Eastwood Financial Solutions http://www.eastwood-ifa.co.uk/wordpress Financial News from Eastwood Financial Solutions Thu, 09 Jan 2020 08:43:14 +0000 en-US hourly 1 https://wordpress.org/?v=4.7.11 Financial resolutions http://www.eastwood-ifa.co.uk/wordpress/financial-resolutions/ Thu, 09 Jan 2020 08:43:14 +0000 http://www.newsfin.co.uk/news/?p=2936 What does wealth look like to you?

Whether it’s stopping smoking, losing weight, eating more healthily or getting fitter, most of us have probably made at least one New Year’s resolution, but how many of us will actually go on to achieve it? We all have different financial goals and aspirations in life, yet these goals can often seem out of reach. In today’s complex financial environment, achieving your financial goals may not be that straightforward.

This is where financial planning is essential. Designed to help secure your financial future, a financial plan seeks to identify your financial goals, prioritise them and then outline the exact steps that you need to take to achieve your goals.

If your New Year’s resolutions include giving your financial plans an overhaul, here are our tips to help you create a robust financial plan for 2020 and beyond.

Be specific about your objectives
Any goal (let alone financial) without a clear objective is nothing more than a pipe dream, and this couldn’t be more true when setting financial goals.
It is often said that saving and investing are nothing more than deferred consumption. Therefore, you need to be crystal clear about why you are doing what you’re doing. This could be planning for your children’s education, your retirement, that dream holiday or a property purchase.

Once the objective is clear, it’s important to put a monetary value to that goal and the time frame you want to achieve it by. The important point is to list all of your goal objectives, however small they may be, that you foresee in the future and put a value to them.

Keep them realistic
It’s good to be an optimistic person, but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, being overly unrealistic can definitely impact on your chances of achieving them.

It’s important to keep your goals realistic, as it will help you stay the course and keep you motivated throughout your journey until you get to your destination.

Short, medium and long-term
Now you need to plan for where you want to get to, which will likely involve looking at how much you need to save and invest to achieve your goals. The approach towards achieving every financial goal will not be the same, which is why you need to divide your goals into short, medium and long-term time horizons.

As a rule of thumb, any financial goal which is due within a five-year period should be considered short-term. Medium-term goals are typically based on a five-year to ten-year time horizon, and over ten years these goals are classed as long-term.

This division of goals into short, medium and long-term will help in choosing the right savings and investments approach to help you achieve them, and it will also make them crystal clear. This will involve looking at what large purchases you expect to make, such as purchasing property or renovating your home, as well as considering the later stages of your life and when you’ll eventually retire.

Always account for inflation
It’s often said that inflation is taxation without legislation. Therefore, you need to account for inflation whenever you are putting a monetary value to a financial goal that is far away in the future. It’s important to know the inflation rate when you’re thinking about saving and investing, since it will make a big difference to whether or not you make a profit in real terms (after inflation).

In both 2008 and 2011, inflation climbed to over 5% – not good news for savers. So always account for inflation. You could use the ‘Rule of 72’ to determine, at a given inflation rate, how long it will take for your money to buy half of what it can buy today. The ‘Rule of 72’ is a method used in finance to quickly estimate the doubling or halving time through compound interest or inflation respectively. Simply divide 72 by the given interest rate, or inflation rate, to find the number of years in which you would double or halve your money.

Risk protection plays a vital role
It’s best to discuss your goals with those you’re closest to and make plans together so that you are well aligned. An evaluation of your assets, liabilities, incomings and outgoings will provide you with a starting point. You’ll be able to see clearly how you’re doing and may find areas you can improve on.
Risk protection plays a vital role in any financial plan as it helps protect you and your family from unexpected events.

Check you’re using all of your tax allowances
With tax rules subject to constant change, it’s essential that you regularly review your own and your family’s tax affairs and plan accordingly. Tax planning affects all facets of your financial affairs. You may be worried about the impact that rises in property values are having on gifts or Inheritance Tax, how best to dispose of shares in a business, or the most efficient way to pass on your estate.

Utilising your tax allowances and reliefs is an effective way of reducing your tax liability and making considerable savings over a lifetime. When it comes to taxes, there’s one certainty – you’ll pay more tax than you need to unless you plan. The UK tax system is complex, and its legislation often changes. So it’s more important than ever to be tax-efficient, particularly if you are in the top tax bracket, making sure you don’t pay any more tax than necessary.

Creating your comprehensive financial plan
Creating and implementing a comprehensive financial plan will help you develop a clear picture of your current financial situation by reviewing your income, assets and liabilities. Other elements to consider will typically include putting in place a Will to protect your family, thinking about how your family will manage without your income should you fall ill or die prematurely, or creating a more efficient tax strategy.

Identifying your retirement freedom options
Retirement is a time that many look forward to, where your hard-earned money should support you as you transition to the next stage of life. The number of options available at retirement has increased with changes to legislation, which have brought about pension freedoms over the years. The decisions you make regarding how you take your benefits may include tax-free cash, buying an annuity, drawing an income from your savings rather than pension fund, or a combination.

Beginning your retirement planning early gives you the best chance of making sure you have adequate funds to support your lifestyle. You may have several pension pots with different employers, as well as your own savings to withdraw from.

Monitoring and reviewing your financial plan
There is little point in setting goals and never returning to them. You should expect to make alterations as life changes. Set a formal yearly review at the very least to check you are on track to meeting your goals.

We will help you to monitor your plan, making adjustments as your goals, time frames or circumstances change. Discussing your goals with us will be highly beneficial, as we can provide an objective third-party view, as well as the expertise to help advise you with financial planning issues.

