What could be the best way to provide for your grandchildren?

With both property prices and the cost of living continuing to rise, as well as low interest rates making it difficult to save, the ‘Bank of Mum and Dad’ is increasingly becoming a partnership with the ‘Bank of Gran and Grandad’. If you have grandchildren, it’s only natural that you’ll want to provide for them in some way as you move towards your retirement years. But what’s the best way of supporting the younger members of your family in the long term as well as the short term?

One way that you could do this is to set up and regularly contribute to a pension in your grandchild’s name. As today’s younger generation are likely to miss out on the robust pension security enjoyed by their parents and grandparents before them, creating a pension for them early in their life will undoubtedly help them in the decades to come.

A key plus point of paying into a pension is the tax relief your investment will enjoy. Including the 20% boost this relief will provide, you can pay in up to £3,600 annually to your grandchild’s pension even if they’re not yet earning an income. Adding £240 a month will achieve this sum, with £2,880 paid in by you and a further £720 in tax relief claimed by the pension provider automatically.

Doing this for fifteen years will mean that a 21-year-old grandchild today could have a pension pot of £220,000 by the time they reach 57, and that’s without including any additional contributions. Assuming an annual net growth of 5% after charges, if the pension remains untouched until they reach 67 it could grow further, to around £340,000.

However, this highlights the one potential drawback of choosing to pay into a pension: the money won’t be available to your grandchild until they reach their 50s. Whilst this does mean it can be left to mature, it also means that any money paid in won’t be available should it be needed. As there are likely to be other forms of expenditure you might want to help grandchildren with, such as paying for a deposit on their first home or going to university, you should think carefully about how much you want to put away for their future and how much you want to make available to them in the short term.

4 steps to keeping track of your pension

A recent study has revealed the worrying statistic that over a fifth of all people with multiple pensions have lost track of at least one, with some admitting to have forgotten the details of all of them. With around two thirds of UK residents having more than one pension, this amounts to approximately 6.6 million people with no idea how much they’ve put away for their retirement. Double the amount of people admit to not knowing how much their pensions are worth.

It’s an undesirable side effect of the modern working world. Whereas in previous generations someone might stay at a single employer for their entire working life, the typical worker today will hold eleven different jobs throughout their career, which could potentially mean opting into the same number of pensions through as many different providers. The new legal requirement for all employers to offer a pension scheme through auto-enrolment is likely to add further complexities.

As a result, the Pensions Dashboard is set to launch in 2019 in the hope that it will make it easier for savers to keep track of their pensions in one place. Until then, however, there are four relatively simple steps to help you track down information on any pensions you’ve forgotten about:

  1. Find your pension using the DWP Pensions tracing service at www.gov.uk/find-pension-contact-details. Start by entering the name of your former employer to discover the current contact address for them. You’ll then need to write to them providing your name (plus any previous names), your current and previous addresses and your National Insurance number.
  2. In the case of a pension scheme which hasn’t been updated for a while, you’ll be required to fill out an online form to receive contact details. You’ll be required to give your name, email address and any relevant information to help track down your pension details. This could include your National Insurance number and the dates you worked for the company.
  3. You can also receive a forecast of your State pension either online or in paper format by going to www.gov.uk/check-state-pension. After entering a few details to confirm your identity, you’ll be told the date you can access your State pension and how much you’ll receive.
  4. Finally, and most importantly, once you’ve managed to track down all of your pension information, get some advice. Consolidating your pensions might be tempting to make managing your savings easier, but you also want to make sure you don’t lose out on any benefits by doing so. Before you make any decisions regarding your pensions, seek professional independent advice on what to do next.

Should I transfer out of my final salary pension scheme?

Retirement consultancy Mercer recently revealed that the final salary pension deficit of the 350 largest companies listed in the UK had reached £137 billion by the end of last year, despite the FTSE 100 index closing 2016 at a record high. That figure is more than three times the corresponding deficit amount of £39 billion at the end of 2015. “This continues to put real pressure on any risk management plans”, says the UK defined benefit risk leader for Mercer, Alan Baker, “and will require trustees and corporate sponsors to work closely together”.

