Preparing for the unexpected

Protection should be a core part of your financial plan.

If you are worried illness or injury could leave you without enough to pay bills, there are solutions to help protect your income. While some people could rely on state benefits as a safety net if they experienced a sudden loss of income, for many the drop in income would be too severe to maintain their standard of living.

Being able to keep paying the bills

In many situations, families rely on both partners’ income to pay the monthly bills and don’t think about the impact losing one income could have on their standard of living. Even though people recognise the need to take out life insurance to pay off their mortgage if they die, some may not think about how their family could continue to pay their outgoings if they became ill or were injured and unable to work for a long period of time.

If something were to happen to you, would you and your family be able to keep paying the bills? The coronavirus (COVID-19) outbreak has made many of us think more carefully about protecting ourselves and our family from financial difficulties. However, this isn’t just about having savings and investments to provide for the long term – it’s also about ensuring you and your loved ones are provided for should the worst happen.

Sufficient savings to manage financially

Have you calculated how much you and your family would need if you found yourself unable to work? This should also take account of your savings and any other income you might have. Using a Budget Planner will enable you to work out what you’re spending each month, from household bills to general living costs. Having a good idea of your overall budget will make it easier to make changes.

Not everyone will have sufficient savings to manage financially for long periods of illness – particularly if this money is earmarked for other plans like retirement or helping children with their education. That’s where insurance protection comes in, and there are a variety of options that could help to cover specific costs, or replace income, should you find yourself unable to work.

Income Protection

Income Protection insurance can provide a regular replacement income if someone is unable to work because of an illness or injury. Typically, a policy pays out after they’ve been off work for six months (often called a ‘deferred’ or ‘waiting period’) and can pay a percentage of their salary until either they return to work, reach State Pension Age or die while claiming.

Critical Illness Cover

Critical Illness Cover is a type of insurance that pays out a tax-free lump sum if someone is diagnosed with, or undergoes surgery for, a critical illness that meets the policy definition during the policy term and they survive a specified number of days. It’s designed to help support you and your family financially while you deal with your diagnosis – so you can focus on your recovery without worrying about how the bills will be paid.

Life Insurance Cover

Life Insurance Cover pays out a lump sum if someone passes away during the policy term.
If you’re diagnosed with a terminal illness and are not expected to live longer than 12 months, some policies will provide the sum prior to death. It’s there to provide financial support for your loved ones after you’re gone, whether that means helping to pay off the mortgage or maintaining their standard of living.

Private Medical Insurance Cover

Private Medical Insurance Cover is a type of cover that pays your private healthcare costs if someone has a treatable condition. Whether it’s overnight care, outpatient treatment, diagnostic tests, scans or aftercare, you receive the specialist private treatment you need, in comfortable surroundings, when you need it. The cover is available at a range of different levels of cover at various premiums designed to meet your specific needs.

Build your own financial plan

Vision without action is merely a dream.

Having a financial plan in place early on can make it easier to manage your money further down the line. It’s never too early to make a financial plan. The sooner you work out your goals and start following a plan to achieve them, the more likely you are to succeed.

Here are three key questions to ask yourself when building a financial plan.

1. What are my goals?

Building wealth takes time and a little effort. Like any activity, be it growing a business or learning a new skill, you need to decide early on what your long-term objectives are. It’s exactly the same when you are building wealth – it is important to set financial goals.

Without a goal, your efforts can become disjointed and often confusing. Being able to keep track of your progress towards achieving a goal is only possible if you set one in the first place. Being able to measure progress is extremely rewarding and will help you maintain focus.

Procrastination is something we all battle with from time to time. However, when you set goals in life, specific goals for what you want to achieve, it helps you understand that procrastination is dangerous. It is wasted time. It is another day you aren’t moving closer to that goal.

Setting financial goals is essential to financial success. Once you’ve set your goals you can then write and follow a roadmap to realise them. It helps you stay focused and confident that you’re on the right path.

Consider the SMART principle when setting your own goals:

Specific – Clearly define what each goal is and use details such as numbers where possible (quantify it).

Measurable – Think about a tangible way in which you can measure your progress.

Achievable – Are your ambitions realistic? With planning we are often capable of more than we realise but being pragmatic is important. Discussing your goals with us will help you to balance this.