ACCESSING PENSION BENEFITS EARLY MAY IMPACT ON LEVELS OF RETIREMENT INCOME AND YOUR ENTITLEMENT TO CERTAIN MEANS TESTED BENEFITS AND IS NOT SUITABLE FOR EVERYONE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

CRITICAL ILLNESS PLANS MAY NOT COVER ALL THE DEFINITIONS OF A CRITICAL ILLNESS. THE DEFINITIONS VARY BETWEEN PRODUCT PROVIDERS AND WILL BE DESCRIBED IN THE KEY FEATURES AND POLICY DOCUMENT IF YOU GO AHEAD WITH A PLAN.

THE PLAN WILL HAVE NO CASH IN VALUE AT ANY TIME AND WILL CEASE AT THE END OF THE TERM. IF PREMIUMS ARE NOT MAINTAINED, THEN COVER WILL LAPSE.

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Life is full of uncertainties http://www.eastwood-ifa.co.uk/wordpress/life-is-full-of-uncertainties/ Thu, 09 Jan 2020 08:42:25 +0000 http://www.newsfin.co.uk/news/?p=2934 If the worst were to happen, would your bills still get paid?

Everyone should consider protection, even those who don’t have a family or a mortgage! Unless they have substantial savings or inherited wealth, most people rely on their salary to pay for everything. Over the years, you may have taken out a number of different insurance policies to give you and your family financial security. Perhaps this may have been when you started a family, took out a mortgage or became self-employed.

These policies are designed to give your loved ones peace of mind by helping make sure there will be enough money in place to cover bills and other expenses should you become critically ill, be unable to work or even die.

Although state benefits provide some support, few families want to rely on the state to maintain their standard of living. It is therefore crucial to keep abreast of the level of your cover.

Time to review
Your personal circumstances and needs will almost certainly have changed over time. Perhaps you have children who have since flown the nest, or you’ve paid off your mortgage.

You may also be entitled to benefits with your current employer that either overlap with polices you already have or leave things now important to you not covered.
It could be time to review these policies, and the level of cover they provide, to make sure they are still suitable.

Life cover protection
Life cover protection is designed to protect your family and other people who may depend on you for financial support. It pays a death benefit to the beneficiary of the life assurance policy.

If you have dependents or outstanding debts such as a mortgage, at the very least it should ensure your family can keep their home, but ideally it would also provide an additional sum as a financial buffer at a difficult time.

There are different types of policy available, from ‘whole of life assurance’ which covers you for your entire lifetime, to ‘term assurance’ policies which provide life cover for a fixed period of time – 10 or 20 years, for example – and are often used in conjunction with a mortgage.

Income protection cover
If something happened to you, would you be able to survive on your savings or on sick pay provided by your employer? If not, you’ll need some other way to keep paying the bills.

Income protection cover is designed to give you protection if you can’t earn an income due to ill health, a sickness or disability. These policies protect a portion of your salary, typically paying out between 50–70% of your income. You receive monthly, tax-free payments that cover some of your lost earnings if you are unable to work.
They are vital policies for those with dependents and liabilities, paying out until you can start working again, or until you retire, die or the end of the policy term – whichever is sooner. They cover most illnesses that leave you unable to work, and you can claim as many times as you need to while the policy lasts.

Critical illness cover
If you are diagnosed with a critical illness, it can have a severe impact on your finances, as you may need to take time off work for your treatment and recovery. Critical illness cover pays out a tax-free lump sum if you’re diagnosed with, or undergo surgery for, a specified critical illness that meets the policy definition.

It’s designed to help support you and your family financially while you deal with your diagnosis, so you can focus on your recovery without worrying about how the bills will be paid.

Each policy will have its own list of specified conditions it covers, and it is vital to familiarise yourself with the full list and when you can claim for these illnesses before you apply.

Family income benefit cover
Family income benefit is a term insurance which lasts for a set period of time. If something were to happen to you, you would want to be sure your family is taken care of when you’re gone.

The policy will pay out a monthly, tax-free income to your family if you die during the term, until the policy ends. So, if you take a 20-year family income benefit policy and die after five years, it will continue to pay out for another 15 years.

There is no cash in value, so if you stop making premium payments, your cover will end.

Private medical insurance
Private medical insurance will pay for the cost of private healthcare treatment if you are sick or injured. If you don’t already have it as part of your employee benefits package, and you can afford to pay the premiums, you might decide it’s worth paying extra to have more choice over your care.

It gives you a choice in the level of care you get and how and when it is provided. Basic private medical insurance usually picks up the costs of most in-patient treatments (tests and surgery) and day-care surgery.

Some policies extend to out-patient treatments (such as specialists and consultants) and might pay you a small fixed amount for each night you spend in an NHS hospital. Premiums are paid monthly or annually, but most policies do not cover pre-existing conditions.

THE PLAN WILL HAVE NO CASH IN VALUE AT ANY TIME AND WILL CEASE AT THE END OF THE TERM. IF PREMIUMS ARE NOT MAINTAINED, THEN COVER WILL LAPSE.

CRITICAL ILLNESS PLANS MAY NOT COVER ALL THE DEFINITIONS OF A CRITICAL ILLNESS. THE DEFINITIONS VARY BETWEEN PRODUCT PROVIDERS AND WILL BE DESCRIBED IN THE KEY FEATURES AND POLICY DOCUMENT IF YOU GO AHEAD WITH A PLAN.