It’s perhaps no surprise then that more and more people are seriously considering cashing in their final salary pensions and transferring the funds to an alternative pension scheme. This is in stark contrast to past trends, where the security of a guaranteed income for life often linked to inflation was generally seen as something not worth risking.

However, with a considerable question mark hanging over where the funds for many final salary pensions will come from in the future, suddenly the guarantee feels far from ironclad. As the title of a recent Telegraph article put it, if former pensions minister Ros Altmann has opted to cash in in her final salary plans, perhaps you should too.

Transferring from a final salary to a defined contribution pension will give you a large lump sum, which is usually twenty times the amount you would receive annually from your final salary pension. Whilst the latter doesn’t offer the guaranteed income of the former, it does allow much more flexibility. Benefits include the ability to take multiple lump sums and the ability to pass on any unused savings after your death without the need to pay any inheritance tax.

Another worry for some is that the economic turmoil of 2016 following the EU referendum and US election results could mean that the amount offered to transfer out of a final salary scheme may be about to drop sharply. There is also the recent debacle surrounding the collapse of BHS and the impact this has had on the pensions of its former employees, which have now fallen into the Pension Protection Fund with incomes capped at 90% for those who have yet to retire.

All of which means that final salary pension schemes no longer feel like the rock solid retirement income they once were. However, if you’re considering transferring your final salary scheme to an alternative, as with any major financial decision, this should always only be done after seeking independent financial advice. If you have any questions around this topic, please feel free to get in touch with us directly.

What is the ‘real rate of inflation’?

The current projected figures for 2017 see inflation set to grow by between 2.5% and 3%, but there are already reports surfacing that this figure is misleading, with most families set to experience much higher increases than this, thanks to the ‘real rate of inflation’. But what does that actually mean and why is the real rate so different to the projected figure?

The official rate of inflation has been calculated by the government using the consumer price index (CPI) since 2003. The CPI is worked out by looking at the prices of set goods and services considered by the Office of National Statistics to be representative of how an average person in the UK spends their money. However, as with any average measure, some people will inevitably experience their own rate of inflation above or below the CPI.

Whilst the CPI was adopted due to its similarity to how other countries work out their rates of inflation, thereby making it easier to compare UK inflation to that of other nations in a meaningful way, it doesn’t include a number of key figures in its calculation. For example, CPI doesn’t include housing costs or council tax increases, both of which have seen faster increases than inflation for a number of years. The previous official measure of inflation, the retail price index (RPI), did include these and has generally been around 1% higher than CPI over the last couple of years. RPI is also important as, whilst no longer classified as a national statistic, it is still regularly used by employers and trade unions when negotiating wages.

There’s also the variation in what different social groups will spend their money on. Food, energy and petrol prices have individually seen much sharper rises than the CPI, which means that people who spend more of their money on these goods and services will experience a considerably higher individual rate of inflation than the national average.

So whilst the official rate of inflation is forecast to be around 3% this year, the real rate of inflation is set to rise by a greater amount than that – which unfortunately means that many families will find their income squeezed a little more for the foreseeable future.

5 things to do before your Year End

With only a few months left until the end of the financial year, it’s a good time to start thinking about your Year End (if this aligns with the financial year) and ensuring you have everything in order in good time to avoid complications or penalties. It can be a daunting task for both first-time accountants and those with plenty of experience, and certainly not something you want to leave until the last minute. With that in mind, here are five tips for ensuring you’re ahead of the game when it comes to preparing for your Year End:

