master-admin, Author at Investing For Tomorrow

Save for unforeseen emergencies

As a mother, you’ve probably realised that emergencies can strike when you least expect them to. While an emergency savings pot can’t prevent sick days, uniform mishaps or broken friendships, it can provide a useful financial buffer for more expensive emergencies, such as boiler or car breakdowns. Building up at least six months’ worth of essential expenditure in an easy-access savings account reduces the risk of falling into debt or dipping into savings allocated for long-term goals.

Protection, protection, protection

An income protection policy should be considered if your family relies on your income to cover bills, childcare, school fees or after-school activities. This type of insurance pays out a portion of your salary if you suffer from a long-term illness and cannot work, helping you maintain financial stability and ensuring your children’s lifestyle isn’t unduly affected.

Life insurance is another essential protection, offering a vital financial safety net should the worst happen to you. It provides a lump sum or regular income if you pass away during the policy term, which could help pay off the mortgage and ease the financial burden on your family.

Your pension matters

If you’ve taken time off work to care for your children, finding ways to top up your pension savings is crucial. Many mothers prioritise their children’s futures over their own, but neglecting your pension can have long-term financial repercussions that ultimately affect your entire family. The good news is that there’s still ample time to get your pension back on track.

If you qualify for the full amount of the new State Pension, you will receive £221.20 per week, or £11,502.40 a year (2024/25). You must have paid National Insurance (NI) contributions for 35 years to qualify for the maximum amount. If you’re not working, you’ll receive NI credits automatically as long as you claim Child Benefit, and your child is under 12. You may still receive these credits if you’ve claimed child benefits but opted out of payments to avoid the High-Income Child Benefit charge.

Topping up pensions

Consider topping up your workplace or private pensions. Pensions are a highly cost-effective way of saving for retirement due to the tax relief you receive on personal pension contributions. This means a £100 pension contribution will only cost you £80 if you’re a basic rate taxpayer, £60 if you’re a higher rate taxpayer or £55 if you’re an additional rate taxpayer, as long as the total gross contributions are matched by the income in that band.

Even if you aren’t working, you can contribute up to £2,880 per year into a pension and still receive 20% tax relief, boosting your contribution to £3,600. If you receive any cash gifts or inherit some money, saving it into a pension can significantly enhance your retirement funds.

Wealth creation for your children

If financially feasible, saving money for your children can profoundly impact their future, potentially helping with university fees or securing a deposit for their first home. To maximise the growth potential of their money, consider investing in the stock market.

Although mothers might naturally lean towards being risk-averse, history shows that, over long periods, the stock market generally outperforms cash. A Junior ISA is a starting point. It offers tax-efficient investment growth and locks away funds until your child’s 18th birthday.

Obtain professional financial advice

You might not have the time or inclination to sort out your finances independently – and that’s perfectly fine. Financial matters are one area where entrusting the responsibility to a professional can be done guilt-free.

Obtaining professional financial advice can instil confidence that you’ve made the right decisions with your money, allowing you to focus on yourself and your family.

THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

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.

This document clearly states your wishes, ensuring your assets are allocated precisely as you intend. Without a Will, you lose this control and are considered to have died ‘intestate’. Consequently, intestacy laws come into play, determining how your legacy is distributed. These rules are far from straightforward and vary significantly based on factors such as your location, relationship status and family structure.

The complexity of intestacy laws can lead to unintended consequences, such as estranged relatives inheriting your estate or loved ones being left without adequate support. The absence of a Will complicates the distribution process and can create emotional and financial strain for your family. By having a valid Will, you provide peace of mind, knowing that your wishes will be respected and potential disputes or challenges will be minimised.

Lasting Power of Attorney explained

Equally important in legacy planning is the concept of a Lasting Power of Attorney (LPA). This legal document permits you, the ‘donor’, to appoint one or more individuals, known as ‘attorneys’, to make decisions on your behalf or assist you in doing so. There are two primary types of LPA: Health and Welfare, and Property and Financial Affairs.

Importance of Health and Welfare LPA

The Health and Welfare LPA ensures that your chosen attorneys can make decisions regarding your medical care and life-sustaining treatment when you are incapacitated. This document becomes effective only when you lose mental capacity, allowing your attorneys to act in accordance with your expressed wishes.

