Latest news with #Hargreaves Lansdown
Yahoo
22-07-2025
- Business
- Yahoo
State pension age review needed to ensure system ‘affordable'
Chancellor Rachel Reeves has said a review into raising the state pension age is needed to ensure the system is 'sustainable and affordable'. The Government review is due to report in March 2029 and Ms Reeves said it was 'right' to look at the age at which people can receive the state pension as life expectancy increases. The state pension age is currently 66, rising to 67 by 2028 and the Government is legally required to periodically review the age. The Chancellor told reporters: 'We have just commissioned a review of pensions adequacy, so whether people are saving enough for retirement, and also the state pension age. 'As life expectancy increases it is right to look at the state pension age to ensure that the state pension is sustainable and affordable for generations to come. 'That's why we have asked a very experienced set of experts to look at all the evidence.' The review was announced by the Department for Work and Pensions on Monday and will involve an independent report, led by Dr Suzy Morrissey, on specified factors relevant to the Review of State Pension Age along with the Government Actuary's Department's examination of the latest life expectancy projections data. Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: 'There will be many factors that need to be assessed during this review of the state pension age. 'One of the most important will be healthy life expectancy which according to the latest data hovers in the early 60s. 'This means the reality is that many people will face real difficulties in continuing to work until their mid-to-late 60s and could face a sizeable income gap while they wait to receive their state pension.' Rachel Vahey, head of public policy at AJ Bell, said: 'An ageing population places an increasing burden on taxpayers, with state pension costs rising and fewer working-age taxpayers to cover the cost. 'Future governments will hope that an improved economy and growing tax receipts will help alleviate some of the pressure. But that can't be guaranteed and there needs to a be a credible plan for maintaining affordability.'
The Independent
22-07-2025
- Business
- The Independent
State pension age review needed to ensure system ‘affordable'
Chancellor Rachel Reeves has said a review into raising the state pension age is needed to ensure the system is 'sustainable and affordable'. The Government review is due to report in March 2029 and Ms Reeves said it was 'right' to look at the age at which people can receive the state pension as life expectancy increases. The state pension age is currently 66, rising to 67 by 2028 and the Government is legally required to periodically review the age. The Chancellor told reporters: 'We have just commissioned a review of pensions adequacy, so whether people are saving enough for retirement, and also the state pension age. 'As life expectancy increases it is right to look at the state pension age to ensure that the state pension is sustainable and affordable for generations to come. 'That's why we have asked a very experienced set of experts to look at all the evidence.' The review was announced by the Department for Work and Pensions on Monday and will involve an independent report, led by Dr Suzy Morrissey, on specified factors relevant to the Review of State Pension Age along with the Government Actuary's Department's examination of the latest life expectancy projections data. Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: 'There will be many factors that need to be assessed during this review of the state pension age. 'One of the most important will be healthy life expectancy which according to the latest data hovers in the early 60s. 'This means the reality is that many people will face real difficulties in continuing to work until their mid-to-late 60s and could face a sizeable income gap while they wait to receive their state pension.' Rachel Vahey, head of public policy at AJ Bell, said: 'An ageing population places an increasing burden on taxpayers, with state pension costs rising and fewer working-age taxpayers to cover the cost. 'Future governments will hope that an improved economy and growing tax receipts will help alleviate some of the pressure. But that can't be guaranteed and there needs to a be a credible plan for maintaining affordability.'
