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Will the UK state pension age rise to 71?

The UK state pension age will need to be increased to 71 by 2050, according to a recent report from the International Longevity Centre (ILC).

The report explained that if we are to maintain the ratio of workers to retirees, the state pension would have to be increased from the current 66 years to 71 years by 2050.

The state pension age is currently due to rise to 67 years between May 2026 and March 2028, and then expected to rise to 68 years from 2044. However, the report warned that “longer term, the pressure will be on to increase it to 68 or 69 before that.”

Les Mayhew, associate head of global research at the International Longevity Centre and author of the report "State Pension Age and Demographic Change", said: "In the UK, state pension age would need to be 70 or 71 compared with 66 now, to maintain the status quo of the number of workers per state pensioner."

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In a separate report by the Resource Solutions, despite being furthest away from retirement age, 72 per cent of Gen Z (1997 – 2012) workers said they were worried they may not be able to stop working at the state pension age because of financial hardship, followed by millennials (1981 – 1996) at 70 per cent.

An aging population

In September 2023, the Office for National Statistics (ONS) released statistics showing that over the past century, the number of centenarians living in England and Wales has increased 127-fold, shown in Figure 1 below. Figures are reported to have hit a record high of 13,924 centenarians in 2021; of this number of centenarians, 11,288 were women and 2,636 were men. 
 

Figure 1. The number of centenarians in the population increased rapidly from the second half of the 20th century, Source: Historic Census data (1991 to 2021) from the Office for National Statistics

ONS report the UK ranking as the seventh country worldwide for the highest number of centenarians and in 2021, the ONS reported that there has been a 24.5% increase from 2011 of centenarians living in England and Wales.

Find out more in our article: Living to 100 years - are you financially prepared?

What does this mean for the UK?

As the report from the ILC outlined that in the UK, state pension age would need to be 70 or 71 compared with 66 now to maintain the status quo of the constant number of workers per state pensioner. If this number were to drop it would create numerous issues around the working population being able to support the retired population. A smaller working population and a large economically inactive population paves the way to labour shortages which inevitably will need to be filled by migrant labour, creating additional complications.

A possible solution discussed in the report involved enabling people to work for longer to make up the difference. However, as the report outlined, research shows that by age 70, 50% of adults have some sort of disability that restricts or completely eliminates their potential to work and be economically active.

With the state pension age on the rise, it’s more important than ever to manage your retirement plans carefully to ensure you don’t get caught out. We’re offering anyone with savings, pensions or investments of £100,000 or more a free financial review worth £500. If you want to find out more why not give us a call on 0333 323 9065 or book a free non-committal initial consultation with one of our chartered advisers to find out how we might be able to help you.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate tax advice.

New pension opportunities, but you may need act fast!

In the 2023 Spring Budget, Chancellor of the Exchequer Jeremy Hunt took many by surprise with his chosen policy changes, particularly in regard to pension allowances. Not only was the Annual Allowance increased from £40,000 to £60,000 and the more restrictive Tapered Annual Allowance increased from £4,000 to £10,000, but it was also announced that the Lifetime Allowance would be abolished.   

Consequently, and taking into account a looming election and possible change of government, now could be an opportune time to consider whether you are aiming to maximise your pension contributions prior to the end of the current tax year to take advantage of these tax benefits. 

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What is the Annual Allowance?

The annual allowance is the maximum amount of pension savings an individual can make each tax year without an annual allowance allowance charge applying.

As noted above, from the start of the current tax year, the annual allowance was increased to £60,000, and you can receive tax relief on your personal contributions up to 100% of your relevant UK earnings (including salary, bonuses, commission). 

However, high earners could be subjected to a tapered annual allowance, which gradually reduces their annual allowance to a minimum of £10,000 for those with taxable income over £260,000.