Property and Financial Affairs LPA

On the other hand, the Property and Financial Affairs LPA allows your attorneys to manage your financial matters, including paying bills, managing your bank accounts and handling property transactions. This type of LPA can be activated as soon as it is registered, provided you grant permission or upon losing your mental capacity.

Avoiding potential financial pitfalls

From a financial planning perspective, neglecting to establish an LPA can lead to significant issues. Without an LPA, your loved ones may need to apply to the Court of Protection for the right to act on your behalf, a time-consuming and costly process. This can be particularly problematic if the finances are solely in the name of the incapacitated individual, leaving their spouse or partner without legal access to necessary funds.

Registering your LPA

Once drafted, LPAs must be registered with the Office of the Public Guardian (OPG). This registration is crucial for the documents to become legally effective and ensures that your chosen attorneys can act on your behalf when necessary.

Holistic financial planning

We can help you identify these potential pitfalls and plan accordingly. By incorporating LPAs into your financial strategy, you can avoid the complications that arise from an unexpected loss of capacity, ensuring that your financial matters are handled smoothly and in line with your wishes.

THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL, OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

THE FINANCIAL CONDUCT AUTHORITY DOESN’T REGULATE TRUST PLANNING AND MOST FORMS OF INHERITANCE TAX (IHT) PLANNING. SOME IHT PLANNING SOLUTIONS PUT YOUR MONEY AT RISK, AND YOU MAY GET BACK LESS THAN YOU INVESTED. IHT THRESHOLDS DEPEND ON INDIVIDUAL CIRCUMSTANCES AND THE LAW. TAX AND IHT RULES MAY CHANGE IN THE FUTURE.

A dedicated savings pot can be the foundation for achieving your dreams, whether buying a home, embarking on a dream holiday or ensuring a comfortable retirement. Saving empowers you to take control of your finances, making future aspirations more attainable and less stressful.
However, to truly harness the power of saving, it is essential to set clear money goals and develop a plan to stay on track. Setting specific, realistic goals provides direction and motivation, turning abstract aspirations into achievable targets. This involves defining what you are saving for, how much you need to save and establishing a timeline to reach your objectives.

How to set your goals

First things first, think about what saving goals you’re aiming for. Here are a few considerations. Write down your goals. Physically writing out what you want to achieve can help you see the bigger picture of your aspirations and make it feel more real. Are you saving for your family, retirement, holidays, a house, an emergency fund or a car? Remember to keep in mind what brings you joy and purpose, too.

Make your goals specific and realistic

General statements like ‘I want to save more’ or ‘I need to spend less’ are too vague to stick to. They make it too easy to create many ‘exceptions’ that knock you off track. Setting specific goals could help you work towards achieving a clear, fixed target. For example, ‘I want to save £6,000 in the next six months’ or ‘I want to halve how much I spend on takeaways for the rest of the year.’ It’s also important to ensure your goals are realistic and achievable – setting goals that you’re unlikely to reach because they are too ambitious could be disheartening and demotivating.

Split your goals into short and long-term

A short-term saving goal could be building up a rainy-day fund to pay your bills if you lose your job. A longer-term goal may be saving up a deposit for a house or reviewing your monthly pension contributions, depending on when you want to retire. You don’t have to wait to complete your short-term goals before starting your longer-term ones. Think about how your goals would fit in with living a longer, multi-stage life.

Talking about long-term goals

As we start to live longer, saving for your later years might be something you want to give serious thought to. For example, are your retirement savings right for you, and what lifestyle do you have in mind after work? Or do you need to put some money aside for healthcare? The dynamics of how we live are changing, too. We’re moving away from the traditional three-stage ‘education, employment, retirement’ model to living more varied and flexible multi-stage lives. Our age no longer defines life’s stages but rather our decisions about how to spend our time. You might choose to attend university in your 40s or decide not to retire.

What to do if you have too many goals

Sometimes, setting too many goals can be overwhelming and hinder your progress. If you have a long list of goals and need help to meet them right now, you could add these to your long-term plan. You might decide to start saving for something in a few years rather than right now. It all depends on what’s most important to you and the money goals you’d like to achieve first.

