Financial Planning, Pensions Advice, Financial Adviser Dunfermline, Fife, Edinburgh and Central Scotland

Tuesday 16th October 2018

If you feel as though your finances are under pressure as you support both children and elderly parents, you’re likely to be part of the ‘Sandwich Generation’. Research has found that many of those aged between 40 and 60 are struggling with financial responsibilities.

Despite being caught in the middle of two types of dependents, many in the Sandwich Generation aren’t financially prepared, according to a survey from LV=.

Among those dubbed the Sandwich Generation:

  • 52% are worried about the consequences of a serious illness affecting themselves or their partner
  • 30% are worried about the prospect of themselves or their partner dying and leaving the family without an income
  • 54% want to save but can’t afford to
  • 37% have less than £125 disposable income each month
  • 46% cite children as a constant source of unexpected expenses

While working to support families, the Sandwich Generation is neglecting their own long-term financial security. On average those within this group have a pension valued at £60,000 that they expect to last 20 years. It’s an amount that is likely to result in an income of less than £260 a month, according to LV=. Even when the full State Pension is added, assuming you qualify, at £164.35 per week, many are facing a retirement struggling financially.

Justin Harper, Head of Marketing at LV=, said: “It’s clear this group feel they are being pulled in many directions, with pressures to care for older relatives and ongoing responsibilities for their children. The Sandwich Generation have huge financial obligations and with the rising cost of living, are worrying about what could be around the corner. Spreading finances too thinly and dwelling on their worries, means the impact of having little to no plans in place, could expose them to a real income shock.”

Five tips if you’re part of the Sandwich Generation

With different priorities pulling at your finances, it can be challenging to manage daily expenses alongside building security. These five tips can help get you on the right track:

1. Create a realistic budget

Setting out a monthly budget that covers everything, from utility bills to savings, can help you find the areas to cut back on.

You probably already have some sort of budget, even if it’s just in your head. But writing it down and keeping track of what you’re spending makes it far easier to stick to. If you find you’re regularly going over what you set aside to spend or undersaving, you may need to revisit what’s realistic.

Of course, there are times when unexpected bills crop up. Leaving a portion of your income to act as a buffer in these events can help.

2. Build up an emergency fund

The Money Advice Service (MAS) recommends having a safety net of at least three months’ salary to fall back on. However, 57% of the Sandwich Generation don’t have this amount, the research found. As a result, 34% don’t feel they could handle a personal financial crisis.

If you’re among those that don’t have an emergency fund, now is the time to build one up. Looking at the end figure can seem daunting. Instead, focus on putting away a small portion of your wage every month as soon as you’re paid. Breaking it down into smaller chunks can make creating a financial safety net more manageable.

When your finances are really under pressure, even putting away small sums can seem impossible. But making it part of your monthly budget can mean you feel far less apprehensive about the future.

3. Consider protection

If you’re one of those that are worried about how your family would cope should something happen to your income, some form of protection can give you peace of mind.

Income Protection that will pay out monthly in the event of illness or injury, for example, can ensure both you and your loved ones have a safeguard in place. There are other options too, such as Critical Illness Cover and Life Insurance. Which one is right for you will depend on your situation and what you’re concerned about.

When your finances are already stretched, it can seem like an unnecessary expense. However, consider the financial consequences of not having any cover should illness, injury or death strike.

4. Don’t neglect your own financial future

With a focus on providing for ageing relatives and children, the research suggests the Sandwich Generation are doing so at their own expense. Don’t forget to take steps to secure your own financial future too.

One of the key steps to take here is to save into a pension. If you’re working full-time, you’ve probably been automatically enrolled into a Workplace Pension in the last couple of years. While you can opt out of this, it’s short-sighted.

5. Talk to a finance professional

There’s a common misconception that financial advice is only for the wealthy. The truth is that it can help you to get the most out of your money. Seeking the advice of a financial adviser or planner can help you balance the needs of today with those in the future.

By better understanding how your money choices will affect your financial security immediately and in the future, you’ll be in a better position after speaking to a professional. Contact us today to get the process started.

Investors are increasingly investing their money with sustainability concerns in mind, figures show. As October marks Good Money Week, we take a closer look at what ethical investing is and how the market’s growing.

It’s predicted that the UK’s ethical investment market will grow by 173% by 2027, according to research from Triodos Bank. With the projected total amounting to £48 billion, ethical investing is slowly moving into the mainstream. But what is it and how does it influence your investment choices?

What is ethical investment?

In simple terms, ethical investing is where you invest your money with other considerations beyond the financial return in mind. You base your investment decisions on the impact your money could have; creating a double bottom line if you will.

When you look at changes in society in general, it’s not surprising that ethical investment is growing. Have you already cut down on the amount of plastic you use? Do you purchase Fair Trade items from the supermarket? Or are there some brands you avoid because they test on animals? These are ethical decisions you make as part of your daily routine; ethical investment is an extension of this.

Ethical investment comes in many different forms and there are a lot of terms used to broadly cover the same motives. You may have heard phrases like sustainable investment, responsible investment, SRI (socially responsible investment) or impact investing. ESG (environmental, social and governance) is another commonly used term that breaks down ethical investing into three core areas of consideration:

Environmental: These are investment concerns that cover a range of environmental impacts. Companies developing renewable energy sources, providing alternatives to deforestation or taking steps to improve the local ecosystem can fall into this category in a positive way.

Social: Again, the social segment covers a broad range of issues. Providing safe working environments, paying a living wage and ensuring no children are employed throughout a supply chain, are social issues to consider. It can also cover a company’s impact on the communities where it operates.

