Festive gifts that teach children the value of money

Why parents should look to Christmas investment gifts instead of toys.

With the festive season approaching, have you thought about gifting your children or grandchildren something different this year? Giving them a good start in life by making investments into their future can make all the difference in today’s more complex world.

Lifetime gifting is not only a good way to set up children for adulthood but is also a way of mitigating any Inheritance Tax concerns.

However, what’s clear is that not all saving products for children are made equally. With interest rates at historic lows, if you are looking to put money away for a child to enjoy when they grow up investing is by far the best way to maximise your gift.

Significantly higher returns

Some people remain worried about the volatility of investing but, with an 18-year horizon, putting money to work in the market can give significantly higher returns than products such as Premium Bonds.

One option to consider is a Junior Individual Savings Account (JISA). These were introduced in the UK on 1 April 1999 as a long-term replacement for Child Trust Funds (CTFs). If a child was born between 2002 and 2011, they might already have a Child Trust Fund, but these can be transferred into a JISA.

Save and invest on behalf of a child

If the CTF is not transferred, when a child reaches 18 they’ll still be able to access the money. Or they can choose to transfer it into a normal Cash ISA. A JISA is a long-term savings account set up by a parent or guardian and lets you save and invest on behalf of a child under 18 without paying tax on income or gains.

With a Junior Stocks & Shares ISA account, you can put your child’s savings into investments like funds, shares and bonds. Any profits you earn by trading investment funds, shares or bonds are free from tax.

Investments are riskier than cash but could give your child a bigger profit, and the value of a Junior Stocks & Shares ISA can go down as well as up.

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

Financial education from a young age

The Junior ISA limit is £9,000 for the tax year 2021/22. If more than this is put into a Junior ISA, the excess is held in a savings account in trust for the child – it cannot be returned to the donor. Friends and family can also save on behalf of the child as long as the total stays under the annual limit.

When your child turns 18, their account is automatically rolled over into an adult ISA . They can also choose to take the money out and spend it how they like. It is therefore important to ensure that children are given financial education from a young age so that when they can get their hands on the funds they use them wisely.

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.

Pandemic triggers shift to saving

People thinking more about their spending and financial priorities.

The coronavirus (COVID-19) pandemic has lead to more people re-thinking how they spend and manage their money, with more than half (51%) now prioritising saving for an unexpected event or loss of income, research published suggests[1].

A third (32%) are setting aside money. This reflects Bank of England[2] estimates that more than £200 billion of savings have been built up during lockdown, but only 10% of these are expected to be spent over the next three years.

Spending and financial priorities

The findings show that while just under half (46%) of households are spending less generally on a day-to-day basis, the pandemic is clearly making people think more about their spending and financial priorities.

Nearly two-thirds (65%) said they are now very mindful about their money, with 38% giving more consideration to financial planning, and savings and investments. When asked what they would do with an unexpected £2k windfall, 40% said they’d save it compared to just over a quarter (26%) who said they’d spend it right away.

Battening down the hatches

Unsurprisingly, people’s savings are being offset in part by increases in grocery and household bills (for 37% and 36% respectively). And with more time at home for many, it seems we’re battening down the hatches and spending more on premium food and take-aways, while 39% are looking to invest in home improvements and DIY as we look to enhance our space.

Importance of our livelihoods

The good news for the advice sector is that nearly one in five (19%) are thinking more about seeking professional financial advice, a quarter of people are giving more thought to Wills and inheritance planning, and nearly one in five are thinking about protection products such as critical illness cover.

The past 19 months really have brought into sharp focus the importance of our livelihoods and finances, with many concerned about their health and financial security. But despite these tough times, it’s reassuring to see people taking stock and thinking positively about how they can bolster their situations, with one in five people considering professional financial advice.

Source data:

[1] 204 respondents to Zurich’s research panel made up of 88% target customers/12% customers May 2021.
[2] https://www.bankofengland.co.uk/bank-overground/2021/how-have-households-spending-expectations-changed-since-last-year

Property wealth boost

Older homeowners receive £1.94 billion.

