With the current pension landscape changing significantly in line with increases in life expectancy in the UK, planning for a sustainable retirement income is of utmost importance. The State Pension (Tier 1) presents fiscal challenges for the UK government so as longevity increases, the eligible age also increases. In an attempt to alleviate financial difficulties in later life, here are some useful tips to consider when planning retirement income in workplace pensions (Tier 2) and private/personal pensions (Tier 3).
These schemes offer the dual benefit of employer contribution and tax relief to pension contributions. For individuals automatically enrolled into a workplace pension, the minimum contribution from employers is 3% and 5% for employees (8% minimum total contribution) for the 24/25 tax year.
Drawing from your workplace pension
The benefit of joining a Defined Benefit (DB) pension scheme is that it offers an indexed link, and guaranteed pension income for life. The normal retirement age to access pension income is usually set at 60 - 65 but depending on the rules of the scheme, you might be able to access your pension from age 55. DB schemes generally offer better income levels with no investment risk to individuals. In the event of employer insolvency, the Pension Protection Fund (PPF) ensures that members receive a portion of their benefits.
Access to Direct Contribution (DC) pension pots is usually through income/pension drawdown. With investments in this scheme linked to the stock market, there is the risk that funds may increase or decrease in value. Access to pension pots in this scheme is set to a minimum age of 55. However, you may be able to draw your pension early based on the rules of the scheme or if you are retiring early due to ill-health. Pension scheme payments that are made earlier than the minimum age may attract tax charges of up to 55%
Personal pensions – these represent a DC scheme where individuals are able to make regular payments or lump sum payments to a chosen pension provider who will invest the money on their behalf. The amount paid into this scheme will help to determine the size of your pension pot but such investments are susceptible to market risks and usually attract administration charges by the pension provider. Contributions made to private pensions benefit from tax relief of 20%, which makes them a good savings option.
Self-Invested Personal Pensions (SIPP)- SIPPS provides a tax-efficient savings account which offers individuals flexible ways in which to invest their own savings based on their risk tolerance. Money can also be paid in as a lump sum or on a regular basis and tax reliefs of 20% (basic rate taxpayer), 40% (higher rate taxpayer) or 45% (additional rate taxpayer) are applied on SIPPs contributions for those under the age of 75 and are UK residents. SIPPs are also accessible to non-tax payers and offers a tax relief of 20%. Tax reliefs for SIPPs are capped at £60,000 for the 24/25 tax year, with any pension payments above that limit subjected to a higher rate of income tax. Unlike personal pensions, SIPPS provide greater choice and control over the ways in which funds are invested. Investment choices include shares, bonds, exchange-traded funds and unit trusts. The variety of options available with SIPPs indicate the potential for a higher level of return on investments, which also increases the risk of the investment.
Drawing your private pension
The age at which these pensions can be taken is usually at age 55 (although this is expected to rise to 57 by 2028). Lump sum payments can be taken but only 25% of this amount will be tax free. A useful option would be purchase an annuity, which is a life policy that converts money from a pension fund into a guaranteed income for a fixed duration or until death.
Lifetime ISA (LISA) offers an attractive retirement savings option for individuals between the ages of 18 and 40, and can be used to complement existing pension savings. It currently allows savings of up to £4,000 per year with the added benefit of a government bonus of 25% (up to £1,000 per year). For example £250 on contributions of £1000. It must be noted however that the £4,000 LISA limit is included in your annual Individual Savings Accounts (ISAs) limit of £20,000 for the 24/25 tax year.
In the current economic climate, retirement provision should be seen as an important aspect of financial decision-making as it can provide a catalyst to ensuring financial well-being in later life. The pension system in the UK represents a major financial institution that offers various tiers of pension provision. However, the multi-tiered provision is impacted by a legacy of political debates and pension reforms, and the complexity of each tier (which is based on different eligibility criteria) inhibits a full understanding of the pension system. While Tier 1 (State Pension) provides a regular payment from the Government when individuals reach state pension age, the amount received is dependent on your national insurance contribution records. Tier 2 represents occupational (workplace) pension schemes (Direct Contribution and Direct Benefit) and they are designed to enable contributions from both employees and employers. However, self-employed individuals in the UK face unique challenges when it comes to occupational pensions due to the absence of employer-sponsored pension schemes. Tier 3 represents private pension schemes, whereby individuals can save towards their retirement with financial institutions, such as banks, investment companies and insurance companies. Nevertheless, there have been growing debates about the flexibility and ease of access to private pension pots at retirement.