Governance: Governance issues focus on how the company is run. Funds that cover governance issues may, for example, look at female representation on boards, whether the company avoids paying taxes or remuneration levels of the highest paid executives.

What’s the size of the ethical investment market?

When you look at the size of the whole investment market, the number of funds taking ESG factors into consideration is still niche. However, it is growing, and the pace of growth is set to increase.

In 2023, the market will reach a ‘tipping point’, according to Triodos Bank. This is partly being driven by the next generation of socially conscious investors seeing an increase in their income. As a result, the UK market alone is expected to reach £48 billion by 2027.

The Triodos Bank research found:

  • 55% would like their money to support companies which contribute to making a more positive society and sustainable environment
  • 61% of investors believe that for the economy to succeed in the long term, investors need to support progressive businesses tackling ESG issues
  • A fifth of investors are planning to invest in an SRI fund by 2027
  • Ethical investment appeals more to younger generations; 47% of those aged between 18-34 intend to invest in an SRI fund within the next nine years
  • Within this group, 56% are motivated to invest in ethical funds because of climate-related disasters in the news; compared to 30% for older counterparts

While there is a growing interest in ethical investment, there is still a limited market, which can make it challenging. 73% of UK investors have never been offered ethical investment opportunities. Furthermore, 61% would not know where to go for more information in SRI.

Despite this there is a demand for more information; 69% of investors would like to have more knowledge and transparency about where their money goes.

The challenge of defining ‘ethical’

You may have already spotted one of the biggest challenges with ESG investing; we all have different values and ethics. It’s a highly subjective area.

You may consider a company to be ethical because it’s taking proactive steps to improve the lives of its employees in the poorest parts of the world. Someone else, on the other hand, may say the company unethical because the firm operates in the oil and gas sector, resulting in environmental degradation. As a result, it’s important to define what your personal priorities are, as well as where you’re willing to compromise, before you start looking at ethical investment opportunities.

According to Triodos Bank, these are the five biggest issues that would put off investors:

  • Manufacturing or selling of arms and weapons (38%)
  • Worker/supply chain exploitation (37%)
  • Environmental negligence (36%)
  • Tobacco (30%)
  • Gambling (29%)

So, how do you invest with your values in mind? There are three key ways to do so:

Negative screening: This is where you actively remove companies from your portfolio or avoid investing in them because you don’t consider them to be ethical.

Positive screening: Positive screening is where you actively invest in companies that align with your principles, allocating a portion of your investable assets to support these firms.

Engagement: An engagement strategy is where you use your power as a shareholder to promote long term, ethical changes. As it relies on shareholder power, it’s a strategy that’s more effective for institutional investors, such as pension funds, than the average retail investor.

The above are ways of investing ethically and striving to encourage change but do this in very different ways. In the case of energy and reducing the amount of carbon emissions, for example:

  • A negative screening approach would divest from oil and gas companies
  • An investor using positive screening would put their money into renewable firms
  • While those using the engagement approach would hold shares in oil and gas but vote at Annual General Meetings to invest in sustainable technologies

As with all investments, you do need to balance the risk of your investments potentially decreasing in value. If you’d like to discuss how your ethics and values can be reflected in your investment portfolio and what impact this could have on financial return, please get in touch.

Investing can seem like a daunting process. But getting to grips with investing can lead to greater financial security and growth.

Whether you’re investing for the first time or expanding your portfolio, it’s important to understand how your objectives and situation should influence your decisions. Asking these seven questions beforehand can support you when it comes to making investment choices.

1. What are your goals?

Before you even start investing your money, you should have a realistic idea of what you’d like to achieve. Your goals will have a direct influence on which option will be best for you.

  • Do you want to build a nest egg for retirement?
  • Save for your child to go to university?
  • Build a house deposit?

Answering this question should set the foundation to move forward with investment decisions.

One of the key things to think about here is whether you want to invest for income or growth.

Investing for income means you’ll likely want to sacrifice the potential of higher returns in favour of stability and consistency. Conversely, investing for growth means you’ll probably have to take greater levels of risk.

2. How frequently will you invest?

The answer to this question will come back to your current situation. You have two options; investing a lump sum or ‘drip feeding’.

If you have a lump sum of cash that’s not delivering the returns you want, investing it can make sense. Likewise, if you’ve recently acquired a lump sum, such as through the sale of property or inheritance. The other option is to ‘drip feed’ money in at a consistent rate, for example, as you get paid each month.

As markets fluctuate, timing investments to maximise return and minimise risk is incredibly difficult and generally not advisable. As a result, ‘drip feeding’ money is a conventional way to reduce the impact of this. It’s an approach that means dips have less of an effect.

Of course, you can create a hybrid strategy too; investing a lump sum to get started and continue to add to it at regular intervals.

3. How much risk are you willing to take?

Chancing higher returns means potentially higher levels of risk. By taking greater levels of risk, your initial investment can climb significantly. But on the flip side, you do risk seeing greater fluctuations in value.

The answer to this question will be personal. It will all come down to how risk averse you are. Taking the time to think about how much uncertainty you’re willing to tolerate for the chance of returns is crucial. There are investment opportunities for all risk appetites.

4. What is your capacity for loss?

All investments can decrease in value and, in rare circumstances, be lost altogether. The chance of this happening varies depending on the investment choices you make. But you need to consider what you can afford to lose.

Investing all your wealth is rarely, if ever, a good idea. Ideally, you will have a separate account that you can use to fall back on should you experience a financial shock. No one wants to lose money when investing but it shouldn’t leave you in a financially vulnerable position should it happen.