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Tax-efficient investing http://www.eastwood-ifa.co.uk/wordpress/tax-efficient-investing/ Thu, 09 Jan 2020 08:41:57 +0000 http://www.newsfin.co.uk/news/?p=2932 Legitimate ways for higher earners to reduce a tax bill

Without a carefully developed tax planning strategy, higher-rate taxpayers run the risk of missing out on key tax benefits and paying more in taxes than necessary. A higher tax liability can diminish the value of your investment earnings over the long term.

To start with, it’s important to look at how you might be able to minimise tax along the way. In other words, reduce tax where you can, but don’t allow it to be your sole driver when making investing decisions or steer you away from achieving your core financial goals. The more tax wrappers and annual allowances you use, the more money you’ll be able to save and invest for your future.

Where can you turn if you want to invest tax-efficiently?

Individual Savings Accounts (ISAs)
One of the most straightforward ways to invest tax-efficiently in the UK is to invest within a Stocks & Shares ISA. They are very flexible and allow you to access your money at any time, and all of the proceeds taken are free from tax on capital gains, dividend income and interest.

The current annual ISA allowance is £20,000 per person. This means that a couple can now save £40,000 per tax year between them into two Stocks & Shares ISAs, sheltering a significant sum from tax.

Once higher-rate taxpayers have used up their own ISA allowances, they could also consider investing for their children or grandchildren by putting money into a Junior ISA. Currently, the annual allowance for Junior ISAs is £4,368, and each child can own one as long as they are under 18, living in the UK and they don’t have a Child Trust Fund. Bear in mind, however, that on the child’s 18th birthday, money in a Junior ISA becomes theirs.

Pensions
Contributing into a pension is another tax-efficient strategy that those on higher incomes may wish to consider. Not only are capital gains and investment income tax-free within pension accounts, but when you contribute into a pension, the Government provides tax relief.

This is paid on your pension contributions at the highest rate of Income Tax you pay, meaning that higher-rate taxpayers receive 40% tax relief, while additional-rate taxpayers receive 45% tax relief.

For 2019/20, the annual pension contribution limit for tax relief purposes is 100% of your salary or £40,000, whichever is lower. If you are considered to be a high-income individual and have an adjusted income of more than £150,000 per year, and a threshold income of more than £110,000 per year, your annual allowance will be tapered.
You may be able to make use of any annual allowance that you have not used in the three previous tax years under pension carry forward rules.

Higher earners should also be aware of the Lifetime Allowance – the total amount of money you can build up in your pension accounts while still enjoying the full tax benefits.

Venture capital schemes
The purpose of the venture capital schemes is to provide funding for companies that are in the relatively early stage of the business cycle. Experienced investors who are comfortable with high levels of risk may want to consider venture capital schemes.
There are three investment schemes that have been set up by the UK Government and offer very generous tax breaks.

The Enterprise Investment Scheme (EIS)
This scheme is designed to encourage investment into early-stage companies that are not listed on a stock exchange. It offers investors a range of tax breaks, including Income Tax relief of 30%, no Capital Gains Tax on gains realised on the disposal of EIS investments provided the investments are held for three years, Capital Gains Tax deferrals if proceeds are invested in qualifying EIS investments, and Inheritance Tax relief if the investments are held for two years.

The Seed Enterprise Investment Scheme (SEIS)
This scheme is designed to promote investment into start-up companies that are raising their first £150,000 in external equity capital. Like the EIS, it offers a range of generous tax breaks, including Income Tax relief of 50%, no Capital Gains Tax on gains realised on the disposal of SEIS investments provided the shares are held for three years, reinvestment tax relief, and Inheritance Tax relief if investments are held for two years.

Venture Capital Trusts (VCTs)
VCTs are investment companies that are listed on the London Stock Exchange and invest in smaller companies that meet certain criteria. VCTs offer investors a range of tax breaks including 30% Income Tax relief, tax-free dividends and tax-free growth.

While all of these schemes offer generous tax breaks, it’s important to be aware that due to the high-risk nature of investing in small, early-stage companies, they will not be suitable for everyone. Only those who can afford to take the risk should consider these tax-efficient investment schemes.

Tax-efficient investing strategies to consider
Whether it is through sophisticated tax planning, pension planning or investment advice, we can help you to take a close look at your financial situation and recommend solutions tailored entirely to your needs. To discuss your requirements, please contact us.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

TAX RULES ARE COMPLICATED, SO YOU SHOULD ALWAYS OBTAIN PROFESSIONAL ADVICE.

A PENSION IS A LONG-TERM INVESTMENT.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

ACCESSING PENSION BENEFITS EARLY MAY IMPACT ON LEVELS OF RETIREMENT INCOME AND IS NOT SUITABLE FOR EVERYONE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

THE TAX BENEFITS RELATING TO ISA INVESTMENTS MAY NOT BE MAINTAINED.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

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Estate protection http://www.eastwood-ifa.co.uk/wordpress/estate-protection-3/ Thu, 09 Jan 2020 08:41:27 +0000 http://www.newsfin.co.uk/news/?p=2930 Preserving your wealth and transferring it effectively

Estate planning is an important part of wealth management, no matter how much wealth you have built up. It’s the process of making a plan for how your assets will be distributed upon your death or incapacitation.

As a nation, we are reluctant to talk about inheritance. Through estate planning, however, you can ensure your assets are given to the people and organisations you care about, and you can also take steps to minimise the impact of taxes and other costs on your estate.

In order to establish the value of your estate, it is first necessary to calculate the total worth of all your assets. No matter how large or how modest, your estate is comprised of everything you own, including your home, cars, other properties, savings and investments, life insurance (if not written in an appropriate trust), furniture, jewellery, works of art, and any other personal possessions.

