Number of pensioners in work increased by 64,000 last year – have you saved enough to retire?
By Tim Holmes, Managing Director of Salisbury House Wealth
More and more people aged 65 and over are having to re-join the workforce as growing life expectancy and higher retirement ages stretch pension savings, forcing people to work longer.
Currently 1.2m pensioners are working, an increase of 64,000 over the last year alone. Data from the ONS shows that the proportion of those aged 65 and over who work has almost doubled to 10.4% over the last ten years.
A core factor driving the growing number of working pensioners is longer life expectancy in the UK, which will have risen from 78.3 years for men and 82.3 for women in 2010 to 82.5 and 85.3 respectively by 2030.
Longer lives mean pension savings have to go further and many people are finding that they have not saved enough over the course of their life to retire aged 65 and live for another ten or more years. Staying in work or going back to work becomes the only option.
Growing life expectancy has also led to the official retirement age rising as the state system comes under pressure and many don’t have enough saved to retire before the state pension age.
To deal with pressure on the state system, the Government is even actively encouraging employers to hire more older people. Its Fuller Working Lives strategy was launched last year and calls on UK employers to take on a further 1m workers aged 50-69 during the next five years.
Ultimately, as life expectancy continues to grow, so does the importance of building a decent pension pot as you don’t know how long it will need to last. The earlier you start saving, the more your savings will benefit from the effects of compound interest, and the earlier you may be able to retire.
8% rise in amount of cash withdrawn from pensions in the last 12 months
The amount of money being withdrawn from pensions by people over the age of 55 has increased by 8% in the last year, the latest stats from HMRC have revealed.
In 2017/18 £7.1bn was withdrawn in flexible pension payments, an increase from £6.6bn in the previous year. The amount of money withdrawn in Q2 of 2018 was £2.3bn, a record high for any quarter since pension freedoms were introduced in 2015.
The pension freedoms introduced in 2015 removed rules for individuals requiring pension savings to be spent on annuities, an insurance contract which provides an annual income for life. They also allow for individuals over 55 to access their defined contribution pension savings when they want it.
The latest statistics show that more and more people are taking advantage of the new rules, with people drawing down on their pensions earlier. That could be quite a significant issue for some savers.
People withdrawing money from their pensions should be aware that once you have started drawing down from your pension pot, you will be limited to just £4,000 a year in future pension contributions.
Many people withdrawing from their pension pots will see it as an opportunity to diversify their investment portfolio, and increase their retirement income. However, some will spend it quickly, which risks leaving them with little income when they do retire.
Pensioners and investors need to make sure they are making the right financial decisions that will enable them to live the comfortable retirement that they envisaged. As more and more people worry about how they will afford retirement, getting advice on how far your money can go is a must.
Speak to Salisbury House Wealth to help make the right financial decisions which enable you to head towards retirement with fewer financial worries.
Amount of money raised by UK businesses through EIS falls for the first time since 2010/11
The amount of money invested into UK businesses through the Enterprise Investment Scheme (EIS), one of the more tax efficient ways for people to invest in early-stage growth companies, has fallen for the first time since 2010-11.
The Government introduced a new more restrictive criteria on what business are eligible for EIS, which has impacted the amount of money being invested through the scheme.
As a result of the Government restricting EIS use, it is more important than ever for investors to take up their full allowance of other tax efficient investment opportunities such as ISAs and pensions.
New HMRC statistics show that the number of businesses raising money through the Enterprise Investment Scheme (EIS) for the first time has fallen by 27%. Businesses using EIS for the first time raised £1.05bn in 2015-16, but this dropped to £768m in 2016-17. The overall amount of money raised has also fallen by 8% in the past year, from £1.95bn to £1.8bn.
EIS offers tax relief on investments into smaller, high-risk businesses to encourage investors to back certain SMEs. Individuals can invest up to £1m in a tax year and receive 30% tax relief on their investment. EIS has been a great way for investors to support growing businesses in a tax efficient way, whilst businesses benefit from the vital investment they need.
The Government risks turning increasing numbers of investors away from the popular scheme by imposing further restrictions on the type of companies that are eligible for EIS.
Why time in the market is more important than timing the market
By Tracy Browne, Wealth Management Consultant at Salisbury House Wealth
Emerging Markets (EM) investors are clearly rattled. According to this weekend’s FT, EM funds saw the biggest outflows in almost a year at the beginning of May as volatility has buffeted markets. Investors pulled $1.6bn from emerging markets in a week, as Argentina’s currency fell to a new record low and many other EM currencies were hit.
Are investors right to be worried? In my opinion, no. As in any market, volatility is just that – a bumpy patch over the short [to medium] term which does not necessarily signal the beginning of the end.
Just look at the FTSE100. At the start of February, it had dropped 8% since the middle of January. Today, the index has recovered to surpass January’s levels, and now it sits only a fraction below its all-time high. Indeed, after a market downturn of 57% between 2007 and 2009 after the financial crisis, the market has rebounded to 4x times its value since this low.
Of course no one ever complains about positive volatility! They tend to only start selling in earnest when the going starts getting tough. What this shows is that investors need to take a long-term view to ride out the blips and bumps in the road.
