Planning the future you want

Pension freedoms bring optimism and adventure to retirement

Will I ever slow down? Do I have the right plans in place? Retirement is a chance to do more of what you enjoy. figures released as part of LV=’s tenth annual State of Retirement report[1] indicate that, far from winding down, retirees are making the most of their time, with signs that pension freedoms have made people even more likely to feel this way. Half (49%) of retirees now say they view their post-work years as an exciting phase of life, with many using their free time to learn, see and experience new things.
Nearly two thirds (64%) of people who retired since April 2015 say stopping work has opened up new opportunities, with one in five (20%) having decided to learn new skills and more than half (55%) devoting more time to their hobbies. In addition, those who retired since the pension freedoms are being more adventurous with their holidays. Nearly half (46%) are holidaying in places they’ve never been to before, compared to 39% of people who retired before the freedoms were introduced, with the Caribbean (18% vs 11%), Australia (15% vs 6%) and cruises (23% vs 21%) popular destinations.

Viewing retirement more positively

The report finds this trend of viewing retirement more positively is set to continue, with future generations similarly optimistic. Two in five (42%) of those not yet retired think retirement will be exciting, and three in five (60%) believe they will have the opportunity to do more of what they enjoy. In terms of holidays, younger age groups are hoping to visit more far-flung locations – with 18-24-year-olds aspiring to travel as far as Asia (26% versus 11% of 45-54-year-olds), Canada (26% versus 17%) and New Zealand (25% versus 17%).

Working for an additional four years and two months

However, despite high hopes for enjoying their retirement years, many of those under 65 believe they will be working past this point, with people expecting to work for an additional four years and two months on average. In fact, one in ten (10%) expect to continue working for more than ten years after retirement, with this doubling to one in five (19%) for those between 35 and 44 years old. This could be down to a lack of planning as more than three in five (62%) of 35-44-year-olds don’t know how much is in their pension pot and, of those who do, two thirds (66%) have less than £50,000.

Living how you want once you stop working

One of the best ways to maximise retirement income and ensure you can live how you want once you stop working is to obtain professional financial advice. Yet only one in ten (11%) have obtained advice about their retirement, and 70% have no plans to do so. Worryingly, this rises to nearly eight in ten (79%) for over-55s.

Source data:
The full State of Retirement report can be found at: lv.com/stateofretirement.
The Work & Pensions Committee has launched a new inquiry into whether and how far the pension freedom and choice reforms are achieving their objectives
https://www.parliament.uk/business/committees/committees-a-z/commons-select/work-and-pensions-committee/news-parliament-2017/pension-freedoms-launch-17-19/
Methodology for consumer survey: Opinium, on behalf of LV=, conducted online interviews with 1,521 UK adults between 15 and 19 September 2017. Data has been weighted to reflect a nationally representative audience.

A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

THE POLICY MAY NOT COVER ALL THE DEFINITIONS OF A CRITICAL ILLNESS. FOR DEFINITIONS, PLEASE REFER TO THE KEY FEATURES AND POLICY DOCUMENT.

Investing for the future

Higher inflation and near-zero interest rates mean the responsible thing to do could be to invest rather than to save

Many of us have been brought up to believe that saving is the responsible thing to do. But in today’s environment of low interest rates and rising inflation, savers may need to consider becoming investors to prevent the erosion of their assets.

Since the global financial crisis of 2007/08, the world’s central banks, including the Bank of England (BoE), have responded by cutting interest rates to record lows. This reduces the cost of borrowing, encouraging spending by consumers and businesses, but it also discourages saving.

Economic recovery

The BoE has acknowledged this is a problem, and in its efforts to keep Britain’s economic recovery on track, the central bank has prioritised growth over the needs of savers. Savers currently hoard over £60 billion[1] in cash for long-term savings and investments, which stands to be eroded by £1.5 billion this year as a result of higher inflation.

That pressure has intensified following the UK’s recent vote to leave the European Union. The pound has fallen considerably against most other major currencies, which means imports have become more expensive. So savers are not only facing lower interest rates, but they are also facing higher prices.

Interest rates

Higher inflation and near-zero interest rates mean the responsible thing to do could be to invest rather than to save. You might even question whether it is better to splash out on some extravagant purchase instead – a new car or a long foreign holiday perhaps. But when you have your entire lifestyle, family and retirement needs to consider, splashing out on luxuries is unlikely to be the best solution, and the joys of doing so may prove short-lived.

