Longer lives and financial pressure mean many people believe that retiring in their 60s will become a thing of the past. So, if you want to ensure your child or grandchild can enjoy financial security later in life, how could you help them? Read on to find out.

Two-thirds of Brits believe retiring in your 60s will become a trend of the past

Most people planning for their retirement today, probably imagine themselves stepping away from work in their 60s. Indeed, according to the Office for National Statistics (ONS), in 2021 the average age of retirement for both men and women was 66.

Yet, that milestone could be decades later for younger generations.

A survey carried out by Canada Life found that 69% believe that retiring in your 60s will become a thing of the past. One of the biggest reasons for this is the expectation that we’ll live longer than previous generations. In fact, the median ideal age was found to be 90.

ONS figures highlight how growing life expectancy will affect the population of the UK. Between 2023 and 2050 the number of people aged 65 and above is expected to grow by just under 40%. Similarly, there is expected to be a 200% rise in the number of people who celebrate their 100th birthday during the same period.

Longer lives can present challenges, including the need to fund more years in retirement. So, it’s not surprising that two-thirds of people believe working for longer is the solution. Yet, that may not align with the goals or lifestyle aspirations of younger people.

If you’re worried about how your children or grandchildren are preparing for their retirement, even if it’s decades away, there may be some steps you can take.

How to help younger generations prepare for retirement

1. Encourage them to engage with their pension early

Retirement can seem like a milestone that’s too far away to concern yourself with when you’re starting your career. However, engaging with their pension early could mean loved ones have far more saved for retirement.

Pension contributions are typically invested so they have an opportunity to grow. As the money cannot be withdrawn, the returns are usually invested and may generate additional returns. This compounding effect means that small contributions at the start of a career could grow significantly.

Assuming an annual investment return rate of 5% before fees are considered and a retirement age of 65, the below table highlights how compounding could affect the retirement savings of two workers.

Source: Legal & General

As you can see, person B contributes more than £8,000 extra to their pension, but as they’ve missed out on 18 years of compounding, the value of their pension is almost £60,000 lower when they retire.

So, if your child or grandchild has paused their pension contributions or opted out of their workplace scheme, encouraging them to reconsider their decision could put them on track for a retirement that offers greater financial security.

2. Contribute to their pension on their behalf

If you’d like to lend a helping hand, you could make contributions to your loved one’s pension. Their pension would benefit from an immediate boost and the potential investment returns might mean your initial gifts grow over the long term. 

You may want to speak to your family member about the contributions that are already going into their pension, including those made by their employer, to avoid exceeding the Annual Allowance, which could trigger a tax charge.

In the 2024/25 tax year, the Annual Allowance is £60,000 for most people and pension contributions of up to 100% of the pension holder’s annual salary can benefit from tax relief. If the pension holder is a high earner or has already flexibly accessed their pension, their Annual Allowance may be lower.

Unused Annual Allowance may be carried forward from the previous three tax years.

Remember, money that is contributed to a pension isn’t accessible until the pension holder is 55 (rising to 57 in 2028). As a result, you might want to assess your own financial security and the effect a gift could have on it before you contribute to a pension on behalf of a family member.

3. Lend financial support to help them reach other goals

Financial pressures might mean your loved one is considering halting pension contributions. So, speaking to them about other challenges they might be facing could highlight where your support may allow them the financial security to start saving for retirement.

For example, younger family members may be struggling to pay rent and save a deposit to get on the property ladder. A gift from you to help them reach the milestone of homeownership might mean they’re in a better position to start regularly contributing to a pension.

Alternatively, day-to-day financial pressures may mean your child or grandchild is hesitant to place money into a pension that they wouldn’t be able to access until they reached retirement age. In this case, regular financial support that could be used to cover everyday costs might give them the confidence to place money in a pension.

Again, assessing your financial plan and the implications of handing over regular gifts could help you understand the effect it might have on your wealth in both the short and long term.

4. Consider your legacy now

As part of your legacy, your wealth could be used to help children or grandchildren secure financial freedom in retirement. Reviewing your estate plan now could highlight ways you could support this goal, including through gifting assets during your lifetime or leaving wealth after you’ve passed away.