With longevity increasing and an increased dependency on the state for pension provision, the UK government introduced National Employment Savings Trusts (NEST) (originally known as personal accounts) in 2012, to extend and simplify private pension provisions in the UK. NEST represents a Direct Contribution (DC) pension scheme that is designed to provide a vehicle through which workers on low and moderate levels of income as well as those without access to an occupational pension scheme to make private savings towards retirement.
Most individuals can join NEST if they are self-employed or they are the sole director of a company that has no other employees. However, not all these individuals can enrol themselves into NEST. See below for a self-employment checklist where individuals can check if they qualify:
§ Self-Invested Personal Pension Plans (SIPPs) allow individuals to manage their pension investments, offering potential benefits such as lower fees and greater flexibility. These plans are best suited for those with a good understanding of investment strategies.
§ Standard and stakeholder pensions offer more straightforward retirement savings options with capped charges, making them accessible for those seeking a simple solution. Stakeholder pensions, in particular, offer greater cost control.
§ The Lifetime ISA (LISA) is an appealing option for individuals under 40, allowing them to save for their retirement with a government bonus of 25% on contributions (up to £1 for every £4 saved). LISAs can complement or replace other pension options and are particularly beneficial for self-employed individuals paying basic rate tax. However, for those in higher tax brackets, LISAs may not offer the same advantages.
With a reduction of the NI contributions in the Spring budget 2024, it is assumed that individuals would have more disposable income to save towards their private pensions. However, this government initiative may increase the financial burden for a future UK government in terms of the payouts available to future state pensioners. Hence, it is essential that directors of Ltd companies engage in retirement planning using the range of options available to enable financial security in later life.
Dr Beverley Preddie (ACMA, CGMA) is a Pensions Expert and a senior lecturer in accounting and finance at the Royal Docks School of Business and Law, University of East London
Imagine how much more enjoyable your life would be if you could retire early. You could spend your time focusing on what matters most to you, such as supporting your family or pursuing a hobby. Investing in gold is one of the best ways to establish a passive income stream and bring this vision to life.
Not everyone understands how to get started in the global gold market, though. We've created a brief guide with the key information you need to know before moving forward. Let's explore what you should keep in mind.
As the name implies, the global gold market allows you to buy and sell gold internationally instead of only domestically. The three major trading hubs are the Shanghai Gold Exchange (SGE), the London OTC market, and the US futures market.
These account for the majority of global trading volumes, making them a great way to get started with international gold trading. They're essentially the crux of gold and forex trading. Let's explore these central trading gold platforms in detail below.
This exchange was established in 2022 with close oversight from the People's Bank of China. It's seen a rapid rise since then and has become a major player in the international gold market.
The exchange introduced the Shanghai Gold Price benchmark in 2016, allowing it to establish China's role as a price-setter. This also gave the country's domestic market a significant boost in performance.
The exchange's spot and deferred contracts are complemented by futures trading on the Shanghai Futures Market. However, there is no direct link between the two exchanges.
Historically, the London OTC market has been the centre of the gold trade. It attracts participants and investors from across the world. London has a unique vaulting infrastructure that facilitates its strict chain of custody enforcement.
It also houses substantial stocks of gold. These attributes have caused it to be referred to as the "terminal market."
London's time zone bridges those of the US and Asia, as well. As time passes, the exchange is constantly looking for new ways to facilitate and streamline gold trading.
This exchange plays a significant role in price discovery despite London being the world's leading market. Trading activity on this exchange is focused on "active month contracts. These are the nearest dated contracts, and they act as proxies for the exchange's spot price.
Only a handful of contacts settle into gold bar delivery, but the exchange is closely linked to physical markets. It's worth noting that increasing share volume is transacted during Asian market hours. This reflects a successful diffusion into the Asian market.
There's no shortage of investing in gold, and understanding them will help you make the best decision for your needs. From here, you should have no trouble taking your investment to the next level. Listed below are some of the most notable.
Gold is an amazing addition to any portfolio since it helps diversify your investments. For instance, imagine you invested most of your money in a handful of stocks.