Relevant – Are your goals in line with your own personal values? It is useful to chat this through with somebody else to clarify your values.

Timebound – Think about the timeframe you are working within and whether there is any flexibility needed.

Your goals are personal and unique to you. Perhaps you want to set up your own business and follow a lifelong passion, or maybe you want financial security and to ensure you can pass a legacy on to your loved ones.

Once you’ve defined your goals and you’re clear on your current situation, it’s a good time to work out if you have enough to achieve your goals or if there’s a gap. This isn’t an easy task as there are often many variables to consider, such as inflation, tax and growth rates.

2. Where am I now?

Cash flow planning is a concept borrowed from business and every business owner or finance director will be familiar with the term. These same principles can be applied to your personal financial planning. As we’ve mentioned, the starting point is to identify each one of your personal goals.

Cash flow planning is most effective when all likely future needs are taken into account too. Just focusing on immediate needs may seem more practical but focusing on one goal at a time can limit future options.

Make a list or a spreadsheet of what you have, specifying where and how much; this could include any assets such as property, cash balances, investments, pensions, protection policies and any debts such as mortgage, credit cards or loans. Look at your income and expenditure levels.

Remember, the future is somewhere you have never been before. Cash flow planning guides and updates you on your journey. If there are delays on the way it can find another path. Combined with our professional advice, we can help you arrive at your destination more smoothly.

3. What do I need to do next?

As we’ve seen with the coronavirus (COVID-19) pandemic, things can change very quickly. It goes without saying that your financial plans should not be static objects, and that you should review your plans over time and on a regular basis to ensure that you remain on track towards your goals. You also need to adapt your financial plans as your circumstances change.

Reviewing your arrangements regularly is a vital way of ensuring you meet your financial goals and ensures that all your plans are up to date in light of changes to your circumstances and the wider financial landscape.

Reviews can also prompt you to consider some of those things that sometimes get left undone – such as your Will, which might still need to be arranged or updated. Or perhaps there is a Lasting Power of Attorney that has not been progressed or a life assurance policy that should be placed under an appropriate trust. As we’ve all recently experienced, life has a habit of springing unpleasant surprises on us when least expected.

Top pension tips if you’re about to retire

Understanding your options and putting a plan in place.

We spend our working lives building towards retirement. Choices we make today will have a big impact on the quality of our lives later on. If you only have a handful of years to go until you reach your retirement, it has never been more important to understand your options and put a plan in place – now could be a good time to re-evaluate your plans with us.

The changes made to UK pensions in 2015 mean that we all have more choices available on how to fund our lifestyle in retirement. But decisions surrounding when, why, and how you decide to retire will be very personal and will largely depend on your individual circumstances.

These decisions will also be impacted by external factors such as the rising State Pension age, and the impact of the recent pandemic on the job market. When planning for your future, it’s important to know when you can access the money in your pension pot.

If your pension is not on track to give you the income you want in retirement, you need to look at how to boost it. It’s also worth remembering that taking your pension doesn’t mean you need to retire.

Taking stock of your retirement plans

Retirement is a time to reap the rewards of years of hard work and do more of the things that you love, whether that’s travelling the world or spending time with your grandchildren. But to make this a reality, you need to prepare as well as you can financially. This isn’t always easy, as pensions and retirement planning can be complex.

To help you ensure you’re on the right track, ask yourself the following questions. What type of pension/s do I have? Do I have more than one pension pot? If so, where are they? When and how can I access the funds in my pension pots? What is the value of my pension pots? What benefits will they provide me with? What about any other options or guarantees?

Will you potentially exceed the Pension Lifetime Allowance?

If you’re close to retirement, you may find you are approaching the Pension Lifetime Allowance (LTA) limit. The LTA is the most you can accrue overall within your pension plans without incurring an additional tax charge on the excess funds. The LTA test can take place at various times and all funds are tested at some point (for example, when your pension plan is accessed, if you die without having accessed it and/or on reaching age 75). The LTA has been cut over the years and is now £1,073,100 for the 2021/22 tax year.