While creating an estate plan, it’s important to keep in mind that things may change. For instance, if you need to pay for care later in life, the inheritance you leave for loved ones could be less than you expect.

5. Refer them to your financial adviser

While loved ones are accumulating wealth, they might think they wouldn’t benefit from working with a financial planner. Yet, it’s never too soon to start thinking about retirement or other long-term goals. In fact, working with a professional before they step back from work could present an opportunity to grow their wealth further and create a more comfortable retirement.

So, if your children or grandchildren aren’t working with a financial planner, introducing them to yours could help get their finances on track.

Get in touch to discuss how you could support loved ones

If you’d like to talk about your options for lending financial support to loved ones, including helping them prepare for retirement, please get in touch. We could work with you to help you balance your financial security and retirement goals with the aid you might want to provide family members.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

As a business owner, the Autumn Budget delivered at the end of October 2024 could affect both your business and personal finances. Read on to discover the key changes you need to be aware of.

2 Budget tax changes that could affect your business’s finances

The good news is that despite speculation that Corporation Tax could rise, this didn’t materialise.

Indeed, the Corporate Tax Roadmap sets out the government’s intention to cap the headline rate of Corporation Tax at 25% for the duration of the current parliament. It also states it will maintain the Small Profits Rate and capital allowances.

However, two key announcements could affect your business’s outgoings.

The national living wage and minimum wage for young people will both rise in April 2025

If you have employees who earn the national living wage, your payroll expenses are likely to rise in April 2025.

From 6 April, the national living wage for employees who are aged 21 and over will increase by 6.7% from £11.44 an hour to £12.21. Younger workers aged under 21 who earn the national minimum wage will also benefit from a pay boost when it rises from £8.60 to £10 an hour.

Employer National Insurance will rise to 15%

Potentially having a larger effect on your business finances are the changes the chancellor unveiled to employer National Insurance (NI).

Effective from 6 April 2025, the employer NI rate will increase by 1.2% from 13.8% to 15%.

In addition, the threshold at which you will pay NI will fall. Under the current rules, employers pay NI on earnings above £9,100 a year. For the 2025/26 tax year, this threshold will fall to £5,000.

So, not only may your business be paying a higher rate of NI, but it will also be paying NI on a larger proportion of employees’ earnings.

On a more positive note, in 2024/25, employers with an NI bill of £100,000 or less may benefit from the Employment Allowance, which provides a £5,000 discount. In 2025/26, the threshold will be removed, so all eligible employers will now benefit, and the discount will rise to £10,500.

As a business owner, there may be steps you can take to reduce the effect the changes will have on your firm’s finances. For example, offering your employees a salary sacrifice scheme could be a useful way to reduce your NI bill and offer a perk that may benefit employees too.

If you’d like to discuss the steps your business could take to improve tax efficiency, please get in touch.

2 Budget announcements that could affect your finances when you leave the business

Moving on from your business might not be part of your plans now, but it may still be important to consider your tax liability if or when you exit later. Understanding your tax position could help you create a tax-efficient exit strategy that suits your needs.

Some Budget announcements could affect your plans, and you may want to review them as a result.

The main rates of Capital Gains Tax have increased

Changes to the main rates of Capital Gains Tax (CGT) were effective immediately after the Budget and affect asset disposals made on or after 30 October 2024.

CGT is a type of tax you pay when you make a profit disposing of certain assets, including when you sell some business assets.

The basic rate of CGT has increased from 10% to 18% and the higher rate went from 20% to 24%.

The government revealed it would maintain the Business Assets Disposal Relief (BADR) – formerly known as “Entrepreneurs’ Relief” – at £1 million. However, the BADR rate of CGT will rise from 10% to 14% on 6 April 2025 and to 18% on 6 April 2026.

As a result, the tax bill you face when selling your business could be higher than you expect.

Changes to reliefs could affect your estate’s Inheritance Tax liability

If you plan to leave your business to a loved one when you pass away, changes to Inheritance Tax (IHT) reliefs could affect your estate’s tax liability.

After 6 April 2026, Agricultural Property Relief will be capped at £1 million and assets that exceed this threshold could be liable for IHT with a 50% relief applied. Business Property Relief will also fall from 100% to 50% in all circumstances for shares designated as “not listed” on the markets of a recognised stock exchange.