If the market didn't perform as anticipated, you could lose your contribution. A lack of diversification is one of the most significant reasons why people lose money and their investments.
It's recommended to invest in different types of gold so you aren't limited to a single income stream. Keep this in mind when moving forward so you can make better investment decisions.
Gold is renowned for its high liquidity compared to other investments. This makes it easy to convert them into cash if necessary. It can be frustrating to have an investment that's difficult to get money out of.
Gold's liquidity stems from it being in high demand. It's better than other precious metals like silver and platinum, as well.
Since gold's demand is so substantial, you won't have to worry about prices falling. Long-term, gold will always increase in value due to its scarcity.
It's not unlikely that gold value will increase exponentially over the next decade due to its diminishing availability. This means that now is a better time than ever to consider this commodity.
Gold's protection against inflation is one of its most notable attributes. Inflation rates can be unpredictable, as we've witnessed during the aftermath of the COVID-19 pandemic.
It's worth noting that gold's value tends to rise during times of economic uncertainty, giving you an extra sense of stability when you need it most. This can keep you from being an emotional investor and panicking when your investments lower.
When it's time to sell your gold, you won't have an issue doing so due to the demand. There's nothing worse than needing to cash out your investments and being unable to. Not only can this be inconvenient, it could lead to financial distress.
For example, you might need to withdraw your gold investment to put a down payment toward a home. You might miss out on the opportunity to do so in a scenario like this.
How easy it is to sell your gold will depend on the type of gold you're investing. It will also be influenced by the platform you use. In most cases, though, it should be a smooth process.
To succeed in the gold market, there are certain tips you'll need to keep in mind. Understanding these will help you avoid issues you may have otherwise encountered. Let's take a closer look.
All gold traders should educate themselves on this topic. It provides insight into gold's projected performance shortly. You'll also learn about the live gold price today.
This will help you better understand how your investment is performing. Keep in mind that all investments will ebb and flow. Don't be alarmed or discouraged if your performance dips, as it will likely quickly return to where it was.
Your investment will grow much faster if you contribute to it regularly. Do your best to invest a decent amount of money each month in gold. Some people treat gold like a retirement fund and contribute large percentages of their monthly income.
Regardless of how much you invest, only contribute money you don't need for necessities. A situation you want to avoid at all costs is being unable to pay rent, buy groceries, etc. since you've invested all your income in gold.
No investment comes without risk, and you must understand the risks present regarding gold investing. The good news is that the risk associated with this form of investing is minimal compared to other investments.
This is especially true regarding cryptocurrency. As long as you understand the risks associated with your investment, you can take steps to minimize them.
One of the most important tips to keep in mind is only investing what you're willing to lose. As previously mentioned, gold is a stable investment that's liable to increase in value over time. However, there's always a chance you won't end up with the numbers you anticipated.
Your investment will grow over time, but it may not grow as fast as you anticipated. It's essential to be patient after investing in gold, as it will take a while for you to reach your target metrics.
To help you stay grounded, do your best to avoid frequently checking the value of your investment. There's nothing you can do to make it grow faster than it already is. When you check it monthly or quarterly, you'll be much more satisfied with your results.
Some people blindly invest in gold without realizing where their money is going. There are many different ways to invest in this commodity, such as bullion, gold ETFs, or mutual funds.
Each form of gold investment has different potential, and it's essential to research them before allocating your money. Otherwise, you might have issues getting the outcome you anticipate.
When it's time to get your money, you should have a plan to cash out. Educate yourself on relevant restrictions so you don't encounter unnecessary difficulties.
For example, there might be rules the platform you use might impose certain rules that can impact how soon you see your money. There may also be delays depending on certain factors, such as the amount of gold you need to sell.
The best way to avoid disappointment is by keeping your goals realistic. Setting a concrete number you'd like to reach will also help you determine how much to invest each month.
Consider a scenario where you want to grow your gold investment to $50,000 within five years. You initially start with $5,000. From here, you can figure out how much you need to invest monthly based on the current value of your portfolio.
Working with the right professional plays a large role in achieving your goals. However, not all are created equal. You'll need to do your due diligence before making your decision.
Research their past reputation and see what other people have to say about their experiences. Did they have an easy time getting in touch with them?
Were they satisfied overall? The answers to questions like these will help ensure you make the right choice.
