Get ahead of the game: start thinking about your common wealth

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The next couple of weeks will see the media awash with inspirational athletes all striving for the chance to win gold, silver or bronze medals in the Commonwealth Games – a truly worthy way for those individuals to add their names to the history books and some precious metal to their medal cabinets.

But the idea of all that expensive hardware started me thinking . . . about wealth, the future and more specifically about saving and how we should be starting to think about our ‘common wealth’ in a much more holistic way.

If you start planning effectively now you could be looking forward to the ‘golden years’ in your retirement.

Life goals

We all aspire to reach certain milestones in our lives, and many (if not most) of these are intrinsically wrapped up in our finances. It may be aiming to buy your own home, get married or put your children through university – you may have big plans for when you eventually stop working, and all of these have a significant cost attached to them.

It’s worth taking some time to really think about your aspirations first, before you even consider how you’re going to afford them! Consider your timescales – these may be really vague and often dependent on reaching certain stages in your life before they are likely to become reality – but it’s a good idea to know what you’re aiming for.

Future plans

Once you’ve got some idea of what your goals are, look at your finances from a much broader and longer term perspective than you might ordinarily – particularly when considering your retirement goals.

Make sure you build a holistic picture of your retirement income – and if you are married or have a partner, it’s really important to factor in their retirement income too. Things to consider that might be a part of your ‘common wealth’ are:

  • your current workplace pension
  • pensions from previous employers
  • what State Pension you might be entitled to (take a look at the State Pension calculator for an estimate)
  • other sources of income
  • your house and any other property you own (rental)
  • inheritance
  • shares/dividends/premium bonds

Going for gold

The trick is to really see the bigger money picture when you are thinking about your finances and to put plans in place early to save for and afford those long-term goals.  You may not be aiming to add medals to your common wealth, but if you start planning effectively now you could be looking forward to the ‘golden years’ in your retirement.

Happy new tax year!

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Tax can be confusing at the best of times and people are often baffled by how it all works. Put simply, income tax is a tax you pay on your earnings – but you do not have to pay tax on all types of income.

You do need to pay income tax on things like:

  • money you earn from working
  • profits you make if you’re self-employed
  • some State Benefits (e.g. Jobseekers Allowance, Carer’s Allowance)
  • most pensions (e.g. State Pension, employer and personal pensions)
  • rental income (i.e. if you own a house and rent it out)

As of 6 April 2018, the Personal Allowance will increase to £11,850.

On the plus side, you do not have to pay income tax on things like:

  • National Lottery or premium bond wins
  • interest on savings within your savings allowance
  • Individual Savings Accounts (ISAs) and National Savings Certificates
  • some State Benefits (e.g. housing benefit, child tax credit)

Most people in the UK have a ‘Personal Allowance’, which entitles them to a certain amount of tax-free income. This is the amount of money you will receive before you have to pay tax. Currently, the standard Personal Allowance is £11,500 (for the 2017/18 tax year) but as of 6 April 2018, this will increase to £11,850. This allowance is then translated into a tax code, but did you know that your personal tax code changes each year?

You can check your Income Tax online to see what your tax code is, how it is worked out and how much you are likely to pay. Your tax code will usually start with a number and end with a letter. For example,

  • 1150L is the current tax code used for most people who have one job or a pension;
  • 1185L is the code that will be used for 2018/19 tax year.

For the UK, each tax year starts on 6 April and ends on the 5 April the following year. Anyone who is required to file a tax return will receive a notice letting them know they need to do this for the year that has ended.

For further information on money and tax in general, visit www.gov.uk/browse/tax. There is also lots of useful information on other topics such as how to deal with HM Revenue & Customs, Inheritance Tax and National Insurance.

Women and pensions: WASPIs and wives

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It’s not an exaggeration to say that women seem to get a bit of a rough deal when it comes to pensions.

As a woman I could be accused of bias here, but really, the stats don’t lie and the truth is that there is a huge percentage of women heading towards poverty in later life.

Of course, there are thousands of men inadequately prepared for their retirement too, but there are factors specific to women that make them more likely to be facing meagre pensions when they come to retire.

WASPIs

There are factors specific to women that make them more likely to be facing meagre pensions when they come to retire.

For women born in the 1950s, the outlook is overshadowed by the dramatic increase in State Pension Age (SPA) to ‘equalise’ the historic gender gap. This is something that the Women Against State Pension Inequality (WASPI) have been tirelessly campaigning against – not that they disagree with equalisation, but in the way it has been communicated and how quickly, leaving these women little opportunity to make alternative plans for their retirement.

