Retirement Your - Alliance Trust · 2019. 3. 20. · Welcome Alliance Trust Savings Limited PO Box...

YourRetirement

Our perceptions of retirement and what it means for us are being challenged. We explore what this might mean for you.

Advisers, fund managers and members of our team each share their views on the challenges of investing for retirement today and their tips for making a success of it.

Olympic rowing gold medallist Katherine Grainger tells us how she keeps her finances afloat.

Issue 2

Welcome

Alliance Trust Savings Limited

PO Box 1648 West MarketgaitDundee DD1 9YP

Tel +44 (0)1382 573737Fax +44 (0)1382 [email protected]

If It’s true thAt chAnGe brInGs OppOrtunIty, then We hAve It All tO plAy fOr When It cOmes tO Our retIrement sAvInGs.

It may also be true that with opportunity comes threat, and, whether you’re about to retire or you’ve only just embarked on your working life, there are doubtless plenty of challenges ahead. From the growing number of

people working past state pension age to a rise in life expectancy at three years per decade (according to the Office for National Statistics), our perceptions of retirement and what it means for us are being challenged.

And the pace of change is accelerating, due in part to government legislation. Last year saw the launch of pensions ‘freedom’, which saw the removal of restrictions on access to pension savings.

The start of the new single tier state pension in 2016 represents another big shake-up. While that will affect people retiring after April, changes that month to pension contribution allowances will impact on many people trying to set aside as much for their retirement as they can.

In other words, there’s almost certainly something changing in the world of pensions that could have a big influence on your own retirement plans.

The good news is that there’s plenty you can do to ensure those plans are in good shape, whatever life (or the government) throws at you.

Whether you’re already retired, just starting out on the long road to retirement or somewhere in between, there will be something for you in this edition.

We take a closer look at why we need to think differently about retirement; why consolidating your pensions could be worth thinking about (and how to do it); the respective merits of pensions and ISAs; and some of the changes to look out for in 2016.

We also hear from some of our Alliance Trust Savings staff, who share some of their top savings tips, while Olympic rowing gold medalist Katherine Grainger tells us how she keeps her finances afloat.

I hope you find the magazine enjoyable, interesting and informative. But please feel free to share your feedback and let us know what else you’d like to us to cover, by emailing [email protected].

Brian Davidson Senior Pensions Proposition Manager Alliance Trust Savings

Contents

Investments can go down as well as up. You may get back less than you originally invested. This magazine is not intended as advice or a recommendation to buy, sell or hold any of the shares, companies or investment vehicles mentioned within its pages. Alliance Trust Savings Limited does not give advice. If you are unsure whether an investment is right for you, you should seek professional advice. Please refer to the key risk warnings on the back page. The articles in this magazine from fund managers have been paid for, and as such Alliance Trust Savings do not have editorial control of the content.

4 Retirement times are changing The implications of a longer retirement –

and how to ensure you’re prepared for it.

6 The adviser view Two award winning advisers give their take

on the changing face of retirement.

8 Top tips from our team Our team give their top tips for getting your

financial house in order.

10 Wish fulfilment New rules mean it’s time to look again at what

will happen to your pension assets when you die.

11 Don’t get PIPped at the post New rules mean you could contribute up to

£80,000 into your pension this tax year.

12 Going for Gold We talk to cover girl Katherine Grainger about

how she’s preparing for her financial future.

14 The great pension vs ISA debate Have you got the savings split right between

these two tax advantaged products?

16 Is it time to consolidate? What could fragmented pension pots mean for

your financial future? And is it time for action?

18 Global Economic View 2015 was a year of volatility and uncertainty.

What might 2016 hold for the global economy?

20 Challenges facing income investors today

How might those challenges be met? Steven Andrew of M&G talks us through the options.

22 Looking ahead April 2016 sees savers and investors affected by

more tax changes. What do you need to know?

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18

10

14

A quarter of a century ago, the day you began to draw your pension might reasonably have been seen as a kind of financial-planning finishing line – today it is more like the start of whole new race.

4 | Your Retirement | Issue 2 Your Retirement | Issue 2 | 5

Retirement times are changing

lIKe nOstAlGIA, retIrement Isn’t WhAt It used tO be. there WAs A tIme, And nOt All thAt lOnG AGO, When yOu KneW yOu WOuld retIre At 65 As A mAn Or 60 As A WOmAn, yOu WOuld use Any pensIOn pOt yOu hAd buIlt up tO buy An AnnuIty thAt WOuld pAy A dOuble-dIGIt rAte And, If We Are beInG hOnest, yOu Were nOt GOInG tO be ArOund All thAt lOnG tO enjOy It.

Go back 25 years, for example – when annuity rates were nearer to 15% than the 5% or so they are now – and, World Bank data tells, us the average life expectancy in the UK was 73 for men and 78 for women. Today, the respective figures are

79 and 82 but, remember, these are only averages – according to a Department for Work and Pensions study from 2011, a 65-year-old man now has about a one-in-12 chance of living to 100 while, for a 65-year-old woman, it is more like one-in-eight. Those kinds of odds are not lightly ignored.

To put it bluntly, whatever you have saved for your retirement is going to have to work very hard to stay the course – and that is before we add a raft of very 21st Century considerations into the mix. These include the rise of the so-called ‘silver separators’ – by 2037, predicts the International Longevity Centre, one in 10 divorces in the UK will involve people over 60 – and the ‘boomerang generation’ of grown-up children who have returned (or never left) home due to financial constraints.

Working beyond retirement age?It should come as little surprise then that more and more people are choosing to work well beyond retirement age. Admittedly this can be for positive reasons, with some preferring to make what has been characterised – and we promise this will be the last of our alliterative, colour-based age metaphors – as a ‘grey glide’ from full-time work to retirement for purely intellectual and social reasons.

Your Retirement | Issue 2 | 5

Charming as that may sound, however, the reason most people will find themselves working beyond the age of 65 is rather more pragmatic. According to a recent survey of more than 1,000 people conducted by employee benefit consultant Portus, 66% of the UK’s workforce expect to continue working past 65 while 11% believe they will have to keep going past 76.

And the principal reason for carrying on – as cited by 74% of those who felt this way – is they do not reckon they will have enough money to live on. Indeed, boomeranging back to an earlier point, some 13% of those canvassed believe it will be because they will have to provide financial support for their children, while 4% say they will be helping to fund their grandchildren.

It’s time to think differentlyWhat this all boils down to is that people now need to think very differently about how they go about funding their retirement. A quarter of a century ago, the day you began to draw your pension might reasonably have been seen as a kind of financial-planning finishing line – today it is more like the start of a whole new race.

In combination with the recent changes to the UK’s pension rules, which among other things have removed the obligation to use your pension pot to buy an annuity, a new set of risks need to be addressed. Instead of worrying so much about, say, market volatility and ‘date risk’ – that is, the possibility the pension pot you built up over decades falls significantly in value months before you buy an annuity – greater consideration must be given to the risks posed by longevity and inflation.

