Why switching to a sustainable pension is the best thing you can do to tackle climate change

From ditching the car to recycling your waste, you probably take a range of steps to help protect the environment and our planet. As the world slowly moves towards sustainable, green energy, perhaps you want to do even more to help fight climate change?

You might think you’re doing everything you can to go green, but did you know that you can help the environment with your pension? By investing your pension into a sustainable, or ethical fund, you could significantly reduce your impact on the environment.

The Financial Times reports that a pension worth £100,000 invested in a sustainable fund could be the equivalent of taking five or six cars off the road a year.

Ethical pensions have recently risen in popularity, alongside many other funds with a focus on ESG principles. ESG stands for “environmental, social, and governance”, which cover some of the factors sustainable portfolios may consider, alongside financial factors, when making investment decisions. And investing through ESG funds doesn’t mean your investments will yield lower returns either.

Read on to find out more about sustainable pensions.

Switching to a green pension could be 57 times better for the environment than going vegan

With the power to tackle climate change by simply switching your pension, there’s no need to drastically overhaul your lifestyle.

As Pensions Age report, your pension pot alone could do more for the environment than 57 people switching to a vegan diet. In fact, a sustainable pension could be 21 times more effective than giving up flying, becoming vegetarian, and switching to a renewable energy provider combined.

They even claim that a sustainable pension could be 20 times better for the environment than switching to an electric car, which is already one of the other most effective methods of tackling climate change.

Euronews reports that transitioning an average-size pension pot (around £30,000) to a sustainable pension could reduce as much as 19 tonnes of carbon emissions a year.

If you have a pension pot of £100,000, you could be cutting as much as 64 tonnes of carbon emission each year. That is the equivalent of nine years’ worth of the average citizen’s carbon footprint.

A sustainable pension is a way to fund ideas you believe in

Which? states that there is an estimated £3 trillion in UK pensions that are used to fund everything from wind farms to essential government services. However, only 22% of pension holders know the types of company that their pension is invested in.

A sustainable pension avoids putting your investments into certain companies, depending on the policies of the specific fund you choose. For example, they may not invest in the assets of oil companies and instead invest in electric motors.

If you don’t like the thought of your money going towards tobacco producers, weapons manufacturers, or high-emission companies, a sustainable pension may be right for you.

From climate change, to education, and gender equality, there are plenty of options for your investment. After all, the main goal of an ESG pension is to represent the views of those invested in it.

A significant number of pension providers have announced their plans to make their default pension services have net-zero carbon emissions by 2050. For some providers, this is the goal with their entire portfolio.

Investing in a sustainable pension helps both your future, and the planet’s

One concern is that there is too much focus on sustainability instead of profitability. With more than 200 pension funds already being labelled as “sustainable”, do they really perform as well as those without such a strict focus?

The data suggests that yes, they do. Which? reported the findings of a Morningstar analysis, which found that three-quarters of ESG funds performed above average when compared with similar, standard funds.

They may also provide greater longevity and security, as 77% of ESG funds available from 2009 were still going in 2019. This is compared to just 46% of non-ESG funds.

The pressure of well-performing ESG funds is also encouraging firms to improve their pension policies. The more sustainable pensions that are made available, the more widespread the positive impact.

Sustainable pensions are a step forward

It is no doubt that sustainable pensions are a step forward. Switching to a sustainable pension is a great way to help support ideals that you believe in while also supporting yourself in later life.

A sustainable pension fund invests in the ideas you believe in. And, with the returns often just as positive as traditional pension funds, sustainable funds provide a beneficial alternative for pension contributors.

Are you interested in learning more about sustainable investments? We’re here to help you understand how ESG factors can be incorporated into your portfolio.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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.

Guide: Leaving an inheritance vs gifting during your lifetime

Have you thought about how you’ll pass wealth on to those who are important to you? Traditionally, this has been done through inheritance, but it’s becoming more common to gift during your lifetime.

