Decisions that determine your standard of living in retirement

The choices you need to make that will determine how much income you live on once retired

Sooner or later we all retire, and the decisions you make today are the ones that will determine your standard of living in retirement. If you are approaching your retirement, there are some very important choices you need to make that will determine how much income you live on once retired.

Firstly, you’ll need to check your personal, company and State Pensions. You must make sure you have enough income to provide for your needs in the future. If you are planning on using your pension to buy an annuity when you retire, it is essential that you don’t just accept the deal offered by your pension provider, as you could potentially lose out on a significant amount of money over the lifetime of the annuity.

Exercise your Open Market Option
You should always exercise your Open Market Option that will enable you to get the best possible deal for your pension fund. Comparing the different rates available – instead of buying an annuity from the company with whom you have built up your pension savings – could result in a significant increase to your retirement income, depending on your circumstances.

You can buy your annuity from any provider and it certainly doesn’t have to be with the company you had your pension with. The amount of income you will receive from your annuity will vary between different insurance companies, so it’s essential that you receive professional financial advice before making your decision.

Don’t forget about inflation
As you are likely to spend around 20 or even 30 years in retirement, remember that inflation could have a serious impact on the purchasing power of your savings. If you have opted for an inflation-linked annuity rather than a level annuity, then you will have protection against the rising cost of living.

Work out carefully how much income you need to draw
When you retire, you don’t have to go down the route of purchasing an annuity. An alternative to purchasing an annuity is to leave your pension invested and take a portion of the pension pot each year as an income, hence the phrase ‘income drawdown’. This option may also mean that you could possibly leave your family some legacy when you die, as your pension pot, after tax of 55%, passes on to your family according to your wishes. However, if you take out too much, your capital could soon be eaten away. But the upside of not buying an annuity is that your funds remain invested with the potential for further growth.
 

Another route worth considering is flexible drawdown
To qualify for flexible drawdown, you must have a guaranteed pension income of £12,000, known as the ‘Minimum Income Requirement’. If you are eligible, then you can withdraw the rest of your pension fund in a manner that best suits your circumstances, whether that’s in its entirety or in part withdrawals. It is often sensible to make withdrawals over several years though, as you still pay income tax on any withdrawals, so the larger the withdrawal, the more tax you’ll pay.

Have you forgotten about any other pensions?
It can be easy to lose track of pensions over time, especially if you move from job to job, but you can locate a lost pension by contacting the Pension Tracing Service online at www.gov.uk/find-lost-pension. This service is free, and if they locate your pension, they’ll give you the address of your scheme provider.

This information does not constitute advice and should not be used as the basis of any financial decision, nor should it be treated as a recommendation for any specific product. While annuities are generally guaranteed to be paid, remaining invested and using drawdown means that the value of your pension, and the income from it, can go down as well as up. Therefore, there is a chance that you may not get back as much as you would by using an annuity. Drawdown is a high-risk option which is not suitable for everyone. If the market moves against you, capital and income will fall. High withdrawals will also deplete the fund, leaving you short on income later in retirement. Although endeavours have been made to provide accurate and timely information, Professional Practice Services cannot guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough review of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions.

Professional financial advice you can trust
Not sure about your retirement options? There is a lot to think about as you approach your retirement. Contact us to discuss your retirement options and we’ll help you decide what’s right for you. We look forward to hearing from you.

Call our friendly, knowledgeable team for a confidential, no obligation discussion:

01527 880345

Visit our Website at:

www.pps-vet.co.uk

Professional Practice Services is a Veterinary Business Consultancy and Independent Financial Advisory Firm. Professional Practice Services is authorised and regulated by the Financial Conduct Authority.

The Financial Conduct Authority does not regulate finance, will writing, commercial lending, taxation or trust advice

Article Reference: PPS062014.GM15

Securing a bigger annuity income

The lack of professional financial advice can be costly

You only have one opportunity to shop around for your annuity. This is called ‘exercising the open market option’. Once you have committed to an annuity provider and started to receive an income, the decision can’t be reversed. So it is essential that you shop around and obtain professional financial advice to help you through the process.

Despite the enormity of the changes announced in the 2014 Budget surrounding the lifting of restrictions on Pension benefits, there is still a continuing role for annuities, especially where you seek the peace of mind for a lifelong secure regular income.

Failure to shop around
The National Association of Pension Funds (NAPF) pointed out that the failure of someone to shop around – or being unaware they were able to do so – might reduce their annual pension income by a third.

The insurance industry has in recent years reformed its annuity practices, and insurers now have to conform to guidelines set down by the Association of British Insurers (ABI).