The two are of course connected because a retirement that will potentially last decades rather than years will demand your best efforts to ensure your pension pot keeps pace with inflation. Oddly enough, collateral damage in all these developments have been the so-called ‘lifestyle’ or ‘target date’ funds – portfolios whose mix of assets grows progressively more cautious (effectively

moving away from equities and into bonds and cash) as their target date, such as retirement, approaches.

This attempt at risk reduction could work well enough when people were counting down towards buying an annuity – and of course could continue to do so for those for whom an annuity may still be an appropriate course of action – but, over any significant amount of time, bonds and cash offer little to no protection against the erosive effects of inflation.

Three outcomes to focus onEverybody’s circumstances are different but, when you retire, you will probably focus on three outcomes for your savings – preservation of capital (not losing what you have); some appreciation of capital (an element of growth to ensure you keep pace with inflation over time and even have something to pass on to your children); and the generation of a decent income stream with the potential to maintain your purchasing power as the years go by.

This is likely to involve a well-diversified portfolio of assets, including a significantly higher allocation to equities than retirees have historically felt comfortable with, to give your pension pot and the income it produces the best chance of lasting as long as you do.

tAKe cOntrOl• Areyourpensioninvestmentsinlinewithyourplansatretirement?

Ifyou’reinbondsandcashapproachingretirementbutyoudon’tplantobuyanannuity,youmightwanttoreviewyourportfolio.

• Makesureyoudon’thaveallyoureggsinonebasket.Diversifyingacrossdifferentassetswillhelpreducetheriskofinvestmentlossesinadownturn.

• Ifyou’renearingretirement,askyourpensionprovider(s)forfundprojectionsandcontactthePensionServiceforastatepensionforecast(08007317898orgotowww.gov.uk/calculate-state-pension)

• YoucanalsovisitPensionWise(www.pensionwise.gov.uk)thisisafreeimpartialgovernmentservicegivingadviceforthoseapproachingretirement.

Important information

Alliance Trust Savings gives no financial advice.

Please remember, the value of your investment and any income from it can go down as well as up, and you may get back less than you originally invested.

Nicola is a Director at Wellington Wealth and Scotland on Sunday’s IFA of the year for 2015, retaining this

title for the second year in a row. She also won Money Marketing magazine’s 2015 Protection Planner of the year award.

Have you noticed a change in the way your clients are approaching their retirement?I have a varied client base, with clients in pre-retirement planning and clients in post-retirement. It is clear that working patterns are changing. Many individuals reach age 60-65 and do not feel ready to retire, these individuals could be described as the ‘wellderly’; fit and healthy retirees who wish to carry on working beyond their “retirement age”. With the new pension rules, there is much more flexibility, individuals may wish to stop working for a few months and then go back perhaps on an advisory/ consultancy basis. With flexible drawdown, investors can vary their income to suit their circumstances.

We discuss annuities with clients, but for many, it’s not the right fit. For smaller portfolios or for those clients wanting a guaranteed income, an annuity could work. There may also be a place for part annuities and part drawdown, but on the whole, we find people like to keep their options open. Also, given the new death benefits and potential for IHT planning, annuities are not a top priority.

Are people increasingly using alternatives to conventional pensions?In a perfect scenario, an investor would have a pension portfolio and an ISA portfolio running alongside each other. At retirement if a client does not require the tax-free cash sum from their pension, they can utilise this lump sum to top up their retirement income. Depending on the client’s circumstances, if the lump sum is invested in an investment bond a client can draw out up to 5% pa tax deferred. This means by using a combination of pension, ISA and bond income the client can have a very tax efficient income in retirement.

How do you decide how much income someone will need in retirement?We go through their existing expenditure with them. Spending habits do change in retirement and we find it can take 6-12 months for clients to know what income they will need. Although most people spend less in retirement, there can be one-off expenses: a new car if they used a company car, for example, or some will go on more holidays. From there, we try and gauge what the expenditure will be and therefore the target income. We look at whether that is realistic from the existing investments. It is important to drill down to the net expenditure.

We also need to be aware of the underlying investments and whether it is realistic to sustain that level of income in a tax efficient manner. Can we match an individual’s income needs with their individual risk profile? That’s a key question to consider.

We AsKed tWO AWArd WInnInG fInAncIAl AdvIsers fOr theIr tAKe On the chAnGInG fAce Of retIrement And WhAt It meAns fOr hOW they WOrK WIth clIents tOdAy.

The adviser view6 | Your Retirement | Issue 2 Your Retirement | Issue 2 | 7

nicola ellis Wellington Wealth

Robin is a director of Keyte Ltd and a highly qualified and multi-award winning Chartered Financial Planner.

His awards include Overall Financial Planner of the Year in the 2014 Money Management Financial Planner of the year awards.

How have you seen retirement patterns change? For clients that don’t rely on the income from a pension, they may not use their pension fund in retirement, but instead leave it to be inherited by children or grandchildren. We also find that clients want to be more flexible in drawing their pension. For those who want to retire early, before the state pension starts, they will have a shortfall for some time and they need to draw more heavily in these early years. When their finances are a little tidier later on, they may not need to draw as much. While retirees used to be able to do this to some extent with drawdown, the actuarial rates we had to use (GAD rates) made it pretty inflexible and it was only available to those with a relatively high level of income.

How people retire will depend on their job satisfaction. Lots of people can’t wait to retire, but others have managed to evolve work into something they enjoy. For them, it turns into a paid hobby. They get social interaction and intellectual stimulus.

How do you decide how much income someone will need in retirement?We’re doing more and more financial planning. We are looking at cash flow forecasts and helping people to see where there have gaps. We look to the SIPP and ISA arrangements and aim to deal with those gaps. We look at retirees’ current and anticipated regular expenditure and capital expenditure items. They may want to give their children something to help with a property, for example. These days, we find a lot of people want to fund a bucket list – and have a long list of things they want to do before dodgy hips set in. We measure people’s financial literacy by the extent to which their goals change.

How do retirees’ investment needs change?The key thing for retirees is that their capacity for loss changes as their earnings reduce. They can’t see a 20% loss of capital and income in one year so can’t have 80% in equities. If you’re relying on it, then it needs to be less volatile. I also believe that fewer retirees will use buy-to-let from here. There is the sharp increase in stamp duty, plus the income tax changes. Returns need to be a lot higher to compensate.


robin Keyte Keyte Chartered Financial Planning

These days, we find a lot of people want to fund a bucket list - and have a long list of things they want to do before dodgy hips set in.

Little and often

“Signing up to save small amounts regularly into an account or ISA is more practical than hoping to pay in a bigger sum… one day.”Alison, Account Maintenance

Top tips from our teamWhen It cOmes tO puttInG mOney AWAy fOr retIrement, ArGuAbly the sInGle best pIece Of AdvIce Is tO ‘stArt sAvInG eArly’. In reAlIty, thOuGh, thOse yOunG enOuGh tO tAKe AdvAntAGe Of thIs tIp tend nOt tO hAve the InclInAtIOn WhIle thOse better plAced tO ApprecIAte Its fOrce tend nOt tO hAve Access tO A tIme mAchIne.


