Retirement options for high income earners

In this world of ours very little stands still. The same can be said for the pensions landscape, as rule changes over the years have made retirement options for high income earners harder and harder to navigate.

High earners are faced with even more restrictions and potential pitfalls, making it vital to understand the rules and seek specialist wealth planning advice. Calculating your ‘adjusted income’ for example, can be complicated but your wealth adviser can do this for you. You could also be affected by the lifetime allowance (currently capped at £1,073,100), the annual allowance (currently capped at £40,000) and the tapered annual allowance (which can reduce to just £4,000 for individuals with ‘adjusted income’ over £312,000).

Luckily, there are tax-efficient options available to high earners wanting to save for retirement.

ISAs
Since their launch, ISAs have been a phenomenal success story. A few years ago, research identified more than 1,000 ISA millionaires in the UK, and this number has certainly expanded since. ISAs allow you to place £20,000 each year in a tax-free wrapper, and the compounding effect plus a supportive market over time can make a real difference.

Spreading investments between spouses
Putting a portion of your investment capital in your spouse’s name makes a lot of sense. It allows each of you to take advantage of your respective tax positions and allowances and could boost your net position.

Offshore bonds
An ‘offshore bond’ is a tax-efficient investment wrapper set up by a life insurance company in a jurisdiction with a favourable tax regime, such as the Isle of Man or Dublin. Because any growth in the investments held within the bond is not subject to UK tax, it can be a useful way to top up retirement savings, although foreign taxes may be deducted at source. 

It is possible to withdraw up to 5% of your original investment each year for 20 years without incurring an immediate income tax liability. If the 5% allowance is not used in a given policy year, the unused allowance carries forward to the next policy year on a cumulative basis. This enables you to select the most opportune time to incur a tax charge.

If you have a higher income, multiple or large pension pots or more complex requirements, retirement planning can be complicated – and there are many rules just waiting to trip you up. If you’d like to ensure you are making the most of pension allowances and consider alternative ways to save for your future, our wealth planning team is here to help.

By Philip Harper  |  October 2021

Don’t experiment with your investments

Product providers may lure investors with the promise of glittering returns and market outperformance. In reality, only a few achieve this. We believe investors are better served aiming for realistic and consistent long-term investment returns.

 What is a reasonable goal for your investments?
The answer for many investors is market returns aligned with their risk profile. Understanding your risk profile is the cornerstone of constructing a suitable long-term investment portfolio. Conversely numerous academic studies have shown that aggressive strategies chasing returns and the latest ‘hot stocks’ very rarely beat the market.

These mistakes can reduce investment growth. Aiming for market returns is a good starting point when building wealth. Deciding which markets to invest in is also essential and stick to your investment strategy. Many investors take inappropriate risks, investing in products they do not fully understand, make hasty decisions when stocks experience sharp swings, and they pay too much in fees.

You can be more successful with your investments by avoiding common pitfalls, we recommend:

 Have an investment plan for the long term and stick to it. Your strategy must be tailored to your goals and objectives, risk profile and time horizons. Start investing as soon as possible.

Diversify and always consider your investment as a whole: Know what you are buying and understand it thoroughly. Select high-quality funds for your portfolio while being mindful of costs. Indexed tracking funds may offer transparency, low costs and close to market performance for the index they aim to replicate.

Review regularly: Review your risk profile at least annually or whenever there is a change in your financial or personal circumstances. You may need to rebalance your portfolio to adjust different asset class weightings back to your long-term strategy possibly with expert help.

The best investment is advice: If you would like to potentially boost your long-term investment success, please contact us to conduct a review of your portfolio.

By Philip Harper  |  July 2021

Saving the planet with our savings

A more sustainable approach to investing is gaining momentum, moving from a niche, bespoke area to a more mainstream investment.

It’s called ESG investing – the Environmental, Social and Governance factors that some Managers now consider when building a more sustainable philosophy within a portfolio. Public consciousness as we know has shifted on a broad range of issues and these ESG factors are a growing attempt to help address areas becoming increasingly important to savers.

This sustainable investment approach aims for strong, long-term returns with a desire to improve corporate practices thus benefiting society and the environment. This sounds very laudable of course, but versions of this have been around for some time receiving a somewhat lukewarm response due to a perception of higher costs and a trade-off in performance.

Interestingly the performance of some of the specialist funds in this area is very impressive.

Risk rated solutions from managers are also making this approach accessible to those looking for true diversification of risk, and more solutions are coming to market. In fact, Morningstar research shows that amounts invested into ESG funds have increased by 53% over the past year.

Electric battery development is for example a key focus for many of the traditional fuel suppliers, and the winners in this race could provide significant investment returns. Related to this, is the consistent income generated by wind & solar farms and this can also represent a strong diversifier.