Our latest guide explains why more families are choosing to gift during their lifetime and the pros and cons of each option. Whichever option you decide is right for you, our guide will enable you to fully understand your situation and make sure your wishes are carried out, and will explain everything from writing a will to calculating the long-term impact of gifting.

It can be difficult to think about how you’ll pass on wealth to loved ones, but it’s important to set out a plan.

Download Leaving an inheritance vs gifting during your lifetime to discover the steps you should take.

If you have any questions about passing on wealth, please contact us.

How financial planning can help you strike a better work-life balance

Financial planning is about much more than simply growing your wealth. Not only can it reduce financial worry, but it can help you achieve long-term goals, reduce stress levels, and increase your mental wellbeing.

Perhaps you feel like you don’t have enough time to spend with those you love? Or maybe you’re striving for early retirement but you’re not sure how to get there? Financial planning exists to guide you through these issues with confidence.

Pandemic burnout and the increased work week

Covid-19 has influenced almost everything since early 2020. The Guardian reported earlier this year that UK workers have increased their working week by 25% since working from home.

In the UK, the average time spent on a business network each day increased from 9 to 11 hours. However, employees aren’t the only people affected; two in five company owners reported struggling with depression, anxiety, or exhaustion in 2020 and early 2021.

Not only have people been working longer hours, but now the line between work and leisure has blurred. Many people have complained of an inability to switch off after a workday.

Financial planning could help to strike a much-needed balance between work and life. But how?

Helping you strike a better work-life balance

Often, financial planning is associated with building wealth. While this may be part of the process for some people, it’s not always the case. Financial planning focuses on how to help you achieve your goals.

If you’re in a position where you want to start cutting back working hours or taking other steps to achieve a better work-life balance, financial planning can help you understand what your options are. By looking at what is most important to you, a bespoke financial plan could give you the option to reduce how much time you spend on work. In some cases, this may include cutting back on outgoings, depleting wealth, or adjusting other steps you’ve been taking.

Rather than assessing how much money you have, the process of financial planning is about understanding what makes you happy and how money could you achieve these things. With work affecting other aspects of life, rethinking your work-life balance could improve your wellbeing.

A demanding job may mean you’re able to afford a nice car or a large family home, but if you’re unable to take the car for a drive or spend as much time as you’d like with loved ones, is it worth it?  For some, rethinking their job will be appealing.

According to an Aegon report, just 4 in 10 people have thought about what gives their life joy and purpose. Spending some time thinking about this and making the answer central to your plans could help you get more out of life.

So, how does financial planning help here? It can help you understand the type of lifestyle you could still achieve if you did step back or how other assets can bridge an income gap. It can give you the confidence to create a work-life balance that suits you.

Striking the right balance as you near retirement

It’s not just getting about getting the right work-life balance now either. Financial planning can help provide more opportunities in your later years.

Since Pension Freedoms were introduced in 2015, which gave retirees more flexibility when accessing their pension, transitioning into retirement has become more common. Cutting back working hours or moving into a less demanding job has become a popular way to ease into retirement. It can help you create a work-life balance that suits your lifestyle goals.

Transitioning into retirement is appealing for many as it can still provide structure and meaning to your days, while still giving you more free time.

But is it something you can afford to do? Or are you hoping to retire earlier than the traditional retirement age?

Financial planning can help you take steps to give you the freedom to create the retirement lifestyle you want. It can give you the confidence you need to make retirement decisions that make sense for you.

If you’d like to discuss your finances and how they can help you live the life you want, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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.

The best hikes in the UK to challenge you

Summer is the perfect time to get outdoors and boost your health. Hiking in the UK can take you to some stunning locations while improving mental and physical wellbeing. It doesn’t have to be an epic hike to still deliver a sense of satisfaction and let you enjoy the great outdoors.

Whether you’re a beginner or an experienced hiker looking for a challenge, there’s a huge list of hikes across the UK to choose from.

Hiking for beginners

If you’re new to hiking, the key is to pace yourself. It might be tempting to pick that long hike that promises breath-taking views, but start small and slowly build up your level of fitness. It’s not just the distance you should consider either, but also the elevation and terrain. Walking uphill or over uneven surfaces is far more tiring than a gentle path.