Times
18-07-2025
- Business
- Times
The new middle-class tax revolt
Hundreds of thousands of savers are making big changes to the way that they make and spend money for one simple reason: tax. Some are cutting the hours they work, while others are turning down promotions, giving their pensions away to family members or even considering leaving the country — all because of frozen tax thresholds and upcoming tax changes. The phenomenon known as fiscal drag — where more people pay more tax as wages increase because tax thresholds remain frozen — means that 6 million more people will pay income tax this tax year than in 2021-22. Almost 7.1 million workers are now in the higher income tax band, up 2.6 million since 2021-22, and the number of additional-rate payers has almost doubled to 1.2 million. Collectively, we're set to pay £298.6 billion in income tax in 2025-26 — an extra £89 billion compared with four years ago, the latest government figures show, and this is set to rise further because income tax thresholds will remain frozen until at least 2028. We're also on track to pay £6 billion in tax on our savings and £18.6 billion on dividends. 'Fiscal drag has had a devastating impact on the tax we pay. These figures show just how much damage is being done to our finances by this horrible stealth tax — and there is plenty more to come,' said Sarah Coles from the investment platform Hargreaves Lansdown. So it's no wonder that some families are shaking up their financial behaviour to avoid bigger tax bills. We spoke to four to find out how. Income tax thresholds have been frozen since 2021, and even those on relatively modest wages are now being dragged into the higher-rate 40 per cent band that is applied to earnings above £50,270 a year. For families this comes with an added sting in the tail because they start to lose their child benefit entitlement not far above this threshold. Child benefit is worth £26.05 a week for the first child and £17.25 a week for other children, but once one parent earns above £60,000 a year of adjusted income, you have to repay 1 per cent for every £200 earned over that threshold. Once one parent earns £80,000 you get nothing. Justin King, 55, a financial planner from Christchurch in Dorset, reduced his working hours to ensure that he was still eligible for child benefit, worth about £2,250 a year for Olivia, 16, and Amy, 14. 'I had the option to work more, but the extra income would have been largely eroded by higher tax and the loss of child benefit. When I weighed it up, it just didn't seem worth missing out on time with my family,' he said. Because eligibility for child benefit is based on adjusted net income — your earnings after pension contributions and certain tax reliefs have been deducted — there are ways you can avoid this trap. Dean Butler from the life insurer Standard Life said: 'Higher earners could consider increasing their pension contributions to reduce their adjusted net income below £80,000. This way you could get some or all of your child benefit back, while also saving for your future.' • Why high earners are cutting their pay (clue: it's about 600% tax) There is evidence that more people are doing exactly this. There has been a steep increase in the number of taxpayers with adjusted earnings that are between £1 and £3,000 below the threshold — almost 1 million, up from 893,000 a year earlier, according to HM Revenue & Customs data. King has started to increase his working hours again now his children are older and the child benefit threshold has been raised — it was £50,000 until April 2024 and went up to £60,000. He said: 'As a financial planner, I often encourage clients to make life choices based on their values, and at that point, family time mattered more to me than extra income. You need to do your sums and work out whether that extra day's work may be more valuable to you and your family than contributing to the Treasury.' Salary sacrifice is another way to reduce your earnings. Offered by some workplaces, it means agreeing to reduce your salary by a certain amount in exchange for extra benefits such as pension contributions. It means you also save on national insurance payments because you 'give up' part of your salary to go into your pension. 'It's important to note, however, that salary sacrifice can harm mortgage applications and reduce payments based on salary, such as maternity pay, so it might not be right for everyone,' Butler said. • How free nursery hours for more children backfired The £100,000 cliff-edge is the most punitive threshold in the UK tax system, with workers in this band facing a marginal tax rate (the amount you pay on the next £1 earned) of 62 per cent. For every £2 you earn above £100,000 you lose £1 of your £12,570 personal allowance (the amount you can earn each year before paying tax), with the allowance cut to nothing by the time you earn £125,140. It gets worse for families: once one parent earns above £100,000 a year in adjusted net income, they are no longer eligible for tax-free childcare (a government-backed savings account for nursery fees worth up to £2,000 a year per child) and they lose entitlement to free childcare hours. Parents with children aged between nine months and two years can get between 15 and 30 hours of childcare funded by the government during term time (rising to 30 for all children aged nine months and up from September). Parents of three and four-year-olds can get 30 free hours. With an average full-time nursery place for a child under two costing £341 a week in England, this can be a vital lifeline. Once you earn more than £100,000 in adjusted net income you lose the free hours for younger children entirely, and only get 15 hours for three and four-year-olds. Emily Farmer, 32, from Hampshire, had always aimed to earn £100,000 in her career in marketing, but since her daughter Olivia was born 11 months ago, she has reduced her working hours because it's simply not worth earning more. 