Search

Clarke Nicklin Financial Planning

'protecting your wealth and helping your investments grow'

Month

July 2017

New Lifetime ISA – save for a new home and or retirement

The start of the new tax year on 6 April 2017 saw the launch of the Lifetime ISA (LISA). A new type of Individual Savings Account (ISA) to help save for a first home or towards retirement at the same time. To be eligible, you have to be aged between 18 and 39 years old.

You can save up to £4,000 which will be supplemented by a government bonus of 25% of the money you put in up to a maximum bonus of £1,000 each year.

You’ll obtain a bonus on any savings you make up until you reach 50 years of age, at which point you won’t be able to make any more payments into your account.

If you already have a Help to Buy: ISA, you’ll be able to transfer your balance into a LISA at any time if the amount doesn’t exceed £4,000. In the tax year 2017/18 only, you’ll be able to transfer the full balance of your Help to Buy: ISA – as it stood on 5 April 2017 – into your LISA without affecting the £4,000 limit. Alternatively, you could keep your Help to Buy: ISA and open a LISA, although you’ll only be able to use the bonus from one of these accounts towards buying your first home.

You will be able to use funds held in a LISA after 12 months to buy a first home valued up to £450,000. You must be buying your home with a mortgage.

Alternatively, after your 60th birthday, you will be able to take out all your savings from your LISA tax-efficiently for use in retirement.

A LISA can be accessed like a normal ISA at any time for any reason, but if not used as above, you’ll have to pay a withdrawal charge of 25% of the amount you withdraw (being the government bonus plus a penalty of 5%). However, this withdrawal charge won’t apply if you decide to cash in your account during the first 12 months after its launch.

If you want to use your LISA to save for a property as well as for retirement, once you’ve bought your first home, you will be able to continue saving into your LISA as you did previously. You’ll continue to receive the government bonus on your contributions until you reach the age of 50.

LISAs can hold cash, stocks and shares qualifying investments, or a combination of both. The option that is right for you will depend on your approach to risk, your investment time frame and how confident you are making your own investment decisions.

 

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

STOCKS & SHARES ISA INVESTMENTS DO NOT INCLUDE THE SAME SECURITY OF CAPITAL THAT IS AFFORDED WITH A CASH ISA.

 

Pension freedoms – Retirement savers say they are still confused by the rules

It was over two years ago that the pension freedoms reforms took effect. Some retirement savers say they are still confused by the rules and want no more changes.

The changes of April 2015 represented a complete shake-up of the UK’s pensions system, giving people much more control over their defined contribution pension savings than before. There are now more options, enabling some people aged over 55 to have greater freedom over how they can access their pension pots.

Still confused by the reforms

Independent research* from Prudential highlights that two thirds of over-55s – the age from which retirement savers can utilise the new rules – say they are still confused by the reforms.

Government figures** highlight the cost of this confusion for retirement savers, as tax bills related to the pension freedoms are now greater than anticipated.

It was initially estimated that the changes would mean a total of £900 million being paid in both tax years 2015/16 and 2016/17. In fact, a total of £2.6 billion in tax is now expected to be paid.

Having an impact in other ways

Nearly one in ten over-55s say they have made changes to their retirement plans as a result of the reforms.

However, concerns that pension rules may change again in the future persist, with a high percentage of over-55s worried that the State Pension might be reduced or abolished.

Nearly two thirds also believe that tax relief on pension contributions will be reduced at some time in the future.

Increased flexibility brought about by the reforms

Nearly 550,000 people have accessed more than £9.2 billion in funds since the launch of pension freedoms***, demonstrating that there is popular demand for the increased flexibility brought about by the reforms.

Importance of advice and guidance

This widespread confusion underlines the importance of advice and guidance in ensuring that the pension freedoms are a long-term success, and many savers recognise how advice can help them to make the most of their retirement pot.

How you take your pension could have many consequences, including putting you in a higher tax bracket – even if that is not normally the case.

First step towards having sufficient income for a happy retirement

The pension freedoms provide a framework of rules, but it is down to individuals to seek help where needed to enable them to plan how to meet their financial goals. Saving as much as possible as early as possible during your working life is the first step towards having sufficient income for a happy retirement.

Source data:

* Consumer Intelligence conducted research on behalf of Prudential between 17 and 24 February 2017 among a nationally representative sample of 867 people aged 55-plus

** https://www.gov.uk/government/publications/spring-budget-2017-documents

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/597335/PU2055_Spring_Budget_2017_web_2.pdf

*** https://www.gov.uk/government/statistics/flexible-payments-from-pensions

A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

 

Blog at WordPress.com.

Up ↑