Having an effective estate plan in place will not only help to ensure that those you care about the most will be taken care of when you’re no longer around, but it can also help minimise Inheritance Tax (IHT) liabilities and ensure that assets are transferred in an orderly manner.

Write a Will
The reason to make a Will is to control how your estate is divided – but it isn’t just about money. Your Will is also the document in which you appoint guardians to look after your children or your dependents. Almost half (44%) of over-55s have not made a Will[1], and as such, they will not have any say in what happens to their assets when they die.

Should you die without a valid Will, you will have died intestate. In these cases, your assets are distributed according to the Intestacy Rules in a set order laid down by law. This order may not reflect your wishes.

Even for those who are married or in a registered civil partnership, dying without leaving a Will may mean that your spouse or registered civil partner does not inherit the whole of your estate. Remember: life and circumstances change over time, and your Will should reflect those changes – so keep it updated.

Make a Lasting Power of Attorney
Increasingly, more people in the UK are using legal instruments that ensure their affairs are looked after when they become incapable of looking after their finances or making decisions about their health and welfare.

By arranging a Lasting Power of Attorney, you are officially naming someone to have the power to take care of your property, your financial affairs, and your health and welfare if you suffer an incapacitating illness or injury.

Plan for Inheritance Tax
IHT is calculated based on the value of the property, money and possessions of someone who has died if the total value of their assets exceeds £325,000, or £650,000 if they’re married or widowed. If you plan ahead, it is usually possible to pass on more of your wealth to your chosen beneficiaries and to pay less IHT.

Since April 2017, an additional main residence nil-rate band allowance was phased in. It is currently worth £150,000, but it will rise to £175,000 per person by April this year. However, not everyone will be able to benefit from the new allowance, as you can only use it if you are passing your home to your children, grandchildren or any other lineal descendant. If you don’t have any direct descendants, you won’t qualify for the allowance.

The headline rate of IHT is 40%, though there are various exemptions, allowances and reliefs that mean that the effective rate paid on estates is usually lower. Those leaving some of their estate to registered charities can qualify for a reduced headline rate of 36% on the part of the estate they leave to family and friends.

Gift assets while you’re alive
One thing that’s important to remember when developing an estate plan is that the process isn’t just about passing on your assets when you die. It’s also about analysing your finances now and potentially making the most of your assets while you are still alive. By gifting assets to younger generations while you’re still around, you could enjoy seeing the assets put to good use, while simultaneously reducing your IHT bill.

Make use of gift allowances
One way to pass on wealth tax-efficiently is to take advantage of gift allowances that are in place. Every person is allowed to make an IHT-free gift of up to £3,000 in any tax year, and this allowance can be carried forward one year if you don’t use up all your allowance.

This means you and your partner could gift your children or grandchildren £6,000 this year (or £12,000 if your previous year’s allowances weren’t used up) and that gift won’t incur IHT. You can continue to make this gift annually.

You are able to make small gifts of up to £250 per year to anyone you like. There is no limit to the number of recipients in one tax year, and these small gifts will also be IHT-free provided you have made no other gifts to that person during the tax year.

A Potentially Exempt Transfer (PET) enables you to make gifts of unlimited value which will become exempt from Inheritance Tax if you survive for a period of seven years.
Gifts that are made out of surplus income can also be free of IHT, as long as detailed records are maintained.

IHT-exempt assets
There are a number of specialist asset classes that are exempt to IHT. Several of these exemptions stem from government efforts over the years to protect farms and businesses from large Inheritance Tax bills that could result in assets having to be sold off when they were passed down to the next generation.

Business relief (BR) acts to protect business owners from IHT on their business assets. It extends to include the ownership of shares in any unlisted company. It also offers partial relief for those who own majority rights in listed companies, land, buildings or business machinery, or have such assets held in a trust.

Life insurance within a trust
A life insurance policy in trust is a legal arrangement that keeps a life insurance pay-out separate from the valuation of your estate after you die. By ring-fencing the proceeds from a life insurance policy by putting it in an appropriate trust, you could protect it from IHT.

The proceeds of a trust are typically overseen by a trustee(s) whom you appoint. These proceeds go to the people you’ve chosen, known as your ‘beneficiaries’. It’s the responsibility of the trustee(s) to make sure the money you’ve set aside goes to whom you want it to after you pass away.

Keep wealth within a pension
When you die, your pension funds may be inherited by your loved ones. But who inherits, and how much, is governed by complex rules. Money left in your pensions can be passed on to anyone you choose more tax-efficiently than ever, depending on the type of pension you have, by you nominating to whom you would like to leave your pension savings (your Will won’t do this for you) and your age when you die, before or after the age of 75.

Your pension is normally free of IHT, unlike many other investments. It is not part of your taxable estate. Keeping your pension wealth within your pension fund and passing it down to future generations can be very tax-efficient estate planning.

It combines IHT-free investment returns and potentially, for some beneficiaries, tax-free withdrawals. Remember that any money you take out of your pension becomes part of your estate and could be subject to IHT. This includes any of your tax-free cash allowance which you might not have spent. Also, older style pensions may be inside your estate for IHT.

Source data:
[1] Brewin Dolphin research: Opinium surveyed 5,000 UK adults online between 30 August and 5 September 2018.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS.

ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE RULES AROUND TRUSTS ARE COMPLICATED, SO YOU SHOULD ALWAYS OBTAIN PROFESSIONAL ADVICE.

