Nico Williams providing financial advice in the UK on the following:
- Investment & savings
- Tax planning
Pensions, Investment & Savings Planning, Tax Planning.
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Savings & Investments
Many people arriving in the UK after moving from South Africa, do so with their life savings and proceeds of any sold assets from South Africa (Houses, Cars, investments etc) in bank accounts – getting ready to start their new lives.
Finances, especially in a new country, can be daunting and complex and there is no “one size fits all” approach to sorting your money.
As many of you will already know, Interest rates here in the UK are nowhere near as appealing as back in SA – and so for those wishing to save funds to go towards big expenses e.g. buying a house, saving for retirement, paying a mortgage etc, it is important that they consider the range of options available to them.
For lump sums or monthly savings, the ‘mainstream’ options are as follows:
Leave money in the bank (Current/Savings Accounts/Cash ISAs)
- No more than £85,000 should be retained within one banking institution at any time per individual for protection purposes in the event of a bank failing/dissolving (FSCS Protection)
- “Top” Savings Account interest rates are at 1.81%-3.4% depending on whether accounts are accessible at any time or “locked away” for up to three years (as at 22/08/2022) Money Saving Expert
Arrange Government Backed savings products such as National Savings & Investments (NS&I) Premium Bonds
- Safe and Protected savings but with no set interest. Instead, a monthly “lottery” is drawn for prizes
- Recommendable (generally) for short term savings but do not offer long term growth (unless you are lucky enough to win the top prize of £1million!)
- Other products through the NS&I are available
Consider Investment solutions either directly or through a Financial Adviser
- Individual Savings Accounts (ISAs) are products where individuals can save up to £20,000 each per tax year either into Cash ISAs (through your bank/building society with currently low interest rates) OR Stocks & Shares investment-based ISAs which can be arranged through a Financial Adviser or directly with some providers
- Investment based ISAs offer the opportunity for investment returns in excess of interest rates and the level of risk can be tailored to meet your individual risk profile and objectives
- Any growth made within ISAs is tax free and these funds can be accessed at any time
- For those who utilise their ISA allowance(s) and wish to invest additional funds, other investments such as General Investment Account (Unit Trusts), Investment Bonds or tax specialised investments may be advisable
- If retirement planning is your main priority or you wish to discuss any of the above options, having a discussion with a Financial Adviser regarding pensions and other products may be the right next step.
Pensions are one of a number of opportunities for individuals and company directors to focus on saving towards their retirement in a tax efficient way. There are Investment and Savings products which can also be used to work towards or compliment your existing retirement planning products.
There are a number of pension types in the UK, the main being:
1. Defined Contribution (including workplace and private personal pensions)
- Are invested within funds (covering asset classes such as equities or shares, fixed interest, commercial property and cash)
- The value of these will depend on the levels of contributions made and the performance of the chosen funds – something to be regularly reviewed with a financial professional unless you are comfortable managing your own investments
- Benefit from tax relief from personal contributions (an effective “uplift” to contributions) which can vary dependant on the individuals tax position
- Cannot be accessed until age 55 (although this is due to change to 57 from 2028) however individuals do not need to retire to access these funds
- Are protected from Inheritance Tax in most cases, and provide a form of tax efficient succession planning or passing of wealth through the generations
- These pensions can be accessed flexibly (if the pension plan allows, and if not, you may be able to move to a plan which does allow) with a minimum of 25% of the plan being accessible as Tax Free Cash. The remaining funds can stay invested, be withdrawn as income or lump sums (which would be classed as taxable income) or be used to purchase an annuity.
2. State Pension
- This is the level of income provided to individuals by the State when the individual reaches their State Pension Age (typically 67/68 currently)
- The level of State Pension one is entitled too is based on the amount of National Insurance (NI) contributions (or credits) accumulated at the point of reaching their State pension Age
- The minimum number of contributions required to access some State Pension is 10 years, with 35 years’ worth being the amount required to receive the full State Pension
- If you do not have the full 35 years of NI contributions by your State Pension age, which many moving to the UK from abroad may not have, you can “buy” additional voluntary contributions known as NI3 contributions to help – this vs investing money into a private pension is a conversation worth having with a professional
Check here to see when your State Pension Age is
If you have access to the Government Gateway, you will also be able to check the amount of contributions you may already have accumulated
3. Defined Benefit
- These types of pensions are becoming rarer as time goes on – however for those working in the public sector, they are still often available (NHS, Teachers, Police, Armed Forces etc)
- Contributions are taken from the employee each month and the employer also contributes – instead of being responsible for managing the performance of your underlying investment (like the Defined Contribution pension), these pensions offer a set level of income in retirement which your employer must pay you at their scheme retirement age (typically available from age 65 however different schemes can vary and one may be able to draw their pension early via commutation i.e. sacrificing some of the annual income payable in order to draw it earlier)
- The amount of pension income payable will depend on scheme specific factors, but you should receive annual statements informing you of your accruing future pension income
There are variations of some of the pensions out there, and the above provides a summary of the main types you may come across here in the UK. Employees are provided with some form of a workplace pension so long as they meet the Auto Enrolment criteria (the majority of the workforce in the UK) however the self-employed will need to arrange their own form of private pension.
There are platforms and providers available to individuals wishing to arrange these themselves, or you can of course reach out and speak to a Financial Planner or Adviser who may be able to assist.
Original article on pensions prepared by Nico Williams who is a financial planner.