How to make the most of your savings

With new retirement rules coming into place, people will now have more control over how they spend their pension. While this is great news, it also means that you may want to reevaluate how you spend your money, to maximise your income.

Financial experts are now recommending a different order of pension spending. They advise hoarding your pension pot and spending other available cash and investments first. This is to help minimise the amount of money lost to inheritance tax.

This method is becoming increasingly appealing to retirees wanting to minimise their annual income tax or use their capital gains tax allowance efficiently. They may benefit from spending any assets held outside a pension first.

While circumstances vary, and it is always best to check with a professional about your own situation first, this is useful general guidance on how to make the most of your savings.

How does spending your pension last benefit your finances?

The pension freedom reforms in 2015 altered the way in which many view pensions. More people than ever are choosing to keep their pension invested in financial markets in old age rather than receive a guaranteed income from a final salary work scheme or an annuity.

Through putting your pension savings into an income drawdown scheme at retirement, any investment growth will benefit your portfolio. As well as this, you will not be taxed unless, or until, you withdraw money as income. You can take 25 per cent tax-free from your pension, but after this, income tax is levied on withdrawals.

It’s also worth noting that keeping your money in a pension pot can also positively affect any inheritance you leave. It can help to cut down on the amount of inheritance tax that your loved ones will have to pay. This will happen if your estate tops the basic or new home allowance thresholds.

Beneficiaries will either pay no tax on what is left over in a drawdown scheme if the owner dies before they are 75 years old, or their normal income tax rate if the benefactor is aged 75 or over.

So, you may want to consider using spending other assets outside a pension if you wish to bequeath as much as possible. There will be full inheritance tax to pay if it is taken from a drawdown scheme.

What is the best order for spending assets during retirement?

While the order may change on a personal level, this is a helpful guide to the most beneficial order.

  1. Investments held outside ISAs or other tax-efficient wrappers, such as shares, bonds, buy-to-let properties and funds. These could be subject to capital gains tax or inheritance tax. Through tapping these gradually, you can use capital gains tax allowances over time.
  2. Investment and cash ISAs, except for those held in an AIM portfolio that qualifies for business relief.
  3. Homes, if they push your estate above £2 million. Through downsizing and spending or gifting the money, you can cut your inheritance tax bill.
  4. Investments with BPR status. These are shielded from inheritance tax if you have held them for at least two years by the time you die.
  5. Pension pots invested in income drawdown schemes. These remain a tax-efficient wrapper and have inheritance tax benefits.
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Do you know what your high street rights are?

Most things we buy, whether we’re looking at the weekly grocery shop, or a brand- new television, cause few problems. However, if an issue does arrive with goods you’ve bought, sometimes the guarantees can let you down.

It’s a good idea to properly understand your consumer rights before something goes wrong. For example, if you want to return something, you may not be aware of whether you’re entitled to a replacement, refund, credit note or repair. It’s not always possible to rely on the advice from retailers.

Returns and refunds

If you’ve bought something from a high street shop and you want to return it in exchange for a refund, your consumer rights are not always clear. Some shops might refuse returns and refunds, and only offer a credit note rather than cash.

Goods bought on the high street must legally be of satisfactory quality, fit for purpose, last a reasonable amount of time and be as described, under the Sales of Goods Act 1979 and the Consumer Rights Act 2015. This applies to sale items as well as those not on sale.

Faulty goods

If your product is broken or faulty then you might be entitled to claim a repair, replacement, refund or price reduction. However, if you’ve just changed your mind and don’t want it anymore, you have no legal right to return.

Many high street stores have their own returns policy, and are entitled to only offer a credit note rather than cash refund.

What rights you have as a consumer are dictated by the legislation, and will include timescales on returning faulty goods. You should also make sure you find out what your rights are to get a product repaired and what your rights are should the retailer refuse to provide a replacement, repair or refund.

Depending on the value of the product in question, getting legal advice can be a good idea. There are various steps that must be taken to prove a product hasn’t been rendered faulty by wear and tear, for example.

What if a shop goes bust?

In 2017, it’s common for familiar and traditional brands to disappear from the high street, often with not much warning. A shop going into administration can be stressful for consumers who are waiting on goods already ordered and paid for, or have gift certificates they can’t use.

When a shop goes into administration, it’s then the administrator’s decision about whether customers will receive pre-ordered goods and whether gift vouchers will be accepted or reimbursed.

However, you have different rights if you bought on a credit or debit card – you might be able to claim for goods that cost more than £100 on a credit card under Section 75 of the Consumer Credit Act.

You will need to contact the administrator to get the ball rolling, and see if you can get your money back.

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