The LTA has also been frozen at £1,073,100 until 2026, potentially exposing you to the charge for breaching the threshold. If you breach the threshold you face a 55% LTA charge on amounts taken above this ceiling if they are withdrawn as a lump sum (with no further income tax due beyond the 55%), or a 25% LTA charge when taken as income which includes placing the funds in a drawdown plan. In addition, any income withdrawn is then taxed at usual income tax rates.

If you think you are nearing the LTA, it’s important to monitor the value of your pensions, and especially the value of changes to any defined benefit (DB) pensions as these can be surprisingly large. DB pensions are valued for LTA purposes as 20 times the annual pension figure, plus the tax-free cash amount, whereas defined contribution (DC) pensions are tested against the LTA based on the fund value. There were, and are, protections that can help you avoid a tax charge by giving you a higher LTA. We can discuss whether this applies to your situation.

What does your current and forecasted wealth look like?

As you get closer to retirement, it is important to assess your current and forecasted wealth, along with your income and expenditure, to create a picture of your finances for both now and in the future.

Lifetime cash flow modelling will help ensure you don’t run out of money – or die with too much – by showing whether your current investment approach is either excessively risky or unduly cautious. Retirement cash flow modelling can help to alleviate your concerns.

Building your individual retirement cash flow plan involves assessing your current and forecasted wealth, along with your income and expenditure, using assumed rates of investment growth, inflation and interest rates, to build a picture of your finances both now and in the future.

If you have accumulated wealth, retirement cash flow modelling will help you manage your position and make sensible decisions over the years. However, cash flow planning is arguably even more beneficial if you have longer-term personal or business objectives, as you can see how much you need to save and the returns you need to meet those defined objectives.

Time to look at your options available when accessing your pension?

Once you reach age 55, you can access your defined contribution (DC) pension pot. You can take some or all of it, to use as you need, or leave it so that it has the potential to continue to grow. It’s up to you how you take the benefits from your DC pension pot. You can take your benefits in a number of different ways.

You can choose to buy a guaranteed income for life (an annuity). You can take some, or all, of your pension pot as a cash lump sum, or you can leave it invested. However you decide to take your benefits, you’ll normally be able to take 25% of your pension pot tax-free. The rest will be subject to Income Tax.

It’s good to have choices when it comes to pensions and your retirement, but it’s also important to understand all your options and any impact your decision may have on your future security. How long your pension pot lasts will depend on the choices you make. We can help by discussing the options available to access your pension.

Annuities

If you buy an annuity this will provide a guaranteed income for the rest of your life. With this option, the provider agrees to pay you an agreed regular sum until you die. With an annuity, you may receive more or less money than you put in depending on how long you live after your annuity has started.

Flexi-access drawdown

By opting for flexi-access drawdown, you can leave your pension pot invested so that it has the potential to grow, or take lump sums or a regular income from it. Your pension pot will last until you’ve taken all your money out. The level of income you take and any investment growth will be key factors as to how long your pension pot will last.

Take some or all of it in cash

If you take some or all of your pension pot as a cash lump sum, it’s up to you how long it lasts. Once you receive your money after tax, you’re completely responsible for it and can use it as you require – although remember that although 25% of the amount you take is tax-free, you’ll pay Income Tax on the rest.

Leave it all for now – defer your pension

You could decide not to take your pension at your selected retirement date and leave it invested until you’re ready to take your benefits. This means your pension pot would have the potential to grow, although this is not guaranteed. It’s important to ensure you don’t lose any guarantees which only apply at your retirement date if you decide to leave your pension pot.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS 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.

Making inheritance gifts from surplus income

Are you making use of this useful and much under-utilised exemption?

If you want to make inheritance gifts from surplus or excess income, there is a useful and much under-utilised exemption that allows gifts over and above the value of £3,000 per annum to be made without these gifts forming part of your estate if you die within seven years of making them.

The exemption comes under the heading of ‘Normal expenditure out of surplus income’. It is a particularly valuable way of gifting part of your estate to future generations on a regular basis.

If you want to make inheritance gifts from surplus or excess income, you need to show that you intend to make regular gifts that will not affect your normal standard of living, and that will come from income rather than capital.

This form of giving is most effective for those with higher incomes relative to their cost of living, who are either looking to clear their estate or just make gifts to loved ones – especially in order to distinguish these gifts from lifetime gifts of capital that have already been made or are being contemplated.

So, what are the requirements?

