Taking Benefits from Final Salary Pensions At Belmore we are seeing a few similar cases with our clients about taking benefits from Final Salary Pension schemes The History Individuals who are now in their late 50’s/early 60’s are caught in the period of time where final salary pension schemes have become less common (particularly in the private sector) and historic schemes are caught with differing retirement ages depending on when the member was employed and when the scheme changed its rules/legislation for retirement ages. The Implications Gone are the days where someone reaches a particular age and all their pensions became payable at once - that would too easy! This means that many people have relatively small pension schemes relating to previous employment that they can start receiving - most commonly at ages 60, 65, 67 - yet they are still working and either cannot afford to fully retire or don’t want to. The Options As a general rule, a member will receive a pack detailing their options a few months before they reach the scheme retirement age. This will outline the options available including whether to take tax-free cash and the impact (if any) it has on the income. When choosing the best option there are a few important things to consider…….. Should I take the tax-free cash? This decision depends on individual circumstances. Some people need tax-free cash to clear debt, others use it to provide an emergency fund if their cash reserves are lower than is comfortable. It also depends on the implication it has on the income being offered, the need for secure income and what other sources of income there will be available in retirement. Should I defer taking my income? As a rule of thumb the answer to this is normally ‘no’ as the income you would miss out on in the deferment will take a considerable number of years to ‘catch up’ on to break even in your bank account. With the majority of schemes, the benefits once in payment will increase by RPI or CPI or similar. It is important to remember that aside from a spouse's pension (often half the income or lower of the member’s income) these schemes die with you so the object of the exercise is to maximise what you get out. Does taking final salary pension income affect my ability to make personal pension contributions? No, taking benefits from a final salary scheme does not affect your ability to make contributions into a personal pension. Will I need to do a tax return? No, the final salary scheme will deduct tax at source. What if pension income puts me into higher rate? If individuals don’t need the additional income and it puts them into higher rate tax when added to their PAYE income then there is an opportunity to make higher personal pension contributions to claim back the higher rate tax.

Personal Taxes and the Budget Tax Thresholds • Personal tax thresholds have remained frozen until 2028, meaning fiscal drag will continue as planned. • From 2028/2029, thresholds are expected to increase in line with inflation. Minimum Wage • National Living Wage will increase by 6.7% to £12.21 per hour starting next April. • Minimum wage for 18-20-year-olds will rise by 16.3% to £10 per hour. Non-Domiciled Status • The non-domiciled tax system is to be abolished from April 2025 (Conservatives previously scrapped the non-domiciled special status in their Budget, but Labour has now further amended the rules, removing the option for non-domiciles to move funds offshore ahead of the full change in April 2025). Capital Gains Tax (CGT) • Capital Gains Tax (CGT) rates have increased to bring all assets (including residential property) to the same levels of 18% for basic rate taxpayers and 24% for higher rate taxpayers. • Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) schemes have been extended to 2035. • Primary residences will continue to be exempt from CGT. • CGT on carried interest will rise to 32% from 2025, specifically targeting the fund management industry. Inheritance Tax (IHT) • The Inheritance Tax (IHT) nil rate band remains frozen at £325,000 for individuals, while the residence nil rate band remains at £175,000 for estates up to £2 million. Both thresholds are frozen until 2030. • From April 2026, the first £1 million of combined business and agricultural assets will continue to attract no inheritance tax, but for assets over £1 million, inheritance tax will apply with 50% relief, at an effective rate of 20%. • A 50% relief now applies in all circumstances on inheritance tax for shares on the alternative investment market, and other similar markets, setting the effective rate of tax at 20%. Tax on Pensions • The 25% tax-free lump sum for individuals drawing from their pensions has been retained. • Starting in 2027, pensions will once again form part of the deceased's estate for IHT purposes (so the spousal benefit will apply to this). • The triple lock system on the state pensions has been maintained. Stamp Duty Land Tax (SDLT) • First-time buyers purchasing a property will now pay SDLT at the 2025 rate of 5% on properties priced above £300,000 and below £500,000. • For first-time buyers purchasing a property priced above £500,000, the standard SDLT rates for 2025 will apply. • The SDLT surcharge for second and additional properties has been increased from 3% to 5%, effective from 31st October 2024. Source: Timeline budget breakdown