How to meet your goals

So you’ve written down your money goals, but how do you achieve them? Begin with the end in mind. Planning is important to stay on track. Work back from there once you’ve chosen the financial goals you want to achieve. Decide where you want to be financially, set a future date and track back to where you are today. Setting milestones along the way might help, especially for those long-term goals.

Consider which goals you need to achieve first

You might have many money goals, but some need your attention first. It’s essential to recognise those and separate out what’s important from what’s urgent. Debts can often be a pressing money issue and are something to stay on top of. Understanding how much you need to save each month is crucial. As mentioned, you want to make sure your goals are achievable. So, think about when you want to achieve your goal and how much money you’ll need to save each month to meet it.

Choose where you’re going to save your money

It’s a good idea to consider where you’ll put your savings. There are a range of different savings accounts – so research which ones are best suited to your needs and goals. If you’re considering investing, bear in mind that the value of an investment can fall as well as rise and isn’t guaranteed. You could get back less than you invest. We can help you review your options.

Staying on track to achieve your goals

Now you’ve started saving towards your money goals, here are some things to consider to help you stay on track. Be proactive. Getting started is just the beginning; it’s important to stay on top of your goals and the milestones you’ve set. Not only will this help you achieve them, but it could also prevent bigger problems from building up. To help you stay on track, you could consider setting up a standing order so the money is automatically allocated to your savings pot. And if it helps, mark off a countdown on your calendar to keep you motivated as you get closer to your goal.

Review your goals

Things change, and so can your goals. As we start to live longer multi-stage lives, you might find that you need to adapt what you’re saving for or working towards due to a change in your circumstances. Like reviewing your budget, you might find checking in on your goals mid-way through the year useful.

Be cautious

Achieving your money goals can require patience. Being realistic about how long reaching each milestone might take is a crucial part of meeting your targets – and there are times when you might want to give up. Whatever your money goals, the first step is to start. Whether it’s starting small, make sure your targets are achievable based on how much you can afford each week or month.

THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

These letters are being sent to women who have taken time off work to raise children since 1978, following the identification of underpayments in the Department for Work and Pensions (DWP) July 2022 annual report.

State Pension underpayments

Affected women may have been underpaid by tens of thousands of pounds over the course of their retirement due to not receiving National Insurance credits towards their State Pension entitlement. If you receive a letter from HMRC indicating that you may be one of those affected, it is crucial to check if you are owed a State Pension back payment.

HMRC estimates that affected women could be owed an average of £5,000 each. The letters will be sent out over the next 18 months, prioritising those over State Pension age. Additionally, you may be eligible for Home Responsibilities Protection.

Avoiding scams

If you are concerned about potential scammers exploiting this issue, you can verify the letter’s authenticity by contacting HMRC on 0300 200 3500. The issue was initially corrected in 2011, resulting in 36,000 women receiving a share of £83m. Nevertheless, the DWP report indicates that thousands more women may still miss out on their rightful State Pension entitlement.

Historical context

This is not the first instance of women’s pensions being underpaid. This latest issue follows a scandal involving the underpayment of State Pensions to married women and widows who claimed their pension before April 2016. Based on their husbands ‘ records, these women were entitled to higher rates, with the underpaid amount estimated to be around £1.5 billion.

Ongoing challenges

Many pensioners continue to be underpaid due to these errors, and sadly, tens of thousands have passed away without receiving any of the money they were owed. The DWP has pledged to track down and pay the owed amounts to those affected by the end of 2024.

Additionally, investments can provide a passive income stream, helping to fund major life events such as buying a home, funding education or enjoying a comfortable retirement. The power of compounding returns further amplifies the benefits of investing, as the earnings on your investments generate their earnings over time.

However, it is crucial to understand the concepts of risk tolerance and risk capacity to make informed investment decisions. Properly balancing your investment strategy with your risk profile can significantly impact your financial success and peace of mind, helping you navigate the complexities of the financial markets more effectively and confidently.

Understanding risk tolerance

Risk tolerance refers to an investor’s willingness and ability to endure market volatility and potential losses. It measures your comfort level with investing in assets that may fluctuate in value. Factors influencing risk tolerance include your personality, past investment experiences and financial goals.