Personal pension contributions are eligible for tax relief at an individual’s marginal rate of income tax. This means that a basic rate taxpayer will receive a 20% uplift on the money they contribute to their pension. A higher or additional rate taxpayer can then also claim an additional 20% or 25% via their self-assessment tax form, resulting in an overall potential tax saving of 40% or 45%! 

Employer or Company contributions are also paid gross and can receive corporation tax relief as a business expense.

What is ‘Carry Forward’ and does it apply to me?

Unlike with an ISA, whereby if you do not contribute the full ISA allowance of £20,000 by the 5th of April in a given tax year then this unused allowance is lost forever, this rule does not apply to pensions. The Government introduced the carry forward rules in April 2011, allowing individuals to utilise any unused pension annual allowance from the previous three tax years. 

Those with a tapered annual allowance can also still use carry forward if they have any unused annual allowances remaining in previous three tax years.

In order to carry forward any unused annual allowance from these tax years, you must:

  • Be a member of a UK-registered pension scheme and had a qualifying pension (this does not include the state pension) since the 2020/21 tax year.
  • Have used up your entire annual allowance in the current tax year.
  • Have remaining unused annual allowance in previous tax years. 
  • Have sufficient relevant UK earnings in the current tax year for a personal contribution.

Lifetime Allowance & Transitional Protections  

Due to the tax advantages of making pension contributions, the Government previously placed a limit on the amount of pension benefits an individual could accumulate over their lifetime, without incurring a tax charge. This tax charge is known as the Lifetime Allowance (LTA) charge and applied to individuals with pensions valued over £1,073,100. 

However, with the UK Government announcing that the LTA charge would be removed from 6 April 2023 and then the LTA abolished from 6 April 2024, this means there is an opportunity for those who are near to or who have exceeded the £1,073,100 threshold to consider recommencing pension contributions. 

Historically, the Government has provided individuals with the opportunity to apply to protect their LTA before any changes in legislation. Certain types of transitional protection were introduced with the stipulation that you could no longer make any further pension contributions, but this restriction was then also lifted for those with existing protection before 15 March 2023.

Therefore, this has presented another potential opportunity, as those previously unable to make any contributions due to the risk of losing their protection, may have a significant level of unused annual allowance from previous tax years.

Use it or lose it

With wage growth reaching 7.3% for the period between August to October 2023 (according to the ONS), the tax band freeze means people are technically paying more income tax than ever before. Therefore, it would be prudent to look for ways to maximise the tax-efficient legalisation currently on offer. 

Aside from the fact that any unused annual allowance from the 2020/21 tax year will be lost after 5th April 2024, there is no predicting if or when changes will be made again to this legislation. It seems as if the UK population collectively hold their breath at the sign of any Budgets which have seen a vast array of changes to pension rules over the years. 

Whilst the most recent changes were positive for pension savers, it is important to consider the implications of the impending election in the next 6-12 months; if there is a change in government then this policy change could be reversed. With that and all the above in mind, it is worth exploring your options and taking appropriate action concerning your carry forward allowance; use it before you lose it! 

Pensions can be a complicated and daunting matter to navigate, from obtaining the relevant information from your pension providers to a thorough understanding of ever-changing UK legislation. Therefore, please do reach out to a financial adviser if you would like help making the best use of your savings and pension allowances. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

A pension is a long-term investment. The value of an investment and the income from it could go down as well as up.  The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

The Financial Conduct Authority (FCA) does not regulate tax advice.

The importance of Cash

There’s no getting away from it, costs have risen exponentially. With a growing cost of living crisis throughout the country, the need for cash retention to act as a buffer in these circumstances remains vital for everyone. This increase in costs will likely mean most people will need to try and save money where they can. Nevertheless, while cash is a crucial component of a well-rounded financial strategy, it's essential to strike a balance. Allocating too much cash for an extended period could expose your wealth to inflation risk, where the purchasing power of your money will decrease over time. It is therefore imperative to assess your overall financial goals, time horizon and risk appetite when deciding how much to keep in cash versus how much to invest in other assets.   