1. The gift must form part of your normal expenditure – this can mean either a pattern of regular gifts or the intention to make regular gifts. You therefore need to record when you are making a gift out of income, by writing a letter for instance.

2. The gift is made out of income.

3. You are left with enough income to maintain your normal standard of living.

In order to assess whether you have sufficient income to utilise this exemption and to satisfy conditions 2 and 3, you will need to:

Consider how much net income you receive (for example, from employment, pensions, dividends, interest, rent) after tax.

Review what your normal expenditure amounts to – there is no actual legal definition of what ‘normal expenditure’ amounts to but it is based on an individual’s particular circumstances. This may, of course, fluctuate from year to year.

Conditions that must be met

It is important to consider the conditions that must be met for gifts to qualify. The conditions of ‘surplus’ and ‘normality’ are qualitative and, without methodical planning, can leave room for doubt about the tax effects.

It’s therefore important to seek professional financial advice in advance to identify any ambiguity. Inadvertently making a gift of capital could be very costly and later give rise to a 40% Inheritance Tax charge on those funds should you die within seven years.

Carrying forward your income

If appropriate, you could complete this process each tax year to review how much surplus income you have for that year. You can then increase or decrease the amount you gift accordingly. There are no hard and fast rules as to when income no longer retains its status as income. However, HM Revenue & Customs tends to take the approach of being able to carry forward income for a period of two years.

It’s important to keep financial records that allow you to calculate and offset expenditure against income. This will determine the amount available for gifting. Tracking the opening and closing balances on monthly bank statements is the usual starting point.

Continuing to make regular payments

It’s also helpful to record a Memorandum of Intent, declaring your future intention to make regular gifts of your excess income, which can be used to anticipate a challenge to their nature. The Inheritance Tax Form 403 provides a useful record-keeping tool. Your executors will need to claim the exemption on your death, and therefore it is important to maintain thorough record keeping.

In certain situations it may be possible that a single gift could qualify so long as it can be proved upon death that there was an intention to continue with the payments. Such intention could be proved by the donor providing a signed letter to the recipient confirming their intention to continue to make regular payments.

Wishing to retain control of your capital

This is a particularly effective means of tax planning if an individual is not dependent upon such income to maintain their current standard of living but wishes to retain control of their capital. For example, a parent could pay the premiums on a life policy for their child, make payments into trust for the benefit of their children, or pay their children’s school or university fees.

The gift can be made out of general income or it could be made out of a nominated source such as property rental or specific investment income.

THIS INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF LEGISLATION. LEGISLATION AND TAX TREATMENT CAN CHANGE IN THE FUTURE. THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE INHERITANCE TAX PLANNING AND TRUSTS.

Inheritance Tax

Minimising the impact of inheritance tax on your estate.

The latest Inheritance Tax (IHT) statistics show an additional 4% was added to HM Revenue & Customs receipts compared to the previous year[1]. IHT is a tax payable when you die. Whether your beneficiaries have to pay it, and how much they’ll pay, is based on the value of your estate.

Your estate’s value is the value of the whole entirety of your assets. An asset is anything of value that is owned, for example; money, property, investments, businesses, possessions, payouts from life assurance not written under an appropriate trust, as well as any gifts made within seven years of your death. IHT is currently applied to estates worth more than £325,000, and will remain at this level until April 2026.

Surviving spouse

When the value of your estate exceeds this limit, known as the ‘nil-rate band’, everything over the threshold is taxed at 40% (unless you’re leaving it to your surviving spouse, in which case no IHT needs to be paid).

For the 2021/2022 tax year, there is also a ‘residence nil-rate band’ currently worth £175,000. If applicable to your particular situation, this is added to your nil-rate band of £325,000 – so your estate could be worth up to £500,000 before any IHT is payable.

Emotional times

This increased tax take suggests that the Chancellor’s freeze on the nil-rate band and residence nil-rate band at the last Budget is beginning to have the desired effect. It is achieving the ‘fiscal drag’ it set out to do, particularly given asset prices have soared following the depths of the pandemic and could continue to do so given inflation is on the up.

As a result, many more people could end up having to pay IHT without realising they would fall into the tax charge. It is vitally important people start to have conversations with loved ones to fully understand an estate and the value of it. While it isn’t always the most pleasant conversation, it is better to have it now than during more emotional times such as following a death.

