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Pensions and Tax Relief – Are you getting yours?


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Have you made sure that you have claimed (or “reclaimed”) all of the tax relief on your pension contributions for the current tax year?

In fact, have you claimed all of the allowances and tax reliefs that you may be entitled to including Pension Credit, Working Tax Credit and Child Tax Credit?

Industry sources indicate that close to £4 Billion will be handed-over to the tax man in unclaimed tax reliefs before April 5th this year. Pensions make-up almost 70% of this figure.

So, how can you make sure that you claim ALL of the tax relief you are entitled to on pension contributions?

There are two key ways to ensure this happens?

Firstly, the Net Pay Method. This is where you instruct / request your employer to make your pension contributions from your gross pay before tax and National Insurance are deducted. Why is this, by a huge margin, the best method for you when claiming tax relief?

It’s prime advantage is that you can “set and forget” your contributions because they already contain the tax relief in full when paid into the fund. No end of tax year self-assessments to remember and to complete so that you get what you are entitled to.

That’s not the case for the second way of obtaining tax relief i.e. the Relief at Source Method. This is where your scheme provider claims back the basic-rate element of tax relief on your behalf (which is currently 20% or £20 for every £100 of total contribution) but you have to remember to claim back the extra tax relief due to you if you are a higher-rate or additional-rate tax payer via your Self-Assessment Return. (You could also have your tax-code adjusted.)

In theory, this doesn’t sound like such a big deal but, sadly, many of us lead lives that are extremely hectic and we either forget or simply don’t bother because it seems like too much hassle. Dealing with a financial matter that could be more than 15 years into the future just doesn’t get to the top of our “To-Do” list.

But do be diligent with your pension!

The government is willing to reward you if you save for your own future. It’s not often that someone, anyone, in life will put somewhere between £20 and £50 into a savings pot for you. Boost your retirement income by claiming what you are entitled to. Tax reliefs are there to encourage saving.

Make sure you get your fair share of the £4 Billion in unclaimed tax reliefs.


Pensions – Essential Basics


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In general terms, a pension is a savings vehicle designed to provide an income in retirement when an individual no longer has income from employment. Traditionally, your employer would set up a pension plan for you but, more recently, people are setting up their own private pension plans.

Company Pension Plans

There are two types of company pension schemes:

1 – Defined Contribution Plans

Within a defined contribution plan, contributions are paid by either or both the employer and employee. Each member would have their own individual account within the company scheme. The contributions are then invested on the individuals behalf in different assets, such as equities, fixed interest, property and cash. The returns, either positive or negative are then credited or debited to the individuals account. Typically, at retirement, the funds accrued are used to purchase an annuity which provides an income for life.

2 – Defined Benefit Plans

The most common type of defined benefit plan is known as the final salary plan. At retirement, the pension paid to an individual is determined by the number of years worked for the company, multiplied by the individual’s salary at retirment, multiplied again by an accrual rate. The determined amount is then paid to the individual as an income for life.

Defined benefit plans may be either funded or unfunded.

If the defined benefit plan is unfunded then no assets or provision are set aside, the benefits are paid directly by the employer or pension sponsor. In the UK the state pension paid is unfunded, the benefits paid are paid from taxes.

If the defined benefit plan is funded the contributions from the employee and the employer are invested like with the defined contribution plan. In a defined benefit plan the investment risk is met by the employer or pension sponsor, not in this case by the individual.

Private or Personal Pension Plans

With a personal/private pension plan the individual approaches a pension provider, typically via a financial adviser. The individual contributes to the plan on a monthly basis, adhoc lump sums are allowed also. The contributions are then invested in equities, fixed interest, property and cash – the exact contribution in each asset class is determined by the fund selected, which in turn is determined by the clients Attitude To Risk (ATR). In this instance there would be no contributions made by the employer.

With a personal/private pension there are strict rules around maximum contributions that must be adhered to, both monthly contributions and those made over the lifetime of the plan. As you can well imagine, one of our advisers will be more than happy to guide and assist you.