Wives

To add further hardship, those women who took advantage of paying reduced National Insurance contributions (NICs) between 1948 and 1977 can no longer claim a State Pension based on their husband’s NI record, since the introduction of the new State Pension last year. This is sometimes referred to as the ‘Married woman’s stamp’ which ensured that a married woman could rely on their husband’s NI record if she had taken time out of employment to raise a family and hadn’t built up enough NI contributions of her own.

Mothers

Historically the role of looking after the children has fallen to women, but even with a shift from the more traditional ideas of women staying home to raise the family, the impact on women’s finances and their ability to adequately provide for their own long-term financial security, is clear.

Even though Mums will still get their NI credits for the time they are at home (as long as they are registered for Child Benefit and their youngest child is under 12), women often struggle to accrue enough NICs and are prone to gaps in their NI record which can have an impact on the amount of State Pension they will receive. They may also often start saving into an employer provided pension much later in their lives, coming back to a career after their children leave home, or work part-time during those years with little or no available money to save into a pension for themselves.

Couple this with the fact that on average, women live longer than men resulting in spending longer in retirement and in receiving the state pension, and the picture is worryingly austere.

The gender debate

Our Generation WHY? research looks at how engaged everyday people are with their long-term savings and highlights that there is still a distinct disparity in retirement income expectations between men and women. Only 7% of the women surveyed expected to have a pot of between £500,000 and £1 million when they come to retire in comparison to 17% of men, and it’s possible that the gender pay gap has a part to play in forming these expectations.

The questions of equality and poverty are not new ones. But there does need to be wider debate, education and action sooner rather than later to avoid whole swathes of women falling into needless poverty in their old age.

“Redress the unfairness, for so called equality in retirement age pension. Women have been paid far less than men for years, so it’s hardly ‘equal’ to increase the State Pension Age for women to the same as men, when they’ve often earned more over their lifetime than women.”

Damian Stancombe, Partner and Head of Workplace Health and Wealth

Women and pensions: the State Pension

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Until I started working in the pensions industry, I had assumed (rather arrogantly it turns out) that I will be entitled to a full State Pension when I reach the grand old age of 60.

Of course, I now realise I can’t assume I will be entitled to anything at all!  A combination of the government increasing the State Pension Age (SPA), tinkering with legislation and my own need to juggle working with raising my family means I will only be able to receive my State Pension if:

  1. I have actually worked for more than ten years and made my National Insurance Contributions (NICs)
  2. Worked for 35 years and made my NICs to be entitled to the full State Pension
  3. Within current estimates, I make it to the age of 68, due to predicted increases in the SPA

Predicting the future

I was auto-enrolled into my company pension when I started working full-time and this has, at the very least, ensured I’m saving for my future.

I thought it would be a good idea to find out just exactly what I will be entitled to, so I recently tried the State Pension Calculator.  It’s a useful way of finding out if you are on track to receive the full State Pension when you reach retirement age (whatever that may turn out to be!), and it also provides you with a breakdown of your NICs during your working lifetime.

It was interesting to see that for me, a 47 year old single mum who has worked alongside bringing my children up, there were only two years out of 32 I hadn’t managed to make my full quota of NICs. This is partly due to NI credits continuing to be made even when you have your children as long as you are registered for Child Benefit and your youngest child is under 12. So as long as I continue working for the next five years I’ll be eligible to receive the full State Pension (£159.55 per week).  I’d like to say that knowing that gave me some sense of relief . . .

Affordability

Now I’m not planning on a luxury holiday when I retire, but even I can see that trying to manage on this amount is going to be challenging. Unfortunately, due to the reasons already stated, my other pension saving has also been rather sporadic over the years – it’s tough to think of your own future with the immediate financial needs of your family so painfully pressing.

For me, starting out late on the career ladder and with significantly less time to pay into my pension, the future looks frighteningly close and not particularly comfortable.  I was auto-enrolled into my company pension when I started working full-time and this has, at the very least, ensured I’m saving for my future. I’m benefitting from contributions from my employer, tax relief from the government and I now have a strong sense that I’m making a practical effort to avoid poverty in my later life.

Stay in, pay in and pay in some more

All doom and gloom aside, I know that my aim right now is to pay in, manage my pension savings and try to find some extra money to contribute when I can.  Increasing my contributions by just one percent every year, perhaps when I get my annual pay increase when I won’t notice it quite so much, could have a positive impact on my long-term prospects.

