February 7th, 2023 | Andrew Hagger | News

Facing redundancy can be an intimidating time, therefore it is important to be aware of your rights and have a clear overview of your finances.

WEALTH at work have provided an overview of some of the key areas that employees will need to understand if they are made redundant.

1. Redundancy Entitlement: If your employer makes your job redundant and you are forced to leave the company, you may be entitled to redundancy pay. Redundancy packages are not set in stone, they vary according to the company but are also based on age, length of employment, and job role. For those who have been in the same job for at least two years, your employer is usually legally required to pay you. The legal minimum is called ‘Statutory redundancy pay’ however it is vital that you check your employment contract as you may be entitled to more. There are also plenty of online resources such as GOV.UK or Money Helper, which can help you understand your rights.

2. Taxation on redundancy payment – It is important to understand how much you will actually receive once tax has been paid. Usually, the first £30k is tax free, with anything over this being added to your income and charged at the marginal rate. Please note, employee National Insurance is not deducted from a redundancy payment.

For example, someone who has an annual salary of £36k, has earned £15k so far this tax year and is offered £50k redundancy would owe £4,000 in tax on their redundancy pay.

This is because the first £30k of their redundancy pay is tax free but the remaining £20k is taxable. As they have earned £15k so far this year, even with the £20k added to this, they are still within the basic rate tax band, so tax of £4,000 is due on the redundancy pay (20% of £20k). Please note, individuals could end up in a higher rate tax bracket, depending on their income and redundancy pay.

3. Review financial position and budget – Work out what assets you have, pensions, savings, ISAs, property and investments, and what liabilities you have e.g. mortgage, debt, childcare, insurance and utility bills.  Then look at any other household income and expenses. If the amount of money you need each month is more than the amount you have coming in, you can then work out what action you need to take to cover your costs. Money Helper has a great budget planner: Budget Planner | Free online budget planning tool | MoneyHelper

4. Debt repayment – If you can afford to, it might be worth using some of your redundancy payment to pay off expensive debts. There are many different types of debt with varying rates of interest.  Credit cards and overdrafts can have rates of 18 – 40%, with some payday loans having rates of 1,500% and more!

For example, a debt of £3,000 with a rate of 18% APR, could take 10 years and 10 months to pay off if paying £50 a month, with total interest of £3,495 paid. If that monthly payment was increased to £100 a month, the debt would be paid off in 3 years and 4 months, and interest paid would be only £908. If this was increased to £300 a month, the debt would be paid in 10 months, with total interest of £252 paid.

5. Mortgage overpayment – Mortgage interest rates tend to be significantly lower than other debts, and can include payment holidays for those who are made redundant. However, if they don’t have other debts, employees may want to consider overpaying on their mortgage. For example, with a £200,000 mortgage which has a 3% rate of interest over 25 years, an individual could pay £84,527 in interest over the 25 years. If this is overpaid by £200 a month, the interest reduces to £62,905 over 19 years. If this is overpaid by £400 a month, the interest reduces to £50,209, over 15 years and 6 months, and if this is overpaid by £600 a month, the interest reduces to £41,825 over 13 years. 

6. Can you afford to retire? – If you are nearing retirement age, you may consider the idea of retiring early.  Depending on your circumstances, this may be more achievable than you think. An individual could use their redundancy payment or pension tax free cash to pay off any outstanding loans and mortgages, and as a result, they may be able to maintain their standard of living. For example, someone earning £30,000 per year, once they have paid income tax (£3,006), National Insurance (£1,804), pension contributions via salary sacrifice (£2,400), mortgage (£6,000) and loans (£2,400), may end up with a disposable annual income of around £14,390. Realising that you may only need a retirement income of less than half of your salary to maintain your standard of living can be an eye opener, and make retirement a more realistic option.

7. What happens to your company pension? – It is fine to keep your pension with your previous employer and it will remain invested and safe until you retire. Some people prefer to move their pension to their new workplace pension scheme, or a private pension. There are benefits to this in that all pensions are kept together in one place, however, there can be a cost to transferring a pension; investment charges are not all the same and may not be lower, and the range of investment options vary between schemes. Make sure you check these things before moving your pension. 

8. Pay more into your pension – If you can afford to do so, it may be worth considering paying some of your redundancy payment into your pension to boost your retirement savings.  There are limits on the tax relief you can receive from pension contributions each year, so it will be important to check these carefully first.  For those approaching retirement, this may be a particularly attractive way of providing a final boost to the value of their pension pot.  

9. Beware of scams – Unfortunately, there are some really unscrupulous people in the world, who won’t think twice about scamming someone out of their redundancy pay. If you are looking for somewhere to keep your redundancy pay beyond just your current account, make sure you do your research. Before handing over any money, always check the firm is regulated by the Financial Conduct Authority (FCA).