You may also want to give yourself a goal to work towards during the hike. For example, by choosing a hike that passes by a local village to stop at, or a picnic spot to relax by, you can help break up your hike.

Finally, before you head out, make sure you’re prepared. You should familiarise yourself with the route, make sure you have good hiking boots and appropriate clothing, as well as a bag containing essentials like water and first aid supplies.

So, where should you plan a beginner’s hike? Here are four to consider.

1. Conic Hill, Loch Lomond

Conic Hill is a challenge without being too much for beginners. Located on the eastern side of Scotland’s Loch Lomond, it has impressive views for you to enjoy as you make the climb to the top of the hill. You’ll start in the village of Balmaha and it’ll take around an hour to reach the top. It can be a steep walk to get to the top of the 361 metre hill, but the path is well-trodden and you’ll be rewarded with views of the loch and its islands.

2. Mam Tor and the Great Ridge, Peak District

This hike is known as one of the best ridge walks in the UK. It’s a 6.5 mile loop and will take you through some of the most admired parts of the Peak District. You should plan for the hike to last around five hours without any breaks. You’ll reach the top of Mam Tor – also known as the “Shivering Mountain” – and pass the Blue John Cavern. The hike starts and ends in Castleton, so it’s ideal for having a pub lunch or visiting a tea room once you’ve finished your hike.

3. Four Waterfalls Walk, Brecon Beacons

This hike will take you through peaceful woodland to four beautiful waterfalls in the Brecon Beacons. It’s a circular route that is just an hour’s drive from Cardiff, so it’s a great option if you want to visit the city too. The trail is 6 miles and takes around 3.5 hours to complete. The paths around the waterfalls can be steep and muddy so make sure you have sturdy footwear to keep you safe and your feet dry when stepping in puddles. If you want to see the falls at their best, plan a trip on a bright autumn day.

4. Ballintoy and Portbraddan, the Causeway Coast

The Causeway Coast is an Area of Outstanding Natural Beauty and boasts sandy beaches, dramatic cliffs, and rocky outcrops to take in, as well as being the backdrop for some Game of Thrones scenes. You can spend days hiking the Causeway Coast and, while parts of it are challenging, the hike between Ballintoy and Portbraddan is a smaller segment that’s perfect for beginners and can be completed in a couple of hours.

Trails for experienced hikers

If you’re an experienced hiker, you might be looking for something a little more adventurous, whether that’s reaching the peak of a mountain or a multi-day hike. You may even be thinking about ticking off a bucket list item with a hike. Here are four options to add to your list.

1. Hadrian’s Wall, northern England

Why not walk coast to coast across Britain? At 84 miles long, Hadrian’s Wall is a great option for a multi-day hike that will take you from one end of Britain to the other as you follow the UNESCO World Heritage Site and pass through some of the most beautiful parts of northern England. Most of the route is relatively gentle but there are sections with climbs and descents, and certain sections can become very busy, especially during the summer months.

2. The Quiraing, Isle of Skye

This hike offers some of the most spectacular landscapes in Scotland. It’s a relatively short walk but lava and glaciers have sculpted the land, leading to beautiful terrain that can be challenging with its rocky paths and ascents. It won’t be the longest hike you ever do, but the view will ensure it’s one you remember. The walk will take you past distinctive landmarks like The Needle, a jagged pinnacle, and The Prison, a rocky peak that some say looks like a medieval keep.

3. South Downs Way

If you’re looking for a long multi-day hike, heading to the South Downs Way is perfect. At 100 miles long, this National Trail takes you on the old routes and droveways along the chalk escarpments and ridges of the South Downs. You don’t have to venture far to escape the hustle and bustle of daily life. Along the way, you’ll find signs of pre-historic landscapes and pretty villages, and you might be lucky enough to spot wildlife as you pass through five National Nature Reserves. The route is relatively easy, but this is a good option if you’re looking for a distance challenge.

