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Whilst the last few months have been unusual for many businesses, there are key dates that still need to be penned into diaries of business owners to ensure they stay on track and meet financial commitments.

Business is gradually getting back to normal and there is government support available for many businesses that are struggling with the impact of the coronavirus lockdown. Understanding the key dates and what help is out there can help keep firms on track during 2020 whilst uncertainty continues for many.

If you’re a business owner, here are six dates to consider when measuring cash reserves, planning the coming months and seeking support.

1. Corporation Tax payment

With most businesses having December or March tax year ends, the upcoming Corporation Tax payment will be based on earnings before the coronavirus pandemic took hold. As a result, the tax bill may be larger in proportion to current cashflow if capital has been depleted in recent months.

If you work to a December year-end, Corporation Tax payment will be due on October 1 2020, moving to January 1 2021, if your year-end was in March.

2. VAT payment

If your business pays VAT quarterly, like the majority of business in the UK, the next due date is November 7, covering the third quarter. With many businesses expecting to get back to normal working operations over the summer months, it’s important to plan for your next VAT payment when assessing cashflow and capital in the coming months.

The government previously announced that VAT payments due between March and June could be deferred in a bid to help businesses manage cashflow during the worst of the lockdown restrictions. If this is an option that you took, your next VAT payment may be higher than usual if you choose to repay the deferred amount. However, you do have until 31 March 2021 to make this payment.

3. Income Tax payment

On 31 January 2021, income tax payment is due, which may affect business owners taking an income from the business. On this date, the tax liability for income earned during the 2019/20 tax year will be due. As a result, it may be significantly higher than your earnings over the previous 12 months if operations were affected by coronavirus. Some business owners may have found they’ve dipped into savings allocated to income tax amid stagnant cashflow too. Being aware of the date in January can help build up the sum you need to pay.

If you choose to defer an income tax bill due on 31 July 2020, this will now also be due on 31 January 2021.

For businesses and owners that will struggle to pay the next income tax payment due to the effect of lockdown, there may be an option to discuss a Time to Pay arrangement with HMRC. This doesn’t clear the amount owed but can spread out the cost.

4. Delayed VAT payment

As mentioned above, businesses did have the option to delay making VAT payments amid the coronavirus crisis. If this is an option you took advantage of, the deferred VAT payment must be made by 31 March 2021. At a time when you may have other financial commitments, it’s important to keep this additional payment in mind.

Hopefully, as lockdown restrictions begin to ease, the majority of businesses will be able to get back to ‘normal’ in the coming weeks, setting them on the right track to meet repayments next year.

5. Start of repayments for coronavirus loan schemes 

The government introduced several schemes designed to help business during the uncertainty of the pandemic. These included the Coronavirus Interruption Loan Scheme and the Bounce Back Loan Scheme. These offered favourable lending terms to eligible businesses. If you’ve taken advantage of these schemes, it’s important to keep in mind when repayments will need to be made.

The Coronavirus Interruption Loan Scheme provides support to SMEs that lose revenue due to coronavirus. Through the scheme, a lender can provide up to £5 million in the form of term loans, overdrafts, invoice finance and asset finance. The lending is backed by the government in order to encourage more lending. The government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied changes. As a result, interest payments may be due from April 1 2021.

The Bounce Back Loan Scheme gives the lender a full government-backed guarantee against the outstanding capital and interest. Businesses can borrow from £2,000 up to 25% of a business’ turnover, up to a maximum £50,000, over a six-year term. The borrower doesn’t have to make any repayments for the first 12 months, with the government paying the first 12 months of interest payments.

If your business has been affected by the lockdown restrictions, getting to grips with the finances now can help put you on the right path. Don’t delay seeking support if it’s needed. We’re also here to offer advice if your personal finances have been affected by Covid-19, please get in touch if you have any questions.

Men and women often take different approaches to financial issues, including investing. The market volatility experienced during the last few months as a result of the Covid-19 pandemic has highlighted some of these differences. But is one way ‘right’?

As governments around the world took action to stem the spread of coronavirus, stock markets reacted with increased volatility. Lockdowns and social distancing meant many businesses were forced to adjust how they operate and in some cases close altogether. As the virus was named a global pandemic, uncertainty for businesses and economies continued. As a result, it’s not surprising that stock markets experienced sharp falls.