Jonathan Watts-Lay, Director, WEALTH at work, comments;

“For organisations that are making redundancies, it’s really important that the workforce receive the appropriate support so they understand how it will impact their finances. It can be a really difficult time and it is crucial that they get help around areas such as how to budget, manage debt and cut down on spending and bills. Employees will also need to understand how much they will actually receive from their redundancy pay after tax, how to make it last if they don’t get a new job quickly, or how it could help them afford retirement when perhaps they thought it wasn’t a possibility.”

January 31st, 2023 | Andrew Hagger | News

Following the contact-free payment increase during the coronavirus pandemic, bank notes and coins are continuing to be phased out. But what does this mean in the context of the cost of living crisis?

James Andrews, personal finance expert at money.co.uk said

“Our research has revealed that 65% of people say they spend more when using their card or contactless payment device rather than cash, which doesn’t bode well for those struggling to budget during the cost of living crisis.

Many of those questioned also expressed that using cash instead of a card when doing simple things such as doing their food shop or eating out in restaurants would help them spend less. Proving that access to cash is vital for those hit hardest during the crisis.

It’s concerning that our research also found that despite a real cost of living need for access to cash, more than one in ten of our ATMS in the UK have disappeared in the last 10 years.

Going digital is fine in theory but when sections of society are struggling to make ends meet and find cash easier to budget with then there must be something done to slow the scale at which cash points are disappearing.”

FAQ’S

What are the advantages of ATMs?

24-hour service: The ATM provides service round the clock, meaning people can visit an ATM any time day or night.

Convenience: The ATM gives convenience to bank customers since they are often located in places such as airports and train stations, meaning customers don’t always have to be near a bank to obtain their cash.

Reduced workload: ATMs reduce the pressure and workload of bank tellers, which in turn reduces queues at bank premises.

What are the disadvantages of ATMs?

Security:  Unlike bank tellers, ATMs do not require the person performing the transaction to present a picture identification, they simply need the card and a pin number. This means if a bank card is stolen and the pin number somehow obtained, the criminal can get access to funds. Check out our guide on how to keep your bank details safe here.

Basic transactions: ATMs cannot perform complex transactions e.g moving money between accounts or sending money abroad, making them obsolete to some people.

Privacy: Unlike banks where premises are monitored by security guards, ATMs leave the user open to privacy leaks e.g someone behind them attempting to steal their pin number, or even cameras being placed above the ATM for the same purpose. For this reason, always shield the pin pad on an ATM with your hand while entering your pin number. Find out the four ATM scams you need to look out for here.

Fees: When using an ATM that isn’t part of your bank’s network of machines, the machine sometimes notifies you about a fee charged by the bank or company that operates the ATM. You can avoid this by only using ATMs that are part of your bank’s network, but this takes away the convenience factor.  ATMs also often charge fees when you are using a credit card rather than a debit card – find out more here.

Difficulty of use: For those who are unfamiliar with technology, using an ATM might cause some issues. An ATM is incapable of providing personalised instruction to the user in a way that a human teller can.

Eating a card: On occasion, an ATM may malfunction and swallow the user’s card. This will result in them having to contact their bank to retrieve it, and they may be left without a card for a period of time.

What is the future of the Atm?

Personal finance expert Salman Haqqi has shared his thoughts on the longevity (or lack of!) of the ATM, saying:

“The global pandemic saw many countries encouraging the use of contactless payments rather than cash, which saw ATM depletion in some countries across Europe. The UK has seen a 14% depletion in the past 10 years, which essentially means more than 1 in 10 have disappeared.

However, The new Financial Services and Markets Bill, announced in the Queen’s Speech at the state opening of parliament, is designed to shore up the country’s cash infrastructure for the long term.

This means ATMs will be protected and not allowed to become redundant in the UK, however, they may not remain as we know them.

Like most technology such as smartphones or computers, experts have predicted ATMs will evolve to include built-in finger-print or facial recognition, and they may give us access to financial advice. Furthermore, they could take on more of a traditional bank teller’s job, potentially allowing us to open new accounts, transfer money between existing accounts or make secure payments.”

January 23rd, 2023 | Andrew Hagger | News

• Saying they’ve found a problem with your computer and need access

• Asking for banking or card information, your PIN code or a password

• Mentioning anything related to PayPal or money transfers

• Stating your broadband had been hacked

• Mentioning your IP address and saying it’s been compromised

• Demanding or asking for anything

• Having an urgent or demanding tone

• Saying phrases such as ‘we are calling from your service provider’

• Ask them who your broadband provider is – If they don’t know, or the answer is something vague like Openreach, then the call is likely not genuine. Legitimate BT customer support staff would not refer to your provider as ‘BT Openreach’

• Ask them what model your router is – If it is a generic answer such as ‘BT Hub’ then be wary. If there was a problem, as they claim, they would already know straight away.