There are many reasons to hold money in cash, so we look to explore the importance of cash and its inherent benefits within personal finance, whilst also considering the common risks associated with cash investments. Of course, managing your savings is a highly personalised process, and how much you save should reflect your individual circumstances. 

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Emergency Fund 

The term ‘emergency fund’ or ‘buffer’ refers to money set aside for the sole purpose of being used in times of financial distress. The fund provides a financial safety net to cover any unexpected, and typically costly, expenses that may arise such as those following a loss of job or unexpected tax bill. The amount you should target for an emergency fund depends on a number of factors, including your financial situation, expenses, lifestyle, and debts. Typically, consideration may be given between three to six months of normal expenditure in cash, to be drawn from in the event of an emergency. This is considered a prudent financial practice because it helps avoid unnecessary debt and financial stress.

Top Tip: Starting off small is better than not starting at all! 

The Stock Market 

While investing in the stock market offers great potential opportunities for accumulating wealth and financial growth, it is important to be aware of the fundamental downsides and risks, and striking the right balance between investments and cash has proven particularly relevant over the past few years with investment markets going through a turbulent time. 

Although investors are attracted to the idea of growing their wealth through stock market investments, this should always be looked at as a long-term strategy given the risks associated. 

Up until November 2021, there were very few options for your lower risk portion of your wealth, as interest rates were extremely low. However, since the recent interest rate hikes many investors are turning their attention towards setting aside some cash into savings account and are benefiting from some of the highest returns in almost two decades. Unsurprisingly, the last few years have witnessed huge inflows of cash into savings, particularly fixed time deposits, with investors looking elsewhere from the stock market in providing safer and guaranteed returns.

Nonetheless, whilst saving rates have risen, cash has been a depreciating asset, after inflation, with ‘real returns’, remaining negative over the long term. So, for many, it is fundamental to have a comprehensive financial plan in place, to ensure your investment and cash allocations are aligned to meet your objectives and goals.

When it comes to investing, however, one particular benefit of holding some money in cash is managing sequencing risk with your investments. This refers to the impact of the timing of investment returns on a portfolio, particularly when withdrawals are made. If an investor needs to sell assets to cover income or emergency expenses, this can significantly affect the overall portfolio value. As such, the benefit of holding some money in cash is that you help reduce the chances of becoming a forced seller during an investment market downturn. By having this safety measure in place, you can help cover some expected or unexpected expenditure without negatively impacting your long-term investment strategy.

If you are interested in exploring what savings accounts have to offer, please check out the Savings Champion website, which compares the best accounts on the market.

Retirement

Holding cash as you approach retirement plays a vital role in providing financial flexibility, security and peace of mind when we consider aforementioned risks with invested pension provisions. 

As we have covered, sequencing risk can be a major issue for investors. This risk is more common during retirement, as you are far more dependent on your retirement income through your invested pension pots. Significant market downturns alongside taking pension income could be detrimental on your long-term retirement goals, where cash reserves are not in place, as you could be realising losses that could impact the value of your future pension provisions. 

Furthermore, healthcare costs are increasingly forming a large part of unexpected costs during retirement. Health spending per person steeply increases after the age of 50, so having cash buffers in place to cover immediate healthcare needs is important. 

Using cash in place of drawing from your pension can also have tax benefits, as some pensions sit outside the scope of inheritance tax. This means that the assets held within a pension fund may not be subject to inheritance tax when passed on to beneficiaries. However, given the complexity of inheritance tax laws, it is recommended to seek advice from professionals who have the expertise to guide you through your estate and pension planning.

If you’d like to learn more about how cash can best play a part in your wealth strategy, why not get in touch and speak to one of our experts. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

Investment returns are not guaranteed, and you may get back less than you originally invested. Past performance is not a guide to future returns.

The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning or tax advice.

Savings Champion and their associated services are not regulated by the Financial Conduct Authority (FCA).