4. Ben Macdui, Cairngorms National Park

The Ben Macdui trail is an 11-mile loop trail that’s rated as “difficult”. Ben Macdui is the highest mountain in the Cairngorm Mountains and the second highest in Britain. Scaling it allows you to take in the Cairngorms plateau. The path comes close to some steep drops, so it’s important you’re steady on your feet. It can also be difficult to navigate the plateau, especially in winter weather. Much of the walk takes you above the treeline for fantastic views and once you reach the top, you’ll be able to look out across the mountain passes.

What is pension tax relief? How it can help you reach retirement goals

There are many excellent reasons to save into a pension. One of them is the tax relief you benefit from, but many pension savers are overlooking this valuable boost to retirement savings.

According to a Royal London survey, just 15% of people fully understand how tax relief on pensions is paid. Importantly, once people had a better understanding of how pensions tax relief works, 25% were more likely to increase pension contributions. Tax relief can help boost your savings and put you on a path to a more comfortable retirement.

What is pension tax relief?

Pension tax relief is offered to encourage more workers to save for their retirement.

When you contribute to a pension, some of the money you would have paid in tax on your earnings goes into your pension rather than to the government. Tax relief is paid at the highest level of Income Tax you pay:

  • Basic-rate taxpayers receive 20%
  • Higher-rate taxpayers receive 40%
  • Additional-rate taxpayers receive 45%.

In Scotland, the tax bands are slightly different and affect how much tax relief you receive:

  • Starter-rate taxpayers receive 20%
  • Basic-rate taxpayers receive 20%
  • Intermediate-rate taxpayers receive 21%
  • Higher-rate taxpayers receive 41%
  • Top-rate taxpayers receive 46%.

If you wanted to add £100 to your pension, tax relief means you wouldn’t need to take the full amount out of your own income or savings. If you’re a basic-rate taxpayer, you can add £80, and the government boost will mean an extra £20 is added, as this is the amount that you would have paid in tax when receiving your income.

Higher-rate and additional-rate taxpayers would only need to add £60 and £55, respectively, to their pension to benefit from a £100 boost.

Tax relief is a useful way for making your retirement savings go further and can mean you’re able to look forward to a far more comfortable retirement. Tax relief is one of the reasons that adding money to a pension is a tax-efficient way to save for the long term.

The relief you receive will usually be invested through your pension, helping it to grow even further, along with your and your employer’s contributions.

How do you receive pension tax relief?

Usually, your pension provider will automatically send a request to HMRC for 20% tax relief, but you will need to complete a self-assessment tax return to receive your full entitlement if you’re a higher- or additional-rate taxpayer. It’s worth reviewing your pension contributions and tax relief to ensure you’re receiving your full tax relief.

2 pension tax relief allowances you need to be aware of

While tax relief is valuable, two allowances limit how much you can place into your pension while benefiting from tax relief.

1. Annual Allowance

The Annual Allowance is the amount you can save into your pension each tax year while still benefiting from tax relief.

The maximum Annual Allowance is £40,000 or 100% of your annual earnings. However, if you earn more than certain thresholds, your annual allowance will reduce under the tapered Annual Allowance. These thresholds are:

  • £200,000 threshold income (your net income for the year, including salary, bonus, etc.)
  • £240,000 adjusted income (your income, plus the value of your or any employer pension contributions).

For every £2 you exceed these thresholds, your Annual Allowance is reduced by £1. The maximum deduction is £36,000, meaning some high earners are left with an Annual Allowance of just £4,000 per tax year.

If you’ve already started drawing an income from your pension, you may be affected by the Money Purchase Annual Allowance (MPAA). This will reduce your Annual Allowance to £4,000.

It’s important you understand what your Annual Allowance is to make the most of your pension contributions and avoid unexpected tax bills. If you have any questions, please contact us.

2. Lifetime Allowance

The Lifetime Allowance is the total amount you can save into your pension while still benefiting from tax relief.

