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Building up enough money to retire can seem straightforward. The reality is complex, especially when it comes to how long the money needs to last.

Download your guide to planning for retirement by using the form below.

Retirement Planning.pdf

Your guide to planning for retirement

As retirement approaches, many people underestimate the amount of capital needed to maintain their desired lifestyle. Changes in pension legislation, prolonged low interest rates, reduced employer pension contributions, high inflation, and increased life expectancy have all contributed to this challenge. How can you be sure you've made the right provisions? When will you be able to retire?

Many factors influence the size of the ‘retirement pot’ needed. Everyone has different expenses, aspirations, and expectations. Ensuring you can afford your desired lifestyle after work is crucial. While the amount of money needed might seem daunting, being aware of potential problems and planning accordingly can help keep your plans on track. Generally, the earlier you start saving for retirement, the more you may have available.

State pension entitlement and automatic pension enrolment should help you achieve a basic standard of living. The full state pension from April 2025 is £11,973 per year (a 4.1% increase from the previous year). However, this amount is insufficient for most people, and additional wealth is essential to a comfortable lifestyle.

The first thing to do is realise that even if you have yet to set out a plan for your later years – there is nothing to prevent you from starting – it’s not as overwhelming as it might seem.

Starting with simple questions will get the ball rolling, and your plan can take shape.

Thinking about where you are now and where you want to be means you can then prepare a plan that helps you achieve your goals. Importantly, understanding your past relationship with money as building wealth for the medium to long term needs awareness and discipline (the older you will thank you in the years to come). If you are unsure where to start or lack time, professional advice could help bring your finances to life and provide peace of mind that the plan in your mind is achievable – or you can manage your own expectations about how much to save, how to structure your wealth and when you can realistically think about slowing down.

So, the first step towards planning for retirement ought to be taking stock of the current expected level of capital available and the anticipated level of expenses that will need to be paid.

Following this, a plan needs to be drawn up to determine whether these goals are achievable and how best to reach them.

Working with a financial planner can make this process less painful and more efficient. Expert advice can help you focus on the most important factors and develop the most effective way to structure your investments with this goal in mind.

One important thing to consider is how your retirement plan is progressing and what changes are needed to keep you on track—as even the best-laid plans can fail. We routinely face changes within Government and legislation, a shift in the economic lifecycle, and changes in your own circumstances—your plan needs to keep up.

Speak to us to find out how we can help

Any expressions of opinion are those of the author and not necessarily those of the firm.  This article does not constitute advice, and a full assessment would need to be completed by one of our specialist advisers to understand an individual’s circumstances. Please remember that the value of investments can fluctuate, and you may get back less than you invested.  Past performance is not necessarily an indicator of future returns. Waverton Wealth Planning LLP is authorised and regulated by the Financial Conduct Authority (FCA). Waverton Wealth Planning LLP is registered in Scotland (SO302894). Registered office - Exchange Tower, 19 Canning Street, Edinburgh, EH3 8EH.

Cash flow modelling incorporates all sources of income, including salaries and investment income as well as liabilities and taxes, creating a comprehensive picture of your family’s wealth.

The real value of cashflow modelling comes from its ability to plot your future cash flows – both incoming and outgoing. Using projections, you can make more informed financial decisions; allowing you to calculate whether your current and future financial and lifestyle objectives are achievable, such as your planned retirement date. The availability of this information is vital if your financial plan is to be of value, now and in the future.

Cash flow modelling allows a financial planner to identify areas of risk in the plan and allows for more targeted conversations about your goals such as “if you save an extra £x per month you could retire at your target date, otherwise you may need to work an extra x years or increase your contributions”.

Significant lifestyle events such as a potential shortfall in the level of your targeted retirement fund, or a shortage of funds to cover an unplanned capital expense such as a wedding or a house deposit for a child would also be clearly highlighted. By identifying any gaps early enough your financial planner can adapt your financial plan accordingly; by restructuring your investment and savings strategy or by providing new ideas on how to generate additional sources of tax efficient income.

Even more importantly, cash flow modelling brings financial planning to life in a way that numbers in a written recommendation never could.  

earns £100,000 a year, contributing 5% of this into his pension; his employer also contributes 5%

existing pension fund is currently valued at £500,000

existing ISA portfolio worth a further £100,000

estimates that a £50,000 retirement annual income will provide him with the retirement lifestyle he wants.