If your finances would be devastated if you lost the money you’re planning to invest, it’s worthwhile looking at alternatives. Other options, such as a Cash ISA, may be more suitable for your circumstances.

5. How long will your money be invested?

Your investment timeframe will be influenced by your overall financial goals and directly affect how much risk you can afford to take.

Investment markets are constantly rising and falling. The longer you invest for, the more likely you are to be able to ride out short-term volatility risk.

Broadly speaking, you should look to invest for a minimum of five years. And the general rule of thumb is; the longer your money will be invested for the greater level of risk you can afford to take.

So, if you’re investing with a view for retirement that’s still decades off, you’re more likely to benefit from choosing markets that are more volatile. In contrast, if you’re holding money in a Stocks & Shares ISA to buy a home in five years’ time, a more conservative approach is wise.

6. How frequently will your review it?

Do you want to take an active role in managing your investments? Or do you want someone to do it for you?

Again, the answer to this question is personal; there’s no right or wrong approach. However, it’s advisable that you review your investments on an annual basis at least. This allows you to plan more effectively for the time when you want to withdraw the money and reflect changes in your circumstances. It’s also an opportunity to make sure your money is working as hard as possible.

7. What other assets do you have?

If you’re already investing, it’s important to look at any new investments in the context of these. You want to hold a diverse range of assets. This means should a portion of the market experience volatility, you’re somewhat cushioned by your other investments.

Even with these questions answered, investing can still seem like a minefield if it’s a new venture. Contact us today and we can help you review your existing investment portfolio or discuss how you could begin investing. By taking a bespoke approach, we can align your investments with your personal aspirations.


The number of people saving into a Workplace Pension has reached a record high. But far from providing a comfortable retirement income, those making minimum contributions could face an unexpected shortfall when the time comes to giving up work.

Pensioners could have less than minimum wage to live on, despite making monthly pension contributions, according to Aviva.

Alistair McQueen, Head of Savings and Retirement at Aviva, said: “Millions of people are sleepwalking towards less than minimum wage at retirement.

“To their credit, millions of employees have embraced auto-enrolment since 2012, in the belief that it will deliver them a comfortable retirement. But based on the current system and today’s data, they’re in for a shock, with many currently on the road to living on less than minimum wage.”

More than 7.7 million people are now paying into their Workplace Pension; compared to just one million in 2012. The statistic indicates that auto-enrolment is a success. However, the minimum contribution levels could mean that many retirees won’t receive the level of income they’re expecting.

The minimum contribution to a Workplace Pension is currently set at 3% for employees and 2% for employers; rising to 5% and 3% respectively in April 2019.

A typical 22-year-old paying into a Workplace Pension would be on track to receive a retirement income equivalent to £6.55 per hour, according to Aviva. It’s an amount that’s significantly below the National Minimum Wage of £7.38.

Working 37.5 hours a week, an employee on minimum wage would earn £14,391 a year. But many workers are on course to receive just £12,772 annually in retirement when their Workplace Pension and full State Pension are combined.

How much you need in retirement will depend on your lifestyle and aspirations. However, according to Which? the average retired household spends around £26,000 a year. This covers all the essential outgoings and some luxuries, such as European holidays and eating out occasionally.

For those that aren’t supplementing their Workplace Pension, it could mean hardship in retirement.

If you’re worried about your level of income in retirement, there are some steps you can take to grow your projected income.

1. Increase your Workplace Pension contributions

Making higher monthly contributions to your Workplace Pension is one option.

Figures suggest that contribution levels were at a high in 2012; with 9.7% of salary being diverted into a pension. However, the figure is now just 3.4%. Aviva advocates the minimum contribution level being increased even further; reaching at least 12.5% by 2028.

If this is a step you want to take, talk to your employer first. They may be able to help with setting up additional payments on your behalf. You can also contact your pension provider directly to set up further contributions.

You will continue to receive tax relief on pension contributions up to either 100% of your earnings or £40,000 a year, whichever is lower.

Some employers may match or increase their own contributions in line with yours to a certain point; making it an even more attractive option

2. Pay into a Personal Pension

On top of your Workplace Pension, you can also open a Personal Pension. This can give you more flexibility to save in a way that suits you. With multiple pensions, you’re able to take varying levels of risk, for example.

You won’t receive any employer contributions with a Personal Pension. So, it’s almost never the best option to do instead of a Workplace Pension because of this. But it can supplement the money you’re already saving directly from your salary and add to your overall income during retirement.

Contributions to a Personal Pension should also benefit from tax relief.

3.Use salary sacrifice benefits

If your workplace offers salary sacrifice schemes, they’re worth investigating. You’ll give up some of your monthly earnings, with your employer, instead, putting it towards something else, such as your pension.

The key benefit to this option is that the money will be deducted pre-tax. So, you’ll pay less Income Tax and National Insurance.

4. Use an Individual Savings Account (ISA)

An ISA is a tax-efficient way to save with the long term in mind. Each year you can put up to £20,000 into an ISA. You won’t pay any Income Tax on the interest or dividends you receive from an ISA. Any profits you make from investments are also free of Capital Gains Tax.

You have two options when opening an ISA; a Cash ISA or a Stocks and Shares ISA.

A Cash ISA will provide you with interest on your savings. The money held in a Cash ISA is safe, assuming you stay within the limits of the Financial Services Compensation Scheme. However, with low interest rates, it is possible that the value of your money will decrease in real terms. A Stocks and Shares ISA will invest your money. This means you may receive returns that outpace inflation, but you are also at risk of losing your money.

