Tuesday, 19 December 2017

Keeping up with Your State Pension Benefits

Many choices throughout our lifetime can impact the work we do, or don’t do before hitting retirement age. Taking time away from paid employment to raise children or to travel with a military spouse are common, but may lead to missing out on National Insurance Credits and ultimately, less state pension.

The good news is that there are steps we can take to ensure our time away from work does not negatively affect the state pension received in retirement. Here’s what you need to know if you are a military spouse or a stay-at-home parent.

Breaking Down NICs

The National Insurance record dictates the new state pension benefits received when you reach the state pension age. Usually, you need to have ten qualifying years on record to get any state pension, and 35 qualifying years to get the full benefit.

Contributions to your National Insurance record takes place when you are working, earning at least £157 from an employer each week or making contributions through self-employment income. But when you’re a carer who does not earn income or are away from your career because of a traveling military spouse, your National Insurance record isn’t growing.

Fortunately, National Insurance Credits are available to certain individuals even when they are not working. These help boost your National Insurance record, so you don’t miss out on state pension benefits.

Strategies for Military Spouses

Following the flag as a spouse is common, but it often means you are taken away from your job and the pension credits that go hand in hand. However, recent changes to state pension schemes allow military spouses who accompanied their significant other abroad after 1975 to claim National Insurance credits to increase pension benefits in retirement.

For women born after 6 April 1953, and men born after 6 April 1951, who traveled with a military spouse overseas can claim NICs dating back to 1975. So long as you have not already claimed credits, you simply need to provide evidence of service abroad and submit an application here.

If you have paid for NICs during that period of traveling with a military spouse, you may also get a refund of credits purchased since there was no need to pay!

For Non-Earning Parents

In addition to military spouses, non-earning parents may lose out on state pension benefits because they are not working. When the working spouse earns more than £50,000 since 2013, NICs seemed to be lost because the child benefit is no longer available for high earners.

But there are NICs available for this circumstance, too!

First, claiming the child benefit as normal and having your earning partner pay tax on it is beneficial to non-working parents who have a spouse earning between £50,000 and £60,000 per year. You will pay less tax than the benefits you receive back, and most importantly, you as the stay-at-home parent still get your NI credits.

Parents can also claim the child benefit but at a zero rate, which makes the most sense if the working spouse earns more than £60,000 each year. The child benefit isn’t received in this case, but NICs are still earned.

Finally, if you opted not to claim the child benefit because of the recent means-testing rules, you aren’t out of luck. So long as you have a child under age 12, you can choose to claim the child benefit as normal and pay tax on it or claim at a zero rate. Once you claim, you start earning NICs, but you can only backdate a child benefit claim by three months.

The changes to state pension benefits can be confusing if you traveled abroad as a military spouse or work as a stay-at-home parent. If you’re wondering how to optimise your state pension benefits for a sound retirement, get in touch with us today. We provide expert yet down-to-earth guidance on pension benefits and strategies for boosting them so you can reach your big picture financial goals.

Wednesday, 6 December 2017

Don’t Miss Out on Pension Tax Relief!

In 1988, the government introduced personal pensions and tax relief that goes hand in hand, as a way to encourage saving for the long-term. Over the years, many changes have taken place in the retirement savings universe, and with each new budget, we expect even more tinkering! Despite the ongoing changes, it’s important to understand how tax relief works and who it benefits.

If you’re setting money aside in personal pensions and aren’t sure if you’re eligible for tax relief, you’ve come to the right place!

Who is Eligible?

When you’re saving a portion of your income instead of using it now, the government gives you an incentive in the form of tax relief. All taxpayers who contribute to a personal pension, including non tax payers, basic rate, higher rate, and additional rate payers are all eligible for tax relief at some level, so long as they are under age 75.

Even contributing to another person’s pension, like a spouse or grandchild, attracts tax relief – for the pension holder though, not the contributor.

While tax relief is essentially available to everyone, it isn’t something you receive if pension contributions are made through salary sacrifice. Similarly, any employer contributions made to pensions do not come with tax relief. But don’t let these nuances discourage you! There’s plenty of tax relief ready for the taking.

How Much is Available?

When tax relief is applied to pension contributions, it means that the money you would have paid in tax goes into your pension pot instead of to the government. Here’s what that look likes based on your rate of income tax:

  • - Non and Basic-rate taxpayers get 20% tax relief
  • - Higher-rate taxpayers get 40% tax relief
  • - Additional-rate taxpayers get 45% tax relief

So, a basic-rate taxpayer who contributes £800 to her pension gets an added £200 from the government, making the full pension contribution £1,000. For a higher-rate taxpayer, only £600 is needed to get a £1,000 contribution, and additional-rate taxpayers only contribute £550 to get the same £1,000.  Higher and additional rate taxpayers receive 20% tax relief into their pension, and get the higher or additional rate tax relief back through self assessment - you can call HMRC to arrange this.

Tax relief is available in two main forms: through net pay arrangements and tax relief at source.