Mr Client also wants to understand the impact of retiring at different ages in his lifestyle in retirement. Using cash flow modelling we have been able to forecast two different retirement scenarios: one at age 55, and one at age 60.

At retirement age 60, the cash flow model confirms that Mr Client will have enough money to enjoy his desired annual income of £50,000 (rising with inflation) until he is aged 90.

In the above, it shows his ISAs (green bars) being used to fulfil his expenses before his pension gets drawn from age 63. The state pension (teal) also starts from age 68.

However, if he chooses to retire at age 55 the cash flow model projects that his money will run out at age 77. He misses out on a further 5 years of pension contributions plus an additional 5 years of growth of his investments.

In this scenario he would need to use investments to top up income to his target of £50,000. All of these financial factors will have a knock-on impact, which the cashflow model highlights. If 55 is still his desired target retirement age, then Mr Client’s planner could recommend and implement a strategy to meet that objective.

The above example is obviously simplistic, but it hopefully demonstrates the real power that being able to model your finances into the future can have. This becomes even more valuable – and complex – when more individuals and investment and pension accounts are involved. Cash flow modelling should now be at the core of your financial planning to provide a holistic view of your current and future financial position.

Ready to talk?

Sean Lowson, Financial Planner at Waverton Wealth, disucsses cash flow modelling and how it can benefit your finances in the long term. 

Cash flow Modelling: A Clearer View of Your Financial Future

Disclaimer: Cash flow modelling requires a set of assumptions about the future such as inflation and investment growth forecasts. The risk of errors can be easily mitigated through regular reviews of the model and a reassessment of the assumptions used. Key assumptions used: Inflation: 2.5%, Investment Growth Rate: 5%, Model created on 22/08/24, using tax rates and pension rules applicable at that time. 

Any expressions of opinion are those of the author and not necessarily those of the firm.  This article does not constitute advice, and a full assessment would need to be completed by one of our specialist advisers to understand an individual’s circumstances. Please remember that the value of investments can fluctuate, and you may get back less than you invested.  Past performance is not necessarily an indicator of future returns. Waverton Wealth Planning LLP is authorised and regulated by the Financial Conduct Authority (FCA). Waverton Wealth Planning LLP is registered in Scotland (SO302894). Registered office - Exchange Tower, 19 Canning Street, Edinburgh, EH3 8EH.

Scottish higher earners will now face a new 48% top rate of income tax. 

6 April 2024 was an important date in the diary for all Scottish taxpayers. That was the day that they had to start juggling with up to 12 different tax rates and 10 tax bands. It is the day that income tax rates in Scotland diverged even further from the rest of the UK.  

A new ‘Advanced’ 45% tax band has been introduced by the Scottish Government for those earning between £75,000 and £125,140. According to the Scottish Fiscal Commission that will financially impact 114,000 Scottish workers. And for the almost 50,000 Scots who earn over £125,140 their top marginal income tax rate will rise to 48% from the current 47%.  

That new top rate is now almost 7% higher than that for similar high earners in the rest of the UK and according to the Chartered Institute of Taxation, will mean a minimum additional annual tax bill of £5,231.81 for each of them.  

The intermediate income tax band has also been frozen, whilst starter and basic rates are increasing by inflation. This will create what is called ‘fiscal drag’. That is when wages rise but income tax thresholds do not, meaning that many more Scots workers will now be brought into these new higher bands of income tax. 

Thankfully, there is an alternative solution.

Two recent significant changes to pension legislation could come to your rescue here if mitigating these new tax rises is your objective.  

For those who are not subject to the tapered annual allowance or the money purchase annual allowance your annual allowable contribution to a tax-efficient pension plan is now a generous £60,000 a year.  

The second, which will come into effect on the same day as these tax rises, is the removal of the cap on how much your pension pot can grow in value before it is taxed. So, you can now safely invest the maximum each year into your pension pot. 

Maximising your annual pension contributions could be the simple answer to combatting the new Scottish tax rises. 

You will already be aware that paying into a pension plan is wise if you are to safeguard your quality of lifestyle in retirement. But these new differential income tax increases also highlight just how effective your pension contributions will now be in reducing your annual income tax bill. 

Scottish pension investors can now get up to 48% tax relief.

The Government tops up your personal investment into your pension plan each year with a 20% basic tax relief. This extra contribution will uplift your pension pot value. The good news is that after 6 April 2024, Scottish higher rate taxpayers can now claim back up to a further 28% tax relief pension pot boost depending on the new rate of tax that they will now pay. 

