Last year, it was estimated that up to 850,000 eligible households were not claiming Pension Credit, with £1.7 billion of available Pension Credit going unclaimed.
How Pension Credit Works
Pension Credit is a benefit you can claim to top up your income if you’re over the State Pension age and struggling to cover costs.
It is made up of two parts:
Guarantee credit – the main body of Pension Credit, which tops up your weekly income to a minimum amount
Savings credit – which is a small top up for those with modest savings for retirement, such as in a personal or workplace pension
You might qualify for one of these or for both parts.
To claim Pension Credit you must have already reached State Pension age (as must your partner if you’re in a couple) and live in the UK.
What You Could Get
When you apply, your income will be calculated, and if you have a partner, your joint income will be calculated. Income includes:
Any pensions, including the State Pension. If you have deferred your State Pension or haven’t yet claimed a personal or workplace pension you’re entitled to, the amount you would get under it is counted as income
Any income earned from employment or self-employment
Most social security benefits, though not all benefits are counted as income. You can check the government website for more information on this
Pension Credit tops up your weekly income to the total of £201.05 if you’re single, or your joint income to £306.85 if you have a partner. You may get more if you:
Have a severe disability
Care for another adult
Are responsible for children or young people under age 20 who are in education or approved training
Have housing costs
To qualify for Savings Credit, you must have reaches State Pension age before 6th April 2016. For this, you can get up to £15.94 a week if you’re single, or up to £17.84 a week if you have a partner.
If you have over £10,000 in savings, every £500 you have over this amount will reduce your Savings Credit by £1 a week.
Click here to use the government’s Pension Credit calculator to see how much you could qualify for.
Other Perks of Pension Credit
The average Pension Credit award is worth over £3,500 a year, and it opens doors to other benefits too.
“even those only due thruppence from it should still claim as Pension Credit is the key gateway benefit that opens the door to many other entitlements.”
If you claim Pension Credit you’re eligible for other benefits, such as, but not limited to:
Council tax reduction
A free TV license if you’re over age 25
Warm home discount
Cold weather payments
Free NHS dental care
Housing benefit
by Red Star Wealth
More and more UK adults are adopting a gradual approach to retirement. In this blog, we will analyse findings from a 2022 study conducted by Smart Pension to gain an insight into changing attitudes towards retirement in the UK.
Thinking About Retirement
Since the introduction of auto-enrolment in October 2012, many workers automatically save into a pension without consciously having to make the decision to do so. This has helped to get a lot more people saving for retirement.
However, it’s still important for us to actively think about our pension and to try to maximise contributions where possible, as our pension pot will need to last us a significant length of time.
Lack of Understanding Surrounding Retirement Options
According to Smart Pension’s 2022 study, 29% of UK adults don’t have a clear understanding of the options available to them in retirement.
This figure is down from 39% in their 2021 survey, reflecting positive change in terms of how we understand our retirement options.
However, there is still a significant gap in our nation’s pension knowledge that needs to be filled.
Retirement as a Gradual Process
Smart Pension also found that retirement is now seen as more of a gradual thing, with 47% of UK respondents seeing retirement as a transition rather than a one-off event.
This makes sense, given that going from working, especially under full-time hours, to not working at all, can be an enormous lifestyle change that could seem jarring. Therefore, more and more people are reducing their working hours as a way to gradually phase in retirement.
Concerns in Retirement
The above image illustrates Smart Pension’s findings on respondents concerns about retirement.
In 2021, the biggest concern of UK respondents was having to limit their lifestyle in retirement, whereas in 2022, being able to afford daily living costs was the biggest concern. This demonstrates the impact that the continued cost-of-living crisis is having on the UK population.
Another interesting point in these findings is that in 2021, being able to afford healthcare costs in retirement was at the bottom of the list of concerns at number five, whereas in 2022, this concern leapt up to third place.
Given that we are a nation with a free national healthcare system, this is somewhat troubling, as it may link to our increasing uncertainty surrounding the future of the NHS, with many being forced to seek private treatment due to lengthy waiting times.
Supplementing Income
18% of respondents plan to supplement their pension with continued employment. Perhaps one reason behind this comes down to that earlier finding, where many are worried that they won’t have enough income in retirement to cover day-to-day living costs.
We can access most private pensions from age 55, meaning that there isn’t really a set retirement age; you can keep working for as long as you like whilst also drawing on your pension.
However, if you do continue to work whilst drawing a pension, you will lose more of your pension in tax. This is because income from your pension is treated the same as any other income, meaning that once you have used up your personal allowance, the rest of your income will be taxed in the relevant band.
The personal allowance is £12,570, so if you work whilst drawing from your pension, and the total income is below this level, you will not be taxed.
It’s worth noting here that you can’t start claiming your State Pension until you reach the State Pension age.