For example, if you are comfortable taking risks, you might prefer investments offering higher potential returns, understanding that these come with greater volatility. Conversely, if you are risk-averse, you would likely choose safer investments, even if they offer lower returns.

Understanding your risk tolerance is crucial before you begin investing. Ask yourself questions like: How comfortable are you with market volatility? How might you react if your investments decrease in value? Are you someone who embraces investment risk for greater opportunities, or are you more risk-averse and likely to worry when the market dips?

Defining risk capacity

Unlike risk tolerance, risk capacity is not based on your emotional comfort with risk. Instead, it pertains to how much risk you can afford to take, given your financial situation, investment time horizon and life stage.

Risk capacity considers practical aspects like your income, savings, liabilities and the time frame for achieving your financial goals. For instance, a young professional with a steady income and decades before retirement may have a higher risk capacity than someone nearing retirement who cannot afford significant portfolio losses.

The importance of aligning investments

Aligning your investments with risk tolerance and capacity is critical for several reasons. First, it helps ensure that you do not take on more risk than you can handle emotionally or financially. Second, it prevents you from being overly conservative, which might hinder your ability to grow your wealth sufficiently to meet your financial goals.

Practical tips for assessing risk tolerance and capacity

Self-assessment: Reflect on your past reactions to financial losses. How did you feel and respond? Consider your long-term financial goals and how much volatility you will endure to achieve them.
Financial review: Evaluate your current financial situation, including your income, savings, debts and future financial needs. Determine how much loss you can afford without jeopardising your financial security.
Time horizon: Assess the time you have to invest. Longer time horizons generally allow for taking on more risk, as there is more time to recover from potential losses.
Risk tolerance questionnaire: We can help assess your risk tolerance and provide insights into your comfort level with different types of investments.

Choosing investments

Once you understand your risk tolerance and capacity, we can advise on the appropriate investments that align with these factors.

Here are some options:

For high-risk tolerance and capacity: Equities, growth stocks and exchange-traded funds (ETFs). These investments offer higher potential returns but come with increased volatility.

For moderate risk tolerance and capacity: Balanced portfolios with a mix of stocks and bonds can provide a good balance of growth and stability.
For low-risk tolerance and capacity: Conservative investments such as government bonds, blue-chip stocks and high-quality fixed-income securities. These options offer lower returns but are less volatile.

Aligning investments with risk tolerance and capacity

It’s essential to align your investments with both your risk tolerance and risk capacity. Failing to do so may result in taking on more risk than you can afford or being overly cautious, causing your savings to grow too slowly. Both scenarios could hinder your ability to reach your financial goals.
Understanding your unique approach to risk and how it impacts you is vital.

Additionally, aligning your investments with your risk tolerance and capacity is essential for achieving your financial goals while maintaining peace of mind. By assessing these factors and choosing appropriate investments, you can more effectively navigate the complexities of the financial markets.

THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN YOU INVESTED.

THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE.

Balancing the nation’s books

The new government has faced the challenge of assessing the state of public spending and has identified a significant spending gap in the nation’s finances. This gap underscores the complexities of balancing the nation’s books while striving to implement growth-oriented policies. The Autumn Budget will likely address these challenges head-on, proposing measures to stimulate economic activity while ensuring fiscal responsibility.

The outcomes of this Autumn Budget will have far-reaching implications, potentially influencing everything from tax rates and public services to business investment and consumer confidence. As such, it is a pivotal moment that will shape the economic landscape in the months and years ahead.

Economic stability and growth

Following an ambitious King’s Speech, the new government’s first budget will seek to announce initiatives for growth alongside the activation of plans to balance the books across the spectrum of personal and business taxes and employment policy. But what could the new Labour government mean for your finances?

Prime Minister Starmer’s Labour manifesto emphasised wealth creation. The manifesto aimed to grow the economy and ‘keep taxes, inflation and mortgages as low as possible’. To fulfil those plans, Labour may have to make changes that could affect taxes, allowances, and various investment schemes and rules. Given the pledges made in the manifesto, doing so may prove challenging.

Pledges and challenges

Although the manifesto is not legally binding, it best indicates Labour’s government plans. Here, we highlight what the pledges could mean for your finances.

