Five ways to help cut mortgage costs

Five ways to help cut mortgage costs

by | Apr 26, 2023 | Uncategorized

FIVE WAYS TO HELP CUT MORTGAGE COSTS

03

MAY, 2023

Mortgages hit the headlines last summer when rates started climbing. Around 1.4 million households are set to renew their home loans this year[1]. Mercifully things have settled since late 2022 when five-year fixes were north of 6% – they are now available at around 4%[2].

Even at the new lower rates, most people will see an overnight increase in the amount they need to repay once they remortgage.

Here’s how to make sure you get the best deal possible and minimise the hike in monthly repayments.

 

1. DON’T RUSH TO FIX

Fixed rate mortgages are preferred by most, mainly for the peace of mind they know what they owe each other month and that it won’t change.

Even though interest rates are still rising, mortgage rates are now coming down. According to Moneyfacts, which tracks mortgage rates, both the average two-year and five-year fixed rates fell month-on-month for the third month running, down to 5.44% and 5.20% respectively[3]. 

The best five-year fixed rate mortgages fell below 4% earlier this year. 

If you have plenty of time before your mortgage runs out, you might want to wait a little longer as fixed interest rates are expected to fall further in coming months. This is not guaranteed of course. 

 

2. CONSIDER BIDING TIME WITH A TRACKER

If your mortgage is up soon but you want a bit more flexibility on choice, a tracker mortgage could be a worthy consideration. 

But variable deals also typically have no early repayment charge (exit penalty), so if fixed rates fall to a level you’re happy with, you could swap and fix your payments without a fee to pay. However, you need to be comfortable that the rate of a tracker mortgage could rise (as well as fall) in the months to come if interest rates rise further. 

 

3. DON’T MISS THE EXPIRY DATE OF YOUR MORTGAGE

Once a fixed rate mortgage expires, you are automatically placed on your lender’s Standard Variable Rate (SVR). The average SVR is currently an eyewaterinw 6.84% – the highest on Moneyfacts records since October 2008 when it was 7.01%.[4] 

Make sure you know the date your mortgage deal expires and work in good time to secure a new deal to avoid a payment shock. 

4. TALK TO YOUR LENDER

Your existing lender will be able to talk through options with may turn out to be competitive. But maybe not, so don’t agree to anything on the spot. You might be much better off exploring options with other lenders.

 

5. GET PROFESSIONAL HELP

It’s worth talking to an independent mortgage adviser as they often have access to better mortgage rates than those available to anyone on the internet or from a high street bank. 

A professional will also be able to help those remortgaging while on maternity or paternity leave on a reduced income, are self-employed or have an irregular income.

Older borrowers might also face difficulty if their lender won’t lend to those beyond a certain age. 

By approaching lenders they know to be flexible or helpful for such circumstances, your adviser can find the best value mortgage. 

Your home may be repossessed if you do not keep up repayments on your mortgage.

 

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PROVIDING NEWS AND VIEWS TO SUIT ALL NEEDS

This Blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person.

Tavistock Partners Limited is authorised and regulated by the Financial Conduct Authority. Tavistock Partners (UK) Limited is authorised and regulated by the Financial Conduct Authority. Tavistock Private Client Limited is authorised and regulated by the Financial Conduct Authority. The Tavistock Partnership Limited is authorised and regulated by the Financial Conduct Authority. Abacus Associates Financial Services is a trading style of Tavistock Partners (UK) Limited which is authorised and regulated by the Financial Conduct Authority. Duchy Independent Financial Advisers is a trading style of Tavistock Partners Limited which is authorised and regulated by the Financial Conduct Authority, All subsidiaries are wholly owned by Tavistock Investments Plc.

EARLY BIRD ISA INVESTORS CATCH THE WORM

EARLY BIRD ISA INVESTORS CATCH THE WORM

by | Apr 4, 2023 | Conversations, General Investing, ISA, Uncategorized

EARLY BIRD ISA INVESTORS CATCH THE WORM

06

APRIL, 2023

Many ‘eleventh hour’ investors have rushed to complete their ISA applications over the last week or so to beat the end of tax year deadline. But it’s the early birds in the new tax year that can arguably catch the best tax breaks.