Older homeowners received a £1.94 billion property wealth boost in the first half of 2021, data shows[1]. More than half of the proceeds of equity release (52%) were used to clear mortgages (45%) and manage unsecured debts (7%) while 23% was used to help family and friends – notably for help with house deposits as buyers rushed to beat the end of the Stamp Duty holiday.

These ‘big ticket’ expenses saw an average of £74,894 in borrowing being repaid and £72,520 being gifted. Over half of people who used their equity to support wider family and friends used it to provide a house deposit (52%) or an early inheritance (59%) – some of which was no doubt also put towards property purchase.

Invaluable source of cash

Equity release can be an invaluable source of cash for some over-55s. It enables homeowners to unlock the value locked up in their home as a tax-free lump sum without having to sell it, downsize or relocate.

Your home must have a minimum value of £70,000 and be your permanent main residence in the UK, which you live in for more than six months of the year. With equity release you don’t have to make monthly payments, unless you choose to. It’s usually repaid when the last borrower moves into long-term care or dies.

What types of equity release plans are there?

There are two main types of equity release:

Lifetime Mortgage: This is the most common type of equity release. You borrow money secured against your home. The mortgage is usually repaid from the sale of your home when you die or move permanently into residential care.

Home Reversion Plan: You raise money by selling all or part of your home while continuing to live in it until you die or move into permanent residential care.

Total value released

The data revealed an increase in the amount of money used for property purchases – around 7% of the total value released went towards buying homes with the average customer taking out £115,068 to boost their buying power.

Around 71% of people took out drawdown plans in the first half of the year, taking an initial average amount of £56,744 and reserving another £666.4 million for future use.

Double digit gains

The data reflects the whole market and shows that every region apart from Northern Ireland saw the value of property wealth released increase. London recorded the biggest increase at 74% while Wales recorded a 42.1% rise and another seven regions saw double digit gains.

Wales recorded the biggest rise in plan sales at 24.1% followed by London on 22.6% and a total of seven out of the 12 regions saw increases in plan sales.

The strength of the housing market in the South East and London meant those regions accounted for just over £1 billion of all equity released – more than half the total across the UK during the six months – despite accounting for only 34% of plans sold.

Source data:

[1] Key Market monitor Equity release performance in the UK Half year 2021

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR MORTGAGE IS SECURED ON YOUR HOME, WHICH YOU COULD LOSE IF YOU DO NOT KEEP UP YOUR MORTGAGE PAYMENTS.

EQUITY RELEASE MAY INVOLVE A HOME REVERSION PLAN OR LIFETIME MORTGAGE WHICH IS SECURED AGAINST YOUR PROPERTY. TO UNDERSTAND THE FEATURES AND RISKS, ASK FOR A PERSONALISED ILLUSTRATION.

EQUITY RELEASE REQUIRES PAYING OFF ANY OUTSTANDING MORTGAGE. EQUITY RELEASED, PLUS ACCRUED INTEREST, TO BE REPAID UPON DEATH OR MOVING INTO LONG-TERM CARE. EQUITY RELEASE WILL AFFECT THE AMOUNT OF INHERITANCE YOU CAN LEAVE AND MAY AFFECT YOUR ENTITLEMENT TO MEANS-TESTED BENEFITS NOW OR IN THE FUTURE.

CHECK THAT THIS MORTGAGE WILL MEET YOUR NEEDS IF YOU WANT TO MOVE OR SELL YOUR HOME OR YOU WANT YOUR FAMILY TO INHERIT IT.

IF YOU ARE IN ANY DOUBT, SEEK PROFESSIONAL FINANCIAL ADVICE.

Significant impact on retirement prospects and planning

£5.3 billion lost from over-50s’ retirement pots throughout the course of the pandemic.

Over-50s workers in the UK could have a £5.3 billion hole in their collective pension pot due to cutbacks on retirement savings over the course of the pandemic, according to new research[1].

The new findings estimate that approximately 10% of pre-retired over-50s – 1.4 million people[2] – are continuing to save less every month when compared to before the pandemic. At present, those over 50 saving less have reduced their monthly savings by £155 a month. However, at the peak of the pandemic this was an average of £219 less a month.