If you are considering phasing your retirement but aren’t sure of the best way to take your pension, or if you aren’t completely sure about the different retirement options available to you, you may wish to talk to a financial adviser. We offer confidential, personalised pensions advice if you wish to contact us at office@redstarwealth.co.uk or by ringing 01253 486346.
by Red Star Wealth
If you’re considering investing your pension into property, it’s important to know what’s what.
Which Pensions can be used for Property Purchase?
Self-administered pension schemes can be used for the purchase of property, of which there are two types:
SIPPs (self-administered pension schemes)- used by individuals
SSASs (small self-administered schemes)- used by companies
If the pension fund does not have enough money to buy the property outright, it can borrow money to make the purchase of up to 50% of the value of the property.
Commercial NOT Residential
It can be very tax efficient to buy commercial property through a pension fund, for reasons we will discuss in a moment. The types of buildings that qualify as commercial property are things like warehouses, offices, retail units, etc.
It’s important to note here that buy-to-let properties are classed as residential, not commercial, even if you aren’t using them for your own residential use.
You can buy residential property with your pension fund, but you will face a large tax bill from HMRC, which in most cases, makes it financially unviable. It cannot be brought into a pension scheme in a tax-efficient way.
Why is it Tax Efficient?
When you use your pension fund to purchase commercial property, the property in question is now owned by your pension.
Let’s imagine a scenario in which you are a business owner who uses your pension scheme to purchase the premises of your business to take advantage of tax breaks. Your business then takes up a commercial lease with your pension, paying rental payments based on standard market rates. When your business makes these rental payments, the money goes straight into your pension rather than a landlord. This rental income received from the pension fund in regard to the property is exempt from income tax.
If you then sell this property in the future, any gains made on the disposal of the property by the pension scheme are free from capital gains tax.
As well as these significant tax benefits, investing your pension in commercial property means a regular income into your pension pot. It also means you own a physical asset which won’t disappear if the market crashes and shouldn’t fluctuate in value too much.
However, there is no guarantee that the property you invest in will appreciate in value. If it does depreciate and the property makes a loss at the point of sale, your pension is also making a loss. Additionally, you should bear in mind that even if it does make a profit, you cannot access pension funds until age 55, so this money will remain locked away in your pension until then.
If you are considering investing your pension into property, you should contact a regulated and qualified financial adviser before making any big decisions.
by Red Star Wealth
According to LLC Partner and former pensions minister, Steve Webb, hundreds of thousands of women pensioners who have shared their personal allowance with their husband could face unexpected tax bills.
Marriage Allowance
With Marriage Allowance, you can transfer up to £1,260 of your personal allowance to your spouse or civil partner. Your personal allowance is the amount of income you can earn without paying any income tax, and it is currently set at £12,570.
In order to benefit from Marriage Allowance, one person must be paying the basic rate of tax (applied to earnings between £12,571 and £50,270) and the other must not be paying income tax (as they earn below £12,570).
The lower earner then shares part of their personal allowance with the higher earner to reduce their spouse or civil partner’s tax burden. Marriage Allowance can reduce the higher earner’s tax by up to £252 in the 2023/24 tax year.
You can use HMRC’s free online service to see whether you could reduce your annual tax bill from Marriage Allowance, and if so, by how much.
Unexpected Tax Bills
Once you opt in to the system of Marriage Allowance, the transfer of your personal allowance happens automatically every year unless cancelled. If you wish to cancel Marriage Allowance you can do so here.
Previously, many could hand over 10% of their personal allowance at no cost to themselves. However, big cash increases in the value of the State Pension, combined with the freezing of the income tax threshold, means many more of these individuals will now be liable to pay tax.
Why are Women Pensioners Disproportionately Affected?
Government figures suggest around 2.1 million couples benefitted from Marriage Allowance in 2020/21, with over 1/3 of these estimated to be pensioner couples. In most of these cases, the wife is the non-taxpayer who is sharing her personal allowance with her husband.
In many working-age couples, the lower earner may be earning little or no taxable income if they are a stay-at-home partner, whereas with many pensioner couples, the lower earner will be close to the tax threshold due to the State Pension.
“This is yet another unwelcome by-product of the year-on-year freeze in the value of the tax allowance. Hundreds of thousands of women have signed over part of their tax-free allowance in order to reduce their husband’s tax bill. But as the state pension rises, many of these women may now find they end up with an unexpected tax bill. We could see marriage allowance mayhem as hundreds of thousands of couples have to decide whether to carry on with this arrangement or cancel it, to avoid low-income pensioners being dragged into the tax net. The sooner the freeze on tax allowance comes to an end, the better”
by Red Star Wealth
Due to the success of open banking, it’s likely that we will see the development of open finance in the near future.
Open Banking: A Success Story
Open banking involves granting a third party access to your bank account. With your consent, this third party can access your payment account data and ask your banking provider to make transactions on your behalf.
The October 2021 Open Banking Impact Report found that 55% of Open Banking consumers agreed these services had helped them reduce their fees and costs and that 83% were willing to expand their use of these kinds of services.