So what are the alternatives? Government bonds are often considered to be one of the safer investments after cash, but the prices of government bonds have risen so much in recent years that the income they provide (their yield) is now close to zero – prices and yields move in the opposite direction.

Investment assets

Different types of investment assets offer differing degrees of protection against the effects of inflation, although it is important to understand that the behaviour of asset classes can and does change over time.

There are plenty of other options to consider, although the search for higher yields will often entail higher risk. That risk, however, needs to be set against the likelihood of inflation eroding your savings in the longer term.

Reliable profits

Equities are traditionally regarded as riskier than government bonds. However, many of the shares paying the best dividends are often found in areas generating reliable profits. For example, utilities companies usually have reliable income streams, as people still need to switch the lights on and heat their homes. And while the value of shares can fall as well as rise, successful companies can still increase their dividends – in contrast to the fixed income offered by bonds.

Then there are corporate bonds, which fall into two categories. Investment grade corporate bonds are reckoned to represent a lower risk of failing to pay investors, or ‘defaulting’.

Reward investors

Meanwhile, high-yield corporate bonds are more risky, but reward investors for taking on this risk by offering a higher income (or yield). A carefully selected portfolio of investment grade and high-yield bonds could provide an attractive income stream for appropriate investors, while keeping the amount of risk within the limits that many will find acceptable.

Given these varied opportunities, investors could be well advised to look at the merits of higher-yielding investments that offer the prospect of both higher income and the possibility of long-term growth.

Source data:
[1] BlackRock’s Investor Pulse survey, polling 4,000 people in the UK. Savers typically have £8,700 in cash, of which a quarter (£2,270) is set aside for long-term savings and investments.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

The bank that likes to say ‘yes’

Repeated payouts to children could have a detrimental impact on your own long-term saving

Many parents who are in a position to do so would want to provide financial help to their children. However, in many cases, this financial support ends up being gifts from Mum and Dad rather than the loans from the Bank of Mum and Dad they start out as.

Long-term dent

These written-off loans risk making a long-term dent in the finances of parents, often at the stage in their lives when they would like their money to be invested for the future and working hard for them in a pension. If the choice is between providing loans to their children or continuing to contribute to a pension, parents should obtain professional financial advice before making that decision.

On average, those who have lent money to their children or grandchildren are owed £12,700, and more than one in ten (11%) of the Bank of Mum and Dad’s loans are for figures of more than £20,000.

Repaid in full

Research from Prudential[1] has revealed that in many cases, the Bank of Mum and Dad doesn’t expect its loans to be repaid in full, with more than two in five (44%) parents who have lent money to their families admitting it is unlikely that they will ever see the full amount of money again.

However, the potential for significant financial loss from written-off loans doesn’t appear to deter them. More than two thirds (68%) of the parents interviewed have already loaned money to their families, or have definite plans to do so in the future, while the remaining (32%) all hope to be in a position to act as their children’s preferred lender some time in the future.

Considering lending

Of those parents who are considering lending to their offspring in the future, many are also unsure they will get the money back – nearly two fifths (37%) think it is unlikely they will be repaid, while only just over a quarter (28%) expect to be repaid eventually if they are called on as a lender.

Backing up a report[2] published by the Social Mobility Commission in March 2017, which revealed that young people are increasingly reliant on the Bank of Mum and Dad to help fund the purchase of their first house, the research shows that two in five loans from parents (39%) went towards a deposit for a house or buying a home outright.

Living expenses

The second most popular reason (28%) for lending money was to help buy a car. But the study shows cash is also going on paying off student and credit card debts, as well as for general living expenses.

As many younger people struggle to get onto the housing ladder, it has become widely accepted practice for parents to help out where they can, but children going to the Bank of Mum and Dad to help cover everyday living expenses is a worry. For many parents, repeated payouts to their children could have a detrimental impact on their own long-term saving for retirement.

Source data:
[1] Research conducted by Consumer Intelligence on behalf of Prudential between 20 and 21 July 2017 among 1,057 parents.
[2] www.gov.uk/government/news/first-time-buyers-relying-on-parents-to-get-onto-housing-ladder

You Snooze you Lose

The team at Investing For Tomorrow are busy making sure our clients make the most of their opportunities to reduce tax, just one facet of ensuring we use our wealth to the best possible effect.

