JJ Hareb Financial Planning

It's a real privilege to work with Clients on their financial plans, goals and dreams for the future. Invariably there are steps that can be taken to optimise existing arrangements - for example to pay less tax, boost retirement funds/ pensions, grow investments in a tax-optimised way, secure wealth for loved ones/ future generations and even retire earlier - unlocking the irreplaceable commodity of Time. But this is only part of the story for those with dependents. What if something happens to you before you retire? Do your plans factor in how they will survive without your future income? Is your life cover from work &/ personal plans sufficient? An excellent solution for this piece of the puzzle is called Family Income Benefit (FIB) - have you heard of it? Instead of providing a basic lump sum on death/ terminal illness, it can instead provide your family/ loved ones with a monthly, tax free income adjusted for future inflation until the date you would have retired. Brilliant. No difficult decisions about what to do with a lump sum, no investment risk, no threat of funds running out too early...a fantastic way to "lock in" your plans for loved ones.

What's your number? Have you set a target income for retirement? If so, do you have a clear plan to achieve it and are you currently on track, or know what to do if not? Your specific target can depend on many factors - including your current age, your pre- and post-retirement life goals, your home/ mortgage situation, the extent of your non-pension savings/ ISAs, the age at which you plan to retire/ semi-retire, your health and how you plan to spend your time after work...to name a few. So although everyone has a number unique to their own circumstances and plans for the future, here's a rough guide for the UK, published by the non-profit organisation Retirement Living Standards: Minimum: £22.4k /£14.4k (for a couple or single, respectively) Moderate: £43.1k / £31.1k Comfortable: £59k / £43.1k If you don't know where to start, or if you're currently on track or falling behind, a good financial planner will build a bespoke cashflow model of your specific circumstances and goals to tackle these important questions.

60% (or more) tax relief on pension contributions for people earning between £100,000 and £125,140. Here’s how it works: Your personal allowance is reduced by £1 for every £2 of income above £100k. This means that when income is £125,140 (or more), your personal allowance will be zero – ie, you’ll be paying tax at 20% tax from the first pound you earn up to £50,270, then 40% after that up to £125,140. This means that your effective tax rate for income between £100,000 and £125,140 is 60% as you pay into the 40% band at the top, and lose out on the 20% allowance below. Here's an example to demonstrate the power of the opportunity available to you if you’re in this earnings band. It illustrates a personal pension contribution of £25,140 for somebody earning £125,140 in England, for tax year 2024/25: You make a net personal pension contribution of £20,112, which is then grossed up by HMRC for basic rate tax to £25,140. This contribution results in a reduction in take home pay of just £10,056 (which arises from the tax you would have paid had you not made the contribution - £42,516 - less the tax payable after the contribution - £32,460). That means you get £25,140 invested into your pension pot for a net cost to you of just £10,056. Do the maths - that’s 40% paid by you and 60% by HMRC. And depending on your circumstances, it may get even more attractive – if your employer offers salary sacrifice (check with HR!) the effective rate of tax relief can be as much as a whopping 67%.

Speculation over the timing of interest rate cuts has been dominating global markets this year. Last week was no different, as investors continued to guess when policymakers will feel they’ve brought inflation under control. So, all eyes were on US Federal Reserve Chair, Jerome Powell, as he gave his two-day testimony to Congress. Whilst stressing that he didn’t want to send any signals about the timing of future interest rate moves, Powell told lawmakers that the US was “no longer an overheated economy”, with a job market that “appears to be fully back in balance”. Overheating isn’t something the UK has had to worry about. Consumer spending contracted in June as the chilly weather prompted shoppers to keep their credit and debit cards in their pockets. Barclays reported that spending in supermarkets had fallen for the first time in two years. The news chimed with recent business surveys and other signs of slowing growth, underlining the challenge facing the new Labour government, which has made improving economic growth a top priority. However, this was followed by news from the ONS that the UK economy expanded by a faster-than-expected 0.4% in May, boosted by strong performance from the retail and construction industries. Although not too much weight should be put one month’s data, economists suggested it reduced the chances of the MPC cutting interest rates when it meets on 1 August. Comments from two BoE officials also dampened expectations of an August rate cut. Ahead of this week’s release of the latest UK inflation figures, Chief Economist Huw Pill cited “uncomfortable strength” in services inflation and wage growth and said that the June inflation numbers were unlikely to change the big picture. He was joined by outgoing MPC member Jonathan Haskel, who said he was not yet ready to vote for rate cuts. Investors consequently reined in their expectations for a cut next month, pricing in a 50% chance compared to 62% before Pill’s comments.

Might VAT on private school fees be illegal? Since the idea of introducing VAT has been tabled, I’ve had a flurry of inquiries from Clients on how best to provision or adjust plans for fees going forward. While independent schools have raised fees above inflation for well over a decade, the potential introduction of VAT on top of that materially changes the equation for some of these families – making it unaffordable in marginal cases and raising the difficult prospect of having to potentially pull one or more of their children out of their current schools. While this is less concerning in higher net worth situations, there are many families who choose to make significant sacrifices by allocating a high proportion of their net income to this end and are feeling concerned and stressed by this uncertainty. With that context, wanted to share the following thoughts, compiled by The Telegraph late last week: One of Britain’s top constitutional and human rights lawyers (Lord Pannick) has warned that the introduction of VAT may breach European Court of Human Rights law. “It would be strongly arguable that for a government to impose VAT on independent schools would breach the right to education”. In a legal opinion from the late 1980s, he co-wrote that a government “could not lawfully prohibit fee-paying, independent education or remove the benefits of charitable status or impose VAT in respect of such education” while a member of the court. Lord Pannick confirmed his belief that the argument still stands today. Watch this space. Meanwhile, prudent & conservative planning prevails.