Still, a second golden rule of retirement saving is ‘it is never too late to start’ and so we have asked some members of the Alliance Trust Savings team for their tips on maximising financial planning opportunities or freeing up some extra cash.

Two bank accounts

“Set up a standing order to transfer whatever you can afford into a second account on payday. It does mount up and, in the meantime, you don’t miss what you never had. Another way is to clear what’s left at the end of the month into your second account.” Stephen, Operations

Maximise your tax breaks

“The taxman rarely gives much away so take full advantage when he does – make the most of your annual tax-free ISA allowance and the still generous tax reliefs associated with pensions.”Bill, IT


Company pensions

“If you are lucky enough that your employer matches pension scheme contributions, take full advantage.”Ruth, Communications

Make a will

“OK, so it may not save you money but it could save your loved ones a load of stress.”Mike, Customer Contact

Shop around

“You would do it for a new telly, so shop around for your finances. Use comparison websites to track down the best savings, insurance and other rates.”Katrina, Asset Administration

Pay down debt

“We may live in a time of all-time low interest rates but that cannot last for ever. Take the opportunity wherever possible to pay down credit cards, overdrafts and even your mortgage.”Debbie, Proposition

Loyalty works two ways:

“If your bank is looking after you, then great. But watch out for less admirable practices like ‘teaser’ rates that expire and do not think twice about switching to a higher-yielding account.”Susan, Intermediary Services

‘Audit’ your life

“Check your direct debits. Are you really using your gym membership? Do you need all those TV channels? And what is that £5.79 that has been leaving your account every month for three years actually for?”Jack, Asset Administration

The significance of this practice has greatly increased following recent changes to the pension rules. It used to be quite

difficult to inherit a pension. Spouses might be entitled to a share but, usually, inheritability ended once the pension fund was used to take an income.

Game-changerNow the rules have changed and pensions can be gifted to anyone – from your grandchildren to a kindly neighbour. To take advantage though, you must be clear about who you want to receive your pension assets when you die and this is where an expression of wishes form comes in. The trustees of a pension scheme don’t have to act on it, but they usually will. And assets held in a pension are not normally counted for inheritance tax purposes, which could be a good thing for your estate.

There may be different tax implications for different beneficiaries. When a person dies under the age of 75, their pension can be passed on tax-free, whether the beneficiary withdraws an income or takes a lump sum – but

importantly your pension provider must have an expression of wish that makes it clear that you want beneficiaries to have both options*. In this case, it might make sense to pass it on to those who are already paying tax (if a spouse or partner does not require the income), such as grown-up children. In contrast, if a person dies after 75, marginal tax rates apply (from April 2016, 45% tax charge applies until this date), which may make it more beneficial to pass the fund to grandchildren. It is far easier to vary the beneficiaries using an expression of wishes form, than it is to rewrite wills or trusts.

An eye on the formYou should review your expression of wish form at regular intervals to ensure it reflects both your current wishes and your beneficiaries’ circumstances. Events such as a marriage or birth of a child may require changes and it is good practice to review your form at least once a year.

Your beneficiary doesn’t have to be a person – in this context, for example, a trust may be considered a beneficiary. Since trusts generally involve some cost and complexity, you do need to be sure this is the right route but they can be a useful option if wrinkles such as divorce or the bankruptcy of a beneficiary enter the equation. tAKe cOntrOl

• Completean‘expressionofwishes’formtotellyourproviderwhoshouldgetyourpensionpotwhenyoudie.IncludingforyourAllianceTrustSavingsSIPP,ifyouhaven’talready.

• Understandthedifferentrulesthatapplyifyoudieat75orolder.Itcouldmakeabigdifferencetothetaxpaidbyyourbeneficiaries.

• Reviewyour‘expressionofwishes’regularlyandkeepitup-to-date.


Wish fulfilmentmOst peOple recOGnIse the ImpOrtAnce Of mAKInG A WIll yet feW Are sO dIlIGent When It cOmes tO the fAr sImpler tAsK Of mAKInG An ‘expressIOn Of WIshes’. tO be cleAr, these Are nOt Of the ‘I’d lIKe A yAcht’ Or ‘mIne’s A GIn And tOnIc’ vArIety, but fOrms thAt IndIcAte WhO yOu WOuld lIKe tO benefIt frOm yOur pensIOn sAvInGs In the event Of yOur deAth.

* You can find the Alliance Trust Savings expression of wish form in the pension forms and documents section at www.alliancetrustsavings.co.uk. If you completed an expression of wish form before May 2015 any beneficiaries you nominated will only be able to take money in the form of a lump sum or dependent pension. Not all beneficiaries are eligible for a dependent’s pension.

be apportioned between the two PIPs. From 9 July 2015 to 5 April 2016 (the ‘post alignment PIP’) pension savers may be able to pay up to £40,000 into their pensions in that period, and if the contributions are being made personally (as opposed to an employer contribution) providing they have UK relevant earnings that are at least equal to the contribution. Any payments made into a pension from 6 April 2015 to 8 July 2015 (‘pre alignment’ PIP) reduce that Annual Allowance, but only if they total over £40,000.

This means that you could have contributed £40,000 in the first period, and can then contribute another £40,000 in the second period, making up to £80,000 worth of contributions this tax year that could qualify for tax relief (or 100% of your earnings if they are less than £80,000). At a time when pensions tax-relief is under fire, should you be thinking of making the most of this one-off opportunity?

The PIP is the period of time over which the amount of money going in to a pension is measured. It is used to check that an individual has not gone

over their Annual Allowance for tax relief in the related tax year. The standard PIP for the Alliance Trust Savings SIPP is 6 April to 5 April, to keep it in line with the tax year. However, some people have a PIP that is currently different to this standard. From April 2016, all PIPs must run in line with the tax year and cannot be changed again in future.

Transitional measures have been put in place and in practice these mean than you can potentially contribute more than the standard £40,000 in this tax year.

The transitional measures, and how you can potentially benefitIn the 2015/16 tax year there are two PIPs (nattily titled ‘pre-alignment’ and ‘post alignment’) and the Annual Allowance has been increased to £80,000 but there are strict rules on how the contributions can


Don’t get PIPped at the post thIs Isn’t sOmethInG thAt’s been mAKInG heAdlInes, but chAnGes tO pensIOn Input perIOds (pIps) In the 2015/16 tAx yeAr Are ImpOrtAnt fOr thOse Keen tO mAxImIse theIr pensIOn cOntrIbutIOns fOr tAx relIef.

Contributions made in PIPs ending between 6 April 2015 to 8 July 2015

Your Annual Allowance from 9 July 2015 to 5 April 2016

£0 £40,000

£15,000 £40,000

£40,000 £40,000

How much you can contribute up to 5 April 2016

Before making a payment into your Alliance Trust Savings SIPP please read our SIPP Key Facts which contains further detail on the Annual Allowance and your eligibility to benefit from tax relief.