Complicated tax

With the government looking for ways to plug the holes in the public finances created by the pandemic, IHT will always be in focus. IHT is a complicated tax and one that requires a necessary level of knowledge to ensure your planning in the most tax-efficient way.

So IHT planning should be a considered but it’s important not to plan in isolation – it should be part of an overall strategy that encompasses your lifetime financial goals and assets, even though constituent parts may be executed separately and at different times.

Source data:

[1] National Statistics Inheritance Tax statistics: commentary from HM Revenue & Customs
updated 29 July 2021.

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 FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE TAXATION & TRUST ADVICE.

Creating wealth for children

Investing isn’t just a luxury reserved for adults.

Saving for a child today is a wonderful gift for their future. Whether you want to help them buy their first car, contribute to their first home or even set them up for a comfortable retirement, there is little more fulfilling than providing financial security for your children or grandchildren.

It’s worrying to think about the expenses they will face as adults. So the earlier you can start investing money for your children, the more chance it has to grow before they need it as an adult.

But, to ensure that the value of their money isn’t eroded by inflation, taxes, and fees, you’ll need to choose the right investment approach. Here are some of options you may wish to discuss with us.

Junior ISAs

A Junior Individual Savings Account (JISA) is the children’s equivalent of a regular Individual Savings Account (ISA) and works in much the same way, protecting the capital within it, and any capital growth, from Income Tax and Capital Gains Tax. You can choose between a Junior Cash ISA and a Junior Stocks & Shares ISA, or a child can have one of each.

Only a parent or guardian can open a Junior ISA on a child’s behalf, but anyone can pay into it, up to a limit of £9,000 in the current tax year (that limit may change in future tax years). The UK tax year starts on the 6th April each year and ends on the 5th April the following year. Once a child turns 16, they gain control of their ISA, but they cannot make withdrawals until they turn 18.

Junior SIPPs

A Junior Self-Invested Personal Pension (Junior SIPP) is a type of pension you can open on behalf of someone who is under 18. While we often think of a pension as a product for adult workers, opening one for a child has many benefits.

Investments in a Junior SIPP have more years to grow before the pension holder retires, and so can benefit greatly from compounding returns. If appropriate, due to the very long-term nature of the investment, it’s possible to take a higher-risk approach than with shorter-term investments, which has the potential to yield greater rewards.

As with an adult pension, all growth is protected from Income Tax and Capital Gains Tax. So, it could take away some of the burden of retirement planning as an adult. Contributions are currently capped at £2,880 a year, totalling £3,600 after tax relief is applied, in the current 2021/22 tax year.

Trusts

Trusts are a legal agreement where you – the settlor – place assets into a trust and nominate a trustee to manage those assets (whether it’s money, buildings, land or investments) on behalf of your child or children, known as the beneficiaries.

Bare trusts

A bare trust is an investment vehicle that allows you to invest capital on behalf of a child while retaining full control of the investments until the child turns 18, or 16 in Scotland.

Along with the initial capital, any return generated by a bare trust will belong to the child. It will therefore be taxed as such, usually meaning that there is less tax to pay than if the investments were held by the adult, since a child has their own personal allowances for income and capital gains.

There is no upper limit on how much can be invested each year in a bare trust.

Discretionary trusts

The main difference between a bare trust and a discretionary trust is that a bare trust is held on behalf of a specific, named individual or individuals, while a discretionary trust is held on behalf of any number of eligible individuals.

For example, a grandparent may open a discretionary trust that any of their grandchildren or future grandchildren can benefit from. Who benefits from the trust will ultimately be decided by the trustees.

The tax treatment of a discretionary trust can vary depending on your specific financial situation, so you should seek professional financial advice before opening one.

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.

How to future-proof your finances as a parent

A momentous event that can change every aspect of your financial stability.

The coronavirus (COVID-19) pandemic has had a shattering effect on the country. Future-proofing your finances can help you feel more secure about what lies ahead – whether that’s preparing for big life milestones, such as starting a family, or navigating difficult periods, such as unemployment or poor health.

One of the areas that tends to cause some anxiety is managing household finances with the additional cost of each child. Starting a family is one of the most momentous events in the life of a couple and it can change every aspect of your financial stability. Although you don’t need to be financially well off to start a family, it is essential that you plan and budget for it.