Why we all need a digital death file

Are you the one who deals with the finances in the home? Would your loved ones know where to look if something were to happen to you?

Traditionally, writing a will would be the crucial difference between having your final wishes granted when it comes to the distribution of your assets after death. But is it enough in the new digital world? 

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We, like most of the world, rely on technology. It connects us to friends, fulfils our shopping needs and most importantly it gives us access to our financial accounts and all manner of private and confidential documents. Gone are the days when a loved one passes that you’re searching through the cabinet to find old statements and building society savings books. Now, with what appears to be an ever increasing number of people online, it’s a virtual search you need to undertake. So how do you store your documents? In a separately labelled email folder? On your hard drive?  Maybe you saved them to the cloud in an online filing system? However they are saved, the question is are they easily accessible when you pass away?

According to Statista, a global statistic gathering company, more than 90% of adults in the UK used online banking in 2022, for the combination of speed, convenience and ease of use. With the rise of a cashless payment system, it really does show how the digital world has taken over in recent years.  

What is the TPO digital filing cabinet?  

All clients of The Private Office have access, at no additional cost, to our online portal, TPO Wealth. Here, you can store all personal documents in a safe and secure space. Where this portal is useful is, with your consent, we are able to grant access to your accountants and solicitors to access your relevant information, such as tax folders and other personal documents to make it a seamless and effortless experience for you. This can be particularly useful for the self-employed.  

As of March 2022, the Office for National Statistics (ONS) states there are a grand total of 4.2 million people who are self-employed – that’s 13% of the working population! Most self-employed people operate with an accountant to help with filing tax returns and completing their annual accounts. However, this all requires paperwork which needs to be kept on top of, so it’s important to collate all of this into one easy-to-use and secure place. 

Navigating the death of a loved one is one of life’s biggest challenges, without the additional complexity of trying to track down and locate all the relevant documents to manage their estate.  While you are able to name a ‘digital executor’ within your will, unfortunately that doesn’t mean consolidation of all your personal and important documents.   

Here’s a list of some of the types of things our clients share on TPO Wealth, both for personal filing and to share with their other professional contacts:  

  • Tax Information 
  • In Case of Emergency 
  • Will 
  • Invoices and fees 
  • Details of professional contacts 
  • Insurance details  

With TPO Wealth, your loved ones can reach out to your adviser and know everything is stored in one place, which many of our clients have found to be a great help at a difficult time.  

What about if you become incapacitated? 

Aside from the death of a loved one, there are other instances where information may be required, such as critical illness or incapacity. With the average time for a Lasting Power of Attorney (LPA) to be processed and granted in the UK taking between 20-21 weeks, according to Clare Fuller of Compassion in Dying, searching through paper filing or numerous accounts could be the difference between your loved ones being able to afford your care or not. This increases the need for your loved ones to be able to access your finances almost instantly and seamlessly.   

The added value comes where your adviser can reach out to your accountants and solicitors on your behalf as well as granting loved ones access to your TPO Wealth account and accounts within Power of Attorney (POA) rights.   

TPO Wealth doesn’t stop at just secure storage of important files, you can view all your investments and savings accounts too. It has a built-in property calculator where you can estimate the value of your main residence and any other properties, as well as being able to track the value of your net worth. You are able to securely message your adviser and provide any necessary signatures through the portal.   

The flexibility in making the portal what you need is the benefit. Storing any file you wish on the portal could make it the one-stop-shop you need for a secure filing system of non-financial related files as well!  

If you’d like to learn more about how TPO Wealth could help you keep your important details secure and organised, why not get in touch

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

TPO Wealth is only available to clients of The Private Office.

The Financial Conduct Authority (FCA) does not regulate estate planning or tax advice. 

Are you overcontributing to your pension?

When building up your pension it is important to be conscious of what limits apply in order to maximise the full tax benefits.