Going for Gold12 | Your Retirement | Issue 2 Your Retirement | Issue 2 | 13

KAtherIne GrAInGer cbe Is A brItIsh rOWer. she WOn GOld In the 2012 summer OlympIcs; she AlsO hOlds three OlympIc sIlver medAls And Is sIx-tIme WOrld chAmpIOn. she Is currently chAncellOr Of OxfOrd brOOKes unIversIty sInce mArch 2015. We AsKed KAtherIne AbOut her AttItude tO mOney And hOW she GOes AbOut sAvInG fOr her fInAncIAl future.

Are you a saver or a spender?Like everyone else at times I love to spend, but I was brought up to save whenever I can: My sister and I benefitted from having parents and grandparents who thought it good to try to save. So I’d say my natural instinct is to save, but with the occasional spending splurge.

Do you have a pension/ISA?As I have been rowing full time since I left university, sadly I’ve never had the advantage of an occupational pension. In my twenties, I was encouraged to start paying into a Stakeholder pension and I have continued to do both that and to pay into cash ISAs whenever I could. I’ve certainly not saved enough yet to retire comfortably but hopefully after full time rowing ends, I can focus a little more on my pension.

How do you decide what goes in them?To be honest, the amount I put in is dictated by the spare money I have. As a full time rowing athlete, my income is my national lottery grant. These grants are absolutely fantastic for allowing athletes to participate in sport full time but they don’t allow much for savings. When I had any additional income or when my parents helped me, I managed to use that for contributions to my pension and ISA funds and to take out a mortgage for a home.

Have you ever been really hard up?My parents talk of their days at university when they had a generous grant, but by the time I was a student, things had definitely changed. I received no grant, so for five years I survived on the generosity of parents and grandparents plus the occasional holiday job. I was never at the starving stage but I did have to think twice about buying anything I wanted or about spending too much on socialising and fun things.

I was still a student when I had to buy my first single sculling boat for more serious rowing, so again had to get help with that. Being aware that you don’t have enough money isn’t comfortable, but it is a good lesson in the value of money. I’ve never taken for granted any money I’ve earned or been given.

Going for GoldYour Retirement | Issue 2 | 13

What’s the most lucrative work you’ve done?I once gave a talk to travel journalists and instead of a fee, I was given the choice of any holiday for two anywhere in the world and then write a report on it. Bliss! Definitely my kind of payment.

What financial advice would you give someone starting out in sport? To choose a sport that pays well! More seriously, if it is a sport like rowing where there are no bonus or prize payments or attendance fees, you need to remember that it won’t last forever and contribute what you can to some form of pension saving. Nothing, I keep being told, beats having decent pension provision once you retire.

I’d also suggest keep studying to make it easier to get a job after sport finishes. It’s a tough one because starting out in sport is such an exciting time and you think it’ll last forever – it’s very hard to see a life beyond. But you never know when your career in sport might end so it’s always good to look after any money you can for the future.

What was your first job?When I was still at school I worked at a cinema in Glasgow and absolutely adored it. I was given a torch and a uniform and took tickets and showed people to their seats. It helps that I love all aspects of films and film-making and so it didn’t feel like a job, especially when the cinema was quiet and I could just choose what film to watch. The pay was small but I got to see as many films as I wanted. I was quite young and the rest of the staff were lovely to me. It made me appreciate how good it was to work in a great team.

What has been your favourite luxury purchase?My first real luxury buy was a second hand purple MG sports car, which I absolutely loved to drive. It was my pride and joy but sadly it got ruined one winter after driving through a flood!

More recently I was at the launch of the annual Koestler Trust Awards, which is an art exhibition by current prisoners. I learned about it initially through my PhD research

and some of the artwork is not only of an incredibly impressive standard, but also very moving and thought- provoking. Although I am running out of wall space in my house I couldn’t resist buying a painting. The money goes in part towards the artists, towards the Trust and also to Victim Support.

What would you do if you won the lottery?I have so many friends and family who have been wonderfully supportive of me during my rowing days that I would love to repay them as much as possible. I owe so much to so many! For me personally I would adore the freedom of being able to write full time for a period of time without having to have a paid job.

What’s the best piece of financial advice you’ve been given?Probably the best advice has come from my parents, which is to try to balance spending and saving to get the best of both worlds. My mum was an English teacher so if needed I could quote Mr MacCawber’s financial definitions for happiness and misery. “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

pensIOns And IsAs bOth AllOW yOur Investments tO GrOW free Of IncOme Or cApItAl GAIns tAx. bOth AlsO enjOy AttrActIve tAx IncentIves – pensIOns On the WAy In (fOr nOW At leAst) And IsAs On the WAy Out – And bOth Are very flexIble In terms Of the types Of Assets yOu cAn hOld WIthIn them.

The great pension vs ISA debate


As tax-advantaged savings vehicles, both can have an important part to play in a long-term savings portfolio. But how

do you go about deciding on the appropriate choice and balance for you?

When do you need to access your savings?One important difference is you usually have to wait until you are 55 to make withdrawals from a pension whereas an ISA can be accessed at any time. But, generally speaking, both are well worth using wherever possible as they both offer tax advantages.

Pensions have the tax relief edge on the way in – for now at leastAs things stand, you receive tax relief at your marginal rate for all the personal contributions you make into a pension (employer contributions don’t attract tax relief) up to the limit of your net relevant earnings or your annual allowance (up to £40,000), whichever is greater. And if you have no earnings, you can still get tax relief up to £3,600.

One thing to watch out for is that your total pension pot (across all your pensions) does not go over the lifetime allowance or the tax penalties can be significant. This is currently £1.25 million, going down to £1 million from 6 April 2016.

Upfront tax reliefs can be significant: For a lower-rate taxpayer, it means you pay £8,000 net for a £10,000 gross pension contribution, while a higher-rate taxpayer (paying some tax at 40%) could claim a further £2,000 tax relief via their tax return. These tax reliefs go into your pension pot and growth may compound over time. In contrast, ISA investments are made out of taxed income with no relief available.

Rumours persist that the government will clamp down on higher-rate tax relief for pensions – it is already doing so for those earning more than £150,000 from April 2016 (see our ‘What the new tax year will bring’ article on page 22 for the detail). This could go further in future, with options such as a single, flat rate of tax relief reportedly being considered and even the idea of potentially scrapping up front tax relief altogether put out for consultation.

ISAs have the tax relief edge when you’re taking money outWith pensions, you will see some tax relief sweeteners on the way out too. On exit, up to 25% of a pension fund can be taken completely tax-free, with the balance taxed at your marginal rate of income tax. In contrast, though, all withdrawals from an ISA are tax-free.

All of which means, of course, that different options will suit different people better. If

Remember, in the 2015/16 tax year you’ve potentially got two pension annual allowances of £40,000 to play with. In 2016/17 it’s back to a single annual allowance of £40,000.

Read our ‘Don’t get PIPped at the post’ article on page 11 for the detail.


you pay a higher rate of tax for most of your working life before reverting to being a lower-rate taxpayer at retirement, a pension could serve you very well.