Saving less towards retirement

Overall, over-50s saving less towards retirement will have contributed £3,283 less on average over the course of the pandemic than they otherwise would have. Over-50s workers who are continuing to save less are doing so for a variety of reasons, such as pay decreases (39%), redundancies or job losses (22%) and the impact of being furloughed (13%).

One in five over-50s saving less (20%) have also had to reduce their retirement contributions in order to provide more monetary support to their loved ones.

Significant impact on retirement

It’s completely understandable that those who have faced financial hardship as a result of the pandemic may have looked for opportunities to cut back on their outgoings. However, the research shows that saving less, particularly for those in their 50s, could have a significant impact on retirement prospects and planning.

As we look ahead towards a period of recovery, the best thing people can do is commit to spending a day sorting through their affairs to better understand the options at their disposal, rather than burying their head in the sand.

Source data:

[1] Opinium survey of 2,160 UK over-50s in the UK who have not retired between 9 – 13 August 2021, 224 of which are saving less towards retirement, compared to before the pandemic.
Opinium and L&G ran two studies amongst pre-retirees aged 50+, and asked them how much less they were saving, if at all. Up to Jan, the average amongst all in this group were saving £27.01 less per month. Up to August, the average was £16.17. Applied across the relevant months from April 2020 onwards, this means this group on average saved £383 less overall. £383 x 13,944,731 = £5,344,851,289 or £5.3 billion.
[2] Opinium estimates there are currently 13,944,731 over-50s who are not retired in the UK. 224 out of 2,160 pre-retirees aged 50+ said they are saving less towards their retirement. 224 / 210 * 13,944,731 = 1,446,120 or 1.4 million.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE). THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE 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. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

ACCESSING PENSION BENEFITS EARLY MAY IMPACT ON LEVELS OF RETIREMENT INCOME AND YOUR ENTITLEMENT TO CERTAIN MEANS-TESTED BENEFITS AND IS NOT SUITABLE FOR EVERYONE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

How has COVID-19 affected retirement plans?

Attitudes and aspirations of this year’s retirees.

The coronavirus (COVID-19) pandemic has impacted on every aspect of our lives, affecting individuals’ financial situation and for many, their plans for retirement. If you are approaching retirement in the next 12 months, your plans should be under continuous review.

We take a look at new research which has highlighted the attitudes and aspirations of this year’s retirees[1].

Shifting attitudes

The pandemic has shifted attitudes and priorities across almost all aspects of people’s lives, but specifically, the timing of retirement is one thing that has changed for many. The research uncovered that 37% of people have sped up their retirement date in the past 12 months. The opportunity to work from home and escape the daily commute, has freed up time to enjoy other things.

It has provided a glimpse into what retirement might look like and many like what they see. Some may have found themselves forced into an early retirement due to a change in work circumstances or redundancy. While others were doing the opposite with 12% deciding to delay retiring.

When you choose to retire is important, the timing of it can limit or increase your earning potential prior to retiring. If you are considering changing your retirement date, it is important to discuss with us your updated plans so we can help you understand any impact this may have.

Flexible retirement

Traditionally when we think of retirement we think of the departure from working life. Although people often look forward to giving up work as part of their retirement plans, others have no intention of doing so fully.

Whether it be a financial or emotional driver, the growing trend of working in retirement is clear from the research. Just 44% see retirement as giving up work completely.

The rise in flexible working as a result of COVID-19 has also been a contributing factor; making stepping back rather than stepping away much more achievable than ever before with 22% planning a more flexible retirement by simply reducing their hours.

Financial impact

Unsurprisingly traveling remains a key aspiration. However, research shows that 30% of people have had to reconsider their travel or holiday plans in retirement.

As a result of COVID-19, uncertainty around safety and travel restrictions has led to more and more people choosing a ‘staycation’ or investing in a UK based holiday home over heading overseas.

Whether you’re swapping the Côte d’Azur for the Cornish coast or simply delaying your travel plans, it’s important to consider the financial impact, if any, that changing your original plans may have.

Cross-country moves

Lockdown living forced many of us to reassess what is important. With 51% worrying about not being able to do the things they want to in retirement.

As mentioned, travelling is one concern However, for 43% of people, not being able to spend time with family and friends has been a worry. For the peace of mind that another national lockdown won’t hinder the opportunity to visit loved ones, there has also been a trend in cross-country moves to be nearer to children and grand-children.