We believe this is an exciting development where investing money in line with our own financial plan also creates a potentially greater outcome to our planet.

By Philip Harper  |  June 2021

Bring your cash ISAs to life

The question is, was it a mistake by investing in the first place? The answer in many cases is no. The reason is having the option to organise an ISA transfer, which is effectively moving the tax-free ISA value across to a product that might be more appropriate and with the potential for better returns.

This can involve increasing the investment risk, however is does not necessarily mean moving from low to high risk. The most popular choice is for retirees to move cash ISAs across to an income portfolio and although this does mean introducing higher volatility, the income stream from a well-managed portfolio can be extremely consistent, currently delivering tax free monthly income between 3% and 4%.

Alternatively, for those not requiring income, an option to invest into a risk graded model portfolio often provides an attractive solution using the following fund profiles:

• Cautious
• Moderately Cautious
• Balanced
• Moderately Adventurous
• Adventurous

What makes this opportunity even more viable follows the introduction of the new Personal Savings Allowance (PSA). This is the amount of interest which can be earned tax free and for a basic rate payer this amounts to £1,000 per annum. A deposit account can be seen as an extension to the cash ISA allowance, leaving your proper ISA open to find a better home.

By Philip Harper  |  April 2021

Investing for children

A case of tax efficiency versus control

We have a silly phrase we use with clients which is: ‘don’t let the tax wag the dog’. The words don’t make a lot of sense but somehow the meaning is generally understood, and we use it frequently when talking about investing for children.

The temptation for many is to look no further than Junior ISAs (JISA), a tax-exempt allowance of £9,000 per tax year which individuals can use to save for children. A variety of investment companies offer JISAs and access to some excellent funds is available. So, what’s not to like about JISAs? The answer is control. Firstly, access to any of the funds inside a JISA is not permitted until the child reaches age 18, so no dipping in to help fund the school ski trip. Secondly at age 16 the child takes ownership of the investment and age 18 they have full control – not you.

And these are the reasons we often encourage clients to look at alternative options. Our most popular solution is to set up an investment which is ‘designated’ for the child, but crucially the ownership remains with the investor and full access to funds is available at anytime without penalty. This account can be established in such a way that it does not disturb the investors own ISA allowances and although there may be some small tax considerations, we firmly believe when investing for children, control overpowers tax efficiency on most occasions.

By Philip Harper  |  February 2021

Saying a little prayer

This may be of little help if your loved one dies without a will…

Aretha Franklin, Jimi Hendrix, Bob Marley, Amy Winehouse and Prince are some celebrities who have died intestate. It is a common misconception that if you die without a Will, your closest relatives will decide how assets are split. This is not the case. There are rigid rules and in some cases the government can collect the lot.

About 30 million adults in the UK do not have a Will and, more worryingly, this includes 54 per cent of people with children, and 64 per cent of unmarried couples, according to Will Aid, a charity that encourages people to make a Will. Yet failing to make provision for your loved ones when you die can lead to confusion and heartache. Your wealth could go to people you did not intend it to go to, depriving those you cared for most. We answer your questions on what happens if you die intestate.

What happens if we have children?
The surviving spouse would inherit the first £270,000 of the estate, all personal items and half of whatever remains. The other half is inherited by the children and is divided equally between them, although they cannot gain access to the estate until they are 18. This applies to all children of the parent who has died, even if they come from different relationships. A quirk of this is that the share of any estate that does go to children may be subject to inheritance tax.

We are an unmarried couple living together, with children. What happens when one of us dies?
The key thing is that the surviving partner does not inherit anything, because the term “common-law partner” has no legal standing. Therefore, it is so important for couples in this position to make wills. Under the intestacy rules, the deceased person’s estate would be shared equally between the children.

What if we don’t have children?
The estate will pass to the deceased person’s parents, if one or both are alive. Failing that, it would be divided equally between any surviving brothers and sisters, or failing that, to any half-brothers and half-sisters.

Next in line come any grandparents. Followed by aunts and uncles, then half-aunts and half-uncles. If there are no surviving relatives in these categories, the estate passes to the Crown.

If there are no surviving blood relatives, what happens then?
The estate passes to the Crown under a process known as bona vacantia. The Crown can grant shares in the estate to those who can prove that they have an entitlement, although it is under no obligation to do so.

When a parent dies intestate, does care of any dependent children pass automatically to the surviving spouse?
It doesn’t, and more than half of those with dependent children do not realise this. This is another example of how importance of making a Will goes well beyond simply disposing of an individual’s wealth.

What happens if both partners die at the same time?
The same rule applies: custody of the children will not go automatically to the relatives or individuals whom they intended it to go to if they have not made their wishes clear in a Will.

By Kelly Wilkes |  November 2020