New guidelines will require insurers to:

•    Provide clear and consistent information, including details on how to shop around for an annuity
•    Highlight the details of enhanced annuities – the higher pension income available to those with shorter life expectancy
•    Signpost clients to external advice and support that is available
•    Give a clear picture of how their products fit into the wider annuity market

The point of retirement
Insurers have been obliged since 2002 to draw their clients’ attention to the fact that they can shop around for an annuity at the point of retirement.

One of the ways in which people may end up with too small an annuity is by not taking into account their own medical circumstances. Having conditions as seemingly manageable as high blood pressure or diabetes could qualify you for an enhanced annuity, which could pay you more income because your average life expectancy may be less.

Key points about annuities:

•    Make the right decision now, because you cannot reverse it later – don’t just accept the annuity your pension provider gives you
•    Shop around – it could be worth up to a third more income per month for you
•    You can combine multiple pension pots into one annuity
•    Common health issues, including smoking, high blood pressure and diabetes, can lead to an even higher monthly income
•    Obtain professional financial advice

Lack of knowledge
Getting the best annuity rate is just the tip of the iceberg. There are many important issues which, if ignored, could have a detrimental effect on your annuity income. At present, many people who cash in their pensions simply sign up to the annuity provided by their insurer, but this is rarely the best offer.

Live better in retirement
If you are approaching your retirement, we can take you through the process step by step to find the best annuity for you. Your retirement should be a special time when you do those things you never had the opportunity to do before. So it’s essential you think and plan carefully, as the decisions you take now cannot be undone later. If you are concerned about your retirement provision, please contact us to review your current situation.

Handing over all, or part, of your pension fund

To calculate your annuity they take into account:

•    Your age
•    Your gender
•    The size of your pension fund
•    Interest rates
•    Sometimes your health

Examples of health problems that might entitle you to a higher income include:

•    Cancer
•    Chronic asthma
•    Diabetes
•    Heart attack
•    High blood pressure
•    Kidney failure
•    Multiple sclerosis
•    Stroke

There are other health conditions that could also mean you receive a higher income, so if you’re on any prescription medication, we can check with your provider whether you are likely to qualify.

Other reasons for higher payments
You might also be able to receive a higher monthly retirement income if you are overweight or if you smoke regularly.

Some companies also offer higher annuity rates to people who have worked in certain jobs, such as those involving a lot of manual labour, or who live in particular areas of the country.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of and reliefs from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. This information does not constitute advice and should not be used as the basis of any financial decision, nor should it be treated as a recommendation for any specific product. Although endeavours have been made to provide accurate and timely information, Professional Practice Services cannot guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough review of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions.

Professional financial advice you can trust
Not only will different annuity providers offer different rates, they’ll also offer different annuity options. We can help you shop around to find the right type of annuity that suits you. To discuss the options available to you, please contact us.

Call our friendly, knowledgeable team for a confidential, no obligation discussion:
01527 880345
 

Visit our Website at:
www.pps-vet.co.uk
 

Professional Practice Services is a Veterinary Business Consultancy and Independent Financial Advisory Firm. Professional Practice Services is authorised and regulated by the Financial Conduct Authority
The Financial Conduct Authority does not regulate finance, will writing, commercial lending, taxation or trust advice.

Article Reference: PPS062014.GM12

Annuities

Deciding what to do with the pension pot you’ve built up?

If you save through a private personal pension, when you approach retirement age you’ll have to decide what to do with the pension pot you have built up. If applicable to you, one option is to buy an annuity. It’s important to find an annuity that suits you and provides the best deal because, after your property, an annuity is probably the biggest purchase you will ever make.

An annuity is the annual pension that many people buy with their private pension pots when they retire. Purchasing your annuity is an important one-off decision that has long-term consequences if you get it wrong. You may not receive the best deal if you just take the annuity offered by the insurer that has been investing your money.

A significant reform of the defined contribution pension system (as opposed to workplace final salary schemes) announced in Budget 2014 means that under the proposals, from 6 April 2015, millions of people reaching retirement age will be able to spend their pension pot in any way they want.

Given the enormity of these changes, there is still however a continuing role for annuities, especially where you seek the peace of mind for a lifelong secure regular income.

Covering a minimum level of living costs and regular outgoings – for life
An annuity provides a fixed, guaranteed income, however long you live for. As part of your retirement planning, if you favour income drawdown, you may still want to purchase an annuity to cover a minimum level of living costs and regular outgoings. It is important that you shop around for the best annuity rates to ensure that you are able to benefit from the highest retirement income available for life.