If you are lucky enough to expect to pay a higher rate of tax in retirement, withdrawals from ISA savings may serve you better. Equally, if you love your job and do not plan to retire until well into your 60s, the 55-age limit is no problem but it could be if you are keen to get out early. Another positive for the ISA.

Where you want your assets to go when you die is another factorWhat happens to your money after you die is naturally an important consideration and, until recently, ISAs had the edge over pensions since, even if they had to pay inheritance tax on it, at least your loved ones got the pot. In 2014, however, Chancellor George Osborne announced anyone who kept their pension in drawdown – rather than buying an annuity – would be able to pass on their remaining pot free of tax if they died before 75, or at their marginal rate after 75.

It is now possible to nominate anyone to receive your pension pot after your death and for them to carry on taking an income from it. This applies even if they are below the normal pension age of 55, allowing

Pensions ISAs

Annual contribution limit Net relevant earnings or up to £40,000 (whichever is lower) £15,240

Age to access cash 55 No limits

Tax relief on contributions At marginal rate None

Tax on encashment 25% tax free allowance – additional income taxed at marginal rate

All income and capital can be taken out tax-free

Inheritance tax rules Can be passed on IHT-free to named beneficiary

Can be passed on IHT-free to a civil partner/spouse

children or grandchildren immediate access. Pension assets are normally exempt from Inheritance Tax too. Strike one for pensions.

But the Chancellor also changed the ISA rules. Now a surviving spouse or civil partner can receive an increased ISA allowance equal to the value of their partner’s ISA at the time of their death. This allows the survivor to benefit from continued tax-free investment returns on their partner’s investments. That said, there is still the spectre of a 40% Inheritance Tax charge on the second death if total assets exceed the nil-rate band and also the reliefs only apply to spouses.

Ultimately, it all depends on your individual circumstancesOf course, there are a range of other factors to consider – not least whether you have an employer who contributes to your pension – and, if you do have any doubts at all on whether you’ve got the savings split right between pensions and your ISA, you should consider taking financial advice.

Ultimately, the right choice will depend on your personal circumstances. ISAs will have the upper hand where access is needed before the age of 55, for example. Pensions may have the upper hand for those paying the highest rates of tax at the point of contribution. In an ideal world a saver should try to maximise their contribution to both as part of a broader long-term financial plan.

All data looking ahead to the 2016/17 tax year.




Law and tax rules may change in the future without notice. The information here is our understanding in February 2016. This information takes no account of your personal circumstances which may have an impact on tax treatment.


Why consolidate?When our working lives were spent with just one or two employers it was easy to keep track of pension savings. But it’s not the case when you’ve worked for several different employers, and opened pensions with all or some of them.

Up to £3 billion has been left lying in more than a million pension pots, it has been estimated. For many people that could make the difference between a comfortable retirement and one beset by financial stress. That’s why consolidating pensions into a larger pot can make a lot of sense. But it’s not the only reason. Having all your pension pots under one roof can make them easier to monitor and manage, with less paperwork and more chance of noticing any investments that seem to be performing badly or charging too much.

Workplace pension savings often go straight into default funds, which might not match your objectives or appetite for risk. Consolidating them into one scheme makes it easier to understand how your cash is being invested.

The potential advantages are numerous, though there are instances where a pension pot is best left where it is. Final salary (or defined benefit) schemes are typically more generous, for example, with valuable guarantees that might be lost on transfer.

Things to think about before consolidatingThe advantage of consolidating pensions may be considerable, but there are various factors to take into consideration. Establish not only why you want to put all your pots into one scheme, but also when. The approach to retirement is an obvious prompt, as is joining a new employer. The latter isn’t always clear-cut, however, especially if you anticipate more moves in future.

There are other reasons to stop and think before going ahead with consolidating. The additional diversification (of providers and funds) could make it advantageous to maintain several different pensions, for example.

Is it time to consolidate?retIrement tImes Are chAnGInG And sO Are the number Of pensIOn pOts thAt the ‘mIddle AGed’ AmOnGst us nOW tend tO hAve lyInG ArOund. WhAt cOuld frAGmented pensIOn pOts meAn fOr yOur fInAncIAl future? Is It tIme tO cOnsOlIdAte? And If yes, WhAt dO yOu need tO cOnsIder?

tAKe cOntrOl• Makealistofallthepensionpotsyouhaveandkeeparecordofthem

somewherecentral,soyourpotswon’tendupamongsttheunclaimed.

• Checkyourcontactdetailsareuptodatewithalltherelevantproviders.

• Consideraskingforavaluationorstatementforallofyourpensionstogetafeelforwhatyourpotsmightbeworthtoyouinfuture.

• Giveconsolidationsomeseriousthought.Mightitberightforyoubasedonyourplansforthefuture?Andisnowtherighttimetostarttakingaction?


Transferring certain pots could have downsides too, such as exit charges that could offset the savings from moving, or the loss of valuable benefits such as those in final salary schemes, which usually come with retirement income guarantees unobtainable elsewhere. That’s why regulated advice is highly recommended (and often mandatory) before transferring from final salary schemes.

If you do keep several pensions open it’s essential to keep track of them, notify the various providers of any change of address and check statements regularly for any possible issues (such as steep charge increases).

Keep in mind that if you do want to consolidate, it could take a while. This is especially important to note if you’re nearing retirement and want to get it done before reaching that point.

How do you go about consolidating?The process depends on several factors, such as the reasons you’re doing it, when you do it and what you plan to do with the eventual pot.

If you’re still working and pension saving, you could use one of your existing schemes. Which one might depend on the charges, the investment options available and which offers options available and the providers service proposition.

Once you’re 55 and over you now have great freedom as to how you can access your pension savings. The extent to which you take advantage of that freedom will influence how you consolidate. You’ll want to take a close look at how flexible the pension you’re looking to consolidate into actually is when it comes to taking your money out.

What about making investment decisions?How and where you invest your consolidated pot will depend on factors including your appetite for risk, your objectives, the size of the fund and whether you’re approaching, at, or already in retirement.

A SIPP like that offered by Alliance Trust Savings allows the flexibility to build your own investment mix, if you’re comfortable doing so (or have an adviser). For pension investors that often involves using collective investment funds (such as unit trusts, open ended investment companies (OEICs)) and investment trusts that can provide you with a regular income as well as growth potential.

There are dangers in the DIY approach, however, particularly when you think about the resources available to professional fund managers and advisers. Understanding risk, knowing what to do when markets get rocky, ensuring your portfolio continues to reflect your risk and objectives and monitoring costs are among the potentially tricky challenges facing DIY investors.

For example, those in drawdown need to consider the risk of ‘pound-cost ravaging’. Also known as sequencing risk, this refers

to the effect on a drawdown portfolio when income is taken from it during a downturn. Taking income from a falling fund compounds the rate at which the pension pot loses value, and may affect how much income you can take in future if you want it to last.

Watch out for costs too. When charges for funds, admin, transfers and platforms are all included they can add up quickly, potentially taking a big bite out of your investment growth.