• Google the phone number that you received the call from. If it is a number associated with your provider, it will be made obvious. If it’s showing results used for a scam, be wary.

• They should never insist you run checks on your computer or ask for remote access to your computer.

• Always ask why – if they call you, the caller shouldn’t be asking any personal questions, especially not bank details or passwords. Never give out any of this information.

January 16th, 2023 | Andrew Hagger | News

With wet weather causing flooding and damage across the UK, and more rain predicted this week, Go.Compare home insurance is urging Brits to prepare and protect their homes and cars. There are a combined 258 flood warnings and alerts in England* and 76 in Wales**, causing widespread disruption in parts of the UK.

Ceri McMillan, Go.Compare’s home insurance expert, said: “With over 300 flood alerts and warnings currently in place across the UK, it’s important to consider the safety of our homes and cars – and there are several ways you can prepare and protect yourself.

“Firstly, keep a list of important numbers you may need to call if you are affected by flooding, including emergency services, your local council, your GP, and your car and home insurance providers.

“Additionally, check your home insurance documents carefully to make sure your policy covers flood, wind and weather-related damage. You can’t assume that you will automatically be covered for a weather-related claim as individual insurers and their policies will vary as to whether storm damage is covered. For example, extreme weather is not deemed a general peril for contents insurance.

“Before setting out on any car journeys, check for known flooding or obstacles on your routes, and only go ahead with your trip if it is safe to do so. If you encounter any flooding on the roads while driving, do not drive into it as you could get stuck.

“Putting together an emergency flood kit is also a good idea – include a first aid kit, essential medicines, a battery powered torch and radio, plus copies of your insurance documents, along with warm clothing, blankets, bottled water and snacks. Keep this kit in your car, and somewhere easily accessible at home, too.

“You may need to shut off your electricity, water or gas supply in the event of a flood – so make sure you know where your breakers and meters are located.

“If you think your local area is at risk of flooding, make sure to think carefully about where your car is parked – avoid valleys and ditches if possible as these will be the first to flood. At home, think about where your valuables are stored, moving them to a safe place if necessary.

“To reduce the risk of your home flooding, make sure all drains are maintained well – remove any leaves or debris and keep them clear. Clean gutters too, particularly in autumn and winter, when fallen leaves are more likely to cause blockages.

“If you do suffer flooding damage at home, make sure you record the time and date it occurred. Having these details to hand, along with photos or a video of the damage, will help you if you need to make a claim. We always recommend you pass on all the relevant information to your insurer as soon as possible after the damage occurs,” Ceri added.

Go.Compare has put together a practical checklist for prepping ahead of wet and extreme weather:

• Check your insurance – does your policy cover weather damage?
• Make sure you replace any cracked windows, fix any leaks and repair/replace any damaged sections of guttering
• Keep a list of emergency contact numbers, including your GP, insurance providers and local councils
• Keep a supply of sandbags in case they are needed
• Ensure pets are microchipped, and consider where you can safely send them if you need to evacuate your home
• If you know bad weather is on the way, walk around the inside and outside of your property and check to see if there’s anything that could be damaged or washed away.

Read Go.Compare’s guide to flooding and home insurance: https://www.gocompare.com/home-insurance/flooding-and-home-insurance/

January 3rd, 2023 | Andrew Hagger | News

1. Work out ‘your’ financial plan for retirement

Your expenses are likely to change in retirement, so work out what you think you will need to meet your day-to-day living expenses (such as household bills) and discretionary expenditure (such as holidays and hobbies).  Your current outgoings are a good place to start when working this out, but make sure you take rising prices on food and energy etc. into account.

It’s then a good idea to work out the value of all your savings and investments including pensions. You should bear in mind the impact of inflation on these. For example, those with a defined benefit scheme are likely to have some inflation protection, although often this is limited to between 2.5% and 5%.  Also, as announced in the Autumn Statement, the pensions ‘triple lock’ has been re-instated, meaning that the State Pension will now rise in April 2023 by 10.1%.

2. Can you afford to retire?

Do you have enough put aside to be able to afford to retire or do you need to work a little longer, or perhaps work part-time? Many people may be questioning this right now, especially if their pension has fallen in value due to market volatility. According to the Pensions and Lifetime Savings Association (PLSA), a single person will need about £11,000 a year to achieve the minimum standard of living (this would cover all a retiree’s needs plus enough for some leisure activities such as a week’s holiday in the UK and eating out occasionally); £21,000 a year for a moderate standard of living (a two-week holiday in Europe and more frequent eating out); and £34,000 a year for a comfortable standard of living (this would cover all a retiree’s needs plus two foreign holidays a year and some luxuries such as regular beauty treatments). For couples, it’s £17,000, £31,000 and £50,000, respectively.