Whilst some gains have since been made on stock markets, uncertainty and volatility continue to be a feature of investing.

The recent fluctuations have highlighted how men and women view investing and the risk it entails different. Research from Aegon has tracked how some investors have responded, with the three key areas demonstrating different approaches to investing.

1. Keeping an eye on stock market movements

The stock markets have been making attention-grabbing headlines in recent months. However, the survey suggests that men are far more likely to closely follow the movements. Seven in ten men kept track of what was happening in the stock markets, compared to half of women.

Whilst it’s important to understand the wider economic and business picture when investing, stock market movements can be unpredictable. Short-term volatility can also cloud the bigger picture. When investing, you should have a long-term goal in mind. It can be difficult to ignore short-term movements and focus on a goal that’s years away. Historically, peaks and troughs in stock market performance smooth out when you look at the long term and this is what you should focus on.

When looking at your portfolio as a whole, it’s unlikely stock market movements give a full picture of performance either. As well as stocks and shares, you may also be invested in bonds and property, as well as holding cash. As a result, whilst the stock markets may have fallen sharply in recent months, the impact on your portfolio may not be as severe.

2. Tracking investment performance

It’s important to keep track of how investments are performing, after all, how else will you know if you’re on track to meet goals?

However, there is such a thing as checking too often. It can be tempting, especially during times of market volatility, to check your investments frequently. Linking to the above point, this can lead to you focusing on short-term movements rather than a long-term goal.

The research suggested men are more likely to check how their investments have performed. More than half of men (55%) said they had done so compared to only 33% of women.

Reviewing your investments is clearly important, there may be times due to your circumstances or wider economic situation when adjustments are necessary. However, these changes should consider your goals above short-term shocks. If you’ve felt worried or nervous after checking your investment performance recently, it’s important to keep this in mind.

For most investors, sticking to a carefully crafted long-term investment strategy, which has been stress-tested, is the best course of action.

3. Believing now is the right time to invest

Should you invest now? It’s a question investors often ask their financial advisers. When stock markets dip, you may be wondering if you should invest now in order to maximise the benefit of investing when the market is at a bottom.

It’s a process that’s more likely to appeal to men, the research found. Some 46% of men said they believe now is the right time to invest in their pension, compared to 33% of women. It suggests that women are more averse to taking investment risk at times of volatility. So, which gender is ‘right’?

The truth is there’s no universally right time to invest. It depends on your financial goals and means. If you’re already contributing regularly to a pension, it’s likely in your best interests to keep making the contributions over your working career, including during times of volatility. But should you increase pension contributions now? That will depend on when you plan to retire, what assets you hold and risk profile among other factors.

The ‘right’ time to invest should be about your circumstances rather than stock market movements.

We’re here for you if you’d like to discuss your investment portfolio, whether you’re concerned about risk or looking for opportunities. Contact us to set up a meeting and look at your long-term investment goals.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

How much of your wealth do you hold in cash? Whilst it’s often viewed as the ‘safe’ option, there is a danger of your assets losing value in the long term and holding too much in cash too.

It’s easy to see why people choose to hold large sums in cash. As it’s something we handle every day, whether physically or digitally, it can seem more tangible than other assets. The Financial Services Compensation Scheme (FSCS) also protects up to £85,000 should a bank or building society fail per individual. The combination of these factors may mean you view cash as the most appropriate way to hold wealth.

However, cash does lose value and this is particularly true in the current low-interest climate.

Interest rates have been at a historic low for more than a decade following the 2008 financial crisis. The Bank of England has recently cut rates even further. In March, as it became apparent Covid-19 would have an economic impact, the central bank slashed the base interest rate to just 0.1%, the lowest level on record.

Whilst potentially good news for borrowers, the rate cut isn’t positive for savers. It means your savings likely aren’t going to deliver the returns they once were, especially if you compare the current rates to the pre-2008 ones. Before the financial crisis, you could expect to enjoy interest rates of around 5%.

At first glance, lower interest rates can seem frustrating but don’t mean there’s any need to change how you hold assets. After all, your money is secure and whilst it might not be growing very fast, it’s not going down, right? This is true if you’re just looking at the amount that’s in your account. However, in real terms, the value of your savings will be falling.