There’s a fresh £20,000 ISA allowance for all, now the new tax year has begun, offering the chance to protect more hard-earned cash from the taxman – you can save up to this amount any time between now and April 5, 2024.

If you’re wondering whether being an early bird ISA investor is right for you, here are five reasons why it might be a good idea

1. Reduce your tax bill

As a rule, the earlier you use your ISA allowance in the tax year, the better. This year getting in as soon as possible is particularly valuable as key allowances have halved overnight. The dividend allowance has been cut from £2,000 to £1,000 from April, and the Capital Gains Tax allowance slashed from £12,300 to £6,000 too. This means it makes sense to wrap investments in a tax shelter sooner rather than later to minimise the amount of tax you pay.

ISA early birds can shelter investments from the taxman by moving existing investments into an ISA – known as a bed and ISA.

From a Capital Gains Tax point of view, doing so gives you the freedom to sell what you want when it makes the most sense for your finances, without thinking about tax. Dividends are also tax-free in an ISA.

2. Maximise time in the market

Many investors worry about timing their investments right. But many experts believe that it’s time in the market that’s important. The longer you’re prepared to stay invested, the greater the chance your investments will provide returns. The early bird investor benefits from an extra year’s growth (hopefully) and dividends on their investment too.

3. Kick start a savings habit

Even if you don’t have a lump sum handy, starting early gives you the opportunity to set up regular monthly payments into an ISA each month, and automatically spread your investments across the tax year. Investing regularly also takes the emotion out of investing: it is easy to have your investment decisions clouded by current sentiment or the short-term news events which shouldn’t really matter if you are investing for the long-term.

By subscribing to a monthly savings scheme you will automatically keep on going through the ups and downs and help you become a more disciplined investor.

4. Benefit from compound growth

The sooner you start investing, the sooner you can start to benefit from compounding, which is where your returns can earn returns. In a nutshell, your money earns a return in the first year, in the second year and both the original investment and the return benefit from any growth in the second year. In the third year your investment is further enhanced by any returns achieved. This snowball effect is called compound growth.

5. Unlimited growth

Individuals have a tax-free allowance of £20,000, but there’s no limit to how much the value of your investment ISA can grow. By taking full advantage of the allowance you could potentially grow a savings pot worth hundreds of thousands of pounds. Some savvy investors have managed to grow over £1 million. At the last count there were around 2,000 ISA millionaires in the UK.[1] The top 60 have pots average an impressive £6.2 million.

[1] https://investingreviews.co.uk/blog/uk-has-2000-isa-millionaires/

 

This content is provided for informational purposes. None of the information contained in this communication constitutes a recommendation that any particular investment strategy is suitable for any specific person. You should seek financial advice before making any decisions.

 

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PROVIDING NEWS AND VIEWS TO SUIT ALL NEEDS

This Blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person.

Tavistock Partners Limited is authorised and regulated by the Financial Conduct Authority. Tavistock Partners (UK) Limited is authorised and regulated by the Financial Conduct Authority. Tavistock Private Client Limited is authorised and regulated by the Financial Conduct Authority. The Tavistock Partnership Limited is authorised and regulated by the Financial Conduct Authority. Abacus Associates Financial Services is a trading style of Tavistock Partners (UK) Limited which is authorised and regulated by the Financial Conduct Authority. Duchy Independent Financial Advisers is a trading style of Tavistock Partners Limited which is authorised and regulated by the Financial Conduct Authority, All subsidiaries are wholly owned by Tavistock Investments Plc.

Keeping your finances on track in 2023

Keeping your finances on track in 2023

by | Jan 5, 2023 | Education, General Investing, Managing Risk, Uncategorized

KEEPING FINANCES ON TRACK IN 2023

04

January, 2023

A new year is an excellent opportunity to get on top of your money matters.

With the challenges presented by rising inflation, tax, and household outgoings, being in control of your finances is especially important.

