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Since Pension Freedoms were introduced in 2015, retirees have had more choice when they access their pension. However, it also means you have more responsibility for generating an income later in life and it’s important to understand what your options are.

Our latest guide explains the basics you need to know, including:

  • Why it’s important to have a retirement plan in place
  • Your different options, such as buying an annuity or taking a flexible income
  • The pros and cons of the different options available to you.

Download “Your retirement choices: how to generate an income later in life” and start planning for your retirement.

It’s never too soon to start thinking about retirement. The decisions you make when accessing your pension for the first time can have an impact on the rest of your life. Setting out a plan now can make sure you stay on track, whether the milestone is just around the corner or decades away.

Across the UK, private property is worth more than £6 trillion, according to an Equity Release Council (ERC) report. Property prices have soared in the last decade, but homes often don’t play a role in later-life planning as the wealth is locked away. Equity release is one option more retirees are considering.

In 2020, homeowners accessed more than £3.89 billion of property wealth through equity release. It can be a useful way to fund plans in your later years. However, there are drawbacks and it’s essential you understand the pros and cons before using equity release.

First, is equity release an option for you? All lenders have their own criteria, but usually you must:

  • Be at least 55 years old
  • Own property, which must be your main home and in a reasonable condition.

In some cases, you can still use equity release if you have a mortgage, but you will need to pay this off with the money you receive. Some providers may have a higher age threshold or will only accept properties that are above a certain value.

Second, what is equity release? There are two main types:

  1. Lifetime mortgage: This is the most common type of equity release. The money borrowed is secured against your home and repayments don’t have to be made until you pass away or move into residential care. The interest accrued will usually roll-up.
  2. Home reversion plan: With this option, you sell a portion of your home and retain ownership of the rest. You continue to live in your home until you pass away or move into residential care.

With both options, you don’t have to make regular repayments. As a result, equity release can be a way to boost your wealth without having to worry about day-to-day costs, but you do need to think about the long-term impact.

2 benefits to using equity release…

1. Unlock wealth to fund your later-life plans

Equity release is a way to boost your funds in later life. You may want to use the money to support your day-to-day costs or to meet other goals, such as lending financial support to loved ones, renovating your home, or planning a once-in-a-lifetime trip. It can help you get more out of your retirement.

2. Remain living in your home

Traditionally, retirees would sell their home and downsize to access property wealth later in life. But that may not be attractive for several reasons. Your current home may be adapted to your needs, located close to family and friends, or you may simply be comfortable there. Equity release provides a way of accessing this wealth without having to leave your home.

…And 2 drawbacks

1. Debt can grow rapidly

If you choose a lifetime mortgage, the interest on the loan is usually rolled up. If repayments aren’t made, the compounding effect can mean you end up owing far more than the initial amount you borrowed. Let’s say you use equity release to access £50,000 and have an interest rate of 4%. The first year, interest would add up to £2,000. However, compounding means that 15 years later, annual interest would be £3,593, with the total amount owed increasing to £93,423.

Most equity release products now have a “no negative equity guarantee”. This means the total amount owed cannot exceed the value of the property, so it won’t affect the value of other assets.

2. It will reduce your legacy

If passing on wealth to loved ones is a priority, remember that equity release will reduce the total value of the legacy you leave behind. It may mean that the inheritance of children, grandchildren and other loved ones is much lower than expected.

There are ways to ringfence a portion of property wealth to ensure it can be passed on, which we can discuss with you if this is a priority.

Is equity release right for you?

Using equity release to access property wealth is a big decision and not one to rush into. It’s important you first consider the pros and cons with your situation and priorities in mind.

Even if you’re sure you want to go ahead, taking advice can help you pick the right option for you. There are many different equity release products to consider, and the market is becoming more flexible. For example, over three-fifths of lifetime mortgages now allow you to make repayments. The interest rate offered also varies hugely and will affect the cost of borrowing, so finding a competitive rate can mean you leave more behind for loved ones.

If you’d like to discuss if equity release makes sense for you, please get in touch. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The pandemic has placed pressure on families across the UK. So, it’s not surprising that more people are seeking financial advice and thinking about their long-term security. While financial advice can be incredibly useful in a crisis, an ongoing relationship with a financial planner can be just as valuable.

After a year of lockdowns and social distancing, 53% of UK adults say the financial crisis caused by Covid-19 has prompted them to seek professional financial advice, according to a survey from Prudential.