Pay attention to how they respond to criticism, as well. If they get defensive or aggressive, it's best to continue your search elsewhere.
Otherwise, you could encounter similar behaviour if you have a problem with them in the future. Pay attention to fake reviews, as well.
These are often posted in large batches and contain many of the same keywords. Ignore them when making your assessment so you can have an accurate perspective. It's essential to check their pricing structure, as well.
The last thing you want is to pay more than you anticipated. If they impose miscellaneous fees, look for other options. Do they have examples of their past performance?
Reputable financial advisors will proudly showcase their work to illustrate what they're capable of. If you aren't comfortable with them, it's recommended to look for other opportunities.
Always trust your intuition when shopping around. With enough due diligence, you shouldn't have an issue finding the right choice for your needs.
The platform you use to invest will heavily impact your results. For example, disreputable platforms likely aren't intuitive and can make it difficult to make the choices you need. These also tend to neglect their security obligations, potentially putting your data at risk.
The cybercrime industry is projected to cost the world over $10 trillion annually by the end of 2025. A large portion of this value will come from data breaches that occur in the finance industry, especially investors. Great ways to recognize shady platforms are by investigating the website.
If it's filled with grammar errors, links to strange resources, or low-quality images, you should avoid using it. It's also important to pay attention to warnings from your web browser. For example, the browser to use could notify you that the platform's security certificate is invalid or expired.
Under no circumstances should you use platforms like these, as they could put your data in jeopardy. It only takes seconds for catastrophe to arise, such as if someone's able to steal your identity.
Some platforms also impose unnecessary fees. These can quickly add up if left unchecked. It's never recommended to use a platform that charges you for things like maintaining your account or making trades.
The information in this guide will help ensure you make the best decisions for your situation. From here, you should have no trouble tapping into the global gold market and taking your performance to the next level. Just be sure to invest responsibly.
Looking for other finance articles that can help you out in the future? Our blog has plenty like this one you can learn from. Be sure to check them out today!
Retiring is the thing that all of us look forward to, in one way or another. Whether we have intentions of kicking back poolside with bottomless cocktails or simply indulging our time in a hobby we’ve long overlooked, life after work looks to be a well-deserved reward. However, not many of us are planning for retirement properly. What does it mean to make the money work when it comes to retirement?
To set the stage for your retirement planning, you’ll first need to gain an understanding of your financial situation at present. This understanding needs to be comprehensive, too; where most personal budget spreadsheets start and stop with monthly income and outgoings, this undertaking needs to cover everything. For instance, do you have a mortgage? If so, how much do you have left to pay before you own your home outright? Do you have a pension? If so, what is in it, and can you increase the amount you contribute?
Questions like these will allow you to get a grip on your current position, and the liabilities you may still need to consider when it comes to retirement. Your planning, then, should also include eventual expenses like insurance. Over 50 life insurance is a smart purchase, and one which can protect your loved ones particularly if your assets are slim or your mortgage is still outstanding. The purpose of all this is to get an idea of what you’ll need each month to live comfortably after retiring – and if you can retire in your present situation.
Having established your present situation, and worked out what the bare minimum is that you’ll need each week after retirement, you can now turn your thoughts to more aspirational things – particularly, the retirement you’d like to enjoy.
You may have some base expectations for quality of life after you finish work, even if simply an extension of your present living standards. You might also have loftier aspirations of post-work hobbies and holidays, whether long-term trips abroad or investment in endeavours you enjoy. If you can attach even a vague financial value to all of these, you can set yourself a tangible financial target – and a milestone to meet.
The challenge, then, is achieving your ideal retirement from your present financial situation. How exactly can you make the money work? The first, most obvious and most impactful change you can make is to maximise your pension contributions, no matter how close to retirement you are. Doing so is equivalent to ‘free money’ in the form of tax relief, meaning the earlier you do so the more you can benefit.
If you already have money saved up elsewhere, you might also take some time to consider different options for maximising returns. For instance, larger sums of money could be placed in a global ETF, enabling you to receive capital gains in line with market movements (and often above conventional bank interest rates). Similarly, ISAs can enable you to earn high levels of interest tax-free – in turn meaning more money to retire on.