So, if you earn £100,000 a year and can afford to make an annual pension contribution of £40,000 there are now two major benefits.  

Firstly, you will get a substantial tax relief bonus boost to your retirement pot value.  

Secondly, you will also reduce your taxable income from the new “Advanced” tax band to the lower “Higher” rate one saving you £17,550 in tax payments next year. This is because your Scottish taxable earnings are NET of any pension contributions.  

Pensions are certainly not easy to understand as the rules keep changing and you may even have pension funds from previous employers that are not currently actively managed or reviewed as part of your wealth. If you are interested in looking further into how this solution might work for you, then please seek professional financial advice. 

Scottish taxpayers: how increasing your annual pension investment could reduce your taxable income rate bands

Scottish taxpayers: how increasing your pension contributions could reduce your taxable income rate bands

Thinking about death isn’t easy, but it should be an important part of everyone’s financial plan. This should include a clear understanding of what will happen to your pension and assets when you die and the tax implications of passing wealth on to your loved ones.

Let’s focus first on an often-ignored asset that could well be the biggest of them all. Greater even than the value of your home. Your pension fund. The good news is that, unlike your other major sources of wealth, your family can inherit any remaining money in your pension pot free of any Inheritance tax. And that is irrespective of the size of your overall estate.

I am referring specifically to defined contribution pensions, i.e., personal and self-invested personal pensions (SIPP).

Firstly, your pension fund is probably the most tax-efficient way to pass on your wealth. Secondly, who can inherit your pension fund? That choice is generally up to you.

You select whoever you want to receive your pension fund when you die. However, it's up to the discretion of the pension scheme or trustees who look after your pension as to who it is actually paid to. But they must respect your written wishes. To record these, you should have completed what is called an Expression of Wish or Nomination form.

Thirdly, this form isn’t legally binding. But that shouldn’t stop you from completing one, as by doing so, you should be able to place your whole pension fund outside the reach of any subsequent inheritance tax raid by the Treasury after you have gone.

Some pension providers allow you to make a binding nomination, however, in most cases, the final decision on who gets your pension assets remains with your scheme administrators or trustees.

It is important to understand there is a range of ways in which your pension fund assets can be passed on to your beneficiaries. The choice is not necessarily all or nothing – the same pension pot may provide benefits in different ways should the scheme allow. These include:

A variable income that can be taken from the fund every year. This is called Beneficiary Income Drawdown.

An annual income that is guaranteed for the rest of the beneficiary’s lives. This is called a Lifetime Annuity.

A new pension plan may be provided from your fund for those you have left behind. This is called a Dependant’s Scheme Pension.

Your available options will be limited by what your pension scheme will allow. For example, not all schemes can facilitate income drawdown, and very few providers permit beneficiaries under 18 to have an income drawdown plan. A lack of a completed nomination form can also restrict the available options. 

Although these points may appear minor on the face of it, the consequences could severely impact how your inherited pension funds are later taxed in the beneficiaries’ lifetime and on their own subsequent death.

When choosing a personal pension or self-invested personal pension (SIPP), many individuals (and employers) will naturally focus on the range of investments available to them and the plan costs as their priorities. However, overlooking the importance of understanding how the scheme/provider will treat your pension fund when you die is equally important in terms of ensuring the tax efficiency of its transfer to your family.

Is it natural to nominate your spouse or partner to receive your pension after you have gone. However, there are many reasons you may wish to include other beneficiaries. Commonly, this is your children (sometimes grandchildren as well), with the remainder left to your spouse – most providers allow you to nominate as little as 1% of the fund value. This aims to future-proof the pension fund and provide the beneficiaries with greater flexibility when it comes time to inherit any remaining pension.

Imagine this scenario, your spouse or children are about to inherit your pension and they face a 45% income tax charge as they are forced to take the benefits as a lump sum as your death occurred after age 75 and your pension scheme doesn’t offer beneficiary drawdown. Furthermore, the inherited proceeds will be exposed to dividend tax, savings interest, capital gains and inheritance tax depending on their circumstances and how they invest the proceeds.

This is probably the perfect window for you to lift the bonnet on your current plans and check if they are in the correct structure to provide the most tax-efficient transfer to your loved ones when you have gone. 

Have you made the right plans for a secure financial future?