Planning can help to keep you in control. Here’s our month-by-month guide to keeping finances in good shape.

JANUARY: BACK TO BASICS

Look at your income and expenditure using your bank statements and create a list of what goes in and what goes out. Think about how much you spend (aside from the essentials such as your mortgage and household bills) and where your money goes. Could you make savings?

If you find that unnecessary spending is a habit hard to kick, try the 30-day savings rule – take the money you were going to spend on an impulse buy and save it in a savings account instead for 30 days. But if you still want to buy that item after the 30-day period is up, go for it. Otherwise, the money stays in your savings. This idea is to help you overcome impulse spending and boost savings over time.

FEBRUARY: LOVE YOUR PLANET
Consider Investing For Good

More investors now want their money to help improve society, halt climate change or deliver greater diversity within businesses – as well as to make a decent financial return.

Many investment companies offer the opportunity for people to invest in companies that have a strong track record on environmental, social and governance issues – known as ESG investing.

There are funds which specifically back companies within the renewable energy infrastructure sector, such as solar or wind, are often popular. Though you can also invest in companies benefitting from the rise of electric vehicles. Alternatively there are broad funds which ensure all holdings hold sustainability or ESG matters at the forefront of their business.

Investors can also choose an impact investment fund. These funds only back companies that create a product or service that has a positive measurable social and or environmental impact.

MARCH: `
Brace Yourself For Tax Changes And Bigger Energy Bills

Chancellor Jeremy Hunt will set out a Spring Budget on March 15, which could bring new tax measures. One to watch.

Meanwhile, the Energy Bills Support Scheme, which has provided a £400 non-repayable discount to eligible households to help with their energy bills over the winter, will end this month. Payments have been made monthly since October, with the last being paid in March.

APRIL: USE TAX ALLOWANCES

There are plenty of tax breaks available to UK taxpayers so make sure you maximise them before the end of the tax year (April 5).

Utilise your ISA £20,000 allowance and make sure any shares held are done so within the ISA wrapper. If you don’t use your allowance, you lose it.

Make sure you’re paying as much as you can afford into a pension – the tax breaks are unrivalled with tax relief on contributions at your marginal rate of income tax.

The new tax year begins on April 6, which refreshes your allowances. Early bird ISA investors can benefit from having money invested, as potential growth over the next 12 months could provide a valuable boost to your portfolio.

MAY: USE BANK HOLIDAYS WISELY

With plenty of Bank Holidays this month – including an extra one for the Coronation of King Charles III – you could use some of the time to clear out your cupboards. By selling stuff you no longer need or want, you can even make a profit to put towards rising bills, debts or family fun.

Equally you could put it into your ISA to boost your savings.

You can turn everything from clothes to computer games, toys and furniture into cash. Use free online services such as Gumtree or Facebook Marketplace or Music Magpie and WeBuyBooks for books, CDs and video games. With eBay, look out for weekends with low fees for listings. If you’re selling clothes you could try Depop or Vinted.

JUNE: ENSURE SAVVY SPENDING ABROAD

If you have a summer holiday coming up, make sure you don’t get stung on charges for using credit and debit cards abroad. Every time you tap your card at the local taverna or supermarket you’ll pay a fee of around 3% on top of what you spend. This can add hundreds of pounds to a two-week break. Plan ahead by applying for a credit card or prepaid card that has zero fees on foreign transactions. Check moneyfacts.co.uk for a list of available fee-free cards.

JULY: SPEND LOYALTY POINTS

Check the points you have built up on loyalty cards. You might have more than usual from supermarket schemes since you’ll have been spending more on your weekly shop since the beginning of the cost of living crisis. If you’re tempted to redeem vouchers at the checkout, remember that supermarket schemes can be far better value if you trade your points for vouchers for days out or experiences which could be handy for entertaining the family over the summer.

AUGUST: SET SAVINGS GOALS

Use the quieter summer months to check your savings habit as you can get to set in your ways and save the same amount each month for years on end. Review the amount you save and boost monthly payments as your earnings increase – as long as you can afford it. If you really want to boost your savings habit, it will help to set yourself some goals. Once you hit a milestone, it will be worth it.