The good news is that higher- and additional-rate taxpayers who did not claim tax relief for pension contributions can go back in time to do so. This provision is only available for the previous three years, and you must have made pension contributions during that time to claim the tax relief.

Are There Limits?

Of course with any benefit, there come limits and restrictions. For non-taxpayers, the maximum that can be contributed to a pension is the lower of £3,600 or total income. This amount includes the tax relief, so really the personal contribution is limited to £2,880.

The government also imposes an annual allowance for taxpayers as it relates to tax relief, set for the 2017/18 tax year at £40,000 or gross earnings, whichever is lower. This means that any pension payments you make over that limit are subject to the income tax rate you would otherwise pay.

If you’ve started taking money from your pension pot but are still contributing, the money purchase annual allowance may impact your tax relief maximum. Read more about recent changes to the MPAA in a recent article we published.

You always have to be aware of the lifetime allowance, currently at £1 million. While this restriction does not have an immediate impact on your tax relief amount, it does limit how much you can contribute to your pension pot over your lifetime.

Pension savings are a smart way to set aside for retirement goals, and the tax relief currently available makes for an even sweeter deal. If you want to know more about the benefits of tax relief or how you’re tracking toward your retirement dreams, get in touch with us today.

As an exclusive offer for friends, family, and colleagues of our valued clients, we provide a Second Opinion Service to help the ones you care about understand their financial situations better. If you know someone who would benefit from this service, feel free to pass this information onto them directly.

Monday, 27 November 2017

Welcome James!

As the newest member of the Jones Hill family I thought I should introduce myself - here goes...

A bit about me…

Following my graduation from University of Birmingham with a joint honours degree in Materials Engineering and Sport Science, I needed to find out what I should do with the rest of my life -  how hard could it be?
I found myself being offered a place on a top graduate scheme with a large financial planning company, and quickly realised what a rewarding profession this could be. Following a multitude of exams, my journey began in the world of mortgages and insurance, but soon moved into financial planning.

My Vision…

My decision to join Jones Hill was based on my vision about the future of financial planning. I can see where clients could have been short changed in the past and wanted be a part of a team that works collaboratively to help clients reach their goals and add real value. 
I believe a Financial Planner’s job is to simplify the complex, manage trade-offs and help people make great decisions about their money. 

Away from the Office…

Being born and bred in Somerset, I enjoy spending time with good friends, family and a cold cider. I love sport and have previously played semi-professional rugby. 
A trip to Yosemite National Park in the U.S.A is next on my long list of travel destinations.

Looking Forward…

Going forward, my role at Jones Hill will be working with clients to help them plan for the future and make smart choices with their money. 

Please do not hesitate to contact me if you have any detailed technical queries or complicated general queries. 

I look forward to speaking with you all soon,


Tuesday, 7 November 2017

The Reason We Invest

The word 'investing' sparks a range of emotions, from excitement and curiosity to worry and concern. And all of those feelings are valid, based on our personal experiences and goals. While we all have our reasons for feeling a certain way about investing, it is important to understand that investing has a clear role in our financial lives.

Having peace of mind about your financial strategies, including investing, starts with recognising the purpose of investing. If you’re wondering how investments play a role in your bigger financial picture, you’re in the right place.

Why Do We Invest?

Investing money is fairly simple when we take out all the noise too often attached to it. When we lend money to an individual or, more commonly, an institution in the hope of being paid back that money plus a return, we’re participating in an investment. There are several methods to invest, but they all work along the same lines.

Why would anyone take that risk, though? The objective is clear: we want to make our hard-earned money grow over time. Without some level of earnings on our savings or nest egg, it is difficult to maintain the purchasing power of our money – also known as keeping up with inflation.

The concept of inflation can be hard to grasp, so let’s look at an example. 40 some years ago, the cost of a pint of beer costs a measly 10pc. Today, that same pint costs a little more than £3. While that may not seem like a giant leap, the effects of inflation are far greater when we look at larger purchases, like property or a new car.

Currently, the inflation rate is at 3%, but regular savings accounts are close to 1%. This means that by keeping money in a “safe” savings account or as cash, we are doing a disservice to our financial goals. Investing provides an opportunity to outpace rising inflation, making our money go further.

Having a Specific Purpose

Although beating inflation through investing is important, it is also necessary to understand the why. We recently had a client approach us asking for an investment that could generate 3.2% return. After asking him why that number, he shared that his current return was only 2.5%, and he thought he could do better.

However, he had no reason for wanting to earn more on his money.

There is a quote from Alice in Wonderland that reads, “One day Alice came to a fork in the road and saw a Cheshire cat in a tree. ‘Which road do I take,’ she asked. ‘Where do you want to go?’ was his response. ‘I don’t know,’ Alice answered. ‘Then,’ said the cat, ‘it doesn’t matter.’”

Without a purpose behind investing, there’s no way to know if we’ve reached our destination or if we’re on track for doing so.