With 4me you can try modelling the effect that paying in just one percent more will have on your predicted savings – you might be pleasantly surprised!

Women and pensions: annual pension statement

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Can you honestly say you’ve ever felt a rush of excitement at receiving your annual pension statement?

I haven’t, which occurs to me, is rather a shame. After all, it’s information about the single largest savings effort I make during the year and seeing how much I’ve managed to squirrel away into my DC pension pot for my future self should be cause for celebration, right?

Helping people to understand their long-term savings plans and options at retirement is not just a ‘nice to have’, it’s essential.

Lost in translation

Yes.  It should.  But if you’re anything like me, you look at that envelope from your pension provider with a sigh, knowing full well that the technical complexity, jargon and long-winded detail mean spending a couple of hours trying to decipher what it actually means.

It’s irritating. Surely communicating this type of information shouldn’t be this difficult? Especially as helping people to understand their long-term savings plans and options at retirement is not just a ‘nice to have’, it’s essential.

Access all areas

You might be lucky enough to have an employer sponsored education platform like 4me to help you keep track of your pension, or you could be making the most of the online account that your pension provider has made available. But, if you’re relying on your annual statement as the only communication about the status of your pension, then read on for some help on how to make to most of it:

1) Take a look at how much you have in your pension account.  There will be a starting figure at the beginning of the period and the final amount for that year – give yourself a pat on the back for contributing towards the happiness of your future self!

2) It might surprise you how little of the total contribution you actually make!  Take a closer look at what you’ve paid in over the year alongside how much your employer and the Government (in the form of tax relief) contribute.

3) Review your ‘selected retirement age’ and make sure it’s still relevant.  People’s circumstances change for all sorts of reasons, so it’s worth considering whether you are still on track to achieve the retirement you envisage at the age you’ve chosen.

4) Take a look at the estimate of how much you might get when you come to start taking your pension.  This figure is a good benchmark so you can start thinking about how you might take that money and importantly, it will help with working out your budget.  If you can already see that the amount you have isn’t going to provide the lifestyle you’re imagining you should consider trying to pay in a bit more now.

5) There are charges, we can’t avoid them, but you should be able to see what you are paying for in your statement.

6) Review the fund your money is invested in . . . or don’t!  You might feel really comfortable with choosing how your pension fund is invested, but you may also want to leave it in the default if that suits you.

Shake it up – save a bit more

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It can be tricky to find that little bit extra to save, especially with so many things competing for a share of your finances.

The Power of One: how a contribution increase of just 1% per year can impact your pension savings.

However, it’s worth noting that a small increase now to the amount you pay into your pension account could have a real impact on the amount you will receive when you don’t work anymore.

Let’s call it ‘The Power of One’; how a contribution increase of just 1% a year can impact your pension savings. Sometimes you just need a little nudge to pay a bit more.

Automatically increasing contributions by a small amount every year is called ‘auto-escalation’. It applies to your contributions only and can be timed with salary increases so you don’t really notice a difference in the amount you take home each month.

Want to know how it works in real numbers?

Take a look at Jack and John, they’re both 22, each paying 3%, but Jack doesn’t increase his payments, whereas John adds a 1% increase each year from age 30 to age 37. You’ll notice there is a difference between the large numbers in the pictures below which shows the total pot value for each person.

This 1% increase could be the difference between a football season ticket in the standard seats and a season ticket in the hospitality area.

Jack pays:

John pays:

Savvy saving in the sales

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If you end up with a cupboard full of unusable ‘bargains’ every year after a foray into the January sales, but you’re determined not to make the same mistakes this year, then read on!

We’ve put together a list of tips to help you hold onto your cash and shop savvy in the New Year.

  • Make a plan and stick to it – it might sound simple, but writing a list of things you actually need before you leave the house will help you to avoid those impulse purchases.
  • Be wary of heavily discounted items – as a general rule, items discounted by 70% and above may not be as good a bargain as they seem. They didn’t sell well in the first place (hence the big reduction), and there’s always a reason for that.
  • Buy classic – if it’s clothes, handbags or shoes you want, then avoid buying the statement pieces which often have the biggest discounts and go for classic pieces instead. They may cost a bit more, but you’ll still be wearing that timeless winter coat next year where the pink faux fur is likely to have already made its way to the nearest charity shop…
  • Don’t be afraid to haggle – if you can’t muster the courage to barter face-to-face (and you want to avoid the chaos of the crowds) then head online. Some retailers provide live online chat, and they are often able to offer discount to secure the sale – but you’ll have to ask!
  • Wait a couple of days – if you can. You can either use this as a cool off period to decide if you really do want to snap up that bargain, or hold out for further reductions. It’s a game of chance but sometimes it’s worth the wait.