More than eight in ten (85%) respondents said they had financial concerns when they thought about the next 12 months. Among the concerns were:

  1. Having to use savings to make ends meet (23%)
  2. Investments losing money (20%)
  3. Reduced income (18%)
  4. Being made redundant (17%)
  5. Health and social care costs (14%)
  6. Not saving any money (13%)
  7. Getting into debt (11%)
  8. Having to financially support children (11%)
  9. Not being able to afford to retire as planned (10%)
  10. Having to ask family for financial support (9%).

While financial advice can help with the immediate concerns you have due to the pandemic, engaging with financial planning with a long-term view can mean you’re better prepared for future shocks, so your plans stay on track. Financial shocks may include losing your job, becoming too ill to work, or investment values falling. While they’re unexpected, that doesn’t mean you can’t prepare for them.

So, how does financial planning during calm periods help you prepare for the next crisis?

It starts with setting out your goals…

Financial planning doesn’t start with looking at your assets, but what your goals are, what’s important to you, and understanding your priorities. This may include thinking about what brings you happiness now, or what you’d like your life to look like in 20 years. What you want to achieve will have a huge impact on the financial decisions that are right for you. So, it’s important they’re at the heart of a financial plan.

It’s a process that means your financial plan is tailored to what you want to achieve in the short, medium, and long term. You can have confidence in your ability to reach life goals, whether that’s to provide financial support to loved ones, travel more or retire early.

…then putting a plan in place

With your life goals set out, it’s time to create a plan that will help you achieve them. If you want to retire early, for example, your financial plan may include:

  • Increasing pension contributions to make the most of tax relief and employer contributions
  • Overpaying your mortgage to reduce outgoings in retirement
  • Reviewing your investments with the view of creating an income
  • Building up an emergency fund of liquid assets to provide security.

A clear financial plan and a picture of what your future lifestyle will look like can help you stay on track and focus on what’s really important.

Finally, you consider the risks

With any plan, there are risks involved. By taking the time to consider what they are and the impact they’d have in a period of calm, your finances will be more resilient during times of crisis.

We doubt many people considered the risk of a pandemic when setting out a financial plan in 2019. However, the knock-on effects of Covid-19 are likely to be part of the risks considered, from a long-term illness affecting income to investment volatility. To mitigate these risks, you may be advised to take out an income protection policy to provide a regular income if you’re unable to work, for example. Or to have an emergency fund you can use amid market volatility if you take an income from your investments.

By taking steps to prepare for potential risks, you can have greater confidence in your financial plan. No one knows what’s around the corner, but you can still be proactive.

Please contact us if you have any questions about your financial plan or would like help putting one in place. We’re here to help you reach your goals while guarding against risks.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

In the first nine months of 2020, there were 464,437 new babies welcomed across the UK, according to the Office for National Statistics. That’s more than one baby every minute! If you’re among these new parents, or know someone that is, you’ll know that there’s a lot to do – including taking some financial steps to protect your family.

1. Review your budget

With a new baby, your day-to-day outgoings will change, so it’s worth reviewing your budget. How will your everyday expenses change, and what one-off purchases will you need to make? You should also think about how costs will change in the next few years. For example, do you need to factor in childcare costs?

Budgeting isn’t a task most of us look forward to, but it can help ensure both your short- and long-term goals stay on track.

2. Reassess your insurance policies

Welcoming a child can shift your priorities and concerns. As a result, taking a look at existing insurance policies, as well as considering if new ones are now appropriate, should be a step you take. It can provide peace of mind and financial security, even when the unexpected happens.

If you already have insurance policies in place, you should review these to ensure they cover your child. These may include private health insurance. You should also check that policies reflect your current circumstances. For example, does a life insurance policy provide enough cover that your loved ones would be financially secure if something happened to you?

3. Update your will

If you don’t already have a will in place, now is the time to write one. Even if you do have a will, it’s worth updating it to reflect your new arrival.

Writing a will is the only way to ensure your assets are distributed in the way you want when you pass away. For parents, it’s also where you assign a guardian for your child if the worst were to happen. It’s not something anyone wants to think about, but if no guardian has been appointed, a court will decide a child’s fate. It could mean your child’s guardian is someone they don’t know well, or the situation may cause conflict between family members. Despite how important a will is, 48% of parents with a child under the age of 18 don’t have one in place, according to Will Aid.

4. Open a Junior ISA

It’s never too soon to start saving for your child’s future. A Junior ISA (JISA) is a tax-efficient way to save or invest on behalf of your new child.

Each tax year, you can contribute up to £9,000 to a JISA. This can either be saved into a Cash JISA, with savings earning interest, or a Stocks and Shares JISA, where the money is invested. A JISA is a useful way to build up a nest egg for your child that could help them reach milestones, from going to university to buying their first car.

