Risks in Retirement | Are you prepared?

There are many risks to navigate in later life, including those which can impact your financial health. Added to that list is a potential financial shock that comes about as a result of a little-noticed change to the state pension system. The risk, identified by insurer Royal London, follows a state pension system charge in 2016.

That change could result in older couples facing an unexpected financial shock when one of them dies. The change means a typical pensioner could lose between one-half and two-thirds of their household income following such a bereavement. The death of a partner in retirement often results in a fall in household expenditure, although not usually by as much as this forecast fall in household income.

This means potential living standards can be squeezed. Steve Webb, Director of Policy at Royal London, said: “As well as the emotional impact of bereavement, losing a spouse in later life can have a huge impact on living standards. Under the new state pension system, widows and widowers will inherit little, if anything of their late spouse’s pension and income from an annuity often ceases when the recipient dies. Household outgoings may reduce somewhat following a bereavement, but income is likely to fall by much more. Couples in retirement need to make sure they know where they would stand and plan ahead to make sure they do not face an unexpected financial shock.”


So what’s prompted this new retirement risk?

Before the state pension system was changed in 2016, the death of one member of a married couple in retirement would result in the surviving spouse claiming an enhanced state pension, based on the late spouse’s National Insurance record.

The introduction of a new state pension system in 2016, came with a new set of rules for bereaved spouses. Instead of the ability to claim an enhanced state pension, there is now minimal scope to inherit a superior National Insurance record.

Pensioners in receipt of an occupational pension income in retirement will often continue to receive half of the income, in the event of the spouse dying. Where retirement income comes from a standard “single life annuity”, it’s often the case that no future income passes onto the surviving spouse. Ongoing income in this scenario will depend on whether death occurs during the guarantee period for the annuity, which is typically the first 5 or 10 years.


Things to consider

There are three key matters for couples approaching or in retirement to consider that will help them deal with this potential retirement income risk:

  • Firstly, you should find out where you stand. Finding out your likely financial position means checking how much occupational or private pension income would continue to pay, should your spouse die before you in retirement.
  • Secondly, you need to be careful with your finances earlier in retirement. One way you can mitigate this retirement risk is by building up a pot of savings or investments, creating a useful financial buffer in the event your income suddenly falls.
  • Finally, you should consider a financial product that would pay out if one partner were to die. This financial product could take the form of life assurance, although the cost of such cover can be expensive as we get older.

Regardless of the action you decide to take; it’s essential to recognise this retirement risk and plan to mitigate its financial impact on your life. MHA Henderson Loggie Financial Planning would be happy to help.


Get in touch

Jim Wilson
Managing Director

Ricky Clark
Financial Planning Consultant

Jonathan McDowall
Financial Planning Consultant

David Legge
Senior Consultant


Henderson Loggie Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Savings vs Investment | What are the long term effects?

Understanding the difference between savings and investments is important. Savings in banks or building society accounts won’t fall in value but will be impacted by inflation over the longer term. On the other hand, if you invest in real assets, such as shares, you can lose money, but in return there is potential for the value to grow and outstrip inflation, giving a positive return in real terms.

All investments carry some risk, however small or large that may be. Our advice is to strike a balance. Firstly, make sure you have enough to provide you with security in case of emergencies; a pot of money for enjoyment; and then think about the future and how best to make your money work harder and provide the potential for better returns.

It’s now over a decade since the last financial crisis when investments took a major hit.  However, over the course of time markets have recovered.  

Conversely, typically safe investments (for example savings accounts, fixed term deposits and cash ISAs) would have provided protection against the falls experienced in 2008/2009.  However, back in 2008 the Bank of England (BOE) base rate was 5.25% and by the following January it had fallen to 1.50% and has never recovered.  The current base rate is now 0.75%.

With inflation currently standing at 1.9% (Office of National Statistics, June 2019) this means that inflation will have eroded the purchasing power of bank savings.

This is demonstrated in the chart below where we have looked at the BOE rate against inflation (the Retail Price Index from 2007 to present day) and the benchmark for a Low to Medium Risk investment. 

As you can see, even with the market crash an “investment” would have generated a better return over time. 

Please note that when investing, your capital is at risk and is not guaranteed. The past performance shown in the chart is based on the actual performance of the indices shown over a 12-year period. Please also remember that past performance is not a reliable indicator of future performance.