Thousands of people across the UK are experiencing tax charges for overcontributing to their pensions and most don’t even realise. According to HMRC over 50,000 people reported pension contributions that exceeded their ‘Annual Allowance’ (AA) in 2021-2022. This number has been skyrocketing since 2010 and has increased by 10,000 people since 2020-2021, when only approximately 40,000 exceeded their Allowance (Please see chart below). 

Figure 1. Number of individuals and value of pension contributions exceeding the AA reported through SA 2006 to 2007 to 2021 to 2022, Source: UK Government

Often people don’t even realise that they are overcontributing until it is too late. So, why are so many people being caught out?

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What is an Annual Allowance?

Although there is not a limit on the amount that can be saved into pensions each year, there is a limit on the amount that can benefit from tax relief each tax year. An individuals ‘Annual Allowance’ is the limit that you can contribute to your pension in any tax year whilst benefiting from tax relief. The current annual allowance is £60,000, however, you can only receive tax relief up until your net relevant earnings. Net relevant earnings are the total earnings from salary, bonuses, benefits in kind and trading profits for self-employed individuals in a tax year. So, if your salary is £40,000 for example, you would only receive tax relief up to £40,000, but if it is £80,000, in most cases, you would only receive tax relief up to £60,000 in one tax year. 

What if I exceed my Annual Allowance?

If you exceed this allowance in a tax year, any contributions above the limit will typically be subject to an annual allowance tax charge. This excess will be added to your taxable income and be subject to income tax at your marginal rate. In some cases, you might be able to ask your pension scheme to pay the charge from your pension. This is known as Scheme Pays and means your pension would be reduced, but this is not always possible.  

Why are people overcontributing?

Although the annual allowance sounds straightforward, there are some caveats that make understanding it a lot more complex. Where your net relevant earnings are more than £60,000 a year and have been a member of a registered pension scheme for more than three years, you may have the ability to use carry forward allowances. If you have not used your full annual allowance from any of the previous three tax years, you can carry this allowance over to the current tax year. This can cause confusion and miscalculations regarding exactly how much more an individual can contribute using carry forward.  

Those who have a high income are also subject to more complex rules with regards to their annual allowance. For every £2 of adjusted income (i.e. total taxable income before any Personal Allowances and less certain tax reliefs) that an individual earns over £260,000 their annual allowance is reduced by £1, to a minimum of £10,000. This means that anyone with an income of £360,000 or more has a reduced annual allowance of £10,000. 

Another caveat that trips people up is that, in some cases, the annual allowance reduces to £10,000 per tax year when an individual begins drawing down or withdrawing from their pension. This is often triggered for those who are flexibly accessing a defined contribution scheme. It is worth noting this is not the case for all withdrawals, for example when taking a Pension Commencement Lump Sum (PCLS) or annuity. When this reduced allowance comes into effect, carry over cannot be utilised anymore. This can often catch people out and cause them to overcontribute because they think they have more allowance than they do. 

It is also worth remembering your annual allowance takes into consideration all contributions to all of your private pension schemes. Therefore, it is not only your personal contributions that count towards the annual allowance, but your employer contributions as well. For those who are fortunate enough to have a Defined Benefit (DB) scheme, otherwise known as a final salary scheme i.e., a pension that traditionally pays out a guaranteed income every year in retirement, calculating the remaining annual allowance is more complex. Any further accrual in a Defined Benefit scheme in a tax year contributes to the annual allowance. These additional complexities make calculating the annual allowance year on year more difficult to understand. As a result, many people find themselves overcontributing and incurring a tax charge without even realising. 

Taxation on pension funds has become a hot topic since the 2023 Spring Budget announcement about the intention to remove the ‘Lifetime Allowance (LTA)’. The LTA is the total contributions that one can make to a pension over their lifetime without incurring certain tax charges. Those who weren’t overcontributing prior to this, for fear of exceeding the LTA, have more incentive to re-commence contributions. However, with a general election expected in the autumn of 2024, these changes could be reversed. 

