It is widely reported that as a nation, our life expectancy is steadily increasing, meaning that people can be living in retirement for 20 or even 30 years.
“Our financial priorities are likely to be very different from when we retire, say in our mid 60s, to when we reach our 80s and 90s,” says Natalie Donnell of Paterson Financial.
“This creates an ever-increasing need for financial advice in two distinctly different phases of retirement – the healthier, more active years and the later, potentially more fragile years.
“When it comes to later life planning, there are many complex decisions for you and your loved ones to consider. Is the Will up to date so that assets will be distributed in accordance with wishes? If you were to lose mental capacity, is there a power of attorney in place to allow financial and health decisions to be made on your behalf?
“Where will the funding come from if long-term care is required and what impact will this have on the monies intended as your family’s inheritance?
“Many of us will require some form of care in our later years. How this is funded will depend on your individual circumstances.
“In some cases, local authority support may be available to help fund care fees, and this is dependent on the amount of your capital – cash, investments and other assets.
Under the current Scottish legislation, if your capital is below the lower limit of £17,500, you’ll get help with care home fees. This is known as ‘publicly-funded’.
“If you’re assessed as having capital above the upper capital limit of £28,000, you won’t get help from your local authority towards paying care home fees over and above any assessed entitlement to free personal and nursing care contributions from the government. This is often referred to as ‘self-funded’. In between these figures there is a phasing in of local authority support with costs.
“Certain types of investments are not included in the capital assessment for long term care fees, enabling you to pass the money on to your family.
“Very often local authority assessors are unaware of the differences in this area and include all investments.
If you are required to fund your own care costs, there are many ways to achieve this: using cash savings; purchasing an annuity which guarantees an income for the rest of your life; generating an income from your investments. You might consider selling your property and using the proceeds, or perhaps renting out the family home.
“There are many options and the most appropriate route for you will depend on your overall objectives.
“It is a common misconception that your spouse or next of kin will automatically be granted a power of attorney should an accident or illness lead to a serious and permanent mental or physical impairment.
“This is simply not true – a power of attorney must be drawn up separately to allow a loved one to make important financial and health related decisions on your behalf and this must be put in place before the loss of mental capacity.
“With 25% of over 65-year olds either living with dementia or expected to have dementia in their lifetime, having a continuing power of attorney in place is becoming increasingly important.
“Planning for your later years can help you to survive financially as well as physically and can remove some of the financial stress at an already difficult and emotional time.
“Some areas of advice associated with later life cannot be applied retrospectively and where it can, we often find that it is less effective, with your choices being more restrictive.”
Contact Natalie Donnell at Paterson Financial on 0141 221 0033. For more information please visit www.patersonfp.co.uk
How the ‘bank of mum and dad’ can bolster early pension pot.
Saving for retirement is never easy, especially when you are young and have other more pressing things to spend your money on. “But that situation is one where parents or grandparents may be able to help in a very tax efficient way,” says Grant Middleton of FML Wealth.
“Using the Inheritance Tax (IHT) annual allowance or gifts from normal expenditure exemption, parents can fund a pension for a grown-up child or even a grandchild.
Funding a pension by using these allowances means that the contributions fall out of the parents’ estate immediately and it will save 40% in IHT.
“This is a useful gift, especially if the grown-up ‘child’ is a higher rate taxpayer, because the contribution is treated as being made by the ‘child’ and therefore the higher rate tax relief can be reclaimed by the ‘child’ via their self-assessment tax return.
“Whilst the pension fund cannot be accessed by the ‘child’ until they reach age 55, this might be a very useful strategy due to the increase in the State Pension Age and the fact that, in the future, the State Pension might be less generous.
“Furthermore, this strategy may help the family finances if higher rate tax relief can be claimed or the ‘child’ is a high earning parent caught by the child benefit clawback charge.
“At its simplest it reduces the burden of pension contributions for the ‘child’.
“To sum up the main benefits, there is something for everyone: the estate of the donor reduces, thus reducing any potential IHT; the recipient ‘child’ might also benefit from higher or additional rate tax relief; the pension fund enjoys a tax favourable environment; it is a gift which could relieve the ‘child’ of the burden of making pension contributions when family finances might be stretched; if the ‘child’ dies before age 75, a tax-free lump sum death benefit may be payable.”
Contact Grant Middleton of FML Wealth, 333 003 0872. For more information visit www.fmlwealth.com
Swings, roundabouts and border anomalies add up to complex sum.
The first pay of the new tax year is always of interest to see the impact of tax changes, and this year there is more to consider than most.
“The Personal Allowance – the amount you can earn before becoming liable to tax – has increased, giving us all a benefit,” says Keith Miller of Capital Managers LLP. ”
But for many, April saw a rise in pension contributions under the Government’s Auto-enrolment rules, which is the final increase intended in current legislation. The higher rate tax threshold did not increase in Scotland and there are now six different income tax rates ranging from 0% to 46%.
“The division of tax powers between Scotland and England has thrown up some anomalies. Although Income tax rates are set in Scotland, the personal allowance and National Insurance rates are set in Westminster.
Although Income tax and National Insurance are two separate forms of tax, they do impact on our take home pay. Whereas Income tax rates increase as earnings do, National Insurance is set at 12% for earnings between £166 and £962 per week and then reduces to 2% on earnings exceeding £962 per week.
“Tax is a complicated subject, but there are a range of reliefs provided by the Government – saving and pension contributions are the obvious place to start. Tax relief is obtainable at your marginal rate, so if you are paying tax at 41% you are entitled to tax relief at 41%, meaning that a £10 pension contribution only has a net cost of £5.90.
“It is important to gain an understanding of taxes and reliefs, and as we are now in a new tax year a meeting with an independent financial adviser can go a long way to assist.”
Contact Keith Miller of Capital Managers LLP, 0141 222 2322. For more information please visit www.capitalmanagers.co.uk
Financial News in Brief
INCOME PROTECTION
How well could you survive a financial shock? Financial resilience should not be a ‘nice to have’.
At each stage of life, protection is relevant. Young people, just starting their careers, would benefit from income protection. Look up what happens after statutory sick pay runs out. Could you survive on the low level and hard-to-claim state offering?
As we age and mortgages get paid, other protection needs arise, including covering the cost of long-term care, funerals or even the inheritance tax bill. Is it time to assess your protection needs?
Contact Lesley Wilkie of Campbell Thomson, 0141 353 0975.
WORKPLACE PENSIONS
April 6, 2019 saw the final increase to statutory minimums contributions to qualifying workplace pension schemes.
This is now 8% of qualifying annual earnings (between £6,136 and £50,000). This lower threshold is likely to be removed in future, making the first £6,135 pensionable. Employer minimum contributions at 3% would mean a £184 increase in staffing costs.
Rather than trying to opt for the lowest denominator, employers looking to attract and retain staff should consider improving on their pension offering. Look beyond cheap. Put in place a pension scheme to attract staff. Get help in doing so from an Independent Financial Adviser.
Contact Lesley Wilkie of Campbell Thomson, 0141 353 0975.
This article appeared in The Herald on the 18th May 2019. Should you wish to contribute financial advice and join The Herald's IFA board, please contact Stephen McTaggart on 0141 302 6137 or by email on stephen.mctaggart@heraldandtimes.co.uk
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