The estimated minimum cost of bringing up a child from birth to their 18th birthday, excluding rent and childcare costs, is £153,000 over 18 years for the child of a couple and £185,000 for the child of a lone parent[1]. The lone parent figure is higher because certain fixed costs of having children are offset by greater adult savings for the couple. Most notably in the case of transport, since the cost of having a car is offset by greater savings on public transport fares when there are two adults not one.

Whoever said the best things in life are free obviously didn’t have children. Let’s face it: kids are expensive. But, of course, they’re worth every penny. Here are some areas to consider for new parents.

Create a budget

A good first step in reducing anxiety about general expenses is to know what you’re spending. You’re less likely to be overwhelmed by a bigger-than-expected bill if you know it’s coming. If you don’t have one already, starting a budget is essential.

If you haven’t done so already, grab your calculator, bank statements and bills and draw up a household budget. Go back over the last few months and review your income (salary, overtime, benefits, and any other income sources) and spending.

Create categories for spending, such as ‘debts’, ‘bills’, ‘groceries’, ‘entertainment’, et cetera and mark them as ‘essential’ or ‘non-essential’ so you can identify any areas where you can cut back. If you’re spending more on certain categories than you expected, set a realistic goal for how much you’d like to bring that spending down.

Set financial goals

Now that you know where you stand financially, you can plan where you’d like to be in the future. Consider what you want to achieve, and then commit to it. Set SMART (specific, measureable, attainable, relevant and time-bound) goals that motivate you and write them down to make them feel tangible. Then plan the steps you must take to realise your goals, and cross off each one as you work through them.

Be specific about what’s most important to you. One of the big ‘hidden’ costs of having children may be the need for more space. For example, your highest priority might be saving for a larger home for your children to grow up in.

Or you might be saving to send your children to a particular school. Be accurate about how much you’ll need for these goals and break that down into a monthly saving schedule.

Understand your entitlements

Most people are entitled to financial support when starting a family, such as maternity and paternity pay and child benefit.

Statutory Maternity Pay is paid at 90% of your average weekly earnings for 6 weeks and then £151.97 (or 90% of your average weekly earnings if this is lower) for 33 weeks.

If you are not entitled to Statutory Maternity Pay you may be able to claim Maternity Allowance at up to £151.97 a week for 39 weeks.
If you already receive certain benefits and this is your first child, you may be entitled to a one-off payment of £500 called the Sure Start Maternity Grant.

Depending on your circumstances, you may be entitled to child benefit, tax credits, or child disability benefit.

Protect your family and lifestyle

Even if you have sufficient cash savings to cover emergencies or periods of lost income, you also need to consider different types of insurance that would pay out in these instances. You need to ensure you are properly protected should you find yourself out of work due to an accident or sickness, or if you were to die prematurely. Parents with young families need protection the most.

Parents considering cancelling insurance such as life cover or income protection as a way of saving money need to think long-term. It could have catastrophic implications on the family’s finances if either you, your spouse or partner became unable to work or were no longer around.

Income protection insurance – provides a regular income in case you are not able to work due to illness or injury.
Critical illness cover – provides a tax-free lump sum payment if you’re diagnosed with certain specified serious illnesses.
Life insurance – provides either a lump sum or regular income for your family if you’re no longer here.

Plan for retirement

Your retirement may seem a long way off and a low priority compared to the financial needs of your young family now. But it’s important to stay on track with your pension contributions through your twenties and thirties as it’s the investments you make now that have the best opportunity to grow.

Look at how much you’re contributing and obtain professional financial advice to see how much income this might provide in retirement. If you’re paying into an employers pension, a small increase in contributions might make a bigger difference than you think. Often, your contributions will be matched by your employer, and you’ll also receive tax relief, which provides an instant boost to your savings and helps the fund to grow faster than other kinds of investment.

Seek professional advice

Of all the things that cross your mind in the run up to having children, it’s fair to say that the impact on your finances will not be the thing you wish to dwell on. But how you plan to manage your money both before and after the patter of tiny feet should be a consideration once you’ve decided you’d like to start a family.