For those who have a fear of investment, we believe in diversifying and ensuring you have an element of your portfolio in cash, with an appropriate allocation to longer term investments. Our approach is to ensure we review your objectives and long-term goals regularly and consider that over longer periods of time, there will be ups and downs in investment markets.

Our ongoing advice and support is always available and we are happy to work with you to manage your expectations and to help you achieve your longer term goals in a carefully planned manner.


Get in touch

Jim Wilson
Managing Director

Ricky Clark
Financial Planning Consultant

Jonathan McDowall
Financial Planning Consultant

David Legge
Senior Consultant


Henderson Loggie Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Where can I get funding for my startup business?

You have a great idea for a product or service that’s going to bring some value into the world. But you know you need money to help get your startup idea off the ground. Where do you look and how does this work in practice?

In this post, we’ll see how your startup can get funded.


What do I need to supply to get startup funding?

Because your new business has no background or credit history of its own, it’s essential that you put together a solid business plan that sets out the problem your business is going to solve and how you’re going to do it.

Potential investors will want to know how much money you need, how you intend to use it and how you can give them a return on their investment. You’ll increase the chances of an investor opening their wallet to you by clearly expressing:

  • why the investor should invest in you, and
  • what the investor will get out of it.

As the saying goes, “people invest in people”. Even though your plans should include figures to show that your business case that stacks up, your potential investors also need to build trust in you and your team. Investors will want to hear your clear take on the problem your business solves and why you came up with your idea. You and the plan both need to be credible.

Investors need to feel confident that their investment is going to be repaid, so paint a picture of a sales/exit strategy that benefits everyone involved.

All of this may seem unfamiliar territory. After all, you might be trying to build an app, create a popup restaurant or imagine some other new product or service. Your skills lie in doing that thing, not in writing business plans or considering finance options and exit strategies.

Rather than muddling your way through in the hope of convincing an investor to part with their cash, it’s often wise to seek help when putting together the plans for your startup.

We’re used to talking with startups and positioning their new businesses in a way that appeals to potential investors. We can make introductions to relevant finance providers and industry contacts. Get in touch if you need a hand.


Before you look for investment

Aside from building a solid business plan, what else should you do to give your startup the best chance of receiving funding?

Our best advice is to do as much as possible by using your own personal funds. That might also involve borrowing from family and friends. It’s never easy to ask for money, but this is a more realistic early route than approaching a bank and expecting them to support a new business with no credit history.

Self-funding, including earnings from work you do in separate jobs, will show investors your commitment to your idea. After all, why should they take a chance on you unless you’ve shown the willingness to take a risk first?

Those early funds can also be crucial in helping you build a prototype of your idea. If you can create something to show to potential investors, that will be far more convincing than an idea on paper.

If your plan is to sell a physical product, could you get a model built? If it’s an app, could you make a video showing what it might do? If you’re creating a restaurant, could you develop a menu and some sample dishes?

There’s another important point to consider while you’re getting ready to pitch your idea to the world. The last thing you want is to share your plan before you’ve protected your intellectual property (IP) and investigated any relevant copyright issues.

Failing to do this means that your idea could be used without you getting any of the credit. Take the necessary steps to protect your startup before seeking investment or go to market.


Where can startups look for investment?

Let’s say you’ve developed your business plan and have put your own funds into getting some form of prototype ready.

Having reached the limits of what you can do by yourself, you now want to secure some funding to grow your startup business. Here are some routes to investigate.

Business Gateway

Business Gateway is known for offering courses on how to get started and improve your business.

It can act as a stepping stone to accessing funds to help your startup. Though you won’t receive any money directly from Business Gateway, you can make connections with relevant organisations who may be able to help with investment.

For example, promising new companies in Scotland may pass through Business Gateway and be referred to Scottish Enterprise, who in turn can help with access to government-backed grants.

Business Gateway can also advise you about research and development grants and other routes to access funds to support your startup.

European funding

Startups can benefit from loans of up to £25,000 via the Scottish Growth Scheme, a £500 million package of financial support for Scottish businesses from the Scottish Government and the European Regional Development Fund. This fund isn’t tied to the UK’s status as a member of the EU (in other words, it’s not affected by Brexit).