There are often steps you can take to reduce a potential IHT bill, but you usually need to be proactive. If you’d like to discuss how you could pass on your business and minimise a potential IHT bill, please get in touch.

Get in touch to understand how the Budget may affect you

If you’d like to talk about how the Budget could affect your finances and those of your business, please get in touch. We can work with you to understand what announcements mean for you and the steps you might take to reduce the effect changes could have.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning or Inheritance Tax planning.

On 5 November 2024, US citizens voted for their next president, and the election had a knock-on effect on investment markets and business prospects around the world.

Republican Party nominee Donald Trump will serve a second term as president of the US. Trump has previously spoken about imposing harsh import tariffs, including a tariff of up to 60% on goods imported from China or a blanket 20% tariff on every US trading partner.

So, it’s unsurprising that the results of the election are being felt across the world. Indeed, Bloomberg’s Commodity Index suggests the prices of industrial metals and commodities have already slumped due to concerns about a “tit-for-tat global trade war”.

UK

The Labour government delivered its Autumn Budget at the end of October, and the repercussions were still being felt at the start of November.

Credit ratings agency Moody’s said the Budget would be an “additional challenge” for public finances as the announcements would do little to boost UK economic growth. It noted there was also a limited buffer if the UK faced a financial shock.

Similarly, S&P stated that public finances would be “constrained” but added that public investment plans could create a more business-friendly environment.

The FTSE 100 dropped to a three-month low on 8 November. This was partly due to retailers suffering losses as it became clear how higher rates of employer National Insurance contributions announced in the Budget could affect profitability. Marks & Spencer saw a 4.5% drop, and Tesco (2.9%), JD Sports (2.7%), and Sainsbury’s (2.5%) all suffered losses too.

On the same day, housebuilder Vistry issued its second profit warning in as many months, after it said cost overruns on building projects were worse than previously thought. This led to its share price tumbling almost 20%.

The headline economic figures released in November indicate the UK is stagnating.

According to the Office for National Statistics (ONS), GDP per head fell 0.1% in the third quarter of 2024 in real terms – the measure is used as an indicator of the country’s living standards.

In addition, ONS figures show inflation increased to 2.3% in the 12 months to October 2024. The rise could mean the Bank of England delays plans to reduce its base interest rate.

Readings from Purchasing Managers’ Indices (PMI) suggest business activity is weakening. However, some businesses may have paused investments and key decisions until the Budget was delivered, so activity could pick up in the final months of 2024.

In October, the British manufacturing PMI had a reading of 49.9 – slightly below the 50 mark that indicates growth. While still in growth territory, the service sector also slowed when compared to a month earlier with a reading of 52.

There’s already speculation about what a Trump presidency will mean for the UK.

The National Institute of Economic and Social Research said the protectionist measures planned by Trump could halve the UK’s economic growth in 2025 and 2026.

Yet, there may be some good news for investors. On the back of Trump’s victory, the pound weakened on 6 November. This led to the FTSE 100 jumping 1.3% as share prices lifted for multinational firms. For example, equipment rental company Ashtead, which would benefit from a strong US economy, saw a 6.6% boost.

Europe

While PMI readings suggest the eurozone economy is improving, it has recorded production falling for 19 consecutive months as of October 2024. The bloc’s two largest economies are playing a role in dragging down the figure as both France and Germany are affected by exports falling and weak demand.

Trump’s victory also had repercussions across Europe.

Shares in European renewable energy companies slid on 6 November as Trump has previously spoken about plans to boost US oil production. Danish wind turbine maker Vestas Wind Systems fell 8% and German solar energy producer SMA Solar Technology was down 10.4%.

Similarly, the threat of tariffs from the US hit German carmakers on 6 November. Porsche was the biggest faller on the German index DAX after it tumbled 7.4%, followed by BMW, Mercedes-Benz, and Volkswagen.

US

Just days before the US election, official figures showed that just 12,000 new jobs were added to the US economy in October. The figure is far below the 113,000 that economists expected and the 254,000 recorded in September. The low number may be due to businesses holding back decisions until election uncertainty passed, but it may have dealt a blow to the Democratic Party.