  1. Ensure your expenses are in order – Making sure you claim every legitimate business expense will ensure your company won’t pay more Corporation Tax than necessary. According to HMRC, anything that has been purchased “wholly and exclusively” for business use can be claimed as a business expense, so anything purchased for your business can almost certainly be used to reduce your company’s tax bill.
  2. Chase up any unpaid invoices – You want your Year End to be accurate, so any outstanding debts need to be chased up and paid. This will ensure you can correctly document the money in your company’s bank account and allow you to update the records in your accounting software with total accuracy.
  3. Don’t forget your VAT Returns – Whilst they’re not usually considered part of your Year End, VAT Returns usually happen at the same time. If your company is VAT Registered, make sure you file your VAT at the same time as your Year End to avoid any issues.
  4. Start thinking about your Annual Return – As your Annual Return is due 28 days after the start of your new company year, it’s a good idea to make a start on it as you work on your Year End. Your Annual Return summarises your company’s details, including the details of any directors and shareholders, as well as the trading activity and registered address.
  5. Have a look at your suppliers – An annual review of your service providers will ensure you’re not spending too much or paying for services you no longer need. Doing it at the same time as your Year End keeps things neat and tidy too, allowing you to start afresh with any new suppliers at the beginning of a new financial year.

The new pensions minister’s savings tips!

Richard Harrington, who was made pensions secretary by Theresa May soon after she assumed office as Prime Minister in July last year, recently wrote an article for This Is Money divulging his spending tips for 2017. It’s a piece littered with what could be called ‘financial advice’, so what does the new minister recommend we do with our wealth this year?

Harrington’s first piece of advice is to look at your pension, even if you’re not going to be retiring for many years to come. The government has set up a website called ‘Check Your State Pension’, which can be found at www.gov.uk/check-state-pension and allows you to see an estimate of your state pension’s worth and when you’ll currently be eligible to receive it. There’s also a Pension Tracing Service set up by the government at www.gov.uk/find-pension-contact-details to help you identify pension schemes you’ve paid into in the past of which you may have lost track.

The article also advises those already in retirement to look into whether the State Pension Top Up Scheme will benefit them. The scheme allows those who reached state pension age before 6th April 2016 to make a one-off payment to increase their retirement income by up to £25 a week, but it’s only available until the end of the current tax year.

Other key pieces of advice from Harrington include urging younger earners to leave their pensions alone to ensure contributions made now have decades to build up interest, and looking into whether your employer will match any increases in pension contributions you decide to make.

The pensions secretary also warns against the many pensions scams still operating within the UK, advising strong caution against anyone offering attractive rewards for investing pension savings. If it seems too good to be true, it probably is, so do your research thoroughly and check with the Financial Conduct Authority to avoid losing your hard-earned money.

Harrington ends his article with a reminder that the UK has no set retirement age and that over 1.2 million over 65s are still employed, so if you enjoy your job there’s no compulsion for you to retire immediately. Delaying your state pension if you choose to carry on working can give your income a healthy boost when you do decide to retire.

4 things to do before the end of the tax year

The beginning of a new calendar year should serve as a timely reminder that we’re only three months away from the end of the current tax year. It might feel at the moment as though there’s plenty of time until the beginning of April, but ensuring you make use of the remaining months before they disappear is always a good idea. Here are our top four tips for ways to make the most of this tax year whilst you can.

  1. Maximise your ISA contributions – Making the most of any Individual Savings Accounts you have is normally a sensible way to invest your money. If you reach the end of the tax year without reaching the investment limit for your ISA, there’s no way to carry it over, so it could be tempting to invest as much as possible. The limit for the 2016/17 tax year is £15,240 and, unlike a few years ago, can be entirely made up of cash if you wish.
  2. Check your pension contributions – Keeping an eye on your pension contributions at least once a year is a good idea. You can use pension contributions to help you manage tax liabilities, but high earners should keep the lifetime pension allowance in mind. The current allowance is £1 million, having been reduced from £1.25 million in April 2016, so anything over that amount in your pension is taxable.
  3. Don’t forget your Capital Gains Tax Allowance – The Capital Gains Tax Allowance for the 2016/17 tax year is £11,100 per individual, which means that couples can pay no tax on up to £22,200 of capital gains. Genuine gifts from a civil partner or spouse do not count towards the allowance, and there are other exemptions too, so it’s worth having a look at where you could make some tax savings.
  4. Boost your children’s savings too – Whilst thinking about your own financial planning it can be easy to overlook the ways any offspring under the age of 18 can benefit too. If they have a Junior ISA, make the most of the £4,080 investment limit. Don’t forget they also have the same Capital Gains Tax Allowance and can make pension contributions of their own.