If you’re concerned, we can help. With more people than ever exceeding the annual allowance, it is important to be aware of the many factors that need to be considered when calculating how much you should be contributing to a pension. If you have any questions about the annual allowance, or think you might be at risk of a tax charge due to miscalculations; then please get in touch with your Financial Adviser or consider seeking advice.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The information in this article is based on current laws and regulations which are subject to change as at future legislations.

A pension is a long-term investment. The value of an investment and the income from it could go down as well as up.  The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

The Financial Conduct Authority (FCA) does not regulate tax advice.

How to make your child a millionaire before 40!

Most parents would like to ensure their children have a strong financial footing when they are older, but don’t always know the best way to do this. There are many ways to support your children financially throughout their lifetime, but what if there was a way to make them a millionaire before they even reached retirement age? Here we look at the best ways to put money aside for your children and how you can maximise the benefits of compound interest to make your child a “millionaire”!

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The first step to saving for your children’s future is understanding your saving options. Here are the most common options that benefit from tax-free growth: 

Junior ISA(JISA)

From the day a child is born you can put money into a JISA for them. The current contribution limit is £9,000 per tax year (or £750 per month) and you have the choice of a Junior Investment ISA or a Junior Cash ISA. The most important benefit of a JISA is that any gains made, or interest earned will be tax-free!

If we assume you receive an average annual net return of 5% per year and you save the maximum of £9,000 every tax year, from the day your child is born until they turn 18, you will have contributed a total of £162,000 to their account. However, due to the magic of compound interest (where you earn interest on interest), they will have a pot of over £265,000 saved in a tax-efficient wrapper, what a great 18th birthday present!

At their 18th birthday they can transfer their JISA into an Adult ISA to continue to receive tax-free interest/ investment returns.

Junior Self-Invested Personal Pension (Junior SIPP)

Setting up a pension up for your children may seem like you are overly preparing but this can actually give your children a significant head start. The maximum you can currently save into a Junior SIPP is £2,880 per tax year, and the UK government will add tax 20% tax relief of £720 per tax year, which would bring the total contribution to £3,600. If you can contribute to your child’s Junior SIPP for 18 years and again assuming a 5% growth rate, you will have contributed £51,840 but their pension pot will be worth £106,340 due to the added tax relief. If your child doesn’t contribute to the pension again, by age 57* they could have a pension pot worth around £712,986. Similar to the JISA, any gains made within the SIPP are exempt from tax, and based on current pension rules, you can take up to 25% as a tax-free lump sum upon reaching retirement age. 

Recent statistics released by the Office for National Statistics (ONS) stated how the average pension wealth for all persons in the UK is £67,800 at age 57*, highlighting how starting to save early can set your child up for their future and give them a greater opportunity in retirement or even to retire early. 

How to make your child a millionaire!

And this is how to do it!!.. If you do the following and assume a 5% growth rate per annum:

  1. Open a JISA before your child’s first birthday and contribute £9,000 every year until age 18. This results in a total contribution of £162,000 (18 years x £9,000).
  2. Open a Junior SIPP before your child’s first birthday and contribute £3,600 (including tax relief) to the Junior SIPP every year up to their 18th birthday. This totals 18 years x £2,880 (or £3,600 with tax relief) which equals £51,840 (£64,800)

This would mean you will have contributed a total of £226,800 (including tax relief) to the JISA (£162,000), and Junior SIPP (£64,800). At age 18 when you stop contributing, they could have a total net worth of £372,191 when taking into account compound interest and growth. If they leave this money invested and continue to achieve 5% per year growth, by age 39 they could have a total net worth of just over £1million (£1,036,911), although the funds in the pension would not be accessible until age 57*. 

At that point the pension fund could have grown to £712,986, while the ISA, could be worth £1.782.465 is it remained untouched too. An extraordinary total of almost £2.5m. That is a gift worth giving.