If you’re aged between 18 and 40, the Lifetime ISA is also worth considering. You can still choose between cash and stocks and shares account, but you’ll also benefit from a 25% government bonus. LISA accounts have an annual allowance of £4,000, so paying in the maximum means you’ll receive a £1,000 boost. The drawback here is that you will face a financial penalty if you withdraw the money for purposes other than buying your first home or retirement.

To discuss your current pension forecast and the steps you can take to improve it in the context of your personal situation, please get in touch with us today.

Going to university can be expensive. But not just for the student; parents are expecting to pay out thousands of pounds every year to help their child secure a degree.

Parents anticipate spending £5,721 each year their child is at university, according to research from Lloyds Bank. Over the course of an average three-year degree, it amounts to £17,165. With around half of young people choosing to pursue higher education, it’s an expense many households in the UK could be facing.

Just 10 years ago, the figure would have been enough to cover tuition fees and leave some leftover, that’s now not the case. Current tuition fees are capped at £9,250. With accessible student loans covering tuition fees, many parents are focussed on the other costs associated with university.

The research found:

  • Two-thirds of parents who anticipate sending their child to university expect to support them financially on some level
  • Only 14% of parents do not anticipate helping their child financially while they study
  • 65% of parents believe they will have to provide support with accommodation costs
  • 64% will offer financial help with items essential for study
  • 58% expect to pay some or all tuition fees
  • 52% will help with travel to and from classes
  • 23% are prepared to pay for luxuries

Robin Bullochs of Lloyds Bank said: “The costs associated with going to university can mount up quickly, and often it’s unexpected costs that rack up the bill making it essential to take some time to consider the many expenses that may arise and budget for how these will be afforded.”

The findings suggest parents will face additional outgoings they may not have factored into their budget once teens head to university. Having a fund you’ve been saving into before they go to university can help spread the cost. For families that have more than one child aspiring to achieve a university education, it could be essential.

With this mind, how can you save for the cost of supporting your child through university?

Junior Individual Savings Account (ISA)

Like their adult counterparts, Junior ISAs offer a tax-efficient way to save.

Each tax year you can add up to £4,260 into a Junior ISA. The interest or return made from a Junior ISA is tax-free. Any money you add to an ISA will be locked away until your child turns 18; at this point, it will be converted into an adult ISA and fully accessible to them.

If you’re considering opening a Junior ISA, you have two options: A Cash ISA or Stocks and Shares ISA. Which one is best for you will depend on your attitude to risk and how long you’ll invest for.

Junior Cash ISA: If you choose a Cash ISA, the money you put in is safe and you will get a defined amount of interest. That being said, there is a risk that the money won’t grow as quickly as inflation, meaning it loses value in real terms.

Junior Stocks and Shares ISA: A Stocks and Shares ISA offers you an opportunity to access potentially higher returns by investing. The return you receive will be dependent on the performance of the underlying investments. It is, of course, possible that the value may temporarily decrease at times.

Children’s savings account

There is a range of children’s savings accounts to choose from. Often, these types of accounts will offer you more flexibility, such as being able to make withdrawals. However, depending on the terms, this may come with a penalty, for example, losing the specified interest rate.

Children’s savings accounts can offer competitive interest rates that will allow the money you deposit to keep pace with inflation in real terms.

Some accounts will specify you put in a certain amount each month or limit contributions. As a result, weighing up the pros and cons of each account is important before you make a decision.

Child Trust Fund

If your child was born between 2002 and 2010, they will have a Child Trust Fund.

The now defunct government scheme aimed to help parents build up a savings account for children. Each account benefitted from an initial £250. Some children may have received more as an initial payment and benefitted from a further boost when they turned seven.

If you didn’t open a Child Trust Fund, the government will have automatically opened one in your child’s name. It’s estimated that 1.5 million Child Trust Funds are ‘lost’ or forgotten about. So, it’s worth looking into this and you can track down ‘lost’ accounts here. Once they turn 18, your child will be able to withdraw any money in the account and spend it as they wish.

Even if you haven’t added to the account since it was opened, it can provide a starting point to build future savings on. As the Child Trust Funds initiative has since been shelved, you can transfer the money into a Junior ISA account if you choose.

Bare Trust

A Bare Trust is the simplest form of trust. It’s where a gift is held for the beneficiary, it can be opened by anyone and then managed directly. The child will be entitled to the money, and able to withdraw it, once they turn 18.

There are several benefits to using a Bare Trust:

  • First, the trustee can withdraw money from the Trust before the beneficiary turns 18, so long as it’s to benefit the child. It gives you a level of flexibility that some of the other options don’t have. For example, you could take out money to pay for college or sixth form fees.
  • You can also manage the Trust directly. If you’d like to make specific investments or have a clear risk profile, a Bare Trust might suit your needs.
  • Finally, there’s no contribution limit; you can add as much as you like to a Bare Trust.

As well as the options above, you may also want to consider saving or investing money in your own name. This is a good option if you don’t want your child to have full control and access to the money when they turn 18. It allows you to retain some control over how it’s spent and how quickly.

If you want tailored advice on saving for your child or grandchild, we’re here to support you. Taking your personal circumstances into consideration, we can help you choose the savings vehicle that’s best for you.

More pensioners are choosing to forgo a guaranteed income that comes from an annuity, instead favouring making withdrawals directly from their pension using flexi-access drawdown. While providing more flexibility, the latest data suggests those using drawdown may face financial hardship later in life.