This is true of both our personal business planning as well as optimising business proceeds for tax.

Unfortunately, this is where that human tendency to put things off runs out of road, we need to act now to ensure the best possible result. The methods and opportunities are too extensive to cover in an article and of course need to account for personal circumstances, however to discuss a few:

We can help utilise your personal allowance; not everybody has an £11,500 allowance but there are ways most people can benefit.
Make the most of tax relief while you can, you may be able to give that pension a boost without it breaking the bank.
Use those dwindling dividend allowance, the tax free £5,000 will be slashed in April, make the most of it whilst you can.
Minimise tax on your gains, we had a competition in the office and came up with eight diverse ways to reduce capital gains tax, unfortunately you can’t use any of them once the deadline has gone.
Effectively use the family tax bands, HMRC will give you relief on tax you haven’t even paid.
Make sure those ISA allowances have been all used up, careless acts costs tax!

Investing For Tomorrow are ready and waiting to help, there are no false deadlines here. Give us a call on April the 4th and we’ll jump through hoops, but March 4th would be better.

Avoiding hidden dangers in retirement

Make sure you don’t run out of money or face a reduced standard of living

Increasingly, more and more pensioners are keeping much of their pension invested after they retire. This means they’re faced with two very different risks when deciding what to do with their savings in retirement in a world of ‘pension freedoms’. Since April 2015, people who reach retirement have had much greater flexibility over how they use their pension funds to pay for their later years.

A recent report[1] identified that many savers in retirement are either taking ‘too little’ risk (the ‘risk averse’ retiree) or taking ‘the wrong sort’ of risk (the ‘reckless’ retiree). Each of these approaches increases the danger of a saver either running out of money during their retirement or having to face a reduced standard of living.

The risk-averse retiree – how can you take too little risk?

An example of taking ‘too little’ risk is the saver who takes their tax-free cash at retirement and invests the rest in an ultra-low risk investment such as a Cash ISA, believing this to be the safe approach. The report points out that ‘investing in retirement is still long-term investing’ and shows that decades of low-return saving can seriously damage the living standards of retirees.

It highlights the case of someone who retired ten years ago with an illustrative pension pot of £100,000 which they invested in cash. Assuming they withdrew money at £7,500 per year (in line with annuity rates at the time), they would now be down to £27,000 and likely to run out in around four years’ time, less than fifteen years into retirement. By contrast, if the same money had been invested in UK shares, there would still be around £48,000 left in the pot, despite the 2008 stock market crash.

The reckless retiree – what is ‘the wrong sort’ of risk?

In an era of low interest rates, some retired people may be tempted to seek out more unusual forms of investment with apparently high rates of return but accompanied by much greater risk to their capital. Examples could include peer-to-peer lending, investment in aircraft leasing or even crypto currencies such as bitcoin.

Concentrated exposure to a single, potentially volatile investment can produce very poor outcomes, particularly if bad returns come early in retirement. The pension pot in the previous example would still have £88,000 in it if the bad year for UK shares had happened at the end of the ten-year period we looked at and not at the start.

The rational retiree – what is the best way to handle risk in retirement?

Rather than invest in an ultra-low-risk way or chase individual high-risk investments, the report identifies a ‘third way’ of spreading risk across a range of assets, including company shares, bonds and property, both at home and abroad. This multi-asset approach can be expected to provide better returns over retirement than cautious investing in cash but also helps to smooth the ups and downs of individual investments.

Pension freedoms open up new possibilities for people in retirement, but they create new dangers as well. There is the danger of being too cautious and not making your money work hard enough – investing in retirement is still long-term investing. There is also the danger of taking the wrong sort of risk, seeking high returns but putting your capital at risk. Spreading money across a range of asset classes and in different markets at home and abroad is likely to deliver better returns in retirement – and a more sustainable income – than remaining in cash, without exposing you to the capital risks that can come from chasing after more exotic or risky types of investment.

These investments do not include the same security of capital which is afforded with a deposit account. You may get back less than the amount invested.

Source data:
[1] Research report published 13 January 2018 by mutual insurer Royal London

THE VALUE OF INVESTMENTS
AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

Financial resilience

How prepared are you for any financial shocks?

Over three million working couples are classed as ‘double income, no option’ (DINOs), which means they are potentially financially vulnerable if one of the two loses their earnings.