THE VALUE OF INVESTMENTS AND THE INCOME THEY PRODUCE CAN FALL AS WELL AS RISE. YOU MAY GET BACK LESS THAN YOU INVESTED.


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Pension freedoms http://www.eastwood-ifa.co.uk/wordpress/pension-freedoms-7/ Thu, 09 Jan 2020 08:41:01 +0000 http://www.newsfin.co.uk/news/?p=2928 Retirees now have a whole host of new options

The pension freedoms, introduced on 6 April 2015, have given retirees a whole host of new options. There is no longer a compulsory requirement to purchase an annuity (a guaranteed income for life) when you retire. The introduction of pension freedoms brought about fundamental changes to the way we can access our pension savings.

There is now much greater flexibility around how you take your benefits from Money Purchase Pension (Defined Contribution) schemes, which include Self-Invested Personal Pensions (SIPPs).

How pensions can be taken has become dramatically relaxed
Since the rules governing how pensions can be taken have been dramatically relaxed, more people are using pension freedoms to access their retirement savings, but the amount they are individually withdrawing has continued to fall, according to the latest data from HM Revenue & Customs (HMRC).

Pension freedoms have given retirees considerable flexibility over how they draw an income or withdraw lump sums from their accumulated retirement savings. There is no doubt the pension freedoms have been hugely popular. Figures published on 30 October last year show that £30 billion[1] has been withdrawn by savers since the pension freedoms were introduced in 2015.

Average withdrawals have been falling steadily and consistently
The q
uarterly numbers from HMRC cover money that has been withdrawn flexibly from pensions. Members of defined contribution pension schemes can access their pension savings early, provided they have reached the normal minimum pension age (currently 55). The figures for the third quarter last year show that £2.4 billion was withdrawn from pensions flexibly – a 21% increase from £2 billion in the third quarter of 2018.

The average amount withdrawn per individual in the third quarter of 2019 was £7,250, falling by 5% from £7,600 in the third quarter of 2018. The Government says that since reporting became mandatory in 2016, average withdrawals have been falling steadily and consistently, with peaks in the second quarter of each year.

What are your retirement options to consider?

Leave your pension pot untouched for now and take the money later
It’s up to you when you take your money. You might have reached the normal retirement date under the scheme or received a pack from your pension provider, but that doesn’t mean you have to take the money now. If you delay taking your pension until a later date, your pot continues to grow tax-free, potentially providing more income once you access it. If you do not take your money, we can check the investments and charges under the contract.

Receive a guaranteed income (annuity)
You can use your whole pension pot, or part of it, to buy an annuity. It typically gives you a regular and guaranteed income. You can normally withdraw up to a quarter (25%) of your pot as a one-off tax-free lump sum, then convert the rest into an annuity, providing a taxable income for life. Some older policies may allow you to take more than 25% as tax-free cash – we can review this with your pension provider. There are different lifetime annuity options and features to choose from that affect how much income you would get.

Receive an adjustable income (flexi-access drawdown)
With this option, you can normally take up to 25% (a quarter) of your pension pot, or the amount you allocate for drawdown, as a tax-free lump sum, then re-invest the rest into funds designed to provide you with a regular taxable income. You set the income you want, though this might be adjusted periodically depending on the performance of your investments. Unlike with a lifetime annuity, your income isn’t guaranteed for life – so you need to manage your investments carefully.

Take cash in lump sums (drawdown)
How much of your money you take and when is up to you. You can use your existing pension pot to take cash as and when you need it and leave the rest untouched, where it can continue to grow tax-free. For each cash withdrawal, normally the first 25% (quarter) is tax-free, and the rest counts as taxable income. There might be charges each time you make a cash withdrawal and/or limits on how many withdrawals you can make each year. There are also tax implications to consider that we can discuss with you.

Cash in your whole pot in one go
You can do this, but there are important things you need to think about. There are clear tax implications if you withdraw all of your money from a pension. Taking your whole pot as cash could mean you end up with a large tax bill – for most people, it will be more tax-efficient to use one of the other options. Cashing in your pension pot will also not give you a secure retirement income.

Mix your options
You don’t have to choose one option. Instead, you can mix them over time or over your total pot when deciding how to access your pension. You can mix and match as you like, and take cash and income at different times to suit your needs. You can also keep saving into a pension if you wish, and get tax relief up to age 75. τ

Think carefully before making any choices
The pension flexibilities may have given retirees more options, but they’re also very complicated, and it’s important to think carefully before making any choices that you can’t undo in the future. Withdrawing unsustainable sums from your pensions could also dramatically increase the risk of running out of money in your retirement. To discuss your options, talk to us at a time that suits you.

Source data:
[1] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/841958/Pension_Flexibility_Statistics_Oct_2019.pdf

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

TAX RULES ARE COMPLICATED, SO YOU SHOULD ALWAYS OBTAIN PROFESSIONAL ADVICE.

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

ACCESSING PENSION BENEFITS EARLY MAY IMPACT ON LEVELS OF RETIREMENT INCOME AND YOUR ENTITLEMENT TO CERTAIN MEANS TESTED BENEFITS AND IS NOT SUITABLE FOR EVERYONE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.


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ISA returns of the year http://www.eastwood-ifa.co.uk/wordpress/isa-returns-of-the-year-3/ Thu, 09 Jan 2020 08:40:40 +0000 http://www.newsfin.co.uk/news/?p=2926 Time to explore your ISA options?

An Individual Savings Account (ISA) enables you to save in a simple, tax-efficient way, while generally giving you instant access to your money. This gives you short, medium and long-term saving options, and with the end of the current tax year not too far away, it’s important to make the most of your annual tax-free ISA allowance.