A move in retirement may not have been on the cards prior to the pandemic, however, this may now have become a priority for many.

Reviewing your plan

In times of uncertainty, making a plan can seem like a waste of time. However, it’s important to think ahead to retirement and review your plans for the future, and even more so as we face up to the protracted coronavirus crisis.

It’s concerning to see some individuals accessing pension funds earlier than planned with others thinking about this option. While this may alleviate short term financial pressures, it leaves less of a retirement fund to provide an income throughout what can be decades of retirement.

It’s important not to rush into making life changing retirement decisions without first seeking professional financial advice.

Source data:

[1] Research by Standard Life Aberdeen, carried out in February 2021 by 3Gem – 1000 adults, aged 55+ and still working.

Coping with life-changing events

Plan for tomorrow, live for today.

Change is the only constant in life. It inevitably involves twists and turns, with some that are expected while others may be entirely unplanned. When this happens, it’s important to feel secure with the knowledge that you have the right contingency plan in place.

None of us can predict exactly what a life-changing event will be or when it will occur, and many of them will take you by surprise, whether good or bad. Here, we consider some major life events you may wish to discuss with us.

Divorce and managing finances

Managing your finances after divorce can sometimes feel like an impossible task, especially if the amount of money coming into your household is much less than when you were married. For some people, divorce can mean financial devastation or hardship.

You may lose half of what you have saved over the course of your adult life, and go into debt paying lawyer’s fees and other expenses. Yet as messy and painful as divorce can be, it is often both necessary and ultimately a good thing – and it is possible to recover both financially and emotionally after a divorce.

When you’re facing a divorce, you need to know where you stand financially. We can help you plan for a sound financial future, to give you security and peace of mind, allowing you to move forward with your life.

Thinking about financial planning for long-term care

More people in the UK are living for longer, which is good news. However, this longevity brings certain challenges, such as how we will fund any long-term care that may be needed in the future. If you are one of the many people faced with helping a parent or another loved one find long-term care, then you are probably grappling with a lot of questions.

Among them: How can I bring this up in a way that won’t upset them? How are they, or how are we, going to pay for this?

What type of living situation is best?

Ageing comes with many joys and challenges. We can discuss with you the options to help cover your loved ones’ care needs now and in the future.

Dealing with your finances in widowhood

Coping with the death of a loved one can be extremely hard. You may be dealing with lots of different emotions, finding it hard to process them and having difficulties moving on. Losing your loved one, whether expected or sudden, can prove almost too much to bear.

But it’s surprising how uninformed some spouses can be about each other’s financial lives. Even in marriages that consciously attempt to integrate finances (joint bank accounts, both names on the mortgage), a lot of financial activity is specific to one spouse, for example, a credit card, retirement planning, an ownership interest in a business, investments, a car with only one name on the finance agreement.

After the death of a spouse, your financial situation will likely be a major concern. We will take the time to understand your needs and recommend solutions personally tailored to you.

What to do and not do with an inheritance

Losing someone you care about is one of the hardest experiences in life. Receiving an inheritance probably means coping with the death of a loved and cherished member of your family or a friend. The emotion associated with bereavement often makes taking decisions about both their estate, and what you stand to inherit, difficult.

Most estates are settled within six to nine months in the UK, but it depends on the complexity of the estate. If it isn’t handled appropriately, the pressure of the proceeds can be stressful, upset your relationships and complicate your finances.
During this difficult time we can help you to consider your options, assess any tax implications and decide how this inheritance could be used to provide you with financial security in the years ahead.

The importance of financial planning

Financial planning helps you determine your short and long-term financial goals and create a balanced plan to meet those goals. The coronavirus (COVID-19) pandemic has demonstrated unequivocally that such unforeseen and unplanned-for events can wreak havoc on our personal finances.

Establishing clarity around your finances is arguably one of the most critical things you can do for your overall financial success. It is important to understand your financial needs and then create a financial plan to meet them. Tax planning, prudent spending and careful budgeting will help you keep more of your hard-earned cash.

We know you’ll have different priorities for your wealth at different points in your life. Whatever your financial aims, we can help you achieve them for both you and your family.