A pension annuity converts the funds built up in your pension scheme(s) into a regular income. The income is then payable for the rest of your life. So why would you still consider an annuity as part of your retirement plans?

Qualifying for an enhanced annuity
A significant number of people at retirement could qualify for an enhanced annuity. These typically offer rates from between 15% to 20% higher on average than a standard annuity if you are suffering from certain specified health or even lifestyle conditions. Examples include, smoker status, diabetes, high blood pressure or cholesterol as well as more chronic medical conditions. This could make them very attractive if you are seeking the maximum guaranteed income throughout your life.

Security and reassurance
With an annuity, the income is guaranteed, regardless of market movements, how long you live for or any changes in your circumstances. This can provide security and reassurance for you during your retirement. Unlike many other investment products, the quoted rate has no ongoing costs, fees or charges deducted. In addition, annuities are simple to understand, and do not need to be reviewed or managed on an ongoing basis. Once the annuity is set up, there is nothing more for you to do. A fixed payment is made to your bank account each and every month, for the rest of your life.

Tax matters
If you were born between 6 April 1938 and 5 April 1948, the personal allowance is currently £10,500 (2014/15 tax year). This means that in retirement, you could potentially pay less or actually no income tax. Taking your entire pension fund as a lump sum before you have considered all of your options could result in a significant tax bill. In addition, you may also potentially pay more tax than necessary on your future income.

Withdrawing the fund as cash (apart from the 25% tax-free element) could generate a tax charge. Annuities are purchased gross, so no tax is payable on the fund when it is used to buy your annuity, although the income generated may be subject to tax depending on your circumstances.

Tax is subject to change and depends on individual circumstances.

The Financial Conduct Authority does not regulate Tax Advice.
 

Scheme guarantees
Regulatory capital requirements mean annuity providers have to be financially robust and well capitalised. In the unlikely event that a provider cannot meet their obligations, a Government-backed scheme guarantees to pay 90% of the amount promised.

And finally…
Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of and reliefs from taxation are subject to change.

Tax treatment is based on individual circumstances and may be subject to change in the future. This information does not constitute advice and should not be used as the basis of any financial decision, nor should it be treated as a recommendation for any specific product. Although endeavours have been made to provide accurate and timely information, Professional Practice Services cannot guarantee that such information is accurate as of the date it is read or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough review of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions.

Professional financial advice you can trust
We each have our own ideas about how we want to live in retirement, and how much money we’ll need. You may be at the point of retiring or just reducing the amount of time you are at work. If so, you may also want to access the pension you have built up and convert it into an income. Setting up an annuity is easy and straightforward, enabling your income needs to be met with no need for ongoing support or advice. To find out more about annuities and the vital role they could still play in effective retirement planning, please contact us to discuss your requirements.

Call our friendly, knowledgeable team for a confidential, no obligation discussion:

01527 880345

Visit our Website at:

www.pps-vet.co.uk

Professional Practice Services is a Veterinary Business Consultancy and Independent Financial Advisory Firm. Professional Practice Services is authorised and regulated by the Financial Conduct Authority.

The Financial Conduct Authority does not regulate finance, will writing, commercial lending, taxation or trust advice

Article Reference: PPS062014.GM10

2014 Budget Summary

It’s fair to say that yesterday’s budget was unexpectedly eventful, including some major changes to ISA and pension rules that we think make financial advice more important than ever. The big headliners are highlighted below but we thought we would write with a snapshot of all the announcements and the background to the Budget itself.

What is the Budget?

The Budget is a report presented each year by the Chancellor of the Exchequer to Parliament and the nation. The primary role of the Budget is to control public finances by setting out how much tax the Government will collect, how much the Government will borrow and how much the Government will spend. The Budget Responsibility and National Audit Act 2011 requires the Government to produce a Budget Report (which is the formal name for the Budget) for each financial year. The Charter for Budget Responsibility sets out what the Budget Report must cover.

When the Government publishes the Budget, the Chancellor gives a speech to Parliament in which he sets out the key decisions on tax, borrowing and spending, and his reasons for taking those decisions. This speech is known as the Budget Statement.

The official forecast on which the Chancellor bases the Government’s Budget is provided by the Office for Budget Responsibility (OBR). The Budget Responsibility and National Audit Act 2011 requires the OBR to publish two economic and fiscal forecasts for each financial year, including one published at the Budget. The OBR’s duty is to examine and report on the sustainability of the public finances and it is required to do so objectively, transparently and impartially.

PLEASE NOTE: This update is not intended as an in-depth analysis of the Chancellor’s speech (we will leave that to the industry commentators) but we hope this brief snapshot helps you gain a quick grasp on the key points delivered by the Chancellor from the dispatch box.