SEPTEMBER: CONSIDER VCTs*

If you’re looking for greater tax savings than ISAs and pensions, Venture Capital Trusts (VCTs) offer investors attractive tax breaks in return for backing fledgling UK firms, which are by nature, high risk. The fundraising season for VCT companies generally starts around September time which means this is a popular time of year to explore what’s available. VCTs, have a generous allowance of £200,000 a year – compared to £20,000 for ISAs and £40,000 for pensions. For every pound you invest in a VCT you can get up to 30p back in tax relief. There’s tax-free capital gains and dividends – reinvested dividends qualify for tax relief too. You can claim to £60,000 back in tax – although you cannot claim back more tax than you owe. To qualify for the tax break you must hold the investment for at least five years.

* The value of an investment, and income from it can fall as well as rise. Investors could end up getting back less than they put in. Tax treatment depends on individual circumstances and tax rules could change in the future. VCTs are only suitable for UK resident taxpayers who can tolerate higher risk and have a time horizon of greater than five years.  It is not suitable for all investors and it is recommended you get professional independent financial advice before investing in a VCT.

OCTOBER: MAKE A WILL

It’s not a cheery prospect but making a Will is really important. October is Free Wills Month where some solicitors offer a free Will-writing service to promote the importance of making some important decisions and getting them on paper. When a person dies without leaving a valid Will, their assets are distributed according to the law, which may not tally with your wishes. The average cost of using a solicitor to draw up a Will starts at around £150. Find a solicitor through The Law Society at solicitors.lawsociety.org.uk.

NOVEMBER: BEWARE BLACK FRIDAY

Take care not to get caught up in the Black Friday spending frenzy. Often the promotions on Black Friday aren’t genuine anyway. Consumer group Which?1 claims that only one in seven (15%) deals on Black Friday offer a genuine discount. It found that 86% of deals were actually cheaper or the same as their Black Friday price in the six months before the sales event and 98% were cheaper or the same price at other times in the year. None were cheaper on Black Friday alone.

DECEMBER: KEEP A LID ON SPENDING

Whatever your household income, make sure you take time to work out how much you can afford to spend over Christmas, write a list and stick to it. Track your expenses as you go to avoid busting your budget.

Before you buy, make sure you have a real bargain by checking prices against other retailers.

Websites such as Google Shopping as well as pricerunner.com, kelkoo.co.uk and pricespy.co.uk will help find the best price for the items you want. Remember, a discount is only worth having if the end purchase price is the lowest around.

PROVIDING NEWS AND VIEWS TO SUIT ALL NEEDS

This Blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person.

Tavistock Partners Limited is authorised and regulated by the Financial Conduct Authority. Tavistock Partners (UK) Limited is authorised and regulated by the Financial Conduct Authority. Tavistock Private Client Limited is authorised and regulated by the Financial Conduct Authority. The Tavistock Partnership Limited is authorised and regulated by the Financial Conduct Authority. Abacus Associates Financial Services is a trading style of Tavistock Partners (UK) Limited which is authorised and regulated by the Financial Conduct Authority. Duchy Independent Financial Advisers is a trading style of Tavistock Partners Limited which is authorised and regulated by the Financial Conduct Authority, All subsidiaries are wholly owned by Tavistock Investments Plc.

Need a mortgage?

Need a mortgage?

by | Sep 22, 2022 | Planning, Uncategorized

NEED A MORTGAGE?

TOP TIPS TO SECURING A HOME LOAN…

22

September, 2022

MORTGAGE

The prospect of buying a house for many buyers is looking increasingly daunting as house prices continue to soar and interest rates rise, making mortgages more expensive.

Here are 10 ways to make sure you secure the loan you need for the property you want.

SAVE THE BIGGEST DEPOSIT YOU CAN

Soaring property prices mean that bigger deposits must be saved. It’s possible to get a mortgage with just a 5% deposit but you’ll be looking at paying the highest bracket of interest rates and a smaller pool of lenders to choose from. Saving a 10% deposit will mean you’re eligible for lower rates. A deposit of 25% will help access even lower rates.