'Reaching £100,000 always felt like a career milestone for me, but after having my daughter and nearing this threshold, I made the strategic decision to move to a four-day week,' Farmer said. 'It's a shame to have to sacrifice career progression to make my family finances work.' Making extra pension contributions can also help workers at this cliff-edge reduce their take-home pay and avoid punitive marginal tax rates, Butler said. 'This could also help you recover some or all of your personal allowance, depending on how much you put in.' Savers can put up to £60,000 a year into a pension, including tax relief, or 100 per cent of their earnings, whichever is lower. This can be particularly valuable when employer contributions are factored in. However, it is important to consider whether you may need the money early because it is not usually possible to get at your pension savings before 55 (rising to 57 from April 2028) without incurring a large tax bill. • I spend £200 a week on summer holiday childcare From April 2027 pensions are set to be included as part of an estate for inheritance tax (IHT) purposes, and this has upended many peoples' financial plans. Defined contribution pensions (when your pot is based on what you pay in plus investment growth) are exempt from inheritance tax, but with this set to change, many savers are rushing to give away their wealth to avoid a 40 per cent IHT bill when they die. The tax is paid on estates worth more than £325,000 (£500,000 if they include a main home left to a direct descendant on estates worth up to £2 million). Couples who are married or in a civil partnership can inherit each other's allowances, meaning up to £1 million can be passed on IHT-free. Just under 5 per cent of estates pay IHT in the UK, but this is expected to rise to 8 per cent after 2027, according to HMRC. Alistair Dickson is concerned that the changes could leave his children with an unwelcome tax bill and is making plans to pass his wealth on as tax-efficiently as possible, including considering putting his house into trust. Dickson, 57, who lives in Glasgow, is also spending more, using his annual gifting allowance, and is even exploring the idea of moving to Portugal, which has a favourable tax set-up. Everyone in the UK can give away up to £3,000 a year and it won't count as part of your estate for IHT purposes. You can also make small gives of up to £250 per person, as long as they also haven't benefited from the £3,000 allowance. It is possible to give away much larger sums IHT-free as long as you live for seven years afterwards, after which the gift will no longer be counted as part of your estate. • Surge in wealthy using insurance to beat inheritance tax hit You can also give away unlimited regular amounts out of surplus income, as long as it does not affect your standard of living and you keep records to show a pattern of giving. The money must come from income such as earnings, rent, pensions or an annuity, and not from savings. Adrian Murphy from the financial advice firm Murphy Wealth said: 'For years it was assumed that pensions would be the last port of call for income in retirement — or might never be touched at all — and most of it would find its way to your children,. But that has now changed. This will only drive more people to give assets away or look at alternative strategies.' Proposed changes to the Isa system are causing more savers to alter their plans. Adults can save up to £20,000 a year into an Isa, in cash or investments, or a mix of both, but it is thought that the chancellor, Rachel Reeves, may slash the cash Isa limit in her October budget, in a bid to encourage more people to invest. The uncertainty could be having the opposite effect. Savers poured a record £14 billion into cash Isas in April, according to the Bank of England. Rob Mack usually invests about £500 a month but has been funnelling any spare money into his cash Isa in case the allowance is cut. Mack, 50, from north London, has saved £5,000 so far this tax year and hopes to use as much of the £20,000 allowance as possible before the budget. 'We've made some adjustments to our family finances, moving savings into cash Isas to keep them accessible and tax-efficient. It's essential to have quick access to funds when unexpected expenses arise, like a car repair or a boiler breakdown,' he said. Murphy is advising clients to use the changes as a starting point to review their investments: 'Cash saving in most cases should be for emergencies and short-term liabilities or expenditure.'