The typical household today looks very different from the traditional image of a working family made up of one primary breadwinner and one homemaker. Instead, nowadays many households rely on two incomes to maintain their lifestyle, or even just to get by. Of the two thirds of Britons who are living as part of a couple, half (51%) are both currently working. Yet, without adequate savings or protection insurance, millions could be at risk financially if one of the main earners was unable to work for a period of time.

Dependent on two incomes

Research by LV= has found that there are 3.2 million working couples in Britain that would be classed as DINOs. This means they are dependent on two incomes to make ends meet, and would struggle to cope if they lost one of their incomes. The Money Advice Service (MAS) recommends the provision of 90 days’ worth of outgoings in savings to protect against a financial shock.

The lack of savings may be down to people simply not being able to afford to put money aside. A quarter (27%) of working couples surveyed say their double wage isn’t stretching as far as it did this time last year. However, not having a back-up source of money leaves many couples at a high risk of financial difficulty if one person couldn’t work for a period of time.

Level of financial pressure

The level of financial pressure is also clear in the numbers who anticipate they’ll be working for many years to come. Of couples who both work, three in five (58%) wouldn’t choose to work if they didn’t have to, while over half (54%) say the same of their partner. Three in ten (30%) people in a working couple expect that both they and their partner will have to work until retirement to make ends meet, while one in five (21%) think both of them will actually need to work throughout retirement.

Millions of couples need both incomes to pay the bills, with a significant proportion saying they’d have to make major changes if they had to rely on one income. And the impact of losing an income is not just financial. Two in five (42%) people in a couple say that if one of them couldn’t work, it would strain their relationship.

Few have income protection

Despite the reliance so many households have on both incomes, worryingly few have income protection, leaving them vulnerable if one member of the household was unable to work for a period of time. Three in five (59%) say that neither they nor their partner has any form of income protection.

If your household is reliant on two incomes to make ends meet, it’s important to consider how you would survive financially and emotionally if you were forced to live off one income. With so many households now relying on two salaries to get by, it has never been more important for couples to protect their joint incomes.

Help to support you financially

Income Protection (also known as ‘IP insurance’) is a form of insurance that helps support you financially if you have time off work and suffer a loss of earnings because of injury or illness. However, it is important to remember that Income Protection only covers you if you’re unable to work due to illness or injury – it does not pay out if you are made redundant.

This type of insurance covers most illnesses that leave you unable to work. What that means, exactly, depends on your individual policy. For example, it may cover you if you are unable to work due to a stress-related illness or a serious heart condition.

Source data:
Research conducted by LV= published 17/1/2018

MOST INCOME PROTECTION PLANS HAVE NO CASH VALUE UNLESS A VALID CLAIM IS MADE.

Life events

What will influence your retirement income needs?

Retirement is a time for you to do the things you’ve always wanted. When considering your retirement income needs, you need to consider the types of events you would like to happen after you retire that may impact your budget. Thinking about these early could help you when you’re deciding the best way to take your pension savings.

Perhaps you’re looking forward to having more time to explore faraway places. Or maybe you dream of simply waking up each day and doing whatever takes your fancy. However you see your future, retirement is a time for you to do the things you’ve always wanted to do.

Concept of retirement
The very concept of retirement has changed. ‘Phased retirement’ is becoming more common; the way we access our pension is now a lot more flexible, and in the UK we’re living longer than ever before. A longer retirement and more choice over how you take your pension require planning ahead to help ensure you’re on track to a financially secure future.

Working habits
Although you may have retired from full-time employment, perhaps you may wish to earn money from part-time work. Besides the State Pension, consider any other income sources you’ll have when you finish working full-time and find out when they commence.

Supporting your family
Perhaps you have children or grandchildren that you plan to help through further education. How will you provide this financial support once you’ve retired? Some people intend to help their children onto the property ladder. Have you made a plan for how you’ll afford this?

Health
Leading a healthy lifestyle can help ensure you’ll be fighting fit during your retirement. However, ill health can strike at any time. And although you may not like to think about it, it’s important to factor things like medical costs into your financial planning.
In the longer term, you may also need to pay for residential care for yourself, your partner or your parents.