Start talking to us today about your financial ambitions, and we can help make it a resilient future. We take the time to understand your goals and objectives to ensure our advice is specific to your needs and aspirations – helping you build a brighter financial future. We have proven experience delivering financial plans for individuals, families, trusts and companies. 

To discuss your circumstances in confidence, please contact Drew Nutsford directly on 0131 514 2772 or 07969 341129 or email dnutsford@wavertonwealth.co.uk to arrange a no-obligation meeting.

Waverton's Drew Nutsford informs about what happens to one's pension after death and what your options are.

What happens to my pension when I die?

This week, we look at why managing your wealth both before and in retirement is crucial to ensure that your purchasing power doesn't erode over time so that you can continue to live your desired lifestyle. Like so many, you have probably experienced an increase in your regular expenditure over the past 18 months and may need to withdraw more income than expected from your retirement pot. 

Inflation can significantly impact your retirement savings and income, making it important to have a plan in place to mitigate its effects. Here are some strategies to help you manage the impact of inflation in retirement:

Rising interest rates is good news for savers as you now receive a far greater return for cash in the bank. However, holding more cash than you need is likely unwise in the current higher inflationary environment, as interest rates remain lower than the rate of inflation. This means as prices continue to rise, your pot of money will unlikely increase at the same rate.

History shows that over the long term, having a diversified portfolio that invests in a broad range of asset classes, including stocks, bonds and alternatives, will tend to outperform cash, helping you mitigate the impact of inflation. Your financial goals and investment timeframe should help determine the right allocation to each asset class and the diversification of your wealth.

How much cash is enough? Generally speaking, holding cash is more suitable for short-term goals (less than three years), emergency funds (between 3 – 12 months of your general expenditure) and funds you need to access quickly without disturbing longer term investments.

It is common for retirees to have several sources of income during retirement. Some, such as your state pension and defined benefit pension, offer no flexibility to make adjustments; however, they provide a necessary offset against inflation and a reliable income source.

Consider checking your state pension age and entitlement by visiting https://www.gov.uk/check-state-pension, which offers a ‘triple-lock’ safeguard to ensure it doesn’t lose value due to inflation. Depending on your previous employment, it is common to have a defined benefit pension that is another layer of secured income payable for life, which often increases with a capped percentage annually to help offset the impact of inflation.

Depending on how you accrued your wealth, you may have a range of assets, including properties, investment portfolio, cash and personal pensions. This type of flexible wealth enables an opportunity to structure your income to improve your portfolio's overall tax efficiency, which can help you save on tax, thereby ensuring more of your money goes towards your lifestyle and goals.

There are important steps to consider for those who have been pushed into a higher tax bracket, including taking advantage of your pension tax-free cash and making tax-free withdrawals from ISAs. This also may include maximising your tax allowance as a couple which could include transferring the ownership of assets into your spouse's name.

This is a complex area and working with a financial planner to take a holistic look at your overall wealth and advise on the most tax-efficient way to structure your capital in retirement is important.

3. Cash flow modelling different outcomes:

While a budget is a useful tool for managing regular expenses, it does not consider how your income and expenses might change over time and the impact this might have on your lifestyle. The way to tackle this is through something called “cash flow modelling”, which provides a complete overview of your finances and helps you make decisions that your future self will thank you for.

It involves comparing your current wealth, income, expected investment return and rate of inflation versus your known financial goals and objectives. This provides us with a visual forecast of your financial future so that we can understand the likelihood of achieving your goals and aspirations.

Why is it so important? The sooner we identify a possible shortfall within your financial plan, the sooner we can model alternative scenarios to find a resolution.

We routinely use cash flow modelling with clients. By projecting their finances into the future, it allows for far more effective planning and allows our clients to see the impact that any changes they make will have on their future selves. By creating different scenarios and adding goals, cash flow modelling brings personal finance to life in a way that simple numbers on a piece of paper cannot.

Start talking to us today about your financial ambitions, and we can help you make a resilient plan. We take the time to understand your goals and objectives to ensure our planning is specific to your needs and aspirations – helping you build a brighter financial future. We have proven experience delivering financial plans for individuals, families, trusts and companies. To discuss your circumstances in confidence, please contact Drew Nutsford directly on 0131 514 2772 or 07969 341129 or email dnutsford@wavertonwealth.co.uk to arrange a no-obligation meeting. 

This week, we look at why managing your wealth both before and in retirement is crucial to ensure that your purchasing power doesn't erode over time so that you can continue to live your desired lifestyle.