Ensuring that your savings will support you throughout your later years is a critical part of financial planning. Part of this is making sustainable withdrawals from your pension.

Two years ago, the average pension withdrawal rate was 4.7%. The figure now stands at 5.9%, according to figures from the Financial Conduct Authority (FCA). Retirees are increasingly using their Pension Freedoms to achieve the retirement they want. However, steps need to be taken to ensure it can provide a comfortable income throughout later years.

Taking regular payments or lump sums out of a pension means it needs to generate greater returns to maintain value. Once you factor in additional charges of between 1.5-2%, you’re looking at a significant challenge. To ensure the pension maintains value in real terms, you’re likely to need to generate returns of 7-8%.

How much of your pension should you take?

Of course, you expect to use your pension during your retirement years. The challenge is striking the right balance to ensure your savings support you through your entire life. With life expectancy rising and more people needing care, it can be complex.

The first thing to note is there’s no one-size-fits-all figure.

You may have heard of the ‘4% rule’, suggesting that you shouldn’t take more than 4% from your pension annually. However, a realistic, sustainable figure could be lower. A typical 65-year-old would need to take their pension at a flat rate of 3.5% to be sustainable, according to research from the Institute and Faculty of Actuaries.

The figure suggests some pensioners would be better off searching for a competitive annuity product over using drawdown.

Six tips when accessing your pension through drawdown

If you’re considering using drawdown to access your pension, taking a sustainable income should be a core priority. These six tips can help assess the level of income you can afford to take.

1. Factor in life expectancy

When assessing retirement income, your life expectancy is key. Underestimate and you could be left struggling financially. But, on the other hand, you don’t want to be living frugally when it’s not necessary. The average person over 50 underestimates how long they’ll live by up to six years, research from Retirement Advantage revealed. The current life expectancy for a 50-year-old is between 86 and 89.

2. Consider taking a guaranteed income

You don’t have to choose between taking a guaranteed income and drawing cash out when you need it. If you’re concerned about your pension lasting a lifetime, a hybrid approach can work, while still offering you flexibility. Using a portion of your pension to purchase an annuity product that will cover basic costs can give you peace of mind.

3. Pause withdrawals

If you plan to take money from your pension at regular intervals, remember to assess your finances each time. If the money isn’t needed, you’ll typically find it’s better left invested. With low interest rates, it’s likely that any cash you hold will decrease in value in real terms.

Whether you still have money remaining from the last withdrawal or are benefitting from other sources of income, a pause means your pension can continue to grow.

4. Match withdrawals to investment performance

With the above point in mind, it’s possible for invested money to decrease in value too. If your pension has experienced a downturn, leaving it invested for a period to recover can be beneficial. Over the long term, your pension investments should increase. However, it’s likely to see temporary decreases at points too, particularly if you’ve opted for a higher risk strategy.

Matching your withdrawals to investment performance, so you don’t withdraw at the low points, can help maximise the value of both your pension and the amount you’re taking out.

5. Regularly monitor your pension

Those people approaching retirement will often keep a close eye on their pension. Don’t let that good habit go once you’re retired.

Regularly taking the time to review your pension, how it’s performing and assessing how much longer it will last is essential. Should you be taking a level of income that’s unsustainable, it means you’ll be aware sooner, allowing you to take the necessary steps to address it.

6. Seek financial advice

Financial advice and cash flow forecasting are your friends. With the information to understand what your income needs are and how this will affect your pension, you’re in a better position to take a consistent, sustainable level of income throughout your retirement years.

If you want to understand how your pension can support you throughout all your retirement, contact us today. We’ll help you assess how much you can afford to take out of your pension in the context of your retirement goals and other assets.

Despite more millennials relying on the Bank of Mum and Dad, a quarter are worried about not having the right financial knowledge to make the right decisions for them and their children.

As younger generations face financial pressures, more and more are turning to the Bank of Mum and Dad (or even grandparents) to take a step towards financial security. Helping the next generation get a foot on the property ladder, pay off debt, or invest in education is appealing for many parents and grandparents but it’s also fraught with uncertainty and risk.

The Bank of Mum and Dad is playing an increasingly important role in the lives of the millennial generation. Research from Legal & General found that over a quarter of housing transactions are dependent on financial parental support with the total lent during 2018 expected to reach almost £6 billion. On average, parents are contributing £18,000 to a housing deposit, a sum that can be daunting to simply handover if you have no prior financial knowledge or planning.

Despite a reliance on the Bank of Mum and Dad for many millennials, some parents still feel like they’re lacking in the financial knowledge and expertise needed to avoid making potentially costly mistakes. A nationwide survey conducted by Key Advice revealed a desire to learn more:

  • 76% of parents aged 55 and over find gifting rules complicated
  • 24% worry about not having the financial knowledge to make the right decisions
  • 40% want better support for parents that are financially helping children
  • 78% would welcome tax incentives for gifting to children for major life events
  • 26% want to seek professional advice on how to make financial gifts
  • 46% want to seek legal advice but are worried about expenses

It’s not just the parents that are worried either. Almost half (46%) of 18-40-year olds that participated in the survey said they were concerned their parents didn’t have the right level of knowledge or support when acting as the Bank of Mum and Dad.

It’s not surprising that taking on the role of financier is challenging for both parents and children. It can add a new dynamic to relationships and be confusing to unravel the most tax-efficient way of handing the money over.

