Anyone entering a lottery knows that the winning numbers are randomly generated and completely outside of their control – “You pays your money and you takes your chances.”
When it comes to people’s financial affairs things are quite different. Rather than rely on luck, it can pay to focus on certain numbers – be that inflation, tax-free allowances, or the latest interest rate.
Another of these numbers is age. Age is built into the fabric of the UK’s financial system, so understanding how it affects your finances and those of your family can be extremely useful in helping you to manage your financial affairs, formulate a financial plan and generally stay in control.
The most obvious example is the state retirement age, the age when people become entitled to claim the state pension. However, there are myriad other ages, or milestones, which should be factored in when considering our finances and more importantly when we do our financial planning.
Here’s a quick run through nine valuable ages in the financial world.
Day 1. A pension can be set up in a child’s name from the moment they’re born, with contributions of £3,600 every tax year benefiting from tax relief and what’s known as compound growth. This can build up over time to a large sum but bear in mind, it won’t be accessible until either the normal minimum pension age or their later chosen retirement age. This article from Adviser Declan Shepperd explains more.
The age at which some banks and building societies allow children to open current accounts (with limited facilities). Other banks and building societies set 16 as the minimum age.
A person who is responsible for bringing up a child is entitled to Child Benefit until that child reaches 16. Where a child is in approved education or in training, Child Benefit is payable until they reach the age of 20. If you or your partner earn more than £50,000 a year, you may have to pay back some of the Child Benefit.
The minimum age at which you are able to open an ISA (Individual Savings Account). However, children aged 16 and 17 can contribute to a cash ISA. An adult can also open a Junior Isa for a child who is under the age of 18.
Anyone aged between 18 and 39 can open a Lifetime ISA (LISA). This allows them to save up to £4,000 a year towards the cost of their first home or for retirement. The government then tops this up with an additional 25%. Although the cut-off date for opening a LISA is 40, people can continue putting money into a LISA until they reach 50.
From this age, under ‘Pension Freedoms’ introduced in 2015, anyone can take their Defined Contribution (DC) pension savings with a range of options, including cash withdrawal, retirement income products or a possible combination. A quarter can be taken tax-free, with the remaining 75% subject to tax. The Government has announced its intention to increase the NMPA from 55, to 57 from 2028.
The state pension age is currently 66. However, with people living longer, it’s scheduled to rise to 67 between 2026 and 2028. Under current legislation, the state pension age is due to rise from 67 to 68 between 2044 and 2046 for those born on or after April 1977. However, a government review’s considering whether to go ahead with a recommendation made in 2017 to introduce this change seven years earlier from 2037. The latest review must be published by May 2023.
The age at which a test against the lifetime allowance (LTA) is undertaken. The LTA, which is currently £1,073,100 frozen until April 2026, is the maximum an individual can save in a UK pension before a tax charge may apply.
Anyone who dies after the age of 75 can have their pension death benefits drawn down or paid as a lump sum, which is taxed at the beneficiary’s marginal rate of tax. The benefits can be paid as a lump sum to a trust, with a 45% tax charge. In the case of an annuity, a beneficiary’s benefits are taxed at their marginal rate of tax.
Some things are without bounds…
In any instance of financial planning, it’s always worth seeking the view of a qualified financial adviser, to ensure you clearly understand the implications of any actions you might choose to take.