Bonds When governments or companies need long-term financing (2 to 30 years), they issue Bonds in the capital market. Government Bonds are called Gilts, while company Bonds are known as Corporate Bonds. Both are collectively referred to as Fixed-Interest Securities, as they pay interest either at a fixed rate (Conventional Gilts / Bonds) or the interest they pay is Index-linked.* Bonds may also be called Debentures, Loan Notes, or Loan Stock. *Some Bonds, known as Zero Coupon Bonds, don't pay regular interest but are sold at a discount, with the full face value repaid at maturity. Bonds can be bought directly from issuers or through collective investments like Unit Trusts, OEICs, and Personal Pensions. Essentially, buying a Bond means lending money to the issuer in exchange for regular interest payments (typically every six months) and the return of your capital at maturity. Corporate Bonds tend to offer higher interest rates than bank savings accounts due to the higher risk of default. The risk is reflected in the issuer's credit rating, which influences the coupon rate—the lower the credit rating, the higher the risk and coupon. Bond prices in the secondary market fluctuate with interest rates. When rates fall, Bond prices rise as coupons become more attractive compared to bank savings. Conversely, when rates rise, Bond prices fall as bank savings become more competitive. The Government provides tax incentives for buying Gilts and qualifying Corporate Bonds. The yield on Bonds represents the return relative to the price paid, with the fixed coupon amount remaining constant while the Bond price may vary. Sources: https://nextgenplanners.mn.co/posts/investments-r02-j10-day-2-learning-outcome-1-part-2

Investment Bonds An Investment Bond offers medium to long-term growth (5-10+ years) and access to a wide variety of funds. As with all investments, its value can fluctuate, and you may not recover the full amount invested. Investment Bonds are structured as single-premium 'Life Insurance' policies, with a portion paid out upon death, though they function as investment products. These typically require a minimum investment of £5,000 to £10,000, and may have term restrictions and varying charges. You can withdraw up to 5% per year tax-deferred until the Bond is fully cashed in. This makes Investment Bonds attractive for tax-efficient income or wealth transfer. UK Investment Bonds are taxed under UK Life Fund rules, with the basic rate of Income Tax considered paid, meaning no additional Capital Gains or basic rate tax liability on gains. If you're a higher or additional rate taxpayer now but expect to become a basic rate taxpayer (e.g. in retirement), deferring withdrawals beyond the 5% limit could reduce your tax liability. Chargeable events triggering Income Tax liability include withdrawing over the 5% allowance, full surrender, death of the policyholder, or maturity of a Bond. Assignment, or transferring ownership, allows tax planning between spouses or civil partners, with the gift exempt from Inheritance Tax and no Capital Gains Tax on the transfer. Assignments must be unconditional and outright. Special rules apply for Trustee-held Bonds. If you would like some further information on Bonds, please do get in touch. Sources:https://www.mandg.com/pru/customer/en-gb/our-products/investment-products/investment-Bonds, https://techzone.abrdn.com/anon/public/investment/Taxation-of-Bonds, https://chasebuchanan.com/assignment-of-an-investment-Bond-2/#:~:text=An%20assignment%20refers%20to%20the,called%20a%20deed%20of%20assignment., https://www.mandg.com/wealth/adviser-services/tech-matters/investments-and-taxation/planning/tax-planning-uk-Bonds#:~:text=This%20planning%20is%20often%20used,must%20be%20outright%20and%20unconditional .