Inflation: Affecting the value of savings

The reason the value of cash savings falls in real terms is inflation. Each year the cost of living rises and if interest rates fail to keep pace with this, your savings are gradually able to purchase less and less.

The Consumer Price Inflation (CPI), one of the measures for calculating inflation, for April 2020 suggests the inflation rate was 0.9%. This figure was down on long-term averages due to coronavirus restrictions, however, it’s still higher than the base interest rate. As a result, the spending power of cash savings will have fallen.

Year-to-year, the impact of inflation can seem relatively small. Yet, when you look at the impact over a longer period, it highlights the danger of holding too much in cash.

Let’s say you placed £30,000 in a savings account in 2000. Following almost two decades of average inflation of 2.8% a year, your savings in 2019 would need to be £50,876.75 to boast the same spending power. With low-interest rates for more than half of this period, it’s unlikely a typical savings account would help you bridge this gap.

When is cash right?

Whilst inflation does affect the spending power of cash savings, there are times when it’s appropriate.

If you need ready access to savings cash accounts are often suitable, for example, if you have an emergency fund. When you’re saving for short-term goals (those less than five years), a savings account should also be considered. Over short saving periods, inflation won’t have as much of an impact and can preserve your wealth for when you need it.

However, when setting money aside for long-term goals, investing may be a better option that’s worth considering.

Investing: When should it be considered?

Investing savings means you have an opportunity to beat the pace of inflation with returns, therefore, preserving or growing your spending power.

However, investment returns can’t be guaranteed and short-term volatility can reduce values. For this reason, investing as an alternative to cash should only be considered if your goals are more than five years away. This provides an opportunity for investments to recover from potential dips in the market.

If you’d like to talk to one of our financial planners about the balance of your assets, please contact us. Our goal is to align aspirations with financial decisions, helping you to strike the right balance.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

When you begin making a financial plan, you could be looking several decades ahead, and we all know the unexpected can derail even the best-laid plans. So, as you’re setting out goals, it’s not uncommon to wonder if you’d still be able to meet them if things outside of your control have an impact.

When you start putting together a financial plan one of the valuable tools that can put your mind at ease is cashflow planning.

What is cashflow planning?

Cashflow planning is a tool that helps forecast how your wealth will change over time. We can use this to show how your assets will change in value in a range of circumstances, such as average investment performance or income withdrawn from a pension. It’s a step that can help you have confidence in the lifestyle and financial decisions you make.

However, the variables can be changed to highlight the impact of what would happen if things don’t quite go according to plan. Whether it’s down to a decision you make or something out of your control, cashflow planning can highlight the short, medium and long-term consequences on your finances and goals. As a result, it can be a useful way of answering ‘what if’ questions that may be causing concern.

Answering ‘what if’ questions

If you’re asking ‘what if’ questions relating to your financial plan, they can be split into two categories: the ones you have control over and those that you don’t.

Those that you do have control over often stem from wanting to take a certain action but being unsure if your finances match your plans. These types of questions could include:

  • What if I retire 10 years early?
  • What if I provide a financial gift to children or grandchildren?
  • What if I take a lump sum from investments to fund a once in a lifetime experience?

Often with these questions, there’s something you want to do, or at least thinking about, but you’re hesitant to do so because you’re worried about the long-term impact. You may need to consider the effects decades from now, which can be challenging. Cashflow planning can help provide a visual representation of the impact a decision would have.

We often find that clients’ finances are in better shape than they believe, allowing them to move forward with plans with confidence.

The second type of ‘what if’ questions, those you don’t have control over, often stem from worries about the future. These could include:

  • What if investments returns are lower than expected?
  • What if I passed away, would my partner be financially secure?
  • What if I needed care in my later years?

Cashflow modelling can help you understand how these scenarios would have an impact on your short, medium and long-term goals. It can highlight that you already have the necessary measures in place, allowing you to focus on meeting goals.

Alternatively, you may find there’s a ‘gap’ in your financial plan. However, by identifying this, you’re in a position to take steps to put a safety net in place. If you’re worried about the financial security of loved ones if you were to pass away, for example, this could include purchasing a joint Annuity, providing a partner with a guaranteed income for life, or taking out a life insurance policy.

Confronting concerns about your future can be difficult, but it’s a step that can lead to a more robust financial plan that you have complete confidence in.