The Lifetime Allowance is currently £1,073,100. This may seem like a lot, but it can be easier to exceed than you think. The Lifetime Allowance applies to the total value of your pension, including your contributions, employer contributions, tax relief, and investment returns. Over decades of working, you may be closer than you think to the allowance.

You can still add to your pension if you exceed these limits, but you could find yourself with an unexpected bill. In some cases, it still makes financial sense to contribute to your pension. For example, your investments will still grow free from Capital Gains Tax, and your pension scheme may offer auxiliary benefits, like a spouse pension, that are valuable to you. In other circumstances, it may make more sense to invest or save your money elsewhere.

If you’d like to discuss how pension tax relief can help you build up your retirement savings or whether you’re close to exceeding your allowances, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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.

Should you take a tax-free lump sum from your pension to celebrate retirement in style?

What are your plans for your first few years of retirement? Being able to take a tax-free lump sum from your pension can open up a whole host of possibilities. But would you be better off leaving your money invested?

When Pension Freedoms were introduced in 2015, it gave retirees more flexibility. One of the benefits introduced was the ability to take up to 25% of your pension without paying Income Tax on it once you reach 55, rising to 57 in 2028. It’s certainly an attractive option and can mean you have the cash to turn your retirement dreams into a reality. From undertaking home renovations to travelling the world, you could start your retirement in the style you want by taking a lump sum.

It’s an option that proved popular among retirees. According to Financial Conduct Authority data, between October 2019 and March 2020, £3.8 billion was withdrawn from pensions as tax-free cash. While it can be tempting to take the money on offer, there are a couple of questions to consider first.

1. What do you plan to do with the money?

The first thing to think about is what you would do with the money if you did take the tax-free lump sum.

Whether you want to book a once in a lifetime trip or lend a helping hand to family members, setting out where the money will go can help you understand if it’s something you want to pursue. In some cases, there may be alternative ways to fund your plans, allowing you to leave your pension untouched.

Some people take their tax-free lump sum without any plans to use the money. It can be tempting to take the lump sum simply because it’s available to save for a rainy day. However, adding a lump sum to a savings account means it’s likely to lose value in real terms. Interest rates are lower than inflation, so the spending power of the money will decrease over time.

You may also consider withdrawing the money to invest it. However, keep in mind that your pension is usually invested and is a tax-efficient way to save for retirement.

2. How will it affect your long-term income?

While you may be thinking about kickstarting retirement by ticking off bucket list items by using your tax-free lump sum, you need to look at the bigger picture too. You save into a pension to create an income throughout retirement, not just those first few years.

Taking a quarter of your pension to spend from the outset can have a huge impact on the income your pension will deliver for the rest of your life. As a result, it’s important to consider the pension lump sum in the context of your wider retirement plans and ask questions like:

  • How long does my pension income need to last?
  • What income do I need throughout retirement?
  • Do I have a buffer in case of the unexpected?

It can be difficult to understand how taking a lump sum now could affect your income in 20 years. Financial planning can help you weigh up the long-term impact of the decisions you make now. In many cases, clients find they can afford to pay for retirement goals and have financial security, but reviewing your financial plan before you take a lump sum out of your pension means you can have confidence and fully enjoy the experiences you’re looking forward to.

Taking your tax-free lump sum at 55 isn’t your only option

You don’t have to take your tax-free lump sum as soon as you reach retirement age to use it.

You can leave your pension untouched and take the tax-free lump sum at a date that makes sense for you. This way, your pension remains invested and has the potential to continue growing. While you can access your pension at 55, you may not be ready to retire for a decade or more. An extra 10 years of investment returns on the lump sum you could have withdrawn can have a real impact on the size of your pension when you retire.

What’s more, you can spread out the tax-free benefit too. Rather than taking a single tax-free lump sum, you can withdraw multiple lump sums, of which 25% of each is tax-free. For some, this can help manage your tax liability and ensure your income suits your needs.

So, there’s one than one way to take advantage of the tax-free lump sum when accessing your pension. If you’re thinking about making a withdrawal from your pension and you’d like to discuss which option makes sense with your retirement goals in mind, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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.