USE GOVERNMENT SAVINGS INCENTIVES

A Lifetime ISA was introduced to help savers build a deposit for a first home (or a nest egg for retirement). You can pay in up to £4,000 a year (which forms part of the £20,000 yearly allowance) and bank up to £1,000 in government top-ups. The money can be used to buy a first property worth up to £450,00.

Alternatively you can withdraw it from the age of 60 to boost your income in retirement. If you take the money for any other reason there’s a 25% exit penalty. You must be between 18 and 39 to open a Lifetime ISA which can be opened as a cash or stocks and shares account.

CONSULT THE BANK OF MUM AND DAD

Parents and grandparents have been an important lifeline for first-time buyers as well as those upgrading to a second home, perhaps to accommodate a growing family. Estate agency Savills put the Bank of Mum and Dad’s total lending at £9.8bn in 2021, and say it supported around half of all first-time buyer home purchases.

If family are not able to part with savings, however, they can still help. It’s possible to use the income to help offspring get a bigger mortgage or even be part of a family offset mortgage where savings deposited can be linked to the mortgage and reduce the amount of interest charged – and so reducing monthly repayments. A mortgage professional can help with the options.

STREAMLINE YOUR SPENDING

Lenders will go through around six month’s worth of statements and payslips to assess affordability. It would be smart to plan ahead and rein in your spending, though you might be doing this anyway while you save for a deposit if you’re a first-time buyer. Set aside time to go through your spending on direct debits and standing orders to spot anything lurking that you had forgotten about. Hanging onto gym memberships is a common trend among those who only manage to go a couple of times a year. You might spot a magazine subscription you have been meaning to cancel. Equally, avoid regular, large purchases and gambling transactions.

REDUCE DEBT

The actual amount you can borrow will also depend on debts and credit agreements you have. A student loan or car finance for example, would reduce the amount you can borrow, as will a credit card balance. If you do have credit card debt, make sure you are paying as little interest as possible – preferably none. School fees and child maintenance payments can also be included as “debt” so you may find you can borrow less than you think.

“Saving a 10% deposit will mean you’re eligible for lower rates. A deposit of 25% will help access even lower rates.”

AVOID APPLYNG FOR DEBT

Steer clear of applying for credit in the run up to applying for a mortgage – it could hurt your credit score and lead to a rejection to an application. If you need a new credit card, wait until you have your mortgage sorted.

CREDIT SCORE

It’s important to make sure your credit file will be squeaky clean in advance of making a mortgage application. Those who have borrowed money in the past and showed they can make repayments on time have more chance of making a successful application. But if you have a history of missed or skipped repayments, you need to demonstrate that you can be trusted to repay a mortgage. Even if you’re sure you’ve never skipped a payment – check your file. Many contain mistakes or a forgotten few pounds owed on an old credit card.

You could also have a blemish from owing just a few pence on an old mobile phone contract, which could cost you the mortgage you want. You can check your credit report – for free- from one of three main credit reference agencies – Equifax, Experian and TransUnion. It’s good practice to check all three as you can then have peace of mind that whichever one a lender uses, you’ve made sure it’s ship-shape. Alternatively use CheckMyFile’s free trial to check all three.

 

GET YOUR PAPERWORK IN ORDER

It makes sense to get your paperwork prepared in advance so you can be efficient when the time comes to place your application. Make sure you have statements downloaded that can be emailed – or printed. Get your payslips ready and your P60 tax form showing income and tax paid from each tax year. You will also need photo ID so get a copy of your passport, and for proof of address dig out recent utility bills.

LINE UP A MORTGAGE ADVISER

Using a broker means they take on much of the all-important legwork for you. They can help you work out how much you can borrow so that you know what price bracket you can search for properties in. They will also help you decipher the right type of mortgage for you. If you are self-employed or have any special circumstances, they can help find more flexible lenders for your situation.

GOT THE OFFER?