Remember that size can matterA lot of decisions around pensions are dictated by the amount you have set aside, from where you invest it to how you get your income. The size of your pension pots is potentially relevant to decisions around consolidation too.

Some defined benefit pensions might be too small to make a real difference to your regular income for example. If your defined pension pot is worth £10,000 or less, you can potentially take it as a lump sum instead – the first 25% tax free and the rest taxed at your marginal rate.

It’s also possible to have too big a pension pot, at least as far as pension rules are concerned. The lifetime allowance – the amount you can save tax-free into a pension – falls from £1.25m to £1m in April, compared with £1.8m in 2010. Some people, especially high earners in the public sector, may be surprised to learn how close the value of their pension savings will take them to the limit.

You may choose to keep some small pots separate, but otherwise, having all your pension pots under one roof, by consolidating, can make it easier to keep an eye on the total value of savings.

If you’ve got various old workplace or personal pensions and want to take more control you could benefit from moving them into a self-invested personal pension (SIPP) like the one we offer at Alliance Trust Savings. This is a pension wrapper in which you can hold a wide range of investments, potentially offering more diversification and flexibility and more say in how your pension savings are used. Especially if – like ours - it is run on an online platform that you can access daily if you wish.

If you want to transfer benefits from a defined benefit scheme; and in some other circumstances (for example if you have a guaranteed annuity rate) then you’ll have to get financial advice first, unless the total value of the transfer is less than £30,000. As a general rule, before initiating any pension transfer it is a good idea to seek professional advice on the merits of the proposed transfer that is specific to your circumstances as your existing pension may have valuable benefits which you might lose when you transfer.




2015 WAs A yeAr full Of vOlAtIlIty And uncertAInty. As We lOOK fOrWArd tO 2016, It Is dIffIcult tO see hOW thIs Is GOInG tO chAnGe sIGnIfIcAntly. In thIs quArterly repOrt, We lOOK At sOme Of the Key rIsKs fAcInG the GlObAl ecOnOmy In 2016 WhIch hAve the pOtentIAl tO dIsrupt ActIvIty levels.


Looking back at 2015 At the beginning of 2015, expectations were for stronger growth in the US, Japan and Eurozone and a continuation of relatively strong growth rates in both the UK and China. But as the year progressed and events unfolded, GDP expectations were generally cut. The only major region which saw an upgrade to GDP expectations was the Eurozone – which was due to an underestimation of the boost the lower oil price would give to consumption and a resolution of the Greek crisis, for now.

Looking forward to 2016As we look forward to 2016, GDP expectations are notably lower and arguably more realistic. GDP in the US is expected to slow marginally to 2.4%; in the UK growth is expected to slow slightly to 2.2% and in China GDP is forecast to slow further to 6.5%. The outlook for Japan is slightly more optimistic, with growth expected to accelerate a little to 0.9% and in the Eurozone it is forecast to rise slightly to 1.7%.

2015 was a volatile year for global economies and markets, and we expect this volatility to continue into 2016. Already this year we have seen volatility in the Chinese stock market and uncertainty in the Middle East as Saudi Arabia and Iran have formally broken off diplomatic ties, complicating the outlook for the region and the oil price. A number of issues remain

prevalent and have the potential to disrupt economic activity. We will talk about some of these in a bit more detail below.

Diverging monetary policies In December, the US Federal Reserve hiked its benchmark interest rate by 25bp. This increase came exactly seven years after the benchmark interest rate was cut to a record low range of 0-0.25%. The last time the Fed began a tightening cycle was back in 2004 and with rates having been so low for so long, this was a significant event.

Despite an increase in global economic volatility, many still expect the Federal Reserve to hike rates further this year. In sharp contrast to the US Central Bank, the Bank of Japan (BoJ) and European Central Bank (ECB) continue to adopt quantitative easing measures with the aim of boosting inflation and economic activity. In fact the BoJ recently adopted a negative deposit rate, loosening monetary policy even further. This is creating a divergence in policies amongst the large central banks, which in turn has significant currency implications. Given that the BoJ and ECB look set to continue with their loose monetary policies, upwards pressure could continue on the US Dollar, whilst the Euro and the Yen look likely to remain weak. On top of this, higher US interest rates pose a threat to some emerging economies, due to high levels of corporate and government debt. The unprecedented period of loose monetary policy resulted in a high level of cheap debt and capital flows to emerging markets in search of higher yields. However, when global rates rise, financing that debt will become more expensive and there could be a spill over into the financial sector if default levels are high.

Slowdown in China The objective of moving the economy away from its reliance on investment and exports, towards being an economy driven much more by consumption, is expected to lower growth rates. Growth is forecast to slow to 6.5% in 2016, down from 6.9% growth in 2015. In fact, as you can see from Figure 1 opposite, economic growth has been slowing since 2010, so this is not a new phenomenon.

The focus on longer term reform is a positive step as it means economic growth will be more sustainable. It does however mean that

Global Economic View

Wewillfocusonfourkeyrisks,whichare:

• Furtherdivergenceinmonetarypoliciesoftheworld’slargestcentralbanks

• AslowdowninChineseeconomicgrowth

• Politicalrisks,particularlyinEurope

• Theoutlookforinflation,orlackofit,mainlyinsomeAsianeconomies

Jan 2015 Dec 2015US 3.1% 2.5%

Japan 1.1% 0.6%

China 7.0% 6.9%

Eurozone 1.2% 1.5%

UK 2.6% 2.4%

Source: Bloomberg

Linsey joined Alliance Trust in 2004 and has responsibility for economics, including analysing and forecasting economic trends. Linsey graduated with an MA in Business Economics with Marketing and German from the University of Dundee.

By linsey congdon, Economic Research Analyst, Alliance Trust Investments

Bloomberg 2015 GDP Forecasts


Alliance Trust Investments Limited is a subsidiary of Alliance Trust PLC and is registered in Scotland No. SC330862. Authorised and regulated by the Financial Conduct Authority, firm reference number 479764. Alliance Trust Investments gives no financial or investment advice.

Alliance Trust Investments Economic Commentary carries out economic and social analysis to deepen our understanding of economies, markets and socio-economic issues. The views, statements, opinions, information and data contained in this article are those of Alliance Trust Investments Economic Commentary, these views may change as subsequent conditions vary. Information used in this article has been compiled from sources believed to be reliable but it has not been independently verified: no representations has been made to its accuracy or completeness. No reliance should be placed on it and no liability is accepted for any loss arising from reliance on it. This article should not be used or considered as an offer or solicitations to buy or sell any financial instrument and is for information purposes only. This article is not a financial promotion or recommendation to make any particular investment.

we could see further bouts of market and economic volatility. Even in the first trading day of 2016 we saw the Chinese stock market fall more than 7%. China will continue to push ahead with a combination of corporate sector reform, fiscal reform and financial market reform. This is needed to ensure that capital can be allocated more efficiently. In the past, much of the growth generated in China came from unproductive sectors, creating a huge amount of overcapacity and this is an issue still being addressed by authorities.

