Latest news with #RetirementLivingStandards
Daily Mirror
3 days ago
- Business
- Daily Mirror
'Stealth' tax alert for pensioners who face £15k burden by 2030
Brits planning to retire may need additional retirement savings if the personal allowance tax freeze is extended New data suggests that those planning to retire in 2030 and beyond could need to save around £15,000 if the personal allowance tax freeze is extended. This increased cost of maintaining their current lifestyle is attributed to fiscal drag, which is a consequence of rising state pensions, escalating living costs, and frozen personal allowances. Pensions UK's latest Retirement Living Standards report reveals that a single pensioner currently needs an annual income of around £43,900 for a comfortable retirement. However, this figure is predicted to soar to over £58,800 in just five years' time to maintain the same standard of living. It's important to note that this £14,960 increase is projected by 2030 if the freeze on personal allowance and income tax thresholds persists. Right now, the personal allowance allows most people to earn £12,570 each year before they're liable for income tax. However, this has been frozen until 2028, and according to the Telegraph, Sir Keir Starmer hasn't ruled out the possibility of extending this freeze even further. During Prime Minister's Questions on Wednesday, the PM reassured that he plans to honour Labour's manifesto pledge not to raise taxes for working people. However, he avoided answering questions about whether the halt on income tax thresholds would continue beyond 2028, reports the Express. Experts widely acknowledge this as a 'stealth' tax, which doesn't directly raise taxes but instead quietly pushes people into higher income tax brackets as wages and benefits climb with inflation over time. This process, commonly referred to as fiscal drag, might eventually make the state pension subject to tax in years to come. Although the state pension isn't automatically tax-free, it presently sits below the personal allowance limit, meaning it avoids taxation altogether. Given that the triple lock ensures a minimum yearly rise of 2.5% and the current full new state pension stands at £11,973, pensioners could find themselves paying tax solely on their state pension if the freeze continues over the coming years. Alan Barral, a financial planner at Quilter Cheviot, warned the Telegraph: "Frozen income tax thresholds may feel like a technical detail, but they have real consequences for retirees whose standard of living is being squeezed." He added concerns about the Government's commitment, saying: "With the UK facing significant fiscal challenges, there's a real risk that Rachel Reeves may feel compelled to backtrack on Labour's pledge to unfreeze thresholds." A government spokesman responded to the publication and said: "We are committed to helping our pensioners live their lives with dignity and respect, which is why in April the basic and new state pension increased by 4.1pc. Pensioners will receive a boost of up to £470 to their income in 2025-26. Our commitment to the triple lock means millions will see their pension rise by up to £1,900 this parliament."
Daily Mirror
03-06-2025
- Business
- Daily Mirror
Couples on State Pension given £1,600 warning over retirement risk
The Pensions and Lifetime Savings Association (PLSA) has put the annual cost of a comfortable retirement for a couple at £60,600 The cost of a comfortable retirement for a couple has rocketed to an astonishing £60,600 a year. This post-tax income number has gone up by £1,600 from the previous year, reveals new research by the Pensions and Lifetime Savings Association (PLSA). For a more modest lifestyle after retirement, couples now face an annual post-tax increase of £800, with costs hitting £43,900. Conversely, those aiming for just the basics in later life will find themselves spending £800 less, as figures drop to £21,600 per annum for couples. In an effort to set clear expectations for retirement spending, the PLSA's Retirement Living Standards (RLS) were formed together with Loughborough University's Centre for Research in Social Policy, based on thorough conversations with Britons about their anticipated retirement lifestyles, reports the Express. Through this study, they've laid out their guidelines for living comfortably after work ends: Comfortable Standard of Living Annual income: £60,600 (couple) Greater financial freedom Includes regular overseas holidays, generous home improvements, and extensive social/leisure activities Moderate Standard of Living Annual income: £43,900 (couple) More financial security and flexibility Includes a car, a few holidays a year, and more frequent leisure activities Minimum Standard of Living Annual income: £21,600 (couple) Covers basic needs with some leftover for occasional treats Includes a week-long UK holiday, dining out once a month No budget for a car; relies on public transport Zoe Alexander, PLSA's Director of Policy and Advocacy, noted: "We're not just seeing changes in costs, we're seeing changes in how retirees live." She added: "Retirement isn't a