On 6 November, the day after the US election, the US dollar had its best day in four years as it climbed 1.5% against a basket of other countries.

In pre-trading on 6 November, shares in Trump Media & Technology were up almost 36%. Similarly, Elon Musk, who is a supporter of Trump, saw his business Tesla receive a 13% boost in premarket trading.

When the US stock market opened, it reached an all-time high. The S&P 500 index was up 1.9% and the Dow Jones benefited from a 3% bump as investors bet on Trump’s policies stimulating economic growth.

US company Disney also saw a boost on 14 November and share prices hit a six-month high. The value of the business increased by almost 10% thanks to the success of films Inside Out 2 and Deadpool & Wolverine. 

Inflation in the US continues to be above the 2% target. In the 12 months to October 2024, inflation was 2.6%, up from the 2.4% recorded in September.

Asia

China responded to the threat of Trump tariffs saying there would be no winners if a trade war began. Instead, ambassador Xie Feng said the US and China should focus on mutually beneficial cooperation to achieve many “great and good things”.

It was good news for China’s economy in October, with an official PMI showing factory activity returned to growth, ending five consecutive months of contraction. On 1 November, the news led to Hang Seng in Hong Kong adding 1% and the Shanghai Composite index rising by 0.4%.

Perhaps surprisingly, Japan’s Nikkei index gained as it waited for the outcome of the US general election on 5 November. The index rose 1.9% as a weaker yen boosted Japanese exporters’ overseas earnings.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

The tapering of the Personal Allowance means some higher-rate taxpayers effectively pay an Income Tax rate of 60%, sometimes without realising. Fortunately, if you’re affected, there could be ways to reduce your tax bill.

A report in the Telegraph suggests 1.35 million workers were affected by the 60% tax trap in 2023/24. Collectively, they paid an extra £4.7 billion to the Treasury. Read on to find out if you could unwittingly be paying a higher rate of Income Tax than you expect.

The tax trap affects those earning more than £100,000

You might think the highest rate of Income Tax is 45%, and officially you’d be correct. Most people pay the standard rates of Income Tax. In 2024/25, Income Tax rates and bands are:

Please note, that different Income Tax bands and rates apply in Scotland.

However, the Personal Allowance is reduced by £1 for every £2 you earn over £100,000. If you earn more than £125,140, you don’t have a Personal Allowance and pay tax on all your income.

For example, if you earn £101,000, on the £1,000 above the threshold, you’d pay £400 of Income Tax at the higher rate. In addition, you’d lose £500 of your Personal Allowance, so this portion of your income would also be subject to Income Tax at 40%, adding up to £200.

So, out of the £1,000 you’ve earned above the tapered Personal Allowance threshold, you’d only take home £400 – a 60% effective tax rate. It’s led to the tapering being dubbed a “stealth tax” in the media.

Further compounding the issue is the fact that the Personal Allowance and Income Tax bands are frozen until 2028.

While the thresholds are frozen, many people are likely to receive wage increases. As a result, more people are expected to be caught in the 60% tax trap in the coming years.

Don’t forget your salary might not be your only income that’s considered when calculating your Income Tax bill. For example, you could be liable for interest earned on savings that aren’t held in a tax-efficient wrapper.

Contact us if you’re unsure which of your assets could be liable for Income Tax.

3 legal ways to avoid falling into the 60% tax trap

If you’re affected by the tapered Personal Allowance, thinking about how you structure your earnings may provide an opportunity to reduce how much you’re giving to the taxman. Here are three excellent options you might want to consider.

1. Boost your pension contributions

One of the simplest ways to avoid paying 60% tax if you could be affected is to increase your pension contributions.

Your taxable income is calculated after pension contributions have been deducted. As a result, boosting pension contributions could be used to reduce your adjusted net income so you retain the full Personal Allowance or reduce the proportion you lose.

Increasing pension contributions could help you secure a more comfortable retirement too. However, keep in mind that you cannot usually access your pension savings until you’re 55 (rising to 57 in 2028).

2. Use a salary sacrifice scheme

If your workplace has a salary sacrifice scheme, it could also provide a useful way to reduce your overall tax liability.