Future proof your wealth from inflation

Any expressions of opinion are those of the author and not necessarily those of the firm.

This article does not constitute advice, and a full assessment would need to be completed by one of our specialist advisers to understand an individual’s circumstances. Please remember that the value of investments can fluctuate, and you may get back less than you invested. Past performance is not necessarily an indicator of future returns.

Waverton Wealth Planning LLP is authorised and regulated by the Financial Conduct Authority (FCA). Waverton Wealth Planning LLP is registered in Scotland (SO302894). Registered office - Exchange Tower, 19 Canning Street, Edinburgh, EH3 8EH.

Financial planning is an essential aspect of everyone's life, but especially for women who are getting divorced. It often involves significant financial changes, and they need to make important decisions to secure their financial stability once the divorce is settled. 

Divorce will often create challenges, especially for women, such as loss of income, asset division, increasing child support costs, and the knock-on effects it can have on their retirement planning. In many cases, women may have relied on their spouses for financial support during the marriage, making them vulnerable to financial uncertainty after divorce. Financial planning can help women take control of their finances and create a solid financial foundation for their future. 

During separation, it is likely that income and expenditure will be materially impacted, and so creating a budget is essential. This will enable you to understand your monthly expenses, including mortgage or rent payments, household bills, school fees and pension provision, among others. Once you have a clear understanding of your monthly expenses, you can create a realistic budget that will help you manage your finances and avoid overspending.

Another important aspect of financial planning is establishing an emergency fund. This fund should ideally have at least six months' worth of living expenses to help you manage unexpected financial emergencies. An emergency fund can help you avoid getting into debt and reduce financial stress should there be any unexpected costs that arise.

Retirement planning is also a crucial aspect of financial planning for women getting divorced. According to the Office of National Statistics, women tend to live longer than men, with the average female living to 83.6 years and the average male living to 79.9. Therefore, with women living longer, it is key that they have sufficient retirement savings to support them throughout their retirement years. It is essential to review your retirement savings and make any necessary adjustments to ensure that you are on track to meet your retirement goals.

Women getting divorced also need to consider their insurance needs. For example, many couples will have joint life insurance policies and it is important to review these and make sure that they provide adequate cover for their future needs.

In short, women getting divorced should also consider seeking professional financial advice as well as legal advice.

Financial planning has never been more important for women getting divorced to ensure financial stability and security for their future. Women can take proactive steps to create a solid financial foundation by establishing a budget, creating an emergency fund, reviewing their retirement plans, and consider their insurance needs. By taking these steps, women can take control of their finances and secure their financial future after divorce.

To discuss your circumstances in confidence, please contact Waverton Wealth directly on 0131 514 2770 or email wealthplanning@waverton.co.uk to arrange a no-obligation meeting.

Take back control – understanding the financial impact of divorce

If you’re a business owner or director, making employer contributions to your pension from company profits not only reduces your corporation tax liability but will also boost your retirement income.

From 6 April 2023, the rate of corporation tax is increasing from 19% to 25% for companies with annual profits of £250,000 and more.

For those with annual profits up to £50,000, the tax rate remains at 19%.

For those with annual profits up to £250,000, the first £50,000 will be taxed at 19% and the remaining amount up to £250,000 at 25%.

For those with annual profits over £250,000, the whole amount is taxed at 25%.

How can you extract money from your business tax efficiently?

There are a number of ways for private business owners and directors to extract money from their businesses, which are subject to different taxes:

Salary. You can take income as a salary but anything over about £9,100 will then become liable for employer National Insurance contributions and employee National Insurance over £12,570. You’ll also start paying income tax over your personal allowance, which is set at £12,570 for 2023/24.

Dividends. Paying dividends is more tax-efficient than salary for anything above that £9,100 level. But your company will have already paid corporation tax on the money and it will then be subject to dividend tax. It’s important to note that the dividend allowance is reducing over the next few years.

Pension contributions. If you don’t need the money in the immediate future or you are approaching retirement then the most tax-efficient way is for the company to make a contribution to your pension fund. It is considered a business expense so it will not be subject to corporation tax, providing the contribution passes the ‘wholly and exclusively’ test – meaning that HMRC judges it is wholly and exclusively for the employer’s trade or profession.

Pension contributions could even lower the overall corporation tax rate your company pays if your profits are around the £250,000 cut-off point for the new 25% rate.