one-size-fits-all experience. The Standards recognise that retirees can share costs, often with a partner, and that can make a huge difference to affordability in later life." The latest research underscores the critical role of the State Pension, particularly for those on the minimum level. By 2025/26, a couple receiving the full new State Pension, which amounts to £11,973 per person or £23,946 combined, would be able to cover the costs associated with the minimum standard of living. The Pensions and Lifetime Savings Association (PLSA) is urging people to utilise its findings as a guide for future planning, adapting the information to fit personal lifestyles and mixing elements from various living standards. Notably, the data indicates that to achieve a comfortable joint annual income after tax of £60,600, supplementing the State Pension, each partner in a couple would need a private pension pot ranging between £300,000 and £460,000 to purchase an annuity – a lifetime income. For a moderate lifestyle in retirement, it's estimated that each individual would require a private pension savings of £165,000 to £250,000 to secure an annuity that would top up their State Pension. Professor Matt Padley, Co-director of the Centre for Research in Social Policy at Loughborough University, commented: "Our research on what the public agree is needed in retirement at these three different levels continues to track changes in expectations, shaped by the broader economic, social and political context." He also noted: "The consequences of the cost-of-living challenges over the past few years are still being felt, and we've seen some subtle changes in public consensus about minimum living standards in retirement, resulting in a small fall in the expenditure needed to reach this standard." Zoe Alexander stated: "For many, retirement is about maintaining the life they already have, not living more extravagantly or cutting back to the bare essentials. The Standards are designed to help people picture that future and plan in a way that works for them." Tom Selby, AJ Bell's Director of Public Policy, noted that the required size of private pension pots "might feel intimidating". He advised: "The key is to focus on saving as much as you can afford from as early as possible, taking advantage of incentives like employer contributions, tax relief and tax-free investment growth." At present, the minimum pension contributions are 8% of incomes; however, this falls short of the necessary amount, he warned. "The big danger here is that, without a scaling up of minimum contributions, millions of people will sleepwalk into a retirement shock and be forced to choose between working longer or living on less money in their later years," he said.
Telegraph
20-02-2025
- Business
- Telegraph
‘I'm 49, and just inherited £500k – but have no idea how to invest it'
Would you like Kyle to rate your portfolio? Email money@ with the subject line: 'Rate my portfolio'. Please include a breakdown of your portfolio, your age and what your investing goals are. Full names will not be published. Hi Kyle, I'm at a bit of a crossroads and seeking the best way of investing and retiring comfortably as soon as possible. I'm 49 and live with my partner (we've been together for 20 years) and two children aged 16 and 14. I've just inherited £500,000 from my dad's estate, as well as £400,000 in share investments and a house in Dorset, which I see myself moving into eventually. I don't have much of a pension and currently work in a part-time job earning approximately £20,000 a year. I own my house with my partner outright, and a buy-to-let property which I bought for £320,000 (now worth £420,000). I also have an Isa. My partner works full-time and already has a good pension. When would be a good age to retire? What should I do to ensure my children are also provided for? I could put some of the money from my dad's will into their names, but I don't know how much or whether this is a good idea. Also, I'm unsure where or how to invest the £500,000. I have so many questions and I need a good starting point! Thanks, – Amanda Dear Amanda, I can appreciate you reaching out for help as there's an awful lot for you to think about here. With a cash windfall – such as an inheritance – there is no one-size-fits-all answer in terms of what do with the money. I'm going to suggest some general considerations, but you may benefit from seeking out a financial adviser or planner who can come up with a concrete plan for your personal circumstances. I'd also recommend considering the PLSA's Retirement Living Standards, which suggest guideline annual incomes for those seeking a minimum, moderate or comfortable retirement. Firstly, before you review my ideas, make a will or update an existing one. Plan your pension If you want to retire as soon as possible, there are some things to consider. The first is your state pension, which you'll be able to claim at age 67 under current rules. The full state pension is currently worth just over £11,500 a year, so whether you plan to pack up work before this point or not, it's worth having. I'd urge you to get a state pension