Welcome to the Pensions Section


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Welcome to the first article of many relating to the world of pensions. Our aim is to give you practical information that can be used almost immediately; information to help you answer the following vital question:

“Will my pension provide me with the lifestyle I really want when I retire?”

According to Aviva, there are some 17.6 Million people in the UK that are over the age of 55. (“Real Retirement Report, 2010″) This means that whenever you see a group of just FOUR people up and down the country, on average, one of them will be in retirement or close to retirement. And we all like the thought of retiring early, even if it’s just to mix work and pleasure together as and when we please.

That is why pensions-related information is vital now. So, anything that can help you increase the level of your income when you retire, regardless of how small or insignificant it may seem, is what we will share with you.

Here’s to a very prosperous future …


One Simple Way To Have Fewer Mortgage Problems


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It appears to be a widely-held view that one of our biggest financial commitments in life, if not THE biggest, is the mortgage we take on to buy our home.  And though it is vital for someone to take advice on such a major expense, why can you still be left feeling confused AFTER having sought mortgage advice?

Well, before giving the very simple answer to this question, let’s briefly consider what “advising” means and if that matches our everyday experience.

According to the Collins English Dictionary, the word “advise” comes from the latin words “visere” and “videre” which, respectively, mean “to view” and “to see”.  So, when someone is advising you or me, their primary objective should be to give us a “view” into the subject we are unclear about.  They should be helping us “to see” more easily what we struggled to see before.  These definitions of advising rather remind me of the 1970s pop-classic by Ken Boothe that chorused “I can see clearly now the rain has gone. I can see all obstacles in my way”.

But how exactly can this happen?  What precisely can an adviser do, and in this specific instance what can a Mortgage Adviser do, to give someone a clearer view into their potential mortgage commitment?

TEACH.

“What, is that it … teach ?” you may ask.

Yes. That’s it. We have found from our own experience that clients make more confident decisions when we first teach them about mortgages.  One key question that we ask consumers very early on is:

“Do you know the different types of mortgage payment methods?”

We are not surprised when consumers then tell us about things such as Fixed-Rate mortgages, Offset mortgages, Tracker, Discounted and Variable-Rate mortgages.  However, when we help them to understand that it’s actually far simpler than that and, in reality, there are only TWO mortgage payment methods (”Capital and Interest” and “Interest Only”), they do appear to be genuinely surprised.  Careful listening and teaching, leads to understanding.  This, in turn, leads to confidence in both the advice and the adviser, which finally leads to a more strongly informed decision and, hopefully, the adviser winning your business.

Listen. Teach. Understand. Confidence.  Business.  It’s a potential Win-Win process for both you as a consumer and the Mortgage Adviser.

As a prospective “mortgagor” (i.e. someone with a mortgage), you will have reduced the potential for problems with your mortgage if your adviser takes the time to teach you the rights and responsibilities of being a mortgage holder … AND you take the time to understand.  Funnily enough, this is directly in line with the Number 1 principle of the “Treating Customers Fairly” programme that the Financial Services Authority (FSA) have laid out for all mortgage advisory firms to abide by.  This principle states that “consumers are to be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture”.  Now tell me:

How much “fairer” can you get than a business that goes all out to demystify mortgages first, then ensures that you understand as much as possible about mortgages next, and then finally seeks to win your business?

“But how long will all of this take?” you may wonder.  “It seems very time-consuming.”

Yes it does seem time-consuming and we can only speak from our own experience at Opening Doors Finance as every prospective client is very much an individual.  However, we have been pleasantly surprised at just how confident and reassured a client becomes about their potential mortgage commitments after just 20 minutes of being guided through the mortgage maze.

Surely, your biggest financial commitment is worth spending an extra 20 minutes on with a knowledgeable Mortgage Adviser isn’t it?

So, if you want a simple, easy-to-take, approach of reducing problems that may arise with a mortgage, then get your Mortgage Adviser to take the time to teach you about mortgages first.  Then you stand a far greater chance of understanding if the mortgage solution that they are advising and recommending is the one for you.

Regards

Opening Doors Finance


 

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