Stories can be wonderful! So today I’d like to share one that really touched me. Earlier this year, I was approached for help with the words: “I’m really worried about when I can afford to retire”. The person who reached out (let’s call them Andy) was hoping to slow down & switch to part time work soon before fully retiring in a few years’ time, but was worried that would be unaffordable. Andy felt disempowered and worried about their financial situation and that it might be too late to enjoy anything other than a modest retirement and/ or working beyond their preferred retirement age. So we sat together and worked through all the details. It quickly emerged that Andy had no idea how risky their existing retirement fund allocation was, nor that it had lost almost a quarter of its value during a recent downturn. Happily, Andy’s earnings have been solid in recent years and the funds had partially recovered, together with contributions from earnings. So I folded these dynamics into Andy’s plan, together with all their other investments, assets, liabilities, insurances, expenses and financial considerations and overlaid that with their wishes for themselves and their loved ones for the future. Andy’s bespoke financial plan was built out to age 100, optimising their taxes, estate and with a more suitable risk profile. This resulted in more robust plan, with sufficient resources for their lifetime – almost to age 100 (or significantly beyond that via downsizing, should that be required in the distant future). The pension and life insurance elements were written into contingent trust solutions to protect Andy’s beneficiaries and keep proceeds ringfenced from estate duties, greatly enhancing intergenerational wealth. We sat and reviewed this plan together, comparing it with the existing “do nothing” plan year by year, for income, expenses, taxes and estate value to illustrate the tangible benefits of the recommendations. Andy said they felt both delighted and relieved. But the most exciting thing? Well, I was able to ringfence a healthy sum of funds which could be spent over the coming two years for a special project in the Arts. Andy had dreamed of this for many years, but didn’t think there would ever be sufficient funds available for something of this scale. This life goal is now already underway and moving ahead full-steam for Andy as part of their overall plan. This was such a joyful moment in our conversation and felt like a true privilege to see how much it meant to Andy. A lot of work goes into arriving at such moments, but oh boy, does it make it all worthwhile! So ahead of the weekend, I leave you with these questions: - What are your key aspirations for the future – for yourself & your loved ones? - How robust is your plan for funding these goals? - How risk and tax efficient is your plan? - What might some pitfalls/ blind spots be and how might you avoid or uncover them? #PlanAhead #TrustedRelationships #FinancialEducation

Five pension considerations for directors and executives. Are your bonuses paid in shares? Do you know how the tapered annual allowance works, or what your adjusted or threshold income is and how that impacts your annual tax-advantaged allowances? The more you earn, the more you stand to gain by taking full advantage of the tax reliefs and allowances available to you. 2023 saw the removal the lifetime allowance penal tax charges, but from April 2024 the lifetime allowance is being abolished and replaced by allowances that restrict only tax-free lump sums paid. 2023 also saw the increase in the pension annual allowance, to £60,000, which may offer additional savings options. Click below to read on…

The number of families with TWO retired generations is set to exceed one million in next 10 years as retirement incomes forced to stretch further More than one million families are expected to contain more than one retired generation by 2034 – a 32% increase on the 813,000 multi-retiree families that exist currently. - The growth rate of multi-retiree families is increasing faster than previously predicted and retirement finances likely needed to stretch even further - Over half (55%) of future retirees expect to provide financial support in retirement to other generations – compared to just over a third (37%) of current retirees - Future retirees are shifting their plans for later life so they can financially support others, with 14% planning to work in retirement to supplement income, and 12% delaying retirement to build a bigger pot SJP comments: “Future retirees are increasingly expecting to financially support others once retired, and retirement income is having to stretch in multiple directions. In order to do this, our approach to retirement planning must change. Putting in place the right plans at an early stage will allow greater opportunity to build wealth over time and leave behind as much as possible when you’re gone, without making unnecessary sacrifices along the way. Seeking professional advice can help you navigate these plans, giving you and your loved ones more security in the future.” Research conducted for St. James’s Place by Opinium, among 4,000 UK adults between 27th February – 8th March 2024

How much better off could you be with professional financial advice?   Research conducted by Dunstan Thomas shows that clients who receive financial planning are 39% a year better off in retirement than those who opt to take financial decisions by themselves. Explaining these results: “Financial advisers instil the financial disciplines of saving, planning and reviewing progress, which helps build long-term savings.” Further research from the International Longevity Centre (ILC) reports that taking advice has led to an average increase in retirement income of £47,000 over a decade. In addition to these financial benefits, research from Royal London lists the ways that advice could improve your emotional wellbeing too: - More confidence of how to achieve your financial goals - Improved financial literacy - Enabling a feeling of control over your finances - Creating a feeling of empowerment to make informed financial decisions - Providing peace of mind by having a realistic plan in place According to the Financial Conduct Authority, 92% of UK adults have not received professional financial advice in the last year. Each of them has a personal reason why....for example, some prefer to rely on input from friends and family, while others think that professional advice is too expensive, or they don’t realise that they have enough wealth to gain from it. For those choosing not to take advice – how do you feel about this research and what’s your reason? Source: quoting research consolidated by Rathbones, 2023