Salary sacrifice enables you to exchange a part of your salary for non-cash benefits from your employer. This could include higher pension contributions, childcare vouchers, or the ability to lease a car.

By essentially giving up part of your income, you might be able to bring your taxable income below the threshold for the tapered Personal Allowance.

You should note that salary sacrifice options vary between employers, so it may be worthwhile to check your employee handbook to see if any options could suit you. 

3. Make charitable donations from your income

If you’d like to reduce your Income Tax bill and support good causes, you could make a charitable donation. Again, by deducting donations from your salary before tax is calculated, you could manage how much of the Personal Allowance you lose.

Contact us to talk about how to manage your tax bill effectively

There may be other steps you could take to reduce your overall tax bill. A tailored financial plan will consider your tax liabilities, including from other sources, such as your savings and investments, to highlight potential ways to cut the amount you pay to the taxman.

If you’d like to arrange a meeting, please get in touch. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

According to research from Scottish Widows, more than three-quarters of retirees could be missing out on potential investment returns by accessing their pension before their retirement date. Understanding the implications of withdrawing money from your pension could help you to make a decision that’s right for you.

Read on to find out some of the areas you might want to consider before you access your pension for the first time.

You can usually access your pension at 55

Usually, you can withdraw money from your pension when you turn 55 (rising to 57 in 2028). For many people, that will be before their planned retirement date.

It can be tempting to access a portion of your retirement savings at this point, even if retirement is some way off. Indeed, the Scottish Widows survey found that 78% of people withdraw some money from their pension before they retire – 52% take funds five years before their retirement date and 21% withdraw money 9 to 10 years before.

On average, those accessing retirement savings while they’re still working withdraw £47,000.

There are lots of reasons why you might decide to access your savings before you give up work completely. Perhaps you plan to phase into retirement by reducing your working hours and are using a pension withdrawal to supplement your income. Or you might use the money to reach life goals, such as paying off your mortgage or taking a once-in-a-lifetime holiday.

However, taking money from your pension before you retire could affect your lifestyle once you give up work. So, it’s often important to consider the long-term impact. When you factor in investment returns, the effect could be greater than you expect.

Accessing your pension early could reduce its value by thousands of pounds

Typically, money held in your pension is invested. This provides an opportunity for it to grow over the long term. As a result, withdrawing funds from your pension early could mean its value is lower than you expect.

Scottish Widows calculates that if you withdrew £47,000:

• Five years before your retirement date, you could miss out on £13,925 of investment returns
• 10 years before you retire, investment returns could be £24,661 lower.

The figures assume investment returns of around 5%, which cannot be guaranteed. However, the data highlights the potential impact of withdrawing money from your pension sooner than planned.

So, when you’re weighing up the pros and cons of taking money from your pension, you may want to consider how lower investment returns could affect your income in retirement.

A financial plan could help you assess the effect of making a pension withdrawal

While withdrawing money from your pension before you retire could mean you miss out on investment returns, that doesn’t automatically mean it’s the “wrong” decision.

For instance, if you use the money to pay off outstanding debt, such as your mortgage, it could take a weight off your mind and improve your financial situation in the short and long term.

Alternatively, you might have enough to increase your disposable income to spend on experiences now without risking your financial security later in life.  

What’s important is that you understand the potential implications of accessing your pension sooner, and if it’s the right decision for you. It can be difficult to assess as you might need to consider a whole host of factors, some of which are outside of your control.

If you want to understand how taking a lump sum or regular income from your pension could affect your long-term finances, you may want to consider:

• Life expectancy
• Future income needs
• Potential care costs
• How inflation could affect outgoings
• Your ability to overcome financial shocks.

A financial plan and using tools, such as cashflow modelling, could help you understand how your decisions now could affect your future. 

You might also want to look at other assets as well – could your savings or other investments be used to help you reach your goals instead of accessing your pension? A complete financial review may help you assess how to use your assets and wealth to balance short- and long-term goals.

Contact us if you’re considering accessing your pension before your retirement date

If you’re thinking about accessing your pension before your planned retirement date, we could help you assess the long-term implications. It could mean you have the information you need to understand which option could be right for you. Please contact us to arrange a meeting.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.