The power of starting to save early

Using the same assumptions as above, with a 5% annual growth rate and maximising both Junior SIPP and JISA contributions until age 18:

  Starting from date of birth Starting at age 5 Starting at age 10
JISA Value at age 30 £477,430 £300,604 £162,056
Junior SIPP value at age 30 £190,972 £120,242 £64,823
Total Value at age 30 £668,402 £420,846 £226,879

This shows the benefits you can provide by starting the process of saving early for your child through compounding the interest or investment returns. This is a representation of how you can save for your children and assumes maximum contributions are made at each birthday, but we understand the circumstances for each parent & child will be different and may require different forms of financial planning, such as monthly contributions instead of lump sums.

Despite the examples above, it is never too late to start. If you would like to understand how, The Private Office can structure savings and investments for you and your children to help provide the whole family with a strong financial future. So why not get in touch for a free initial consultation

* Based on current pension regulation, where the normal minimum pension age is increasing to age 57 from April 2028. 

If you would like to know more about this topic, one of our Partners Kirsty Stone appeared on BBC Radio 4 Money Box live, giving her suggestions in a programme all about saving for children.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

All the calculations in this article assume that lump sum contributions are made for 18 years, from birth, unless otherwise stated, to the 17th birthday and are not adjusted for inflation.

The Financial Conduct Authority (FCA) does not regulate tax or cash advice.

The growth rates provided are for illustrative purposes only.  Investment returns can fall as well as rise and are not guaranteed.  You may get back less than you originally invested.  Investments may be subject to advice fees and product charges which will impact the overall level of return you achieve.

Living to 100 years - are you financially prepared?

The number of individuals aged 100 or older in England and Wales has reached an all-time high. 

In September 2023, the Office for National Statistics (ONS) released statistics showing that over the past century, the number of centenarians living in England and Wales has increased 127-fold, shown in Figure 1 below. Figures are reported to have hit a record high of 13,924 centenarians in 2021; of this number of centenarians, 11,288 were women and 2,636 were men. 

Figure 1. The number of centenarians in the population increased rapidly from the second half of the 20th century, Source: Historic Census data (1991 to 2021) from the Office for National Statistics

ONS report the UK ranking as the seventh country worldwide for highest number of centenarians and in 2021, the ONS reported that there has been a 24.5% increase from 2011 of centenarians living in England and Wales. 

Although an ageing population is a major achievement of modern science and healthcare, the rise in the UK’s ageing population raises concerns around financial planning and retirement readiness. 

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So, how can living longer affect your own financial planning and retirement readiness? 

Whilst the news that an increased number of individuals living longer in England and Wales is good news at the surface level, the challenge to this is that there is a greater need for people to acquire sufficient pension savings to fund a longer retirement.  

This issue was identified by the World Economic Forum in 2019, where their findings showed that people may be expected to live longer than the pot of money they have saved for retirement by between 8 to almost 20 years on average. Han Yik, Head of Institutional Investors Industry at the World Economic Forum, stated that “The real risk people need to manage when investing in their future is the risk of outliving their retirement savings”.  

Earlier this year, the below estimates were calculated by Interactive investor, using the Pensions and Lifetime Savings Association (PLSA) Retirement Living Standard: 

A 65-year-old living to Age 84 would require a starting fund value of £212,000.

Whereas a 65-year-old living to Age 100 would require a starting fund value of £324,000. 

These figures indicate that someone expecting to live to 100, compared to the current average life expectancy would need around a further 54% in the starting value of their retirement savings.  

It is important to note that these calculations assume that the individual is entitled to the full State Pension of £10,600 p.a. and they also own their home, therefore having no rent or mortgage costs. 

Whilst the UK Government provides the State Pension to qualifying individuals, which can provide a solid foundation for retirement, this needs to be supplemented to ensure a genuinely comfortable later life. Although it is technically possible to live on the state pension, additional incomes sources are crucial for a more comfortable and enjoyable retirement. And that’s before the likelihood of further costs to consider such as at-home Care or Care Home needs.  