The rules and thresholds for all the different taxes related to company profits and personal income are complex, which is why it is important to work with your accountant and Financial Planner together.

Do you see your business as your pension?

Many business owners think about their business as their pension with only vague plans for the future, which could leave them vulnerable to the unexpected. For example, the recent Covid pandemic and the cost of living crisis reminds us how profitable businesses and sources of revenue can suddenly vanish. There is also the risk that you won’t be able to sell your business when you want or get a price that will be enough to fund your retirement plans.

Making pension contributions is a great way to transfer the profits in your company to your own name. It will give you more flexibility later about how you use the money as well as greater security. Additionally, with 25% of your pension available as tax-free cash (capped at £268,275) with the remainder subject to income tax in the year that you withdraw the income, it could be more tax advantageous in retirement and mean a greater level of wealth by leveraging the benefits of a pension. 

The new pension allowance limits mean you can contribute up to £60,000 a year into a personal pension. In addition, the removal of the lifetime allowance and the associated death benefits makes it a compelling vehicle to use to build wealth for retirement. 

When it comes to deciding the most tax-efficient ways to extract money from your business, think about purpose and intent, as well as timing.

Do you need the money now or can you afford to save it for later? It is worth considering the wider plans for your wealth if you are approaching retirement age. What is right for you will depend on your situation and factors including what your plans are for life after you have stopped working and earning.

At Waverton Wealth, we have the experience and expertise to advise you when it comes to building and delivering financial plans for business owners. 

From 6 April 2023 the rate of corporation tax is increasing from 19% to 25% for companies with annual profits of £250,000 and more.

There are a number of ways for private business owners and directors to extract money from their businesses, which are subject to different taxes.

If you don’t need the money right now or you’re approaching retirement then the most tax-efficient way is for the company to make a contribution to your pension fund.

Mrs Brown runs a successful business and over the last couple of years the profit has increased to £300,000. After forecasting the business needs for the next couple of years, there is excess capital available to be distributed of £100,000 in additional to their typical annual earnings of £90,000 (made up of salary and dividends). 

Fortunately, Mrs Brown is in a good financial position and does not require the capital for personal use and is interested to explore the available opportunities to mitigate both personal and company taxation. Mrs Brown has previously invested into a personal pension, but the last contribution was made several years ago. 

Having been introduced to Waverton Wealth via her Accountant, we concluded that Mrs Brown could carry-forward her previous three years of unused Annual Allowance (totalling £120,000) plus her £60,000 Annual Allowance in the current tax year. Therefore, the company can contribute the full £100,000 into the pension within the available allowances. Plus, there is still £80,000 of available pension carry forward allowance in the next two years.

As a result, Mrs Brown gained a further £100,000 in her own name to go towards building and securing her financial future without any immediate tax liability and the business reduced its tax liability by 36% (£25,946). 

Had Mrs Brown elected to pay the £100,000 as a dividend instead, the net benefit to Mrs Brown would be £56,961 after paying £43,039 in dividend tax. Additionally, as dividend is not treated as a business expense the extra dividend is subject to £25,000 in Corporation Tax.

Tax-efficient ways to extract profits from your business

Any expressions of opinion are those of the author and not necessarily those of the firm.
This article does not constitute advice, and a full assessment would need to be completed by one of our specialist advisers to understand an individual’s circumstances. Please remember that the value of investments can fluctuate, and you may get back less than you invested.  Past performance is not necessarily an indicator of future returns.
Waverton Wealth Planning LLP is authorised and regulated by the Financial Conduct Authority (FCA). Waverton Wealth Planning LLP is registered in Scotland (SO302894). Registered office - Exchange Tower, 19 Canning Street, Edinburgh, EH3 8EH.

While a budget is a useful tool for managing regular expenses, it does not take into account how your income and expenses might change over time and the impact this might have on your lifestyle. The way to tackle this, is through something called “cash flow modelling”, which provides a complete view of your finances, and helps you take decisions now that your future self will thank you for.

It involves forecasting how you will pay for life changes such as a growing family or your retirement, whilst understanding what goals and aspirations are actually affordable. It takes into account all sources of income and expenses, including salaries, investment income, as well as current and future liabilities eg mortgages and taxes, to create a comprehensive picture for how you can spend money, both now and in the future.