Six things to know before you act as Bank of Mum and Dad

If you’ve decided to offer financial support, whether the cash will be used to secure a home for your children or clear debt, so they can start the next chapter of their lives, make sure you understand these six tips first:

1. Make sure you can afford it

The decision whether to open the Bank of Mum and Dad is often ruled by the head and the heart. With the heart wanting to help but the head nervous about the long-term financial impact on your own plans.

Understanding how passing a potentially large sum of money to your children will affect your financial future is vital before you make any final decisions. Engaging with a financial planner can show you the long-term impact of making a gift or loan and will confirm the extent of which it will affect your ability to achieve your own goals and aspirations. It may also give your head the confidence to follow your heart.

2. Communication is key

The first thing to make very clear is whether this is a gift or a loan. You’ll also need to set the parameters, for example what the money will be used for, who it will be used by, and whether it’s being made to your child or with their partner. As with any agreement, it’s important for both parties to understand what is expected. If, for example, you’re providing the cash needed for a house deposit that they will share with a partner, will they take steps to protect their money should the relationship end?

3. Use a contract for a loan

If you’re making a loan, having a contract in place to outline repayment terms can be useful. We’re sure you won’t be chasing your children or grandchildren for payments like a bank would, but it’s a good idea to have expectations outlined and recognise that circumstances can change. If the money is being offered on a gift basis, you may still want to outline that you have no right to get the money back. Making the gift or loan more official can help give you both peace of mind.

4. Get the full use out of your IHT annual exemptions

While over three-quarters of parents said they find the gifting rules complicated, the basics are simple. Each year you can gift up to £3,000 which will immediately be outside of your estate for IHT purposes. However, should you gift above this yearly allowance, which is likely if you’re helping your children with their house deposit, and die within the next seven years, the amount above the £3,000 threshold may be liable for Inheritance Tax (IHT). The amount of IHT due will depend on the total amount, your other taxable assets and how long ago it was gifted.

5. You should have a plan for where the money will come from

Once you’ve agreed to gift or lend a sum of money to your children, you’ll need to think about where that money will come from. This will vary depending on what assets you hold. Some parents may find it’s more effective to take money from an ISA, while for others using retirement savings is more efficient. This is an area that a financial planner can help you with.

6. Financial and legal advice doesn’t have to be costly

The survey found that over a quarter of parents wanted to seek financial advice before they gave their child a monetary gift and 46% wanted legal advice. However, the associated costs were putting some off. Seeking specialist expertise doesn’t have to be expensive and it can result in lower overall costs in the long run as well as giving you peace of mind.

When it comes to acting as Bank of Mum and Dad, it’s common for your heart to say you want to help but your head to be unsure and not able to give you the confidence needed to do that. Financial planning will show you how taking a lump sum of money out of your asset base and handing it over to your children or grandchildren will affect your own financial future.

For help planning your finances and projecting short, medium, and long-term income when supporting loved ones, contact us today.

Inheritance Tax has hit a record high and with property prices soaring, now is the time to think about how to minimise the bill your loved ones will be left with.

Talking about what will happen to your wealth when you die isn’t a topic anyone wants to discuss. But it’s an important area to cover if you want to reduce the amount of Inheritance Tax (IHT) that your loved ones will pay.

According to HM Revenue & Customs (HMRC), the IHT collected during the 2017/18 tax year hit record highs. Estimates suggest that HMRC collected more than £5.2 billion from the estates of those that had passed away, an increase of £400 million (8%) when compared to the previous year. The increase in tax received can be attributed to three key factors; the nil-rate band remaining frozen, property prices increasing, and rising stock markets.

Your home is likely to be one of the most valuable assets that you own; and as property prices have risen significantly since the financial recession, you could be underestimating just how much it’s worth.

Research from Zoopla found there are now more than 750,000 homes valued at more than £1 million, accounting for 2.7% of the UK’s housing stock. The data indicated that over the last two years there’s been a 22.9% increase in the number of properties that have crossed the million-pound threshold in valuation. Even if your property isn’t worth £1 million, it has probably risen in value significantly over the last few years, which could mean those that inherit it, along with your other assets, face an expected and unwelcome tax bill.

What is the nil-rate band?

When assessing the IHT your beneficiaries will be required to pay, the first place to start is the nil-rate band.

The current nil-rate band is set at £325,000, the rate it has been at since 2009 and will remain until 2021. This is the amount that your beneficiaries can receive free from tax, but needs to cover your whole estate, including your home, savings, and other assets, although pensions are generally exempt. If you’re leaving your home to your children or grandchildren, including adopted, foster and stepchildren, the newly introduced residence nil-rate band means your threshold can increase to £450,000, so long as your entire estate is worth less than £2 million.

The residence nil-rate band was introduced in April 2017 and is currently set at £125,000, rising by £25,000 until it reaches £175,000 in April 2020.

If your estate’s value exceeds the nil-rate band, your beneficiaries will need to pay 40% IHT tax on everything above this threshold. It’s also important to note that if you’re married or in a civil partnership, you can use each other’s unused allowance. Effectively, this means your children could currently inherit up to £900,000 without having to pay IHT, and up to £1 million after April 2020.

It can be difficult to get your head around the nil-rate bands, so here’s an example:

Michael dies in July 2017 leaving a wife, Emily, and their son, Tom, who is 35. The home that both Michael and Emily lived in is valued at £400,000 at the time of his death, with their combined assets, including savings and investments, totalling £1 million. Everything was jointly owned by both Michael and Emily.

Due to the spousal exemption, ownership of the family home and all the other assets pass to Emily without any IHT being due. As a result, Michael’s nil-rate band and residence nil-rate band are unused.

