Saving for Retirement

Thinking about retirement can be stressful, but it doesn’t have to be. In fact, your retirement is something to look forward to. Regardless of age, making a start on saving for retirement helps to ensure your financial security during your golden years.

What is a Cash ISA?

Just like a savings account, a Cash ISA (Individual Savings Account) is a safe, secure way to store your money. The only difference is that any interest you earn on your savings is tax-free.

What are the benefits of an ISA?

There are many reasons to opt for a Cash ISA over alternative savings accounts. Not the least of these, is that they’re a great way of saving for your future. Other benefits include:

  • Currently, all basic rate taxpayers can earn £1,000 of tax-free savings interest per year, under the Personal Savings Allowance (PSA). However, there is no guarantee that this won’t change in the future. With ISAs, you’re guaranteed your savings will always be tax-free. Investing your allowance each year means you can grow your savings without having to pay any tax.
  • If you were to opt for an alternative regular savers account and savings interest rates increased, the money you’d saved may tip you over the Personal Savings Allowance limit.
  • Some types of Cash ISA come with the added benefit of government boosting. For example, the 25% government bonuses offered with Help to Buy ISAs and Lifetime ISAs. 

Are ISAs tax-free?

Yes, with a Cash ISA you can rest assured your savings are not only tax-free, but safe from changing regulations.

The only time when a Cash ISA isn’t exempt from tax is if you are aged 16 or 17 years old, and the money in your account is a gift from a parent. If this is the case, your parents may have to pay tax if parental settlement rules apply.

Cash ISA rules

  • To be eligible for a Cash ISA, you must be aged 16 or over and a UK resident. The only exception to this is in the case of Lifetime ISAs, that require you to be 18 years old
  • You can only open one Cash ISA per year
  • You have a single ISA allowance each year, which you can divide between a Cash ISA, a stocks and shares ISA, an Innovative Finance ISA and/or a Lifetime ISA. With a Lifetime ISA, the maximum allowance is £4,000 each year, meaning you have up to £16,000 to split between the other types

How much can I put in an ISA?

The total amount you can put into a Cash ISA for the 18/19 tax year is £20,000. This is known as the ISA allowance and is available to every person over 16 in the UK. You have the choice of using up the maximum allowance in one account, or splitting between the different types of ISA products.

Any interest your ISA earns doesn’t count towards your Personal Savings Allowance.

When is the ISA deadline?

The ISA deadline is midnight on 5th April each year; this is the end of the tax year. Any unused allowance doesn’t roll over into the new tax year, so you should try to make the most of your allowance before the deadline comes around. For more information on the ISA deadline, refer to our ISA deadline guide.

What are the different types of Cash ISA?

There are a number of different Cash ISAs available to help you achieve your savings goals. Whether you’re saving for your first home or setting up a nest egg for your golden years, there’s an option to suit you.

Fixed Rate ISAs

A Fixed Rate ISA pays a guaranteed amount of interest for a set period of time, from six months to five years. Though withdrawals are permitted, they’re subject to penalties. Consequently, a Fixed Rate ISA is better suited to those who won’t need immediate access to their savings.

Help to Buy ISAs

A Help to Buy ISA is a government scheme designed to help you save for a mortgage deposit on your first home. To qualify, you can’t own a property anywhere in the world.

You can save up to £200 a month in a Help to Buy ISA, and they come with the added bonus of government contributions. In this case, your savings could be boosted by 25%. The minimum government bonus is £400, so you will have to have saved at least £1,600 to qualify for a government bonus.Please note, Help to Buy ISAs are due to be withdrawn in November 2019.

Lifetime ISAs

A Lifetime ISA is a tax-free savings account that also offers a government bonus of 25% on top of the money you put in, up to a maximum of £1,000 a year. With a Lifetime ISA, you can deposit as much as £4,000 per year until the age of 50. Lifetime ISAs can only be opened and funded by those aged 18 to 39.

Junior ISAs

Junior ISAs are tax-efficient ways of saving for your little one’s future. You must be 16 or over and a UK resident to open a Junior ISA on behalf of a child, or be a child aged 16 to 18 to open one for yourself. The Junior ISA allowance for 2019/20 is £4,368.

Find everything you need to know about Junior ISAs here.

Refer to our Cash ISA page to discover the full range of ISAs available with Newcastle Building Society.