How can you be better prepared for your financial future? 

Starting your financial planning as soon as possible brings many benefits including possible higher return on your investments, time to weather market volatility and ability to take more risks. 

A key tool used when giving financial advice and looking ahead to your financial future is cash flow modelling. Cash flow modelling helps you to visualise what your future could look like, and then more importantly, what needs to be done before then. For example, it helps you answer questions such as:

  • “How much do I need to start saving in order to retire at age 60?”,"If I was to require Care, would I be able to afford it?”, etc. 

While we can make sensible assumptions, the one difficult thing to predict is one’s life expectancy. With the general population living far longer, it’s important to take a cautious approach and always overestimate, which is why we usually plan our cash flow models to age 100. 

A good place to start planning your future is by understanding where you are now within your financial planning journey and what your life goals and expectations might be. A useful tool to get a basic understanding of this is our retirement calculator. From your own inputs, you will be able to forecast an estimate of the pension income you will get when you retire and receive a target retirement income to aim for based on your choices, taking into account your salary. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

A pension is a long-term investment. The value of an investment and the income from it could go down as well as up.  The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

The Financial Conduct Authority (FCA) does not regulate tax advice or cashflow modelling.

Autumn Statement – what the announcements mean for your finances

Chancellor Jeremy Hunt promised to ‘reduce debt, cut taxes and reward work’ in his ‘Autumn Statement for growth’, but what might the changes he announced mean for your personal finances?

In the lead up to the Autumn Statement, we discussed the changes that were rumoured to have been announced in this article.

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These speculated changes included:

  • Reducing inheritance tax
  • Announcing an additional ISA allowance for investment into UK companies
  • Changing the state pension triple lock calculation to limit next year’s state pension increase

In the end, none of these changes were introduced, with shadow chancellor Rachel Reeves claiming Hunt wanted to reduce inheritance tax but that he “couldn’t get away with it in the middle of a cost of living crisis”.  Instead, the headline grabbing change was the 2% reduction to employee national insurance contributions between £12,571 and £50,271.  This will equate to an annual saving of c. £754 p.a. to those earning over £50,270 p.a. with effect from January 2024.  Additionally, there were National Insurance reductions for the self-employed, with Class 2 contributions effectively abolished and Class 4 contributions reduced from 9% to 8% between £12,571 and £50,271 with effect from April 2024.

However, this will only go part of the way to make up for the impact of the continued freezing of the income tax bands, which will remain frozen until 2028.  Indeed, as a result of higher inflation, higher interest rates and frozen tax bands, the Office for Budget Responsibility (OBR) states “Living standards, as measured by real household disposable income per person, are forecast to be 3.5 per cent lower in 2024-25 than their pre-pandemic level.” 

Separately, the speculated ISA allowance increase for investments into UK companies did not materialise and pensioners will be pleased to hear Mr Hunt state the government will “honour our commitment in full” as the state pension rises by 8.5% next year.

Regarding pensions, workers will hope a new legal right for their new employer to pay into their previous defined contribution pension scheme will simplify pension planning going forward and will mean an end to the accumulation of multiple schemes as individuals move between companies.

This was an Autumn Statement with half an eye on an upcoming general election, with announcements that should put more money in the pockets of workers and pensioners alike. Mr Hunt repeatedly referred to the OBR’s forecasts during his announcement as he tried to rebuild credibility, a little over a year after Liz Truss and Kwasi Kwarteng’s ‘mini-budget’, prior to which the OBR was not asked to run forecasts. Overall, Mr Hunt will have been grateful that he was able to use some of the fiscal headroom provided by then Chancellor, now Prime Minister, Rishi Sunak’s decision to freeze income tax bands back in 2021 to offer a national insurance cut and significant state pension rise to the voting public. 

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The opinions shared in this article are solely those of the individual and they do not necessarily reflect those of The Private Office.