Yahoo
15-07-2025
- Business
- Yahoo
How to make pension pots tax-efficient
The government's decision to make pensions subject to inheritance tax has derailed many people's pension planning. The current treatment of pensions on death is generous and had led to some people opting to leave their pensions untouched so they could be passed down to loved ones in a very tax efficient manner. With that position potentially changing, people are looking at how they can manage any looming inheritance tax liability. One way is making use of the various gifting allowances to give money to family while they are still alive. Making pensions subject to inheritance tax does bring a whole host of challenges. Those looking to gift their money away to their nearest and dearest in a bid to manage their tax bill may also find that they have given away too much and put themselves at risk of financial difficulties later in life. Read more: How your health can affect your pension There will also be challenges for those left behind, who need to make sure the bill is paid. Trying to manage information across several pension schemes can be unwieldy and could lead to delays in paying the money out to grieving families. You also need to think about what happens if a pension is discovered further down the line as well as the potential for being charged interest by HMRC if an inheritance tax bill is paid late. It's important to say these changes are not set in stone and with this in mind it is vital that alternative approaches are explored. Financial services company Hargreaves Lansdown recently worked with The Investing and Saving Alliance (TISA) on a cross-industry report which explored a couple of different avenues. One option is for inherited pension pots and DB lump sum death benefits to be taken as taxable income over time. This is only an option if the beneficiary is a dependant. If the beneficiary is not a dependant, then they must take the full pension value as a lump sum, paying income tax at the required rate. Another option explores a return to a death tax paid on all unused pension funds and DB lump sum death benefits above a certain threshold. This is a similar position to that which existed in the past. There is still much detail to be worked through, but both options put forward will be easier for people to understand and administer than the government's proposal. The report shows that if the government is committed to tax reform of pensions on death, then there are easier ways to do it, and it should be used as a springboard for a wider discussion on what other options could be considered. With less than two years to go until the implementation of the proposed new regime it is vital that a debate takes place as to the best way forward to make sure grieving families do not face unnecessary barriers and more: How much money do you need to retire? Do you trust your partner enough to give them money for tax purposes? How to start investing with an employee share schemeError in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
14-07-2025
- Business
- Yahoo
Do you trust your partner enough to give them money for tax purposes?
The starting pistol has been fired on tax speculation ahead of the autumn budget. The fact that cutting spending has proved so thorny makes tax rises more likely, in order to balance the books, so the debate is flowing thick and fast about where the pain could be felt, and what people can do to protect themselves. One option is for couples to plan together, and share savings and investments in order to keep their tax bill down. However, this requires some serious trust. If they share everything between them, it means both parties can take advantage of their ISA and pension allowances. If they hold anything on top of this, by splitting it, they might be able to stay within their annual tax-free allowances. If anyone other than married couples or civil partners do this, there could be tax to pay on the transfer — but if they're married, there's no immediate tax bill. Read more: How to start investing with an employee share scheme The good news is that according to research from Hargreaves Lansdown with Opinium, almost three quarters of people trust their spouse enough to share their savings and investments like this, in order to take advantage of tax rules. The more assets someone has, the more likely they are to trust their spouse with some of them — with 79% of savers and 84% of investors saying they would be happy to share assets to save tax. Higher earners are also more prepared to hand over their cash — including 82% of higher rate taxpayers. This will be influenced by the fact they have more to gain from the move. If you don't think you can trust your partner, it pays to listen to your gut, because sharing assets comes with risks. If you've handed money over, you'll have given it away entirely, so you will no longer have any control over it. Your partner will be free to make any decisions they want with it, moving investments or savings, or spending as much as they fancy. You have to ask yourself whether you're prepared to relinquish that control. Read more: How to save money on your council tax bill You also need to appreciate your position if you get divorced. You may be able to come to an agreement about division of assets, or the courts will divide your estate up in a way it believes is fair. However, that doesn't mean you'll get this money back on the grounds it was yours in the first place. Any court will prioritise need and start with equality, so might not see a significant chunk of these assets again. There's also the possibility that an estranged spouse will spend as much of the money as possible, in order to reduce your settlement. It means that while sharing your assets can be a great way to cut your tax bill and save money, it's important to think long and hard about it first. Losing a chunk of money to the taxman is bad enough, but losing all of it to a partner who turns out to be untrustworthy would be even worse. Read more: How much money do you need to retire? How to avoid finance scams on social media Why you can trust an 18-year old with their junior ISA – and how to create one