How many ISAs can I have?

You can have multiple ISAs at one time, but you can only open or pay into one of each type of ISA using your £20,000 allowance. 

Though you can only open one Cash ISA each tax year, there’s no limit to the number of ISA transfers you can make, should you spot a better interest rate with another provider. However, with Newcastle Building Society, you can open multiple cash ISAs using our CustomISA service. You can find more about that here.

What happens if I take money out of my ISA?

Withdrawals are permitted from most ISAs. However, if you make a withdrawal from a Fixed Rate ISA, you will be subject to a penalty in the form of a loss of interest on your savings.

If you think you will need access to your savings quickly, then you may be best suited to an ISA that doesn’t penalise withdrawals.

In relation to the Lifetime ISA a penalty of 25% of the withdrawal amount will be deducted unless the funds are being used for either:

  • Buying your first house (the account must have been held for a minimum 12 months)
  • You reach the age of 60
  • You are diagnosed with a terminal illness and have less than 12 months to live

Can I transfer my ISA to another provider?

You are permitted to unlimited transfers each tax year. However, you should always check that your new provider accepts transfers, as not all banks and building societies are obliged to do so

Avoid withdrawing money from your ISA yourself, as your savings may lose their tax-free status!

There are a number of reasons you may want to transfer to a new provider. For example, if you’ve spotted better rates elsewhere. Read our complete guide to the ISA transfer process for more information.

Can I inherit an ISA?

If your spouse or civil partner passes away, you will be eligible to receive an Inheritance ISA Allowance. Read more information about inheritance tax allowance in our helpful inheritance tax allowance guide.

Applying for a Cash ISA with Newcastle Building Society

If you'd like to apply for a Cash ISA at Newcastle Building Society, the process is really simple. We also accept ISA transfers, including Lifetime ISAs. To get the ball rolling, simply browse our Cash ISA product range or contact us.​

Below are details on saving for your retirement, from the different pension options available to alternatives to pensions.

 

How do I start saving for retirement?

Are you starting to think about saving for your retirement? Whether you’re considering a pension and/or ISAs, there are a number of ways to financially prepare for your golden years.

Make a start on your retirement savings by weighing up the different savings options available, and considering how much you can afford to stow away each month.

 

Pensions

What are the different types of pension?

The State Pension

A State Pension is paid by the government and offers a secure income that increases with inflation. You will receive a State Pension once you have reached State Pension age. Your age of eligibility depends on when you were born and your gender.

To be entitled for a state pension, you will need 35 years’ worth of National Insurance contributions. These 35 years are known as qualifying years. From April 2019, the state pension is £168.60 per week.

The State Pension age is currently under review and subject to change. To find out when you will be able to receive a pension, try this tool.

Defined benefit pensions

A defined benefit pension, otherwise known as a final salary or Career Average Valued Earnings pension, is a salary-related pension. The amount you are paid is based on how many years you have worked for your employer and your salary.

Your employer is responsible for contributing to the scheme and making sure there is enough money when you retire to pay your pension income. If you choose to do so, you can also contribute to this scheme as well as your employer.

Defined contribution pensions

Otherwise known as money purchase pensions, this pension involves building up a pot which you can then withdraw retirement income from.

Unlike defined benefit schemes, the income you get from a defined contribution scheme depends on the amount you pay in, the fund’s investment performance and the choices you make at retirement.

You can access your pension pot from age 55. At this time, you can choose to:

  • Take up to 25% of your retirement pot as a tax-free lump sum and convert the rest into taxable retirement income. This is called an annuity and guarantees a regular income for life or a set number of years.
  • Reinvest your pension pot to provide you with a regular income. The income you gain from this will vary, depending on the fund’s performance. There is also a risk that the fund will run out.
  • Take your whole pension pot in one lump sum. 25% of this will be tax-free, but the rest will be added to your income for the year and subject to Income Tax. If you are a non-taxpayer or basic rate taxpayer, accessing your pension in this way could result in paying tax at a higher rate.
  • Take out lump sums as and when you need them. Each time you do this, 25% will be tax-free but the rest of the lump sum will be subject to Income Tax at your marginal rate.

The value of investments and any income from them can fall or rise, and you may not get back the original amount invested.

Both HM Revenue and Customs practice and the law relating to taxation are complex, and subject to individual circumstances and changes which cannot be foreseen.