UK residents aged 16 or over can save up to £20,000 a year (for the 2019/20 tax year) into a Cash ISA. Those aged 18 or over can save in a Cash or Stocks & Shares ISA, or combination of ISAs.

Tax-efficient wrapper
ISAs are a very tax-efficient wrapper in which you can buy, hold and sell investments. For any ISA contributions to count for the current tax year, you must save or invest by 5 April.

Also, don’t forget that any unused ISA allowance can’t be rolled over into a subsequent tax year, so if you don’t use it, you’ve lost it forever. Even though you’ll receive a new allowance for the next tax year, you are not permitted to contribute anything towards a previous ISA.

Types of ISA options
• Cash ISAs – these are savings accounts that are tax-free, with the maximum allowable contribution set at £20,000 in the current tax year
• Junior ISAs – these are tax-free savings accounts in which under-18s can save or invest maximum contributions up to £4,368 in the current tax year
• Stocks & Shares ISAs – these are investments that are classed as tax-efficient, with the maximum allowable contribution set at £20,000 in the current tax year
• Innovative Finance ISAs – these are peer- to-peer lending investments that are classed as tax-efficient, with the maximum allowable contribution set at £20,000 in the current tax year. However, they are considered high risk, and it may not be possible to get your money out quickly. Some may not be protected by the Financial Services Compensation Scheme
• Lifetime ISAs – these can be either classed as savings (tax-free) or investments (tax-efficient). You must be aged between 18 to 39, and the maximum allowable contribution is set at £4,000 in the current tax year
• Help to Buy: ISAs – these were set up to help those saving for their first home and were only available to new savers until 30 November 2019. Existing savers can continue saving, although they must claim their government bonus by 1 December 2030.

Key elements
Goals, time horizon, risk and diversification are key elements to consider when saving and investing. You could put all the £20,000 into a Cash ISA, or invest it in a Stocks & Shares ISA or an Innovative Finance ISA. Alternatively, you could split your allowance between Cash ISAs, Stocks & Shares ISAs, Lifetime ISAs or Innovative Finance ISAs, depending on your specific situation and requirements.

If you are not sure what to invest in, you could temporarily hold your annual ISA allowance in cash in the short term and invest thereafter. However, cash is not good for the long term because inflation has the potential to erode its value.

Transfer investments
If you don’t have £20,000 in new money to invest, you could transfer investments outside a tax-efficient wrapper into an ISA.
ISAs can also be passed on death to a surviving spouse or registered civil partner. The surviving spouse is entitled to an additional, one-off ISA allowance, equal to the value of the deceased’s ISA holdings. This enables the surviving spouse to effectively re-shelter assets which were in a spouse’s ISA into an ISA in their own name.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE TAX BENEFITS RELATING TO ISA INVESTMENTS MAY NOT BE MAINTAINED.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

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Age is just a number http://www.eastwood-ifa.co.uk/wordpress/age-is-just-a-number/ Thu, 09 Jan 2020 08:40:17 +0000 http://www.newsfin.co.uk/news/?p=2924 What rising life expectancy could mean for you

We know that age is just a number, and for different people it means different things. It’s also a phrase used by some people who oppose age restrictions. In the UK, 65 years of age has traditionally been taken as the marker for the start of older age, most likely because it was the official retirement age for men and the age at which they could draw their State Pension.

No longer an official retirement age
In terms of working patterns, age 65 years as the start of older age is out of date. There is no longer an official retirement age, State Pension age is rising, and increasing numbers of people work past the age of 65 years.

People are also living longer, healthier lives according to the latest findings from the Office for National Statistics[1]. In 2018, a man aged 65 could expect to live for another 18.6 years, while a woman could expect to live for 21 more years. So, on average, at age 65 years, women still have a quarter of their lives left to live and men just over one fifth.

Start of older age has shifted
An important further consideration is that age 65 years is not directly comparable over time; someone aged 65 years today has different characteristics, particularly in terms of their health and life expectancy, than someone the same age a century ago.

In a number of respects, it could be argued that the start of older age has shifted, but how might this be determined? Should we just move the threshold on a few years – is age 70 really the new age 65? Or, might there be a better way of determining the start of older age?

Population projected to continue to age
At a population level, ageing is measured by an increase in the number and proportion of those aged 65 years and over and an increase in median age (the age at which half the population is younger and half older).

On both of these measures, the population has aged and is projected to continue to age. In 2018, there were 11.9 million residents in Great Britain aged 65 years and over, representing 18% of the total population. This compares with the middle of the 20th century (1950) when there were
5.3 million people of this age, accounting for 10.8% of the population.

Oldest old are the fastest-growing age group
Looking ahead to the middle of this century, there are projected to be 17.7 million people aged 65 years and over (24.8% of the population). The oldest old are the fastest-growing age group, with the numbers of those aged 85 years and over projected to double from 1.6 million in 2018 to 3.6 million by 2050 (5% of the population).
The balance of older and younger people in the population has also tipped more towards older people, reflected in a rising median age up from 34 years in 1950 to 40 years in 2018. By the middle of this century, it is projected that median age will reach 43 years.

Source data:
[1] Office for National Statistics – November 2019

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How prepared are you for retirement? http://www.eastwood-ifa.co.uk/wordpress/how-prepared-are-you-for-retirement/ Thu, 09 Jan 2020 08:39:54 +0000 http://www.newsfin.co.uk/news/?p=2922 Planning ahead helps ensure that you’re on track

You work hard to enjoy your current lifestyle, but are you doing enough to ensure that you will continue to enjoy it in retirement? Many of us live for today, but saving into a private pension plan can help you retire sooner rather than later.

