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Investment Times

How do these four themes affect your financial plan?

| 30 January 2015 | A A A
How do these four themes affect your financial plan?

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

As we approach the end of the tax year, we look at the themes likely to dominate investors’ thoughts, and how our advisers can help if you are unsure.

1. Pension freedoms

An estimated 400,000 people will be able to take advantage of new pension freedoms from April 2015. Those approaching retirement have an expanded set of options when considering alternatives to annuities for their retirement income.

It is important to consider whether to mix guaranteed income from the likes of state pension, final salary pensions and annuities with more flexible, riskier options such as drawdown. Some might choose the security of an annuity to meet basic income requirements, supplemented with variable drawdown income to fund discretionary spending needs.

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

The right approach will depend on an individual’s attitude to risk, and avoid the potential tax traps of large withdrawals (bear in mind that 25% of a pension can be taken tax-free, but the rest is subject to income tax).

Your options at retirement

2. Minimising tax bills

Following the upcoming general election we expect whoever wins to increase taxation. Effective tax planning will therefore be of utmost importance this year.

  • Couples who plan ahead can set themselves up for a minimum of £21,200 of tax-free income (from April 2015) by making best use of tax bands and personal allowances.
  • With an ISA allowance of £15,000 to use by 5 April and a new allowance of £15,240 from 6 April, a couple can shelter up to £60,480 from further taxes over the next few months. It is also possible to shelter up to £40,000 each tax year in a pension and benefit from tax relief.

Remember tax rules can change and the value of any benefits depends on individual circumstances.

3. Rethinking inheritance tax planning

From April pensions can be passed on completely tax-free if death occurs before age 75. Proposed new ISA rules also make an accumulated ISA allowance transferable to a surviving spouse.

As with any planning, regular reviews are important to check that plans are on track, taking into account rule changes. Changes to the tax treatment of pensions and ISAs on death will mean many investors choose to revisit their wills, inheritance tax and estate plans this year.

Guide to saving inheritance tax

4. Beating low interest rates

Cash should be the bedrock of every portfolio, and enough should be held to meet short-term spending needs and potential emergencies.

However, over the long term the low returns offered by cash are often eroded by inflation, and that’s why other assets, such as shares and bonds, could be considered for the remainder of a portfolio.

Even when interest rates begin to rise, history shows us that cash is highly unlikely to beat the returns from the stock market over the long term - though unlike cash which is guaranteed, the market will inevitably be volatile and investors could lose money.

If in doubt about your financial plans, take advice

Choosing the best way to take retirement benefits, working out how to arrange a portfolio for maximum tax efficiency, making the most of inheritance tax planning strategies and deciding how much cash to commit to the stock market are all important financial decisions.

If you are unsure, or perhaps lack the time or the confidence to make your own decisions, take advice from an independent financial adviser. Hargreaves Lansdown has fully qualified independent financial advisers based across the UK and over the telephone who would be happy to help.

Request a free consultation to discuss your needs and our advisory services

The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website is not personal advice based on your circumstances. So you can make informed decisions for yourself we aim to provide you with the best information, best service and best prices. If you are unsure about the suitability of an investment please contact us for advice.