 

How do I start a pension?

In many cases, you don’t need to start your own pension because of automatic enrolment. Automatic enrolment is a Government initiative that helps people save for later life.

It’s now compulsory for employers to automatically enrol their eligible workers onto a pension scheme, and for employers and workers to pay money into this scheme. For more information on automatic enrolment and to find out if you’re eligible or not, refer to the Pension Advisory Service.

If you’re contributing to a pension scheme offered by your employer, check whether it’s a personal pension scheme or an occupational pension scheme. These are two different avenues of retirement savings and offer different benefits.

Alternatively, you can set up a personal pension. You may choose to do this if you’re self-employed, for example. To set up your own pension, you will need to find a scheme that suits you and your circumstances. One factor to consider is that you will need a provider who allows you to contribute as and when you can, as your income may not be as predictable as those with a salary.

We offer free Pension Clinics at all of our branches with Newcastle Financial Advisers. These sessions are perfect if you just want to ask a few questions and see what you might need to do next. Simply complete our online form to book a session at your nearest Newcastle Building Society branch.

 

When do I get access to my pension?

If you have a defined benefit scheme, the normal retirement age is 65. With a defined contribution pension scheme, you can usually start taking money from the age of 55.

At this point, you may choose to use the money to top up your salary (if you’re still working), to allow you to work fewer hours or to even retire early. Doing this will reduce the total amount you are allowed to continue paying into a pension if you choose to do so.

However, there are some circumstances when you can request access to your pension early. For example, if you’re struggling with health issues or you’re in a profession with an early retirement age. If you feel you’re eligible for early access to your pension, you should contact your scheme administrator as soon as possible.

Alternatively, some people choose to retire later than the minimum retirement age. In this case, if you have a defined benefit scheme, you may need your employer’s or the trustees’ permissions. Your pension may be higher if you do retire later. Your pension scheme’s rules will tell you how your pension will be calculated, if you opt for a later retirement.

 

Lifetime ISA

What is a Lifetime ISA?

As of April 2017, the government launched the Lifetime ISA as another way to help you save for retirement. If you’re between the ages of 18 and 40, you can open a Lifetime ISA and pay in up to £4,000 each tax year, and the government will add an additional 25% bonus.

Here at Newcastle Building Society, our Lifetime ISA helps you make the most of your later years. If you’d like to find out more about opening a Lifetime ISA, check our handy FAQ’s page or get in touch today.

 

When can I access my Lifetime ISA?

You can make full or partial withdrawals from your Lifetime ISA, without having to pay a fee, if:

  • You’ve reached the age of 60
  • You’re diagnosed with a terminal illness

At this point, you won’t have to pay any tax and you can use the money for whatever you want. If you take money out of your LISA for any reason other than the above, you will have to pay a withdrawal charge.

Many people choose to invest in a LISA as well as a pension scheme. However, Cash ISA’s are another way to save for retirement. To find out more on this, check out our guide. If you think a Junior ISA is the best option for your child, you will need to choose the type that’s best for you; whether this is a cash ISA, stocks and shares or both! Once you have an idea of the kind of ISA you’re interested in, you simply need to contact your bank or building society to apply.

 

How much do I need to save for retirement?

A recent survey by Which?* revealed the average amount a retired couple spend each month is £2,200. However, retirees often find they have less outgoings in retirement because they have already paid off their mortgages and no longer have to support their families, commute to work etc.

If you’re dreaming of spending your retirement enjoying holidays and leisure activities, you will naturally have to accommodate for this when making contributions to your retirement savings.

When it comes to saving for retirement, it’s best to start as early as possible. The sooner you start to put money aside, the faster your nest egg will grow and the more comfortable a retirement you will be able to enjoy when the time comes.

It’s never too early or too late to start saving for retirement. For more information on the right way to save for retirement for you, get in touch with Newcastle Financial Advisers today for helpful, expert advice.

Newcastle Building Society introduces Newcastle Financial Advisers Limited for advice on Investments, Pensions, Life and Protection Insurance and Inheritance Tax Planning.

Newcastle Financial Advisers Limited is an appointed representative of Openwork Limited, which is authorised and regulated by the Financial Conduct Authority.

 

*https://www.which.co.uk/money/pensions-and-retirement/starting-to-plan-your-retirement/how-much-will-you-need-to-retire-atu0z9k0lw3p