The term ‘private pension’ covers both workplace pensions (also known as ‘occupational’ or ‘company’ schemes), arranged by your employer; and ‘personal pensions’, which you manage yourself. There is no restriction on how many pensions you can have, and some people will have both.

Am I still saving enough for retirement according to my current circumstances?
Private pensions, often referred to as ‘personal pensions’, provide a way for you to save for retirement so that you’ll have an income to supplement the amount you’ll receive from the State Pension.

They are generally ‘defined contribution’ plans, which means any payments you make are invested. The amount you end up with at retirement depends not only on how much you’ve paid in, but also on how your investments have performed and the level of charges. We can assess your current retirement goals and calculate the target level of income you’ll require to achieve them.

Don’t forget: if you have a workplace private pension, both you and your employer will make contributions, boosting the amount you end up with at retirement.

Can I rely on the State Pension to provide a substantial income in retirement?
The State Pension is a regular income paid by the UK Government to people who have reached State Pension age. The State Pension changed on 6 April 2016. If you reached the State Pension age on or after this date, you’ll now be getting the new State Pension under the new rules.

The new State Pension is designed to be simpler than the old system. The new scheme pays up to £168.60 a week (as of 2019/20). It’s possible you may receive more or less than this amount.

To receive £168.60, you must have a National Insurance (NI) contributions record for 35 years. If not, the amount you receive will be proportionate. If you have less than 10 years’ NI contributions, you won’t receive any State Pension. You can pay more to make up for any shortfall in your NI contribution record.

You may receive less if you opted out of the additional State Pension scheme, or ‘SERPS’. This scheme ended in April 2016. If you were in a pension scheme or personal pension plan before this date, this may apply to you.

If you were entitled to a higher pension under the previous State Pension scheme, you’ll still receive this. If you don’t claim your State Pension in the year you reach State Pension age, it will be increased when you do take it. For each year you delay, it increases by almost 5.8%.

The State Pension is unlikely to provide a substantial income in retirement. That’s where a private pension can make a big difference.

Am I making the most of pension tax relief?
One major benefit of contributing to a pension is the boost your contributions will receive from tax relief. Pension providers can claim basic-rate tax relief at 20% on behalf of savers. So for every £80 you contribute, £100 will be invested into your pension. You receive tax relief on private pension contributions worth up to 100% of your annual earnings.

Tax relief is paid on your pension contributions at the highest rate of Income Tax you pay. If you’re a higher or additional-rate taxpayer, you must claim back the additional 20% or 25% on top of the basic 20% via your self-assessment tax return. If you don’t claim it, you won’t receive it.

Tax relief in England, Wales or Northern Ireland:
• Basic-rate taxpayers get 20% pension tax relief
• Higher-rate taxpayers can claim 40% pension tax relief
• Additional-rate taxpayers can claim 45% pension tax relief

In Scotland, Income Tax is banded differently, and pension tax relief is applied in a slightly alternative way:
• Starter-rate taxpayers pay 19% Income Tax but get 20% pension tax relief
• Basic-rate taxpayers pay 20% Income Tax and get 20% pension tax relief
• Intermediate-rate taxpayers pay 21% Income Tax and can claim 21% pension tax relief
• Higher-rate taxpayers pay 41% Income Tax and can claim 41% pension tax relief
• Top-rate taxpayers pay 46% Income Tax and can claim 46% pension tax relief

How much more should I be saving for retirement?
Generally speaking, the more you save, the more you can expect to get back. You can choose to save as much as you can afford. If you want to, you could save up to 100% of your earnings into your pension each tax year. However, there’s an upper limit on the amount that you can save into pensions each tax year.

This is known as the ‘annual allowance’, which is currently £40,000 in the 2019/20 tax year. If you go over this amount, a 40% tax charge will apply. Obtaining professional financial advice will ensure that you are contributing the correct amounts based on your retirement goals.

Will there be limits on the value of payouts from my pensions?
The lifetime allowance is a limit on the value of payouts from your pension schemes – whether lump sums or retirement income – that can be made without triggering an extra tax charge.

But the regular contributions you and your employer make into pensions, plus the fact investments in pensions grow free of tax typically over a long time, can result in your pensions growing above the lifetime allowance.

The lifetime allowance for most people is £1,055,000 in the tax year 2019/20. It applies to the total of all the pensions you have, including the value of pensions promised through any defined benefit schemes you belong to, but excluding your State Pension. The standard lifetime allowance is indexed annually in line with the Consumer Prices Index (CPI).

Any amount over your lifetime allowance that you take as a lump sum is taxed at 55%, and any amount over your lifetime allowance that you take as a regular retirement income – for instance, by buying an annuity – attracts a lifetime allowance charge of 25%.

How can I make the most of my pension pot when I retire?
How long your pension pot lasts will depend on the choices you make. From age 55, there are three main ways you can take your money. You can take your tax-free money first, take a combination of tax-free and taxable money, or take a guaranteed income for life. You could also take a combination of these three, or simply do nothing at all.

Each of the main options usually allows you to take up to 25% of your pot tax-free. You might also need to pay tax on the remaining 75% of your pension pot, depending on your circumstances and the options you choose. Tax rules can also change in the future.

The ways to access your tax-free money, and the remainder of your pension pot, are very different on each of the options though.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

TAX RULES ARE COMPLICATED, SO YOU SHOULD ALWAYS OBTAIN PROFESSIONAL ADVICE.