When doing your sums, don’t forget to consider how long you think you will live as research has found that most people live longer than they expect. The Office for National Statistics (ONS)[1] estimates that average life expectancy in the UK for people aged 65 will be 85 years for men and 87 years for women.

Also, keep in mind that when you retire, you are likely to be paying less income tax, no National Insurance (NI), mortgages and loans may be paid off, you will have no more pension contributions, and any children are likely to be financially independent.  With these reductions in costs, the income you need in retirement is likely to be significantly less than you require during your working life.

3. Pensions are not the only source of income in retirement

The higher cost of living, as well as stock market volatility, means now may not be the best time to start taking money out of your pension. There are many assets such as cash ISAs and general cash savings, which can be used as sources of income instead of your pension.

4. Consider delaying retirement or working part time

If you are worried about the value of your pension falling due to market volatility, you need to give your pension time to recover, so it may be worth delaying retirement if this is an option for you. You might want to consider making further pension contributions to boost your pot and take advantage of tax relief while you can. In fact, hundreds of thousands of retired people are actually considering returning to work as rising cost of living has derailed their retirement plans. However, if someone has already made withdrawals from their pension other than the tax-free lump sum, something called the ‘Money Purchase Annual Allowance’ kicks in, which limits the amount that can be paid into a pension to £4,000 a year.

5. Don’t pay unnecessary tax

Usually, only the first 25% of a defined contribution (DC) pension is tax free (the calculation for a defined benefit scheme will be different); the remaining 75% is taxed as earned income. Unfortunately, in recent years many people have found themselves paying more tax than they need to. For example, some people have taken their pension as a cash lump sum, not realising that it made them a higher rate tax payer! You may be better off taking a smaller amount each year from your pension, keeping within your tax bracket, and then to top it up with withdrawals from your ISA, as this is paid tax free.

6. Shop around

Make sure that you shop around before you purchase any retirement products. Which?[2] found that the difference in growth between the cheapest and most expensive drawdown plans for a £260,000 pot (the average pot value) was nearly £18,000 over a 20-year period. It is important to not only check charging structures, but make sure it suits your needs, and that you can withdraw cash as and when you want it, and for as long as you need it.

7.  Regulated financial advice can support you through retirement

Increasing numbers are accessing their pension through income drawdown. There are many benefits to this, but it can be a daunting prospect to manage your own finances in retirement, especially during turbulent times. Also the Pensions Policy Institute (PPI) research[3] has found that cognitive decline during retirement may make it more difficult for some people to make appropriate decisions about how to access their savings in their older years.

Regulated financial advice can be a solution to this and may actually cost the same, if not less than buying retirement products, such as annuities, through online brokers. It can also be seen as an investment as an Adviser will look at all of your assets, work out the most tax efficient way for you to fund your retirement and then put a bespoke plan in place for you, which will support you throughout retirement.

8. Protect yourself from scams

The strain on household finances caused by the cost of living crisis could mean that some individuals are more vulnerable than ever this year. In fact, almost a quarter (22%) of UK adults have reported being approached by scammers offering free pension advice or a free pension review, investment opportunities, or a tax refund between March and May this year.

New regulations came into force in November 2021 which means suspicious transfers can be stopped from ending up in the hands of a fraudster, as pension trustees and scheme managers now have new powers to intervene, but you still need to be on your guard. Whatever you’re planning to do with your retirement savings, it’s vital to check whether the company that you’re planning to use is registered with the Financial Conduct Authority (FCA) https://register.fca.org.uk/. You can also visit the FCA’s ScamSmart website which includes a warning list of companies operating without authorisation or running scams www.fca.org.uk/scamsmart.

Jonathan Watts-Lay, Director at WEALTH at work, comments; “If you are due to retire soon, the rising cost of living is understandably concerning.

When deciding on the right course of action for you, make sure you work out how much you are actually going to need, how much you have saved for your retirement and if it’s going to be enough. If not, it’s important to have a clear idea of how much more you need to save, and whether delaying retirement is an option.”

He adds; “Some workplaces may provide financial education or guidance through financial coaches to help with this. If you’re over 50, you can also speak to Pension Wise for a free appointment to talk about your pension options.

Also, probably one of the most important decisions you could make is to engage with a regulated financial adviser who can take your personal situation and objectives into account and come up with a sensible plan. You may find that regulated financial advisers can be accessed via your employer or pension scheme so this is a good place to start.”