At MHA Henderson Loggie, we’ve successfully helped clients raise debt finance through Business Loans Scotland (https://www.bls.scot/), but these funds can also be accessed through:

  • DSL Business Finance Ltd
  • Business & Enterprise Scotland Ltd
  • Techstart Ventures
  • Foresight Group

As you might expect, accessing funds like this isn’t just a simple case of filling in a form, so it’s best to talk to a competent professional partner who can help. We make introductions like this for many of our startup clients, so get in touch if you’d like to discuss this further.

Debt funding of up to £100,000 is available for more established businesses, so these loans aren’t just for startups.

Business angels

Most of the business angel networks in Scotland will be registered with LINC, the Scottish Angel Capital Association, and details of their investment preferences and appetites can be found on the LINC website (https://lincscot.co.uk/). Look up the “business angels” who are interested in your field. They have their own websites that allow you to submit your plans.

Such submissions generally go to a gatekeeper who then filters the applications and proposes the most relevant and interesting plans at the angel investor meetings. Your plan needs to be attractive enough to survive the selection process and be offered up in front of the investors.  It can help to have talked to one or more of the angels directly in advance and have them champion your plan. Meetings might take place every few weeks or months, so you may need to be patient. In most cases, significant investments are unlikely to be arranged quickly.

Business introductions

Your accountants are likely to have their own network of high-net worth individuals. In our case, we often make introductions between our startup clients and our network of clients who have expressed an interest in making such investments.

To give our startup clients the best chance of securing the funding they need, we help them brush up their business plans to make them “investor ready” before passing them on to their potential future business partners.

Also, our network includes bankers, lawyers and other professional service providers, so we can often make introductions that help startups with the other tasks associated with doing business.


Does my UK location affect my potential for startup funding?

Your location usually isn’t relevant to whether you can secure funding for your startup.

However, when it comes to local authority-backed grants, the funding process can differ a little across the UK.

Regional Selective Assistance grants, for example, depend on your postcode. In areas with low employment, Scottish Enterprise may offer a grant based on your business employing staff. The extent of such a grant depends on the area you’re in and number of employees you take on.

Schemes like this are based on your business making a financial outlay and then recouping some of your costs – so you still need the funds to spend in the first instance.


How true is the Dragons’ Den version of startup funding?

The good news is that the reality of dealing with investors is less adversarial than what we see on TV. What works on an entertainment show doesn’t always reflect the truth of business.

If you meet with a potential investor, it’s safe to say that they’re already interested in working with you. The difficult part is getting them into the room to begin with.

So, the challenge is to get on their radar. Getting a startup funding deal over the line is more about good research and preparation than it is about a face-to-face battle of wits.


How are startup funds paid?

Even if you’ve made a winning case, remember that any investors in your startup will need a legal agreement before a penny is exchanged.

Your business plan should include details on what you’re offering to investors and this will form the basis of negotiations over the investment structure such as how many shares their money gets them and how many seats they’ll occupy on your board.

With this information clear, agreed and legally binding, your investors will deposit money into your business bank account. Remember that there should be no doubt about what the money will be used for and how long it’s expected to last.

Investors don’t want surprises. Do everything you can to uphold your side of the agreement.


Let’s sum up

Running a startup isn’t easy and neither is securing funding to help it grow.

Potential investors need convincing before they loosen their purse strings. Our best advice is to build a robust business plan that stands up to their close inspection.

Start small and do what you can with your own funds first, including creating a prototype of your product or service to build your credibility and help give investors confidence in your work.

Be clear on what problem you’re going to fix and let the investors buy into you as much as they do the business itself. Approach Business Gateway and look for business angels who can make referrals to the right groups, and keep in mind that some startups may be able to access government-backed grants.

Finally, speak with the people who can put your plans in order and give you the best chance of connecting with the investors who can help make your startup a success.

To chat with us about how we help connect our startup clients with potential investors, get in touch now.


Pension Contributions | Personal or Company?

Many of the businesses we deal with are owner managed limited companies, where the owner/director could be the only employee. In this situation the owner/director can choose to make pension contributions either personally or via the company. We are often asked which way is best and we thought it was worth highlighting the key differences for consideration.