You will need to decide between Cash or Stocks and Shares. JISAs will usually offer more competitive interest rates than their adult counterparts but may still be lower than inflation, meaning the savings will fall in value in real terms. In contrast, investing through a Stocks and Shares JISA could deliver higher returns, but there is also risk. It’s important you take a long-term view of risk and select investments that are appropriate for your goals.

Keep in mind, money placed in a JISA cannot be accessed until the child turns 18.

5. Apply for Child Benefit

Child Benefit is paid by the government to support parents or guardians. For an eldest or only child, it is £21.15 per week, and for additional children it is £14 per child per week. If you or your partner’s individual income is over £50,000, you may be taxed on the benefit, which is known as the “High Income Child Tax Benefit Charge”. You lose all of the benefit if you earn over £60,000.

However, if you or your partner is a high earner, you should still apply for Child Benefit, even if you won’t benefit financially. Claiming Child Benefit for a child under 12 will mean you receive National Insurance credits. These will count as qualifying years when your State Pension is calculated. You need 35 qualifying years to receive the full State Pension. So, if you’re taking a career break to raise children, applying for Child Benefit can ensure your retirement stays on track.

Reflecting your growing family in your financial plan

As your family grows, your plans may change too. We’re here to help you reflect new goals or concerns in your financial plan. Get in touch with us today to discuss how you can create a financially secure future for your family.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Money has a huge impact on our wellbeing. Whether we have “enough” is often the focus when facing money challenges, but a new report suggests that our mindset and relationship with money could have a far bigger influence on wellbeing.

Past research has linked financial concerns with poor wellbeing. The latest research from Aegon notes this as well. It found those with money worries experienced:

  • Feeling anxious (45%)
  • Sleepless nights (26%)
  • Lack of motivation to finish daily tasks (16%)
  • Relationship troubles (16%).

Where this report differs is that it looks beyond things like income, emergency fund or long-term savings to assess people’s mindset. The findings indicate that how you think about money, particularly over the long term, can improve wellbeing. Just 16% of the population are fortunate to combine healthy finances with a positive mindset, but it’s estimated five in six people could take steps to improve financial wellbeing by changing the way they think.

Money worries are common across all incomes

There is a link between low income and money worries. However, even those that are financially secure experience concerns. More than half (55%) of average earners and more than one in three top earners said they worried about money. Focusing on financial wellbeing rather than figures could help.

The report states: “Financial wellbeing is about spending time, money and effort on what makes us happier now and in the future. People on all incomes worry about money. Focusing on what makes us happy in the long term, rather than just striving for ‘more’, can help ease those worries.”

The mindset factors included putting a long-term financial plan in place and considering what makes you happy. While there may be little you can do to boost your wealth now, you can start changing habits and how you view money. That’s not to say it’s a quick fix – changing your mindset takes time – but every step helps you improve.

The report identified five key mindset building blocks. Could you improve any of these areas?

1. Knowledge of what makes us happy

Just four in ten people think about what gives their life joy and purpose. Spending some time thinking about what you really enjoy means you can focus your attention on these areas.

From a financial perspective, understanding what’s important to you can mean your financial decisions reflect this. You may consider moving to a city to secure a higher paying role. But if being close to family and enjoying the countryside brings happiness, is it worth it? For some, the move will still make sense and provide other opportunities to find joy and purpose, for others weighing up the pros and cons may mean they decide to pass up the job offer.

2. A solid picture of our future self

Thinking about the future can help make sure we reach goals and improve wellbeing throughout life. However, just one in three people have a specific picture of what they want to achieve. Vague ideas are a good starting point, but they can be hard to measure and mean you end up missing targets.

“I want a financially secure retirement” is an example of a vague idea. What does “financially secure” mean to you? Why is it important? What would being “financially secure” allow you to do in retirement? Setting clear, measurable goals can help you stay on track.

3. Savvy social comparisons

It’s easier than ever to compare what we have to others. Whether through social media, the TV or talking to friends, finding out someone has more than you can mean you end up striving for more, even if you were happy before the comparison.

The report suggests that the more we compare ourselves to other people who are better off, the lower our financial wellbeing. Social comparisons are highest when we’re younger. Six in ten 16- to 24-year-olds say they compare themselves to others “relatively frequently”.

Comparisons are inevitable but being savvy about it is important. Focusing on what you’ve achieved or the things you enjoy in your life can help put comparisons into perspective.

4. A long-term plan

A huge number of people are not putting a long-term plan in place. Even those that are thinking about long-term goals are often not translating this into an actionable plan.

