Does your investment planning measure up?

We spend most of our lives saving, either for that rainy day or for retirement. This is for when we no longer have to work and can start relaxing, spending our savings and continuing to enjoy living.

By Keith Pressler, Taylor Patterson.

For most people the main savings plan will be their pension. Pensions have been in the spotlight more recently with the introduction of the workplace pension and the introduction of pension freedom and flexibility. These employer sponsored schemes enable individuals to contribute and receive personal tax relief and they also allow your employer to contribute. These are subject to minimum contribution levels, which will increase over the coming years.

The Government has imposed restrictions on the maximum amount that you can have within a pension scheme, this includes all pensions (defined benefit and defined contribution) added together, before you may have to pay a lifetime allowance charge (LTA). For further information on how you can protect against the LTA read our guide .

They have also restricted the amount that you are able to contribute each year, with new rules coming into effect from April’16 which will impact upon high earners, more details are available in our technical guide.

Pensions form an important part of an individual’s savings planning, which as highlighted do have some restrictions upon them. Most notably that you can only currently access your pension benefits form age 55, rising to 57 from 2028. Any income taken after payment of tax free cash, is subject to income tax at your marginal rate. Much depends on your existing pension plan and provider which will determine how you are able to access your pension benefits, as not all plans have the full freedom and flexibility choices that have recently been introduced. Taylor Patterson would suggest that you confirm this with your financial adviser / pension provider to ensure that your current pension plan allows you the choices that you require.

Aside from pensions, Taylor Patterson would always suggest taking out personal savings vehicles. The investments held personally, unlike pensions, can be accessed at any time. Should monies be required for special one-off occasions, or if you were considering early retirement before your pension becomes available, your personal savings could help fund your lifestyle until your pension commenced payment.

The main personal savings vehicles to consider are ISA’s, investment funds and investment bonds. ISA’s allow you to save £15,240 (16/17) increasing from (17/18) to £20,000 tax free each year. There is no tax relief on the investment, but there is also no tax paid on withdrawals, unlike pensions. You have the ability to take either a regular income or one-off withdrawals tax free, which can be aligned to your changing personal circumstances.

Since 6th April’15 the spouse/civil partner of a deceased ISA saver (who died on or after 03/12/14) has an additional ISA allowance equal to the value of the deceased’s ISA(s) at the date of death.

Investment funds are standalone investments which are not held inside any type of investment wrapper, such as an ISA, pension or investment bond. These investments allow you to utilise your annual capital gains tax allowance £11,100 (16/17) with regular or one-off withdrawals being taken. Should you not have the funds available to subscribe to an ISA, you could consider using investment funds to Bed & ISA, to ensure you don’t miss out on your ISA allowance!

Investment bonds can provide a tax deferred income stream. There is also the option of assigning the bond, say from a higher rate tax payer to a basic rate tax payer, allowing tax planning opportunities, as withdrawals can be stopped/started at any time.

There are many other different types of investment vehicles available for consideration as part of an individuals overall wider financial planning strategy.

However, whether the investment is made into a pension or personally, the underlying investment will be similar, just held in a different tax wrapper vehicle. Please refer to our Guide to Investing for what investors should consider. The key question to consider is does your savings planning measure up? Are you aware of how your investments are performing, investment savings need to be regularly reviewed and an active management service can help. Nobody likes paying tax, but there are opportunities available to plan accordingly and establish a strategic financial plan.