Creating a budget, choosing protection insurance, and planning for retirement can all be difficult to manage alone. Seeking professional financial advice will enable you to benefit from expert opinion and make you feel confident about your family’s finances.

Source data:
[1] Child Poverty Action Group – The Cost Of A Child In 2020 – October 2020

Plan for tomorrow, live for today

Helping you achieve your financial goals.

The key steps toward financial security are to translate them into your own terms. What, exactly, are your personal financial goals? If you have trouble sorting them out, try classifying them as either wants or needs.

Go a step further and add short-term, medium-term and long-term to the descriptions. Now you have some useful labels you can apply to your priorities. If you’re not sure where to start or what your goals should be, we’ll help you provide a framework to consider them.

Importance of setting financial goals

Goals are a core element of any financial planning since you can’t create a strategy without knowing what you are working towards. Your goals are the things that will motivate you to manage your finances better and you should use them to frame every financial decision that you make in everyday life.

To build an effective strategy based on your goals, they need to be specific, achievable, and personal to you. They’re also there to measure your progress and celebrate success.

Process of setting personal financial goals

Before determining how you want your finances to look in the future, you need to understand how your finances look today. Take note of any assets you currently have: your savings, your pension, your investments, your home, and any other assets of value, such as your car or your business.

Review your debts, for example, your mortgage, your student loan, and any overdrafts, bank loans, and credit card debts. Compare your income and your outgoings.

A few questions to ask yourself:

Q: Do I feel as if I’m currently working towards achieving my goals?

Q: What changes do I need to make today for my goals to become a reality in future?

Q: How do I visualise my life; five, ten or twenty years from now?

Q: What would I do if my job and income suddenly disappeared?

Q: What are my most pressing financial concerns I need to address?

Q: What financial matters keep me awake at night?

Attach a meaning to your goals

To improve your chances of success, be realistic, use actual figures, and set time limits. Then ask yourself why that goal is important to you. Attaching a meaning to your goals makes them more powerful.

Setting effective financial goals

It’s sensible to create at least one goal in each of the following categories:

Debts

If you have outstanding debts and are paying high rates of interest, your top priority should be paying them off, as this will usually make a bigger difference to your financial situation than saving the equivalent amount of cash and receiving a lower rate of interest. Prioritise high-interest debts, such as credit cards.

Savings

“Pay yourself first” by automating your savings. Assign an amount you’d like to add to your savings within the next year and write down a record of what you’re saving for, whether thats a deposit to buy a house or any other goal personal to you.

Investments

From the old adage of saving for a rainy day to planning a comfortable retirement, most of us have investment goals in our life. Whatever your personal investment goals may be, it is important to consider the time horizon at the outset, as this will impact the type of investments you should consider. The more time you have, or the more flexible the timing, the more investment risk you can afford to take with your money.

Pension

Your retirement may still seem a long way off, but even so, now is the time to get serious about your financial plan and the best way to start is to focus your retirement goals. Taking the time to think about your most important priorities means you’ll be better able to target spending and saving in accordance with what you want to achieve, both now and in the future. The end goal is to make you financially secure and independent in retirement, which should provide a major incentive to be proactive.

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.

Mind the divorce gap

Women see incomes fall by 33% following divorce, compared to just 18% for men.

Divorce is an emotionally charged event – and can be an expensive one. The financial impact of divorce can also last for decades and carry on into older age. Women are also often impacted harder financially by divorce, new research highlights.

Many women are likely to see their household incomes fall by a third (33%) in the year following their divorce, almost twice as much as men (18%) and are significantly more likely to waive rights to a partner’s pension as part of a divorce (28% women versus 19% men)[1].

Financial struggle post-divorce

Women are more likely to face a financial struggle post-divorce (31% women versus 21% men) and worry about the impact on their retirement (16% women versus 10% men).

Office for National Statistics data shows, on average, women already have a significantly smaller pension pot than men. There are many reasons driving this disparity, one being that women are typically paid less, whilst men who divorce are far more likely to have been the primary breadwinner in the relationship (74% men versus 18% men).

Greater degree of financial burden

This is why women will likely feel a greater degree of financial burden if transitioning to a single-income household and are likely to face financial struggles following a divorce from their partner (31% women versus 21% men).