Savings and property
The amount you have in savings may influence what you’ll need from your pension. Is this enough to live on?
If you own a home, you may have decided that you’ll sell your home and move somewhere that better suits your lifestyle needs. You’ll also need to think about how you would pay for a new property, and factor in any repair costs to a new or existing home.

How you choose to take your pension
The way you choose to take your pension can impact things like your tax position or pension allowances. If you choose to move provider, you may lose any guarantees that you may have with your existing pension provider. You should also think about the impact of taking any tax-free cash, income or lump sums may have on any means-tested benefits you currently receive.

The effects of inflation
The effects of inflation may reduce the buying power of your savings and investments in the future, so think about how you’ll maintain your lifestyle if your money doesn’t stretch as far.

Beware of the scammers

Fraudsters employ increasingly advanced psychological tactics to persuade victims to invest

An estimated £1.2bn is lost to investment scams each year, with share sales, wine investments, land banking and carbon credits commonly used by fraudsters to target potential investors.

A recent study by Citizen’s Advice found nine out of ten people would fail to spot common warning signs of a pension scam, such as unusually high investment returns, cold calling and offers of free financial advice.

It’s very important to remain vigilant when you are looking to access the money you have invested. Last year, victims of investment fraud lost on average £32,000 as fraudsters employed increasingly advanced psychological tactics to persuade victims to invest.

So what is an investment scam?
Investment scams are a form of fraud where there is a high risk that you could lose some, or all, of your money. Often, the investment opportunities that scammers offer don’t really exist – or don’t have the rewards being promised. Scammers can appear professional and trustworthy, so even experienced investors may fall victim to these schemes.

How to spot an investment scam
Scammers are always changing their tactics, so the following are some of the red flags that could help you to spot an investment scam:

Be vigilant – if a phone call or voicemail, email, or text message asks you to make a payment, log in to an online account or offers
you a deal, be extremely cautious. Financial institutions, banks and online retailers never email you for passwords or any other sensitive information by requesting that you click on a link and visit a website. If you get a call from someone who claims to be from your bank, don’t give away any personal details.

Scammers often use very convincing tactics to get you to sign up. Beware of anyone trying to pressurise you into making a decision.

Scammers will make an investment sound very appealing and will often suggest that it’s less risky than it is.

Offers made by scammers often sound too good to be true. For example, you might be offered better interest rates or returns than you’ve seen elsewhere.

Scammers are persistent and will often try to form a relationship with you in an effort to build your trust. Beware of anyone who calls you repeatedly and/or anyone who tries to keep you on the phone for long periods of time.

You might be told that you’re receiving a very special and/or limited offer.

You might be told not to tell anyone about the offer you’ve been given. But talking with trusted friends and family about any investment offer you’ve been given could help you spot a scam.

Fraudsters are known to target previous victims of investment fraud, claiming that they can recover lost money. You might be asked to pay an upfront fee, but these companies will not get back your money.

Some companies that run scams base themselves overseas in order to avoid regulatory requirements. Be cautious if a company that is based overseas contacts you with investment opportunities.

How to protect yourself from investment scams
Get to know the red flags above that could suggest a scam. The Financial Conduct Authority ScamSmart website offers helpful support about what you can do to spot investment fraud.

More information about pension scams can be found at www.pension-scams.com – check out the leaflet there.

Make sure that the company or financial adviser you’re dealing with is authorised by the UK Regulator – the Financial Conduct Authority (FCA).

You can check their Financial Services Register and get more information on unauthorised firms overseas.

The FCA also have a warning list that you can check to help stay ‘scam smart’ before you go ahead with any investment.

Reject any cold calls that you receive, and please don’t give out any personal or financial information until you are sure you are dealing with a reputable company.

Useful information to help protect you from scammers can be found on The Pensions Regulator website.

You can report fraud and cyber crime via ActionFraud, the UK’s national fraud and cyber crime reporting centre.

Keep up to date with the latest scams and fraud warnings with useful advice at Age UK.

Remember to trust your instincts. If you think the offer sounds too good to be true, it probably is!

Crypto currencies

Don’t believe the hype

Transactions are made with no middle men – this means there’s no bank, regardless of the hype around getting rich by trading it. The frenzy was sparked by bitcoin soaring to more than 1,900% in 2017 to around $20,000, before falling to around $14,000 in February this year at the time of writing this article.