Preparing for Retirement

A common reason for investing is gearing up for a comfortable retirement. Today’s retirement landscape looks very different from a generation ago, as annuities and final salary pensions have become less prevalent. Without these pillars of financial stability, many fear their savings won’t last.

Adding to the need to invest for retirement is the fact that we are all living longer. Life expectancy continues to increase year over year, and while that means we can enjoy an active, meaningful life throughout retirement, it also requires making our money stretch. Investing offers a way to generate a return that serves this purpose specifically.

Leaving a Meaningful Legacy

Just like the financial environment has changed for those of us near retirement, so has the landscape shifted for our children. Many young adults are burdened with student debt, find it difficult to join the property ladder, and have no guarantee of a pension to fuel a secure retirement. Because of these growing concerns, leaving money to pass on to the next generation is a crucial part of the bigger financial picture.

Leaving a meaningful legacy while also enjoying a long-lived retirement makes investing necessary for most. The ability to earn more on the money we worked hard for and saved over a lifetime lays the groundwork for setting adult children up for their financial future.

Investing serves as an important facet of comprehensive financial planning, and it often takes away the need to work harder or longer to achieve specific goals we set for the future. If you want expert, friendly guidance on how to invest based on your needs and wants, get in touch with our team today.

As an exclusive offer for friends, family, and colleagues of our valued clients, we provide a Second Opinion Service to help the ones you care about understand their financial situations better. If you know someone who would benefit from this service, feel free to pass this information onto them directly.

Thursday, 26 October 2017

Using Money to Bring Enjoyment

The idea of wealth creation – that is, acquiring money or things of value over time – is all too often confused with personal well being. It’s easy to get caught up in comparison mode, evaluating what everyone around you has and feeling like you are behind the curve. But when your focus is on well being instead, life looks a little different.

We all want to feel secure in our financial lives, and understanding how well being plays a part in the journey is an important step. If you’re wondering how money can bring more enjoyment to your life both now and in the future, this article is for you.

Defining Financial Well Being

Simply having money in the bank, high income, or an impressive investment portfolio doesn’t equate to financial well being. Instead, financial well being means you have:

  • - Control over your day to day finances
  • - Capacity to absorb a financial shock
  • - Freedom to make financial decisions to enjoy life
  • - Progress toward financial goals

Think of it as a security blanket – different pieces of your financial life come together to protect you from the unknown while offering peace of mind for your future. It is an emotional state of being, rather than a specific amount of money.

Many people have what they need to make ends meet, but they live with anxiety and fear about what’s down the road. That fear leads to making poor financial decisions or no decisions at all. Instead of money being a tool for enjoying life, it ends up being a barrier.

The state of financial well being is different for everyone, but it boils down to two important factors: timeframe and empowerment. Let’s explore both.

The Contributing Factors

When we talk about timeframe as a factor in financial well being, we mean looking ahead to what you want for your future self. People who have the ability to look forward, past what’s happening right now, often have a greater sense of financial well being than those who cannot. The more time we have to do so, the better financial decisions will be when it comes to spending, saving, and investing.

That’s because we feel less pressure, and therefore, endure less stress when we give ourselves time to see the present and future impacts of financial behaviours. It’s not so much about the means, but the process instead.

Empowerment also plays a significant role in achieving financial well being. Feeling empowered by money, as opposed to frightened by it, has been proven to be more powerful than having a high income or a great deal of wealth.

A feeling of empowerment comes from believing you can accomplish something, whether that’s saving enough for retirement or making sound investment choices. Sometimes it is simply feeling confident that you are good with money and are in control.

These emotions lead toward better financial decisions and ultimately, financial well being, because you are able to plan proactively, rather than chaotically react to changes. 

The Role of a Financial Coach

Financial well being is not just for the wealthy. It is available to anyone who wants to experience more happiness in their lives, peace of mind about the future, and less overall stress and concern. But this state of being isn’t always easy to arrive at on your own.

A financial coach is someone who helps you get clear on what you want out of life and helps you design a realistic plan to get you there. It’s all about offering direction on how to achieve your version of financial well being in a manageable, simple to understand way.

Some people need perspective on their timeframe in order to achieve financial well being. A financial coach is able to provide a detailed master plan that includes a forecast of your lifetime wealth, based on income and expenses today. Having a lifetime financial plan is the key to maintaining the right perspective on day to day financial decisions.

Others may need help taking control of decisions when unexpected changes show up. Qualified financial coaches are able to prepare what-if scenarios and a Plan B for when things don’t go as we imagined. Just having options lays the groundwork for financial well being. A financial coach also offers insight into what you can take control over, and encourages you to ignore the things you can’t.

Having someone on your team who understands your unique definition of financial well being and the contributing factors you may struggle with can make all the difference in leading a happier, healthier life. If you’re ready to move into a state of financial well being and want guidance there, get in touch with us today.

As an exclusive offer for friends, family, and colleagues of our valued clients, we provide a Second Opinion Service to help the ones you care about understand their financial situations better. If you know someone who would benefit from this second opinion service, feel free to pass this information onto them directly.


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