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

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The big questions to ask before you retire http://www.eastwood-ifa.co.uk/wordpress/the-big-questions-to-ask-before-you-retire/ Thu, 09 Jan 2020 08:39:24 +0000 http://www.newsfin.co.uk/news/?p=2920 Are you on track to enjoy the retirement you want?

If you’re among the many older UK workers who will say farewell to full-time work in the next five years, now’s a good time to make sure you’re truly prepared. Whether you’re viewing the next phase of life as retirement, semi-retirement or an unknown adventure, it’s essential that you obtain professional financial advice. From age 55, you have the flexibility to choose how you take some or all of your money from your pension.

 

Looking towards your retirement and planning ahead will help ensure you’re on track for the financial future you want. And while some people might have been saving and planning for decades for retirement, others might be crossing their fingers or have yet to give real thought to their transition away from working.

Currently, once you reach 55, you can choose what you want to do with your pension pot, and you don’t need to stop work to access it. But just how much is enough? And how much should you try to save to have a comfortable retirement?

How much income will I need for my retirement?
Many people consider £39,773 as their ideal income in retirement, according to research[1]. This means that, after the State Pension of £8,767.20 per year is factored in, £31,005.80 per year is needed to reach this target.

With annuity rates at near historic lows, that means a pension pot of £668,000[2] could be needed to purchase a level of annuity that would produce this income.
It is important that you re-evaluate your preparedness on an ongoing basis. Changes in economic climate, inflation, achievable returns and in your personal situation will impact your plan.

What size of contributions should I make each month?
It’s hard to start a journey without knowing your destination. The first step is to set a retirement date and a desired level of income, and work backwards from there.
This way, you will see the size of contributions you need to make each month, and how close you will be able to get to your ideal income level.

You’ll need to think about how much money you would like to live on and how long it needs to last, especially as the age that you start getting the State Pension is increasing.

Are there other ways to save for my retirement?
It’s likely you’ll have heard the phrase ‘the sooner you start putting money aside for your retirement, the better’. However, even if you feel you’ve left it too late, you could still make a difference by taking action now.

There are other ways to save for your retirement. A pension is one of them, but you may be using your home as your long-term investment, or you could have other investments that you hope will perform to match your expectations in later life.

Pensions are a long-term investment, as the sooner you start putting money aside for your retirement, the better – even if you’re saving a small amount. They’re also a tax-efficient way of putting money aside.

Can I supplement my work pension with private savings?
Once you know your target pension amount, and what you need to pay each month to get there, you can then make your contributions into the recommended savings vehicles.
You’re likely to have a pension through your employer – that’s a good place to start, and it should be the bedrock for your other savings.

However, it may pay to supplement your occupational pension with private savings in an Individual Savings Account (ISA), which is highly tax-efficient and very flexible and can give you some more options when you arrive at the time you would like to retire. ISAs may allow you to retire slightly earlier, for example, while leaving your pension savings to continue to grow in the stock market.

Source data:
[1] Research conducted by Opinium Research amongst 5,000 UK adults between 30 August and 5 September 2018.

[2]: Source: iress The Exchange 12/9/2019; healthy life rates at age 65, no tax-free cash taken, single life, level, monthly in advance, no guarantee.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

TAX RULES ARE COMPLICATED, SO YOU SHOULD ALWAYS OBTAIN PROFESSIONAL ADVICE.

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

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Wealth uplift http://www.eastwood-ifa.co.uk/wordpress/wealth-uplift/ Thu, 09 Jan 2020 08:38:50 +0000 http://www.newsfin.co.uk/news/?p=2918 Calculating the value of financial advice

Quantifying the value of financial advice has always been a challenge because people who receive financial advice have different characteristics to those who do not. But what if it was now possible to quantify the value of financial advice and isolate a pure ‘advice effect’? This is exactly what the researchers at the International Longevity Centre – UK (ILC) have been able to calculate.

What it’s worth
The new research[1], ‘What it’s worth: Revisiting the value of financial advice’ from the ILC suggests that, holding other factors constant, those who received advice around the turn of the century were on average over £47,000 better off a decade later than those who did not.

This result comes from detailed analysis of the Government’s Wealth and Assets Survey, which has tracked the wealth of thousands of people over two yearly ‘waves’ since 2004 to 2006. The wealth uplift from advice comprises an extra £31,000 of pension wealth and over £16,000 extra in non-pension financial wealth.

Impact of taking advice
One of the key findings from the research is that the proportionate impact of taking advice is greater for those of more modest means. For the ‘affluent’ group identified in the research, the uplift from taking advice is an extra 24% in financial wealth compared with 35% for the non-affluent group. On pension wealth, the uplift is 11% for the affluent group compared with 24% for the non-affluent.

An important explanation for the improved outcomes for those who take advice is that they are more likely to invest in assets which offer greater returns (though with higher risk). Across the whole sample, the impact of taking advice is to add around eight percentage points to the probability of investing in equities.

Larger pension pots
The research also found that those who were still taking advice at the end of the period had pension pots on average 50% higher than those who had only taken advice at the beginning of the period. However, this result is not controlled for other differences in characteristics, so may at least in part reflect greater engagement by those who have larger pension pots.

International Longevity Centre Director, David Sinclair, commented: ‘The simple fact is that those who take advice are likely to be richer in retirement. But it is still the case that far too many people who take out investments and pensions do not use financial advice. And only a minority of the population has seen a financial adviser.’

Source data:
[1] ‘What it’s worth: Revisiting the value of financial advice’ was published on 28 November 2019 at http://www.ilcuk.org.uk and http://www.royallondon.com/policy-papers.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

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