What is the Budget going to contain?....... We are more regularly than normal being asked by clients what we think the forthcoming budget on 30th October will contain. The honest answer is - we don’t know! And neither does anyone else at the moment…… Since the announcement of the cut to the Winter Fuel Allowance, there has been a lot of speculation about what may or may not be included in the budget and there have been clear warnings from the government that it's not necessarily going to be something to celebrate. Whilst we would like to say that the public has been told that increases to the rates of Income Tax, National Insurance and VAT have already been ruled out, we would not like to be completely certain until the budget is announced, as experience tells us that U-turns in policy cannot be ruled out. If this is the case though, and judging by what the Prime Minister has said about tax rises being necessary, it seems that the general consensus is that Capital Gains Tax, Inheritance Tax or a Wealth Tax, VAT and Pensions may be targeted. We would like to have a crystal ball so that any pre-budget work can be done, but in reality, we just don’t know what it might contain and would just be guessing. Therefore at Belmore, we are treating everything as ‘business as usual’ and dealing with the tax rules that are in place at the current time. We will of course be looking closely at the budget (probably along with most of the nation) on 30th October with interest, and translate what is said in parliament to everyday situations as soon as possible for our clients.

Markets Over the Previous Couple of Weeks Whilst a large majority of the public have been enjoying their summer holidays, the markets decided to take a leaf out of the Paris Olympics book and do their own form of gymnastics. It started with a market correction in Asia where the Japanese stock market plummeted by 12.4% which represented the sharpest sell-off since ‘Black Monday’ back in 1987. This was then added to by the VIX index (a measure of market volatility often referred to as Wall Street’s ‘fear gauge’) surging more than 40 points from its average level that was largely caused by a fear that the US market might slip into recession (despite major analysts thinking this scenario is unlikely). By the time this had all happened, markets worldwide felt the impact of the shock and although not to the same degree, Chinese, Indian and Australian markets showed modest declines. Whilst the FTSE 100 went down by 2-3% this was relatively stable compared to other world markets. Since this episode, markets have bounced back - as an example, the Japanese market closed on 27th August being within 200 points to where it opened a month previous, before the downturn.

Political Impact With less than a week to go until the General Election, some clients are asking about what financial impact there might be going forward. Whilst it is impossible to predict what legislation changes may come in (although the manifestos make promises, nothing is set in stone until it goes through parliament), one thing that history has shown us is that the markets will still grow no matter who is at number 10.

Do I need to do a tax return?….. In the recent press there has been a lot of talk about more pensioners needing to do tax returns due to the indexation of the State Pension in recent years and the fact that Income Tax thresholds have not increased. It is true that more people above State Pension age are therefore going to fall into this ‘trap’. However, there’s also another sector of people who may find it is actually in their interests to do a tax return and that is those people who find themselves as a higher rate tax payer who are making pension contributions either through auto-enrolment or into personal pension schemes. When making personal pension contributions, the pension scheme will automatically add basic rate tax to the contributions giving an uplift of 20%. However, if you are a higher rate tax payer it also has the effect of increasing your basic rate tax banding by the amount of the personal contributions (not those made directly by an employer) meaning that you can claim back some higher rate tax via your tax return. You do not necessarily have to employ an accountant to do a self assessment tax return, if you are employed by one employer and have your P60, P11D (if you get one) and your pension contribution history then you can do it yourself. As well as potentially claiming some tax back, this also offers opportunities to make larger personal pension contributions and benefit from the additional tax relief. If you would like to talk more about how this works then please get in touch.

Normal Pension Minimum Age Changes - Advanced Warning Currently, most people can access their personal pensions at age 55. Some people do this to take the tax-free cash to pay off mortgages and other debts, others start to receive an income as they take a glide path into retirement. From 6th April 2028 this age is increasing to 57 and when you were born will determine whether or not you are affected. If you were born before 6th April 1971……. You won’t be impacted because you’ll already have reached age 57 by 6 April 2028. If you were born between 6th April 1971 and 6th April 1973…….. You’ll have an opportunity window from your 55th birthday to 5 April 2028 to access your pension savings before the Normal Pension Minimum Age increases to 57. If you choose not to take any pension savings during this period, you will need to wait until your 57th birthday. If you were born after 6th April 1973…….. The earliest age you will be able to access your pension benefits is age 57 Whilst 2028 seems a long time away, individuals who may be planning to access their pension plans at age 55 and were born after 6th April 1971 need to be aware of this delay in accessing personal pensions now so that they have time to alter their financial plans appropriately with nothing being a nasty surprise……..