Politics Politics can be difficult to predict, but already there are political obstacles which must be navigated this year. In the US, the Presidential Election takes place in November and given the current level of uncertainty around the possible party candidates, it has the potential to impact consumer and business sentiment.

In Europe, politics will remain high on the agenda. Inconclusive elections in Spain and Portugal in 2015 means uncertainty remains and that fresh elections may be needed in 2016. The region will also have to deal with the large influx of refugees which could threaten political cohesion, particularly in Germany. It also poses a huge opportunity for the region, especially those economies with ageing demographics. On top of this, the UK will hold a referendum on its membership of the EU and it is increasingly looking as if this will be held in 2016. The outcome of the vote is too close to call at the moment. This level of uncertainty will not be welcomed by equity markets, consumers or businesses, on both sides of the Channel.

Inflation (or lack of it)2016 will be a critical year for inflation. Currently, inflation in most economies is far below central bank target levels. This has been driven, in part, by the sharp decline in the oil price. When this effect falls out of the annual rate of growth, we should start to see headline inflation moving gradually higher. This should happen in the first half of 2016. One risk to this outlook is the recent further decline in the oil price.

UK inflation is a good example of this. You can see from Figure 2 below that inflation fell sharply towards the end of 2014. As we are now one year on, the lower base effect should mean inflation begins to move gradually higher. In its latest Inflation Report, the Bank of England forecast that inflation will rise to 0.8% at the end of 2016 and 1.9% by the end of 2017. Inflation is not expected to return to the 2% target until 2018 now.

In the Euro Area, inflation is only forecast to rise to 1.6% by 2017, remaining short of the 2% inflation target. If there are concerns inflation may be lower then, we could well see more stimulus from the ECB, possibly as early as March. Similarly in Japan, the central bank has committed to do whatever it takes to meet the 2% inflation target. In contrast, worries about persistent deflation remain in some Asian economies. In China for example, producer prices have been negative for almost four years now, due to overcapacity issues. And this has knock on effects in the rest of the region. Inflation in Indonesia recently fell to its lowest level in six years and in Thailand inflation was negative throughout 2015.

Figure 1: China – GDP growth Figure 2: UK Annual Inflation Rate

Source: Macrobond Source: Macrobond

14

%

12

10

8

6

2007 2009 2011 2013 2015

1.75

%

1.25

0.75

0.25

-0.25

2014 2015


In recent years, traditional retirement income sources such as bank deposits, mainstream government bonds and annuities have been offering income seekers considerably less than they

used to (see Figure 1).

An age-old problemGiven the huge demand, it is hardly surprising that income investing has been talked about as a fashionable investment style in recent years. But this is no passing fad. There is something much more long-lasting and fundamental going on here than just the relatively recent impact of the Global Financial Crisis on interest rates and bond yields.

Deep structural forces, in terms of the effects of profound demographic shifts across developed societies, have been building for decades (see Figure 2). Since the middle of the last century, the UK has experienced profound demographic change which means that as the ‘baby boom’ generation approaches retirement, it is looking increasingly unlikely that the state alone can be relied upon to provide adequate income for the majority of the population to enjoy the sort of comfortable retirement they have traditionally looked forward to.

Declining birth rates, combined with increasing life expectancies, have put a potentially unbearable strain on state- funded retirement provision. As the ‘baby boom’ generation approaches retirement, the burden of providing an adequate income has shifted from the state to the individual. This is boosting the army of those seeking income not from their labour, but from their investments.

Investing for income: the cost of certaintyCash savings have come to represent a safety blanket in an uncertain world. Given the severe turbulence experienced across global financial markets in the wake of the 2008 financial crisis, it is not surprising that many people have been cautious about taking on ‘risk’. Indeed, up to £75,000 of your money is secure in a bank or building society through the Financial Services Compensation Scheme, unlike stocks and shares or fixed interest investments which are less secure.

But the greatest danger for investors may lie in misunderstanding the true nature of risk, and creating false comfort.

Challenges facing income investors todayby nOW, the prOblem Is quIte fAmIlIAr – AcrOss the develOped WOrld, the need fOr IncOme hAs been GrOWInG drAmAtIcAlly, but meetInG thIs demAnd Is becOmInG IncreAsInGly chAllenGInG.

Source: William Burrows, rates for male aged 65, £10,000 purchase, single life, guaranteed 5 years and level payments and Datastream, 31 December 2015.

Figure 1: Increasingly poor returns on traditional sources of retirement income Figure 2: Global dependency ratios – forecast

Source: European Commission. Dependency ratio = (number of people aged 0-14 + those aged 65 and over)/(number of people aged 15 – 64)*100.

By steven Andrew, Fund Manager, M&G Episode Income Fund

16

%

12

8

4

0201520102005200019951990

Annuity rate Gilts 10 years Base rate BoE

80

60

%

40

20

0JPN GER ITA SWE FRA GBR SPA POL US RUS WD CHI IND

2010 2050


Very low interest rates in recent years mean that even saving responsibly may not be enough. When taking inflation into account, cash sitting in the bank may have lost value in terms of purchasing power. Figure 3 shows the value of £100 held as cash over seven years.

Yet many individuals still struggle to identify better ways to balance their short-term and long-term financial priorities, and remain wary of investing, potentially causing them to miss out on attractive opportunities. No investment is risk free, so investors need help understanding how to use risk to try and boost returns. Better investment returns often mean capital growth, which can in turn mean income growth over the long term.

Taking a multi-asset viewThe case for putting cash to work is clear, but with some mainstream bonds also offering negative yields, traditionally perceived ‘safe’ income sources may no longer be sufficient. Fortunately, there are plenty of alternative sources of income available around the world for those who are willing to take some risk with their capital to try and generate better long-term financial outcomes.

A helpful starting point can be to identify the difference between true risk and short-term volatility. While the former represents the probability of permanent capital loss, the latter should not distract investors from their long-term goals. Carefully managed diversification is a well-established way of managing volatility.

A multi-asset approach can offer the potential to combine the advantages of different asset classes, while diversifying away some of the risks faced by single-asset class investors and potentially smoothing out the peaks and troughs the investment journey.

Figure 3: Even a low inflation rate can reduce spending power if it is higher than interest rates

Source: M&G, Datastream, 31 December 2015. For illustrative purposes only.

Steven Andrew joined M&G in 2005 as a member of the portfolio strategy & risk team, before moving to the Multi Asset team, where he helped to formulate asset allocation strategies for M&G’s multi-asset fund range. In November 2010, Steven was appointed manager of the M&G Episode Income Fund. Three years later, he became manager of the M&G Income Allocation Fund upon its launch. Steven began his career at the Bank of England in 1987 and subsequently worked at F&C Asset Management and Merrill Lynch before joining M&G. He holds a BSc (Hons) degree in financial economics from the University of London.

However, genuine diversification means more than holding a certain amount of each asset class in a portfolio. History has shown us that no asset can be relied upon to behave in a consistent way under every different market environment, either in terms of individual assets’ risk/return characteristics, or in terms of how assets behave in relation to each other.