The limitations of cashflow planning

Whilst cashflow planning can be incredibly useful, there are limitations to weigh up too.

First of all, how useful the forecasts are will be dependent on the data that’s input. This is why it’s important to consider assets and goals when gathering information, as well as keeping the data up to date.

Second, cashflow planning will have to make certain assumptions. This may include your income over an extended period or investment performance, which can’t be guaranteed. This is combatted by modelling different scenarios and stress testing plans, helping to give you an idea of how your financial plan would perform under different conditions.

Cashflow modelling is just one of the tools that can support your financial plans and it can be an incredibly useful way of giving you a potential snapshot of the future and easing concerns. If you’d like to discuss your aspirations and the steps you could take to ensure you’re on the right track, please get in touch.

You may have seen recent headlines about the possibility of the pensions triple lock being scrapped in the near future. Whilst Boris Johnson has committed to honouring it, it’s still important to understand what it means and why it’s important for your retirement plans.

What is the pension triple lock?

The pension triple lock refers to the guarantee that the State Pension will increase each year. This was introduced in 2010 by the then Conservative-Liberal Democrat government.

Since the introduction, the State Pension has increased each year by whichever is highest out of the below three measures, hence the term ‘triple lock’:

  • Annual price inflation in September
  • Average earnings growth as of July
  • 2.5%

As a result, retirees over the last decade have experienced their State Pension increasing by a minimum of 2.5% each tax year. In fact, in many cases, the State Pension has increased by more than 2.5%. The below chart highlights which measures have been used each year since 2012.

Tax year Measure Increase
2012/13 Price inflation 5.2%
2013/14 Guaranteed minimum 2.5%
2014/15 Price inflation 2.7%
2015/16 Guaranteed minimum 2.5%
2016/17 Earnings growth 2.9%
2017/18 Guaranteed minimum 2.5%
2018/19 Price inflation 3%
2019/20 Earnings growth 2.6%
2020/21 Earnings growth 3.9%

The triple lock guarantee helps to preserve income in real terms. As the cost of living rises, a static State Pension would struggle to support the same lifestyle over the medium and long term. Annual increases help to maintain income in line with rising costs. A look at annual price inflation doesn’t seem like it would have a large impact. But look at this over a 30-year retirement and the effect can be significant.

Let’s say you retired 30 years ago in 1990, when the single person State Pension was £46.90 per week, adding up to £2,438.80 per annum. An average rate of inflation of 2.9% a year would mean you’d need more than double (£5,583.14) in 2019 to maintain the same lifestyle, according to the Bank of England’s inflation calculator.

As a result, the triple lock guarantee is important for pensioners when planning their retirement.

Why was scrapping the triple lock guarantee being considered?

Just a decade after being brought in, there were suggestions that the triple lock guarantee could be scrapped.

In March, the government unveiled a package of measures designed to support businesses and individuals through the Covid-19 pandemic. Many of these schemes have been extended through summer and autumn as the country still grapples with restrictions. These measures have been welcomed by many but have come at a cost. 

According to the Office for Budget Responsibility, the schemes to protect businesses have amounted to £103.6 billion of taxpayer support. This includes £39 billion for the Coronavirus Job Retention Scheme, in which the government covered a portion of furloughed workers pay, and £16 billion in additional spending on public services.

Whilst the coronavirus crisis isn’t over, the government is having to look at ways to recoup the billions spent.

A Treasury document dated May 5 and seen by the Telegraph suggests that scrapping the triple lock guarantee was one of the options being explored. Another suggestion put forward by think tank the Social Market Foundation, called for a double lock instead, removing the minimum 2.5% increase, to spread the cost of coronavirus between generations.

Fortunately for retirees, Boris Johnson confirmed he would honour the manifesto commitments relating to the triple lock when quizzed by the Commons Liaison Committee.

Protecting your retirement plans

Whilst safe for now, it’s important to note that the pension triple lock isn’t guaranteed throughout your retirement. The suggestion of scrapping it highlights why it’s important to review retirement plans and ensure a sustainable income stream that considers inflation.

As you enter retirement, your State Pension may be a relatively small part of your income. However, it provides a foundation to build on, delivering a reliable income. But you do need to keep in mind that changes can happen, which could have a negative effect on your plans. This is why it’s important to look at retirement finances as a whole. Understanding which sources are reliable and the steps taken to protect income from inflation as much as possible can help provide you with confidence that your finances will be sustainable throughout retirement.