Pensions

Ahead of launching its manifesto, Labour announced that it would drop plans to reintroduce the lifetime allowance, a cap on how much people can save into their pensions before paying tax. Importantly, Labour committed to upholding the pensions ‘triple lock’, which ensures that the State Pension will continue to increase yearly in line with the highest of three factors: wage growth, inflation or a minimum of 2.5%. This policy is designed to protect the purchasing power of retirees and ensure they can maintain a stable standard of living in retirement.

In the Autumn Budget, there are rumours the Chancellor could look to change pension tax relief, with speculation that this might be one of her targets. One option for Reeves is to cut pension tax relief to 20%. This would be no change for basic rate taxpayers. But it would be a considerable reduction for higher and additional rate taxpayers, who receive 40% and 45% relief on some or all of their pension contributions.

However, further clarity on the scope of this and the challenges they are looking to address has yet to be made available. In the meantime, making the most of all your pension allowances is essential to build your financial resilience in retirement.

Inheritance Tax

Although Inheritance Tax has been widely discussed recently, it was a noticeable absence from the Labour manifesto. It contained no comments on future Inheritance Tax rates or reliefs (such as Business and Agricultural Relief).

VAT

The Labour manifesto confirmed that it intended to introduce VAT on private school fees and will end business rates relief for the schools, with such measures estimated to raise around £1.5bn for the government. The delay until 2025 gives families additional time to consider their options and improve their planning. Families typically have a finite number of financial planning options that can be used to meet additional expenditures, namely reducing other expenditures, increasing earnings, targeting higher returns (with the additional risk that comes with this), looking to borrow and gifting from relatives.

Income Tax

Whilst Labour had pledged not to increase taxes on working people (including Income Tax at the basic, higher and additional rates), this does not preclude utilising fiscal drag to increase Income Tax revenues. Fiscal drag occurs when inflation and income growth push taxpayers into higher tax brackets, which will remain frozen until at least 2028. This policy results in higher taxes for affected individuals, even though the tax rates themselves have not changed.

One area to watch could be taxes on dividend income. These have not been mentioned and may be outside the scope of the pledge as a non-working source of income with its own Income Tax rates. Moreover, Labour has pledged to reform the taxation of carried interest, which is a share of profits from a private equity, venture capital or hedge fund. The manifesto did not specify exactly how Labour would close the carried interest ‘loophole’, but the intent is clear: private equity is the only industry where performance-related pay is treated as capital gains. Labour will look to close this loophole.

Capital Gains Tax (CGT)

The Labour manifesto did not specifically mention CGT rates, and the party’s senior figures have said that they have no plans to reform these rates – with the exception of their proposed policy on carried interest. That said, future increases have not been ruled out entirely.

National Insurance contributions

Labour supported the Conservatives’ cuts to National Insurance in the 2024 Spring Budget, and its manifesto outlined a commitment not to raise current rates. However, Labour may utilise fiscal drag with frozen tax rates until 2028.

As the 30 October Autumn Budget approaches, individuals and families should take proactive steps to manage their personal finances. Anticipating potential changes and being prepared can significantly affect one’s financial wellbeing.

Remember, proactive planning is key to financial stability and peace of mind. Don’t wait until the last minute – take action now to secure your financial future.

Paying significant amounts of tax to access pensions

This is because when people fully encash their pension, HMRC taxes anything above their 25% tax-free pension cash as income, subject to the LSA position of the individual, so it’s taxed like an ongoing salary. The analysis shows there are hundreds of people out there paying significant amounts of tax to access their pensions. It’s impossible to know whether their circumstances warranted them being subject to a big tax hit, but for most people, it’s something you’ll want to avoid.

It’s important to remember that most pension income is subject to tax, like other income. Fully encashing a large pot will almost always mean a very large tax bill, sometimes taking away many years’ worth of savings. Often, when people fully withdraw their pension, it is simply to move the money to their bank account. Not only does this mean their savings become eligible for tax, but they’re also potentially giving up investment returns.

Withdrawing retirement savings more tax-efficiently

The good news is that there are ways to make withdrawing your retirement savings more tax-efficient, and it’s possible to spread your withdrawals over many years, which can be more efficient. Taking just one option at retirement, such as cash or an annuity, could mean you miss out on an opportunity to maximise tax efficiency and consider your financial needs in the round.