Cash flow modelling allows potential gaps to be identified such as a shortfall in savings for a specific goal or a lack of funds to cover an anticipated expense. It can also help plan for more tax-efficient structuring so your wealth is working harder for you when you By identifying these gaps, financial plans can be adjusted accordingly, whether that means altering your savings strategy or finding ways to generate additional income.

At Waverton Wealth, our Wealth Planners routinely use cash flow modelling with clients. By projecting their finances into the future, it allows for far more effective planning and allows our clients to see the impact that any changes they make will have on their future self. By creating different scenarios and adding goals, cash flow modelling brings personal finance to life in a way that simple numbers on a piece of paper cannot.

In this case, we have John, aged 50, who:

 Earns £100,000 per year, contributing 5% of his salary into his pension, his employer also contributing 5%

His pension is currently valued at £500,000

He predicts he will need £50,000 per year for expenses in his retirement

In this case, we have looked at two different retirement dates: one at age 55, and one at 60. 

When John retires at 60, he has enough money to see him through until age 90 and spending £50,000 per year (rising every year with inflation).

When he retires at 55, however, his money will run out at age 77, leaving him to rely on the state pension for the remainder of his life. By retiring 5 years earlier, he misses out on 5 years of pension contributions as well as an additional 5 years of growth in his ISA and pension. He also needs to fund an additional 5 years before his State Pension kicks in. All of these have a big knock-on impact, which the Cash flow modelling software highlights very simply.

Cash flow modelling requires a set of assumptions about the future such as inflation and investment growth. The risk of this can be mitigated, however, through regular reviews of the model and reassessment of the assumptions used.

Any expressions of opinion are those of the author and not necessarily those of the firm.

This article does not constitute advice, and a full assessment would need to be completed by one of our specialist advisers to understand an individual’s circumstances. Please remember that the value of investments can fluctuate, and you may get back less than you invested. Past performance is not necessarily an indicator of future returns.

Waverton Wealth Planning LLP is authorised and regulated by the Financial Conduct Authority (FCA). Waverton Wealth Planning LLP is registered in Scotland (SO302894). Registered office - Exchange Tower, 19 Canning Street, Edinburgh, EH3 8EH.

Make sure your finances stay on track to deliver the life you want

With growing numbers of people quitting the workforce over the past few years, the rise of economic inactivity is one of the biggest challenges facing the UK against a background of high inflation and weak economic growth. While the shock of the Covid pandemic encouraged many of us to reassess our working lives, there are many other reasons behind the trend.

The government has been exploring ways to entice people back to work and encourage others to keep working for longer. The Chancellor announced three significant pension changes in the recent Spring Budget, effective from 6 April 2023, that are aimed at skilled higher earners in key industries:

pension lifetime allowance (LTA) tax charge scrapped

pension annual allowance rises from £40,000 to £60,000

money purchase annual allowance (MPAA) raised to £10,000 from £4,000

The result is that you’ll now be able to attract tax relief on savings up to £60,000 or 100% of qualifying earnings (whichever is lower) into your pension without facing any tax charges when you come to take an income from it – apart from income tax at the standard rates. 

On the face of it, specifically saving into a pension is more attractive. But as the value of your pension and general wealth increases, you may need to structure your wealth better to utilise other savings opportunities to help mitigate higher income taxation rates.

There’s a lot to consider and what’s right for you will depend on various factors – including when you’d like to retire and how much income you think you’ll need, as well as any plans for passing on assets to your family. Our experienced wealth planners will help you make the right choices today so that you’ll have more flexibility later.

One of the first questions to consider is whether the changes mean you don’t have to save outside your pension. We believe it’s almost always a good idea to have a diverse range of saving pots, such as ISAs and bonds, so that you’re taking full advantage of all the thresholds and allowances available to you.

While a pension is usually the most tax-efficient way to save for retirement, there are still some restrictions about when and how you can access the money. 

It’s important to define the purpose and intent for your wealth, which our wealth planner will help you explore. By establishing your financial plan, you will be in a position to have your wealth structured in the most appropriate way, now and in the future.

Here are some of the expenses you may want to consider, which could all attract an unwelcome tax bill if not planned in advance:

paying for private school and university fees for children and grandchildren

substantial gifts, such as for weddings and house deposits for your children

If you’re thinking about giving away large lump sums to children or grandchildren then it might be more tax-efficient to fund these gifts from another source. A pension is also subject to specific rules around inheritance tax depending on when you die, which is also important to consider within your broader financial plans so you don’t leave your family with an unwelcome tax bill.

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