If you’re worried about your long-term retirement finances, please get in touch. Using a range of tools, we aim to show our clients how their income could change over retirement and what it would mean for their plans. It means you’re in a position to take steps to protect income where necessary.

In the past, the majority of people saved for retirement over their working life, gave up work on a set date and used their pension savings to purchase an Annuity. However, as retirement lifestyles have changed, so to have the options you’re faced with as you approach the milestone. If you’re nearing retirement, you may be wondering if an Annuity or Flexi-Access Drawdown is the right option for you.

Since 2015, retirees have had more choice in how they access a Defined Contribution pension. If you want your pension to deliver a regular income, there are two main options – an Annuity or Flexi-Access Drawdown – to weigh up. So, what are they?

Annuity: An Annuity is a product you purchase using your pension savings. In return for the lump sum, you’ll receive a regular income that is guaranteed for life. In some cases, this can be linked to inflation, helping to maintain your spending power throughout retirement. As the income is guaranteed, an Annuity provides a sense of financial security but doesn’t offer flexibility.

Flexi-Access Drawdown: With this option, your pension savings will usually remain invested and you’re able to take a flexible income, increasing, decreasing or pausing withdrawals as needed. Flexi-Access Drawdown provides the flexibility that many modern retirees want. However, as savings remain invested they can be exposed to short-term volatility and individuals have to take responsibility for ensuring savings last for the rest of their life.

There are pros and cons to both options, and there’s no solution that suits everyone when considering which option should be used. It’s essential to think about your situation and goals at retirement and beyond when deciding.

It’s worth noting, that pension holders can choose both an Annuity and Flexi-Access Drawdown when accessing their pension. For example, you may decide to purchase an Annuity to create a base income that covers essential outgoings, then using Flexi-Access Drawdown to supplement it when needed. It’s important to strike the right balance and other options could affect your decision too, such as the ability to take a 25% tax-free lump sum.

5 questions to ask before accessing your pension

1. What reliable income will you have in retirement?

Having some guaranteed income in retirement can provide peace of mind and ensure essential outgoings are covered. But this doesn’t have to come from an Annuity. Other options may include the State Pension or a Defined Benefit pension.

Calculating your guaranteed income can help you decide if you need to build a reliable income stream or are in a position to invest your Defined Contribution pension savings throughout retirement. If you decide Flexi-Access Drawdown is an appropriate option for you, it’s a calculation that can also inform your investment risk profile.

2. What lifestyle do you want in retirement?

When we think of retirement planning, it’s often pensions and savings that spring to mind. However, the lifestyle you hope to achieve is just as important. Do you hope to spend more time on hobbies, with grandchildren or exploring new destinations, for instance? Thinking about where your income will go, from the big-ticket items to the day-to-day costs, can help you understand what income level you need.

3. Do you expect income needs to change throughout retirement?

The second question should give you an idea of how your income will change throughout retirement. Traditionally, retirees see higher levels of spending during the first few years before outgoings settled, with spending rising in later years again if care or support was needed.

However, your retirement goals may mean your retirement outgoings don’t follow this route. If you decide to take a phased approach to retirement, gradually reducing working hours, you may find that a lower income from pensions is required initially. Considering income needs at different points of retirement can help you see where flexibility can be useful.

4. Are you comfortable with investing?

Flexi-Access Drawdown has become a popular way for retirees to access their savings. There are benefits to the option but you should keep in mind that savings are invested. As a result, they will be exposed to some level of investment risk and may experience short-term volatility. Before choosing Flexi-Access Drawdown, it’s important to understand and be comfortable with the basics of investing.

Investment performance should also play a role in your withdrawal rate. During a period of downturn, it may be wise to reduce withdrawals to preserve long-term sustainability, for instance. This is an area financial advice can help with.

5. Do you have other assets to use in retirement?

Whilst pensions are probably among the most important retirement asset you have, other assets can be used to create an income too. Reviewing these, from investments to property, and understanding if they could provide an income too can help you decide how to access your pension.

We know that retirement planning involves many decisions that can have a long-term impact. We’re here to offer you support throughout, including assessing your options when accessing a pension. If you have any questions, please get in touch.

Please note: 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. Your pension income could also be affected by the 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.