In 2020, Guernsey was the jurisdiction chosen to establish my own employee benefit and private client group, with three other like-minded individuals, called The UAP Group. Subsequently, we completed our first acquisition, Concept Group, a well-respected Guernsey-based international pension and private client company, in October 2021. The Group currently has offices in London and Guernsey with plans to open in Spain, South Africa, and the US later this year.
Through my role, I support the local industry group and sit on the technical ESG and marketing panels of the Guernsey Association of Pension Providers alongside being a member of the main committee.
Having a personal interest, and being exposed to the US tax system myself, I recently developed a retirement plan that is more suited to US nationals working overseas and US-connected individuals. This pension plan is innovative and came about after several years of research working with key tax people in the US and overseas. The plan allows individuals to save for retirement and at the same time be free to change their country of residence and ultimately retire in the US or overseas. Clients can get all of this with the benefit of freedom of investment choice, which is often not available for this group of individuals.
Often I get asked, why did we choose to base the UAP Group in Guernsey? The decision was an easy one. After spending the last 12 years living in the island, it’s a pleasant and safe place to live and it has excellent links to both the United Kingdom and Europe, giving us easy access to the rest of the world. From a business perspective, for a group which specialises predominantly in international pensions, Guernsey is the obvious choice. The island has a long-standing and excellent reputation internationally for its regulation, stability and expertise in financial services, especially pensions.
As a jurisdiction, Guernsey is committed to maintaining its international and domestic reputation as a leading centre of substance for financial services. As such, it is whitelisted by the OECD and the EU. It meets the tax transparency requirements of the OECD and US and is branded as a co-operative jurisdiction by the OECD.
The island’s pension legislation dates back to 1975, giving it almost 50 years of pension experience. Its law is well established and understood, and there are many licensed and regulated firms involved in international pensions in Guernsey with more than 90 offering either trustee, administration or both services. Add to this a wide range of experienced investment, banking, actuarial and accounting firms providing support, and this gives consumers a wide variety of choice. It also leads to a competitive market and the probable cause for the island being the pioneer of many innovative pension solutions for consumers.
Guernsey is a very well-regulated jurisdiction and consumers of its pension products can enjoy regulation of the pension providers and also regulation at scheme level. In addition, consumers have access to an impartial ombudsman to resolve complaints. Guernsey also prides itself on being a member of the International Organisation of Pension Supervisors (IOPS).
Guernsey is committed to promoting and facilitating sustainable finance and was one of the first international finance centres to create the green funds regime. It is also signed up to the UN charter on sustainable finance.
As a pension industry, we are currently taking this commitment from the jurisdiction and developing an ESG code for pension providers that will help to assist them when considering climate change and other sustainability issues.
Consumers have a choice in Guernsey of how they have their retirement plans structured. This is because Guernsey is one of a few jurisdictions that can offer pensions arrangements through the traditional trust-based solution and through a contract pension solution. The domestic pension legislation enables providers of both corporate and personal pensions to use contract law or trust law when establishing local or international arrangements. This is increasingly an important factor for the consumer, given that Guernsey operates in the international space. Civil law jurisdictions can often get confused by pensions written under trust, which can have unforeseen consequences for members. This is easily avoided when plans are written under contract as they understand the contract law framework, whereas trust law can cause difficulties such as adverse taxation to members, which often is avoided when written under contract.
We have, as a result, developed several very popular employer-based pension solutions that meet the compulsory criteria while giving employers and employees the flexibility that has proved popular over the years.
When people look to establish a pension plan for either themselves (personal arrangement) or a company it is important to consider several factors. These include:
All the above factors are important for people wishing to establish a pension arrangement. Unlike other financial planning needs, a pension is a long-term arrangement. You want the arrangement to be flexible enough to be with you in the early years, as you accumulate the funds in the plan, but also in the retirement years, as your goals and often the location of where you live will change. It can be costly to have to keep changing product or provider as fees inevitably will apply. This is one of the reasons Guernsey is often chosen. Guernsey plans are flexible to allow you to move around the world and live in different places while keeping the same arrangement.
UAP & Concept Group are well placed to provide these pension services. Concept Group was established in 2003 and has more than 50 professionals. We have pension arrangements for employers and individuals that are portable and frequently written under contract, although trust arrangements do work well in certain circumstances.
Concept has extensive multi-jurisdictional experience in pensions and other financial service areas. The company has a diverse Board of Directors who have more than 40 years of international pension and finance experience.