Once you’ve secured a mortgage offer, there’s no rush. They usually last for around six months which gives you time should there be any delays with moving. However, offers can be extended in special circumstances. For example, where you’re buying a new build property and construction is running late.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

 

PROVIDING NEWS AND VIEWS TO SUIT ALL NEEDS

This Blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person.

Tavistock Partners Limited is authorised and regulated by the Financial Conduct Authority. Tavistock Partners (UK) Limited is authorised and regulated by the Financial Conduct Authority. Tavistock Private Client Limited is authorised and regulated by the Financial Conduct Authority. The Tavistock Partnership Limited is authorised and regulated by the Financial Conduct Authority. Abacus Associates Financial Services is a trading style of Tavistock Partners (UK) Limited which is authorised and regulated by the Financial Conduct Authority. Duchy Independent Financial Advisers is a trading style of Tavistock Partners Limited which is authorised and regulated by the Financial Conduct Authority, All subsidiaries are wholly owned by Tavistock Investments Plc.

Equity release lifeline during cost of living crisis

Equity release lifeline during cost of living crisis

by | Sep 1, 2022 | Uncategorized

EQUITY RELEASE LIFELINE DURING COST OF LIVING CRISIS

7

SEPTEMBER, 2022

EQUITY RELEASE

With inflation now in double figures – hitting 10.1% in the 12 months to July1 – household budgets are being hit hard.

Cost cutting will be high on the agenda for many families struggling with the cost of living crisis.

The fact the energy price cap is to rise once again in October, as well as January 2023, means there’s no end in sight to soaring gas and electricity prices.

Since there’s only so much that can be done to strip back spending and reduce household bills, people are looking at ways of raising extra cash to help make ends meet.

Many over-55s are using the equity in their homes to release cash. The number of equity release plans agreed between April and June this year is up 26% on Q2 20212, which equates to 200 plans being agreed every day.

Another report3 highlighted that equity release funds currently account for one in every £90 spent by retired people within the UK.

As house prices rise, and interest rates on mortgages continue to rise, more and more older family members are also gifting funds from their housing equity to help younger generations members cope with higher bills.

 

Lump sum lifetime mortgages are becoming more popular. This recent trend is likely to be influenced by the fact that gifting money to younger family members and sharing property wealth across generations.

Raising cash via equity release has been a popular method in the past to help loved ones get on the property ladder too. A boost to a deposit could help cut the interest rate charged on their mortgage, making significant savings in the long term.

Other popular uses include home improvements, clearing debts – either an existing mortgage to eliminate the burden of making monthly repayments – or to consolidate unsecured debt.

 

“With inflation now in double figures – hitting 10.1% in the 12 months to July  – household budgets are being hit hard.“

Some like to use it simply to establish a savings buffer.

Equity release plans have changed over the years, becoming far more flexible. For example, more than two thirds (68%) of equity release loans allow customers to make voluntary capital repayments with no early repayment charge4.

This reduces the final interest payment due when the property is sold, leaving more money for long-term care or to leave as inheritance.

The Equity Release Council has highlighted that by making penalty-free partial loan repayments in 2021, customers reduced their future interest costs by tens of millions of pounds[5].

It’s expected that the amount of money taken through equity release loans will grow as time goes on and people rely more heavily on equity release as a source of funds.

The Centre for Economics & Business Research (Cebr), forecast that the average amount of equity released is set to rise above £170,000 within the next five years, even taking into account an expected slowdown in house price growth[6].

INTERESTED IN EXPLORING EQUITY RELEASE?

It’s worth exploring equity release with a Tavistock specialist equity release adviser who can give specialist advice, which is vital to help people to make the right choices for their individual circumstances now and in the future. It’s also smart to discuss an existing equity release loan with an adviser to see if there’s a better deal available that could save you money on interest payments. You may even want to switch to a more flexible loan than you already have.

PROVIDING NEWS AND VIEWS TO SUIT ALL NEEDS

This Blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person.

