What's important to you
Should I save or invest?
When it comes to saving money, keeping your cash in the bank can seem like the safest option. But over the long term, if the rate of inflation (how fast the prices of goods/services increase) exceeds the bank’s interest rate (what the bank pays you for holding your cash with them), then keeping it in the bank means the value of your savings will actually go down in real terms.
While having some of your cash in a bank to cover unexpected expenses is sensible, it is important to consider the impact of inflation when making decisions about your savings over the long term.
Investing aims to accumulate money for longer term goals however generally it comes with more risk. Investments tend not to be as accessible as cash and the value of them and income from them can fall as well as rise and are not guaranteed.
How long should I invest for?
We believe leaving your wealth invested over longer time periods has the greater potential for it to maintain and grow its value. In investment terms this tends to be five years or more.
Although our focus is on long-term potential returns we still watch what’s happening on a day-to-day basis. We’ll use our expertise to try and take advantage of short-term opportunities with the aim of generating additional returns, or to protect its value if we see potential risks on the horizon.
Just as we’re advised not to put all our eggs in one basket, it’s very unlikely a single investment type (shares, for example) will give you the best performance all the time and so we also recommend holding a broad spread of investments.
Finally, any return you expect to receive from your investment should match the degree of risk you take to achieve it. So we work with you to find the right strategy. But remember, all investments carry a degree of risk and results cannot be guaranteed and you may not get back your initial investment.
What's important to you
How can I invest tax efficiently?
Over the years successive governments have created various tax-efficient savings regimes to encourage us to put something aside for the future. The two most commonly used are:
ISAs (individual savings accounts) which allow you to save or invest up to a set limit each tax year: this year it’s £20,000. Once saved or invested within an ISA, any income or capital growth is free of tax both within the account and when you decide to take it out.
Pensions allow you to save for your retirement by putting money in your pension pot free of income tax. Again, any capital growth or income reinvested is free of tax. However, you cannot access your savings until you reach the age of 55 (although this is due to rise to 57 in 2028). When you come to withdraw your investments the first 25% is tax free and the remainder is taxed as normal income.
Are onshore bonds tax efficient?
Onshore bonds are a type of life insurance policy that allow you to invest tax efficiently. This is because any income or capital growth within the bond is taxed at the corporation tax rate of 20%. HMRC regards this as equivalent to the policyholder having effectively paid capital gains tax (CGT) and basic rate income tax.
Basic rate taxpayers have no further tax liability when withdrawing from an onshore bond.
You can also withdraw up to 5% of the initial premium every year tax free as this is simply taking back your funding capital. Anything above this is taxed alongside your other income so for a higher rate tax payer this could mean an extra 25%. The bond pays out any remaining balance either on the maturity date or when you die and any gains will be taxed as income.
They usually comprise between 20 and 100 segments, which can be cashed in at any time; either singly or in total. The same rules apply: any profits are taxed as income if you are a higher rate tax payer.
What's important to you
Is protection insurance expensive?
We believe having the right protection in place can be the cornerstone of a holistic financial plan, yet is a need that is often overlooked. Thanks to our existing relationships with Scottish Widows and Legal & General we could help provide financial protection for you and your family.
But what makes us unique is that we won't charge you payment or commission when you purchase protection products.
By removing commission payments, the amount it costs for the insurer to cover you is the price you'll pay. It's important to us that we invest our time to help address the protection gap that exists in the UK today.
Plus, we employ our advisers so they're rewarded for meeting your needs, rather than selling products.
Can protection products reduce inheritance tax?
A life insurance policy could cover the cost of an inheritance tax (IHT) bill rather than it being paid from your savings or sale of assets when you die. Even better, if you place the policy in trust, it will be paid outside of your estate, therefore not incurring any further IHT.
The downside of placing your life insurance policy in trust is that it can be difficult to amend or remove from trust once it's set up. There are circumstances under which changes to the policy can be made but you may risk invalidating the cover. Certainly, it's best to consult your solicitor before making any alterations to your policy.
Life insurance is designed to pay out a lump-sum when you die. You can state that you wish your loved ones to use this money to pay part or all of the IHT when you die. This could provide valuable peace of mind that your family should be able to cope from a financial perspective when the worst happens.
Tax treatment depends on individual circumstances and may be subject to change in the future.
What's important to you
How much should I invest for my children?
There is no right amount for how much to save for your children’s future.
Even if you don’t have a huge lump sum today, don’t worry. You could set up an account with regular monthly payments from £250.
As your child enters their journey into adulthood, they will no doubt encounter financial challenges. With the money you have invested on their behalf you could potentially support them through their journey and open up more opportunities for them in the future.
There are limits to the amount you can save for your children or grandchildren per year. For the 2022/23 tax year:
JISA - the maximum you can invest is £9,000. Anyone can pay into the account, but the payments must not exceed £9,000 this tax year.
Junior SIPP – the maximum you can invest is £2,880. The Government then top this up with 20% tax relief of £720, making up the £3,600 annual limit.
What's the best way to save for my children?
When it comes to investing for children, time can be even more important than money.
Thanks to the power of compound interest, the sooner you start investing, the more potential there is for your money to grow. Compound interest is like growth on growth, through reinvesting interest rather than paying it out. Although as with all investments there are risks so this is not guaranteed.
Simply putting money in a bank account will not necessarily have the same effect, as inflation can erode the value of money. And with low interest rates, cash accounts are currently likely to give lower returns.
Before making a decision, you should consider the pros and cons of savings vs investing. Savings have minimal risk and can be there for your short time needs or used as emergency funds as well as any planned spending. They still have the potential to grow steadily but could be affected if the rate of return is lower than inflation.
What's important to you
How much can I pay into my pension?
Pension contributions are capped by the pension annual allowance which, for most people, is £40,000 each tax year. Above this level you will pay excess tax, as you will if you exceed the Lifetime Allowance. Both the contributions made by you and your employer count towards these limits, alongside any basic rate pension tax relief that you receive from the government.
A handy feature is that you can go back three years and use up any previous unused annual allowance – so you could be able to contribute more than £40,000 in any tax year if this applies. It’s worth considering getting advice on this, because there are conditions.
To qualify for tax relief, personal contributions in any one year cannot exceed annual earnings, or £3,600, whichever is greater. In order to pay in more than the amount made, employers may be able to make an employer pension contribution.
How do I know how much I'll need when I retire?
The answer to this question will be different for everyone and depends on what you want your retirement to look like. Start by considering what your retirement goals are and then think about what the lifestyle you desire might cost. It also depends on how long your retirement horizon is.
We believe there are two good rules of thumb when it comes to retirement income:
1. Ideally, you should aim to have saved enough from your combined pensions to give you an income equal to two thirds of your pre-retirement pay.
2. A good way of converting an accrued total pension value into annual income is to use 4% as your ‘interest’ or ‘yield’. So, a £250,000 pension pot might generate £10,000 a year.
These are rules of thumb, of course, and our adviser will be able to give you a good indication of the annual retirement income you could potentially receive depending on your personal circumstances.
Although you may not have some of the expenses you have today such as mortgage, commuting and childcare payments, you may have additional healthcare costs and other discretionary expenditure tends to go up as you enjoy more leisure time and, perhaps new hobbies.