Personal:

  • The owner/director will draw an income, normally broken into an element of PAYE remuneration and Dividend payments.
  • Pension contributions paid “personally” attract basic rate tax relief at source, increasing the value of the contribution. Higher/additional rate tax is claimed via self-assessment.
  • Whilst higher rates of tax relief can be obtained on personal contributions, individuals withdrawing a smaller salary will be limited in the amount they can contribute.
  • An individual can make contribution of up 100% of their “relevant” earnings, subject to their available Annual Allowance for tax relief. Relevant earnings include salary but not dividends.

Company:

  • Rather than draw extra income to pay a personal contribution, contributions can be paid by the company.
  • Company contributions are not limited by the individual’s relevant earnings but must meet the “wholly and exclusively” rules ensuring that the pension remuneration is appropriate to that individual. The individual’s available Annual Allowance needs to be considered.
  • Company contributions are a tax relievable expense resulting in a reduction in Corporation tax. Unlike a personal contribution, no individual tax relief is added to the contribution.
  • Pension contributions provide a tax efficient method of extracting money from a company, with no tax or national insurance liabilities on the money paid to the pension.

In summary, there are benefits of making both personal and company contributions and the optimal method would be to make a combination of both, if possible. However, in reality it will depend on the individuals financial needs and business profits. In many cases we find that, making employer contributions tends to work best for many business owner/directors.


Get in touch

Ricky Clark | Financial Planning Consultant

Email: ricky.clark@hlfp.co.uk or tel: 01382 207067

Jonathan McDowall | Financial Planning Consultant

Email: jonathan.mcdowall@hlfp.co.uk or tel: 01382 207067

David Legge

David is one of the Senior Consultants within the team at MHA Henderson Loggie Financial Planning. He brings 30 years of industry experience to his role within the Firm.

David works extensively with high net worth individuals as well as the SME sector, and for the last 20 years he has developed particular expertise in the area of Self Administered Schemes – SIPP and SSAS. This specialist area of pension planning can also act as a very useful business tool as well as a source of capital. David recently made use of a Self Administered Scheme in helping a family business formulate an exit and retirement strategy with the creative use of a SSAS.

In addition to his pension work David also advises both corporate and individuals on strategic investment and Inheritance Tax Planning.

Jim Wilson

Jim is Managing Director of MHA Henderson Loggie Financial Planning, responsible for the overall running of the financial services firm ensuring we offer our client’s pro–active advice in all areas of financial planning.

Jim acts as adviser to a portfolio of private clients and has a particular interest in assisting both companies and individuals with their pensions and personal investment planning both pre and post retirement. He also has a breadth of experience of the financial planning requirements across a broad range of corporate sectors advising on the constantly changing pension legislation and the impact this has on members of defined benefit pension schemes in particular.

Jim holds the Advanced Financial Planning Certificate and is the firms nominated compliance officer and pension transfer specialist.

Ricky Clark

Having worked within the financial services industry since 2006, Ricky has gained valuable career experience within different roles in financial services companies.

At MHA Henderson Loggie Financial Planning Ricky specialises in pensions within the corporate sector, providing advice and project planning services on the new government regulations set out on workplace pension schemes, also known as auto enrolment. He also looks after the needs of a portfolio of personal clients assisting them with pre and post retirement financial planning requirements.

Susan Pringle

Susan has worked in Financial Services for many years and is responsible for the day to day operational matters with MHA Henderson Loggie Financial Planning. Susan’s role requires her to have a thorough understanding of every type of advice the team provides, along with the systems and processes to deliver these services.

Susan specialises in pensions and has enjoyed the challenges and opportunities that the changes in legislation have provided over the years.

Susan has been instrumental in establishing the auto enrolment pension team within MHA Henderson Loggie, liaising with all departments and project planning for clients. She is a regular press contributor, commenting on pensions and wider financial services topics.

Jonathan McDowall

Jonathan has worked in the financial services industry providing advice since 2006.  Having previously worked with a national advisory firm he has gained extensive experience in advising clients on their financial planning needs.

Jonathan provides advice to individuals as well as corporate clients with a focus on key areas including pensions, investments and Inheritance Tax planning. Looking after both new and existing clients, Jonathan ensures that his clients’ financial objectives are achieved utilising the most effective and tax efficient solutions.