Handy hints for Christmas shopping

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Need some savvy suggestions to stretch those pounds this Christmas?

We share some tips and tricks to help make sure you don’t get burnt in the run up to the festive season.

  • Looking for a discount code? Try registering with an online retailer, add some items to your basket and then abandon it! Simply close the window with the items still in your basket and then wait to see if a discount code or money off voucher drops into your in-box. It doesn’t always work, but it’s definitely worth a shot!
  • Thinking of buying a gift card? This is a tricky one as people often prefer to give vouchers rather than hard cash, but remember – if the firm goes bust, the vouchers could be worthless . . .
  • Save your reward vouchers or points. We all get those reward vouchers through the door from our favourite supermarkets, and these often have a long ‘shelf-life’. Why not save them up well in advance of Christmas and use them to buy gifts or towards your festive food shop?
  • Got any unused gift cards? Sometimes we get gift cards for stores we don’t ordinarily shop in, so instead of buying enough packs of socks for the year, spend them savvily on gifts for others.
  • Have some unwanted gifts from last Christmas? You might feel a bit uncomfortable with the idea of re-gifting, but think about it as a positive act of recycling in the battle against unsustainability. Just remember not to re-gift it to the person who gave it to you in the first place . . .

SaveSaveSaveSaveSaveSave

Bitesize Christmas budgeting – part 1

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It’s that time of year again – stockpiles of mince pies are everywhere you look (yum!), the jingle of bells can be heard in the high street and the long awaited Christmas adverts are landing on our TVs.

Those of you that are savvy enough to have started buying those all-important Christmas gifts for loved ones will already know that starting early is key. We’ve put together some top tips in a two part series to get you started early, and avoid running around the shops on Christmas Eve browsing empty shelves!

  • Travelling to see friends and family? Book your train tickets in advance. Rail operators launch their tickets twelve weeks before the date of travel. Always check if cheaper advance tickets are available before travelling – you can even buy them online a couple of hours before you travel, on the day.
  • Work out what you can afford. It sounds obvious, but think about what you can afford. Maybe agree a budget with those that you are buying for, or, if you can bear it, make an ‘unnecessary present pact’ with them and go out for a coffee over the festive season instead.
  • Do you have a discounts portal with your employer? You can make huge savings on your shopping with a wide range of retailers. They even have reloadable gift cards which offer you a discount every time you spend. For example, you can make savings on clothes shopping, days out, restaurants or even at the garden centre!
  • Scan the sales. There are usually some mega sales before the big day to entice you into parting with your cash. It is worth checking prices and reviews. Stock up while you can – there are definitely bargains to be had!
  • Don’t be stung by hidden costs! Think about the VAT, postage and custom charges (if ordering from abroad). It could make that bargain gift more expensive than you think.

Bitesize Christmas budgeting – part 2

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Our second instalment of tips to help you stretch those Christmas pounds.

  • Check return/exchange policies. Most retailers extend their returns policy over the Christmas period but if in doubt ask for a gift receipt so you can include it with the gift.
  • Be aware of delivery times. Make sure you order early enough to have all your deliveries with you a couple of weeks before Christmas. You won’t feel let down when that perfect gift doesn’t arrive or have to spend even more money on finding a replacement.
  • Consider starting some new Christmas traditions. Why not send eCards instead of buying and posting them? It’ll be good for the environment too! Buy your Christmas essentials like crackers and decorations in the January sales. Have a pre-Christmas clear out of the things you don’t wear or use anymore and pack it off to the charity shops
  • 3 for the price of 2. Some shops have great offers at Christmas time so check to see if they have a 3 for 2 offer. You get the cheapest item free which could mean an extra stocking filler for a friend. Shop even savvier by making sure all three items are the same price so you make the maximum saving!
  • Got a Christmas party to attend? Save some cash by recycling an old dress or suit and jazz it up with a new accessory e.g. shoes, bag or tie. You’ll look great but you’ll feel even more fabulous when you see that saved money still safely in your account!