Three years later, Emily also passes away, leaving her entire estate to her only child, Tom. The value of the home has increased to £600,000, while the total value of the other assets has fallen to £800,000. Therefore, the value of the estate that Tom will inherit is £1.4 million.

Emily’s executors have her standard nil-rate band of £325,00, plus, the residence nil-rate band can also be used on the estate. In addition to this, both Michael’s unused nil-rate band and residence nil-rate band can also be claimed. So, Emily’s estate can benefit from a total of £1 million in nil-rate bands, made up of two standard nil-rate bands, totalling £650,000, and a further £350,000 from two residence nil-rate bands.

After deducting the £1 million in available nil-rate bands, the value of the estate left to Tom is £400,000. This amount is subject to the standard 40% IHT rate, resulting in a liability of £160,000. Due to the nil-rate bands, Tom will inherit a total of £1.24 million, less any other costs associated with administering his mother’s estate.

Three ways you can reduce IHT on your home

If you’re worried about the amount of IHT your beneficiaries will need to pay when you pass on your wealth, there are some steps you can take to reduce the amount paid on your property.

1. Gifting

If you want to share your wealth while you’re still alive and see the financial security your generosity brings in person, gifting can be an attractive option. Whether you choose to sell your home and distribute the excess money or give the property to a loved one, there are two key things to take into consideration.

Firstly, among other exemptions, you’re able to give £3,000 annually, which is immediately outside your estate for IHT purposes. Beyond exemptions, the recipient may need to pay IHT should you die within seven years of the gift being received. The amount of IHT due on gifts made before passing away varies depending on the value of your accumulated assets and when the gift was given.

Secondly, should you gift your home to your family but continue to live in it, it will in all likelihood be considered as part of your estate when you die and as a result IHT may still be due.

2. Gift property and pay rent

We’ve already mentioned that you can’t give your home to your children and continue to live in it as a way to avoid IHT. But there is one way around this. Once the home has been gifted, you can continue to live in the property and pay rent to the new owner, effectively making you a tenant. However, the rent paid will need to be at market value, so you can’t simply give a token amount.

One important thing here to remember is that the rent you’re paying may be viewed as a source of income for the recipient. As a result, they may find that the amount of tax they need to pay now increases, so it may not be the best option for your loved ones even if it suits you.

3. Use a trust

In some cases, a trust can be an effective way to distribute wealth and help reduce IHT. Trusts give you more control over how assets are used, making them a popular choice when beneficiaries are relatively young.

There are several different types of trusts, so taking the time to research the different options available to you is important. It’s strongly advised that you speak to a professional adviser, such as ourselves, before you make a decision.

Get in touch with us to discuss how you can minimise the Inheritance Tax that your beneficiaries will pay on your property and across your entire estate.

Brits who are heading abroad for their retirement have revealed the hotspots that are tempting them; of course, there’s more to think about than just the destination of your new home.

For some approaching retirement, leaving the UK behind for different climes is a dream. Whether it’s the weather, culture or the desire for a change of scenery that’s driving your retirement plans abroad, there’s a lot to think about; starting with the destination.

New research from Retirement Advantage has revealed the hotspots that are tempting British retirees and the motivations behind the life-changing move. Perhaps unsurprisingly given its enviable weather, accessibility from the UK and expat population, Spain was crowned the number one place to settle in retirement. It’s a position Spain has consistently held since 2013 but the survey discovered there are many other countries Brits are opting to head to across Europe and further afield.

The Nation’s nine favourite retirement destinations for 2018 are:

  1. Spain
  2. France
  3. Portugal
  4. Italy
  5. South East Europe
  6. America
  7. New Zealand
  8. Far East
  9. Australia

There are, of course, many reasons to consider enjoying your retirement years outside of the UK. The research found that among the top reasons for considering retiring abroad this year were the prospect of a better lifestyle, a cheaper cost of living and better weather than in the UK. With money and lifestyle key driving factors for many retirees, it’s crucial to accurately assess retirement income and outgoings before making a decision.

You may have calculated that your pension in the UK is enough to provide you with the lifestyle you want; but will this be the same if you were living abroad? To accurately assess your finances before you move abroad there are many things to weigh up, here are five key areas you should consider:

1. Pension income

For most retirees considering moving abroad, there are two types of pension to consider; the UK State Pension and a Workplace Pension or Personal Pension.

Firstly, if you’re eligible for the full UK State Pension, this can be accessed in any country in the world. However, it may be frozen at a certain rate. The State Pension is linked to the cost of living in the UK, but if you’re living abroad you’ll only benefit from these increases if your new home has a reciprocal social security agreement with the UK. So, if you’ve been planning to move to Australia or New Zealand, for example, your pension won’t increase, even if the cost of living does.

If you have a Personal Pension or Workplace Pension, you’ll need to check your personal agreement before moving abroad to understand any restrictions that may be in place.

2. Tax liability

Tax laws vary from country to country, and, in some cases, you may still need to pay UK tax too. It’s essential to get professional advice on what your tax liability would be if you moved to another country, allowing you to understand your income and outgoings. If you’re unsure of whether you will need to pay tax in the UK, HM Revenue and Customers (HMRC) can help.

3. Exchange rates

You’ll also need to account for exchange rates fluctuating. You might receive the same monthly income from your pension, but currency rates may mean the amount you have to spend can be volatile. It’ll also affect the value of other cash you may have, such as those sitting in a savings account. It may work out more effective to withdraw and exchange lump sums rather than taking set amounts at monthly intervals depending on the foreign exchange market and your plans.

