Month: July 2019

20 years after the ISA was launched, what does the future hold?

Savers are set to deposit up to £4bn into ISAs in the week leading up to the new tax year, according to the Yorkshire Building Society. Their figures revealed that £4.3bn was deposited into ISAs in the final week of the 2017/18 financial year, and it is predicting similar activity to happen this year.

ISAs were launched two decades ago as a tax-free alternative to traditional savings accounts which failed to offer an interest rate that competed with the rate of inflation. At its advent, the total tax-free allowance was £7,000, but at least £4,000 had to be invested in funds, meaning the maximum you could save in a cash ISA was £3,000. Since then, the ISA portfolio has grown to include Help to Buy ISAsInnovative ISAs and Lifetime ISAs. In addition to this, the tax-free saving allowance has increased, and today, savers are allowed to deposit up to £20,000 into their ISAs each tax year, tax-free.

That means no interest tax, no income tax and no capital gains tax. Cash ISAs also offer access to funds as easily as regular savings accounts and are an excellent choice when it comes to choosing a default savings account.

Take-up appears to be declining amongst younger generations, though, as the total number of adults saving into an ISA fell from 11.1m in 2016/17 to 10.8m last year. With so many opportunities available to young people these days, perhaps it shouldn’t be so surprising that saving into an ISA is losing its appeal?

How can ISAs evolve to maintain appeal?

Clues may lie within the rise of Open Banking, as digital money apps have empowered many people to manage their money more actively.

These apps play a huge role, although it could be suggested that financial education should begin at a very young age. Encouraging young people to invest for the long term requires knowledge of the difference between investment and saving.

Einstein famously said that: “The definition of genius is taking the complex and making it simple,” and it would be unwise to underestimate the importance of simplifying language. The financial sector is awash with acronyms and savings jargon, creating potentially confusing barriers to entry for savers.

Some financial advisers have called for a more holistic approach and to examine how other industries are driving long-term behaviour change. Think of how the music industry changed the way we purchase and listen to music with digital distribution and online streaming platforms such as Spotify.

Ross Duncton, head of Direct at BMO Global Asset Management, says that a ‘revolution is due for the savings and investment industry – with ISAs centre stage.’ After all, if savings options were to remain the same for the next twenty years, the steady decline of ISA uptake will only continue.

The European art museums you need to visit…

You’re almost spoilt for choice when it comes to all the cultural experiences on offer in Europe. Compiling a definitive list is almost impossible, so instead we’ve settled for a few of our favourites. The following museums contain masterpieces by the likes of Picasso, Pollock and Van Gogh and are well worth a visit…

Guggenheim Bilbao – Spain

Labelled as one of the ‘12 Treasures of Spain’ in 2007, the iconic conch-shell shaped museum, designed by Frank Lloyd Wright, has been a hub for contemporary art lovers since its grand opening in 1959. Other than being a work of art itself, the Guggenheim houses an ever-evolving collection of impressionist, post-impressionist, modern and contemporary art, including permanent pieces by Vasily Kandinsky and Piet Mondrian.

Tate Modern – UK

This gallery is a little closer to home, and holds the esteemed title of being the most visited modern art gallery in Europe. Holding an international reputation as striking as its building, the Tate Modern holds permanent collections designed by admired artists such as Herzog & de Meuron, alongside curated collections of contemporary art greats such as Damien Hirst and Roy Lichenstein.

A walk around this converted power station is like travelling through the history of modern art from the 20th century and beyond.

Centre Pompidou – France

Housed inside a captivating building designed by Renzo Piano and Richard Rogers, the Pompidou is home to Europe’s largest modern art collection. Since it shares Paris with the Louvre, it can often compete for your time when visiting the city, however, the collection housed inside shows it can go toe-to-toe with any other European museum. Extensive collections of Picasso, Matisse, Chagall and Kandinsky are rotated every six months, alongside exhibitions which, in recent years, have included the likes of Freud, Dali and Richter.

And to top it all off, the Pompidou offers an amazing outdoor escalator, providing visitors with a unique and beautiful view of Paris.

Castello di Rivoli – Italy

The Castello di Rivoli is housed within a World Heritage Site, and the collection therein is as distinguished as the 17th century castle itself. Emphasising controversial modern figures of international art, the gallery is a fascinating look into the rogues of the artistic world. Containing paintings, sculptures and videos from artists such as Nan Goldin, Tracey Emin and Anselm Keifer, this gallery is one not to miss. As an added bonus, it also contains the world famous restaurant, Combal Zero, which offers food as revolutionary as the works within gallery.

Kröller-Müller Museum – The Netherlands

To top off our list, we’re heading over to the sleepy village of Otterlo in the Netherlands, where the collection is both indoors and outdoors. The indoor collection houses many of Van Gogh’s best-known works alongside other modern masters, such as Piet Mondrian. But the main attraction at the Kröller-Müller lies with its iconic outdoor sculpture park, featuring 160 works by world famous sculptors, including Jean Debuffet, Augustus Rodin and many more. The museum even offers bicycle hire, so you can peddle your way around the large garden in the glorious Dutch weather.

Drawdown tax and flexible retirement income. What does it all mean?

Once you reach 55, a whole spread of opportunities will open themselves up to you. One such bonus is the fact that you can finally access that hard-saved pension fund. Up to 25% of your savings can be taken tax-free, with the remaining 75% being subject to income tax. The payable amount depends on your total income for the year and your tax rate. This is known as drawdown tax. 

You’ll only have to pay tax if you decide to draw over the 25% threshold. In this case, any income you take will be added to the rest of your taxable income for that year, and will be taxed at 20% after you pass the personal threshold. Therefore, if you were to take out a large withdrawal pushing you into the £40,000 to £150,000 bracket, you could be taxed at 40%. 

Your pension provider is required to deduct any tax before a withdrawal is paid and it’s likely that when you take a taxable payment for the first time, you’ll be taxed using an emergency tax code (it may be worth speaking to your pension provider about how you will be taxed). 

How do you manage your pot? 

If you choose to stay within the 25% lump sum, more often than not you’ll move the rest into one or more funds that allow you to take a taxable income at times to suit you. It’s wise to choose funds that match your income objectives and your attitude to risk, as the income you receive might be adjusted periodically depending on how well your investments are doing. 

You can also move your pension pot gradually into income drawdown. The 25% bracket still applies to each amount you move across, so you can take a quarter of the amount tax-free and place the rest into drawdown. 

A way to make your retirement income more flexible is to invest in an annuity or another type of income product, such as a gilt or corporate bond, which usually offer guarantees about growth and income. 

However, it’s paramount that you carefully plan how much income you can afford to take under pension drawdown as you don’t want to run out of money. Factors such as living longer than expected, taking too much out too early and poor investment performance can potentially hinder your drawdown plans. 

That’s why it’s important to regularly review your investments. In fact, we would always recommend getting in contact with your financial adviser to help with this, as you want to be getting the most out of your pension pot and to avoid any unnecessary expenses or losses.