Across all ages, just 13% of people have a plan to achieve their long-term financial goals. As we get older, we’re more likely to have a plan but it’s still a relatively small percentage. Among 55- to 64-year-olds, 35% have thought about what their goals are. Yet only 16% have put a plan in place to reach them.

Without a clear plan, goals can fall to the wayside and opportunities can pass us by. 5

5. Strong nerves in a crisis (resilience)

Do you have confidence in your long-term plan? It can require strong nerves to focus on your goals and ignore short-term changes. This is particularly true when investing. Some 14% of investors sold out last time the stock market fell despite investing for the long term.

The above mindset building blocks, such as having a long-term plan and understanding why you’re taking these steps, can help you stick to your plans and improve your resilience.

How can financial planning help?

While financial planning does involve ensuring you have “enough”, at its core it’s about understanding how you can use your assets to help you live the life you want. This includes thinking about what makes you happy and setting out a long-term plan. An effective financial plan could improve both your wealth and mindset, so give us a call to discuss your finances and how to improve your wellbeing.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Across the UK, 6.5 million people provide informal care for a family member or friend. This care is hugely important for ensuring vulnerable people receive the support they need. However, delivering care presents challenges for carers too – mentally, physically, and financially. Recent research highlights the financial toll of caring for someone.

The 7 June marks the start of Carers Week. This annual campaign raises awareness of the challenges that unpaid carers face, as well as recognising the contributions they make to families and communities. If you’ve started caring for someone, you can face many difficult emotions and decisions. It may also mean you overlook its financial impact.

Nearly 3 in 10 carers reduce their working hours or stop work altogether

While many carers continue to work alongside providing care, juggling both can take a toll. Almost three in ten (28%) carers aged between 45 and 64 have made changes to their work due to their caring responsibilities, according to Just Group research. This could be for a range of reasons, from the care needs of the person being supported changing, to the carer struggling to manage both commitments.

On average, the research found a carer’s income falls by £6,200 per year, and this amount of income loss increases with age. It’s an issue that could become more widespread as many people are putting off making a care plan.

Previous research from Aegon found that just 7% of people consider planning for possible social care costs as a financial priority. It could mean an even greater number of people become reliant on the support of family and friends.

If you’re a carer, what steps can you take to secure your finances?

Set out a short-term budget

If you’re caring for someone, budgeting is likely to be the last thing on your mind. However, it can help you understand the impact it may have. Even if you’ve not changed your working hours, you may need to factor in other costs, such as increased petrol if you need to travel more.

Reviewing your budget regularly can help you understand whether you need to adjust your day-to-day spending or if it’ll have an impact on your medium- and long-term goals.

Check if you’re eligible for National Insurance credits

If you need to give up work, whether temporarily or permanently, it could affect your State Pension.

To receive the full State Pension, you must have 35 qualifying years on your National Insurance record. If you stop work, you may not achieve this, and you could receive less in retirement. However, if you are caring for someone for at least 20 hours a week, you could get Carer’s Credit, which can help fill in the gaps on your National Insurance record.

The person you’re caring for must receive one of the following for you to be eligible for Carer’s Credit:

  • Disability Living Allowance care component at the middle or highest rate
  • Attendance Allowance
  • Constant Attendance Allowance
  • Personal Independence Payment – daily living component, at the standard or enhanced rate
  • Armed Forces Independence Payment.

If applicable, claiming a Carer’s Credit can help make sure your retirement stays on track while you’re providing care.

Contact your local authority for a carer’s assessment

Caring can present many challenges, and in some cases, your local authority may be able to offer support. You should contact your local authority’s services department to request a carer’s assessment. During an assessment, you’ll talk about the care you provide and the impact it has on your life.

You may be entitled to a personal budget to cover the needs identified in the assessment. This is means-tested, but if you’re eligible it could help pay one-off and ongoing costs, such as adapting your home or employing care workers to provide some support.

As well as financial support, a carer’s assessment can lead to help in other areas too. They may be able to offer respite care so you can have a break or put you in touch with local support groups, for example.

Consider the long term and discuss options with your loved one

Discussing the care you provide and how it may change in the future with the person you’re caring for can be difficult. However, it’s a step that can provide you with more certainty about the future while ensuring they’re not left in a vulnerable position.

If, for example, their care needs were to increase, would you be able to provide this or would you need further support? Considering different scenarios can help you understand the impact caring could have on your long-term finances and understand what your loved one’s preferences are.  

Don’t put off seeking advice

Financial concerns can be a huge source of worry. If you’re not sure about the impact caring could have on your finances, seeking advice can help. Talking to a professional about your current circumstances and your long-term goals to put a plan in place can be a weight off your shoulders, allowing you to focus on providing care and living your life. Please contact us if you’d like to discuss how the cost of becoming a carer could affect you.