This is particularly true for older women who divorce. One in four divorces occur after the age of 50 and women are significantly more likely to worry about the impact of their divorce on their retirement (16% women versus 10% men).

Rights to a key financial asset

While there is only a slight difference in the number of men and women who feel that the division of their finances at the point of divorce was fair and equitable (54% men and 49% women), the research found that many women may be signing over their rights to a key financial asset.

Women are significantly more likely to waive their rights to a partner’s pension as part of their divorce (28% women versus 19% men). This could have a significant long-term impact, particularly as women tend to have less personal pension wealth, according to the most recent findings from the Office for National Statistics (ONS) [2].

Median active pension wealth

The ONS data shows that men currently below the State Pension age have higher (£25,300) median active pension wealth than women (£20,000). Meanwhile, for those aged 65 years and over, median pension wealth for pensions in payment for men is double that for women (£223,933 for men versus £112,967 women).

Divorce is such an emotional time and people have so much to think about that they often just can’t focus on the pensions. But it’s vital for people to find out how much they are worth and to think about how to divide them fairly – for some people they could be worth more than the family home.

Source data:
[1] Opinium Research for Legal & General ran a series of online interviews among a nationally representative panel of 2,008 UK adults aged 50+ who are divorced from the 19th to 23rd September 2020.
[2] https://www.ons.gov.uk peoplepopulation andcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/pensionwealth ingreatbritain/april2016tomarch2018

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028). 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.

Reappraisal of urban living

3 million people in the UK aged over 50 considering relocating.

The coronavirus (COVID-19) pandemic has lead to a reappraisal of urban living, with increasing numbers fleeing city confines in search of green space.

3 million people aged over 50 (12%) now plan to relocate in retirement, as a direct result of the pandemic. A year of lockdowns has led these over 50s to want to move closer to family and friends, pursue a better quality of life or even move abroad.

Leaving major urban areas

New research has found that 3 million people in the UK aged over 50 are considering relocating, as a direct result of Covid-19[1].

In 2020, the Office for National Statistics[2] revealed that people of retirement age in England were already leaving major urban areas and instead moving to rural areas, locations by the coast or to areas of ‘outstanding natural beauty.’

Retirement migration hotspots

The data demonstrated that Dorset, Shropshire and Wiltshire were ‘retirement migration hotspots’, while England’s largest cities saw net outflows of retirement age residents, with London, Birmingham and Bristol seeing the largest number of exits.

Nearly a year on, the research has found that the pandemic has influenced some over 50s to plan a move after a year of lockdowns. Over 50s want to relocate to somewhere that offers a better quality of life (7%), to move close to friends and family (4%) or to live abroad (3%).

Freeing up property wealth

When planning a move, many over 50s consider how the value of their current home plays a role in their long-term plans. 1.3 million pre-retirees over 50 (9%) see themselves as more likely to turn to their property wealth to fund their lifestyle than before the pandemic. In instances where people are relocating, they may downsize to free up property wealth.

When considering relocating to a new area make sure your new home is as future proof as possible – it’s important to think carefully about the type of property you choose and whether it will suit you for the long term. Is it accessible or could it be easily renovated to meet your needs in the future?

Challenges of the pandemic

Understand how a new area might impact on your living costs – it’s important to consider any difference in living costs between areas and whether, over-all, you are likely to spend more money, or save money, in your new location.

Relocating in retirement was already a well-observed trend, with older people reprioritising their needs as they enter the next stage of their life. As with many aspects of our lives, the challenges of the pandemic seem to have led many people to take stock of their current living situation.

Better quality of life

There can be many benefits to relocation, whether it is a better quality of life, more space or even the opportunity to be closer to loved ones.

One thing that is clear is that many people will also see their decision informed by how their property wealth factors into their long-term financial planning.

Source data:
[1] Opinium Research for Legal & General ran a series of online interviews among a nationally representative panel of 2,009 over 50s from the 19th to the 23rd February 2021. 242 over 50s plans to relocate out of 2009 UK over 50s – 242 / 2009 25,197,069 over 50s = 3,035,187 or 3 million.
[2] https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/ageing/articles/livinglongertrendsinsubnationalageingacrosstheuk/2020-07-20#migration-of-older-people-is-driven-by-movement-away-from-major-cities-to-rural-and-coastal-areas