Forecasts

• Due to the positive economic pictured described, the Chancellor announced adjustments to previous growth forecasts from those previously announced.
• Growth forecast for 2014 –  revised up to 2.7%
• Growth forecast for 2015 – revised up  to 2.3%
• Growth forecast for 2016 – remains unchanged at  2.6%
• OBR says UK growing faster than any other major economy
• OBR expects 1.5million more jobs over next 5 years
• Deficit  forecast for 2014 is 6.6% and for 2015 it is 5.5%
• Borrowing forecast to reduce to £95 billion for 2014/2015 and then reducing further with no borrowing forecast by 2018/19
• OBR revises down national debt to 74.5% of GDP
• OBR expects to meet 2% inflation target this year

Taxation/Welfare

• New cap on welfare bills.  Welfare cap of £119bn to be applied in 2015/2016
• Much harsher approach and measures to be applied to tax collection and tax avoidance schemes. HMRC budget increasing to assist in stopping tax avoiders
• LIBOR fines to be redirected to military charities
• 15% stamp duty to be introduced on property over £500k bought via a corporate envelope
• Tax receipts from North Sea Oil revised down
• Tobacco duty escalator extended (rising 2% above inflation)
• Beer duty escalator scrapped altogether and beer duty to be cut by 1p – Duty frozen on Whiskey and Cider.  All other alcohol duties to increase as planned in line with inflation
• Personal tax allowance – to increase to £10,500 from 2015
• Higher rate tax threshold to increase to £41,865 from April 2014 and then by further 1% in 2015
• Married couples tax allowance to rise to £1,050
• ISAs – Cash and stocks & shares ISAs to be merged into a simple, single ISA.  All existing monies can be transferred from stocks and shares to cash and vice versa. Limit increased to £15,000
• Junior ISA limit to increase to £4,000
• New pensioner bond to be introduced from January 2015
• Major far reaching reforms to tax treatment of defined contribution pension schemes:  Income requirement for flexible drawdown to be reduced to £12,000; increasing the amount of total pension savings that can be taken as a lump sum, from £18,000 to £30,000; increasing the capped drawdown withdrawal limit from 120% to 150% of an equivalent annuity; increasing the maximum size of a small pension pot which can be taken as a lump sum (regardless of total pension wealth) from £2,000 to £10,000 and increasing the number of personal pots that can be taken under these rules from two to three; complete freedom to drawdown as much or as little as needed; No pensioner will have to buy an annuity;
• 10p tax rate for savers abolished

Transport/Fuel/Energy

• Air passenger duty – all long-haul flights will carry same long haul US tax rate
• Start up support for more flights from regional airports
• £270million guarantee approved for Mersey Gateway Bridge
• Money pledged to improve flood defences and fund road repairs
• Charge on private jets to increase
• More investment in nuclear, renewables and shale gas
• £7bn package to reduce manufacturer’s energy bills
• Fuel – Car fuel duty rise planned for September scrapped

Small Business / Business in General

• Lending to exporters to increase to £3bn
• More money to be made available to support apprenticeships
• Corporation tax to reduce to 21% (20% in 2015)
• First enterprise zone to be introduced to Northern Ireland
• Annual investment allowance to be doubled to £500,000 and extended to end of 2015.
• Business rate discounts to be extended for a further three years

Public Sector

• Public service pensions to be properly valued

Housing

• Further reforms to planning to increase house building
• £150m to be made available for new build housing
• Help to Buy Scheme extended to 2020
• First new Garden City for 100 years to be built at Ebbsfleet

Other Points

• NEW £1 coin to be introduced in 2017
• Raising duty for fixed odds betting machines
• Bingo duty halved to 10%

And finally…

As is always the case with complex legislation such as this, it pays to seek advice from a professional financial planner.

The contents of this article are for guidance only and do not constitute financial advice. If you have any questions about the issues featured please contact us.

Call our friendly, knowledgeable team for a confidential, no obligation discussion: 01527 880345

Visit our Website at: www.pps-vet.co.uk

 The PPS Group relates to Professional Practice Services, our Business Consultancy and Independent Financial Advisory arm, and PPS GI, our specialist insurance brokerage.

PPS Group is a trading name of Professional Practice Services which is authorised and regulated by the Financial Conduct Authority. PPS GI is an appointed representative of Professional Practice Services, which is authorised and regulated by the Financial Conduct Authority.

The Financial Conduct Authority does not regulate finance, will writing, commercial lending, taxation or trust advice.