help To Buy Scheme for a further six years until 2020, meaning that home owners can continue to access interest free loans to help with up to 20 per cent of the cost of a mortgage.
However, following recent controversies over mansions in London that have been bought by foreign investors seeking to avoid tax and that stand empty, the Chancellor has levied a fifteen per cent stamp duty on properties of more than £500,000 which are purchased through certain corporate structures.

The Chancellor has also announced that the first ‘garden city’ in a century will be built at Ebbsfleet in Kent. Some fifteen thousand new homes will enter the overheated property market of the South East of England and take some of the pressure out of the housing market in London.

Infrastructure Projects
After the wettest spring on record, it is hardly a surprise that the government has turned its attention towards flood relief. Flooding from January onwards devastated large parts of the South of England and caused tens of millions of pounds worth of damage to homeowners and their communities.
The Chancellor has devoted £140 million to flood relief, though the extent to which this is new money, or even an amount that will make a difference to reducing flood risks, is unclear at this stage.
That other less catastrophic but perennially annoying side effect of rainier winters, the pothole, was also addressed in the budget; local authorities will be given £200 million to repair potholes in road surfacing.

For Business
Planning will be relaxed in order to help the building industry to recover and for new homes to be constructed.
The government hopes in the end to see over 200,000 new homes built and this is particularly good news for people who are hoping to build their own homes, as planning can be a major obstacle in this regard.
The tax free threshold for investment in businesses has been raised to £500,000, doubling the amount that companies can spend in training and infrastructure.

Motorists and Holiday Makers
The ever increasing cost of fuel and driving has been a bone of contention for motorists for the last few years and perhaps mindful of the need to remain popular in 2015, the government has good news for drivers at last.
A planned rise in fuel duty that was due to take effect in September has been cancelled, meaning that unless commodity prices for oil increase in the next year, there should be no significant hike in petrol costs.
A uniform approach to air passenger duty has been announced, with all long haul flights carrying the same rate of tax as those to the USA, making long distance air travel fairer.

Makers, Doers and Savers
The Chancellor has prided himself on creating a budget for ‘makers, doers and savers’, and this budget certainly favours the last of these three categories, but will it benefit you?
The budget will certainly help you if you are looking to get a foot on or move up the property ladder in the next few years.
If you live in the South East the new plans to build more houses at Ebbsfleet might not bring house prices down, but it might possibly stop them from rising at quite the same rate.
Adding 15,000 houses to the overall housing stock will inevitably help to bring prices down, as with any increase in supply of a much sought after commodity.

Wait Until 2015….
If the tax breaks and allowances announced today didn’t apply to you circumstances, it is highly likely that you will get a much better offer in twelve months time.
On the eve of the 2010 election the Governor of the Bank of England Sir Mervyn King said that dealing with the country’s problems would require such tough economic medicine that the party of government would be out of office for a generation.
Mindful of this, in twelve months time George Osborne will have to offer the British public enough sweeteners to guarantee a re-election, so the next budget might be for many people an exceedingly beneficial one.

Every year HMRC gives away tax relief – make sure you get your entitlement

How pension tax relief works…
UK investors under age 75 can benefit from up to 45% pension tax relief this tax year.
The higher your rate of tax, the more tax relief you could receive. Even non earners, including children,
and those with an income under £3,600 can benefit, but can only contribute up to £3,600 this tax year (2013/14)
● Basic-rate tax relief of 20% is added automatically. For instance, you contribute £8,000 to your
pension and the government adds £2,000,to make a total investment of £10,000.
● Higher-rate taxpayers can claim back up to a further 20% through their tax return –another £2,000 in
this example. So the cost of a £10,000 contribution is as little as £6,000.
● Top-rate taxpayers can claim back up to a further 25% through their tax return – another
£2,500 in this example. So the cost of a £10,000 contribution is as little as £5,500.
Contact your independent financial adviser to act now

85 and dying

The following piece was written by an eighty five year old man who learned that he had but just a few days to live…

“If I had my life to live over again, I’d try to make more mistakes next time.

I wouldn’t be so perfect. I would relax more. I’d limber up.

I’d be sillier than I’ve been on this trip.

In fact, I know very few things that I would take seriously.

I’d be crazier. I’d be less hygienic.

I’d take more chances.

I’d take more trips, I’d climb more mountains, I’d sail more seas.

I’d swim more rivers, I’d go to more places I’ve never been to.

I’d eat more ice cream and fewer beans.

I’d have more actual troubles and fewer imaginary ones!

You see, I was one of those people who lived sanely and sensibly hour after hour, day after day, year after year.

Oh, I’ve had my moments, and if I had it to do over again, I’d have more of those moments – moment by moment by moment.

I’ve been one of those people who never went anywhere without a thermometer, a hot water bottle, a raincoat and a parachute.

If I had it to do all over again, I’d travel lighter next time.

If I had it to do all over again, I’d start out earlier in the spring and stay away later in the fall.

I’d ride more merry-go-rounds,

I’d watch more sunrises,

I’d play with more children,

If I had my life to live all over again…

But you see…

I don’t.”

Jorge Luis Borges

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