forecast to find out if you're on track and identify whether there are any gaps you could fill to receive the full entitlement. You can plug these gaps by making voluntary National Insurance contributions. The next thing to be aware of is that the earliest you'll be able to draw from your personal pension savings is age 57. This is important, because one of the most tax-efficient things you can do with the £500,000 you have inherited is to put as much of it as you can into a pension. By doing so, the contribution will be boosted by tax relief, equivalent to the rate of income tax you pay. Each tax year, you can invest 100pc of your earnings up to a maximum of £60,000, whichever is lower. There's nothing to stop you paying in more than that in a year, but there's a charge on any excess which effectively wipes out the upfront tax advantages. Given that you earn £20,000 a year, your income limit is £16,000 into a pension, as you will receive £4,000 in tax relief. However, given the end of the 2024-25 tax year is approaching, there's the opportunity to tuck away up to £32,000 of the windfall by using allowances for both the current tax year and the next, which starts on April 6 2025. Exploit the Isa allowances As well as pensions, Isas are a tax-efficient place for your money to grow. Isas are much more flexible than pensions, as you can make ad-hoc withdrawals whenever you see fit. With Isas, everyone has a £20,000 annual allowance. With the end of the tax year approaching, you could put £40,000 into an Isa for both the current tax year and the next one. You did not say whether you and your partner manage your finances together or keep them separate. Just to flag that more of the windfall can be shielded tax efficiently if you join forces. In terms of helping your children financially, you have a few options. The first is to open junior Isas, which can provide them with a nest egg that they will be able to access from age 18. The annual allowance is £9,000 until they reach 18 and, like an adult Isa, the money grows tax-free. Just make sure you're happy for them to have control of the money at this point. Investing ideas In terms of investment options, it depends on what age you expect them to need the money. Your eldest would inherit the funds in two years' time, and the stock market requires time frames of at least five years, due to the potential volatility, so plumping for cash savings might be the most sensible option. That said, if the plan is for your child to use the money later in life, investing might make sense. Another option is to make pension contributions on their behalf. You can pay up to £2,880 a year – boosted to £3,600 with tax relief – into a pension for each child. However, bear in mind that they won't be able to access these funds until retirement, and given the wave of financial challenges younger people face these days, you might prefer for them to enjoy it sooner. Putting some of the windfall into cash accounts will give you some peace of mind. However, be mindful of exceeding the personal savings allowance. A basic-rate taxpayer can have just under £20,000 in a savings account earning 5pc before having to pay tax on the interest. Building your own portfolio takes time and effort, which can be a bit daunting. For those who would prefer a more hands-off approach, there are short-cut options in the form of multi-asset funds. This type of fund makes the investment decisions on your behalf, splitting your money across a mix of different assets, but mainly shares and bonds. Such funds are seen as an ideal starting point for those who want a hassle-free option due to the diversification on offer. Our analysts have chosen six quick-start funds that they believe stand out from the crowd. Three invest passively – meaning they offer index-like returns (minus fees) – so the investments rise and fall in line with how stock and bond markets perform. The three funds are: Vanguard LifeStrategy 20pc Equity, Vanguard LifeStrategy 60pc Equity and Vanguard LifeStrategy 80pc Equity. The other three funds are actively managed, meaning a stock picker selects a range of investments in an attempt to beat the wider market, although there is no guarantee they will achieve this. The three funds are: Royal London Sustainable Managed Growth, Royal London Sustainable Diversified and Royal London Sustainable World. The Royal London range has a focus on sustainable investing and seeks to invest in companies delivering some positive societal or environmental benefit through their products or services. The six funds invest differently, adopting a conservative, medium-risk or adventurous approach. Funds that are more conservatively invested have lower exposure to shares, while those that are adventurously positioned have most or all the portfolio in shares. Kyle Caldwell is funds and investment education editor at Interactive Investor. His columns should not be taken as advice or as a personal recommendation, but as a starting point for readers to undertake their own further research.
Telegraph
12-02-2025
- Business
- Telegraph
‘We'll need a £3m retirement pot – can we do it in 20 years?'