4. Cost of living

While the cost of living may be cheaper in some of the top retirement destinations for UK expats, it is still something you should spend some time looking over and delving into specific areas. You may, for example, find that your utility bills are reduced but that your grocery shopping will increase. Taking a look through your current budget and where the bulk of your expenditure goes while in the UK can help you convert this into a cost of living in the new destination with your lifestyle in mind.

5. Healthcare

You’ll want to check the cost of healthcare in the country you’re considering moving to, taking into account any existing medical conditions and potential issues in the future. It’s likely that the healthcare system available in the country you want to retire to will be very different to that offered in the UK, and you may need to pay the full cost of treatments should you need them. If this is the case, healthcare insurance may prove to be a wise decision.

The UK does have healthcare arrangements with some countries, but these can vary significantly. A country-by-country guide is provided by the NHS.

If you’re considering retiring abroad, there’s a lot to think about alongside the excitement of researching the local area that’s captured your attention. Whether you plan to make the move in the next 12 months or are planning a decade in advance, speaking to us can help create a financial plan that will make the most of your assets and income, allowing you to fully enjoy settling into your new home.

Research has found 63% of workers approaching retirement are already planning on working longer than planned. So, do you know how long your pension would last if your retired today?

Financial pressures mean that people are working for longer and often beyond the time they expected. With life expectancy rising, it’s important to assess how long your pension will last for and what income you can expect from it before making any life-changing decisions.

Retiring at the State Pension age, which is slowly rising, means you need to have made provisions to last 20, 30 or even 40 years. The current State Pension is 65 for men and for women it’s gradually increasing to fall in line with this, but the exact date will depend on the year you were born. Changes underway mean that by October 2020 the State Pension will be 66 for both men and women, it’s expected to further rise to 68 by 2037. Of course, if you want to retire sooner, you’ll need to factor this into your retirement planning too.

Partly due to the increase in State Pension age, research has shown that many over-50s are now expecting to work later than planned. Research from Aviva has found that 63% of those approaching retirement already anticipate retiring later than they thought they would 10 years ago.

It’s a change that’s already being reflected in worker demographics. The number of workers aged over 50 has increased by 20% since 2012, and by 2020 it’s expected that a third of the workforce will fall into this age bracket.

While the rising State Pension age is a contributing factor to the number of workers over 50, there are other reasons influencing the decision too. Of those expecting to work for longer, 40% cited the rising cost of living and 38% said they had insufficient retirement savings.

If you’re trying to assess when you can retire, getting to grips with where your pension is at now is essential for calculating how long it will last for.

Assessing your pension and retirement plans

Despite more people working past their planned retirement age, the research revealed there’s a significant lack of support offered by employers. The study of workers aged over 50 found:

  • 9% have access to written literature on financial issues surrounding retirement
  • 11% benefit from free independent financial advice
  • 14% have access to workshops/seminars on retirement finance
  • 3% are offered a list of recommended independent financial advisers (IFA)
  • 6% have a dedicated colleague to talk to about these issues

There’s a clear need for more information too, 44% of older workers said they felt unsupported by their employer. Assessing your pension and how long it will last for can be a daunting prospect. We don’t know how long we’ll live for, making it difficult to know how long your money needs to last. Use your money up too quickly and you risk not having enough later on, on the other hand, you don’t want to be thriftier than you need to be.

However, there are steps you can take to understand how long your pension will support you for.

Working out a baseline for a comfortable retirement

To begin with, you need to work out what level of income you need annually to comfortably retire. This will vary depending on your personal circumstances and what your expectations are. For example, if you expect to have paid off your mortgage before retirement, you can enjoy significantly lower outgoings. In contrast, you may be planning to travel more now that you have more free time, resulting in extra costs.

Industry estimates of how much you should plan for vary but a useful indicator to act as a starting point is around two-thirds of your current salary to maintain your existing lifestyle.

Consider inflation and life expectancy

Once you’ve worked out how much you’d like to receive in retirement income each year, you’ll need to work out how long it should last for. Again, this will vary from person to person, taking into account your health, lifestyle choices, and more. However, most people that are aged 65 today can expect to reach their late 80s or early 90s, with some making it past 100, for younger generations, average life expectancy will be even higher.

On top of this, you need to consider inflation too. What may provide you with a comfortable pension now, might just cover the basics in 20 years when you come to retire. The most recent figures from the Office of National Statistics (ONS) show that 12-month inflation was 2.3% in July 2018.

Using your pension freedoms

Pension freedoms became available in 2015, giving you the option to withdraw a lump sum, with up to 25% being tax-free. It’s can be an appealing prospect and improve your retirement, for example, if you still have a mortgage remaining it can allow you to pay it off and drastically reduce bills. Alternatively, it could be used to fund a one-off purchase or experience, such as a trip of a lifetime now you’re no longer tied to work.

If you’ve been planning on taking advantage of your pension freedoms, you’ll need to account for this when working out your retirement income once the lump sum has been used.

Determine income from guaranteed sources

Many people will have more than one source of income in retirement. Focusing on those that are guaranteed, go through them and determine what the annual income generated will be. This could include the State Pension, multiple Workplace Pensions, and a private pension you’ve been adding to over the years. This gives you the basis to work out how your guaranteed income sources align with the figure you’ve determined is needed for a comfortable retirement.

Speak to a financial adviser

Speaking to a financial adviser or planner can help you understand where your pension is now, what your expectations are and how to ensure the two match up. Contact us to discuss your current retirement planning and provisions to see how they match your post-retirement plans.

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