It’s worth considering a ‘mix and match’ approach to your retirement income, which could help you achieve the best of all worlds – you could, for example, annuitise a portion of your pension fund to cover essential outgoings and leave the rest in drawdown to access as and when you need it. Annuitising is the process of converting a lump sum of money into a stream of regular payments that are made over a specified period of time. Be sure to speak to your pension provider about your options, and we’d strongly recommend seeking advice or guidance when taking your pension.

How much tax will I pay on my pension pots?

First, most individuals will receive 25% of their pension pot tax-free, while the remaining 75% is taxable. The amount of tax payable on that 75% depends on factors such as your tax code, the amount you withdraw at a time and whether you have any other income sources.
It is important to remember that the total amount you can typically take tax-free across all your pension pots is now £268,275 unless you have specific protections in place. Most people cannot access their pension pots until they reach age 55 (rising to 57 on 6 April 2028).

Understanding your Personal Allowance

Everyone is entitled to a tax-free Personal Allowance each tax year, just like when working. For the 2024/25 tax year, the Personal Allowance is £12,570, which has been frozen at this level for several years. Any amount above this will be taxed as earned income according to your tax band. The simplest way to avoid paying excessive tax is to ensure you do not withdraw more from a pension pot than necessary. Taking it in small, regular amounts could help keep your tax bill down.

Remember, you only pay Income Tax on anything over your Personal Allowance. Therefore, if a pension pot is your sole income source, you could withdraw £12,570 from it each tax year without paying any tax. Conversely, taking large lump sums in the same tax year (outside of your 25% tax-free entitlement) could push you into a higher tax bracket.

Combining tax-free with taxable withdrawals

You do not necessarily need to take all of your tax-free lump sum at once. Often, you can take it in chunks over several months or years, provided your pension plan allows this. For instance, you could withdraw from the taxable portion of your pot and top it up with some of your tax-free amount.

Exploring ISAs as an income source

Unlike your pension pots, savings in your Individual Savings Accounts (ISAs) are generally not taxed upon withdrawal. You can contribute up to £20,000 in the 2024/25 tax year (across all your ISAs) and will not pay tax on withdrawals or gains. If you have savings in an ISA, consider using them to supplement your pension income to help reduce your tax burden. Alternatively, you could use your ISA to cover your entire retirement income before touching your pension.

For some, the early years of retirement can be more costly, necessitating a higher income. Hence, using tax-efficient withdrawals from your ISA to cover this period might be sensible. As you age and settle further into retirement, your expenses may decrease. Perhaps you have paid off your mortgage, enjoy less expensive hobbies or your children no longer rely on you financially. This could mean you can eventually afford to live off a more modest pension income, thus reducing your tax liability.

Source data:

[1] Retirement income market data 2021/22 | FCA
[2] Calculated using Which’s tax calculator, Income Tax calculator and salary calculator for 2024/25, 2023/24 and 2022/23 – Which? Figures rounded to the nearest £100.

THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.

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.

Creating opportunities for financial discussions

Having open conversations from a child’s early years allows parents to share their values and encourages children to formulate their own. It’s not all about numbers. A common misconception is that talking to children about money involves disclosing amounts or elements of the family’s financial life and position that may not be appropriate to share with children or young adults. Instead, the conversation should centre around communicating values and principles for managing money effectively.

The goal is to share with them what’s important to you about money and to equip them with the skills and confidence to manage their own wealth effectively. Identify any pitfalls that you wish for your child to avoid. This could be anything from entitlement to lack of confidence. Think carefully about this and find ways to discuss your views with your child.

Promoting financial confidence through practical activities

To reinforce the concepts discussed, consider incorporating practical activities into your routine. For example, you could start with simple budgeting exercises, setting savings goals for specific items, or even discussing the basics of investing in a child-friendly manner. These hands-on experiences can make abstract concepts more tangible and relatable for children.

Remember, the aim is for your child to feel comfortable and knowledgeable about financial matters. By encouraging an open dialogue, you are setting a foundation for their future financial well-being. Creating an environment where money can be discussed openly ensures that children feel confident seeking advice and making informed decisions about their finances.