For further information about investing for income you can download The M&G Guide to Retirement Income at www.mandg.co.uk – search ‘Challenges facing income investors today’ for the online version of this article where you can access the download link.

Multi-asset• Potentialforregularlyaccruingincome• Potentialforgrowingdistributions• Potentialdiversificationforother

financial assets• Assetallocationaimstomitigate

volatility and offer potential to generate capital return

Any decisions regarding investments or pension savings are important and you should be aware of all your options. We are unable to give financial advice. If you are unsure about the suitability of your investment, you should speak to your financial adviser who will be able to provide regulated advice. Alternatively, you should consult Pension Wise at www.pensionwise.gov.uk which is a free and impartial service designed to help you understand your retirement options.Past performance is not a guide to future performance.The views expressed in this article should not be taken as a recommendation, advice or forecast.The value of investments, and the income from them, will fluctuate. This will cause the fund price to fall as well as rise and you may not get back the original amount you invested.

120

£

110

100

90

0Dec 07 Dec 09 Dec 11 Dec 13 Dec 15

Cash (JP Morgan 1 mth UK rate) Cash in�ation adjusted


Looking aheadthe stArt Of the neW tAx yeAr (6 AprIl 2016) brInGs A rAft Of chAnGes As the GOvernment phAses In sOme Of Its mOst recent refOrms. InvestOrs cAn expect tO see chAnGes tO the pensIOn rules, IncludInG the IntrOductIOn Of the neW stAte pensIOn, WhIle there Are AlsO ImpOrtAnt chAnGes fOr prOperty InvestOrs And thOse WhO tAKe An IncOme frOm dIvIdends.

PensionsThe tax year brings a reformedStatePension for all those reaching state retirement age on or after 6 April 2016 – currently 63 for women and 65 for men. The new flat rate will be £155 per week. Equally, it will no longer be possible to ‘contract out’ and build up an entitlement to top-ups to the basic state pension.

Elsewhere, the lifetimeallowance will drop from £1.25m to £1m in the new tax year. It has fallen from £1.8m since 2012 and pension savers have to be increasingly careful that their contributions or investment growth do not take them over the limit, thereby risking punitive tax rates.

The tax year will also bring cuts in pensiontaxreliefforhighearners. The annual allowance of £40,000 will reduce by £1 for every £2 earned over £150,000, until the tax-free limit hits £10,000. This is designed to pay for progressive increases in the inheritance tax threshold from 2015 to 2020.

DividendsThe current system of taxcreditsfordividendpayments is to be simplified, which will have a particular impact for anyone who relies on dividend income, including the self- employed operating through a limited company. Previously, net dividends were multiplied by 10/9 to produce the gross dividend (reflecting the fact that Corporation Tax had already been paid by the company).

tAKe cOntrOl• Checkyou’renottooclosetothenewpensionslifetimeallowance,

fallingto£1mfromApril.Thepenaltyforbreachingitcouldbehefty,butthereisprotectionavailable.

• Planningtobuyasecondhomeorbuy-to-letpropertythisyear?ConsiderdoingsobeforeanextrataxchargetakeseffectinApril.

• Businessownersmightwanttotakemoredividendsbeforenewrulesondividendpaymentsareintroducedwiththenewtaxyear.

The gross dividend amount was then taxed at the prevailing tax rates: 10% (basic rate), 32.5% (higher rate), 37.5% (additional rate).

From the new tax year, everyone can receive £5,000 with no tax liability. Beyond that, three new dividend tax bands will be created: 7.5% (basic rate), 32.5% (higher rate), 38.1% (additional rate) but without the benefit of the 10% tax credit.

Personal Savings AllowanceThe new PersonalSavingsAllowance will come into effect from 6 April 2016. Investors can now earn £1,000 of interest or dividend income (or £500 for higher rate taxpayers) tax-free. Banks and building societies will also no longer automatically apply a 20% tax on savings income.

Property taxesThe 2015 Autumn Statement dropped a bombshell for potential second home owners and buy-to-letters in England and Wales. From 1 April 2016, they will pay an additional 3% stamp duty land tax (SDLT) on all new purchases. This comes on top of other changes to the way buy-to-let income is taxed. In Scotland, SDLT was replaced by Land and Buildings Transaction Tax (LBTT) from 1 April 2015. LBTT is paid on a sliding scale, currently up to a maximum of 12% for properties over £750,000.

Also announced in the Autumn statement was that the government would extend the reliefs available from AnnualTaxonEnvelopedDwellings (a tax charged on ‘non-natural persons’ such as a company, a partnership, or a collective investment scheme) and the 15% higher rate of SDLT to equity release schemes (home reversion plans), property development activities and properties occupied by employees from the start of the new tax year.




Have youpicked up acollection of

pensions?

An intelligent way to invest

Nobody sets out to acquire a collection of pension pots. But as you shift between jobs, it’s easy to end up with more than you know what to do with.

Getting them tidied up doesn’t just feel good, it can put you back in control of your investments and save you a lot in account charges. With our help it could be easier than you thought too.

Our SIPP offers you a wide choice of investments and a low annual account charge.

The value of investments and any income from them can go down as well as up and you may get back less than you originally invested.

If you are unsure as to the suitability or merits of any proposed transfer you should seek professional financial advice that is specific to your circumstances.

Calls may be recorded for training and security purposes.Alliance Trust Savings Limited is a subsidiary of Alliance Trust PLC and is registered in Scotland No. SC 98767, registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings gives no financial or investment advice.

Transfer your pension pots to us andyou could save money too.www.alliancetrustsavings.co.uk/pots 0800 028 2635


Ways to do business Risk Warnings

ATS GEN MAG 0009 (Issue 2 | February 2016)

Specific investments may have additional risks and commitments. You must ensure that you read all documentation regarding any investment you choose to make such as key facts and further information brochures.

Please remember past performance is not a guide to future performance. You may not get back the amount you invest. The value of your investment and any income from it may fall as well as rise.

Laws and tax rules may change in the future without notice. The information here is our understanding in February 2016. This information takes no account of your personal circumstances which may have an impact on tax treatment.

Exchange rate changes may cause the value of overseas investments to go down as well as up.

Investment trusts may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that a relatively small movement, down or up, in the value of a trust’s assets will result in a magnified movement, in the same direction, of that NAV. This may mean that you could get back nothing at all.

The articles in this magazine are provided by carefully selected contributors and are published without any representation or endorsement made by or from us of any kind whether express or implied, including but not limited to the opinions expressed, appropriateness of any recommendation made, fitness for a particular purpose, compatibility with any investment strategy or accuracy.

We will not be liable for any indirect or consequential loss or damage whatever (including without limitation loss of business, opportunity, data, profits) arising out of or in connection with your reliance on any article or the contents of any article contained in this Magazine.

Alliance Trust Savings Limited is a subsidiary of Alliance Trust PLC and is registered in Scotland No. SC 98767, registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings gives no financial or investment advice.

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Retirement Your - Alliance Trust · 2019. 3. 20. · Welcome Alliance Trust Savings Limited PO Box...

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