To prove my point, let’s take a 20-year time-frame. Over the last two decades, [UT UK All Companies TR in GB] Equities have gained 236%, while [UT North American TR in GB] rose 270%. Over the same period, emerging markets equities have fared even better – with [UT Global Emerging Markets TR in GB] up by 467%! What’s important here is not timing the market, but time in the market.
As well as taking a long-term view, being invested in a well-diversified portfolio with a good mix of different assets to balance out risk and drive returns is also critical. That might well mean emerging markets equities alongside FTSE stocks, bonds, property or alternative assets. Over-weighting in any one asset type is always a risky strategy.
How significant this turbulence is in emerging markets and how long it will last is hard to know, but investors with diverse portfolio spread who can afford to play the long game should have no reason to panic. When it comes to volatility, it often pays to hold your nerve.
New Tax Year = New Opportunities
The 2018/19 tax year started at the stroke of midnight between the 5th and 6th of April. While many individuals leave tax planning to the end of the tax year, you can look to maximise the benefits by using your personal tax allowances* and reliefs straight away. Please get in touch to take advantage of one or more of the following:
· The tax free personal allowance has increased to £11,850 from £11,500
· Basic rate tax of 20% will be payable on income above the tax free allowance and up to the new higher rate threshold of £46,350 (which has increased from £45,000).
· Additional rate income tax remains the same at 45% on income above £150,000
· The Junior ISA allowance has risen to £4,260 from £4,128 for children under 18.
· The adult ISA allowance of £20,000 remains unchanged.
· If you are 16 or 17 this tax year (or have children of these ages), they can benefit from both the Junior ISA allowance and adult ISA allowance (cash only).
· The Personal Savings Allowance, which gives you tax-free savings interest, remains £1,000 for basic rate tax-payers. This reduces to £500 for higher rate tax payers and additional rate tax payers do not get any allowance.
· The State Pension has increased by 3%, which for the full allowance is an increase of £4.80 a week to £164.35
· Minimum pension contributions (paid by employers and employees) through auto-enrollment have risen to 5% (2% employer and 3% employee) from 2% (1% employer and 1% employee)
· The Lifetime Allowance for pension savings has increased to £1,030,000.
· The Annual Allowance stays the same at £40,000 (though this reduces for individuals with income over £150,000 or if you have already accessed your pension savings)
· The Residence Nil Rate Band has risen to £125,000 from £100,000.
· This can be added to the £325,000 Inheritance Tax allowance when a direct descendant inherits someone’s main house.
· The annual gifting allowance remains the same at £3,000 and if you did not use it in 2017/18, this can be carried over to this tax year.
· The tax-free Dividend Allowance has reduced to £2,000 from £5,000 (although dividends received by pension funds and ISAs remain tax-free).
· There is no change to the taxation of Venture Capital Trusts, so you can invest up to £200,000 and get up to 30% income tax relief.
· Similarly, the taxation of Enterprise Investment Schemes is unchanged, meaning you can invest up to £1 million and claim up to 30% income tax relief.
Capital Gains Tax
· The Capital Gains Tax allowance has increased to £11,700 from £11,300.
· Married couples and civil partners will continue to be able to combine their annual allowances.
· Landlords will only be able to offset 50% of their mortgage interest payments against their rental income (down from 75%).
· By 2020, there will only be a 20% tax credit saving from a landlord’s mortgage interest.
*This information is based on our current understanding of the rules for the 2018-19 tax year.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
The value of investments and any income from them can go down as well as up and you may not get back the original amount invested.
ISA season – the mythical ISA millionaire is not so rare
This week saw the release of the ‘Wealth and Assets’ Survey from the Office of National Statistics that measures people’s attitudes to savings and retirement. It’s a pretty timely report as we are now entering “ISA season” when providers of Individual Savings Account (ISA) ramp up their advertising. It is also the time when many savers make one of their biggest investment decisions of the year – where they place their ISA allowance.
The Office of National Statistics research reveals that a generation of adults now doubt that cash ISAs are the best way to save for the future. Even though cash ISAs offer a tax-free savings account.
Confidence in ISAs has fallen. 7% of individuals now view them as the safest retirement strategy, down from 12% five years ago. This may be because cash ISAs now offer such low returns and why we are increasingly asking investors to see if share ISAs are right for them.
Having your money in a cash ISA while interest rates are low does little to help you save for retirement and can even mean you lose money when inflation is taken into account.
Stocks and Shares ISAs also offer tax free returns. History shows that over the long-term stock market returns has the upper hand over cash – offering better returns. UK equities have delivered an average annual return of 5% over the last hundred years compared to cash which has returned just 0.8%. * That is not too bad at all when consider that recent calculations by Fidelity International found that if you invest your entire ISA allowance every year then, at a 6% annual return, you could be an ISA millionaire within 22 years.
However, you need to be aware that, with a shares ISA, your capital at risk and, as recent events have shown, the stock market can be volatile.
Speak to us to establish exactly what shares ISA is right for you and your investment objectives.
*Barclays Equity Gilt Study 2016