Separate components
There are two separate components. You have bitcoin-the-token, a snippet of code that represents ownership of a digital concept – or a virtual IOU. Then you have bitcoin-the-protocol, a distributed network that maintains a ledger of balances of bitcoin-the-token. Both are referred to as ‘bitcoin’.
Crypto currencies can be used to buy merchandise anonymously. In addition, international payments are easy and cheap because bitcoins are not tied to any country or subject to regulation. Some people just buy crypto currencies as an investment, hoping that they’ll increase in value.

Private transactions
Though each transaction is recorded in a public log, names of buyers and sellers are never revealed – only their wallet IDs. While that keeps bitcoin users’ transactions private, it also lets them buy or sell anything without easily tracing it back to them. That’s why it has become the currency of choice for some people online buying drugs or other illicit activities.

There are now hundreds of other such currencies that can be traded – and new ones are regularly being created. For some investors, one attraction of crypto currencies is the ability to participate in an initial coin offering, or ICO. Investors jump in, hoping to get the digital currency at a low price, and then profit as it rises. But ICOs are far riskier than stock initial public offerings (IPOs) and have other key differences.

Imperfect information
Crypto currencies are very risky investments because the technology is new and unproven, and prices have been extremely volatile. Many experts are sceptical about bitcoin as an investment primarily because there is nothing for them to analyse, so people are investing with imperfect information and joining the herd of speculators.

Aside from the operational issues of trading in crypto currencies, there is also a high risk of fraud. There is still a good deal of misinformation and lack of clarity regarding bitcoin trading, and fraudsters have taken advantage of this to launch Ponzi schemes, which promise ‘guaranteed high returns’. Some companies claim to double the initial investment within a very short period of time. The growing use of virtual currencies in the global marketplace makes it easy for miscreants to lure investors into Ponzi schemes. Investors should be careful to steer clear of such unrealistic promises.

For any investor looking to take the plunge and buy crypto currencies, it is essential they make sure it’s a very small part of their diversified portfolio – and that they can afford to lose their investment.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

Creating Wealth for Children

For many people, investing in their child’s future is one of the most important things they can do.

Whether you save little and often or have bigger sums of money to invest, keep going over a few years and you will soon have a very useful amount. This can go a long way towards setting them on the road to being independent or encouraging them to become savers themselves. Getting children involved in savings early on can help them to learn important lessons about money.

There are a variety of ways to invest in a child’s future; we’ve outlined a few below.

Children’s savings accounts

The handy thing about savings accounts is that they’re easy to pay into and access. They also pay interest and tax isn’t deducted before interest is paid in. There’s no need to reclaim tax if you’re a non-taxpayer and tax only has to be paid if the interest is more than your tax-free allowance.

However, it’s worth being aware that there are special rules when parents save for their children. If the interest they get is more than £100 a year, as the parent, you’re liable to pay any tax due on this.

The good news is this doesn’t apply to money received from grandparents, relatives or friends.

Junior ISA

Junior ISA’s let you save and invest on behalf of a child under 18. With no tax on the earnings, the money you put away can grow even faster. You can save up to £4,128 for the tax year 2017/18. A child’s parent or legal guardian must open the junior ISA account on their behalf.

Money in the account belongs to the child but they cannot withdraw it until they turn 18, apart from in exceptional circumstances. They can however, start managing the account on their own from the age of 16.

There is no tax payable on interest or investment gains and when your child turns 18 it is automatically rolled over into an adult ISA (sometimes called an NISA).

Junior Cash ISA

A junior cash ISA is generally the same as a bank or building society savings account, but they do come with one big advantage… your child doesn’t have to pay tax on the interest they earn on their savings, and as parents or carers, you don’t either.

Friendly society tax-exempt plan

These particular savings accounts are only available through Friendly Societies which are mutual benefit organisations, owned by their members to work for the advantage of those members. Money is invested in a share-based investment fund for the term length you choose. The maximum amount you can pay in is £270 per annum, or £300 per year if you pay in £25 each month.

The value of these investments can go down as well as up. Friendly Society policy charges also apply.

Start a pension for your child

Another option for investing in your child’s future is to start a pension fund for them from a very young age. This can make a big difference later in life as it means pension benefits can build up over their lifetime, rather than waiting until they are older and enter the workplace. A maximum of £2,880 can be paid per year into this, which becomes £3,600 through 20% tax relief.

For more information about how to invest in your child’s future or for an informal chat about planning your finances, get in touch.