Would you like Kyle to rate your portfolio? Email money@ with the subject line: 'Rate my portfolio'. Please include a breakdown of your portfolio, your age and what your investing goals are. Full names will not be published. Hi Kyle, I turn 40 in June and my wife turns 39 next month. We are both employed as senior leaders in international schools. We have a one-year-old baby and are expecting our second child in July. We have two properties, a semi-detached house in Stirling, Scotland, and a city-centre apartment in Bristol, totalling £600,000 (very conservative estimates) with approximately £320,000 in equity. We have no debt other than the mortgages. We each have an investment account and invest regularly each month, almost exclusively into global index funds. Our investments total approximately £546,000. We would like to achieve financial freedom so we can work more flexibly and prioritise time with our children and ageing parents. Realistically, neither of us would seek to retire fully until we are at least 60, and as older parents we will still be supporting teenagers/young adults at that stage. According to the Pensions and Lifetime Savings Association's (PLSA) Retirement Living Standards, a couple needs £60,000 a year in 2025 to have a 'comfortable' retirement. Based on the 4pc rule, taking 4pc out each year, this would require a pot of £2,730,000 in 20 years' time when we would aim to retire. There is also the concern that the £60,000 per year estimate for a comfortable retirement is based on a couple, and does not take into consideration the likely costs of supporting university-age children or elderly parents who may need care. Therefore, sometimes I think my wife and I are in a good position for our financial future, but at other times I see us needing to build a pot of around £3m by the time we are 60, which seems impossible. I would be very grateful for your perspective. - John Dear John, My hat goes off to you both, it sounds like you are in a great position. Most people your age would be envious of an investment pot of more than £500,000, particularly since it's a tricky time to prioritise paying your future self, due to the costs of getting on to the property ladder and bringing up children. It's important to remember that the 'comfortable' retirement income estimate of £60,000 a year from the As you say, inflation will alter the PLSA estimate of the cost of a comfortable retirement over the next two decades. However, if your investment returns beat price rises, then this will keep your money growing in real terms. You are clearly savvy and well-versed in the fundamentals of growing wealth. However, getting some financial advice to put a plan in place could increase your chances of fulfilling your goal of approaching your working lives more flexibly. That said, here is some brief number-crunching on your current position. Leaving aside your cryptocurrency position for now, both your global equity investments of £475,000 would turn into £773,722 over 10 years and £1,260,308 over 20 years, according to Candid Money's investment calculator. This is based on a 5pc annual return after charges and is calculated based on no further investment. Be aware that the figures do not account for inflation. But I'm assuming you'll continue investing over the next 20 years, which will boost your pot size even more, providing your investments fare well. You've also not factored in the If you haven't done so already, it's worth heading to A further suggestion is to review your retirement goals frequently as things can change over time. Tracking your investment plan and strategy against your goals and target pot size on an annual basis will enable you to tweak your portfolio as the need arises. And crucially, it will reduce the prospect of nasty shocks as you edge towards your golden years. Overall, it looks like you are on track to have a pot size of between £1m to £2m. Based on the 4pc rule, that would generate £40,000 to £80,000 a year. In terms of your investments, you've clearly done your homework and chosen to 'own the market' through index funds, rather than seek out active funds, which attempt to beat a comparable index. However, there are no guarantees that active funds will outperform and while some succeed, many fail. Therefore, it could be worth seeking diversification beyond your three global index funds to reduce risk. In theory, the coming years should present a more favourable backdrop for active fund managers, as such funds can target undervalued shares. One active global option that our fund research team likes is Dodge & Cox Worldwide Global Stock fund, which has a price-to-earnings ratio of just 12.1 times, compared with 18 times for the MSCI All Country World Index (as of the end of 2024). It has only one Magnificent Seven stock, Alphabet, in its top 10 holdings and favours financial firms and healthcare companies, such as GSK and Sanofi. However, given your preference for passive strategies (index funds or ETFs) I'll leave you with a couple of suggestions to consider that would potentially complement your current holdings, provide additional diversification and make your portfolio less growth-heavy. The first is iShares Edge MSCI World Minimum Volatility ETF. It selects stocks that are less volatile than their peers. Its top 10 holdings are completely different from a global index fund or ETF, and there's no exposure to the Magnificent Seven. The top three holdings are Deutsche Telecom, Walmart and T-Mobile. If we experience a more volatile period for markets in the coming years, this ETF's approach could benefit. Another way to increase diversification is through Vanguard FTSE All World High Dividend Yield ETF. It owns companies with dividend yields that are higher than the global average. This means it buys cheaper shares than a classic global stocks tracker and yields far more, at 3.2pc. The US is the largest country weighting at 43.1pc, but this is notably lower than the typical 70pc weighting for a global index fund or ETF. The Kyle Caldwell is funds and investment education editor at interactive investor. His columns should not be taken as advice or as a personal recommendation, but as a starting point for readers to undertake their own further research.
