Welcome to the second part of the May/June edition of Ward Goodman’s Money Talk. In the first part, we covered essential topics such as the importance of having a will, long-term investing strategies, managing the costs of later-life care, and significant changes to Individual Savings Accounts (ISAs).
In this installment, we explore critical areas such as inheritance tax planning, pension management, and the growing trend of ‘unretirement.‘
These topics are essential for ensuring financial stability and making informed decisions about your future. Whether you’re looking to enhance your pension contributions, navigate the complexities of inheritance tax, or understand the implications of returning to work post-retirement, we’ve got you covered.
Enhancing Your Pension Contributions for a Brighter Future
The start of a new tax year is an ideal time to review and enhance your pension contributions. By maximising contributions early, you can take full advantage of tax relief and compound growth. The annual pension allowance allows you to contribute up to £60,000 or 100% of your earnings, whichever is lower, without triggering tax charges. For those without earnings, a maximum contribution of £3,600 gross is permitted.
Contributing early in the tax year allows more time for your investments to grow, leveraging the power of compounding. Employer pension schemes often include matching contributions, significantly boosting your retirement savings. Exploring bonus sacrifice, where a portion of your bonus is directed into your pension, can provide additional tax benefits.
Understanding the impact of pension contributions on your overall tax position is crucial, as strategic contributions can reduce taxable income and reclaim lost personal allowances. Regularly reviewing your pension strategy ensures it remains aligned with your retirement goals and financial circumstances, helping you build a secure financial future.Navigating the complexities of pension contributions and tax benefits requires careful consideration and professional financial advice. If you need further clarification or wish to explore more personalised financial strategies to enhance your pension, the Ward Goodman team are here to assist. Please do not hesitate to contact us for support and guidance to help you achieve a secure and prosperous retirement.
Navigating Inheritance Tax
Inheritance Tax (IHT) remains a significant concern for many, with the threshold frozen until at least April 2028. IHT incurs a 40% charge on the portion of an estate exceeding the nil rate band of £325,000, excluding transfers to a spouse or registered civil partner.
The main residence allowance, introduced in 2017, offers an additional £175,000 relief when a primary residence is bequeathed to direct descendants, allowing individual allowances to reach £500,000. However, this allowance diminishes for estates valued above £2 million.
Utilising gift allowances and income gifting can help reduce your estate’s taxable value. For example, you can gift up to £3,000 per tax year, carry forward unused allowances, and make small gifts up to £250 per person annually. Gifts made more than seven years before death are generally exempt from IHT. Trusts and life insurance policies can also play a role in estate planning, providing financial security for beneficiaries and mitigating tax liabilities. Professional inheritance tax advice is essential to navigate the complexities of IHT and ensure your estate is managed efficiently, preserving wealth for future generations.
Rising Trend of Unretirement
An increasing number of retirees are re-entering the workforce due to financial pressures and rising living costs. Recent research indicates that 14% of those aged over 55 have found themselves re-entering the workforce. This trend, known as ‘unretirement,’ highlights the need for robust retirement planning. Factors driving this trend include inadequate pension savings, unexpected expenses, and the desire to maintain a certain lifestyle.
The Pensions and Lifetime Savings Association (PLSA) recently adjusted the anticipated retirement income needed for a moderate lifestyle, reflecting rising costs in essentials such as food, energy, and transportation. Beyond financial necessity, many retirees return to work for social engagement, to alleviate boredom, or to pursue new interests.
Evaluating your retirement strategy is crucial to ensure it accommodates both expected and unexpected expenses. This includes maximising pension contributions, exploring additional income sources, and considering part-time work or consultancy roles. A comprehensive retirement plan can provide the financial security needed to maintain your desired lifestyle and adapt to changing circumstances.
Looming Pension Pitfall
Neglected pension pots pose a significant risk, with an estimated £50 billion in pension funds potentially at risk. Frequent job changes, especially among younger generations, contribute to the accumulation of multiple pension pots, increasing the likelihood of losing track of them. The government has introduced initiatives such as pension dashboards and the ‘pot for life‘ concept to help individuals manage their pensions more effectively.
Keeping detailed records of past employment and pension providers is essential. Consolidating pension pots can simplify management and reduce fees, potentially increasing overall returns. Understanding the terms and conditions of each pension scheme, including any penalties for transferring funds, is crucial. Regularly reviewing your pension portfolio ensures it remains aligned with your retirement goals and financial situation. Effective management of your pensions can secure your retirement savings and provide a stable financial future.
Secure Your Financial Future with Ward Goodman
For more detailed information on these topics, download the full May/June 2024 Money Talk newsletter from Ward Goodman. Our team of experts is here to provide you with personalised advice and support for all your financial planning needs. Contact us today to secure your financial future.