Tavistock Partners Limited is authorised and regulated by the Financial Conduct Authority. Tavistock Partners (UK) Limited is authorised and regulated by the Financial Conduct Authority. Tavistock Private Client Limited is authorised and regulated by the Financial Conduct Authority. The Tavistock Partnership Limited is authorised and regulated by the Financial Conduct Authority. Abacus Associates Financial Services is a trading style of Tavistock Partners (UK) Limited which is authorised and regulated by the Financial Conduct Authority. Duchy Independent Financial Advisers is a trading style of Tavistock Partners Limited which is authorised and regulated by the Financial Conduct Authority, All subsidiaries are wholly owned by Tavistock Investments Plc.

How your pension can benefit loved ones

How your pension can benefit loved ones

by | Aug 4, 2022 | Uncategorized

How your pension can benefit loved ones

 

07

SEPTEMBER, 2022

Pensions

Your family could benefit from your pension savings after you are gone – it all depends on the type of pension you have.

For personal pensions, the rule changed in 2015 that gave everyone access to savings at age 55 which also included new measures for passing on your pension after you die.

Workplace pension schemes offer some benefits to families too, with some offering pension death benefits.

Passing on your pension

If you die before you turn 75 and haven’t touched your pension, the money can be passed to your beneficiaries tax-free.

In this case, the money can be taken as a lump sum, invested in drawdown or even used to purchase an annuity.

If you die before your 75th birthday, and have already started drawing your pension, the rules are different. The way you have chosen to access your savings will determine the action your beneficiaries can take. For example, if you’ve withdrawn a lump sum and you have remaining cash in your bank account outside your pension, this will be counted as part of your estate. But if you’ve opted for drawdown your beneficiaries can access whatever’s left in your pension entirely tax-free.

If you die age 75 or older, your untouched pension pot can be paid to your beneficiaries either as a lump sum or through beneficiary drawdown, or an annuity. All payments will be subject to income tax at their marginal rate, but not inheritance tax.

Expression of wishes

To ensure your pension gets passed on after you die it’s important to let your pension provider – private or workplace – know your nominated beneficiary – as well as their contact details. A nomination or expression of wish form clearly lays out who you would like your beneficiary (or beneficiaries) to be and should be updated to reflect any changes in circumstances – such as marriage or divorce.

The rules of your scheme

All schemes differ so it’s important to understand what beneficiaries are permitted to do with the money that’s rightfully theirs. Some schemes don’t offer the fund to be converted to income drawdown – and typically you can’t transfer a death benefit so moving to a provider that does offer drawdown won’t be an option.

You might also check whether beneficiaries are entitled to the whole value of accrued funds, or only part of them.

It’s worth checking on the way in which benefits are paid, as it could impact how they are taxed.

If they are left to your estate, they could be subject to inheritance tax. But if they are left under the discretion of the scheme trustees, inheritance tax can be avoided.

Final salary pensions

If you die while an active member of your defined benefit pension scheme, your beneficiaries might get a lump sum. This is often a multiple of your salary.

If your pension is being paid, there’s often a guarantee period (usually 5-10 years).

If you die within the guarantee period, a lump sum might be paid to your beneficiaries.

GET ADVICE

Pensions can be complex so it can help to have an adviser on hand to do the investigatory work on your behalf. They can help with any restrictions on schemes and keep you up to date with any rule changes that are common with pensions.

 

 

PROVIDING NEWS AND VIEWS TO SUIT ALL NEEDS

This Blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person.

Tavistock Partners Limited is authorised and regulated by the Financial Conduct Authority. Tavistock Partners (UK) Limited is authorised and regulated by the Financial Conduct Authority. Tavistock Private Client Limited is authorised and regulated by the Financial Conduct Authority. The Tavistock Partnership Limited is authorised and regulated by the Financial Conduct Authority. Abacus Associates Financial Services is a trading style of Tavistock Partners (UK) Limited which is authorised and regulated by the Financial Conduct Authority. Duchy Independent Financial Advisers is a trading style of Tavistock Partners Limited which is authorised and regulated by the Financial Conduct Authority, All subsidiaries are wholly owned by Tavistock Investments Plc.

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