When you think of risks to your retirement, do you include inflation? It can have a huge impact on your income throughout retirement. Yet, it’s often overlooked when creating a retirement plan.

Inflation refers to the rising cost of living. Day-to-day, it’s not something that you notice. However, over a longer timeframe, such as your retirement, the price of goods and services creeping up has an impact. It can mean your income and assets don’t go as far.

Over the last year, the pandemic has meant inflation has been relatively low. In February, the cost of living increased by just 0.7% compared to 12 months earlier. However, the Bank of England has a target of keeping inflation at 2%. A 2% increase doesn’t seem like much, but it does have a compounding effect over the years.

Even if you retired in the last decade, you’d notice that your income is buying less or needs to increase. A £30,000 income in 2010 would need to have increased to £39,337 just to maintain spending power, according to the Bank of England. Now think about the impact inflation could have on a retirement that spans several decades. You would find your income buys far less if it’s not something you’ve prepared for. 

Inflation risk is higher following 2015 Pension Freedoms

Retirees today have to consider inflation risk far more than previous generations. This is because Pension Freedoms, which were introduced in 2015, have changed how and when you can access your pension.

In the past, there was a common route to retirement and creating an income: you’d save into a pension during your working life, and then purchase an annuity that would provide a guaranteed income throughout retirement. This income was often linked to inflation, so retirees didn’t have to worry about how their spending power would change.

Today, you can choose an annuity, but there are other options to explore too. This may include withdrawing lump sums or taking an adjustable income through flexi-access drawdown. In some cases, inflation could mean the value of your pension or other assets falls in real terms.

It’s now essential to consider inflation when retiring to create financial security in your later years.

3 ways to reduce the impact of inflation on your retirement plans

Inflation can have a huge impact on the type of retirement lifestyle you can afford but there are things you can do to manage the risk.

1. Purchase an inflation-linked annuity

Annuities have become less popular since Pension Freedoms were introduced, but they can still play an important role in creating financial security in retirement.

Some annuities are linked to inflation. This means the regular income they provide will increase each year in line with inflation, preserving your spending power throughout retirement. It means you don’t have to worry about how the rising cost of living will affect your lifestyle, as your income will rise to reflect this.

Retirees are often shunning annuities because they don’t offer the flexibility of other options. Your income will remain the same and you can’t adjust this. You also can’t leave an annuity behind as an inheritance for loved ones.

However, it’s important to remember you don’t have to use your entire pension to purchase an annuity. You can use a portion of your savings to buy an inflation-linked annuity, providing some income stability, while flexibly accessing the rest to supplement it when you need to. Understanding how your income needs will change during retirement can help you understand if an annuity is right for you.

2. Don’t take out cash if you don’t need it

When you retire, it can be tempting to withdraw money from your pension, even if you don’t need it. This may include withdrawing a 25% tax-free lump sum. However, withdrawing money is more likely to expose your savings to inflation risk.

Over a third (36%) of people that had taken a cash lump sum from their pension said they’d put the money in a savings account, according to a Canada Life survey. A quarter (24%) also said they’d put it in the bank. This money is likely to be in accounts that are paying an interest rate that is below inflation levels. In real terms, that means your money is decreasing in value. It’s important to have an emergency fund, but you should manage withdrawals to reflect your needs.

It’s also worth noting the impact tax can have. After your tax-free lump sum, any money withdrawn from your pension may be liable for Income Tax. Taking out lump sums could push you into a higher tax bracket. If you don’t immediately need the money, you may end up paying more tax than you need to.

3. Choose appropriate investments for your retirement fund

Investing can deliver above-inflation returns, helping your money grow even when you’re retired. However, you also need to consider investment risk and what investments are appropriate for you. The investments you select should reflect your risk profile, goals, and investment timeframe. If you’d like to discuss what investments suit your retirement plans, please contact us.

The Canada Life survey also highlighted that some retirees are withdrawing money from their pension to invest. Some 7% said they withdrew money to put it into stocks and shares. Your pension savings are likely to already be invested. Investing through a pension means your money can grow free from Capital Gains Tax, making it a tax-efficient way to invest. In most cases, investing through a pension makes financial sense, even if you’re withdrawing an income from your pension.

Building a retirement plan that manages risk

While you can’t remove risk entirely from life, we’re here to help you put a plan in place that manages risk, including inflation risk. If you’re nearing retirement or have already retired and would like to discuss how to access your pension to create an income, please get in touch.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

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.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.