What will the new government-backed savings bond mean for savers?

Amongst a generally gloomy Autumn Statement, chancellor Philip Hammond offered a potential ray of hope for those looking to achieve better returns on their nest egg, thanks to the announcement of a new government-backed savings bond. Set to become available from spring 2017 through National Savings & Investments (NS&I) for those prepared to put their money away for three years, the bond will have an interest rate of 2.2%, making it a considerably better option than the current top rate three-year bond which offers just 1.63%.

Whilst the higher interest rate has been welcomed by many, the new bond has also been criticised for its low investment limit of just £3,000. Were you to invest the full amount in 2017, by 2020 you would have earned only a little over £200 in interest. When put alongside its predecessor, the pensioner bond, which allowed up to £10,000 to be invested at 4% interest for the same amount of time, the new bond pales in comparison somewhat.

However, there are reasons to consider the bond when it becomes available at the beginning of this year. As with any NS&I product, all money saved is entirely backed by the treasury ensuring your money is completely secure. Whilst pensioner bonds were more generous, they were limited to those aged 65 and over. In contrast, the new bonds have no age limit, meaning that many more people can take advantage of them.

It’s also worth considering the potential for financial uncertainty in the next few years, particularly as the formal Brexit process is set to be triggered in 2017. The government-backed bond could well be the best investment product available for the foreseeable future, so if you have cash you want to invest and you’re happy to leave it untouched for three years, it makes sense to generate as much interest from it as possible whilst you keep an eye on future investment opportunities for your money.

4 companies using Brexit to put up prices

Six months on from the Brexit result and there are many factors of the UK’s impending departure from the EU that remain clouded in mystery. What has become clear, however, is the impact the vote to leave has already had and will continue to have upon the price of products. A number of companies have already used Brexit as an excuse to increase the price tag on everything from the latest technology to the groceries in your shopping basket, despite the fact that Article 50 hasn’t even been triggered yet. Here are four of the main offenders:

  1. Apple – The computer giant’s price hikes have perhaps received more coverage than those of any other company. It’s partly due to the fact that the Mac Pro desktop computer, a piece of kit that hasn’t been updated for three years, has seen a whopping £500 added to its already hefty £2,499 price tag. That the company was ordered by the EU to pay €13 billion (£11 million) in back taxes earlier this year hasn’t helped their case with consumers either.
  2. Unilever – The multinational company made headlines in October for increasing the price of Marmite – a move which prompted some major supermarket chains to briefly remove the love-it-or-hate-it spread from their shelves – but several other products likely to feature in your weekly shop also cost more than they did before 23rd June. These include Hellmann’s mayonnaise, Comfort fabric conditioner and PG Tips tea bags.
  3. Walker’s – The crisp manufacturer blamed the need to increase the price of a standard 32g bag from 50p to 55p on ‘fluctuating exchange rates’ – a move which angered some snack fans as Walker’s crisps are manufactured in Britain using potatoes grown in this country. The company responded that, whilst this is the case, packaging, seasoning and oil are all imported
  4. LEGO – The latest additions to the Brexit price hike are the much-loved Danish plastic bricks. Fiona Wright, LEGO vice-president, has announced that the prices of the company’s toys are set to rise by 5% on average. Parents can take some comfort in the fact that the increase is set to come into effect on January 1st 2017, allowing any LEGO Christmas gifts to be bought before the price goes up.