On the whole, open banking seems to have been largely successful, and this has now opened the door to expansion into open finance.
Open Banking to Open Finance
Both open banking and open finance operate on the idea that individuals should be in control over who can access and use their financial data.
Open finance is simply an extension of open banking; it would enable wider sharing of this consumer data to more financial products and services, rather than it being confined to banking. So, rather than this data sharing solely involving things like payments, under open finance, it would also be applied to things like investments, insurances and mortgages.
The FCA’s Definition of Open Finance
Encouraged by the success of open banking, the FCA, government, and financial services industry have been considering the potential benefits of open finance… but what exactly is it?
[Open finance] is based on the principle that financial services customers own and control both the data they supply and which is created on their behalf. Re-use of this data by other providers would take place in a safe and ethical environment with informed consumer consent. This would mean that a financial services customer who consents to a third party accessing their financial data, could be offered tailored products and services as a result. Access would be provided by that customer’s current financial services provider under a clear framework of consent
How Might this Work in Practice?
Open finance would work on the foundation already established by online banking. It would work in a similar way, through data sharing to third parties, but it would simply cover a wider breadth of circumstances by collaborating across various financial services. According to UK Finance, this could potentially, “reduce fraud, improve financial wellbeing, widen access to credit, deliver greater choice in payments and help enable reusable digital identities.”
So, let’s have a look at a few examples of how this may look in practice for its consumers…
With open banking, consumers can see all of their account balances on one singular dashboard. With open finance, more financial products could be incorporated, so that the consumer could see their ISA, pension, mortgage, investments, and so on, all in one place.
Open finance also allows for even more personalisation. One example of this is lenders being able to offer mortgages based on the customers’ exact needs. Their service to the consumer would be personally tailored to them as an individual through data analysis of their accounts and finances.
Whilst open banking allows its users to authorise third parties making payments on their behalf, open finance could go even further, allowing consumers to link automatic transfers between different financial products, such as establishing recurring payments to pay off their mortgage.
by Red Star Wealth
Let’s have a look at some of the key changes announced in Jeremy Hunt’s Spring Budget earlier today.
Pensions
Hunt announced that the pensions lifetime allowance was to be abolished, meaning more people can save unlimited amounts into their private pension without incurring a tax charge.
He also announced an increase in the tax-free yearly allowance for pension contributions, taking it from £40,000 a year to £60,000 a year.
Fuel, Alcohol and Tobacco
The 5 pence cut to fuel duty on petrol and diesel was due to end in April but Hunt has announced a freeze of fuel duty for another year, helping keep down costs for motorists.
Tax on tobacco is set to rise by 2% above the rate of inflation, or for rolling tobacco, 6% above inflation.
Most alcohol duties will be rising in line with inflation as of August, meaning supermarket prices for booze will increase. However, Hunt has also mentioned a draught relief scheme to be implemented from August 2023 which should keep pint prices in pubs down.
Energy
Energy bills for the typical British household were due to rise to £3,000 a year from April but the energy price guarantee has now been extended until the end of June, keeping this figure at £2,500 instead.
Hunt has that the government will invest £20 billion over the next 2 decades into low carbon energy projects.
Nuclear energy will now be classed as environmentally friendly for investment purposes, meaning it will qualify for the same investment incentives as renewable energy.
Hunt has also stated that £63 million will be given to leisure centres to help them cope with rising swimming pool heating costs and investment to become more energy efficient.
Childcare
One of the main highlights of the budget is the expansion in state-funded childcare. Hunt has promised up to 30 hours a week of free childcare for eligible households with children as young as 9 months. This won’t be fully implemented until September 2025 but will be rolled out in stages from April 2024.
Families on universal credit are set to receive childcare up front rather than in arrears. Instead of a cap of £646 per month per child, this will now be increased to a maximum of £951.
Hunt has further announced relaxed rules in England to allow childminders to look after more children.
He’s also increasing the funding paid to nurseries providing free childcare by £204 million from September this year, rising to £288 million next year.
Corporation Tax
Corporation tax will indeed be increasing, taking it from a 19% tax on taxable profits over £250,000, to a 25% tax. However, Hunt has also announced a new policy of full capital expensing over the next 3 years which will allow companies to deduct money invested into new machinery and technology from their profits, helping to reduce their tax liability.
Support for the Vulnerable
Hunt has announced a new system of Universal Support across England and Wales. This is a new voluntary employment scheme for those who are disabled or have health conditions. Up to £4,000 per person will be invested to help support around 50,000 people a year in finding suitable work which caters to their needs.
Hunt has also announced funding of:
£400 million for mental health and skeletal support
£3 million to help those with special needs to enter the workforce
An additional £10 million over the next 2 years to help charities in England who work in suicide prevention
Other Notable Points
-£200 million this year to help local councils in England repair potholes
An extra £11 million in defence budget funding over the next 5 years