Ages 3-6

Label three jam jars: “Spend,” “Save,” and “Give.” Give your child a regular amount of pocket money and divide it between the three jars. As they age, grant them greater autonomy in allocating their funds to each jar. Allow your children to make their own spending decisions for the spend jar. Resist the urge to give them more money once they have spent all their funds until they have replenished the jar.

The saving jar is ideal for storing

tooth fairy money or small monetary gifts from friends and family. As your child matures, introduce the concept of interest rates by occasionally adding a small amount to the pot. You can further incentivise saving by matching their contributions.

For the give jar, involve your child in choosing a charity or beneficiary. Create memorable experiences around their gift, such as volunteering or visiting the charity to see the impact. This often sparks joy and leaves a lasting impression on children.

From an early age, involve children in shopping decisions. For instance, ask them to choose between a branded product and a white-label good, show them the price difference, and prompt them to choose.

As they age, give them money to allocate to a specific category, like fruit. This grants them autonomy over small financial decisions for the family, fostering a sense of pride in their contribution.

Ages 7-10

Introducing the concept of “needs” versus “wants” is a powerful way to help children decide how to spend their money. Start by having your child list their “needs” and “wants” on a back-to-school shopping list, then discuss how to allocate the budget.
Working for “wants” sets goals that children can feel proud of achieving. Ask your child to draw a picture or write down their want, then give them specific jobs to earn money towards their goal. Celebrate their achievement when they reach it!

Give your child a budget for a family event, such as a birthday dinner. Allow them complete autonomy in allocating the budget, including designing the menu, buying ingredients, and deciding whether to have decorations and cake. This activity is a fun way for children to learn about budgeting and making spending decisions on behalf of the family.

Ages 10-15

In our increasingly digital world, visiting a bank can still be a memorable experience for children. It provides an opportunity to understand the concept of choosing a place to store and manage money. Consider opening a minor or joint account, which will give you full visibility over transactions. Select a bank with an intuitive, easy-to-use app to explore with your child.

Help your child deposit gifts and pocket money, allowing them to watch their balance grow over time. Review monthly statements together, discussing interest rates and payments. This hands-on approach can make financial management more tangible and engaging for young minds.
Engage your child in the world of investments by organising a family stock-picking competition. Each family member selects a company they are familiar with—perhaps one that produces a favourite food or toy—and track its performance over several months. Teach your child how to look up share prices using a stocks app on an iPad or similar device.

You don’t need actually to purchase the stocks. Instead, offer to pay dividends or gains made during this period or award a prize to the winning stock picker. This activity introduces essential investment concepts in a fun and accessible manner.

Ages 15-21

Assist your older child in building a budget for school or university. Show them how to anticipate income or allowance, plan for spending needs, and distinguish between fixed and discretionary costs. Transitioning to a less frequent allowance helps them practice budgeting independently.
Encourage them to allocate funds for an emergency fund to cover unexpected expenses. This preparation builds a solid foundation for financial independence and responsible money management.

Involving a young adult in the family’s charitable giving offers a valuable learning experience about investments and family values without revealing the entire financial picture. If there’s a charitable structure or account within the family, involve your child in deciding which charities to support and how much to donate.

Invite them to attend investment meetings or review investment reports, which will provide insight into asset management. This exposure will foster a deeper understanding of financial stewardship and philanthropy, preparing them for future responsibilities.

Empower your child to build their investment portfolio by giving them money or granting control over their Junior ISA (JISA) at age 16 if applicable. Establish ground rules for accessing capital and income to guide their investment decisions. This practical experience equips them with essential skills for managing personal investments and fostering long-term financial competence and confidence.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN YOU INVESTED.

THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE.

How to apply for Specified Adult Childcare credits

The process of claiming these credits involves transferring them from the child’s parent to the grandparent providing the care. This can ensure that grandparents do not miss out on valuable State Pension entitlements.

It’s essential for grandparents to be aware of this opportunity and to take the necessary steps to apply for these credits. The application process is straightforward but requires understanding the specific eligibility criteria and documentation needed.

Potential impact on retirement income

By claiming these NI credits, grandparents can see a significant boost in their State Pension over time, which can provide greater financial security in retirement. The increase in pension can make a substantial difference, especially given the rising cost of living and other financial pressures retirees face.

