Lowes Magazine Issue 130

PENSIONS Is backing British good for your ISA?

The State Pension – don’t make assumptions Many people assume they will receive the full State Pension when they retire. But this is not necessarily the case. While sound investment and saving through our lifetime should reduce the importance of the State Pension to our retirement plans, for many people it remains a valuable element of their retirement income. Currently, to obtain the full State Pension an individual must have contributed national insurance payments (or received NI credits) for 35 years or more. Anyone who has not contributed the full 35 years will receive a reduced pension. If you paid NI at a lower rate – for example, if you contracted out of the Additional State Pension scheme – you may need more than 35 years of contributions or get less than the full amount. What people often don’t realise is that it is not the total of years or part years worked but rather 35 years of full-year contributions. This can leave a hole in what people expect they will receive. At the moment, the Government is allowing anyone who has missed years to back pay NI contributions. Your personal situation can be easily obtained from the gov.uk website.

In his Spring statement the Chancellor of the Exchequer announced plans to introduce a British ISA. When implemented, this will allow a further £5,000 allowance free of income and capital gains tax, on top of the current £20,000, but only for investments into the UK. The increase is good news for those who currently max out their ISA limits, providing scope for an overall £25,000 tax free saving. It will also appeal to those who wish to be certain their investment is staying within the UK. But it won’t be introduced until the idea has been through a consultation; so, if implemented, at best this is likely to be in the 2025-26 tax year. Also, there will need to be an unambiguous definition of what qualifies as a UK investment within a ‘British ISA’, so investors know exactly what they may invest in. With several types of ISA now available, the question is whether this just adds to the complexity of the ISA system. Will it incentivise people to invest in an ISA, rather than leaving their money in cash accounts? Another factor is investment risk. Putting a large part of a yearly ISA and therefore, over time, of your ISA portfolio, into ‘one basket’ increases the risk. We typically advise clients to diversify across different asset types and geographical locations as an important way of managing investment risk. ISAs are an excellent means to grow your wealth tax efficiently. However, for individual financial plans there may be alternatives, or other vehicles to complement ISAs, as part of an overall investment strategy. It is important to consider these and the nuances when investing in relation to personal goals. You can rest assured that we are here to guide you through this process as required.

Go to: www.gov.uk/check-state-pension or contact the Future Pension Centre on the helpline 0800 731 0175 .

Lowes adviser Alex Molyneux points out: The State Pension doesn’t have to be taken at State Pension age, which currently is age 66 but will rise to 67 between May 2026 and March 2028. Deferring will provide a higher weekly payment when the pension is eventually taken – equating to a 1% increase in the weekly State Pension for every nine weeks that payments are deferred. If the pension is deferred for the whole of the 2024-25 tax year, this will equate to an extra £664.58 a year. Deferring can benefit anyone who doesn’t need the pension immediately, for example if they are continuing to work or have other sources of income, offering a higher income in later life that is currently guaranteed to keep up with inflation. However, these terms are not as generous as they were, therefore if you have deferred already for a number of years it is worth reviewing whether now is the time to start drawing your State Pension. Remember, this pension cannot be passed on to your beneficiaries, so if you don’t use it, you lose it.

Lowes.co.uk

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