Understanding the long-term benefits and taking action to claim these credits can ensure that grandparents are adequately compensated for the vital support they provide to their families.

Claiming Specified Adult Childcare credits

Grandparents or relatives who assist with childcare must complete a form to claim Specified Adult Childcare credits. The child’s parent must also sign the document to confirm that you provided care during a specific period and agree to transfer their credits to you.

Please note that only one credit can be claimed per household. Therefore, you can only claim once if you care for two children in the same household. However, if you look after children from different families, you can make multiple claims.

How the scheme works

Once you have completed the relevant form, the Specified Adult Childcare scheme transfers NI credits from a parent who does not need them to a grandparent or family member providing the care. These credits can help fill gaps in your NI records. However, it’s important to note that this scheme cannot be used if you are over State Pension age.

If you are a working grandparent, you will not require NI credits as you should already receive ‘qualifying years’ on your NI record, which is subject to earnings. Additionally, there is no minimum number of hours you need to have looked after your grandchildren to be eligible for credits. You could benefit from the scheme if you cared for them all week or just one day a week.

During the coronavirus lockdowns, if you cared for your grandchildren via video or telephone, you can still apply for credits for the tax years 2019/20 and 2020/21 despite being unable to do so in person due to government restrictions.

Source data:
[1] Age UK 08/05/24.

Gen X faces unique challenges

Among Gen X, those aged between 45 and 54, one in three (31%) believe it is unlikely they will ever fully retire. This highlights the pressures the ‘sandwich generation’ faces in their 40s and 50s, who may be caring for both elderly parents and their own children while also needing to manage their own expenses.

This group falls between those who benefit from final salary pensions and younger generations who benefit from auto-enrolment. Similarly, more than a quarter (27%) of millennials do not think they will ever completely retire, with 28% of 25—to 34-year-olds and 26% of 35—to 44-year-olds sharing this sentiment.

Millennials and retirement

Older millennials are likely to face similar pressures to those encountered by Gen X, with auto-enrolment being introduced while they were already in their 20s. A gender disparity also emerges among the survey respondents.

Just one in three women (33%) believe they are likely to completely retire, compared to almost half (47%) of men. A quarter (25%) of Britons also say they do not envisage retiring before the age of 70, and almost a third (30%) want to continue earning to maintain their existing lifestyle.

Continuing beyond retirement age

Over a fifth of the total survey respondents, including 13% of those aged 55 or above, do not think they will ever completely retire. However, not all respondents cite constraints on their retirement ability as reasons for staying in the workforce.

One in six (16%) of those who do not think they will ever completely retire say they enjoy working and aim to continue beyond retirement age. This suggests a changing attitude among those in employment towards the notion of reaching an endpoint in their working lives.

Growing importance of family finances

Almost 10% of those surveyed express a desire to allocate part of their pension pot for their next of kin or relatives. This is cited as a reason to remain in the workforce, aiming to build up their savings further.

Additionally, attitudes towards retirement are noticeably changing. The once prevalent idea that retirement is a fixed event occurring on a predetermined date is increasingly becoming outdated. Significant numbers of individuals are now questioning whether they will ever fully retire.

Uncertainty among Gen X

Uncertainty seems most pronounced among the mid-life Generation X cohort. For this group, retirement is close enough to be a consideration but too far away to be a certainty. This demographic is uniquely positioned, balancing immediate financial responsibilities with long-term retirement planning.

The encouraging news for retirement savers is that they now have more control over their futures than ever before. They can choose when to utilise their retirement savings, and modern technology enables them to manage their money conveniently and efficiently.

Technological advancements

Technology has revolutionised the way individuals handle their retirement funds. Savers can now monitor and adjust their investments in real time, ensuring their money always works effectively for them. This flexibility allows for a more personalised and responsive approach to retirement planning.

Record numbers of people are proactively saving for their retirement. By taking control of our savings, we position ourselves more favourably to control our retirement, ultimately creating a more secure financial future.

Source data:

[1] Research was conducted by Censuswide between 25th – 27th March 2024 of 2000 general consumers, aged 16+, national representative sample. Censuswide abide by and employ members of the Market Research Society which is based on the ESOMAR principles and are members of the British Polling Council.

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.